the adjustments to entitlement and, yes, revenue. that to me, i would like the goal of balancing in ten years. because that would take us a long way in the direction to getting to a debt to gdp that is sustainable. your recommendation to us? >> first of all, senator, i think that the u.s. government is lulled into a false sense of security by the level of -- how low interest rates are on our debt. >> right now. >> right now. >> it's driven by base cle three factors. one, the mess in europe. there's no other place for international vvs tor investorse their funds. two, the dollar is the reserve currency so foreigners are forced to buy huge amounts of our treasuries. and finally, the federal reserve is buying so many of them themselves. you have very few private investors in the united states buying treasuries.

i think going back, what is lacking in this country from a government policy standpoint is a simple program that answers five questions. those questions are, what are you trying to do, how are you going to do it, why is it going to work, how much is it going to cost, and where are you going to get the money? no, congress hasn't answered that question. the administration has not answered that question. the markets are waiting for an answer to that question. it's been the role of expectations in how people in the economy financial markets work. if there was an answer to that question, the markets would immediately take that expectation of future stability and give us stability today.

and until we answer those questions, any stability will be short lived. >> thank you. senator johnson is recognized for an equivalent amount of time as i just consumed. >> i will be quick because your line of questioning covered an awful lot of what i wanted to talk about. >> we're obviously talking b about structural reform here. we've talking about the book "this time it's different." the question as i was reading that book that popped into my brain. they by and large deflated their currency and devalued their debt. our debt is structural in terms of entitlements. you know, our liabilities that are tied to inflation. i just kind of want to -- from my standpoint, i'm going, we can't really inflate our way out of this debt. that's the question i'm asking. are we in a bigger pickle than

past nations. you're shaking your head. i'll go to you first. >> i was nodding my head actually. we're certainly in a big pickle, there's no question about that.. there is no question about that. and i like to point that you can't inflate your way out of some of the liabilities. you can try to inflate your way out of some of the debt obligations. but our debt maturity is pretty short, about four years. in the uk it's 14 years. the uk has much more incentive to inflate in the classic reinhart way than we do. and ultimately we need to look at the liabilities and the revenues that we're willing to raise to back those. and clearly there is an imbalance. we have a huge advantage potentially relative to other countries, countries in the reinhart and rogoff book.

we have a credit line unsurpassed by anything any country has ever had. and we earned that credit line. however, we are in the process of wasting that credit line. we're not investing in productive assets. we're not upgrading our education system. we're not boosting growth in other ways you might prefer to boost it. we're just spending that, borrowing to finance consumption in excess of our income. and that will absolutely end badly. the pickle we're in could very well end up being a very large one and maybe bigger than what other countries have had. we have an opportunity to fix it, an opportunity that the europeans don't have right now. the europeans are in a different place from us and a much, much tougher place. and we should take that as a cautionary tale and use that to fix our own budget today. so i think we're all on the same page with regard to your general point, senator. >> you touched on my next point i wanted to ask, was about the reserve currency. i know that some countries are talking about maybe a basket of currencies. how long do we have? i realize you can't really answer that.

is there really a concerted effort to move away from the u.s. dollar? >> i wrote a book on that a long time ago, try to keep close to it. it's critical to remember that the reserve currency role is a two-edged sword. it buys us more time as colleagues have said, but that also means we tend not to have the pressure that we need to adjust. so even in sort of fundamental terms is it a good thing in the national interest, it's ambiguous. but once the worm does turn, as it inevitably does as we all think, then it can be huge, huge sword of damocles. there are about $25 trillion of foreign held dollars floating around the world economy. that's the sum of the accumulation over the years that let us run the deficits that we're talking about. but we used to call that a dollar overhang, which implies, correctly, that it could come cascading down.

