guaranteed loser. we already know the revenue maximizing rate for capital gains is less than 15%. with dividends, we already have them double taxed, first at the corporate level, then at the individual level. you can't increase that much. anyway, there's basically no way you can get to that 30% without absolutely killing the economy. but the left, you know, the media, oh, isn't this wonderful, we will tax all these millionaires at 30% without thinking how are you going to do that. one very nice thing about being very rich is one reason i keep striving to be very rich, i haven't accomplished the full goal but i keep trying, is you have great discretion of how you take your income, where you take your income and if you get fed up, you can leave. a lot of people leave. actually, we have a huge rise in americans giving up their citizenships. i'm not advocating that. i'm advocating we stay here and fight.

but this has happened. it's a new phenomenon in our nation's history and it's telling us something. well, we've got this huge dilemma. our gross federal debt, $15 trillion, about the same size as our gdp. the net debt that's owned by the public is about 70% of our gdp. but the big problem, even the bigger problem, is all these entitlements. again, these lights, i'm trying to see out there, oh, a few of you look like you're over 65. maybe two or three of you out there. well, the whole idea of getting social security and medicare, if you cost that out for everybody who's alive today, that liability comes to $121 trillion, not billion, not million, but trillion. now, i think everybody here went through the fifth grade. you probably learned basic arithmetic. you just do the math. this is not ideology, just

common sense, just basic math. you can't get there doing what we're now doing. so the question is what's going to happen here in the u.s. well, we've got lessons from around the world. we look at greece. greece has refused to make the necessary changes. they're sort of halfway being forced into it now. they really haven't had the big layoffs yet or real cut-backs yet. it's going to have to come. but the standard of living of the average greek is going to go down very, very sharply. but we go back to 1995 and look at what other countries did who were in trouble. let me back up for one second. about a year ago, when all this was boiling up, one of my colleagues and i decided to take a look at all the major countries around the world, developed democracies, basically, and say which countries are not in deep fiscal trouble. it really came only a handful of

countries. in europe, you had norway which has all the oil. you had sweden and switzerland which are both in good shape. in latin america, it was chile was in good shape. in asia, australia's in pretty good shape, new zealand's sort of so-so. taiwan is in good shape and south korea. that's about it. virtually every other country in the world has a debt bomb which is going to explode unless they make changes. mentioned sweden. most people think of swedes of course as the welfare state, the so-called third way, semi-socialist, and that was true. from 1870 to 1970, the swedish economy grew very rapidly. they were a very free market economy, then they started to bring in all the socialist nonsense and they had reached

their peak about 1970 when they had the world's fourth highest per capita income. then they started slipping down, down they went. by 1995, they could see the handwriting on the wall. they had incurred lots of debt, unemployment was rising, the economy was stagnating, so the parties on both the left and right came together in sweden and they began to reverse course. they reduced the size of government which continues to this day. they reduced the high tax rates, they have gone to a pretty much flat type of income tax system. they went to a school voucher program. in sweden of all places, every swedish parent now gets a voucher and you can take that voucher if you're a swedish parent and take your son or daughter to any public or private school. great deal of school competition and as you expect, the performance has greatly increased. they went to the chilean type of pension system, that is like a 401(k), defined contribution

rather than defined benefit. about 30 countries have gone to that. it works. it works forever. the way your 401(k) can. so sweden reversed course and has had very high growth the last few years. it shows it can be done. just to our north here, canada was not in quite as bad shape as sweden in 1995 but canada had been slipping, relatively poor compared to the u.s., incurring lots of debt, and the canadians began to reverse course, began to downsize government, reducing taxes. now their corporate tax in canada, 15% federal corporate tax rate in canada. ours is 35%. you're going to open a company, you have a choice between buffalo and toronto, you been to buffalo? been to toronto? easy choice. it's not buffalo. and the canadians have been

performing relatively well, and they've still got problems. they have their national health program which couldn't be sustained if most canadians did not live within 100 miles of the u.s. border. but the point is, it shows that you can reverse course. but we're really running out of time. we're talking about months, not years. i'm not sure that we have to the end of the year. with our presidential candidates, when i say our, i'm assuming virtually everybody here is republican, all you obama supporters put up your hands, please? i can't see that well but i don't think there's too many out there. but among the four we have, they have all attacked the fed in one way or another. ron paul wants obama to put in a gold standard. the other three have said they want to get rid of bernanke. which is a good idea. but then what?

