each of these bills contains the largest cut in mandatory spending that our nation has ever seen, larger than the balanced budget act of 1997, $100 billion larger. that is a good start. . i'm hoping that we can substantially improve this bill. there is much to be done. as you have said, the decision making process in congress is broken.

it must be fixed. the first choice solution is give the folks who think that regular order will prevail another chance. they have had decades of chances. the basic message is, "stop us before we spend again." relying on my good friend and colleague who finally persuaded me that this was absolutely necessary, he is right. we need this decision-forcing mechanism to do the right thing for the country. truthfully, congress has had to really face up to a crisis before we act, and i am hoping that this month or next, even the blind is partisan will see -- blindest partisan will see that we must act. as you know, the whole world is watching us, particularly nations like the chinese. they are getting tired of

funding our lifestyle. a year or two ago, the leading rating agencies on wall street already projected that the u.s. treasury bond could lose its aaa rating as soon as 2012. they went on to project that the treasury bond by 2015 could have the same credit rating as that of estonia or greece. this is not a future that we want for our country. we must change course and change course fast. as you know, the treasury bond is the anger to the world's global financial markets. if it is allowed to slip, we do not know what will happen, but it will not be good, and it could even make the current financial recession look like a slide show. i'm glad to announce that the vast majority of blue dogs, a fiscally responsible democrats in congress, support the proposal. we are looking to persuade other members to join us in this fight because it is absolutely vital

for the future of our country. finally in closing, mr. chairman, to quote the nike slogan, because this issue is even more important for our young people than it is for anyone else, as the nike slogan says, "just do it." thank you, mr. chairman. >> thank you, congressman cooper, and thank you for your powerful and persuasive testimony here today. next, we'll go to congressman wolf, who has been a longtime leader in this effort, and senator bayh, thank you again for being here. congressman, welcome to the senate budget committee. >> thank you, mr. chairman. i appreciate the opportunity for the hearing. i have never been more concerned about the future of our country. america is going broke. the federal government now owes more in debts and commitments than the total combined worth of all americans. the national debt is racing toward $12 trillion and growing at rates that have not been

matched since world war ii. in addition, we have amassed unfunded promises to guarantee future benefits that went at it with liabilities, every man, woman, and held a $140,000. united states will soon lose its aaa bond rating. the dollar appears to be losing its important status as the primary international reserve currency, meaning everything traded internationally will increase in price, and our biggest bankers are japan and china and oil exporting countries like saudi arabia. is it really a good idea to be selling debt and to countries like saudi arabia, the home of the 9/11 terrorist and communist china, which is spying on us? my computer was compromised by the chinese where human rights are an afterthought. then, the news we just got friday -- unemployment rate has now hit 10.2%.

can you feel it? can you feel that something is just not right? there is no other way to deal with the problem. congress is never going to tackle the growing cancer of overspending on its own. the system is broken. in my 29 years in congress, i have never -- and i was in but there was mr. gregg. -- i was in ugtger -- i was in rutger with mr. gregg. congress is disregarding the reality of where we are. that is what is happening. that is why we need a commission made up of men and women who care more about their country than they care about their party. who are not constantly looking over their shoulders worrying about how they voted on this issue or that. simply put, a commission is the only way. without it, we will have the same old process drawing lies in

the sand while the tsunami of debt comes crashing toward the shore. the commission we have envisioned would hold public hearings across the country to hear from the american people. listening will be the key. there have to be honest discussion with the american people about their choices, and as every other witness said, everything from entitlements and is to -- entitlement spending to tax policy would be on the table. this is the only way to deal with the issue. nothing should be prejudged or preconceived. after listening to the american people, the commission would then develop a series of recommendations to improve our nation's financing -- our nation's financial health. congress would be required to vote up or down. no avoiding the hard choices. more than 80 members of the house in both political parties are now on this public interest group, business leaders, texas,

syndicated columnist, and editorial pages across the country have all endorsed it. let's face it -- we are at a fork in road, and we can no longer continue to kick the can down. we can continue down this same path if you want to do that, but that means that every penny of the federal government will go toward entitlement spending and retiring our debt, or we could start making hard choices now, knowing that it may be a little rocky to start, but will give us the ability to build and travel that road and let me close on this one statement that was made by norm augustine -- the former chairman and ceo of lockheed martin at a press conference earlier unveiling a report from the well respected center for the study of presidency in congress titled "saving america's future." the report painted stark and troubling future of the nation's challenges. one of the recommendations is to create a bipartisan panel to deal with the park bridge a

bipartisan tsunami. the chairman of the group that prepared the report said the following, "in this technology- driven economy in which we live, americans have come to expect leadership as the natural ended during state of affairs, but leadership is highly perishable. it must be constantly re- earned." he said that in the 16th century, the leaders of spain about thought they would remain a world leader. in 19th century, great britain. in the 20th century, it was the united states. he ended it by saying, "unless we do things dramatically different, including shutting our investments and research and education of the 21st century -- and education, the 21st century will belong to china." thanks again for having me here. >> thank you, congressman wolf, for really outstanding

testimony. i am delighted at the quality of this panel. i think the message that has been sent is clear as it can be. now is the time to move on in a different direction, and we simply cannot rely on the traditional standard regular order to try to take on a challenge of this magnitude. it simply will not work. and so what is required is a special process. and i think we have got in the budget committee a series of alternatives. all of them have merit, and our job will be to sort out for the senate side but proposal can advance. i want to thank you all. i deeply appreciate your testimony before the committee this morning. we will call to the witness table the second panel, the honorable david walker, the

president and ceo of the peterson foundation, douglas told deacon, the president of dhe consultants and its former head of the congressional office, a senior fellow at the brookings institution, and the president of the committee for a responsible federal budget. thank you all for your willingness to testify here today. we very much appreciate your time if you're taking the time to do that. >> mr. chairman, i apologize for being a little late. i just want to reinforce the necessity that you have pointed out in doing this not by regular order. i do not mind giving regular order an opportunity -- i think we should -- but they have had an opportunity for years. and why the structure that we have come up with, which is essentially members of congress and the administration and a

non-amendable event is a very important structure for the purposes of accomplishing our goals, and the logic behind that is very simple. you have to have the american people feel that this is an absolutely bipartisan and fair process, and for that, you need supermajorities, and you need a balanced commission. second, the commission has to have a belief by every member in this commission that they are basically involved in the process, and they have to understand the process. outside folks make sense in many areas, but as a practical matter, we have gone down the road on all these issues so many times that expert knowledge is always available to us, but it is not critical -- what is critical to the process is having people on the commission who are actually going to have to make the decisions.

