alzheimers. if we had an industrial policy that laser focused resources on those seven areas, all of which represent profound change, profound invention in our society, we would be a jobs machine. so is that type of industrial policy possible in the united states? >> so a couple of things. first of all, i just want to say on the tax policy point, i don't mean to imply and i wasn't implying because i don't greet with the position that our inequality problem is the result of our tax policy. i don't want anybody to take away that impression. the 6 million or however many, i've heard more, yes, okay, so the additional workers of india and china have indeed been one of the reasons why middle income jobs have eroded. what i said is that the other developed societies face exactly the same problem. so why is it the case that the

income inequality at the very top and at the very bottom is so great? that is a fairly -- the only other country that comes close to us is the uk. and i think we have to ask ourselves that question. everybody else is subject to globalization, too. it manifests it self in the united states in a much more extreme inequality. now on the point about these new technologies, i have always been a huge supporter of things like putting additional funding into the, into nist, into putting additional funding into edarpa, putting additional funding into darpa. there are many ways in which as you know the u.s. government if you go into the history of the evolution of our major new sectors over the past 50 years, you will see that the government has played a major role as a supplier of basic research

funding, as a supplier of supporting the training of the scientists and doctors and engineers who actually do the research with the research funding, the government has been a major source of support in terms of procuring, procurement, just buying the stuff as a big buyer, as it comes out the door. so actually, if you look at the office of science and technology policy and look at the present science and innovation budget, i think you will see to the extent that they have been able to do it, again within political restraints, the idea of supporting particular attention on research in energy on nanotechnology, on continued support for innovation and research in health, i think i would agree with you completely, the government of the united states has been a major source of that and should continue to be. and this administration, every time the president has talked about budgetary priorities

including his most recent state of the union address and his budget proposal, he has said very clearly i am going to have to cut significantly the u.s. is going to have to cut significantly spending, but while we do that, there are three areas that we should absolutely increase our spending in, and science and technology, those kinds of initiatives has always been one of those areas. >> i'll mention one thing before i go to this gentleman. i spoke with the president of m.i.t. and ursula burns at xerox at the arcae crowd. bill clinton spoke right after we were on stage and former president clinton came out and laid out how you do it. and it was pretty fascinating as he always is. but with some laser specificity on how would focus on these issues. the problem is, that when you talk about it to a certain degree, you're talking to interests that fundamentally in the political environment and i

mentioned again, i don't know if i said it earlier in the day, we had a dinner last night and somebody said steve, you've organized a very erudite smart diverse economically fascinating discussion but boy look at the gap between that discussion and what's going on in the street and how politics is really happening. i understand that. one of the reasons we're having this conference is to try and raise the level of inputs into that conversation and debate but there is a sense that those smart streenl jik strategic investments undermine real people trying to work real jobs. i know it's wrong but i do -- i have family in oklahoma and texas and kansas not to knock oklahoma, texas and kansas but there are a 0 lot of folks who just don't get that kind of policy as being in their interests. they feel very distant from it. >> i think it's very, very difficult in this period of time because as a number of speakers have said, the way people feel about the economy they feel

about government. we are in a very painful, very slow process of recovery from all of for most americans, a truly awful period. i think it's important to recognize again and again that it wasn't that great before 2007. that will 2002 to 2007 has the dubious distinction of being a recovery period where median real family income fell, where median real earnings for male workers fell. so you're not talking about a period that bream feeling they were indeed borrowing a lot. they were indeed trying to break through their budget constraints by borrowing, which was part of the problem. and that we can talk about the liquidity which allowed them to do it and all the things you've heard about today which in that

very nasty storm of things coming together created a mess. but people aren't feeling very good. if you say hey, how about let's invest in while we're cutting your medicare, let's invest in a row potatives program, somebody said why are they having so much trouble getting the message out, that's a very difficult message to deliver. >> larry summers has arrived. eve, i'm going to hold your question to them. you get a quick question and we'll get a quick answer. >> i'm from the motley fool. you talk about the industrial policy and we hear about t. boone pickens talking about america's lack of energy policy. what are some countries that do have very successful industrial policy? is it germany with the midget stand and their resilient manufacturing sector? give us insight on that and what can we learn from them. >> do any countries get industrial policy right or better? >> so i honestly think that we

should focus on the things that we have -- can do better that will affect a number of industries. i actually at this point think that the right thing to focus on is the education gap, the skills gap. the continued need to increase our spending on research and innovation. that gets to the things like robotics but without saying that robotics should be the focus because i think that will happen, the scientific community is moving in that direction. and on infrastructure, if i think about energy, i'm afraid what i would say to that is the most fundamental thing a society can do to generate an energy conservation policy or a change in the use of energy policy towards less carbon intensive fuels, the most fundamental