and so if the worm turned and the markets began to look askance at what we're doing, then the great reserve currency role of the dollar provides traditional huge ammunition to intensify the pressure on us as people around the world sell those dollars that they've accumulated over the past decades. now, whether that happens depends on two things. a, is there an alternative to the dollar. in underlying structural terms, the euro certainly is. it's a bigger economy, it has deep financial markets. it meets ought the criteria. if they do get their house in order, two or three years out, they certainly could be. and comes china, which is going to be the biggest economy, is going to have by far the world's largest trade and foreign investment flows. once they decide to move off capital controls and make their currency convertible, that's another alternative. so we're headed toward at least a three-part global monetary

system called a multiple currency system, dollar, and euro, and rmb over different time periods. but if we're thinking even five years, certainly the euro is in the picture. if we think ten, the rmb is probably in it too. so the nonalternative that adam rightly pointed to now does become very different. so even in an annual flow sense, people are not going to be compelled to put their money in dollars at the extent the reserve currency role is an asset, as it certainly is in a short run, that too will be fading. and then as i say, if the worm turns, it could become a huge liability. i would never rely very much on that one to deal with the sustainability of our situation over any reasonable period of time. >> senator, i think i spent five years in argentina on their debt restructuring. every argentine schoolchild nose because the ones that don't know

this have been killed off by darwinian survival. every argentine schoolchild knows there are only three solutions. you write down the debt, you raise the surplus to pay the debt, or you inflate the debt away. there are no other solutions. we have learned that after 200 years. the question of the reserve currency, you asked the question should there be a basket as an alternative. or could there be. talking a basket. every in the person in the world can create their own reserve basket. if you think you like a basket of reserves that is 20% yen and 10% -- 40% euros and 30% dollars and throw in some brazilian real, you can create that yourself. central banks do that all the time. the idea of creating a, quote, official reserve currency basket, such as the sdr was supposed to be, that's a very inefficient outcome because that's saying we've decided what

the optimal basket is. we've set the weights, the percentage of each currency. well, i may like those weights. fred may think i don't like those weights. i want a different basket. and simon may say i want a third basket. the markets can create their own market there is no purpose to creating a basket currency today. finally, as pretty pointed out, the reserve currency can change very quickly. what has held us up and what has taken the pressure off the u.s. government to actually make the decisions it should have made years ago is because there has been no viability alternative. the euro was a viable alternative. it now isn't for the moment. but as fred said, if they over the next three years, as i believe they do actually put in place a stable system, then it will be. and you'll see massive flows. and the only thing that will surprise you more than the flows will be the speed with which it will take place.

>> beg indulgence for one more question. >> absolutely. >> this is about taxes and effect on growth. during my lifetime, the highest marginal tax rate has been 90%, 70%, 50, 28, 31, 35, 39.6, 35. for the last 50 years, prior to 2008, the average amount of revenue generated or extracted from the economy has been 18.1%. and the variation has been really pretty tight around that mean. it goes up too much you end up with a recession. i'm not sure what the cause. but just looking at the data, very tight around that 18.1%. i'm not sure what causes that. i realize tax policy drives it. and when you have high marginal rates you have all kinds of deductions. but i have a suspicion as well that just like with capital gains taxes, when you raise them higher, people expose less of their income to that capital gains tax. so i am highly concerned if we raise taxes, we're going to harm the economic growth. and i really do sincerely

believe the number one solution is economic growth. so if you could sort of speak to the effect of marginal tax rates, the ability of the united states government really to extract much more than that 50-year average over any kind of long period of time, and really speak to increasing tax rates basically to try to drive more revenue. i know that's kind of a big subject. in 30 seconds or less. >> that's a huge and terrific subject, senator. and again, i take this on in the new book that is coming. i think you and i may disagree on how to read the evidence and the ability at the federal level to raise revenue. i take your point, though. there is absolutely right there has been a stability around federal revenues for a long time prior to the crisis. and we should reflect on that. of course, there isn't stability to our future medical costs. and that's the big collision if you look over a 20 or 30-year time profile. if you are really going to cap federal revenue at 18 or 19%, that has major consequences for

