not the scandal of what people do that is illegal, but it is the scandal of what is legal, it has to be that. you know, i'm somebody who has been around the territory a fair amount and came as huge news to me that you could have a $50 million i.r.a., and i think that the chance of that being the last big abuse that no one has noticed is roughly zero. so the third dimension of tax reform is fairness and fourth is the confidence in the system. there is a reason why congress' approval ratings make banker's approval ratings look stratospheric, and it is not because there are not good people in congress and not enormously good people who work

with them, but it is the set of pressures that come from the way that we -- and i can't think of a better way to show that it is a new day than to clean up the tax code, so it seems to me that for those four reasons -- the sbeg i integrity of the politic fairness, prosperity and the avoid answer of debt, a ll of those run through tax reform. it is not likely possible to do comprehensive tax reform in a lame duck session. >> is it impossible? >> i never say impossible, but i think it is enlikely. so we will have to think about a political formula that is going to find a way of handling

the trifecta of debt limits, sequester and debt limit sequester and what is the third thing? >> the tax cuts. >> the bush tax cuts ending that you can referred to of handling it and committing to a set of things, and allowing some time to do a comprehensive tax reform proposal, but think that whoever is president, tax reform should be at the top of the national agenda, and i hope it will be. >> so let me just still on that because you wrote an article recently that said that nothing would be more important in the next four year thans ths than t

you wrote an article about it. and paul volcker talked about the need for tax reform and he said he would like to see us more bolder than tackling the expenditures and lowering the rates which is the grand bargaining of '86 and what you had in mind in the f.t. piece, but integrating the personal taxes and corporate taxes or move ing moving to consumption tax. larry lindsey mentioned a l.v.t., but directionally, how ambitious would you be, and how would you look at at the revenue raising and the incentive tradeoffs and can you say more about what framework you would bring into this? >> look, we should be open to every possible. -- to every possibility. i first quipped in 1985 that america has never had a value-added tax, because conservatives think it is a money machine for government

and -- and you know, the more things change the more they stay the same. i wish we were open to the possibilities. i guess that i would want us to keep a pretty clear awareness on the four things that i, four things they said as tests. i think that we need more revenue, because we are not going to cut entitlements, and get the whole way. >> wu i just don't think it is going to happen. i think they the surprise with respect to national defense is more likely favorable than unfavorable, and the domestic discretionary efforts are laudable, but i think that they are really going to bite and squeeze in ways that people don't anticipate so that the

surprises are going to be adverse and we won't get that much out of entitlements unless we are lucky in the way that health care adjusts itself. which is not what i would expect, but it is not something that i would rule out. so we need more revenue, and we are going to need more progressivety, and look in simple numbers, simple numbers, the top 1% of the population used to get 10% of all of the income, and now they get 20% of all of the income. and that works out to about 8,000 per tax paying unit in the bottom 90%. it works out to $800,000 for each tax paying unit in the top 1%. i would suggest a simple criteria, while that is

happening the relative tax burden on the top 1% shouldn't be going down. you can argue if you have more equ equality you have more distribution and more people are more oriented to having more distribution. but it is hard to understand why we should have less. and the least honest advocacy in the town where there is a lot of dishonest advocacy is the people who say that the top 1% are paying a higher fraction of the taxes than they did before. therefore, the tax system has become more burdensome to the rich, and neglecting the overwhelming reason why they are paying more than they did before which is that they have twice as much income. >> so on the income and equality, you have talked about that a lot and mentioned it coming in here.

in addition to policies is there anything that we should do with globalization and policy change that are causing it to get worse? >> there's a lot of this that is going to be very hard to change. look, if you think about the evolution of the publishing industry from publishers -- >> i prefer not to. >> publishers and wholesalers and distributors to barnes & noble and borders to amazon shipping books through the mail, to amazon sending ebooks which there were more last month than book sales, you think of the stages in that, and every stage

it got more the reader and more variety at a lower cost and got better to be stephen king who had an author to have access to better tribute shu eter distrib was worse is the shlub behind the cartons around and being a store manager is what happened. those kinds of forces are happening almost everywhere and you can't change them. and if you did try to change them, you'd be taking us back from the world cutting edge which is where we don't want to go and that is why a fair amount of it comes back to tax policy, and there are other things to be looking at. much more transparency in compensation. is clearly a helpful thing.