the need for an eye or down vote is, i think, the most important part of any commission because there is a tendency to hide in the corners of amendments around this place. give somebody an amendment, and that give somebody an excuse for not voting for final passage. as a result, and amendable vehicle inevitably has the fundamental flaw that it can be gained in the political process and be used -- the amendment can be used as a way to make a political statement and thus avoid making it tough look on final passage -- thus avoid making a tough vote on final passage. >> i want to commend you for being at some point the lone voices on this issue for a long time. i know with some of the folks on the first panel -- i concur with senator gregg that there is an enormous need to have an up or down vote.

i am not as convinced on the issue that needs to be all necessarily members. i can understand arguments on both sides. i guess the one -- and i say this respectfully as a new member -- the one concern i do have -- and i know you and senator gregg have spent an enormous amount of time thinking about this, but under the proposal you have laid out, the members -- if the right members were selected, i could see a very successful venture, but it partisan pressure led to members being selected that came in on either side of the aisle with either say we cannot look a certain number of programs, we could never look at revenues or throw certain things off limit, you could almost derailed the process from day one, and i know you all have thought through this long term. i can say that i have total confidence that both of you would come with that open mind, but i do hope that that part of

the process can be something we can keep talking about trying to make sure that whoever is selecting members of the committee would select people that would not come with preconceived notions and truly come in with an open mind everything needs to be on the table. >> thank you. and again, senator warner, thank you for your courageous leadership. we know this is tough to take on -- >> this is being courageous? >> yes, it is, and you know it is because you are taking on the institutional structures here, and we all understand that. we understand how strong they are and how resistant to any extraordinary process they are. >> [inaudible] >> we are going to turn now to david walker, the former head of the general accounting office, someone who has been a leading voice for a long time on the

need for a special process and the need to face up to our long- term indebtedness. he has traveled the country as part of the fiscal wake up tour and an incredibly important work to help prepare public opinion for what -- and done incredibly important work to help prepare the public opinion for what we know must be done. >> thank you. first, i would like to thank you for the opportunity to be here and secondly, commanded three of you as well as the members of the panel before this for their leadership on this critically important issue. i would like the full statement to be included in the record, and i move to summarize it now. >> without objection. >> thank you. our deficit was about 9.9% of the economy, almost nine times what it was just two years ago. this past weekend, the federal debt past the $12 trillion mark,

which is almost 85% of gdp. federal debt almost doubled during george walker bush's presidency, bush 43. it could double again in the next 10 years if we do not change course. our nation has become increasingly dependent on foreign lenders to finance our federal deficit. today, over 50% of the debt is held by foreign lenders, and that is growing. our federal government faces a federal financial sinkhole that is growing at a rapid rate. 56.4 trillion dollars at the end of last year has already been mentioned, which is $184,000 per person, $483,000 per household. nine or 10 times median household income. the no. i expect will be around $63 trillion + and we will not know until the end of this year.

if you think the current deficit and debt levels are bad, you ain't seen nothing yet. our huge unfunded promises will translate to much larger deficits to debt burdens in the future absent real transformational reforms on both sides of the ledger. total federal spending could exceed 40% of the economy in interest alone will be the single largest line item in the federal budget within 12 years, and we get nothing for it. in reality, we will never make it to 2040. by the way, by that point in time, if we wanted to stop the bleeding, we would have to over doubled federal taxes alone by that point. as i note below, we will face an economic crisis much bigger than the current one if we pass a tipping point and we do not start to put our act together pretty soon. congress is currently involved

in the great debate over health- care reform, and i would just like to say that that has serious fiscal implications. i included in my testimony and suggestion of four criteria that should be met in order for health care reform to be deemed to be fiscally responsible. i'm sad to say that right now, none of the bills currently meet all four criteria. hopefully, that will change. in respect of how the current health care reform debate and, -- irrespective of how the current health care reform debate ends, we have to recognize that problem also exists with the federal government finances. there are two big deficits from the mortgage-related sub-spaced -- subprime crisis. the numbers are much greater, and secondly, no one will bail out americans. we must make tough choices and solve our own problems. we must address our structural

fiscal challenge before we face the possible super subprime crisis which could result of our government fails to put our financial house in order to we must recognize that they lose confidence or otherwise decide to significantly reduce our appetite for financing our deficit, we could experience a dramatic decline in the dollar and a dramatic increase in interest rates. i'd like, the single largest line item in 12 years assumes no significant increase in interest rates, which is an unrealistic assumption. this would have a devastating impact on america and americans. it could also result in a global depression, and we must take steps to avoid that. with all of this as background, let me comment on the primary subject of the hearing. should congress move to enact a special process to address this nation's large and growing fiscal challenge? my answer to the question is a resounding an unequivocal yes.

based on my experience of traveling to 46 states around america meeting with hundreds of thousands of people in town hall meetings, business community leaders, editorial boards, as well as local media, it is now abundantly clear that a majority of americans have grown tired of too much talk and not enough action in washington. there is an increasing disconnect between public and washington, and that disconnect not only is resulting in a growing lack of confidence in the regular order -- it is resulting in a growing anger throughout the united states, irrespective of political parties. we found out this past spring that the number two issue of concern to americans exceeded only by the economy was escalating deficits and debt. 20 points ahead of health care, climate change, iraq and afghanistan, moving jobs overseas, and other important issues to the nation -- 20

points plus ahead. there were also concerned about our increase reliance on foreign lenders. we have a new survey now, and i would be happy to provide the results to you. i fully expect that concern will have increased. right away, they also supported the need for a special commission. furthermore, they supported by roughly two to one margin, the need to have non-government experts on as well, recognizing that the pressures that are brought on elected officials. in my view, the congress and president should take action no later than early 2010 to be able to move to create a special commission. i would respectfully suggest that doing something as part of the debt ceiling limit is a good idea or doing something as part of health-care reform. but it is very important we do it in early 2010. we must put a credible process in place that would accomplish two key goals, and i think these

are really important based upon five years of being out on the front lines in america. first, to educate and engage a representative group of the american people. not the fringes. a representative group of the american people on the serious fiscal challenge that we face. the range of tough choices that need to be made. the pros and cons of various options, the prince of acting sooner rather than later, and the potential consequences to our countries and our families if we do not. second, we must create a process that will set the table and provide political cover form one or more tough votes in congress, where everything is on the table. literally everything. they should make recommendations in areas like statutory budget control or insurance program reform, tax reform, other spending including defense constraints. additional health care reform because is pretty clear that the tough decisions are not going to be made on health care is to