things to do is to change the price of energy. and to change the price of carbon energy in particular to both encourage conservation and encourage alternative energy forces. those issues came up in the debate about the energy bill, and you can see that -- this is another area where we are extremely politically divided, but i think the societies that have done it better have started with a higher significantly higher price of energy as a way to product people to use less energy and use alternative energy. conservation is the fruit. it's absolutely the low hanging fruit. one of the really nice things -- the president's job council i thought was very effective and i would urge all of you to go to the web site and read the reports. there's a lot of reports with a lot of listing of what the administration could do and what the administration did here which was not emphasized enough

today i think is where they could take action which didn't require more resources and didn't require congress. they did it. so one of the things was on commercial energy efficiency of buildings. sort of a 20% improvement. and i think bill clinton has picked this up very much as an initiative. and governments around the country are working on this with the financial services industry and the owners of commercial buildings. and this is an initiative called the better buildings initiative. it's a commercial initiative to try to encourage energy conservation which is a very important part of industrial policy and energy. so let me leave it at that. >> ladies and gentlemen, dr. laura tyson. thank you so much. >> thank you. >> president obama meets with the leaders of mexico and canada today for north american summit at the white house, and later this afternoon, canadian prime minister harper will address the international center for sol lars talking about issues between the u.s. and canada. prime minister harper has voiced

disappointment with the keystone pipeline decision and visited china in january torn explore alternatives. canada has the third largest oil reserves after venezuela and saudi arabia. the president will be meeting for the north american summit at the white house. they'll hold a news conference at 1:15. while congress is on break this week and next, c-span features american history tv primetime tonight at 8:00 p.m. tonight the life of president eisenhower. you'll hear from president eisenhower's daughter. then an archival film about general eisenhower. american history tv prime time tonight starting at 8:00 eastern. c-span's 2012 local content vehicle cities tour takes our book tv and american history tv programming on the road. weekend featured

little rock arkansas with book tv at the university of arkansas. >> high school collected photographs and he was particularly interested in the 19th superintendent. the civil war in particular. these relies two friends, union and confederate who knew each other prior to the civil war, who fought against each other in 162 at the battle of pea ridge, survived the war, came out aliv war and here they are at age 100 sitting on the porch talking about the old days. >> american history tv looked at life in a world war ii japanese internment camp. >> a lady wrote a wonderful book called the art of ga man meant surviving the unsurvivable sort of. and she talks a lot about how the arts and the crafts were sort of how they kept their sanity and it gave them something to do and about how

depression was so bad in a lot of the camps. there was a high incidence of suicide. so people would make these little things of beauty to give to each other just as a way to say you know, we support you and we care about you. >>ure lcv cities tour continues the weekend of may 5th and 6th from oklahoma city on c-span2 and 3. >> and we have more from the atlantic magazine's economic summit next with economist allen meltzer. he talked about the federal reserve's role in policies in the current economic situation and says the reserve should start slowly raising interest rates. his comments are about half hour. >> well, this is quite a parade of talent that you've got unfolding in front of you, but i do want to commend this

interviewee allen meltzer, one of the most eminent scholars in the world, an authority on monetary policy, and an author of a wonderful two-volume history of the federal reserve. and that's where i want to the start right at the beginning. allen, i know that you're not in the bernanke is a hero category. you've been quite critical in things you've written for "the wall street journal" and elsewhere. tell us why. >> well, i do think, and i commend him for responding to the crisis which he helped to create by letting lehman fail but at least he responded to it and didn't let it go on and destroy the financial system. so i applaud him for that. now he's doing the administration's fiscal policy. and that's not a good thing for a central bank to do. so the proof in the pudding is going to be whether he's a hero or a goat is going to whether he is able to get rid of the 2 or

$3 trillion that he's put on his balance sheet and shrink it back to $1 trillion. my guess is not without difficulty and that difficulty has been compounded because now the european central bank is adding fuel to the inflationary fire and the bank of japan has finally decided that it wants to inflate, too, so you know, when you see all the central banks in the world, the countries are running big deficits and the central banks are printing money as rapidly as they can, then you know that inflation is coming. and people say to me, well, where do you see inflation? oh, i see it in a lot of places but one of the places i see it in is unlike the federal reserve, i think the bubbles are caused by people getting out of money. that the exchange rate is declining because the fed is printing money. so just to give you a few little examples, when president nixon

left the system, there were 360 yen to the dollar. there are now .8. we've depreciated the dollar 70% against stable currencies and we're doing more all the time. so those are signs of inflation. there are others. productivity has slowed. productivity activity growth has slowed now. wages, compensation is rising. that's surely a sign of things to come which aren't going to be nice. >> okay. so you see inflation in the works. i want to come back to that in a moment. but i want to unpack a little bit, you know, the first part of what you said when you said that the fed is doing the government's fiscal policy. just, i mean, help people to understand what you mean by that, in what sense is the fed doing the government's fiscal policy? >> when it buys a trillion