what you are able to pay in terms of the health care costs of elderly americans. and i think we should have that conversation. i would go on the side of covering more of those health care costs, personally. we should also control the costs obviously. but those are tough to control. and demographic change and technological changes mean the costs are going to increase. and the cbo, by the way, relative to the european commission is very honest about what the costs are going to be. the europeans not so much. at least that's on the table. but i would go a little bit more towards allowing revenue to increase. and i think there is ways to do that over the medium term, taking the senator's point about dangers of precipitous austerity. but i think we can do that without damaging growth. i think we can actually do that in a way that is pro-growth and quite reasonable. i don't expect that you and i will agree on that in the end, senator. i think that's fine. now is a good year to have that discussion and to get these issues out in the open, and to show people what is the menu. in our book we lay out a menu of options. and we give you a house

recommendation from the menu. but you can also pick whatever you want off the menu as long as you get on to what all of today have agreed on is a path to fiscal sustainability and a debt level that is under control. >> anybody want to agree with me? >> partly. two one-sentence responses. one, i think it is more important to get the overall budget into sustainable ambulance th balance than it is to avoid an increase in government revenue shares of the economy. point two, i think we can get a contribution to that outcome with higher government revenues without raising marginal tax rates, which you stress. getting rid of a lot of tax expenditures and finding a lot of base-broadening to go along with maintaining or even possibly cutting like in the corporate case some of the tax rates. so i think there is a perfectly doable package here that

addresses at least what seem to be your main concern, marginal rates at the same time increasing revenues as part of an overall budget package, which to me is the most important priority. >> senator, i think your concern about tax rates is very well focused. i think two things. one, we're going to have to pay for what we've wasted over the last 30 years. your charts showed our debt has gone up, our deficit has gone up. someone has to pay for that. right? it was a mistake. we all agree we shouldn't have done it. but we have to now pay for it. that is going to require a rise in tax revenue. not in tax rates, but fred is absolutely right. and the fact of the matter is if you raise marginal tax rates, especially on high income people, you're not going to generate the revenue first a question of how much more revenue you'll generate. and you'll certainly not generate anywhere near the amount of revenue you need to

close the gaps significantly. how do you broaden the tax base? and how do you broaden the tax base without affecting economic growth, or minimal impact on economic growth. and that is the key issue. raising marginal tax rates can be politically attractive. it can be politically popular. in this country, 50% of u.s. voters don't pay any federal income tax. 60% receive more from the government than they pay in income taxes. so raising taxes on the remaining highest 20 or 30% can be politically expeditious. but i think you have to any meaningful reduction of the deficit is broadening the tax base. raising tax rates will not help it. >> even people don't pay what is called federal income tax, they pay payroll tax. it's historical that we make this distinction. most countries don't make that distinction. you're funding social security. you're funding medicare out of the payroll taxes. that is an important federal tax

obligation that most voters actually do pay. >> i would raise one quick point on that. i view medicare and payroll taxes, those are pension funds. and health care costs, those are not taxes to pay for general government expenditure. >> i agree. >> let me just make this point. this is where we have a disagreement. when i look back at the five years we've balanced the budget in the last 30 ea to 20% of gdp. 19.7 one year. 19.8, 20.6. so the years we've actually balanced the budget, tax revenue has not been 18.1. it has been close to 20% of gdp. we have the additional problem of the demographics of the country changing. an aging population. so my personal belief is we've got to be in the high 19 percent

of gdp range to get a package. i agree entirely the way to do that is not raising marginal tax rates. and, you know, if you look at somebody like martin feldstein, pretty credible conservative. he says don't raise marginal tax rates, broaden the base, reduce and in some cases eliminate tax expenditures. i don't want to put words in his mouth. he says you ought to focus like a laser on tax expenditures because it is just spend big a different name. and some of these tax expenditures now are running $1.1 trillion a year in tax expenditures. we're spending more money through the tax code than we are through all the appropriated accounts. and it gets almost no attention. i'm on the finance committee. and i can tell you it is -- we do not pay -- we pay much less attention to expenditures