reduce costs. we will need around two, three, four of health care reform, even if something happens at other appropriate hearings. in my view, the composition of the commission is critically important. clearly, you need to have members of congress and you need to have representatives to the administration, and that representation should be balanced on both houses and in both sides of the political aisle. i believe that it is strongly desirable to also have a credible and non-government experts as part of the commission. why? because the truth is when you go outside of washington, people that have a strong d or r on their sleeve is counted significantly. and people who are in elective office obviously face pressures that people not in office do not face. i respectfully suggest that we do not just need bipartisan solutions. we need non-partisans solutions. after all, can plurality of americans now consider themselves to be politically

independent, and therefore, i think it is important to disregard any non-government experts and also have people that our experts. but you have some that are viewed to be in form and substance independent. that is critical. the parties who are not elected officials would bear a disproportionate share of the burden for speaking the truth to the american people outside the beltway. it is going to take a lot of time. it is a major time commitment. members and cabinet officials just do not have time for that. in summary, we are at a critical crossroads in the history of our country. we are approaching a tipping point. we must avoid passing that tipping point because it could have catastrophic consequences for our country and our families. some have said this commission is not the right way to go, that we should go the regular order. that ignores the fact that the regular order is badly broken. some have said that we also have

a situation where this is something that members of congress should handle rather than some special commission. they ignore the fact that in the final analysis members of congress must vote, and the president must either sign or veto the bill. therefore, the constitutional process is respected, but we must recognize this country's future will not be better than its past unless we make tough choices soon, and this is the way to get it done. thank you, mr. chairman. >> thank you, former gao director walker and now head of the piers and foundation. really powerful testimony. i really do hope people are listening, paying close attention because the stakes are very high here. we are also joined this morning by the former head of cbo,

somebody that developed real respect from colleagues on this committee and throughout congress for the way he conducted himself in that important position. welcome. good to have you back before the committee. >> thank you, mr. chairman. it is a privilege to be back at this table again. i have had the opportunity in the past to discuss at length the dismal fiscal future, which has been outlined by many of the proceedings, so i will not deliver that, but i do have a statement i would like to submit. >> without objection. >> i will make a couple of points that i think our most important about the current budget outlook. number one i think is simply the time scale and how rapidly it has shifted. what used to be a three-decade problem, which was well understood but not addressed, is now something that looks to be a one-decade problem, and that

makes the challenge much, much harder. the second thing that i think is really quite important at the moment is the perception of international capital markets. one of the puzzles that has been going on for a long time has been why is that the congressional budget office, general government accountability office, high levels in tanks -- regardless of the source, we have the same basic picture, which is spending lines that point ever northward and revenue lines that do not, and it's simply just does not add up. international capital markets have access to these reports, and the question is why are they comfortable buying u.s. debt to begin with? the resolution has been that they are implicitly counting on america solving its problems and that true to our history in a very pragmatic way, we will ultimately make sure these lines come together and do not ever grow apart. we now have one decade to do two

things -- number one, not disappoint them in that expectation or number two, genuinely address the problem. i think both of those are important issues at this time. one of my concerns i have outlined in my testimony -- i will not spend a long time on it -- is that if we have bills in the health-care debate, which are demonstrably unworthy a passage from a fiscal point of view, we will send a message to the international capital markets not only that we are not prepared to fix our problems, but we are prepared to make it worse. i cannot imagine a more dangerous thing to do at this moment in time. one of the things that i think we should think about, as we talk about a process to address this is how rapidly things are going to have to be done and how important it is to send the right message to international lenders. if you turn to the topic of the hearing, this notion of a task force or commission to deal with

these problems, i just want to say that i am a reluctant convert. i have always felt that it is the job of congress, and frankly, they ought to just do it. that has earned me know france and has gotten us no action, so i have come around to the point where i am in favor of something that is a special legislative procedure to get this legislation in front of congress -- that has earned me no friends and has gotten us no action. i really believe strongly that it should be dominated by members of congress who will ultimately have to vote on this, who represented the committee, the traditional jurisdiction where it will have to be ultimately sold at some level, and minimal participation if any from outside experts. i, for example, would be of no use in this, and i do not think that is the kind of people you would want.

you want people who are elected to solve these problems represented to give them a better leverage in the process to actually accomplish that goal. a tougher call is whether you bring the administration in or not. i think the political problems get bigger as you bring the administration in, so i would err on the side of having it be a congressional effort, but i could be talked out of that. it certainly ought to be bipartisan in nature, both in composition and the rules for approval of whatever legislation comes out. certainly, this task force commission should propose the legislative language, and it ought to be supported by a majority of votes from the minority and majority party on the commission. one of the things that i think is the most difficult question is the scope of the commission's

mandate. i have heard a lot today about the desire to have everything on the table from budget process to budget presentation to policy decisions, and quite frankly, i instinctively get nervous when i hear that, and i'm not sure that is the best way to go. for two reasons -- number one, i think that's if you go for a single large commission as opposed to a commission dedicated to the tax problem, a commission dedicated to the medicare/medicaid health problem, a commission dedicated to social security -- the large commission makes it potentially much harder to get the kind of outcome you want, which is an agreement on all of these moving pieces in a single piece of legislation. since action is important, i think i would prefer less coordinated action by many committees to well coordinated stasis, which continues our

problem. i'm not sure -- i'm sure others disagree with that. the second reason i worry about the big commission as if this congress were to put out a large commission populated by its members with the mandate to solve this problem, and it were to fail, i think that would be a very damaging moment in the eyes of our international creditors, and to raise the political stakes that high in this environment i think has some real risks associated with it. in going forward, i think it is imperative, number one, that something like this happen. i concur with that. i think that it should be dominated by members of congress, but that the man they should be thought about very carefully, so as to maximize -- but that the mandate should be thought about very carefully so as to maximize the odds that something should get down and minimize the fallout of a large failure.

thank you. >> thank you for your very thoughtful testimony, as always. we are also joined this morning by the senior fellow of the brookings institution, someone who has spent a great deal of time studying and analyzing the budget process and budget outcomes in this country. welcome. please proceed. >> thank you, chairman konrad -- conrad, members of the committee. i very much appreciate the invitation to participate in this timely and important hearing. let me emphasize at the outset, although as you say, i am a senior fellow at the brookings institution, as well as a member of the bipartisan fiscal seminar convened under the joint auspices of brookings and the heritage foundation, i am here i am a personal capacity, and unless otherwise noted, the views i expressed are mine alone. i will not spend a lot of time discussing circumstances that form the backdrop to these

proceedings. regardless of partisan ideology or branch of government, almost no one in possession of the facts believes that our current fiscal course is sustainable. the level of deficits, debt, and borrowing from abroad projected for the next decade alone threatens not only our economic prosperity but also our currency, our global leadership, and our national independence. as soon as our economy he emerges from recession and the job market improves, we must adopt a new fiscal strategy, and the planning needed to craft and implement it should begin without delay. it's these facts are clear -- if these facts are clear, which i believe they are, then why have so many past efforts failed to yield changes and why is there so little evidence that we are preparing to make now? it is easy for partisans to point fingers at one another.

