model. the amount of national savings is in part on federal borrowing. all of these things are in these models. the solo-type growth model first of all, as i say, is based on real empirical data. based on elasticity, where we're looking at the impact of previous changes in policy previous changes on economic variables, and so it assumes that people base their decisions about working and saving primarily on current economic conditions and current policies. that said. it's more shortsighted than other models, but in a way anticipation of future policies is in there in a general way because within the ee lasslasticityieselasticities when taxes changed people changed their plans. anticipation of future policies is not explicitly in the model, it's in there in a general way

in the elasticity. this is what makes it a bit easier to operate. the second is a life cycle growth model. some people call it an overlapping growth model. this differs only in that it explicitly takes into account explicit expectations about future economic conditions, right? we work on making these models so they're actually consistent with each other. we're likely not running the life cycle growth model without looking at the solo model to be honest. we try to make the parameters consistent. the tricky part about the life cycle growth model is it goes on forever, right? so, what happens to expectations is people see the federal budget debt going on to infinity forever, right? then their expectation is it's not sustainable and you've got a problem. the model won't even solve under those circcircumstances. you have to have an expectation

of future fiscal policies in particular that put the federal debt on a sustainable path. so you've got to make an assumption about policy in here. the notion, i mean the basic logic of a household won't hold government bonds. they expect the bonds are going to be worthless one day. that's one way to look at it. we've actually had pretty good luck using this model and it turns out in practice when we look at this sort of future fiscal policies we put them enough in the future that it doesn't matter so much what the policy is, the model solves and the results aren't that sensitive to the exact policy. in other words you don't have to sort of figure out how congress is going to solve that debt exactly. a number of ways you can do it as long as you put it out maybe 25 years in the future. difference between these two models life cycle growth model

is going to be important on things that have clear future expectations involved. social security, we never use just the solo type growth model with social security because social security is so far in the future that it's really important to look at explicit expectations about future expectations. we likely bring in this life cycle growth model. clearly those things are involved. and if my slides were working i could show you the elasticities that we're using. not that i expect these will necessarily mean much to you, but the point is we're going to be transparent about it. you can see these elasticities. i can tell you when we talk to our economic advisory panel we had some debate about the values of the statistics there right? that's the sort of debate that we want. we want to be sure that we get that right and it's defendable. our goal is there may be a range of values, but we're going to give a point estimate we're

going to give something that's consistent with the review of the profession and we're going to give you some idea of the uncertainty involved. sometimes it's a problem of unknown unknown, right? so how do you do standard error? how do you do uncertainty there? well, one of the ways you do it is what we did with the long-term budget outlook. some of the important variables are things like productivity. well, we look back at the history of productivity growth and we notice productivity growth historically ranges, has certain range to it. well, we ran the model through that range. we had a point estimate that we used. we ran it at the high end, at the low end. give you an idea how that affected the output. it's not a standard error but it does give you an idea of how much there's been in productivity and how it affects our forecast. that gives you some idea of what we've got here.

and i think especially the presentation and how we do this is going to evolve over time. it takes a little time to do this. there's a very important language that we actually ask and we were kind enough to add. we're supposed to do work on anything that has gross budgetary effect of 1/4 of 1% of gdp. it was great language to the extent practicable. sometimes there may be stuff where we just can't do it. to be honest, sometimes we may find this is not that big of a step. we can put it in there but, again, it sort of depends on what it is. elasticities that are crafted better to particular types of tax changes, particular types of spending changes. maybe in the near future where i actually have no idea how we're

going to do it. trade promotion authority is up. trans-pacific partnership, right? if that becomes a bill. if you are asked to dynamically score that we don't have any trade models let alone dynamic impact of trade models. you need something more. sometimes the models aren't enough. that's going to be a challenge for us. >> thank you dr. hall. curtis? >> it's a real honor to be up here with such an august panel. as david eluded to in the introduction, heritage has been working on and towards dynamic scoring for a real long time and we continue that work. all of us who work on it today stand on the shoulders of bill who set that up. you did the first one in 1996, right? the first dynamic analysis here. they kept it at cda for about 20 years. we tan work. we're really excited to see the

ruling in the budget this year because this is a really big step forward. one of the keys to modeling is that you get better at it the more you do it. it's really important that cbo and jct do the modeling because they'll learn more and more each time they do it. go back to last year, the way jct scored the tax reform proposal that the chairman of the ways and means committee did, they learned an awful lot when they did that. they did a pretty good job considering it was the first big dynamic score that they did in a long time. the next time they scored the tax reform they'll do a better job. so it's that feedback to help you get better and better but transparency is also a big factor. if you put the score out, you put them out often. you're transparent about what you do. you get feedback from academic communities and the community. it's an iterative process. we'll help with getting the point estimate that bill talked about. from a higher level, there's a

lot of talk in policy making today about being pro science and anti-science. i think this plays into it. this is a pro science thing. we know, we have the technology. we know how to use it. it's there. we should be doing it. we need to use it more and to show that it can be done. i think that will happen as we advance and we do more and more of these dynamic scores. it is certainly a pro science. it is certainly an advancement because we know that static estimates are wrong. we know that certain bills do have that -- do have that effect on the macro economy. we do that. dynamic gets us a more accurate score. no score will be 100% right on. we know we're moving in the right direction. that's why i think it's a huge, huge thing that bill and andy have helped put together and dr. hall is going to help implement. we can keep building on it going forward and eventually we'll get

to a place where dynamic scoring is not really a debate anymore, everything will be dynamically scored. thank you. all right. we have time for some questions. please use the microphone for the benefit of those watching over the internet. and identify yourself and your institutional affiliation. question. yes. >> hi. kevin dyre from the heritage foundation. i was wondering if any of these dynamic models have been used to back test previous legislation, such as for example, the camp rock tax in the early 1980s and the dynamic effects of that and if you were able to reproduce whatever occurred? >> to my knowledge, we haven't done that. i do think that's an interesting idea. you know it's always hard any sort of economic forecasting is difficult, right? we mess up on the short-term forecast all the time just like

everybody else does. here we're talking about a long-term forecast. it's difficult. it's hard to know what went wrong in a forecast. i do think that would be informative. one of the issues for us is how much time we can take to do a back cast like that. i think that's an interesting idea. >> you wouldn't be able to forecast up to 30 years -- from the back but maybe 5, 10 years into the future you could see some interesting results. >> right. yes. >> david, i wonder if i could say a quick word on that? >> yes. >> steve etten who's in the audience sitting over there and one of the great pioneers in this whole area of costing dynamic analysis and so forth, he and i were privileged to be on the design team when the joint -- when the jct watts putting together the make model, which is their dynamic model. steven, if memory serves me right, they actually did a backcasting exercise. i think that they looked at the

2001 tax act maybe the 1990 -- something in the 1990s. the interesting key ask pam lumel or tom to pull that study out, and it was very enlightening to us as we were putting together the specifications of the make model. >> over here. >> bill hoagland with the bipartisan policy. first of all, thank the panel. thank you all for your presentation. i guess this is a question for bill. i'm looking at the report. it's been bothering me. in the report language it says, in the senate these estimate would be provided for informational purposes only. >> right. >> can you -- >> right. >> -- clarify how this is going to work if it's only for informational purposes only -- >> right. >> -- in the senate? actual scoring as andy has

outlined in the house? >> sure. and that's a great question. we're often asked that question. there are differences, as you know bill more than perhaps anyone else sitting in this auditorium today between the rules of the house and the rules of the senate and so not to get anybody disturbed about that difference, but that is the difference. in fact there is even a difference as between the house and senate as to who is the upper body. clearly the constitution says that the senate is the upper body. that is a difference of opinion. so, in the rules of the senate we have a predilection against more than one cost estimate being on the floor at any one time. so we are working with all with all the elements in the senate parliamentarian, everyone else to explore how we can bring this new scoring into the senate rules rules. more than anything else, that will be dependent upon how we

eventually get the cbo scoring table done because that will give us an idea of what is that score. so we'll have to kind of put that question off to the side rail for a while. it is a developing discussion. we aren't changing the rules of the senate. we would accommodate ourselves within the rules of the senate. >> the concurrent budget resolution contains mandatory language. it's not nearly advisory and the senate agreed. >> there we are in the rules of the senate various rules about points of order, about -- we've got a lot of complexity there when it comes to scoring. we need to work this into that. we need to find a path into that. so i'm not particularly disturb disturbed as we were working our way through the budget resolution.

we weren't ready. we weren't even up to getting all that done when we were debating a budget resolution. i don't think that's the appropriate place for that to be done. i would just watch that develop and maybe by the time we are a few months in from here we'll have news on that front. we'll just see how it's being done. having said all that, let me point out in a more general sense that any macroeconomic score that comes out of cbo will whether it's official score, whether it's informational, whether it's guidance, whatever is going to result in a better policy debate, don't you think? so i can't imagine it wouldn't improve things. we'll all watch to see how that develops, bill. i hope that addresses your question.

