great until the music stopped. so we have been living, i understand it, we've been living in a situation where, as i said, some people said this morning, there is no magic bullet that somebody is going to restore prosperity. we obviously want to give what support we can. we're doing that through fiscal policy. we're doing that with extreme fiscal policy, extreme monetary policy, but there aren't many buttons to push. take infrastructure. i would say where are you going to concentrate? it takes years to develop infrastructure projects and do it efficiently and effectively. we've got a great bridge over in new york that needs to be replaced. we've known this needs to be replaced for years, but is the federal government suddenly said, here's $10 billion to replace that bridge, it's going

to take six months to make the designs for that bridge much less hire anybody. >> right. >> so that ought to be a big component of the program moving ahead, but it's not going to rescue things before the election. >> paul, you wrote an op ed recently warning again about the dangers of inflation because i think you began to see and it's talked about a lot the chinese are worried saying the united states has so much debt that one way out of this trap is to inflate one's way out and sort of over time shrink that and then the chinese end up with a lot less than we have. you said that is really, really dangerous thinking. >> yes. >> i'd like to understand why, what you're really scared about. >> what i was concerned about when i wrote that is in the front -- in the natural frustration about the economy moving rapidly, there's some people, one or two voices, happily one or two voices in the federal reserve that said, well, maybe we ought to think about

having a little inflation. have a little inflation, then people will spend money more freely. it's hard to think how they can spend it much more freely than they were spending. anyway let's have a little inflation and that will pep everything up. i think that is a doomsday scenario. these days people really think that's the policy, then interest rates are not going to remain at 2.5% over ten years. people are going to say why am i lending at 2.5% if the federal reserve itself is aiming for 4% inflation. that's a game. you're not going to get any stimulus.

you're going to make it a lot hard to restore a sense of price stability which i think is crucial. the federal reserve's done a good job at saying, no, we don't forget about the importance of this. and they ought to stick to that. >> i'm going to take questions from the floor. i'm going to ask our servers, we're very grateful for you helping today. i'm going to ask you to keep it as quiet as you can. it sounds like crickets up here. we want a little quieter crickets. paul, george soros said, we were at the summit last year, describe the financial crisis as the burst of a bubble but of a super bubble. and he often said, and it was interesting because you know larry was up there that responding to a super bubble that has burst requires a very different kind of orientation that the typical tools that you use to respond to a recession won't work. and he would often say if larry summers is right, then he will succeed.

but if larry summers is wrong, and i'm right, then what the application of tools that they did in this recession will fundamentally not solve things. where do you come out? was it a super bubble that burst? and have we failed to really remedy the problem? or has larry summers, while he was in his position using more conventional tools and responding to recession succeeded? >> forget about the personalities, george soros, larry summers, whatever. the question is -- >> we have cnbc here. they like names. the question is, was this a super bubble? yes. it qualifies. did it have a character that was not amenable to a quick fix? the normal -- the garden variety of business cycles that we talk of and got rid of in the 1960s but didn't, you had some excesses and business investment. you may have had some excesses in housing and you had some

build up in inventories. but it was not an enormous scale. when the economy went down, it didn't take very long for the adjustments to be made. and particularly what happened was, because home building and the interest rates went down, you quickly get a rebound in housing. but you didn't start out with enormous excess of housing. there are still a million or two million hoemgz either in foreclosure or in foreclosure. big supply over hanging the market. so you get no rebound in housing. forget about the mini sessions. but we're v shaped. it is not a "v" shaped after this one. all things considered, i think

we're doing pretty well. we have had a couple years of expansion. it looks a little better now. unemployment rates coming down. but we can't ask for more than the economy is able to produce in the short run because we haven't eliminated all the excesses, the overhang of houses, the overhang of debt is still there. >> great. let me take this first question. if you'll identify yourself please. >> i'm norman kirland with the center for economic and social justice. i -- one of the major points that were made this morning was that there need to be a challenge to the existing economic paradigm. and doctor volcker, you confirm that. there's a need for change but there's also a need for the big picture. now there is one big hole in the economic paradigm. it's reflected in our -- >> i'm going to ask you to frame it in a question.