it is more useful to examine the deeper problems that have thwarted action, and in my judgment, two are key. first, these issues are difficult, engaging in it -- engaging in is risky, and in today's polarized national politics, no one wants to take the first step, especially alone. second, ordinary budget procedures are not well designed to address problems that developed over nine years, but decades -- not years, but de cades. what we mostly have as institutional myopia. for these reasons as well as others, business as usual was unlikely to produce better fiscal results in the next decade than it has in past decades. fortunately, there is an alternative. namely institutions specifically

designed to address the problems of polarization and nearsightedness. in a paper released last june, the bipartisan fiscal seminar to which i referred earlier review the century-long contribution that commissions have made to u.s. policy making. from the establishment of the federal reserve board and social security, for military-base restructuring to be a struggle of terrorism, the list of accomplishments is impressive, and the challenge of developing a sustainable fiscal policy office the latest opportunity to push this institutional mechanism to work. while it is not my purpose this morning to evaluate the relative merits of the various commission proposals, i can, i think, list the criteria that experience suggest are essential to any commission's effectiveness. first, the president and the congressional leaders of both political parties must fully

supported the establishment. if they cannot agree at the outset that the fiscal problem is too grave and urgent to differ, they are unlikely to support any solution the commission may propose. second, its membership must be truly bipartisan, and its rules must ensure that it can take no action without substantial support across party lines, whether it has to be majority support for substantial support, we can argue about. recommendations requesting the use of only one party will simply replicate the polarization that has thwarted action up until now. third, and here i i go all the testimony you have heard this morning, it must be empowered to discuss all the possible range of options with the fewest possible reconditions -- and here i echo all the testimony you have heard this morning. no deficit reduction commission can succeed its purview does not

include both spending and revenue, nor should we focus on social insurance programs to the exclusion of our tax code. finally, and here again, i echo previous testimony, its recommendations must go before congress under procedures that require expedited consideration and ensure an up or down vote. rules permitting and distillate or amendments could destabilize a balanced compromise and not a formula for futility. -- are a formula for futility. some experts believe that a single commission should address all the major issues simultaneously and seek to negotiate a grand bargain. we have heard some arguments to that effect this morning. others think that making the problem of into more focused and discrete issues would prove more workable, and we have just heard that argument. therefore, there is no guarantee

that a commission will succeed where ordinary procedures have failed. because fiscal policy raises issues that go to the heart of partisan and ideological definition. in our politics today, a commission could yield yet more gridlock. there's the possibility that both congress and the white house could use a commission to evade their own responsibilities and to differ a debate that very much needs to occur, and so i echo my colleague -- i am for that reason a reluctant convert to the idea of a commission. nonetheless, at this juncture, in my judgment, the potential gain out with the possible cost. at the very least -- this is my conclusion -- a commission would force both parties to focus on our fiscal challenges and send average americans, whose concerns about deficit and debt have risen substantially during the past year, a credible signal

that at long last, their leaders are paying attention. >> thank you for that really excellent testimony. i appreciate very much you're putting your powers of thought to this task. we are also joined by the president for the committee for a responsible federal budget. we appreciate very much your being here. please proceed. >> thank you. it really is a privilege to be here today. i am the president of the bipartisan committee for a responsible federal budget, and i also am currently directing the peters sent you process on budget reform, and will soon be making a number of recommendations on budget process and dealing with the fiscal situation that we hope to work with members of this committee on. i have a longer statement that i would like to submit for the record. under reasonable assumptions, the debt will be growing as a share of the economy

indefinitely, at some point, creating a vicious spiral. part of the chicken is of the situation is that we do not know when -- part of the trickiness of the situation is that we do not know when or even what that will look like. these long-term problems that we have all known about for quite some time are now at our doorstep, and whereas before the economic crisis, we could put it off a little bit longer, we no longer have the luxury of time. at the same time, however, the economy is still in a delicate state, and if we were to immediately start aggressive deficit reduction, which i am not too worried we are about to, but were we, we could easily push the economy back into recession, some policymakers must chart a course where we reassure our creditors that the u.s. is a place to continue the end without destabilizing our economy. -- that the u.s. is a place to

continue to live without destabilizing our economy. the potential benefit to the commission are many. one, a commission could send a credible signal to creditors and financial markets that the u.s. is serious about tackling our fiscal challenges. it could establish a shared fiscal goal, which i think is critical. 3, it creates a bipartisan forum where these issues can be discussed. four, and establishes a process to make recommendations are considered, and five, it lends political cover. establishing the commission is one way to meet the goals of sending reassurance signals to markets that we are serious without influencing contract jerry policies to quickly and harming the recovery. the second advantage could well be that it would create the shared fiscal goals, so the commission -- i do not want to give away what we will be focusing on, but we strongly believe that some kind of gold stabilizes the debt as a reasonable share of the economy over a reasonable amount of time

would be something that our debt trajectory right now argues for. in the absence of a single fiscal goal, it is too easy for lawmakers to oppose any set of hard choices without suggesting other alternatives. related to the shared fiscal goal, and a commission should not start with commissions of taking things off the table. third, while it seems simple, it is beneficial to us to create an organist for for the discussion of how best to achieve these goals to be hastert between members of different parties. as a political independent and a member of a bipartisan organization, i strongly believe that the benefit of creating a safe environment for bipartisan discourse is very important and that is to be done away from cameras. fourth, there should be an expedited process. everybody, i think, has talked about that. otherwise, there are too many opportunities to delay, and a version by those who do not want to visit to the tough choices that will be part of a realistic plan. finally, a commission wins a political cover that will be

necessary in actually passing a plan. any plans that realistically tackles whatever challenge -- to fight off with the commission will involve difficult choices. spending cuts, tax increases, probably both, and probably, they will have to be large. no area of the budget will be exempt for consideration and probably reform. there is no way a politician or political party understandably concerned about the political future to go out and do this on their own, but benefits of in a collaborative process that each member to support the total package law in acknowledging that it may not have in their first choice, so let me conclude by saying i wish we did not need to consider the commission. i share that view of some of my other colleagues. when it comes to the budget situation, we always that we could just do it. my preference would be to get started on this immediately with a bipartisan announcement, that we would soon be facing in a bipartisan policy plan. it is easy for me to say, sitting here, however. i think due to the incredible