they haven't said who they want to replace him with or how to. well, we do have a real problem with the fed. and i would also replace bernanke but there's a more fundamental problem that we have given the fed tasks that are in some ways contradictory. when it was first set up in 1913 it was supposed to preserve the value of the currency and protect the banking system. they were having a number of bank failures. then they added on maintain full employment and then with dodd-frank, they have come up and said they are also supposed to do consumer protection. these are four targets and reminds me a little bit of a fellow who is asked to enter the olympics, you know. you've got a good college runner here, you say you would be doing

great in the sprints, why don't you take the 100 yard meter into the olympics. fellow signs up for it, then the government comes in and says well, since you're doing the 100 yard meter and you do that reasonably well, we also want you to compete in the weight lifting competition and the high dive. how would you train? this is a little bit the fed has. you've got multiple tasks and maintaining price stability and maintaining full employment are often at odds with each other during the stages of the business cycle so what should we do about the fed? going to the idea of a gold standard is better than high rates of inflation but it's not a panacea. there are problems with gold. hayak wrote a book back in 1976 called "denationalization of money" basically arguing for

competitive currencies, looking at money like any other good or service you provide. and argued that if individuals were out there, companies could go out there and freely compete, you would end up with the best money, who would better come up with good money, barney frank or steve jobs. we all know the answer. we do have a problem in that the constitution gives the power to congress to coin money and set the value thereof. but it does not give the government a monopoly right. basically what it does is specify the government has to come up with definitions for payment of goods and services, the government, and collection of taxes. so you have to have a standard,

we call it legal tender by which is the fallback and by which you pay your taxes and by which the government puts out its money but that doesn't preclude private entrepreneurs with coming up with money except we've got two things. the treasury has come up with a very expansive definition and people have tried to come up with alternatives like doug jackson came up with e-gold, they shut him down claiming that a number of the people used it for money laundering or porno or whatever, and they indicted jackson. he he had to pay a fine but at least was able to stay out of prison. there's a lot going on with digital money now. i actually wrote a book on this. i think this will come along, but even if you wanted to set up gold right now, say all of you here wanted to set up a private gold standard, you're allowed to

make contracts in each other in gold. if shari, for instance, had been kind rather than looking at me as a free good and said richard, i'm going to pay you thousands of dollars to speak to our group or you can get paid in gold, she should have given me that option. she gave me neither option and said you will be here and do it for nothing. but that's the way it goes with friends. but the problem is, say now bob and i want to go here and make a transaction, say you have the picture of water there, he owns it, he want a glass of water, we can contract in gold. i'll give you so many grams of gold for a glass of water. that's legal to do. the problem is the irs would tax bob and me on the capital gain from the gold. say you had this gold in your

pocket and whatever price you bought that gold on and whatever the price was deemed to be, there would be a capital gain or loss and you're supposed to report that. for every transaction. and all of you are out there hoarding gold and you want to get in gold transactions, when the end comes, there's still the tax man with the capital gains and it's going to be very interesting to see what happens. a lot of people just don't pay capital gains tax on it but the irs could go after you. good old government. good old denying government. we think about democracy, it was set up essentially, the whole idea of government was set up to protect the people. first of all to protect our liberties and secondly, to protect our person and property. now does the government really protect your liberties? takes them away day in and day out with more and more regulations, even speech codes

and everything else, and it surely doesn't protect your property. it steals your property. if government spent the money wisely, but every time we have a government expenditure that doesn't get a cost benefit test, it's really a way of theft. think of it this way. say you're walking down a dark alley some night here in the broadmoor. bob comes up to you with his glock, he puts it in the back of your back and says i w give me your wallet, and i'm going to take 30% of that money and use it for good purposes and the rest, i'm going to spend on wine, women or song or whatever you like to do. how would you feel about that transaction? you would probably think that's not a good deal. so government does take some of your money and does use it for purposes that it was intended, that are constitutional, but a great deal, they don't.

and how is that any different than the stick-up artist taking away most of your money, even though he takes some of it and gives it to the salvation army. we start thinking in those kind of terms and we come to various different conclusions on it. our presidential candidates, as one who has advised presidential candidates here in the past and done it in other countries, you know, i look at it and say well, how would i do this, how would i write the program and so forth. we start off with ron paul and again, wants to get rid of the fed, go to the gold standard. i think it's a bit simplistic and more difficult than he dosi government, i like, and getting back within the constitution, getting rid of the department of education, a number of those things have a lot of merit. his foreign policy views, in my judgment, are a bit extreme and it's because he hasn't spent as much time around the world as i

