hawes mvume [captions copyright national cable satellite corp. 2009] [cheers and applause] . . judy shelton the last time you were in the studio was 20 years ago. what have you been doing? >> i guess i am hermit. i have been thinking about all the things we probably talk about back then.

-- talk about back then. international monetary reform, i was probably working only on the soviet union. it was an economy gone bad. my husband and i live on a farm, just the right distance from washington, about one hour 10 minutes. i like to dabble in the intellectual and the political and academic. i would say that my personality is to hide away in my little office with my computer. i am not a big socialite type. >> we will show some of the past interviews that we did. let's go through the basics. where were you born? >> loss angeles. >> where did you go to school? -- los angeles. >> what kind of family was it?

>> a great family. five kids, my mom was very traditional and stayed at home. i do not think i ever fully appreciated what a huge job that is. i thought it was glamorous that my father was a businessman and i was probably inspired more by that route. >> you've got a ph.d university of utah. where did you get your undergraduate? >> i went to years to ucla -- i went two years to ucla. i found out when you pay for college for yourself, you go where you can afford it. that is when i got serious. it was the first place i took an economics course. i was offered a job at painewebber and that took me to salt lake city. i met my husband there.

i received my ph.d. in finance and some kindly professor decided that i was good enough to be submitted to a competition. it one has the best doctoral student paper. -- it won has the best doctoral student paper. >> what did you do? >> i work for a gentleman that had just come from the reagan administration. he gave me projects without a lot of supervision. he had me researching international debt and finance statistics. one thing i learned a bride away was to probe were those numbers come from -- that i learned it right away was to probe for those numbers come from. -- where those numbers come from.

i ended up getting a fellowship to examine soviet system 6 -- soviet statistics. gorbachev had just come into power. the united states and the west were making loans to the soviet union. new numbers were coming out as to how much money they were borrowing. it was very boring in a very dry study -- and a very dry study. as i was doing that, i wondered why it was that defense spending was costing u.s. taxpayers so much money and then we turn around with our nato partners and make loans to the soviet economy.

it all became a policy issue. this paper turned into a book with a very sensationalist title, called "the coming soviet crash" that said that on paper, this country is going bankrupt. that got me involved in defense issues. it got interesting. what i remember seeing you give a speech on this network back in 1989. what i thought it would be useful to take a few minutes too late things out the way gorbachev must be looking at them >> i thought it would be useful to take a few minutes -- >> i thought it would be useful to take a few minutes too late things out to a gorbachev must be looking at them. >> we were doing the book show and we ask you to come on.

we visited for one hour -- we ask you to come on. -- we asked you to come on. the thing to keep in mind is that on november 9, it was the fall below wall. let's see what you were saying back then. >> what do you think of the soviet union? >> i think that it is an idea that went wrong. economically, i think it is doomed. i do not say that with lead. i have only -- with lglee. i was treated very nicely in the soviet union. i like the russian language. i like russian literature. one problem with the book, for

me, is that i had the sense that people were thinking that i want to see the soviet union collapsed. -- collapse. i do not like their emphasis on military strength as a claim for superpower status. i think it is misplaced. >> what do you think since then? what has happened? but i still like russia and i like russian literature and i like the russian people -- i >> i still like russia and i like russian literature and i like the russian people >> i still like russia and i like the russian literature and i like the russian people. you cannot subjugate that to what some greater government

decides is important. the soviet government decided military strength was most important. second to that was infrastructure. they wanted to be independent and internally powerful. a very poor third were the people themselves. i think that it bread a sort -- bred a sort of hopelessness. it was an overreaching government. >> have you been back? >> yes, a few times. now i specialize in pro- democracy projects in russia. >> what is the national endowment for democracy? >> it is called n.e.d. it was started under president reagan but is a completely

bipartisan initiative. it is funded by congress for the state department. it is independent of the state department with an independent board. >> who runs it? >> the board and our staff. what we do is take our money and we have over 1000 projects, but we never tell people in another country what they should be doing. that is, we think that the best formula for people is democracy. that means free independent media, fair elections, rule of law, right to assemble. the national endowment is comprised of four coure groups