where the government is in the business of conferring rents, more auctions and less giveaway and less responsiveness to political pressures. that's something that is helpful. i do think that we need to engage -- and the decision and we decided somehow in america that corporations have the free speech right of citizens. well, you know, it goes back to the framers that citizenship

comes with privileges and obligations. and i think that we have to think very hard about what we ask american corporations that benefit very substantially from being american corporations. and about the orientation of the commercial policies and we have to think about whether our object to focus and this is a point that bob reich highligh d ed years ago and he was early on whether the focus of the concern is productive activities that take place within the united states and employ americans or whether the focus of our concern is corporations that are legally registered in the united states

that may be producing anywhere and i think that the focus back to the interests is of the american workers towards our commercial policies would be constructive. >> interesting. >> wi want to -- i want to ask one more question so we have seven or eight minutes so i would like to ask larry more questions, too, and you are welcome to walk up to the mics. laura was talking about the energy policy when we came in and would that be a priority for you if you were called in to give a piece of your mind to the next president. what would you be doing? >> look, if you think of the large systems of our economy, throws a health care system, and we have passed comprehensive reform and see how it works and a lot of the questions that ask about it and we had a big consideration and we did something. there's a financial system and we had a big consideration and

we had disaster and then a big consideration and then we did something and now we are in an implementation phase. there's an education system. we have worked that system. and are striving to reform the system. i think that the areas that are less touched by reform and that need to be touched are the energy system and the broader infrastructure system, and by broad infrastructure i embrace both public infrastructure at like highways and infrastructure that is primarily or the attention and i think that energy is a classic area where

it's, it needs to be both at. yes, we need a greater commitment to renewables. yes, we need a greater commitment to the substantial natural gas resources that we have discovered, and yes, we need a substantial commitment to energy, to energy efficiency, and so, we need more than we have traditionally in the energy area, instead of doing what this town has a tendency to do which is the intersection of policies which nobody hates too much. we need to do the union of policies that some set of people think is terrific and if we do that, we can make real, we can make some real progress on energy, and whoever is the next president, that's something that should be on the agenda. >> great, great. i see that people are standing

up, and we will start here and go over there. yes. identify yourself, too. >> yes. rob collerina from aie investments. mr. summers, you were there at a key part of harvard at the incubation of facebook and if you could tell us about the hand's off lessonsons that led to the success and translate it to some of the successes in this area. >> well, since i am blamed with so many things at harvard that i had nothing to do with, i am so tempted to take credit to this, or maybe creating an enabling environment which is not the most shameless claim that was ever made. look, the fact that we have

enormously talented young people, and we bring them together, and in environments, and we encourage them to create and do innovative things is one of the great strengths of this country. and every year when i was at harvard i gave a speech which was advice that was always in the speech which was don't make yourself fungible, don't be fungible. do something to have uniqueness and it was good advice and that kind of culture contributes to why the united states produces say bill gates, larry page, sergei bren, mark zuckerberg and then you look for a non-united

states name to add to the list that feels plausible at all, steve jobs, and i mean, you could add larry ellis and five more american names, but if you tried to think of the most plausible non-american name to add to the list, it is not easy. and that is really a great strength of the country. >> so if mark zuckerberg was in the room when you gave the don't be fungible speech, you can definitely claim credit i think. >> okay. steven day, international ventures, and i have a question about the defense budget. i think that the correct figure is about $1.2 trillion per year on the full cost basis. my question is why is it so difficult politically and otherwise to discuss seriously reducing that. we spend more than all other nations combined. it is a huge piece of the total expenditures of the budget. why difficult and why does it seem to be an area that is not discussed?