have. i know there's people out there who really do want to kill us and i prefer to have the guns rather than them. and i'm for a strong national defense. but even with that, it's also true that we've got -- we're spending a lot of money in defense we don't need to. when we spend as much as all the rest of the world nations combined, that's probably too much. i speak a lot of military bases and i was recently down in huntsville arsenal in alabama. and i was having lunch with some of the senior officers there and there was several colonels and majors who were in from one of our bases in italy, and i said we still have bases in italy? and they said yes, we have four bases in italy. i said what is the mission? and not one of them knew and

they all agreed it was superfluous. we have troops in 100, 150 countries, some huge number, we're really out there in a number of places we don't need to be and you don't have to go as far as ron paul to realize there is -- we have extended i think the military far beyond what we need for basic national security and probably for our own good. with the other candidates, newt is the one i know best. i've known newt fairly well for 30 years. back when he first set up the conservative opportunity society in the middle 1980s, he kept getting various people to coordinate it and for some number of months, i was selected as a coordinator. the reason none of us last is because we were supposed to manage newt and what we had, this was before newt was famous

and he was just sort of a loud back venture and we had a little group and again, none of these guys were well known at this point. jon kyl, dick army, tom delay, i was sort of the resident economist among the lot. before our wednesday luncheon meetings, my assistant would call around, get everybody's agenda items, we would put together the agenda of who wanted to bring up what, then newt would walk in and he would come in with 12 items that were not on the agenda insisting his go first. nine of them were crazy ideas, two had some merit and one was brilliant. most people can't come up with a brilliant idea in their lifetimes let alone several a week but there was also all the junk and he had trouble differentiating which was the most important. i say that having a lot of personal affection for newt, even though i think there would be big problems as president. with his second wife, mary ann,

who i knew quite well, my wife at the time and newt and i would occasionally have dinner, and we would have these good discussions, and -- but newt would end up doing sort of off the wall things. he's written a lot of books and my son by my wife at the time, peggy noonan, my son has got his mother's writing talent and he's only 24 years old, and he's now a senior political reporter for "the daily caller" so like these young reporters, he's known newt since he was born, basically, and he was looking back and thought he would have a little fun. he looked at one of newt's books written back in 1996, just about the time he became a speaker. i think it was called "resource

for america" or one of those books. there was a whole passage about how he wanted to start the moon colonies and he wanted a jurassic park setup. it could probably at some points be technically possible but newt wanted to do this. he was also talking about space honeymoons and he got in a little discussion about the advantages of having honeymoons in space under a weightless condition and you could see where his imagination was going. that is my son put in the story, the end was -- the book was dedicated to mary ann, his second wife, who made all that, he said, to mary ann, who made all this possible. of course, by that time, he was already in his third year of his affair with calista, his current wife. but you know, i'm open-minded and if newt just could stay

focused not only on his personal life but the policy life, he would have great potential as president. but we need somebody, as a friend of mine said, to have newt as president, we would need an austrian economist chained to him at all times to tell him whether it was a good idea or a bad idea. then we get into rick santorum. i don't know santorum. i think i met him a couple times. he scares my libertarian friends because at times he seems rather intolerant and i don't know how he would be, but his idea, his tax plan to have zero tax on manufacturing and have a higher tax on everybody else is nonsense. first of all, in the modern world, it's very hard to define what manufacturing is and isn't. at one point, it used to be fairly clear. but you can rest assured that every company in the world would

also become a manufacturing plant regardless of what they did, and it's just not a good way. also, there's this whole myth out here that manufacturing's far worse off than the rest of the economy. just isn't so. manufacturing employment is down. it's been falling for 100 years as a percentage of our gdp. you go to manufacturers now, there's robots there. which is good. if you ever worked in a manufacturing plant, probably wasn't a whole lot of fun and if you can have robots do things people can do, let's have the robots do them. people ought to be used for their brains, not to move things around. manufacturing has actually made a bit of a comeback in the u.s. it hasn't really declined as a share of our gdp. people are just doing other things. it gets confusion about that. we're not being hollowed out as a manufacturer. the u.s. is still the world's by far and away the biggest manufacturer. we do more stuff better than anybody else in the world and there was this myth because the

old steel mills and things are in decay in places like illinois and michigan and buffalo and so forth, but i'm from the american south and if you go to places like tennessee and alabama and south carolina, there's all these new auto factories and marvelous things going on. that's the problem with the santorum program. i had done an article beginning of, what's today, friday? saturday, beginning of the week criticizing each of the economic platforms for all of our candidates. friendly criticism. and i said romney's was the worst. i came out with that on tuesday. on wednesday, they came around with a whole new plan. i take full credit for that. they had six hours to read my article and decided they must get their team together and revamp it so now actually romney's got a pretty good plan. it's not perfect, but it is good

