captioning performed by vitac captioning performed by vitac it's a commercial initiative to try to encourage energy conservation which is a very important part of industrial policy and energy. >> ladies and gentlemen, dr. laura tyson. thank you so much. two live congressional hearings a little later this morning here on c-span 3. at 9:30 a.m. eastern the house oversight committee looks at the european debt crisis. both federal reserve chairman ben bernanke traensy secretary tim geithner testify.

and when that hearing wraps up live coverage of the house budget committee as it begins consideration of the republican's budget proposal for next year. we expect to bring you the house budget markup at about 12:30 p.m. eastern. lawrence lindsay led the white house economic council during the first two years of the george w. bush administration. at the atlantic forum on the economy last week he said neither democrats nor republicans have credible economic plans. he was interviewed by the atlantic's editor and chief. [ applause ] >> there's been a lot of discussion about how difficult the last decade has been in global markets, global economies. we don't need to belabor it. what is your diagnosis of what we have just gone through, the problems that we've been facing?

>> well, you know, i think the guilt that we should all have for a little bit of hubris is in order. in my profession, i started talking about how the economy had changed, how we were in a new normal, how, you know, we conquered variation. and all that tends to do, you have a long period where everything is moving up. people tend to take more and more risks because the longer it goes on, the more they think things will keep going up. and the risks built up. we had a huge crash in early 2000. it had a bad economic effect. we pulled the textbooks off the shelf. they said fiscal monetary stimulus. we didn't. we started up again. and wow, everything worked. and then only built our confidence further. that near death experience, having survived it, made us even braver. we all took more risks. and i thought it was very

interested in bob rubin's observation that nobody saw it coming. well, we all kind of bought into it. we're all in the establishment. people in this room center left establishment. i tend to hang out with the center right establishment, but we're all the establishment and we blew it. we're the ones supposed to be keeping an eye on it and we didn't. in fact, we enjoyed it. we enjoyed it in the '90s. we enjoyed it in the 2000s. we weren't being skeptical. my message for today is the public out there is mad at us. because they hold us collectively responsible. you know, the usual line in washington is to sort of poopoo it. they don't know what they're talking about. they actually do. if i could leave you with a thought today is that we all in the establishment need a little bit more introspection because we did a lousy job and we better start focusing on the quality of job we do rather than saying, oh, it was the other guy's

fault. >> so that's a very -- a very laudable goal. [ applause ] what is the key to actually making that happen, what you're talking about? >> what did the shrink say? the first way to solve a problem is to recognize it? so simply talking about it is important. and i think each side has to start holding its own office holders accountable. publicly and privately. you know, if you don't know my history, there's a reason i'm in the private sector. [ laughter ] and the -- i think we have to do it. we each have to hold our own sides accountable. because they're the only ones that will listen. i can tick off a bunch of examples of how we've neglected the quality of policy. these aren't hard. i don't need a calculator. we can talk about 30 seconds of mental math will give you an example of just how bad it is.

let's start with obamacare. i'll pick on the left and then i'll pick on my side. every private sector estimate of what's going to happen on january 1, 2014, has the costs of obamacare way, way higher. it's very simple. i as a firm have a choice of buying my employer $6,000 worth of coverage myself. that's sort of a low bound. or paying the government $2,000 to take my employee off my hands. in fact, i could take the $4,000 savings and split it. give the employee a $2,000 raise, but $2,000 more to my bottom line and shove the rest on the taxpayer. this is very simple. private sector estimates are that 30% of private sector plans will fold. this is -- may not be "new york times" but it's commonly known. okay.

so we're going to lose $4,000 on each of 30% of workers in the workforce. okay? that's 140 million workers times $4,000 each. this is real money. right? that's mental math. obama care is going to fail on january 1, 2014, or shortly thereafter. why aren't we holding him accountable for that fact? or one aspect that i guess this would be more bipartisan, although the guy i work for pushed it. immigration reform. we're all for immigration reform. we all want a path to citizenship. i'm for it. i've got three kids that were adopted from overseas. i'm very much for immigration. part of my family. i went through the naturalization process with them. if you want to go to arlington to where i had to go to go through it, doors open at 8:30. you better be there at 6:30 and get in line or you don't get a number that's sufficient to get you to the head of the cue for the rest of the day.