that represent the republican party, the democratic party the labor solidarity center. >> who nominated you for the board? >> i was asked by the chairman. >> who is the chairman now? >> it has just switched to richard gephardt. it is politically balanced. they always make sure that there is the same number of republicans and democrats. there are a lot of congressmen and ambassadors on the board. when the white house changes, they change from chairman to vice-chairman to reflect the power -- of the party in power. >> do they pay the chairman? >> no. >> how big is his staff? >> his staff is about 120 or so. they operate on about a pretty

thin budget. people apply for grants and countries all over the world, where there is a need to improve the democratic process, and they have been very active in the middle east. they come to us and they can come to our website and apply for a grant. our staff makes sure that they are legitimate and they have the wherewithal to comply with the requirements. we do a lot of good in finding people who are willing to take the risk and in some countries it is a significant risk, to fight for democracy. people should talk to our grantees that think us and are willing to be harassed, put in jail, sometimes worse, because they demand what we have.

a free independent media, a right to vote in a honest election -- in an honest election. >> give us one of the example of what you consider a success and how long you have been on the board. >> i have been on for four years. one of the great successes is ukraine. in fact, russia resented the work of n.e.d. n.e.d. helps support the groups that became part of that revolution and that said that this was a fraudulent election. they refused to leave the streets when there was a runoff. that is when the president was elected. he was not the favorite of

moscow. he rose to lead ukraine to the european union. things have been brought in the ukraine -- bras in ukraine. -- rough in ukraine. even though they had experienced a real political difficulties -- experienced real political difficulties, they have decided to decide their own destiny. they may decide to move ahead with the european union. >> here is more from our 20- year-old interview. >> if i was going to lead by as the soviet government from a financial point of view, what they can do to take part, i

would tell them to put their money where their mouth is. i think that the soviet union's only claim to credibility with western financial types is to provide collateral behind a currency. in fact, i think it would be a rather brilliant coup on their part to come out with a currency. they have mythical currencies, not that they do not exist, but bankers is get round when they think of soviet gold reserves -- bankers eyes it round when they think of soviet gold reserves. >> what has happened to their gold and the ruble in the past

20 years. they should have done that. i wish i had fought harder. i went over with a stanford team in 1991, advising boris yeltsin. i was given a portfolio to recommend whether russia can break free of the soviet union. by december of 1991, the soviet union was no more. i think that the soviet union decided to go with a big bang theory. the net result was that instead of solidifying the money first, they try to do everything -- tried to do everything and gave the russian people a bad taste for capitalism. the russian people ended up thinking that this was the way

for people who have access to the political elite, they will get bigger rewards and the rest will suffer. russia was grasping with disaster. it was only when vladimir putin came to power that russia started making money because of oilthe people said that it is better to have a strong, tough leader. they were willing to give up those freedoms that they thought were important, but it turns out they were worse off under so- called capitalism. i think, even now, if your currency has integrity, you can build on it. it is a foundation. russia ended up having a disaster in 1999 where the ruble lost one-third of its value in a

matter of a few weeks. there was a complete default. it put russia on the lifeline to the imf, which they also presented. it fuelled this permanent distrust of the breast which is why vladimir putin stays in power. the international monetary fund has a wonderful legacy. it was set up during world war ii. actually, the first draft was written by a gentleman in the treasury department. the idea was to say that in the 1930's, because of the depression, we had a breakdown of any kind of competition in currencies. everybody wanted an advantage to sell the currency in another

country. we had protectionism. in order to get the allies in europe to feel like there is something worth fighting for, the u.s. decided to give people hope and if we get through this vicious war, there will be something good to go to. we will not go back to the 1930's where there was a depression. the international monetary fund had one main job, and that was to have a stable monetary system, fixed exchange rates among currencies. they would have to be fixed to the dollar and the dollar would be fixed to the gold. >> does any country in the world back up its currency with gold today? >> no. that is why i have real resentment of the international