dollars worth of mortgages, it's doing the government's business. it has no business buying long-term assets. central banks, well run central banks never do that, and the fed in its history, it's 100-year history only did it during wartime. now, it's doing it fairly well. that's government policy. why? well, the treasury, the administration can't go to congress and say we want to spend more. so, the fed is doing their work for them. it's also doing the work of, which i much deplore of recapitalizing the banking system by keeping interest rates low, letting the banks borrow at very low interest rates and lend at somewhat higher rates and now, heaven forbid, they're saying to them, well, you know, now you have all this capital you can pay dividends. you can buy back shares. you know, this is our taxpayer money that we're going to pay for in inflation.

i mean, it's a ridiculous policy. >> let me push back a little bit. put myself in the position of a, you know, of a fed official. i'm sure that listening to you, they'd think, well, you know, we were forced to do i allot of unorthodox things, a lot of things that made us very uncomfortable. the fed is split right now on whether to persist with some of these policies or begin to reverse them. >> i have some friends there. >> i think the fed official would say, but what's the alternative? i mean, you know, was the government capable of doing what perhaps you think it should have been? the fed stepped in because nobody else would. >> i heard paul volcker speak at lunch. and you know, i've known paul volcker since we both worked in the kennedy treasury way back in 1962, and we didn't always agree, about you, but he said something very important. we have a long-term problem.

we need a long-term solution. we're not going to solve our problems by printing a little more money today or having a bigger deficit tomorrow. what we're -- what we need to do and what i would wan is to say, we have a long-term problem. in fact, a number of them. so let's find some long-term solutions. let's say how the central question is, how do we get back to a long-term growth path for the american people that has low inflation? that's what we want to do, and we want to develop systemic stabilizing policies over a long period of time. does the federal reserve do that? no. does the congress do it? no does the administration do it? no. do they even think about it? no. that's the worst part. you know, just to finish this, i read more federal reserve minutes than any human being ever ought to read.

you never see a sentence which says, if we do this today, where will we be a year from now? never. the exception was the volcker years. volcker knew he couldn't end inflation in a month so the he had a longer term policy. it will disappeared after he left. you know, it's all about what are we going to do this quarter and how will it affect next quarter. well, that's not the way to stability. in fact, it's a wait to disaster. >> i mean, i've written so many columns over the course of my career in favor of central bank independence, which i think is goes to the heart of what you're talking about here, but i have to say that the, you know, the crisis has wrapped my confidence in the correctness of that view, the correctness of the central bank independence precisely because central banks have to accept the political constraints

that confront them, don't they? i mean, they can't wish them away. so what i want to ask you is, let's suppose you've been running the fed which is which is not such an outlandish suppositi supposition. >> what a terrible idea. >> let's suppose that you were doing that job. and you confronted the problems that confronted bernanke in '08. what would you have done? >> well, let's see what he did and what i would have done differently. i lauded his response to the failure of lehman. even though i disagree with the idea that in the midst of a recession, without announcing it in advance, you change the policy that's been in effect for 30 years without telling people you're going to do that. i mean, that's enough to scare the bejeebers out of anybody. but he did that. then he cleaned up the mess. when he did it he said, look, these are short-term securities. so they're going to run off. but they didn't. when they started to run off, he bought long-term securities. that's when i would have gotten off the train.

when the long-term securities began to run off he bought mortgages. i wouldn't have gotten to that step. i would have stopped before that. and i would have said, look, my policy is to get back to long-term growth with low inflation. and so i'm going to do what i can to prevent -- to clean up the mess. but i'm going to do it in a framework which says i know where i'm headed over the next three to five years, and i'm going to consistently go there. >> but if you'd stuck to that -- you know, that purist line, you might describe it that way, what do you think would have happened to the economy given the fact that congress hasn't been in a position, hasn't chosen to do its job since the lehman collapse? or at least so one might argue. i mean, you know, what would you -- what would you have expected to see happen in the wider economy if you'd taken that hard line on monetary propriety?

let's put it that way. >> i would have assured people that if there's a crisis i will respond to it. but i will try to strengthen their expectations. just the way paul volcker did when he was reducing inflation. you know, that wasn't a popular action. >> no. >> there were demonstrations against him all over the place. but here's the lesson which i think is very interesting. in january 1982, with the home builders on their back, worse than anything in this current recession, he went to las vegas and talked to our home builders. he said to them, we either end inflation now -- if we give in, we're going to start over again. and it's going to be even harder. they gave him a standing ovation. you know, why? because he was telling them this is where i'm going. get ready for it. bear up, because in the end, it's going to be better. and he was right.