we just don't have time for statements. so make it a question. >> the question is why in the existing economic paradigms of all schools of economic thought do they only focus on labor and there is a potential additional way of achieving shared prosperity? that is changing the tax system, changing the federal reserve policies? changing -- adding back glass stiegel so there is more regulation, separation of powers within the financial industry so that capital credit is different than consumer credit. there's all these things fit in to a way in which you can expand

capital ownership as we have done under the laws for employees. why can't we do this universally for every man, woman and child in america? >> thank you, norm. >> i don't know how to answer that question. one of the things that you are suggesting might be desirable to good back to i think at least people talk about going back. they are worried about how you support investment as opposed to consumption. that is a key issue which i was elaborating earlier. there is a push back against the paradigm of efficient markets. and rational expectations is pretty much gone. but that -- there is a lot of regulatory and market thinking in the past decade or so.

so i think -- if you were trying to sort out the kind of thing that you're talking about, where we need the debate and that does come down substantially to questions of fiscal policy and tax policies. spending policy and tax policies. and my hope is as more agreement can develop more -- you could argue that we can find elements of agreement. >> keep the cricket noise down. yes, if you'll identify yourself. >> my name is mark nadel. the question, is you mentioned that the country needs something even more substantial than simpson bowls and that's going to include policies that are unpopular with republicans and

democrats. i question is what do you think is the most important economic policy that obama needs to convince the democrats to support and what do you think is the most important economic unpopular economic policy the republican candidate is going to need to convince the republicans to support? >> good question. >> what i would like to see, frankly, is both sides for now and the republicans settle on one candidate and sketch out a kind of basic vision that they see particularly for budget policy, fiscal policy, taxes and see upon which points they converge, which points they do not converge upon. is there any possibility of reconciling? during an election campaign, the answer to that is no, they won't reconcile during an election campaign. but will there be enough sense of convergence that whoever wins the election has some basis for a strong and comprehensive program? and i would say in some respects

going, for instance, beyond simpson/bowles on both the taxation and the spending side. i think they thought a big distance of setting out one set of possibilities can we build on it? >> if you'll identify yourself, please. >> i'm a private investor. my question is about crony capitalism. do you think the concept of too big to fail might be more like too welcome connected to fail? -- too well connected to fail? why can't we have an rtc concept like after we had in the s&l crisis in texas and the southert like after we had in the s&l crisis in texas and the southern states? >> well, you know, the question is to how much the rescues involving in too big to fail

were compelled by the crass political instincts. i think not much. that became the habit. it would become a real problem. but we had a genuine emergency. and i think the extraordinary actions that were taken were not to reward some political supporter or person or industry or whatever. they were taken and national interests. now what turned out and unplanned chaotic way was an approach that in some respects did resemble the old rotc. the uche treasury put capital, u.s. taxpayer put capital into weakened financial institutions which is what happened with the roc. it was done helicopterer xelter

in an unplanned way. there was a fear during this what may appear to be a more orderly way. and it was overdrawn that somehow in the emergency of this is warranted. i, frankly, think that here it was overdone. there is capital in the banks in an emergency. and they haven't ended up running the banks and the crisis is over, they withdraw the capital and hopefully leave the strength in the bank. actually, i wrote an op-ed piece or two before the crisis was up at the breaking point. something like the roc might abe good idea. i can say that writing an op-ed piece and the response and they need congress to approve that.

and the answer was probably proper answer is probably no. because you had enough trouble getting the congress to approve after the crisis. and the evidence was so parent. >> peter? >> your mike is not on. >> maybe that's better. >> it's an honor to ask a question for the last competent person to chair the federal reserve. but here's my question. it's a very simple one. you mentioned in your speech that you -- one of the biggest problems we have as a nation and i agree with you is that we borrow too much and we spend too much. then you went on to praise congress and the fed for the stimulus when the specific goal of the stimulus is to get us to borrow and spend even more. so if the problem is too much borrowing and spending, how is the solution that we borrow and spend even more? >> thank you.