>> this has been very interesting. this is for dr. beach, actually following up with bill's question. i couldn't find the specifying language for the senate, for informational purposes only. not with the conference report but the actual tax stuff, the budget. is the same restriction not in the actual legislative tax -- can you explain that a little? >> if i had my lawyer here i could probably help you out. you're asking questions for an economist somewhere. >> i have an economist question too. regarding the reporting and presentation issues you've talked about, and i would love to hear dr. hall's thoughts on this obviously, you said your intention, the intention of this project increasing and kind of putting in place the standard macroeconomic analysis would be to have one scorer and have this

replace the point estimate. you wouldn't see what the convention point estimate would be alongside this you would just see this. >> that's yet to be -- that's one of the design issues that's still coming up. we haven't quite crossed that bridge yet. >> dr. hall, what do you think about that? do you see value in continuing to present the conventional model outputs even after -- even if say, this becomes the standard dynamic scoring become it is standard? >> yes, i think if it's up to us we would produce the dynamic score and also somewhere in the document have a conventional part and a macroeconomic part just for understanding the score and understanding the uncertainty in what we've done. >> if i could add a brief thing. >> sure. >> i think from a transparency point of view, i think what keith said right there makes a world of sense.

i would just add that for -- and bill knows all about this, both bills, i should say. for official scoring purposes, when you're moving legislation forward and the parliamentarian or the councils, whatever committees are involved, the results committee, they need to see that point estimate. you're probably going the need, if we do these pieces in a macroeconomic score, we're also going to need the overall totals. it's just another -- basically just a summing up. so to this is to avoid confusion, frankly, for people -- particularly until this becomes more routine. >> other questions? this gentleman? >> jonathan nicholson of block berg. i was confused on the life cycle

growth model stuff. and i guess you have to have a point estimate. most cbo scores are over ten years. but if you put the solution as to how something is paid for, whether increased access or cut in spending 25 years out does that undermine sort of the -- if your score is for a point estimate over ten years, but your solution, closing solution is 25 years out does that undermined the score on a consistency basis? >> i think our goal is always to try to be sort of in the middle, look for consensus and look for something in the middle. if in fact, a particular score with a life cycle model there's impact of changing the policy back and forth. we'll try to be transparent about the effect of the policy down the line.

>> thank you so much for your remarks so far. my question touches on transparency confusion and also the dynamic nature of the scoring. is it also the case that the administration is creating its own analysis and competing with the numbers. you're all scientists and focus on the numbers. i wonder if you would talk about any pressures you feel to either manipulate -- are you feeling those pressures? and to the extent it invites confusion when the administration comes up with their own scores of behavioral economics, much more responsive in a dine namic manner. thanks. >> i'll answer that with a story which is always safer for me than to answer directly. when we started the to do dynamic analysis here at heritage, our first project was to take a look at the 1993

ominous budget reconciliation act which many of you know as the 1993 tax increases or those that saved the '90s, depending on your perspective. during the course of that we discovered president clinton's office of management and budget had used a dynamic model to take a look at the 1993 tax increases. we were very comforted by that, not knowing at the time it was a controversial technique. president clinton just wanted to know what was going on. i have since learned that the white house and the treasury have been leaders but not well known leaders in developing dynamic techniques. i think to go back to something curtis said, and perhaps even all of us have said. the more this is done, the more there's this controversy and debate, the better the technique also become. it's a scoring procedure which

is here to stay and we need to explore it thoroughly. >> anybody else? this gentleman in the back. you can hand the mic if it's easier. zbr i was wondering if the states have adopted any doom namic scoring or if success on the federal level might spur states to do so? >> i know bill can answer the question. the answer is yes. go ahead. you have more experience. >> in the book that was referred to by david burton there's a chapter on what the states do. when we wrote the chapter in 2005 we found ten states that use dynamic scoring, dynamic analysis or dynamic input in forming their budgets or looking at their legislation. two states that did so were

large states new york and california since that time texas has also started that, maybe more than ten today. yes, there's a laboratory out there and there are states that have good practices probably states that don't have pretty good practices. there's some ground truth and experience on that front. >> yes, ma'am. thank you so much. i just had a quick clarification question about kind of the criteria for bills that will be under the dynamic scoring. will your dynamic scoring include estimates beyond just like the general ten years or will it kind of cap off at an estimate that's ten years? >> oh, boy. nobody wants to answer these

questions. so we use a ten-year budget window for almost all of our legislation, there's some exceptions. the joint resolution asked cbo to give an opinion, a qualitative answer for the next ten years -- 20 years actually. cbo has from time to time given us as they did yesterday a long-term budget outlook that goes out in this case to 2014. so there's an answer to your question which goes to routine everyday budget work. that would be probably the best thing to say, yes, a ten-year look, but there are lots of scores that come out, not even scores, but research papers that look beyond that period of time. i wouldn't. again, nodals are limited as yogi berra, you were saying the

other day keith testified in front of our committee this morning, i think he said all projections are suspect especially those about the future. and this is a yogi berra thing. that's probably a good thing to keep in mind. this is just to give policymakers a new piece of advice not to give them a perfect prediction. policymakers have a real hard time -- they have to make judgments, so they have to see probable paths of consequences of going a or b or c. that's what models do they give the most likely outcome, but certainly not to be ever held to an account especially for the long term to give them perfectly accurate results. >> it will matter to a great deal in the context of what the bill is doing. if you're making changes to social security care and medicare, you'll want to see 20 to 30 years out.

>> it's also depending on whether you're at your potential growth. the dynamic is about changing the part of the economy. if you're well below potential, you have to get to there first. for example, right now that dynamic part may not add that much on a ten-year forecast because the economy is not a potential value. next question. this gentleman. >> naud naud[ inaudible ]. you mentioned the transpacific partnership. so my question is what upcoming legislation might qualify for this rule? i guess a few examples would be a repeal of the affordable care act, legislative response to the burwell decision transpacific

partnership partnership, tpa highway reauthorization, and finally business tax reform. >> that's why i said it may all well be tested soon. i don't know if any of those may be the first or the second or if it will be others. but i suspect we'll get a test fairly soon and relatively short order. that doesn't mean next week or the week after that, but sometime relatively soon. >> we'll try to be ready. >> is it clear whether any or all of those would qualify? >> one of the considerations, too, is we can be asked to do a dynamic score even if it doesn't meet the criteria. there's still some unknown from that respect.

>> dr. hall you mentioned that there's this trigger over which has to be bigger or you don't do it and you have thousands of things to do. our model is simpler than some of the ones you're running, and we're not trying to model quite as many things. whether i enter a one-point change in the corporate rate up or down or a 10% change in the rate up or down, the motto runs just as fast either way, given a second or two, some have enormous changes in dead weight losses and growth. others have little effect or actually act perversely or more than pay for themselves, or some. i would like to know the difference between the ones that have a big effect on dead weight losses and others that simply don't seem to do much damage or

don't do much good if you look to change them. you might have one big cut that does a little bit of good, and you may have a bunch of very small offsets, all of which that has big dead weight losses and you shouldn't be touching them. if you're not modeling the bad ones and only modeling the good ones because the good one is god and the big ones are bad, you can give people the quality of the type of tax change they're recommending, and you could at least group them into things that obviously do good or obviously do bad and sort of scale back your estimate and get more information out or develop a model that runs faster, this information about what's good and what's bad tend to get lost if they're all below the threshold. that could result in a bill that turns out to be bad when -- i hope you can get a model that runs quickly enough to give the

small tax cuts they're due or tax increases they're do at some point. >> of course, we can be asked to as well. >> i know when we've done it, it's taken a while to do it in a way that they're comfortable. >> that often raises a presentation issue in a effect. are you going to have one aggregate score or disaggregate the dynamic effects of subsets of large legislation. have you guys thought about that that? >> we've asked the cbo to think about how they would show us the dynamic effects on outlays, summed up in a bill, on revenues summed up on a bill and on the deficit. those are the things in the

joint resolution which we've asked them to produce. that clearly is of a kind of informational -- i don't know how that will fit in. if i remember correctly looking at true conventional scores they usually sum up all the provisions and give you a line for to outlaid portion, some up all the revenues and if there are revenue ms. the bill. as we've answered several times this afternoon we'll be waiting for cbo to work with us, andy and myself, and people on the staffs that we work on to develop those display elements. again, we're at 1975. we're not where we are today on conventional scoring with respect to dynamic scoring. we need to really think thoughtfully through this, how we're going to display and how we're going to operate.