through the tax code than we do through the appropriated accounts. now i don't for a minute suggest that means we don't have to cut the appropriated accounts. and we certainly have to have as part of any serious package a focus on entitlements, because, you know, 30 years ago, the share of our budget going for mandatory spending was the smallest share. the biggest share was the appropriated accounts. now it's flipped. we're over 60% the mandatory accounts, social security, medicare, the discretionary accounts are now the smaller share. >> it's one of my charts. >> yes. and it is strange the way we operate around here because when we look at a solution, nobody wants to kind of talk about the elephant in the room. nobody wants to talk about the entitlements. we want to focus on discretionary spending, which i

would argue is much less the problem. but, you know, we all understand politics. >> i just want to add one caution in terms of percentage of gdp and revenue during boom times that is when your percentage of revenue is going to increase. and obviously in tough economic times, it goes down 15%. so it isn't necessarily ambulanced to our budget because we raise increase taxes to the level, it's because the economy was booming and allowed that much revenue to be extracted from the economy. again, it's all subject to debate. but that would be my caution. >> here we are in a situation in which our spending right now is over 24% of gdp. our revenue is between 14 and 15% of gdp. so spending as a share of the economy is at or near a 60-year high. revenue is at or near a 60-year low. no wonder we've got record

deficits. and really, i don't know which one of you mentioned. i think maybe it was you, dr. lerrick. if you look at the ten-year outlook here, i think on a realistic basis, we're looking at trillion deficits as far as the eye can see. you said that, dr. bergsten. okay. i always like to attribute to it the right place. thank you all. i know we committed to ending at noon. somebody's got to make a plane. but we appreciate very, very much the testimony. i think this has been an outstanding hearing. >> thank you very much. >> federal reserve chairman ben bernanke will be on capitol hill

tomorrow morning to talk about the health of the u.s. economy. he is also expected to be asked about inflation and economic growth. live coverage at 10:00 a.m. eastern here on c-span 3. u.s. manufacturing continued to grow in the month of january. up next, a conversation with ohio congressman tim ryan about manufacturing jobs and the economy. and then house and senate republicans talk to reporters about the federal budget. congressman tim ryan joined us on washington journal to talk about u.s. manufacturing jobs. this is 40 minutes. >> congressman tim ryan, a member of the house budget committee, and also the co-chair of the congressional manufacturing caucus. thank you for being here. we'll get to manufacturing and the economy. but i want to begin with overall

look of the economy released yesterday by the congressional budget office on deficits. and this is "the wall street journal" editorial page this morning. $5 trillion in change is what they say. all of this has increased the federal debt by nearly $5 trillion in merely four years. the federal deficit will decline to 1.08 trillion in 2012 or 7% of gdp. but that is still the highest deficit since 1946. except for the three previous years. in other words, the four years of obama's presidency will mark the four highest years in spending and deficits as a share of the economy since harry truman sat in the oval office. what's your reaction? >> well, i love how they try to blame obama. these numbers are the result of economic policies and deregulation policies of wall street that allowed the housing market to get out of control. we all know how the story ended in 2008. and the stimulus bill and other things that have been done,

reduction in revenue when you have 10 and 15% unemployment in some major cities in the united states, reduced revenue, bad economy, a stimulus bill needed to plug that hole. you they'd up, and that's where we are. but to try to somehow blame obama for all this is just -- it's politics coming out of the "wall street journal" editorial page. >> not surprisingly, they disagree with you on their take of how this happened. this is what they say. it has two main causes. first, the anemic recovery in jobs isn't spinning off enough outgrowth to boost tax receipts anywhere near the historic level. second, a series of nonstimulus tax cuts, tax rebates in 2008 and 2009 and payroll tax holidays in twlefnt and this year have depleted the treasury with little economic benefit. these tax cuts don't change the incentive at the margin to work or invest and thus have little feedback in revenues from faster growth.