political polarization and the types of policies that will be involved, we have seen that there is a considerable resistance to doing it without a different mechanism and that the fiscal commission may well be the best mechanism to jump- start the process and make a decision making a little bit easier. there are many details to work out. i am happy to talk about any of these. from our perspective, it has really come down to whatever works. the commission will only work if it is backed by political will, therefore i think have some specifics of the commission, it is most important that we include details supported broadly and in congress. members need to buy into the process from the beginning for it to be successful. ultimately, the commission is the beginning of a process, not the end. the time is now to get started on a process for dealing with these challenges, and i look forward to any questions. thank you. >> thank you. again, really outstanding

testimony, and we have come to expect that from you, and once again, you delivered. we appreciate it very much. let me just begin with questions, and i will be brief in my questioning rounds, so that others have a chance, and we will go several rounds if need be, given the time. it seems to me there are broad areas of agreement that we have heard here this morning, that we absolutely need a special process focused on the death. there is broad agreement that everything has got to be on the table, that it is bipartisan in nature,, both in form and substance, that it leads to an insured vote. those are the areas and that i hear broad agreement on, and the question of everything on the table -- maybe, doug, you have a little bit of a difference, but not dramatically so. where i hear differences is on the question of outsiders/insider. should all be members and

representatives of the administration, or should there be some outside -- as one person described me, bigfoot economists or business people who have national respect. who could help bring this out of partisan conflict and put a focus on national interest. one thing i have wondered is is there a possibility of some kind of compromise in that area? senator gregg and i have a proposal that includes all members of congress and the administration on the idea the need people with skin on the game, but in listening to mr. walker, who made a number of points that are very important -- one is the ability to go around the country and listen and make the case to the american people as to the necessity, and members of

congress by definition have limited time for that kind of enterprise. one thing i thought of as i listened to mr. walker is is there a potential for an advisory group to the commission that would have people of national reputation who could be engaged in this process to go around the country? because at the end of the day, we are going to have to get votes here in congress. and if we do not have the leaders in congress in both parties brought into the process and deeply involved in the production of a product, my theory is we will not get a favorable vote. and so one thing that crossed my mind is is there a possibility of a working group for task force per that has the responsibility -- made up of members representative of the administration but haven't

ancillary group that helps sell this -- have an ancillary group that helps sell this to the american people? >> i think is critically important that we have a commission and the meeting the criteria laid out. the reason people can and will differ about what the composition ought to be -- i think it is possible to come up with some type of compromise. my view is that certain elements are essential. whatever commission exists, there must be a super majority of elected representatives on it. whether or not is 100%, people can debate that. i think the administration must have representatives because after all, the president has to decide whether or not to sign the bill, so i think that is critically important. the reason that i think it is strongly desirable to have some non-government representatives is based on two things -- one,

where do the american people think? the american people think by over a 60% margin that it should and and. second, i have been a 46 states in the last four years, and i can tell you that there's a significant time commitment that will be required, and i can tell you that if someone has a d or an r on their sleeve, it will be discounted dramatically. in addition to the fact that sitting members congress and administration cabinet secretaries do not have time to participate. third point will be if you are going to divide it, where you are going to have certain groups that are going to bear a disproportionate burden, they have to have some official designation because otherwise, i think it is going to undercut the credibility of that group, and i also think it would be important that you have at least a couple of members of the commission attend each one of those in order to show that this is linked directly to the

commission, so you might be able to leverage the time commitment that -- or spread around the time commitment and leverage appropriately to make sure you do have a commission member participation, recognizing there's a limit as to how much they will be able to do. last thing -- i cannot overstate the importance of the citizen of educational engagement component of this commission. in my view, the bush 43 social security reform effort was fundamentally flawed and had no chance of success from day one irrespective of what you think about the proposal, the process was fundamentally flawed. in my view, the current health care reform debate has been fundamentally flawed with regard to citizen education engagement. it is critically important that this one not be. that means the time commitment and how you go about interacting

with a representative group of americans leverage the internet for public policy purposes, a way that it has never been leveraged, get media involvement in these things are going to be critical to success in my view. thank you. >> i guess i differed with david in some regards. in my view, the purpose of this is in fact to fix the perception problem with congress. i do not disagree with the insight that americans are suspicious of people with r's and d's on their sleeve, but by addressing this widely understood problem, you would in fact immediately address the concerns of the american people and the reason they are suspicious of made-in washington solutions -- made-in-washington solutions. a structure so that members solve the problem will in fact

address the credibility issue, and quite frankly, legislation comes out of any such task force gets through congress, get signed by the president, we will have among the most dedicated sales and you can imagine on the president -- on the planet, which are members of congress running for reelection explaining why they voted for this. president of the united states -- any president we have noticed does have the ability to reach the american people. i do not see the need in this menu to supplement the ability to reach out to the american people. i think that gets taken care of automatically. credibility is restored. the outreach is there. i think the harder question, as i said, is about the composition and whether you bring the administration in not. the goal is to have a nice level by partisan playing field so you can go out with very tough problems. there is no bigger input then the president of the united states, and you will not have a level playing field with the

administration in negotiation. president the loss to the party. that party will be perceived as having a greater stake, so i think that for the first attempt at this, it is better to err on the side of taking that step, but i could be talked out of that. i think is a hard call. >> all right. >> this is not an easy question, but i will try to provide an answer. my point of departure is a problem i have been studying for a long time b.j. namely trust in government. regrettably, trust in government is near an all-time low, as he convened today. this is not a healthy situation for our republic. and two things that are contributing to mistrust are excessive political polarization, which has

developed over decades in our nation's capital, and the gridlock. in my judgment, the most important way to begin to rebuild trust is for members of the two political parties to get together and actually accomplish tasks that the american people want them to accomplish. and any commission that contributes to that objective is in importance that are in the right direction for governance above and beyond the specific problem that solves -- whether it is a fiscal problem or military bases or whenever it may be. finally, i am totally persuaded by the argument that the commission should be dominated by people who have skin in the game. that is to say members of congress and representatives of the administration. i do not think it should be one to the exclusion of the other.