monetary fund, because when the u.s. went off of that system under president nixon in august of 1971, instead of fighting to maintain a stable monetary system or figure out how to get back to 1, which is what i think the imf should have fought to do, it waited a few years and then it accepted that. now, any country can have any kind of exchange arraignment they want, floating, fixed, they can have a currency board, they can piggyback to another country's currency. the only thing they cannot do is pay their money to gold -- peg their money to gold. in the meantime, the imf's sits on virtually all of the gold that was contributed from the

beginning from countries that had to pay in gold or dollars to be a member of what was supposed to be a stable, international monetary system. >> my recollection is that jack kemp was a big gold supporter and he had an outfit called empower america. >> i was on that board. i am very proud of that. kemp was a visionary. there was a plan to launch of the jack kemp foundation. it is invigorating to see the people that were part of that movement, the supply side, now we could say that the supply- side was something that brought economic growth. it was based on the wisdom of recognizing that the free market works because it collects the

collective effort of individuals that use their power and intelligence to pursue their dream and what you do not want to do is inhibit that. all entrepreneurs really want are good solid rules, a solid foundation, an honest money, which is something that jack kemp was willing to go to bat for. that is where you start. >> people that would detract or criticize what you were saying it would say that you -- we are in the mess we are today because of supply-side economics, because of this thing that went on during the reagan years that said spend, spend, spend, enjoy it. you have heard it. >> the economic growth in the 1980's turned us around from

the stagnant growth and inflation. in the 1970's, it looked like our country was permanently in the lategoing into decline. our best days were behind us. what we learned under the reagan administration was that the potential for economic growth is still there. i know that it sounds hackie, but the american to receive is still alive. people want to be successful. it does not mean just material wealth. they want a chance to pursue what matters to them. to define what matters to them. the two big parts of the reagan revolution were to stabilize

monetary policy and get rid of inflation and that is what we did. it took a real squeezing out. it was really painful. with high interest rates, we attracted a lot of foreign capital. on monetary, it was to have a stable, honest dollar. in the fiscal round, the idea was lower taxes -- -- in the fiscal brown, the idea was lower taxes -- in the fiscal wrealm, it was lower taxes. i think that when you lower taxes, you are recognizing the heroism of of entrepreneurship. -- your wisdom about to premiership. >> could you sense that the

people are happy or unhappy? >> that is a question that reflects human nature. i am not sure it that a highly consumerist society means great or personal happiness. the people i've met were happy enough. i think they had that rusrussian characteristic of being resigned. americans are different. if we do not like something, we call the manager. the russians shrug it off. you would not begin to see irritation like you would in the united states.

>> have you seen any change in the russian people since then? >> they had a taste of freedom. there is still a sense of record -- resignation. i am so glad that americans do not have that trait. we do get mad. thank goodness. we get mad and we fight back. we have a political system that says that we do not like the way that we are going and we are americans and this is a government of the people for the people and by the people. there is still a difference. the russians still do not quite believe it. one thing that i do think is universal is the entrepreneurial spirit. it is not just about making

money. i agree with what i said then. if you are resigned, in any society, it is not because you cannot be the wealthiest person, it is that you can't fulfill your own dreams. it was that seoul killing aspect of living in a society where what you were going to do and where you were one to live was preset. it was central planning all the way -- where you were going to live was preset. it was central planning all the way. it comes from a sense of not knowing what is going to happen. i might just decide to go out and be this or that. i will take the rest. there is a possibility of being successful that i think is the difference between being a caged

animal where food is thrown to you predictably it or say that you will live in the wild and i might just have to fend for myself. if you like for him, that is what you live for. -- if you like freedom, that is what you live for. >> today, 20 years later, this has been a huge consumer society. you hear a lot people complain about service stinks' wherever you g wherever you go. all the airlines went broke. what happened here, then? >> i would say wherever competition is limited, you will see a decline in service and value. it is competition. adam smith had a great sense of morality.