>> yes. >> thank you all for being here. question for dr. hall. i'm very much in the weeds, as bill would say. with outlays when you look at, say, just the static effect of spending say $50 billion on research and $50 billion on -- pick the most useless government thing you can think of. i don't want to pick on anybody. think of something useless versus something, say very good research that's helpful and contributes to growth and industry, et cetera. from a static perspective both of those cost $50 billion. the treasury is writing checks and you have a deficit. from a dynamic point of view the former kind is clearly better. we intuitively say it's clearly better to spend on investments or things that aren't useless or things that don't do harm somehow, does cbo have a way or

have you thought about developing ways to group or classify or evaluate types of outlays. seems to be a much harder problem than on the tax site where in tax you're basically giving people their money back and they'll do with it broadly what they were doing before, just all skaepd up slightly. i think that's probably the hardest question when i think about dynamically scoring things. i'm curious what your response is. >> i agree. that's the part of thing that's part of experience with it. we start to get comfortable with the sort of things we're looking on. certainly on outlays timing is really important that's not with taxes. i think that's probably going to be an issue when we start doing dynamic scoring and we start deciding what sort of timing the effect is going to come in. if it's something that impacts pro ductivity, that's how out in the future a little bit. so that's going to be an issue. >> we have time for one or two

more questions and that's it. david? >> first for the three phds on the panel thanks for your service to the country. we all appreciate and benefit from it. dr. hall the question i want to ask you relates to the words you put in the concurrent budget resolution. i wanted to be sure, if you can assure us, that cbo will interpret the words to the extent practicable in a professional sense. something may not be practicable because you don't have the models that will accomplish it or somebody wants something in three days and you only have such a big staff and professional issues like that. not it isn't practicable because maybe powerful people in congress don't like the answer i'm going to give and therefore it's not practicable to give a result. they want to be sure how to interpret the language you put in the resolution. >> the extent practicable is

sort of a professional ethics sort of term. it's whether we feel like we can produce an estimate we think is going to be accurate we think is defendable for us. that's really the only way i'm thinking about that term. >> perhaps one more. anybody? this gentleman. >> referring to the outlay part, you get political reactions that say, well, you're doing this dynamic analysis only for the tax side because you want lower taxes, and what about the benefits of government spending and so forth. it seems to me that to give a good answer there you need cost benefit analysis of the spending. so the individual agencies that

are performing and getting funded should be doing appropriate cost benefit analysis to show that the way they're spending the money is actually generating results where the benefits exceed the costs. and that seems to me is going to be very complicate edd, an overall macroeconomic analysis. can you comment on that? >> the way it works now with any scoring, we often call agencies and talk with them about details of how they'll do what they're being asked to do to help us make these sort of judgments like that. of course, it would be helpful if agencies already had some work they could cite something they could help us with on that. that's an interesting issue. i think it's a real one. >> i'd like to thank the pam for your participation. i think everybody learned a

great deal. i think theank the audience for coming. [ applause ] >> this concludes our event. in the next washington journal, two members of congress discuss issues before the house of representatives this week including u.s. military strategy against isis, the withdrawal of troops from iraq, international trade and the affordable care act. we'll talk to missouri republican vicky harts her, member of the armed services and agriculture committee and

connecticut democrat joe courtney also on the armed services committee. live at 7:30 eastern on c-span. chief financial officers from major corporations gathered in washington, d.c. this week for discussions on the financial challenges facing their companies and the global economy. over the next few hours we'll watch several panels from the day-long event. some of the topics health care costs, tax reforms regulation and trade. up first, the economic outlook hosted by the "wall street journal" cfo network, this is 30 minutes. >> thanks very much for joining us this morning, jason. interesting time in the world economy. i'd like to start out actually by asking a little bit about what's been going on in the economy. i and many people i think the white house thought this would be the breakout year. we thought with most of the headwinds, whether deleveraging

or physical restrapt we would have an above-trend year. a naegive quarter in the first quarter, like the third negative quarter since the expansion began. a lot of the data has been kind of mushy. how worried should we be that the economy is now flagging and there might be something more fundamental wrong with it? >> that's what the economy looked like in mid june of last year. it looked a lot like this. the first half growth was tracking at about the same number that the first half's growth is tracking at this year. we then saw a really strong second half last year. i continue to think that a lot of what was pouring the economy last year was consumers. they're 70% of the economy. they're deleveraged they're confident. they have higher real earnings that due to lower gas prices and so i continue to think that will be a good part of our economy that takes a little longer to get going. but we did start to see that in

may. >> you mention consumers and everybody who believes the drop in gasoline prices we've experienced should be delivering a fairly sizable boost to consumption. thus far it seems to have gotten us to saving not spending. what do you think of that? >> i think it's been really puzzling. if you look at the jump-up in the savings rate it's about the 90th percentile than we had seen, quite an en creasingly large increased. we got revised data for march and april. consumer spending in those months, may was a lot stronger. i think the savings numbers will come down a little bit. historically when they spike up like that they tend to come down. as they come down, that would lead to elevated consumer spending. soy think this may be sort of the normal bumps and wiggles in the economy that are hard to explain. but they make more sense over a

longer period of time. >> are you still expected the boost from lower energy prices to show up? >> i think we have not seen the full benefits of the decline in oil prices, yeah. >> there's been some speculation that events in the last six or seven years left a deep impression on consumer behavior. they don't respond to incentives to spend as they used to. too much pressure to deleverage to build up retirement saving overall caution given the negative shocks. do you think there's something to that? >> i think there's something to being a bit cautious. there's nothing wrong with being a bit cautious. i'm not saying everyone should go out and spend, everyone should go out and save. people will have to make that decision themselves. if you look at the behavior in the savings rate in the post recession period, what you've seen in the last four or five months is quite unusual and hard to explain even relative to the last couple years. i don't think it's indicative of

a big sea change as opposed to some mortem rare event. >> one of the things that was a big drag on the economy in the first quarter was trade, in fact, trade has subtracted from growth in four of the last five quarters. clearly one of the stories here is it's not just the u.s. that struggled to get momentum but the entire world. why is that? is that likely to change this year? >> i think the rest of the world has weighed on the u.s. growth as you just said. i think it continues to be a concern for u.s. growth going forward. i think it's a smaller issue that the consumer we were just talking about a smaller portion of our economy. there's a lot of answers to the rest of the world. i think being slow to the types of aggregate demand, expansion nair policies we've had in the united states is part of the story pour the rest of the world. the falling gas price will help in our trading partners, especially a lot of key ones.

i think that's good news and one of the reasons you've seen a positive surprise in the global data in the last couple months. the positive surprise is still relative to quite a low benchmark. >> one of the questions we've been debating a lot in the journal recently, it seems hard to believe but the expansion now is actually -- as of this month, i think six years old. the national bureau of economic research dated the start of the expansion to july of 2009. at 72 months we're now actually slightly longer than the average postwar expansion. i think it's almost as long as the 2001 to 2007 expansion. so naturally some of us are looking around saying it's starting to look a little old and maybe we should be thinking about when the next recession is. so first of all, should we be worried about the possibility of another recession coming along in the not-to-distant future? number two, if it happened, what

would we do? >> to add to the longevity point, we've had 15 straight months of private sector job growth which is the longest continuous period of job growth that we've seen. >> i felt obligated to see the glass as half empty. >> there's been a plot of economic research on this question. it pretty consistently finds that expansions don't die of old age. it's not that the longer it's gone on the higher the probability of going into recession. there basically is almost a constant probability of going into recession in any given year. and then you can sort of look at the situation and see does it feel a little higher or lower in that year. i don't think there's any reason to be worried about the age of the expansion. by the way we're still not fully recovered. we're almost there. but there's still slack in the labor market, still ways in which we're not back to where we should be. i'm not worried about old able. i'm not worried we're fully recovered. i do think we always have to be

prepared for ups and downs in the economy. and to have a more robust system that some degree that automatically responds as an economy starts to turn down, things like unemployment insurance, the way the fiscal system as a whole works. it's quite important for that reason. >> the view that monetary policies constrain because short-term interest rates are zero bound. they've done a lot in terms of unconventional policy such as expanding the balance sheet by purchasing bonds. the view is also that fiscal policy is constrained because debt is very high relative to where it has been historically. don't those pose significant issues? >> i think a decade ago most of the economics profession thought fiscal policy was something as ar kaiic z a way to deal with the cycles. i think what we've learned in the last decade and the way the economics profession has moved is one, you can have a sustained

downturn downturn, the fiscal policy does have time to address. two, the fed can be constrained in terms of what it can do. also fiscal policy on the road. three, a more balanced response using multiple tools can be better for a range of macroeconomic outcomes and financial sector outcomes. i think we as a profession think fiscal policy is more important. the fact that interest rates are so low is a real vindication that, if you're undertaking a fiscal expansion and the market understands why you're doing it, think they there's a good reason, the economy needs it think they're doing it in a sensible and prudent way, you're not going to be punished for that. if anything, it might lower your debt to gdp ratio by raising the denominator, the gdp portion. >> you don't accept the premise that we have no fiscal room if the need arose? >> i don't -- as i said, i don't anticipate it rising at some

point the economy is going to go up, at some point the economy is going to go down. we don't know when that is. fiscal policy will be a important part of the answer. >> let the record show i asked if you thought there was going to be a recession soon and you said no. >> i want to turn now to the policy agenda. of course this town is all abuzz with the discussion about the president's efforts to obtain trade promotion authority from the congress. the idea to be to consummate the transpacific partnership that's been in the works for a while. he and his staff have been out trying to make the case to the congress, is this something we ought to do. i want to talk about the economics of it. we talked a minute ago about how the entire world seems to be stuck if a slow growth mode. what are the prospects that tpp can actually change that? does tpp actually have the potential to provide some kind

of impetus to global growth. by way of background i sort of say that because a plot of critics have said that given how low tariffs already are by the countries participating in this it's poly anish. >> i think there's still a lot of potential in expanded trade to help with our productivity growth. i think our productivity growth is key to our overall economic success. first of all there are high tariffs in a number of areas agriculture, for example being one of them. a number of sectors are quite affected. second of all, a lot of countries we're dealing with here have significant non-tariff barriers. that's something united states tends not to have we have an open transparent, level playing field. a lot of countries we're negotiating in with tpp don't. we're trying to level those playing fields. if you look at a standard

economic model, they show that just those types of standard economic effects, lowering tariffs could add about $75 billion to the u.s. economy annually. i think that could be an understatement because expanding the size of the market expands innovation. expanded competition expands innovation. spending less time worried about these different barriers gives you more room to innovate. i think you can potentially, in addition to the economy, get some extra speed going out of this. now, i don't want to -- this isn't the whole agenda. there's a lot more you need to do in the economy, a lot of economic policies. this one adds this, that one adds that that one adds that. you do a bunch of them and they add up to substantially more productivity. i think this is a key part of that. >> this is a good opportunity to ask you all to actually weigh in here. we have an audience response question.