that's what's going on in the ims. we now process 800,000 people a year. let's say we double the capacity of the ins so we can do another 800,000. if we built a fence, no more illegal immigrants, just to process the 11 million who are there, no new additions, it would take us 14 years. how is it that we in a bipartisan way in the establishment are putting forward an immigration proposal that in 30 seconds i've described as mathematically impossible to carry out? we should be ashamed of ourselves. we should get our math right. it's really no different than estimating the cost of the iraq war or what have you. on each and every grounds, unless we start holding our own people accountable for simple, basic math, we are going to be digging our hole deeper. i don't care how you solve the deficit problem. i know we're headed there next. but we will not solve the deficit problem unless we start

making smart decisions, getting quality out of our money and not just worrying about a few hundred billion there and a few hundred billion here. >> before we talk about deficits i want to talk about the ability to reach clarity on some of these issues in a presidential election year. you were an economic adviser to george w. bush during his campaign. you've studied the dynamics of campaign promises. and then actual administration follow-through on them. what's your analysis of the current climate for -- for realistic economic policy as part of the campaign? >> well, right now neither side has a campaign in place that is realistic. on the republican side, they're preoccupied fighting each other and aren't devoting the resources there, though i think they should. the president has all the resources in the world plus the whole government and he's not doing it either.

so you don't, for example, put forward a budget that has a print for one year's economic growth of 4.5%. that's la la land. no president should do that in a credible way. and the media, especially the sympathetic media, should be calling him on it. because that's who he's going to pay attention to. so i think both sides can do better than what they're doing. in 2000 -- and i'm not sure why it was true in that case. we had an internal forecast. that forecast actually turned out to be closer to the mark than the one that the cbo was using at the time for the economy. we had a budget. we had to spend money. we actually imposed it on ourselves. i'm not saying everything was perfect about the campaign. but i think that at least we gave it a good faith effort. and we were ready with -- we predicted the slowdown. the slowdown was worse when we came to office than what we had thought. but we had a policy in place to deal with it that fit within the

budget constraint. you know, i don't think it's that hard for a campaign to do it. particularly if it's insisted that we do it. w, one -- one wag suggested to me that the reason we had to do it was that there was a lot of skepticism about president -- then governor bush's mathematical skills. so maybe we were being held to a higher standard by the media and sort of had to counter that. and i think that proves to me why each side should start holding its own accountable. if the basically sympathetic media started holding this president accountable for the kind of numbers he's putting out, those numbers would improve, i guarantee you. if fox news started expecting the same thing of romney and santorum, their numbers would improve as well. so i really think that, you know, we in the collective establishment, if you will, the blame is on us. we're not holding our own guys accountable right now. >> so in a perfect world, what

are -- what are a few of the key issues that you would want addressed during this election year, brought to a national discussion, voted on, ultimately? >> well, i do think that the key question we face is how to get our fiscal house in order without wrecking the economy. >> mm-hmm. >> if you take out the loony arithmetic and you assume we basically keep doing the same policy that we have been doing, we will have greek level deficits for the rest of the decade. we're running about 10% of gdp. maybe it dips down to 8%. but basically that's where we are. that's the numbers. that's not sustainable. we often say that, you know, if greece could have only printed

its way out, it would have been fine. well, we have the printing press already committed. i don't know if anyone's noticed, but the fed has committed to holding down long-term interest rates as well as short-term rates. they're already doing everything they can. let me put the size of the problem into perspective. last year uncle sam borrowed an average cost of 2.5 percentage points. the average in the last 20 years, which was sort of, you know, after the new normal came in, low, basically low historically, was 5.7 percentage points. that 320 basis point difference times the size of the deficit at the end of the decade, debt at the end of the decade, amounts to about $800 billion a year. $800 billion a year in added interest costs. added interest costs. that's larger than the defense budget.

that's roughly twice current corporate tax receipts. it's about 80% of personal income tax receipts. so, in other words, not to shrink the deficit, but just to pay the average at interest cost we basically have to abolish the defense department completely or we'd have to have an 80% rise in all personal tax rates. doesn't work. math doesn't work. the markets are going to call us on it long before then. because we are in a situation that economists call fiscal dominance. our monetary policy, unintentionally, has now become dominated by fiscal necessity. and we're not admitting it to ourselves yet and we didn't get there because we chose to, we went there for the right reasons and i'm not criticizing chairman bernanke for the choices he's made. but those are the facts.