he wrote about how capitalism would work if the invisible hand of directed individuals to do things. he said that would ultimately give you the best society. what else would we want? it is people who are willing to set up a service business or produce something. they are trying to please their fellow man because he is going to buy the product and they will make a profit and that is how they will do better. it is also a society that pays attention to its fellow man because that person demands the lowest price and it brings all the forces of free markets. that is what i believe in. that comes closest to refecting

a system that humans can pride within. >> i have not seen you on television. do you not do the shows for a reason? >> i was especially pleased to do your show because i think it is nice to speak in doubt. i appreciate that opportunity. i do not think that i am a good sound bite person because i am likely to say something that maybe this taken the wrong way. >> do you avoid them on purpose? what i do not avoid them, but i do not often except -- the wall street journal, the blessed newspaper, has been very kind in the last couple of years, giving me a great forum to get ideas out there. i know that we need strong, political personalities. i think that i am much more the

kind of that is sitting in jeans and a t-shirt and pounding away on my keyboard. i do not try to sell my id is as much as just slide it under the door. if people like it, i am happy to come in. i will sometimes come in and meet with senators at the capitol and tell them my thoughts about the deficit question or the deficit or where we are going as far as the dollar. i would love to do that. i am more of a behind-the-scenes teacher. >> david walker, who used to run the gao and now runs the peterson foundation, says that we cannot grow out of the situation we are in now. >> it is frightening. >> is that true? is it the first time in our history >?

>> i never want to say that we can't. we have been in terrible situations. coming out of world war ii, we have had tough times before. we were confronted with the loss of war, financially as well as what it does to the spirit. i think that the country is valiant. i want to say resilient enough to come out of this. this is unprecedented spending, and ending deficits and an unconscionable accumulation of debt. it is the kind of debt that thomas jefferson said was the last thing he would want to burden the country with.

i guess we gave our implicit permission because we elected the people that we do. -- we elect the people that we do. it is kind of like the goose that laid the golden egg. at some point, i could imagine the creative, productive people who have brought tremendous profits and salaries and build factories and make other people wealthy, i can see that scenario where they say they are going to drop out and go on strike because the country does not appreciate the risk that i take on and how hard i work and the government takes me for granted. i could imagine people saying that it was a great dream but i do not know if it is worth it for me. if enough people feel that way, the country has real problems. >> which politicians have been the most consistent for you in your life that you have any

respect for. >> certainly jack kemp. i like john kyl, and i am pleased with bob macdonald. i am pleased that he is talking about free enterprise and the american dream. those would be the people that come to mind. >> which economists do you respect the most? >> the greatest economist, the one for whom i have the most respect is robert mandell. he is a professor at columbia and he won the nobel prize in

1999. he is the father of supply-side economics and he also has a magnificent castle in italy with his wife, valerie and their young son. every year, and i believe he has done this since 1971, he has a fantastic gathering of economists asking how we can ever get back to a stable, international monetary system and he has people like paul volcker in attendance and i have met many bankers and leaders of government there. he is involved, still, in the future of the monasteries -- the international monetary system. he is very interested in china these days. he supplied the intellectual groundwork for the creation of the euro.

he now thinks we can have some kind of linkage between the euro, the dollar and with whatever china comes up with. >> explain something. when the euro was created, was that 10 years ago? >> yes. >> there was a parody, $1 for one year rule. then it even dipped below where it was in the '80s. now it is $1.50 the other way around. >> it was supposed to be a more stable system to ri. but because you have this huge area of the european union and this huge area of the united states, having variations up

50% in that relatively short time span, that shows you that the currency's swamped the impact of a tariff. when you have the swing of a currency of 50%, you have just made your competitors' products 50% more expensive which is completely unfair or you have given yourself an advantage which is certainly on the scale of the great depression. the u.s., having a weak dollar, is saying to the rest of the world that we don't care. a weak dollar may make things cheaper in your market, but we are doing it. that is unseemly for our country to do that.