i'd like do go to question two, i believe, on trade. what i would like to do is ask the participants in this room their opinion about the transpacific partnership just how material will be to their business. i think you can all respond now. is this number, the number of responses we have so far or number of seconds left? >> you can feel free to change the policy based on the results here. i know you guys like to respond. take a look at this. it's interesting. so the good news is the net is positive. more positives than negatives. most people say neither positive nor negative. this is actually a very good cross section of u.s. business. what i sort of sense here in my instant analysis is a bit of

ambivalence or neutrality, like they know it's in the headlines, but they can't get excited about why it matters to them. what would your interpretation be? >> any one of you is more of an expert in your business than i am. so i'm not going to question your individual judgment. but no one has seen tpp yet. what we're asking for now is the ability to negotiate it. we're asking for instructions to bring back a good deal. we're then going to bring it back and you're going to have the same 60 days that members of congress have before the president signs it. a lot more time after that until there's an actual vote in congress. so you should look you should see what's important to you there. i guess anyone that does business with japan for example, can see that a lot of different markets there can be closed off right there. we're trying to open them up. the other thing i would say is a lot of this is about jobs here

in the united states, about the quality of jobs here in the united states. and having a shift to more export intensive industries where you see better jobs and higher wages. >> i'm glad you brought up the jobs question. obviously a lot of critics essentially in your own party believe free trade has hurt jobs especially for the working and middle class. it's a common thing you hear with nafta, common for people who have studied expanded trade with china. so when they hear the administration say trade is a key to more a and better jobs, there's a lot of skepticism out there. how do you respond to those who say trade hasn't delivered the benefits, that the average worker is actually worse off as a result? >> i would say that the united states is already a very open economy. we have very low tariffs and non-tariff barriers. most of those types of effects we already have. the question that we're trying

to do in tpp is ask how we can shape globalization. that's already a fact. that's already happening. with tpp you'd have higher labor standards than you'd have otherwise. higher environmental standards than you would have otherwise. disproportionate reduce tariffs and non-tariff barriers with our trading partners. it takes whatever is already a challenging set of facts and helps to shape them more in the interest of the united states. >> related to that certainly in the case of china, over the 13 years in which china has been part of the world trading community, you can see an arc in terms of business's attitudes in terms of excitement and anticipation to expand business opportunities in china in the first four or five years following wto exception in 2001 followed by a period of buyers remorse where it's difficult to overcome a lot of the intrinsic domestic barriers china had and

discrimination they facility from china with respect to their operations there. i think the business community, when they think of how they will benefit from closer ties to countries like malaysia, singapore, vietnam they're probably thinking the same thing. well i understand the benefits of free trade but how do i know i will be treated fairly so my product, my service is actually operating on a level playing field? i think that's the big question. does tpp actually get us closer towards that? or is it a diverse do they end up fighting an uphill battle against discriminatory practices? >> tpp contains a lot of things that the agreement with china over a decade ago didn't. one of them is it does come with more investor protections, so that if somebody takes an investment you made in a country, tries to ex-proep eight it, you'll have a set of recourses under it arbitration

that you don't have with a country like china. there's a set of labor rurls, environment, in terms of how you compete with us that you have in tpp, that we're negotiating towards in tpp that you didn't have in the trade agreement with china. there's a bigger set of changes that countries are going to have to make to participate in a transparent results-based level playing field with the united states to get the types of privileges you get from being in something like tpp. >> you predict a company today that probably thought they weren't going to benefit or lose from this agreement will find ten years from now actually the world evolve in such a way that it did make a difference? >> yeah. i think you'll see it in a lot of different ways. it may be your own business it may be your suppliers. it may be someone you're selling to. i think it will ripple throughout the economy.

>> we talked about the impact on workers. one of the striking things about the economy today is even though, as we were saying gdp growth has been sluggish, it's a pretty good jobs market 280,000 jobs created in month of may we learned last week, unemployment read down to 5. 4%. the funny thing is, that hasn't generated significant wage growth. why is that? >> we're seeing some pickup in nominal wage growth if you look across a range of surveys and aggregate them together. we're seeing 2 1/2 years of real wage growth nominal wage growth exceeding inflation. recently that's because of the fall in the price of gasoline as opposed to a sustained increase in wages. but the reason we haven't seen more is rooted in two things. one is the last couple decades where wage growth has been relatively low. in fact real wage growth for the last 2 1/2 years has

exceeded what we saw from 2001 to 2007. so slower productivity growth that we've had for decades continue to weigh on wage growth. second we're digging out of a really deep hole with a lot of key areas of slack in the neighborhood, whether it's people not participating part time for economic reasons and others who i think have had some restraint on wage growth. >> i think an interesting question is where do we go from here with the labor market tightening? we have another question that we'd love to hear your input into. if you'd check your devices i think question one asks you what the prospects are for wages in the coming years? what i'd basically like to mow is thinking about how you're going to adjust pay pacts for your workforce in the coming year? will the average wage increase be higher than it was last year, lower than the last year or roughly the same? >> i'm in suspense. >> i've been kind of struck by the lack of move. in that number actually in the

aggregate data, 2% 2.1, 2.2. where are we now? >> kind of similar in the last one, jason where the net looks positive, but the aggregate not so much. it kind of -- if i could sort of like market cap weight those numbers, i'd come up with a number like 2.5%. is that disappointing, surprising surprising. >> we think a stronger economy will do that. we think things like tpp that we're talking about help create more good jobs. we think wage growth isn't guaranteed across the spectrum. so higher minimum wage would help people at the bottom. you see states cities and a lot of companies that have come out and announced that they're raising the floor on wages that they pay. but i don't think there's simple

overnight answer to something that has been weighing on our country for decades now. >> actually i want to talk about the minimum wage question. a lot of the business community worries a higher minimum wage crimps their costs in ways that make it difficult for them to adjust. there's a view this will actually hurt rather than help people with the lowest skills. are they right? >> first of all, you've seen a lot of major businesses come out and say we're raising everyone wage's to $10, to some number above that. and i think that's based on the same logic that you see in the economics research which is higher wages on the one hand are higher costs but on the other hand bring a set of benefits in terms of the types of workers you can attract, retain, motivate and all of that shows up in your productivity, and the evidence is historical those two roughly offset each other, leaving it unchanged but workers

better off. >> i'd love to bring you all into the conversation. so if you have a question, you have -- john over here has a microphone. hopefully we'll get feedback from the audience here. one of the common refrains you hear from the business community, almost like a two-tiered labor market where there's a lot of folks with limited skills available, but the people with the skills they actually need, especially stem workers are in very short supply. these they just can't find. first of all, how would you diagnose the quality of the labor market and if they're right in a systematic way that we have shortages of these people, how do we fix that? >> there was a debate a few years ago of, was the unemployment rate elevated because there was a mismatch their demand for this set of skills, supply for that set of skills and they weren't matching up and that led to higher unemployment. the evidence for that was quite weak. you didn't see much higher wage

growth in one sector than another which is what you would normally expect to see if those types of shortages were causing you a short-run economic problem. i think in a long-run sense though, having better skills is a key to higher wages and is a key to a stronger economy. to some degree that's better skills. to some degree that's a more anymoreable agile set of skills. ones where local community college is hooked up to the local employer and understands what they need and is doing something based on the demand for skills rather than supplying them and hoping it will work out. i think there's a lot they can do. i think moat of that, most of their spending there is private sector spending. a lot of this has to be the private sector. that's working with the private sector tofiguring out the federal government doesn't have a lot of dollars in this. >> let's go to questions. we have five or six minutes for

questions. anybody have one to start off? i have an anonymous one that was sent in. does the white house realize the years of anti business rhetoric and policy may have had a negative impact on hiring cap ex and other risk-taking to a higher growth rate? in other words, it's your fault. >> i heard that question and i guess i completely disagree with the premise of it. you have a president who is out there working really, really hard right now on expanding trade. expanding trade i think is good for businesses, good for workers. and you have a president who is the first president in decades who called to lower the corporate tax rate as part of reform. you have a president that from day one took a set of steps without which the economy would be in much worse shape than it