whether the commission also includes one or two experts who do not fall into either of those categories is, i think, a detaile and not the most important detail. i go in that direction or not, but the point is that the composition and rules of the committee must ensure that people with political skin in the game from both sides of the aisle have to concur on the results. that that is a product of the rules and the composition of the committee, fine. if not, i think it would fail. >> i love the idea. i think it is a great idea. i have sat on the board of a number of organizations where we have had for a directors' and board of advisors, and they play different roles. decision makers in one capacity and advisers intimately involved with the discussion, but at the end of the dam, -- of the game,

they're not the people responsible for making decisions. when you look at outside members, they bring two different sets of skills. oftentimes can bet -- come up with better policy ideas because they are not politically realistic. i often think those ideas might not go very far. if you put a group of outsiders together on health care, we would all say part of the problem with health care costs is on the tax side, and we need to look at employer-provided exclusion of health care. fi -- if you put that to a bunch of politicians, they would say that that is really hard. in the end, it is a decision maker that allows the policies that are actually implemented will to get put through. they may not be the perfect solution, but they are what can get done. again for me, the bottom line is whatever works. whatever the most colleagues in the senate and the house think

is the right way to proceed is what we should do, but i think having decision makers make up the panel is the right way proceed. >> thank you. first off, your testimony was superb. that discussion was excellent. this whole issue of composition is critical to the effort. i guess my reaction is who would you choose to put on it besides members of congress? when you start choosing outside individuals, you immediately have to take care of so many different groups, which have legitimate claims to participation from the aarp, the unions, to the chamber of commerce. you would end up with a very large group of people, and in the end, it would be very hard to be assured that you had a bipartisan solution that was politically bipartisan. because for this to work, the american people have to feel

that both parties have joined hands. that means the players who vote on this have to have that sort of realism, and that is, i guess, why i still stick to the just members of the administration approach. but the independent advisory group, i think it is an excellent idea. i cannot imagine how there's any downside to that. especially if you could get people who are willing to do it knowing they did not have a vote, but who have the status to do it and give you the really good additional thought process, which would come from the sort of group participation and the outreach issue. it is a difficult question, but i still come down on the side of members and administration folks. i guess timing is an issue. you made the point that this could affect the recovery. i am sort of of the view that if we put this in place, the legislative event is not going to occur for a year at minimum because the commission is going to take a year to act, and your

legislative events, which would have to be legislated, and in the actual action because you are dealing with 50 to 75-year actuarial time friends, their extended, and i do not presume this group would come back with anything immediately precipitous in its proposal. . >> should the commission report be next year, recognizing next

year's elections? should it be after the election? in the period from november to january? do people have opinions on timing? >> yes, senator. let me answer that question first and and touch up on a follow-up. -- and in touch, follow-up. -- and then touched on a follow- up. it should be no earlier than early 2010. >> not later? >> i apologize. >> that is the creation of the commission? >> that is the creation of the commission di.

that will send the signal that we are serious and we have a process in place. we begin the engagement effort in 2010. you then ask the commission to be able to potentially have installments and probably not reported on the first issue until after the midterm elections. it is possible to get more agreement on budget controls that would be in effect once we turned the corner on economy. the commission could report in installments on issues and save some of the tougher things for the end. the toughest thing is going to be taxes and health care. set it up early in 2010, get

the public education effort started but think about reporting installments. there is a difference if you talk about outside people for the commission verses' the advisory group. it should have nothing to do with the organization that they are with. you should be picking individuals based on their knowledge, their credibility, their ability and their willingness to dedicate the amount of time that would be necessary to do what needs to be done. by the way, that means former heads -- former members, former ceos. that is the kind of people you will have to have. if you have an advisory group, you will face more pressure for groups to want to be represent.

your advisory group must be based on individuals, not groups. if you have an advisory group, and i think you will have a lot more pressure. some will have a very entrenched views. you need to think about that. " i think that the timing issues -- >> i think that the timing issues are important. i do not worry about the impacts intention the recovery. they will not happen fast enough. i do not think that is a serious issue. if you will allow the economy to be an excuse to not act, we will never deal with this.

the real tough one is if you report out and deliver it in 2010, i think the trade-off is that you are asking people to vote before the 2012 election. that will be tough. if you do not, the members may not be around post-election perio. that requires that the book come before the election. -- devote come before the election -- the vote come before the election. >> there is an additional factor that has to be taken into account. namely, the proposition that i put on the table that this commission needs to be supported not only by a bipartisan congressional group, by the

administration. -- but also by the administration. members of president obama's economic team are considering the idea of including some kind of commission in their next bus -- next budget. i think that has a bearing on the timing of the proposal to establish the commission. as for the question of when the vote should occur, think -- i think that time in the establishment and reporting so that no one has to take a vote after november of 2012 would not be the most responsible course of action. if you are asking me -- it seems

to me that a reasonable timetable would be to establish the committee and established the commission and give it a year to come up -- and established the commission and give it a year to come up with a plan. i think that would be a reasonable timetable. >> you actually made my argument better than i did. i think that the benefit of the commission is that it does signal to markets and to creditors that we are serious about this and it buys us a little bit of time so that we do not have to phase in the policies immediately, but we have time to phase them in more gradually. i think that is something we have seen in studies that the oecd has done. as long as the announcement is credible, you see a positive

effect immediately alerted for the timing, i agree that we should announce this as quickly as possible. i think the arguments before the midterm and after, i do not have a good political year. in 2010, that is when the decision on the budget should be arrived at and agreed upon. i think you phase in those policies more gradually. some will be phased in over time. it has to deal with the structural problems. that means it will deal with entitlements and those are not things you can change abruptly. you cannot say that you are going to start this starting

tomorrow the need to face things and will depend on how many expiring policies are extended. that will affect how much stimulus is in the economy. you cannot separate what goes on in the rest of the budget before 2010 and 2012. phase in the bulk of the policies around 2012. that depends on the economy. >> centre white houshouse. >> i have three observations. i will fire them off. i think it is very important that whatever this process is, it be as inclusive as possible. it is very easy to get a small

number of people that agree with each other in a room together and then try to shove what they bank down someone's broke -- they think down someone else's throat. the long-term hazard of that is far worse than the short-term gain. we have seen examples of that very recently. the second point -is that we have one of the two major parties that have made it empirical to participate in this and that no additional revenues be raised. to me, that is a non-starter.