>> one thing that amateurs do not know, i assume that someone is benefiting greatly. >> the problem is, because there is no system, money does not mean what it is supposed to mean. it is supposed to be a store of value. instead, it has become a game. the people who make money are speculators who bet where the dollar is going to go relative to the euro and other countries. you have banks betting. banks need to be able to exchange money, but the amount of money you would have to convert into another currency to carry out international trade is less than 5% of the currency market. it is absolutely a gamble of betting which way it is for to

go. the banks and get big profits from that. what bothers me is that we have turned money into a lottery instead of money being a tool. i think the most important tool for capitalism -- how do you determine demand if you have a sliding measure of what its price is. it would be equivalent to having a ruler where and is this big and tomorrow it is like that. how can freemarket work if you do not have a unit of account that means the same and, through time, to everyone, you do not have that basic foundation upon which price signals can do their job and the markets can work. >> you are married to a becker? >> i am.

a former banker. -- you are married to a banker? >> i am. a former banker. lucky for me, he got out of banking back in the 1980's and is kind of a fellow farmer. we like to hang around the place and go out and visit the cows. this morning, he was up in a tree stand, watching beer. he did not shoot any, but i am sure we will end up having been as an tonight -- venison tonight. i taught at a business school. it was started by a great man. one of the billionaires' of mexico. -- billionaires of mexico.

his grandfather was the first democratically elected president of mexico and he was assassinated. he cares very much about the legacy of democracy and an entrepreneurial capitalism -- and entrepreneurialism -- of japan real capitalism -- an entrepreneurial capitalism --and and a entrepreneurial capitalisentrepreneurial capita. it was very expensive. he was footing the bill for the students. many of them one on to fantastic careers. i wrote recommendation letters

for them to harvard. they have a sense that they can make a difference in the world. >> you have written how many pieces for the wall street journal? >> i just happen to know. in the past two years, 15. >> who first said to you, "yes"? >> the man is robert pollack and is part -- his partner is howard eckm dickman. i started getting a little e-

mail if i had any thing to say on this. -- anything to say on this. we went to the mexican meltdown in 1995, asia in 98 -- in 1998, russia in 1999. i would get a little inquiry. a few years ago, i got an e-mail asking if i had any thoughts of what i think about this. i said that he would not want it because i am kind of a curmudgeon on this. i wish we had a neutral asset, something universally recognized. this is crazy. if you do not want to put this on the nation's premier business newspaper. he would write back, "yes,

sounds great. why did that." -- write it up." we live under legal tender laws that you have to use the dollar. that implies a moral contract on part of the government. they better make the dollar a good product. to be a good product, it has to fulfil those functions. it has to do it honestly and with reliability and with integrity. >> do they pay you? >> the journal? >> yes. >> i think it has gone from $150, and one a few weeks ago, i got 600 for it. > i want to go back in histoy

again. you have this relationship with the russians back then -- you had this relationship with the russians back then. let's listen to what you had to say. >> i have always liked the literature. what i am trying to do is try to memorize the day in the life of [unintelligible] i have -- >> in russian or english? >> in russian. i have for russian dictionaries and i start reciting what i have a rise so far -- i have left --

i have four russian dictionaries and i start reciting what i had memorized so far. i think that the way you get a feel for the language is through this exercise of memorization. i need to hear it and read it and think about it so that it has meaning to me, personally to really embrace it. >> how long was that book? how many pages? >> 109, maybe. >> good to memorize it? >-- did you memorize it? >> [speaking russian]

>> i have no idea. why were you doing that? had you gone back to this just to read russian? >> yes, i am very interested in the president of russia. i think he is different from vladimir putin. i would love to see him be his own man. he is very much against corruption. whether he can rise to challenge vladimir putin when it comes to that, because i think it would have to come to that, i would be very anxious to see.

i read what he has to say every day. the russian presidential website is excellent. what is it in english? >>-- >> is in english? >> it is in -- is it in english? >> it is in russian and english and that is a good way to learn russian if you want to. >>we contract with a knowledge f one who set up a satellite system for columbia to listen in on soviet television. we have the same operation at our house. it involves a big dish and a little computer. since the soviet satellite is not geostationary, the soviet

satellite keeps moving. the trick to latch onto it is to get a system that can follow it and try to gedrafted. -- and track it. the computer follows it for a little while. in my office, i can watch color soviet television from about 4:30 p.m. until about 7:30 a.m.. then i get live soviet radio out of moscow all that long. it is a pleasure for me to hear the language. i do not pretend to understand all of it. i get some of it and everyone's and while there is something interesting. -- every once in awhile there is

something interesting. >> what happened to that system? >> i would assume that the people that bought our home dismantled it. i understood that there were only three such setups and we had one. but these days, you do not have to enter step -- intercept russian broadcasts. i loved to listen at a certain time every day when they would go live to red square and play the soviet anthem. of that came out of world war two when they would try to reassure people by radio that the country was still there.