is today in terms of the fiscal policy we were talking about before. i gets maybe the answer is i don't realize that. >> my personal perspective on the economy is it's very fragile still. >> tell us who you are. >> bill moore. just as a citizen and as a cfo, i'd say it's still very fragile. personally i'm worried ashtd some of the triggers that could put us into recession. right now a couple of issues are a lot of people have, as you said, they're spernding less, but they feel wealthier. a lot of that prices haven't risen as much as people have hoped. still people under water in their homes. another aspect of wealth is their investments. so right now i'd say that some people might perceive the secitys parked to be pretty highly valued. if there's a correction in the market in some way, do you feel

that that could have a ripple effect on the economy? and what's your viewpoint on that? >> markets are going to go up, markets are going to go down. there's no question that part of what determines consumption as well. people took a really, really big hit to their wealth in 2007 and 2008. they actually took a hit to wealth that was about 15% of the economy because of the falling stock prices and falling house prices which is much larger than the hit to wealth that precipitated the great depression. part of what we've seen since then is a really long painful process of deleveraging by consumers and businesses. i don't think we're all the way there yet. the housing sector, as you said i don't think is fully healed. the flip side of the housing sector not being fully healed is the housing sector still has a lot of potential in it. i think we're actually not

building enough houses right now. credit is too tight for many households in the housing market. as we rectify those issues that will be one of the sources of added growth we can expect in our economy over the next few years. >> how do you feel about the premise that there's a lot of excesses or overstretched valuations in the market out there which pose as threat to the sustainability of the expansion? >> i think financial market values are something that the system is much better at being attentive to much better at looking at systemic risks. we as regulators aren't looking at their corners. they're looking at the system as a whole. that's an issue of that. >> other questions? >> francis shemmel has a question. what is your opinion on corporate tax reform for

economic stimulation? >> i think business tax reform is very important. and i change the word that -- the question -- you said corporate. i said business. i think we do need to do large businesses and i think we need to do small businesses. we need to do c corps and pass-throughs and address all of those in an integrated basis. the u.s. has the highest statutory tax rate in the world. that leads to all sorts of issues. our international system is badly broken. it raises almost no money and it causes substantial economic distortions which is from an economic perspective the worst combination that you could have. and at the same time there's also a lot of ways in which this system has loopholes and distortions in it. i think bringing the rates down broadening the tax base and having a system much more

neutral towards decision making would benefit our long run productivity. i think we can do that while also financing investments in our infrastructure which is another key thing we need for competitiveness. >> these cfo ls sit with the ceo and they sit with the board. they're going to go back to their companies and the board and ceo is going to say what did you hear from the head of the council on economic add vietsers about the next five years? we're thinking about where our growth trajectory is headed. what message would you like them to share with the board about your view and the administration's view on watts going to happen to growth economically in the united states over the five-year period? >> i think we have a lot of potential in this country. i think that you look at the developments in technology and medicine and nano materials, in energy, the slower cost growth in health care that we've seen lately. i think all that gives us huge potential. there's a number of ways in

which we don't fully capitalize on that potential. if we go back to the sequester again in october that won't just be a short-run hit to the economy. it will cut down the research we need for our long-run growth. if we don't take advantage of the opportunity to make sustained investments in infrastructure because we do it two months at a time, that will impede our economic growth. if we don't take advantage of the markets all around the world, that will impede our growth. we have a lot of opportunities that we really need to get moving to take advantage of. >> jason and greg, thank you very much. >> thank you. [ applause ] . the next topic for the "wall street journal" cfo conference health care costs. the president and ceo of the mayor clinic and chairman and ceo of kaiser permanente take questions about how the health care system can both cut costs and deliver quality care.

>> good morning. as we know there's been a lot of health care news lately, and certainly this morning in our newspaper and i believe it was our scoop a very big conversation going on in the insurance market with united health, anthem, cigna. we've got burwell, issues of the cadillac tax. so health care, quite sometime after the affordable care act is passed is what might be described adds a little turmoil. with us today we have two ceos of models in health care that are so admired to they are often exported and they are looked at in the rest of the world as something to achieve something

to strive for. i want to start with mr. tyson from kaiser permanente in oakland and elsewhere who actually just told me he just came back from china where they're interested in talking with him about how do they cover their billions of people. at kaiser you've got i've just learned, ten million under coverage right now. this is a system that has gone -- it was among the first to embrace electronic health records. again, as a model to deliver affordable care at high quality. if you could kind of give us the secret formula, what are the basics that enable you to do this, be exported into a system that everybody can get? >> thanks. it's great to see you and great to be here. just right quick in terms of if you will, what's unique about our model as i describe it, the incentives are aligned. we take care of a population of

10.1 million people in the united states. we are a prepaid health system on a capitated basis. i'm given a certain amount of revenue to take care of individuals and populations. so from that, i have been and we have been able to build a health system because we own pretty much the health care dollar and that is distributed around different care delivery models to take care of a very diverse population. in the end we're not for profit. i don't answer, if you will, to shareholders. at the end of the day we build a delivery system that is really focused on making it possible to keep people adds healthy as possible and to make care as affordable as possible. and the physicians who work exclusively with our

organization, the health plan call the permanente medical group, now 20,000 strong, provide all of the oversight and care for that given population. now, just to introduce the mayor clinic's model. you've heard of mayo clinic maybe if you're fortunate your executive plans allow you to go out for your executive physical and find out from soup to nuts what could be wrong with you. they deliver care in a couple other areas, going through a knew system where they're partnering with other organizations. if you need a diagnosis, mayor might be the place to think about going. talk about mayo's model and how that, again, within the idea of affordable care, how can that be translated into lessons we can learn in the united states? >> thanks, laura. good morning. mayo clinic is the first and largest integrated group practice of medicine it's 150 years old, physician-led and

mission driven as a not for profit humanitarian organization where the needs of the patient come first and essentially al read physicians teams of allied health professionals enabled by engineers who have been part of the system for well over a century to drive efficiency and quick answers correct answers, and we have a very large research and education mission as well to bring new model ts of care and breakthrough therapies to patients quickly. it's an area where we concentrate on complex care, as you said difficult or puzzling or troublesome diagnoses and also highly complex procedures to quickly give answers and it's a health system that focuses on complex care but we also mentioned population where we work in arizona and to a lesser degree in arizona and

florida. with all the mergers and acquisitions happening across the country, we decide on to take a different path and essentially to digitize how we work and put those into a tool so others could do consultations with us from around the country and if they need to send patients to us or to others that's their choice, for additional diagnostic and therapeutic organizations. we built around 30 of these around the united states mexico, puerto rico, and what we found is by sharing what we know either through digitized tools or through consultations, well over 80% of the patient committees stay in kentucky or in new hampshire or california and not have to travel for that level of mayo care. that's brought the cost down and

has improved the performance of these areas around the country. it's nice to have the mayo clinic foot print. this allows us to help you help keep the health care costs down by driving high valued care accuracy, get it right the first time, do everything you should and nothing more and at a much lower cost in the 16 states where we provide that help. >> well, one of the things that's been a high criticism of the united states health care system is this fragmentation of care, the idea -- and i don't know how many are in systems where all your doctors work for one organization. i know certainly in new york, you know, you have a doctor for this, a doctor for that, a doctor for something else. they don't know each other some of us don't have electronic medical records. but electronic medical records, as much as a struggle it's been in this country to get it adopted, in a system like

kaiser, that's been something even with fits and starts at the beginning that you have embraced and it has enabled you to deliver a type of care by mining that data. in other words, using the data you've gotten, tell us about how the big data that you have within your system has enabled you to identify the highest cost people, look at ways to intervene and also the idea of e-visits, not having to go to the doctor not having to have patients leave work for a whole day to go see their doctor. >> i can't imagine what it would be like running an organization, taking care of 10 million people in any organization. this has evolved over years and in particular over the last decade where we went all the way in and helped to evolve that whole system. >> we now have all 10 million people on the electronic health

record. i was told recently we have something like 100 petabytes of data. someone asked me how much is that? i said a lot. >> i haven't heard that term before, either. >> but what we've been able to do is to really now -- our physicians have been able to study through the data, the efficacy of care and to look at the proven practices that produces different outcomes. we've been able to aggregate data, our physicians have been able to aggregate data to better understand how to take care for example, of different ethnic population. we also collect our data by ethnic groups. we are learning now that equality of care and equity of care are two very different things. everybody has access to all the care. where we are now with our exploration, equity is very different because one person may not need as much or may need it

in a very different way. that has come about because of the data. we're more efficient and effective because now we're targeting the different diseases, the different populations, the different outcomes that allow us to do things very differently. last year, we did 20 million easy. 20 million e-visits. >> so that's me e-mailing my doctor? >> that's you e-mailing your doctor, because of your relationship with your doctor. this year we'll probably do 30 and then we think we're going do double it. our members love it. on a scale of one to ten, ten being ultimate, it's like 9.7. it is an interactive process in a very secure environment where you're getting the information that you need. we're now doing more telehealth where we're doing video conferencing as part of it. >> right. >> so when you have organizations like ours that can look at the population in a wholistic way, you then build a