well, sometimes -- i don't know. there is a word for this but i can't remember it. it's a complicated medical word. sometimes you have to take a little medicine to make the medicine better. in a sense, it's a buying of time. >> the problem is worse if we go deeper into debt. >> i appreciate it. i need to let him answer the question. i appreciate you asking it. we have to continue to move. >> we hope it doesn't make it worse. for the time being, you need a band-aid for the economy. and i think a reasonable treatment was it would be worse without it.

and even harder to recover from it. let me push on this issue. another analogy is using if you skidding, you turn into the skid and then turn away. but after the '97-'98 crisis, i recommend larry summer worried that global growth would plummet. the deal was the u.s. economy had a few chugging away and keep the rest of the world moving. and thus that air are a of very low interest rates was not to america going but to keep the rest of the world moving. and then the question is when you create that climate, which means that others were part of, have you created a set of interests that are hard to turn out at that skid? and that is maybe a different way of asking peter's question.

but are we in a system where we've become addicted to a narcotic of cheap rates, that is fundamentally creating a different set of incentives that is unhealthy in the economy. >> i don't think -- having interest rates where they are is a symptom of something nomadic. it reflects the difficulties we've had. it's an extreme shock to the economy which comes along pretty rarely. but let me go back to the asian crisis. all they're doing is observing it. i was a little bit involved in some of the asian countries at the time. we were trying to address. but i'll give you a reading which larry will probably disagree with. but we've been through the mexican crisis.

we put a lot of money into mexico. i used to run these agencies. i never thought they would have that kind of money. but somehow they developed it out of thin air. and in a sense it was successful. mexico had a good recovery. but there's a lot of political criticism about the amount of money involved and why do we have to get so deeply involved? and then the asian crisis comes along. as i observed, the first reaction of the united states government was to stay away. they said this is an asian problem. we don't want to get involved in every crisis in the world. so thailand is a small country. that's all right.

we don't need to jump in. and then it got to indonesia. indonesia and imf got involved. not as accurately as it might have. didn't like the japanese getting involved. that's obvious. then it got pretty bad. then it went to korea. now we got a bigger country. korea got in trouble. and so while that was going too far. so we jumped in. we helped marshal the banks together and take care of the crisis. indeed, that was a good example of relatively small country but in trouble. but that country getting in trouble, very sharp fluctuation in the exchange rate. its neighbors got in trouble. because that happened in thailand. why can't it happen to indonesia?

why can't it happen to malaysia? finally, what happened to korea? and at the end of the day, it was felt necessary, quite correctly, to say united states better become more active in this. you can say so what? korea went into default. there were other countries that went into default. they're not easy. maybe they should have gone in earlier. >> we're going to take the two questions. i know bob rubin is here. we're going to move immediately to the next session. >> he can tell you all about what happened in the asian crisis. >> two quick questions. >> there's been a lot of quantitative easing, a lot of purchasing of debt. how do you see this unraveling? all the money that has been used to remove --

>> you're talking about the federal reserve. >> right. >> let me get the next question. so debt and unraveling. yes. >> mr. voelker, you said something to the effect that any financial innovation after atm doesn't do too much good for the economic growth. so my question is that in your perspective does financial innovation and the financial engineering contributed to the widening income gap in this country? and frequent -- >> great. >> let me -- we don't have time. we're'going to solve the income

gap in this country as some of our budgetary problems and priority problems like financial innovation. we got in trouble by thinking financial innovation can solve real problems. financial innovation cannot solve real problems. it's not going to reduce the amount of consumption or savings. just forget about financial innovation. if there is anything we had enough of, it's financial innovation. [ applause ] on the federal reserve -- this is a very unusual situation. the federal reserve has done things unimaginable a few years ago. much bigger balance sheet. all sorts of run up. but they do not present a compatible problem. they reversed what otherwise was a money creation and so forth. the problem will be the ever lasting problem of central bankers. do you begin tightening up soon