we're not going to be able to back out of our current highly expansionary, highly accommodative monetary policy until we get our fiscal house in order. and if we continue to run greek deficits with, why don't we call it, old-style greek monetary policy, pre-euro monetary policy, we know where it ends. history's done this over and over again. and it ain't pretty. >> so -- so you're very concerned about the deficit. you think that the estimates for growth and spending are -- are not realistic in the administration, the public debate generally. how do you -- how do you tackle this? is it a combination of tax increases, cuts in spending? what is -- what's the responsible approach to dealing with this? >> yes. we will need all the above. but if i can go back to the original theme, we need quality as well as quantity.

because if you simply do the tax increases and the spending cuts needed to make it close, and you continue to spend and design policy as wastefully as we do now, you will doom the economy. so what we have to start thinking about is how do you improve the quality with which we collect taxes? and how do you improve the quality with which we deliver services? that's what i think has to be on the agenda right now. you know, we all talk comprehensive tax reform. i think if you look at what's actually being proposed, there isn't a lot being proposed from the administration, even on the republican side, i would give it at best a "c" minus. you can do a lot better. my side can do a lot better on the taxes side. your side can do a heck of a lot better on the spending side.

and that's where we have to focus. and, again, if we -- and i'm going to, again, put us collectively in the establishment. we are going to be held accountable. it is our job to get these people to do the right thing. and that's why we, especially you media guys who are out there, need to start holding these folks' feet to the fire. >> tax reform. can you -- can you go into a little more detail on the way you'd approach it? >> sure. on the personal side, let's start there. you know, i think that -- that bowles/simpson made a good stab in that direction. i can argue with the tweaks of it. but they collected more revenue with lower rates across the board and a much more progressive tax system.

now, that was because bowles dominated it. to tweak it here r there. it's certainly doable. they can pull 50 examples off the shelf. corporate tax reform. here's a simple case where both sides are talking like they like corporate tax reform. and there's -- i know. corporate tax reform, your eyes have already glazed over. i know it. i'm going to give you two words that you should listen for. okay? because these are words we all understand the meaning of. and when you hear them from a politician, you know they're feeding you a line because they don't really understand it. my favorite is the word "territorial." everyone's for a territorial tax system. the president's for it. romney's for it. what does territorial mean? it means you tax things within the territory. right? very simple. plain english. no jargon. let's think about this.

we have, after japan, the highest corporate tax burden in the world. so if we apply a territorial standard, and don't cut revenue collections, we've just put on the highest corporate tax burden on things we do inside america. not exactly a job creator. okay? it's very simple. when you hear the word "territorial" think they don't know what they're talking about if they're for job creation. the right word you should hear from them, which you don't, is "border adjustable." border adjustable means that when the goods hit the border coming in, they're subject to an adjustment that levels the playing field. and when the goods go out, they're subject to a border adjustment on tax and tax rebate that levels the playing field. example.

when a bmw leaves the port of hamburg, the company gets a 17% of value rebate. it hits no tariff when it hits america. when we ship a cadillac to germany, it has a 17% tax imposed upon it. germany is doing border adjustability. we are not. we are getting to ourselves -- i don't know -- the word isn't coming to mind. but you know what i'm talking about. we're doing it to ourselves. let me put it that way. there we go. whew. [ laughter ] got out of that one. you know, this is a self-inflicted wound. the chinese are doing it, too. the politicians talk about territoriality. higher taxes on things being done in america. when we should be talking about border adjustability. and we're not. very simple.

just think what those words mean and listen to the politicians when they say it. >> we have a few minutes for questions. i'll give you a minute to stand out there. the microphone's over there and over there if you want to stand up if you have a question. while we're getting the questions ready, you -- you referred briefly to the activities of the fed and bernanke. do you place yourself in either of the villain or the hero camp on bernanke? in your assessment of him? >> well, you know, i've had four stints in government. for me to think anyone is anything but human after all that would be crazy on my part. >> yeah. >> basically i think he did a heroic job under very difficult circumstances. in general, i'm a member of the central bankers union. it's the international

brotherhood of central bankers. i have a union card. and we do not criticize our brothers. i -- i do think, though, that, you know, in going back to one of kane's favorite lines, he said that as a way of justifying short-term action. it was not a way of denying that in the long run we are all dead. and the more years that we drag on doing the same old thing, the closer we are to dying. and that's why we had better start paying attention to it. this is not a long run sustainable policy. monetary policy is a way of buying time. and if we don't use the time wisely, we're just running up a bill without having solved our problems. >> we're going to go to questions. can you please state your name and affiliation. >> peter tanis from la perk links. mr. lindsey, the example you