system that meets those needs. telehealth, e-visit those kind of things are both convenient and it's great for coordination of care management in particular of patients who have chronic diseases. because what you want to do is to present -- prevent, if you will, needing to intervene as an episode, meaning you let something go until it reaches a crisis crisis stage. you want to help that individual to manage his or her health as much as possible. >> which in a system like yours is much more possible than in a fee for service where you're getting paid to pay for episodes of care. >> in terms of delivering care you talked about the fact that you're putting mayo clinic's information and sourceing and second opinions out there in the world. but you're bringing people to mayo clinic. i termed it domestic outsourcing

in which employers like walmart have come to you and for some years now it's just starting to expand and even if your employee is in you know is markedin bismarck north dakota, how is it possible it would be more cost efficient to bring that employee for cancer treatment, which is an agreement i believe you have, in the last few months, started to solidify, how is it possible to pay them, their caregiver transportation and all that for it to cost less to do it that way. >> our systems and approaches are quite different. whereas we would look at a diagnostic issue and engineer that for efficiency and safer outcomes. not that they don't do that at kaiser. but so for example with the team-based care at mayo, we've been able to perfect as much as possible always trying to improve the appropriateness of the care we give the patients

with complex transplants. for 18 years walmart has -- we've been the exclusive provider of transplant care for them regardless of where their million plus employees live. and the recognition of that by them was the avoided costs. a patient comes to the mayo clinic needing a heart and liver transplant, we see the patient and we realize no, they don't, they need to have the liner of the heart easily stripped away so the heart failure and the liver failure will go away that saves them a lot of money and avoided costs, if you will. as you mentioned in skrarn,january, they extended that contract for the care of patients with breast cancer or lung or colorectal cancer. they will send the records of those folks for us to review and if we believe additional diagnostics or treatment are needed, they will pay the entire cost of those patients going to phoenix or jacksonville or

rochester for all the diagnostics and all the care and send the caregiver for that care at no cost to the employee which is an extraordinary benefit if you think about it. and then you realize, wait a minute, it is an extraordinary benefit, but it makes good sense to walmart because the diagnosis will be accurate, the care will be as safe as it can be as cutting edge as it can be and the patient will get back to work. and they've recognized that the avoided cost for complex care in a highly engineered system like mayo saves them money. and we believe that's our value if you will, for other employers who say, for our employees, if they get complex care it's very expensive, but it will be a lot less expensive if they do the right thing and do it quickly and help the patient get back and it's also good for their employees. and so this is an area of growth for us to take the proven value of our care, better care at lower costs, safer care avoiding the back and forth that you mentioned about new york.

you were saying we work as a team and so we usually can get the answer within three or four days and get on with things. so that's why employers are coming to mayo and say, could you look after our complex care needs, whether it's heart surgery or cancer, that sort of thing. >> and a lot of times, that will involve not doing as aggressive care as was originally sdooded by their local doctors, but in other cases you will be providing the care, but more -- you know, at a more cost efficient basis, even with the hotel bills and flight and all that. >> and the patients need not always go. another story would be a young woman we recently saw who was from kentucky and she was in her early 30s and found out she had breast cancer. they consulted us and just as they were about to treat her, they realized she was pregnant. they said oh my gosh what do we do about that? and we were able to coach them on how to manage that young woman's breast cancer and her pregnancy. she got great care, never left

kentucky, the costs were very low and all of that was done keeping the patient local. she got great care and the costs were minuscule compared to if she had been ping-ponging around locally. again, just terrific avoided costs for your health care plan if it's done well and done right. >> should there be any concern in a system like kaiser permanente, the doctors are employed, have all these great electronic records. at what point, though, when there is care that has to be delivered, one of the concerns is if i'm trying to control costs, i'm not going to get the best care. someone will try, you know, not to give me the care that i need or they will withdraw that. they won't provide that drug. how do you make those decisions in a system like that where you still have to keep costs under control, it isn't just a free for all? it's -- you know one of the problems is people often get too much care. there's overtreatment. and that's costly.

>> yeah. i mean we have the data. you know, the data at the end of the day brings facts to the table. the fact of the matter is, our system is different from the rest of the industry. it's volume driver. quality has been defined in our society over the years as more is better right? >> right. >> but the engine that makes more the definition of more is i get paid if i do more procedures. i'm not suggesting these are bad people working in the industry. and we're the good people, right? but i am saying that's highly ethical people over time will, in fact, justify certain decisions. so if i'm getting paid every time i do a procedure or see you, that's the way the incentive system works, eventually i will justify that kind of behavior. we've been able to do over the years is to bring outcome-based data to the

argument and to show that our philosophy is -- there is no such thing as a global statement to be cost-effective, to be more affordable means that you're going to skimp on quality. in fact, we're showing just the opposite. one of the issues, and one of the initiatives that we've been working on is cutting the sepsis rate in our hospital. >> and sepsis aus all know is this dangerous blood infection that can kill you. >> yeah. which we said there is no reason why someone -- if we don't focus on this in the american hospital system that people should go to a hospital and pick up in essence, a bacteria germ and die or have some kind of consequence in a hospital stay. here is a great example where we have pretty much reduced it now to a level that we're on our way to our goal which is zero, which is a lot of work over the years. we've improved quality and we've lowered costs because now you're

not staying in the hospital longer and god forbid, you're not dying. that's another example of that. the other example is now knowing the different treatments that would work in individuales and populations and then building the systems around that, support it and enabled by technology allows us to be much more efficient in diagnosis in treatment, and in prevention. >> right. >> that allows a person to stay healthier. >> and it's the same idea i assume, one of the things that drives cost up, it isn't just the cost of providing care, but it's the cost of complications of care. so if you go to the hospital and you end up with hospital infection, you see something like cdiff going around the hospital which is a terrible illness, a 00000 people last year contracted this illness and a lot of them die. this is a consequence of hospital treatment. then you end up getting readmission. how much can a system -- you know, when you're providing the

kind of care that mayo is, how much of that extra cost and complications can be prevented? and is that an important driver of improving cost and quality in this country? >> absolutely. and bernard mentioned that and displayed it well. cost avoidance by reducing infection, reducing falls reducing admissions all of those are terrific and it requires an engineer, a team-based approach to do that. this is hard work. you save money at the end. you invest an awful lot of money doing that. i think the other thing just to remind ourselves, at mayo we're salaried physicians. that's been the case for a hundred years. that gets it right up at the front end. recently, we've expanded to bring pro ton beams therapy to cancer patients two large senior centers, one about to open in rochester and one in arizona. this is a $400 million investment in this safer and we think more effective way to deliver radiation treatment to children and to adults with

cancer and we're going to charge the same amount as conventional radiation therapy because it's not about making money it's for the doctors to say you would or you wouldn't need proton beam regardless of the cost. so, again, i think any great organization needs to do everything it can to improve the quality of the product, but also be cost sensitive. and mayo and obviously kaiser do that. i think we're good models of that. >> and we've talked a lot about the costs of pharmaceuticals. the drug costs. there's the high costs of some of these new and effective drugs. we've talked about hepatitis c which has very much been in the news lately and who wants to pay for that. what is the argument and how do we resolve the extreme costs of some of these new drugs with hepatitis c as a huge problem in this country? how do you get to the kind of cost benefit analysis that says, you know can we reduce this cost, can we keep this cost

reasonable or do we pay this because down the road we're saving liver transplants? how do we get our head around the drug cost benefit analysis here? >> it's a -- it's a complicated topic, as you can imagine. because on one happenednd, you know, we are living in the day and age where, for example with the hepatitis c, you have a drug now that can cure hepatitis c. so we don't want to throw out the baby with the bath water. that's a great invention. that's great for us, great for our society. at the same time what you have around it is what i've been saying is irrational pricing. and i was talking to some of my colleagues in the pharmacy industry and they were saying well, how do you define irrational pricing? i said when you price because you can. because there's no justification to it being this high. which no one is arguing that that is not the case, right? and our concern is we don't want

to in any way suggest that you know the pharmaceutical companies who invest in the research and all this which they're doing, which by the way some of it we're paying for should not get their returns on their investment should not -- should be respectful of the capital market, etcetera. but what we have now is run away pricing that is so expensive you can't justify it. now, if my colleagues from the pharmacy industry was in the room, they would say well, the other half of the argument that bernard needs to present is that he's covering the lives of these individuals and he's going the be charging for liver transplants and all of this that he gets to avoid. and all of that needs to be in the calculation of how we rethink, how do we now look at the cost and the payoff of these specialty drugs that are coming down the pike? we haven't worked out ways through all of that yet. and it's a complex process

because there are many more specialty drugs that are in the pipeline. >> right. >> and right now, there is no ceiling of how much can be charged. and so what we're seeing is the price is actually escalating even more. >> i think if i could just make a quick comment, i agree with everything bernard said, but the world expects america to be the center of innovation and entrepreneurship. and there's a tremendous amount of opportunity in the world of biomedical research to do this kind of work, which is really in regenerative medicine and so on. this is the balance. the price and cost is one thing, but we should be celebrating the explosion of great, new potential therapies to change the health of our nation and have a stronger nation and a more economically viability nation. so it's the balance of that. and this is a fabulous time to be in science and medicine. we just have to work out the details of the expenditures

which are serious and important but we really need to step up to this as a country, in my opinion. i totally agree. this is a new age in which we are living in and going into. so the fact that we are now starting too look at being able to cure for example, hepatitis c, the entire health care industry has been built on sick care. and there's only a small personal of the population at any given time less than 20% that is occupying 80% of the health care dollars. >> right. >> to your point, the fact that we are now living in a an age where you're seeing this innovation going on in which we have the opportunity to wipe out certain diseases etcetera, is a very exciting time that we have to reconcile in the new economics of care in this country and, in fact, in this world. >> i think i could solve it all. >> that's a good moment to take

questions from the -- from the audience. i have none that you -- >> should we do a poll though? we have a wonderful poll. >> let's do that poll while you're -- >> because i'm curious to know how the affordable care act@has actually hit your budget, whether you've seen the costs go up since the act whether you've seen them stay the same or go up. i think the question is have you seen them rise since the affordable care act. >> so costs are up for 77% of the cfos in the room. since the aca. what accounts for that? >> well, you know, one of the cautions health care costs have been going up-and-up and up.