enough when the economy is launching itself on an expansion? the problem will be -- it's always unpopular. whoever wants to tighten up at all when unemployment is still whatever it is. it can always get better. so leave it alone. and you begin taking tightening moves however mildly that are likely not to be widely welcomed in the political environment. but that's what central banks have to do. so i think it's a central bank policy problem. it's not a technical problem. >> one last question as i look at my team, i don't see bob rubin and gregory yet here. i'm not going to go off the stage and invite elizabeth baker up.

but i know in my digging around in your work, you are deeply concerned about the state of public administration, those that are tasked with stewardship responsibilities in the government. and in the next robust phase of your life, you have committed yourself to doing something about it and trying to change the quality and support for those people who are serving in government. i'd like to get -- i'd like to share with the audience or have you share with the audience what you're doing on this. >> this is a long-time concern of mine on how they will improve public management and private administration. i think part of the problem and the ideological problem we have on both sides. neither is true. what we need is efficient government that can be widely supported and trusted.

but that's what we need. government has reason to be efficient and effective and widely trusted. that is not what we have. they have taken a lot of these things asked. one of the questions is do you trust your government to do the right thing most of the time? it doesn't seem like the most strict task you could imagine. do you trust your government to do the right thing most of the time? recently the answer to that question most of time is 20%. i think the most recent survey shows a low 20%. you're not going have a very healthy democracy if 80% of the people don't trust the government to do the right thing most of the time. to a certain degree of skepticism is expected. we can't be so skeptical that we don't think the government can do anything right. we can't trust them. you have to be suspicious of everything they do. i don't think the government is totally incompetent or anything else. i think there are areas where it's not very competent and hasn't done a very good job.

we need to concentrate on those and do a better job. and help restore one almost and restore trust in government. let me give you two obvious examples out of recent events. hurricane katrina. we have a big -- spent a lot of money on the office of emergency management. it was considered a total flop in responding to a hurricane that had been predicted. with good reason, i think. then a few years later, we have this oil spill in the gulf of mexico. i didn't hear anything about it. i didn't even know we had an agency which the purpose is to protect the safety of reliability of off shore drilling. we have such an agency. they obviously haven't been doing the job. these are two very technical problems. nobody's going to argue it makes

sense to protect against oil spills and need a little guardianship. no one is going to argue we don't need a capacity for emergency assistance. can't we do that function a little nor reliably than we have been. >> well, i appreciate you sharing that. i see bob rubin here. chairman volcker, i will tell you that we invited you here today to talk about stuff we wanted. but when your institute is set up, we would love to invite you back to talk about the things you want to talk about. >> good. >> let me have elizabeth baker to take the stage. thank you again, chairman voelker. >> thank you very much. join our live call-in program with distinguished former navy sale and author chris kyle as he talks about his

life from proflsal rodeo rider to become one of the most lethal in my opinion snipers in history. >> if you think of yourself as a family and as a team, when i get a raise a the work he's so proud of me. we got a raise, our family got a raise. but i really thought she defined providing to include what her husband does and she had a lot of respect for what her husband was doing. >> "the richer sex" author on the changing role of women as the bread winners in the family and how that impacts their lives. also this week, "america the beautiful" director of pediatric neurosurgery of johns hopkins ben carson shares his thoughts on what should be done to avoid a similar fate. sunday at 3:30 p.m.

a look now at the energy department fiscal year 2013 budget. this is about an hour and a half. >> good afternoon, everybody. i would like to call this hearing to order. secretary chew, i would like to welcome you back once again through the subcommittee. i understand through the grapevine that today is your birthday, is that correct? and it's also your wedding anniversary. >> who is he doing here?