it is discussed and indeed the current plans have called for significant reductions in the defense spending and if you ask about the longer trend, you know, today we are running at . 3.-something gdp in defense spending. through the '50s, we were running in the 9% or 10% of the gdp range, and in the'60s, 7%, so we have substantially reduced the defense spending and should it be reduced further? that is a judgment to be made on national security grounds and i may not be an expert on anything, but i don't claim to be enabexpert on the national security grounds and even if i do claim to be an expert on other things, but i would ask you the think about before

regarding the proposition as being quite as obvious as you suggest, we are, when we send 200,000 soldiers abroad, 40% of what we allocated to the iraq, first iraq war or to vietnam, we are stretched unsustainably thin. now, maybe we should maintain our defense posture, and maybe it is obvious that we have still too grand of a defense posture even when stationing 200,000 people abroad for a number of years in the conflict situation would be untenable, and maybe that is not something to happen again in the world, and so it is appropriate for us to be where we are. but i wouldn't say that is 100% obvious at this point. that is why i'd be a little bit more careful. national security is, you know, it is like fixing the brakes on the car. you know, you have a good to

save a little money, but it is really dangerous to over economize, and that is worth keeping in mind. >> i think that we have to end on than note. our time is up. larry, thank you for joining us, and thinking out loud so interestingly. appreciate it. [ applause ] in our next session, the final session of the day, i'm pleased to bring to the stage fred hochberg who is president of the board of -- as fred is coming up, i had a call from richard branson's people, and one area we have not talked on the economy today is the war on drugs and how he sees it, and he wants to do that and i thought it would be fun to add on to the conference and he said, can you add me on to it after larry and fred, and i said, well -- and so for those of you who are

interested in talking about that arena. >> you are not going to ask me to talk about drugs? >> no, the export or and import drugs, not. but i am going to, in our discussion with fred and open up to questions, try to bring a bit more of the international dimension to this question of what's happening to the real economy in the united states. fred is -- has the responsibility of running one of the institutions in which -- it's a government institution but there's no real tax dollars at stake in it. you play a role in helping to broaden the export base of the united states. and i'd love to hear a little bit about that. but president obama has made a fundamental pillar of his economic strategy doubling the exports of the united states in five years. so i'd love to hear where that is. but i'd love you to give a quick snapshot of what the xm bank is supposed to be doing. >> thank you for having me.

we only have fake tax dollars engaged in the export/import bank. the export/import bank was actually started in 1934 by president roosevelt and it was started to help create jobs through exports. and we do that to this day, 77 years later, we do that with no tax dollars because we are -- by wto rules we have to be totally self-funding and self-sustaining. we generate fees from our customers and those customers pay for loan loss reserves and our operations. then actually on top of that we've generated the last five years just as a snapshot $1.9 billion for the taxpayer that goes for the deficit reduction. it's about $5 billion over the last 20 years. what we do is we help level the playing field for u.s. companies that are exporting overseas. and level it in one of two ways. sometime -- frequently, there are about 80 other export credit agencies around the world.

all the industrial it'sed nations have them. when those companies in the united states are competing for foreign sales they are coming -- their foreign competitors are backed by government-supported loans, frequently. and so we provide a comparable backstop financing so that we're leveling the playing field. so the customer can make a decision, whether it's a boeing plane or airbus plane, caterpillar tractor or komatsu tract tractor, u.s.-made power turbine or u.s.-made small business goods. we level the playing field by providing buyer financing. the second thing we do is provide working capital low-interest loans for businesses looking to export. when you go to a bank and say, i need a working capital loan, they say where are your receivables? all in brazil, mexico, nigeria, south africa. the bank says, we're not really interested. we can't collateralize that. we do working capital loans. the last thing we do and a lot of small businesses do is insure

their receivables. when they're selling, i just talked to marlin steel. a little steel company, $4.2 million a year, 25% exports. exports to 36 countries. we guarantee his receivables. he's now selling to china, singapore, costa rica. $10,000 orders. we make sure that -- he's not going to be able to collect on that. if he can't collect, we pay the claim. so that's how we sort of move things forward. insurance, working capital loans. the bulk of it is buyer financing. >> what happens fred if next week the bank just disappeared and didn't exist, you're out of a job, i know that might not be good for you. but how is the world and how is america affected if xm wasn't there? would something else come up in its place? would we -- what would be the harm, what would be the opportunity? >> well, we've been called the lender of last resort for most of our history.