so let's be a little bit careful that we don't tag it to it's because of. in fact, i think that that is part of the complexity of what's going on in the health care industry. we all have to work to make health care more affordable and drive down costs while we improve quality and improve access to care. and so there's still a lot of work to go on. but one of the things that's true is the early issuedcations are those individuals who don't have coverage who might have gone in for care to emergency departments around the country, now that they have coverage meaning in my definition, they can come to the front door of the american health care system they are starting to go through the front door of the american health care system and we're discovering that there are illness epses and challenges that they have been having that we now are treating. so in our system, we're able

now, like we managed to figure out the best way to care for them over time and hopefully we'll level those costs out and start to drive those costs or make them more manageable. so those are the early indications of what's going on with the rise in health care. >> i don't think it's any surprise that companies who have health care plans are bearing a lot of the cost of caring for those who didn't have insurance. that's not to say it's not a good thing to do, but it's not surprising. and bernard is obviously taking the long view that ultimately those who haven't had insurance will find a home and get appropriate care to prevent and treat early but it's, again, not a surprise that we've seen the business in the emergency rooms going through the roof because newly insured folks haven't yet built the infrastructure around them or we haven't created it for them. so they have insurance and they believe they need to --

>> still can't find a doctor in some cases. >> whether it's a good thing or a bad thing, but it's not surprising that the private sector is bearing the brunt of the cost. >> is there an opportunity to use new medical device technology instead of pharmaceuticals that cure or address medical issues? so what's keeping this from expanding? >> i'm sorry -- >> is there an opportunity to use new medical device technology instead of pharmaceuticals? >> oh, unquestionably. whether they'll be less expensive or not is difficult to say, but as i'm sure you're all aware of the changes in technology, we can now replace heart valves without opening the patient's chest. as i mentioned earlier we can use proton beam therapy without injuring the brain of children who have brain cancer if you will. we can -- we're pioneering stem cell therapy to cure long standing fistulas that haven't repaired. i think all these technologies will need to be paid for.

some of them will be expensive. i think the key savings -- and i'll pass it to bernard -- will be in the prediction and prevention. so as we learn more about our individual genomes, we'll be able to say, ghee, there's a predisposition in my family for this and for that. what can i do early on to intervene? and that will help to lower the -- but that's a long-term investment. >> no, i agree. i think you said it very well. you know, i questioned you on this earlier, that the -- if you look at the american health care system, it was designed around sick care. it was designed pretty much for intervention. now what we have is with the technology with the learnings with all the stuff that's going on we have the ability to go upstream and to do early detection detection, early diagnosis early treatment that, if you will levels out the cost over the long-term and hopefully keep a person much more healthier. and so that is the other side of this equation which is how do we really take on maximizing the

healthy life years of an individual's life, not just have a health care system that is designed to intervene when someone is sick. >> that's not easy to do though. it's hard to change dietary habits, smoking helmets all that stuff. we're dealing with people. >> it is a major -- it is a major challenge. and i'm glad you said that because it speaks to a health care system has to be more global in this thought process because many of the behavior issues is what leads to -- >> that is the el factephant in the room. >> since we have a minute and a half left, you interact with a lot of companies. tell us about some of the -- these are cfos who are concerned about the company's health care costs. tell us one or two of the best practices that you've encountered in interacting with large companies such as those

represented here. >> i'll just jump in if i may. i think the best companies -- walmart is a great example. i've told that story. but i think if you can look at complex care and you want to reduce the cost to your plan or your employees to deal with complex care find a place that gets it right the first time. and i think that's an investment, it may cost you a little bit more but not actually very much to avoid those costs that will come if that patient ping-pongs around the organization. that will be the complex diagnosis or the complex diseases. >> yes. i -- i travel around the country. i talk to many of my customers, major employers. the role models for me are the ones who are very clear at the end of the day they say to me bernard, show me the data. show me how you're helping to keep my employee population healthy. what's the personal that follows into the chronic care part, not

by name but in aggregate data, what are you doing around prevention? help me understand how to keep my workforce healthy. what new lessons have you learned? you know, we have 200,000 people within kaiser. i often get asked, what are you doing to keep your population healthy? what can we learn from you? they ask me to show them the difference between the cost of care for a very sick population versus the cost of care to keep someone healthy. so what i have seen in terms of the best practice as we bring forward more data, it prompts different questions. and the ones that have been very engaging bring all three of those perspectives, if you will, the line of sight of i want to have a healthy work population, the line of sight of i want to drive down costs and the line of sight that i want to understand the return of the investment. >> thank you very much.

>> that you can. thank you. in a few minutes, world bank president jim yong kim speaks to the chief financial officers who gathered in washington, d.c. this week. he gives a report card on how effective companies are in reaching consumers and developing countries. senator bill caddie of louisiana has introduced legislation to repeal the federal government's renewable fuel standards which require ethanol or other renewable fuels to be mixed with gasoline. the epa is moving to expand the required renewable fuel mix from 9 billion gallons to 36 billion gallons by 2022. and at noon also on c-span3, several gop presidential candidates will speak at the faith and freedom coalition conference, including senators

marco rubio, rand paul and ted cruz. two months ago world bank president jim yong kim announced a strategy to end extreme poverty by 2030, asking multi lateral banks to help bridge financial gaps, infrastructure, energy and water. he's interviewed next by the deputy editor in chief of the "wall street journal." >> dr. kim thank you so much for joining us today. thank you. it's great to be here. >> you've made plenty of headlines since taking over at the world bank since 2012. you were strong on the ebola outbreak and the slow response there. you have strong opinions about poverty and inequality and also about the role of the private sector. before we get to that, i'd love you -- i know you just got back from egypt and i'd love you to take us on a bit of a tour of the emerging economies. we started out the years feeling very pessimistic about the

prospects. is that changing now? >> for this year, the expected rate of growth is 4.4%. what's happened is the impact of low oil prices, at one point we thought it would spur growth, but still we see it as a drag on the economy. also there is currency uncertainty. when you have a divergent monetary policy across the united states, europe and japan, and especially with the rising dollar, you see a lot of currency movement toward the united states and that affects the exchange rates in developing countries. the impact of russia and brazil contracting has also been very serious. it's different depending on different countries. in africa and many of the commodity export countries, the slowdown in china has had a big impact. whereas in 2000 china made up about 1% of total developing country exports.

it's now the biggest trading partner with the entire developing world. there's a mixed picture. if you step back and say, so what about africa? despite ebola, africa continues to grow. and it grew all through the period after the crisis. i think there's still great prospects in africa. china will grow at about 7% this year. we think it's because they are going forward in a very controlled, thoughtfully done shift of the growth model. it's really impressive to watch. my predecessor wrote this great report, china 2030, with them. they really talked through all the things they're going to do. we're going to switch our growth model from exports and investments to services and consumption. they're going through with it. we are not surprised that they have a 7% growth rate. again, it's having a lot of knock off effects. we're really impressed with india. india, for the first time in 15

years, it's going to have a higher growth rate chan china. i met the prime minister last year when he just took office and i was impressed with how focused he was. he was generous to give us a meeting, it was going to be short. but what we did is we took all the benefits of this new operating model that we put in place at the world bank group we did a little study and showed . then we said you know, we're going to focus on the top ten problems and we're going to show you the best and most innovation solutions from all over the world that have been applied and tackled your state problems. because we did it in such detail, we spent an hour and we talked about everything from his public-private partnerships to railways to cleaning up the river. this is a guy who is incredibly determined. and has done something that you know, they've wanted to do for decades, which was to reform

their tax laws. because, you know, we did a study. we showed him. trucks in india, they are stopped 60% of their day. whereas in the united states it's about 25% of their day. why is that? because every time they cross the border, from one state to the next, they have to pay taxes. so now he actually got the reform done. there's a goods and services tax. when it's all said and done, you pay once when you start and you pay once when you end. that's going to have a huge impact. his confidence in the structure reform has driven our own sense of the growth prospects and in india. we can keep going, but let me stop there. >> other than the long-term, are you optimistic enough about india where you see it supplanting a china role from businesses? are you optimistic enough that we should stop thinking about this? >> we are optimistic so far. prime minister modi is -- is in

a very complicated country that has lots of big problems still. still the highest number of people living in extreme poverty are in that country in terms of any specific countries. there are lots of issues around education and health care. i have to say, the impact of this one leader on our own sense of where things are moving has been profound. i wouldn't go so far as to say supplant china but here is one thing that struck us about being very different about prime minister modi. when i went to see him we have this thing called doing business ranking. india is ranked 166. >> out of how many? >> out of 180 or so. you could imagine booel being in industry finance are very critical and were not happy with it.