it was thrown out, but it was brought back with different words. >> if you lived in northern virginia, you can watch russia today 24/7, a full-time television network in english with people that sound almost american and in some cases they might be. have you seen this? why are they doing this? >> "russian today" is a state- controlled broadcast. i think they actually tried to copy fox news. it just happens to be a state run. -- to the state run -- to be state run.

they wanted to highlight the worst thing that happened in the u.s.. if we had a natural disaster or something embarrassing politically, or somebody walks into a school in shoots 10 people, that would be of the news -- and shoots 10 people, that would be in the news. this is so irritating. they say why 911 was fate and that the u.s. knew it. >> this is in a public television station. >> i love that we can choose to watch those things. the most interesting thing to me

was to have access to state controlled modes of the permission -- of information. i often look at "russia today," which is the zippy version of what russia wants to to hear -- once you to hear. -- wants you to hear. those stations should be available. you can learn a lot about the way the government wants to present itself. you want to listen to other media outlets out of russia that are genuinely free. it is the competitive media that gives you the chance for you to decide. >> you were talking in your

book about the military and the money. 20 years later, this country spends $700 billion on defense. you can hear people say that it is all of the rest of the world's military, combined, does not add up to 700 billion. >> to put it in perspective, that is still about 4% of our gross domestic product. the soviet union, in its final days, was contributing about 20% to the military. people do not like it to go above 4%.

to your larger question, as to why the u.s. has to bear the burden, i do not think that americans are warmongers. i just think we shrug our shoulders and say that somebody has to do it. i think we would love it if nato would take on more of the burden. in the end, we find that the rest of the world ends up looking to the u.s. to be the force for security. it is too bad. it is an awful burden. i think it is -- i think the american people are generous with their people and their treasured to support it. i think this is not necessarily to help ourselves, but to help other countries. >> in the few minutes we have left, what would you tell this president or anybody else that is responsible for the future how to get out of this mass?

>> -- this mess. ? >> first, you go back to the source of wealth, which is private business and you change your attitude and you say that you overtax people. we do not support entrepreneurs and we do not give them sound money, money that does not inflate, money does that -- money that does not put them in a higher tax bracket. >> what do you say about regulators that did not do their job? >> i think that is totally misplaced. i am so tired of the criticism

among republicans pope wall street greed -- republicans of wall street greed. when government distorted the risk of a fannie mae and freddie mac securities by winking in saying that these are guaranteed. -- and saying that these are guaranteed -- when government distorted the risk of fannie mae and freddie mac securities by winking and saying that these are guaranteed. let's face it, finance and banking are the most regulated industries that we have. you cannot regulate a distortion of markets. to suggest that people were greedy because they were pursuing profits, legally? it was legal to make a profit by

selling derivatives. why have an incentive system that makes it more profitable to write up this complex financial instruments that is a bit of whether the european central bank will move on interest rates or the fed, instead of having one unit of account and not playing games with money. why would to set up an incentive system that rewards people for betting on investments that have nothing productive associated with them verses' people that make things or furnish real services? they are saddled with having to pay when a system like that, built on financial air, collapses. that would have provided a stable financial atmosphere for carrying out productive

capitalism. >> come much of your time you spend on the national endowment for democracy? >> we have four meetings a year. i would say that i spend 20% of my time. >> 80% of the time? >> i think about international monetary fund's. we have our conference in a week or so. i am not working on a book. it is more on a religious theme and it is fiction. judy shelton judy,>> judy shelte we thank you. >> thank you so much.

>> for a dvd copy of this program, call 1-877-662-7726. for free transcripts or to give us your comments about this program, visit us at cspan.org. q&a programs are also available as c-span podcasts. >> next week on q&a, we talk with naomi klein. our guest, next week, by q&a. sunday night at 8:00 p.m. eastern on c-span. >> 29, on c-span, the queen travels from buckingham palace to parliament to deliver her speech