cited of border adjustability which i think was very clear and interesting, wouldn't we accomplish the same thing by doing what 150 other countries do and impose the value added tax? >> absolutely. in fact, my -- i didn't get this chance. i once testified before the senate. in fact, i was on a panel of four people. we were across the political spectrum. and we didn't compare notes before we went in. and what we told the senators, all four of us, was, you know, we should have a value added tax. and the senators then proceeded to tell us that you know that the senate voted 93-2 to never even consider a value added tax. and, well, there we are. now, so what i think we should do, right, if you're going to follow that logic, you want to pack everything into a value added tax. right? not just the corporate tax.syst. that's how you make america competitive again. that's how you get rid of the

self-inflicted wound. so, yes, if i actually could revise and extend my comments, my simple tax reform is scrap income-based taxation and go to value added base taxation. there are ways of making it progressive. i'm not going to go into the details of that. it's very simple. it makes us border adjustable, makes us a lot more competitive. and don't -- what we should not do, what we should not do, and i see laura taking notes, so i want to make it -- make it clear. but what we don't want to do is add another layer of taxation and another layer of accounting on top of what we already do. that will make things worse. substituting a value added tax for income based taxation will make things unambiguously better. >> question? >> see how easy it was? right now if they would just, you know, step down and let us govern, right, we'd be fine. there we go.

>> we're ready. i'm ed levy, a recovering government economist and now a freelance writer. you mentioned before, what you say is u.s. is one of the highest corporate rates, tax rates in the world. but aren't, in fact, our corporations paying effectively only about the average tax rate compared to the other industrialized countries? >> yeah. see, so, again, you know, i think the way to think about it is, you know, we economists agree that activity takes -- decisions take place at the margin. and so when you have a high marginal rate and a low average rate, you're really doing damage. because you're doing the maximum disincentive effects. while at the same time not collecting enough revenue to justify it. so, yes, i think that's -- that would be an example of why we -- you know, we cry out for tax reform. plus the complexity of it all is just ridiculous. >> time for one more question.

get the microphone on. keep going. >> i'm casey dingus with the american society of civil engineers. a number of the speakers earlier have spoken about infrastructure investment as maybe a piece of the -- you know, the fiscal discipline going forward. any comments on the role of the private sector and infrastructure, public sector, state, federal? i just haven't heard you comment on that issue yet. >> great. i'm all for -- for it. i want it to be done in a cost-effective way. and what is interesting is that in general, our actual, say, road construction costs are much higher than elsewhere. and the reason has to do with federal contracting rules. and here, again, i can just see the eyes glazing over. but what we have done is made getting a federal contract,

simple federal contract, so complex that only largish firms with a dedicated person to filling out the forms actually can get the contracts. dedicated person or personnel. it's often a department. so, you know, a new construction company where the guy, you know, hires his cousins doesn't have a chance. we have rules that compel the paying essentially of union wages. we have set aside rules where companies basically set up dummy corporations with, you know, that have the right, quote, ceo, in order to qualify. we have all kinds of rules and regulations that are environmental. that just aren't cost-effective. i'm not for no environmental regulations. i'm for making it, you know, a real cost benefit for us.

i think if we were able to get those kinds of changes in place, you could do 25% to 30% more of what you want to accomplish for the same amount of money. that's the estimates that are out there of how much our ridiculous regulatory burden is driving up the cost of infrastructure spending. by all means, let's do it. but let's get maximum value for the buck. >> okay. our time is up. larry, thank you very much. that was great. >> thank you. >> thank you. [ applause ] >> a new america where freedom is made real for all, without regard to race or belief or economic condition. [ applause ] i mean a new america with ever

lasting attacks the ancient idea that men can solve their differences by killing each other. [ applause ] >> as candidates in campaign for president this year, we look back at 14 men who ran for the office and lost. go to our website c-span.org/thecontenders to see video of "the contenders" who had a lasting impact on politics. >> the politics of the liberal left offer only one solution to the problems that confront us. they tell us again and again again we should spend our way out of trouble and spend our way into a better tomorrow. >> c-span.org/thecontenders. live from capitol hill this morning we're inside a house oversight and government reform committee hearing room in the

rayburn office building where ben bernanke and tim geithner are set to testify this morning. they will talk about the crisis of the eurozone and its impact here in the u.s. treasury secretary geithner yesterday said the administration would have come to congress before giving more money to the international monetary fund which is financing a financial rescue-package in europe. he told the house financial services committee that europe faces a long road to recovery and warned leaders there cutting too much in the short term. we expect this hearing to get started shortly live here on c-span 3.