and it has been very critical of the methodology etc. but if it were based on your statement which he has instituted lots of structure reform and would be ranked 50th in the world instead of 166th. so instead of continuing to critique the methodology, he said we'll set a goal and we want to be at number 50. and i want everybody in this government to focus on getting us from 166th to 50th. there's a lot of complexities in that system. he has a tough road to climb. but we really like what we see so far. >> you just returned from egypt where i guess you had quite an eventful trip. unfortunately there was a bombing in one of the cities where you were going to visit. you kept going. could you talk about the middle east? it's all in such turmoil but yet you feel it's important for both the world bank and the private business to support egypt and the region. >> we have a designation fragile

and conflict-affected states and regions. the entire region is fragile and conflict affected because so many different conflicts are happening at the same time. egypt is really critical. people have said that the arab world is like a tent with two poles, one is saudi arabia and one is egypt and both have to be stable for the region to be stable. so we went in there to see what we've been doing. and we focus on things like cash transfer programs and that's why i was going to the place where they had the bombing, and i was very impressed with his commitment to tackle major issues. youth unemployment is a major issue. sanitation is an issue health care. the educational system as a whole, lots of major issues that he has to deal with. i was very impressed with his

and his entire cabinet's commitment to tackling them. having said that there is a lot of challenges. i went to luxor and i saw two things. one, egyptian antiquities are one of the great resources for the entire world. it's really stunning what i was able to see. but at the same time it's also one of the very poorest regions and the conditional cash transfer program was making a transformative impact on the lafs of very, very poor women. so there's a huge agenda with egypt, but we're committed to it because we -- we've got atack the situation. our goal is to end poverty by 2030. by 2020, half of all people are living in it stream poverty so i've asked my vice president, do we have a new tail?

for example, addressing the issue of radicalization are there things we can do to help educational systems or a government tackle this issue? so we don't know yet but we're trying to ask questions in a very different way. >> and in terms of private investment, i understand that you're thinking of going on a road show creating different types of investment vehicles to entice the private sector into these countries. >> right. >> could you explain. >> if you look at one particular need in developing countries and that would be the need for financing for new infrastructure, it's about $1 trillion a year. so if you look at all of the official development assistance put together, it's about $130 billion. and then you add in all the funding that's provided by the multi lateral development banks and it doesn't even get to half of what the need is. so there is no question that we need to get some of these capital sitting on the sidelines

moving for these infrastructure developments. our sense, based on our long history, and even some analysis done by some of the ratings agencies that the infrastructure investment in developing countries are a great -- provide a great potential return on investment for sovereign wealth funds, for equity investors, for just about anybody. but the perception of risk is holding people back. now, you know, we feel that we have a very good sense of risk and reward. even some of the most difficult situations in, you know, central africa for example. but we feel that if we get together with all the other multi lateral banks with some of the private sector players who have been in those regions for a long time, we can effect itchly derisk those investments. even a teacher's fund or a pension fund will feel comfortable investing in. that's where we have to get to. we have to move past perceived

risks and be clear enough and present the picture clearly enough so that these funds that don't have people on their staff who can assist risk and reward in the democratic republic of the congo begin to trust the analysis that we can provide. >> i want to ask the cfos out there to answer a question about how willing you might be to invest in some of these more vulnerable areas, really the midwest. i think there's a question if we can tee it up, should the private sector play a big role in development work, especially in troubled regions like the midwest? i'm going to take a couple of seconds. seven seconds here now. these responses have been very interesting all morning. not exactly scientific. but i think we have a pretty split opinion here. not sure 31%. no, 31%. and yes 38%. so i guess that means you have a little bit of work to do on this front. >> let me just say that -- okay.

41%. let me just say we would like to talk with the 41% out there. you know the mid east is -- i mean there's just a tremendous amount of uncertainty, even for us. i mean i think that we would love to work more with the private sector everywhere. i mean it is going to be the key to -- for us for achieving the goal of ending extreme poverty by 2030. we have another goal which is to boost shared prosperity meaning focusing specifically on income growth in the bottom 40%. and we're simply not going to get there unless we can attract private capital. so it's something that you know, we've had a private sector group that's been working in developing countries for a very long time. but we are trying to now bring together more of the private sector and the public sector group. because there are things that the public sector can do that can make it easier for the private sector to invest and there are opportunities the private sector group can present to government, but they may not

see otherwise. so that's really what we hope our value add will be over time >> could we talk a bit about in inequality? how concerned should we be about inequality around the world? you have spoken about the role of technology and how really now, if you're a student in africa, you can see how the other half of the world is living and that's changing the world in very fundamental ways. >> it's happening everywhere. the most dramatic story for me was i went to see the president in bolivia and i went to see him the week after his plane was brought down under suspicion that he was travel, edward snowden. so he wasn't very -- he wasn't in a very generous mood toward americans right at that time. but he said i'll meet with you, but you need to get to 14,000 feet and we're going to play soccer together. i never played soccer in my life, so it was a challenge. but as he were landing the helicopter at 14,000 feet, the most remote village in bolivia,

they were taking pictures of us with their smartphones and they could see miami-based spanish language telenovela. everyone knows how everyone else lives. it's not just that the people who don't have access to jobs and education and income are resentful. it's that, you know, the analysis is beginning to tell us that -- that higher and higher levels of inequality are actually a drag on growth. so the imf just came out with a study saying countries really should focus on improving incomes of the bottom 20% because that spurs growth much more than increasing the relative incomes of the top 20%. now, this is new. this is all, you know new research that we're beginning to just get our heads around. but what does that really mean? for us, it means trying to -- to spur the kind of investments that will lead to -- especially private sector growth that will create jobs that will lift the incomes of the bottom 20% to

40%. that's what we focus on everywhere. and there's -- without question we cannot do it just with donor assistance. we cannot do it just the loans to governments. we've really got to get private sectors moving in all those places. >> and know that you don't want to get involved in the negotiations ongoing about greece at the moment, but could you talk a bit about the difference between austerity and structural reforms and a sense that greece really -- you know, they may have done one part, but didn't do the important second leg of this? >> you know, people noti'm not involved in the negotiations at all. let me just take a step back for a second. this is the discussion that's ongoing. there are different views of austerity. it pretty good outcomes as a result. others have a very different view about the importance of austerity. the thing that everyone agrees

on is that there's hardly a country in the world that doesn't need to go through structural reform. and it's the case everywhere. so when i talked about prime minister modi changing the tax law, i think it's given us all a sense of possibility that we just didn't have before in terms of indian bureaucracy. indian bureaucracy still is formidable. but the fact that he did that made a big difference. so the thing that we just keep saying to every country in the world is you all need to go through a certain kind of structural reform and you all need to do things like in japan, for example, one of the big issues for them are being open to immigrants and getting women in the work force. but that's hard. that requires a political lift that is always difficult. but what we would say is that whatever your view on austerity, focus on those structural reforms, see if you can find a path toward getting there. because the reaction of markets is pretty quick. when they see that you're

serious about it i think that the overall sentiment to your future prospects for growth and likelihood of investment can change pretty quickly. >> when you look at greece and europe as a whole do you think there's been not enough structural reform in general? >> and, you know, it's one of the things we talked about all the time. again, countries across europe you know all of them are needing to do it. and then there are some countries that have moved pretty quickly. spain has moved pretty quickly ireland has moved pretty quickly, portugal. and i think they're seeing the benefits of that. these things are always hard and yet our role, and specifically what we did for prime minister modi, is we said we know these changes are hard. but just telling you that you need to do this is one thing but giving you ten examples of how other countries have done this and walking through it with you, providing support, sometimes from the people who did these reforms or were involved in these reforms, i

think that's helpful. and that's what we want to be. that's how we want to be known we want to be known as the group that if you have a difficult structural reform you need to go through, we're going to help you get there. let me give you an example of a structural reform that's needed everywhere that is difficult to do but has so many positive impacts. that's the removal of fossil fuel subsidies. in egypt it's a huge portion of their budget. and they've started to make movements. they're moving to go away from fossil fuel subsidies. one, we know fossil fuel subsidies are regressive. the imf did a study. the top 20% benefits six times more from fossil fuel subsidy dises than the bottom. moreover it puts more carbon in the air and it is essentially a regressive tax