i haven't liked that term because it makes it sound like we're the last gas station in 15 miles with the dirty rest rooms and high prices. >> that should jack up your prices. >> so usually people come to us because they can't find financing elsewhere or they can't find anything comparable elsewhere. recently we helped finance aircraft, for example, to bangladesh. the good thing about bangladesh is it's not going to be a boeing fleet. the average age of the aircraft was 30 years old. so now we probably have the oldest aircraft in the world, no longer bangladesh. banks are not lighting up four, five, or six deep to lend bangladesh airlines to buy aircraft. if we're not there, they would probably buy airbus. so i think the question is if we're not there, but the others are still there. airbus was in the question advertise. air bus said, we'll provide

financing. we let the airline, in that case which is owned by the government, make a decision. do they prefer the airbus product or the boeing product? they can do it on the product attributes, not because they get like 0% financing from one place and no financing from somebody else. >> the other day i was in california, northern california, driving along between san francisco and going down to santa clair ra, i looked over, all of a sudden there's this big, beautiful building, a bunch of them. across the top it sewed sew layer yeah. it made me think about loan guarantees and the government. i i'm sure you weren't involved with -- >> solyndra. >> sorry, solaria. it's solyndra. solaria is another company out there and i know them but they're not going to be too happy i mentioned them. solyndra. it involved loan guarantees and government. it raised a big, big mess in the media. there was a lot of i would say public uncertainty about this role. have you -- has xm had similar

cases of failure that generated doubt about the function of xm? >> you know, our loan -- our write-offs, our ultimate write-offs, run about 1.5%, 1.6% a year. we reserve, and the reserves again are paid for by our customers we reserve about 2.5%. reserving, we have much more reserves than write-offs each year. we also can be patient. so we can collect -- we have loans that are made in venezuela. we can be more patient than a bank can be at this point. we have not had any really sort of large-scale sort of goes to the core of our existence kind of loan issue. first of all, we're lending at about 150 countries. we're lending probably over several thousand product categories. we're not really concentrated in the energy sector or the construction sector or -- obviously we have a

concentration in aircraft because aircraft and aeronautics are the number one export of the united states. we obviously have some concentration there. but that's been over 150 airlines in 50 different countries. >> when i think about trade, and i listen to president obama when he made the statement about doubling imports -- exports. doubling imports is easy. >> we did that already. >> there are different ways to think about that. okay, doublie ining exports. do you do it by letting your currency slide? do youk? in other words, you just get more u.s. companies focused on markets abroad and you get involved in knocking down barriers which are fairly significant in a lot of other states? we've seen the discussions in "the economist" and others about the rise of state capitalism, the protection of markets abroad. or do you -- do you move in some other way? do you move -- and as i look at

the global economy right now, we've had a lot of discussion about theslpe economy, the slow down of the chinese economy. you need buyers out there. so i'd love to get a quick take before we open questions on the trade profile of the country and what's happening. but as you look ahead, not just giving kind of a rah-rah thing that exporters are up, but doesn't it look bleak out there? >> well, first of all, can i say exports are up. they're up about one-third since the president announced that. >> i heard the state of the union say, we're already ahead of schedule. >> exports have been growing about 15.5% on a compounded basis. those of you who remember high school algebra, it's 14.8 you need to double, we're ahead of schedule. exports are up. for 20 or 30 years the united states and the world, for that matter, relied on the u.s. consumer and all the debt we accumulated to drive not only our economy but the global economy. what's really going to drive the global economy in the next decade or two is going to be

infrastructure investment, which will then also lead to global consumerism. the estimates are by the end of this decade there will be 1 billion people in the middle class globally. china to vietnam, so forth. that's a huge market. and it's a huge market for things we sell. so i'm actually very bullish. what the world needs is it needs power 24 hours a day, seven days a week, something we take for granted. we may spend too much money on health care but places like india are spending 1% or 2%, they probably need to go to 7% or 8% of gdp on health care. in china, my recollection is they're looking to add 25,000 beds and hospitals. the fact is all of these investments are things we sell. for medical to farm equipment, construction equipment, aeronau services, we do a lot of service exports. so i'm very bullish partly because what we're not good at making and