>> that's a complete distortion. i can't believe a newspaper like "the wall street journal" can credibly say things like that. to say that the stimulus bill and the reduction in the payroll taxes had no effect. has it had as much of an effect as we want it to? no, of course not. i represent youngstown, ohio. but it has plugged the hole. my opinion from day one along with many others is that the stimulus package wasn't big enough. to get one republican vote we had to do $300 million, fix the amt and do tax cuts to get one republican vote in the senate. so there wasn't enough money pumped into the economy. and i know that's an unpopular thing to say in some quarters. but it is economics. it is based on what happened during world war ii and what we needed to do. so the fact that these numbers are parallel to what happened after the great depression, and you're talking about truman, well, it took a while for us to get out of that. so we've got to continue these

policies, continue to cut the payroll taxes for next year. and allow that money to get back into the economy. but we also need, not to get on a complete rant here, but we also need long-term systemic changes for the economy. and i think president obama hit the nail on the head at the state of the union. community college, get kids back to work, more engineers, more investment in research and development, the sciences, nih, national science foundation, jump-starting the economy with a new green revolution. this is the way out. and we've stopped investing in the united states. stopped investing in infrastructure, stopped investing in research and development, stopped investing in education. and we are where we are because of those disinvestmentses over the past ten years or so. >> let me go back to "the wall street journal." they say even the keynesians who run the cbo concede that the 2013 tax hike on capital gains dividends, estates and small

businesses would knock economic growth down to 1% next year and raise unemployment to 9.1% from 8.5. that means about 750,000 more jobless americans. you can't have such a lousy economy and cut the deficit in half. so in other words, would you be in favor of continuing the tax cuts that are in place in order to not damage the economy? >> well, not for the high-end folks. i think the buffett rule and what the president is promoting with that, i think should happen. you know, folks have been doing very, very well. and it's -- the way the current system is set up is inhumane. what we have going on in our country right now, and it's time we stop and just say it. it's inhuman what's happening, what some families have to go through in the united states of america in some of our major cities and some of our rural areas. and to think that somehow warren buffett or some of these others can't contribute a little bit more in order to help us pay down the deficit.

i have republicans in my district who don't pay that close of attention to the daily workings of congress say why don't you guys just raise taxes on those who make more than a million dollars a year. and i say that's exactly what we're trying to do. but you have "the wall street journal" editorial page, and you have the right wing caucus of the tea party folks in the house aren't for any of that. not even asking millionaires to pay more. and when you have that big of a chasm between what practical, responsible, reasonable approaches are, versus ideology, when you have that big of a chasm, it becomes difficult to find some common ground. >> the tax discussion brings us to the manufacturing agenda that president obama laid out in the state of the union address. he talked about a minimum tax for multinational companies. here is a piece that was put in the "washington post" talking about howard glickman's take on this tax. he says the multinational's minimum tax would be entirely

unworkable. even if congress passed the levee, which it won't, those firms would find ways around it. minimum taxes are band-aids for a flawed tax system. the solution is not to create a new penalty for firms, goes on to say, that learn to manipulate the law. it's to fix the basic law in the first place. >> i think we do need complete tax reform, and it needs to be done in a comprehensive way. but clearly there is no partners. i think president obama wants to sit down and do this. but he doesn't have any partners in congress. and i think we look, go back to the debt ceiling discussion where him and speaker boehner, the president and speaker boehner had a deal worked out for long-term deficit reduction. speaker boehner broughtto the t house and got the kibosh put it on it. so it's hard to say oh, don't do this or don't do that. we need comprehensive reform. but if you only have the president of the united states being the only responsible adult in the room trying to get some of this stuff done, it becomes very, very difficult. but this is the thing.

you have these folks who will jump and talk about, you know, the food stamp president and -- but oh, god, we couldn't possibly do anything revenues f wealthiest folks in our country. not even the top 1%. sometimes it's the top .1%. >> do you agree the multinational minimum tax is completely unrealistic? it's not going to happen? >> it's probably not going to happen politically. but i think it is a good thing for the president to continue to push because it draws that line in the sand and it makes the republicans continue to do what they've been doing, and that's defend wall street and defend the top 1%. i hate to say that, because we're all in the 100%. any way we slice it, we're all in this together. and having this chasm between the wealthiest and the middle class and the poor is not healthy for our democracy. but at the end of the day, i think it's important for voters to know who is asking