1% of the population controls more wealth than the los -- the lowest 50%. we have warren buffett saying that he is offended that tax rates are so low. you have the hedge fund billionaire idling in his private learjet getting ready to shut off to his caribbean vacation. it is preposterous. to me, it is almost beyond logic. yet, we are faced with that position. the final feign is that i think that health care is different than everything else -- finally, i think that health care is different than everything else. the person that has the hammer

seized the solution to require and mail. if you get fiscal people in that do not understand the extreme this function of our health-care system -- a dysfunction of our health-care system and do not have the knowledge, then you will end up bringing an ax to a patient that may only need an antibiotic. whether you believe the president's advisers say there is so much excess cost in our health-care system or the new england health care system says it is a hundred $50 billion annually, or someone else says it is over one trillion dollars annually, to just treat that as a fiscal problem deludes --

avoids the real problem. you have the tail wagging the dog with no likelihood of a good answer because you brought the wrong people into the room. i would like to have your reactions. >> first, senator, i think you have to have an inclusive approach. i like the idea that you have a first the commission and then an advisory group. -- you have, first, the commission and then an advisory group. you have representatives of the administration and others, but you pick them because the individuals are broad and balanced. the advisory group should be a broad group so that they are

heard, but they do not have a vote. some of them are pretty entrenched in their position. they need to be heard, but we need to have a process that has a chance of success. taxes are going up. they are going up on a lot more people than those making $250,000 or more. the longer that we wait in order to achieve this, it is matt. no. 2 is demographics. and number three are the people that are bearing the price others immoral behavior are not born yet. the next issue is health care. it is about more than money.

you cannot just be focused on the money. i gave a speech at a lecture and talk about all of the dimensions. i will be happy to provide you with a copy -- talked about all of the dimensions. i will be happy to provide you with a copy. none of the bills are dealing with the drivers of health care and are coming up with actual items that make sure that we bring the health care cost curve down rather than up. they all been bid up -- they all did it out -- been at it up -- bend it up. if you can't even addressed the single largest driver -- address the single largest driver, it is

more than money. >> in terms of the broadness and inclusiveness, i think it is important to recognize that this would require a lot to be passed and the president to sign it. -- a lot to be passed and the president to sign it -- a law to be passed and the president to sign thait. people will talk about what they ought to be doing. i think that this has a good chance of being very successful in being brought and inclusive. -- brought and inclusive -- a broad -- broad and inclusive.

we have the opportunity to have quality that is better than we have now. there is evidence that that is where we should be going. that is not what the bill's are going. >> senator, i am really glad that you put your three propositions on the table. they are challenging. i have not had the privilege of meeting you. i am a lifetime -- a lifelong democrat. i served in bill clinton's white house and i went down with gore, not once, but twice. i believe in universal health

insurance. i believe in a robust programs of social insurance -- in robust programs of social insurance. i do not believe we can sustain those commitments. that is what brings me to this table. with regard to your specific points. >> i agree with you there, by the way. >> with regard to your specific points, taxes are going to have to go up. the idea that the government of the united states is not going to expand its share of gross domestic product over the next 10 years is a denial, not only of reality, but of necessity. we are now on track to be a

government that consumes 25% of gross domestic product which is a step up of the average of previous decades. i see no way of avoiding that. one question that is on the table is how we can finance that in a responsible way so that the budget a detective -- objective is put on the table on stabilizing the ratio of debt over the gross domestic product. it would be a mistake to think of only about the total size of the revenue piece. we also have to think about its shape and composition. i think that the tax code that we have is antiquated, distorted, and riddled with and

fairness both horizontal and vertical. we need fundamental reform that asks questions about a 24th century tax system that promotes economic growth in a sustainable way. all of that has to be on the table. in my judgment, the sooner the better. in regard to health care, yes, health care is different. unfortunately, it is part of the economy. we have to think about the economic dimension, and i say with regret that of the two objectives that people had going into health care before -- reform were on track to do a good job on number one and a poor job number to -- #two.

if we do not do a good job on #twnumber two. i am in favor of a narrow, exclusionary process. i immediately at a disadvantage. regular order in the congress of the united states has not produced terrific results. i see no reason that regular order will produce a better result in the next decade. i have come to the conclusion that we need what james madison suggested. >> senator, thank you for your

important questions. the first question is a tricky one. you cannot have a group that is so large that it becomes unmanageable. you can't have it so small that there is not that broad of a group of people. there is no perfect solution. one of the problems that i have is that so few people have been willing to put forward policies that would move us in the right direction on this issue. people are on the sidelines and want to become part of -- on the -- be a part of this. i certainly hope that those folks will be included. the perfect size -- there is no perfect size. on taxes, taxes should be on the table and they are going up for people that are making more than -- less than $250,000.

i just spent a couple of months trying to do a simulation of what it would take to stabilize the debt. we are going to have a lot of policy choices that are we -- that we are to have to put out there. there is no way you can do this on one side of the budget alone. we need to make this an easier decision for people to back away from some of the promises that we made. in terms of health care, we have heard the narrative that the fiscal problem is really a health care problem. we have spent months and months focus 100 percent on health care reform. where we are, is that health care reform is not going to come " -- come close to fixing the budgetary problems.

that does not mean we can do this in a non thoughtful way -- a non-stop away. we have to think about fundamental tax reform. we have a real shortage in some areas of the budget. there are some areas that have to be funded better and differently. in the think tank where i work, when i walk by, my colleagues think i want them to pay for new ideas. it should be part of the task to do it well. >> can i just interrupt you? i have that experience almost every day around here. there he comes again. >> i want to thank the chairman

and ranking member for their leadership on this issue. they have been terrific. i want to think before witnesses -- i want to thank the four witnesses. on the sense of urgency, you pretty well stated it, the president is in the right direction. to be sustainable, we will have to address health care. at the white house health reform summit, he said that if we do not address health care, we will be bankrupt. he started out right. the republican leader went down to the national press club and offered to go to work on making social security solvent and he would work with the president.

i think that turned out to be a missed opportunity. nothing happened as far as i know. i think all of you have said that the health care bill is not solving the cost problem. it is so obvious that catherine -- a reporter talked about americans going overseas for health care. it said that the matter what congress does with health care legislation, one thing is already clear. it will not do much to control the rising cost of health care in the united states. so there we are. adding to the sense of urgency is that some of the bill shifts of the costs to the states. it is startling to me. the governor of tennessee said

that the medicaid shifts to the states would be 4 billion over five -- $4 billion over five years. that would mean a new income tax for the state. and that is a back door way of dealing with our problems. on the points that you have raised, what about the president? the president has to be involved in a big-time way. he may not have to start it out, but this group should basically see itself with coming up with a way to help the president solve the problem. the president is the leader of the country. he sees the urgent problem. he comes out with a solution and it is up to him to persuade half of us that he is right.