as the others. newt's plan, with art and peter basically crafted, it's a good plan. it really reduces taxes but will also, even though i'm a supply sider and believe in economic feedback, it would leave a huge hole in the budget. for newt to be responsible, he has to talk about, at least in my view, he should talk about what he's going to reduce in the budget to bring down the level of tax revenues. he's got this great line, oh, yes, my plan will bring in less tax revenue but we're going to make government equal to the size of the revenue, not the other way around. it's a great line. but he was the one who criticized paul ryan when paul ryan had a serious thing to begin to adjust the entitlements so it's part of the reason i don't fully trust newt on all this. romney also needs to be much more specific about spending. they're all afraid of it but i again go back to 1988, and a

couple of you are old enough to remember that presidential campaign, and george bush senior had two things people can remember. no new taxes, read my lips, no new taxes, which was written by my former wife, and in my living room in great falls, virginia i thought about putting up a little plaque and saying this is where it started and where it was abandoned. and the second thing was the flexible freeze. but mike and i put all this together. it was a sensible program. he got elected on it. within three months of getting elected, he abandoned it. we had a meeting up in camp david in april '89 and already, they were off the track. so this is another warning i have for all of you. of course, you have been around politicians, you know they can't really be trusted and i remember being naive at the time and people warning me, said richard, he's not going to actually do this, the stuff you and mike came up with. in fact, one time i said to him

when he was running for vice president, he had us over for dinner and just sitting there with bush, and i said mr. vice president, are you comfortable with the things we're writing for you. he said oh, yeah, richard, great stuff, keep it up. of course, he was going up in the polls. but unlike reagan, he never really felt it. reagan knew what he really wanted and there was a great difference between the two. anyway, so with each of our candidates, they have some flaws. in some cases, major flaws. but any one of them would be so far in every possible way better than what we have now. i will enthusiastically support whoever gets the nomination and i'm clearly -- i will work hard for them. i touched on a number of things. i'm happy to talk about anything in the global economic realm and what's happening around the world. basically, it's not unknown to

you with our current mess, either we have to inflate our way out or we go into economic stagnation. either way, real incomes for most people are going to fall. when the politicians have made these promises which can't be fulfilled, and people, many people thought they would be fulfilled out of wishful thinking or naivete, which again, reminds me of churchill. churchill said the greatest argument against democracy is a five-minute conversation with the average voter. our founding fathers understood this. it's why the u.s. was constituted as a federal republic. you go back and you read the federalist papers and the things they wrote, and thomas jefferson once said once the people realize they can vote themselves benefits, all is lost. that's where we are.

we got through 200 years basically, it's amazing that we got as far along as we did, and i haven't given up on america. we need to work hard and bring it back and we can do it, and i think we have 10, 15 minutes for questions and i'm happy to try to answer anything on both the economics and politics. [ applause ] >> looks like we've got one microphone right here. please line up behind the mike. are there two? oh, we've got two microphones. line up behind one of those. we will alternate between the two. identify yourself, where you're from, and ask your question. >> ross kaminski. there's this concept in politics houser's law, where houser said it's very hard for government to take in more than about 19.5% of national income through taxes, and our mutual friend dan

mitchell says that that's only true in the u.s. because we don't have a national sales tax. at this point, i'm hearing even some conservatives open to the idea of a national sales tax, and there's this other concept out there that you might have heard of called the ron curve. i'm wondering, in the context of the ron curve which you might describe to us, what are your thoughts on a national sales tax? >> okay. firstly, the ron curve is very simple. it just says there's an optimum size of government in terms of spending and taxing. if government gets too big, economic growth falls off. i did this almost 30 years ago, just take a look at countries around the world, what happened to growth rates as their size of government increased, and updates are being done, the data is difficult, but we understand as the swedes and others have pointed out, government gets too big, economic growth falls off.

the old soviet union was a prime example of that. dan mitchell was my colleague at cato, my close friend, and dan and i go through these discussions all the time. the optimum tax is not the income tax. it will fall of its own weight, it's impossible and it's just a matter of time before it will have to disappear. with a sales tax or v.a.t., that way would be the ideal but danr until we abolish the 16th amendment which gave the right to income tax, we don't want to put that in. i know a lot of my conservator friends ar basically they acknowledge we're right on this, because we see what happened in europe. they have the income tax, then very low rates, generated a huge amount of money. 5% v.a.t. isn't all that bad. next thing you know you're up to 23%,