and that's what i would try to do, get them to believe that what you're going to do is really going to be in their longterm interest. because that's the only thing that policy can effectively do. >> now, i understand, of course, you know, the -- i think many people, most people, would agree that volcker was a hero and what he did was both brave and right. but one might also argue that the situation confronting the u.s. in '08 was even worse. i mean, one could argue far worse, in fact, than the situation that confronted volcker. and if you'd -- if the fed had stuck to its guns and said, we do monetary policy and we do it with an eye on the long term, if congress isn't capable of mitigating the short-term crisis, tough. i mean, how bad do you think things would have -- would have become? >> well, you know, volcker did this with the reagan deficits.

you know, he just didn't buy government bonds. now the fed is buying the bulk of the government bond issue. is that a good idea? i don't think so. and i don't think they're going to think so when it comes time to sell. the important question is not whether what he's doing today, tomorrow or next week is a good idea. the question is, how is he going to unload a couple of trillion dollars. trillion, that is, with a "t." >> that's right. >> you know, is he going to sell a trillion dollars worth of mortgages into this mortgage market with this housing thing? not on your life. you'll hear the screams from honolulu to portland, maine. >> i want to ask you about the -- you know, the reversing of the policy in a moment. at risk of being, you know, overly persistent, let me just press one last time on how bad you think things might have got. i mean, if i understand you correctly, you aren't saying

that the fed failed to soften the recession. you aren't saying the fed's policies failed in the short term. you're saying that was the wrong goal. they shouldn't have concerned themselves with the short term. that leads me to ask, how bad might the short term have been if -- if you'd been running the fed? >> let me answer that slightly differently, in a slightly different way. the fed is 100 years old. how many of those years have been years in which we've had stable growth or relatively stable growth and low inflation? well, there was 1923 to 1928. on the gold standard. limping gold standard but a standard. i mean, there -- then there was 1985 to 2002 when they followed something called the taylor rule. more or less followed it. not identically every meeting. but pretty much followed it. that's it. the rest of the time they

produced the great inflation, the great depression, a whole variety of business cycles and they contributed, they didn't cause, but they contributed to the current crisis. so that should tell you that all this discretion and making policy judgments from quarter to quarter is a bad idea. and the economics profession is, if it's solidly on the side of anything, it's solidly on the side of rules are going to work better than discretion. and, you know, would we have had bubbles if we had followed rules? no, we would not. the bubbles are people getting out of money and into real -- into real assets, trying to protect themselves. and that bids up these prices, and the fed can't do much about that, but it can do a lot about preventing that. that's what we need them to do. we need them to provide stability, not to be ambitious. when it comes to regulation, they're abysmal. >> okay. i'm tempted to keep going, but let's move to the issue of reversing -- of reversing the

policies. i mean, we all now understand your view that it was a mistake to build up a balance sheet to this extraordinary extent in the first place. but it's been done. what do you think is the likely course of action now, you know, to reverse this? and what would you do if you were in a position to influence the decision? >> i would start to reverse it. >> straight away. >> i would start to reverse it. i would raise the interest rate slightly to 1%. i would look around and see what happened. you know, if it was too much, i might back off. but i certainly wouldn't go further. if it didn't create a lot of problems, well, i would go a little further, slowly, working toward some equilibrium. let me say -- think about this. there's $15 trillion worth of u.s. government debt. approximately $12 trillion is

held outside the government itself. every 1% that we increase the interest rate is going to raise the cost of interest payments by $150 billion. so while we're thinking about congress struggling to cut a little bit off the budget deficit, we're going to be adding with three percentage points in interest rates, we're going to be adding $450 billion or $360 billion. you know, is that good? heck, no, it's not good. now, you know, people will say, well, you pay it yourself so it doesn't matter. but we don't pay it to ourselves. we pay half of it to the rest of the world. so that's going to have big repercussions on the balance of payments. we have worked ourselves into a terrible position. you know, we're like the guy who says -- i'm like the guy who says, stop digging. >> okay. okay.

i mean, what argument -- we're going to talk about europe in just a moment because i know you've got strong views on that also. but if you -- you know, if you compare the u.s. and europe, if you look at where they are right now, you might conclude there's something to be said both for our strong fiscal stimulus, which the u.s. had by global standards, and for aggressive monetary ease which, again, the u.s. had much more than europe did, because the u.s. is actually seen to be emerging from the recession, does it not? you don't see those signs of recovery by any means in europe. >> i think the europeans have a mess and they're making it a bigger mess. you know, the greek bailout, it is surprising and extremely disappointing to me that when i read "the financial times" or most of the discussion, never is