no one else can come close to doing that. the president has to be involved. if he wants to persuade half the country he is right, he will have to get the former president's involved in a bipartisan way to persuade the country that he is right presidents -- presidents involved in a bipartisan way to persuade the country that he is right. this is a democracy. we have to solve our own problems with our own votes. ross perot was leading the presidential race in 1992. he was ahead in the polls in june. he was not prepared to be president, he made mistakes. this should be a way of making

everybody deal with it. here is my question. i left a budget meeting and went down to the academy of sciences and asked -- my feeling was that we were going to just squeeze everything out of the budget that counts and all we would do would spend our money on war, welfare, social security, health care and that -- a debt -- end debt -- and debt. i asked them to tell us the first 10 steps we ought to take to make us competitive in the future and they formed a

commission. they made it 20 recommendation and we worked for two years and past most of them. we got that done. i am about to conclude that we do not do comprehensive well in congress. look at health care. we have a lot of good people working on that and it is having a very hard time. the number of pages in the bill are growing faster than the debt. look at the economy white cap and trade. it sounds great, but it is full of mandates and taxes. shouldn't we say that we do not do comprehensive well? that we should be skeptics about

anyone that says they have a grand plan for a big problem to impose on the country. the 10 steps that we ought to take in the right direction, and that the members of the commission should all be members of congress. members of congress and the president are elected to have the responsibility to do it. if the president has taken steps to move in the right direction, then -- has 10 steps to move and the right direction, then he can choose the ones he wants. we can do these four first, then these two and then these three. is it a step in the right

direction better than a comprehensive thing that is doomed to fall under its own weight? we will not have 60% support for this if it is medicare cuts and higher taxes. i wonder if that is not a more likely way to get where we want to go. >> we have a dysfunctional democracy. congress does not do transformational change well in any area. thirdly, the historical way of doing things inside the beltway are over. they will not work anymore. the level of trust and confidence in government has plummeted. it is not just the partisan

battles, it is the theological divides -- the physiological -- at the ideological -- the ideological divide. you need to have members of the administration involved that can state the facts and tell the truth to the american people and they are not viewed as being part of the problem, but part of the solution. on health care, but there are a four tests. it must pay for itself in 10 years, it must not be in deficit for more than 10 years. it should result in a significant reduction in

expenditures for health care. the curb should be curving down, not up -- the bill should be curving down, not up. otherwise, you are heading a -- you were building a win on a house that is headed towards condemnation. only the president has the bully pulpit. the president also has a veto pen. he has to buy in. george herbert walker bush and bill clinton should be involved in this. they broke campaign promises, which this president will have to do, too. they broke campaign promises of taxes. they supported top statutory budget controls. they did not expand

entitlements. i can go on. they were fiscally responsible. they need to be recognized and they could be part of this process. >> in your question, you gave it much more articulate description -- a much more reticulate description that i was able to. the notion of the large, unintended consequences of a comprehensive approach to reform. the skepticism that this brings to the public and the difficulty of taking action. as i said in my testimony that we need to do pieces that add up to a solution. >> senator alexander, you have

said awful lot that i agree with and some things that i need to comment on. first of all, i think you're absolutely right to say that this needs to involve the president and the white house. this is not just a congressional issue. given the design of our constitution, there are some things that members of congress are able to do better than presidents and vice versa. if the president and leaders of congress are not in on the takeoff of this commission, they will almost certainly not be present at the landing. i do not know if you were in the room or not, but there has been someñi discussion among the president's economic team of

actually including some sort of commission in the next budget submission. that would be an important step towards the kind of institutional guarantee of future presidential leadership in this area. that would be a very positive step brit to occur -- were it to occur. i agree that the proposition -- these are issues that go to the heart of the way political parties to find themselves and distinguish themselves from one another. the commission is not intended as an invasion of politics. it is intended to organize

discussion in ways that facilitate political process -- people -- the political process. so, this is political through and through. it is partisan, it is illogical, but it is more than that. the task of the commission is to try to organize politics for effective decision making. finally, first of all, your

reference to the national academy and the investment agenda puts a very important piece of the overall problem on the table. namely, if we keep on going down this road, we are going to have a harder and harder time of sustaining the level of future investments, whether it is in higher education, medical research, you name it. that will occur at the federal level and at the state level. we will squeeze out our capacity to respond effectively in those areas. in the regard to the incremental approach, yes with the following caveat. in order to succeed in dealing with the grand problem or a particular piece of it, there is

one to have to be a balance of proposals reflected -- there is going to have to be a balance of proposals reflecting opinions and divisions that define politics. an incremental approach that is not broadly balanced at the same time is not going to succeed. whether you are talking about a commission that addresses social security or others, there will be an element of grandeur in the deliberations because, otherwise, they will be one- sided and doomed to failure. i would split the difference that way. >> senator, i agree with you that we do not do comprehensive well. it may be a result of how we all organize ourselves.

the policy world is organized in a departmentalized manner. i can go either way on this. i think that a comprehensive is a better way to think about the kinds of budget reforms we need to think about. it is about trade-offs and priorities. the best approach is to take a comprehensive look at the budget and way our priorities, are we willing to fund them? are we willing to eliminate them if we cannot from them -- fund them? for me, i come back to my bottom line of whatever works. if we want to do a social security commission for a tax

commission, fine. if we want to do a comprehensive approach and do it well, whatever works. it is gordon to be hard to get support it is just cutting medicare and raising taxes. we keep giving our sweeteners away. if we patch things without raising taxes, we keep giving our sweeteners away and it will be harder to put together a package that is politically viable. >> put me in the mcinnicguiness. it has probably been hundreds of hours that we have discussed this. you have trade-offs that have to

be made. this is a budget exercise. yes, there are things -- health care is beyond a dollar issue, but it is also a dollar issue. medicare is going to go broke in eight years. that is reality. it is cash-now. social security is cash-now -- it is cash negative now. social security is securitynegativy is cash negati. they've faced dramatic and draconian reductions because of a meltdown in the global financial system. i just had a friend call me that

met with top chinese government leaders and one of them said to him that they have concluded that we are so dysfunctional in our politics that we are unable to face up to the debt load that is on this country that is growing. they are increasingly convinced that we are headed to second- class status. the things that we have had that maintain our greatness of power as a nation is in jeopardy. i do not know how someone cannot conclude that it is true that our position of economic strength is at risk. something must be done. i also have concluded that the regular order is not going to produce the result that is necessary. if anybody believed that it was going to, all you have to do is

look at the health care reform exercise. the finance committee plan comes the closest to facing up to it because it is paid for over 10 years. it does reduce the deficit over the second year by one-quarter of one half% of gdp -- of one hal percent. we have been at this for two years. the president did a charge to congress -- david charge to congress to deal with this equation -- the president gave a charge to congress to deal with this equation. what has happened? the finance committee bill makes things a little bit better, but

does it solve the problem? no. it does not come close. the natural tendency in the regular order is that both sides get in there crouch. democrats in theres, -- democrats in their crouch and republicans in their cropuch. it becomes largely a partisan exercise and nobody wants to pay the price. nobody wants to experience the short term pain to deal with long term gain because it is not in our political system. people face election next year. it is so clear to me that you

have to have a special process. history demonstrates that. we have reconfirmed it this year with health care reform. social security, a special process. the debt circumstance we faced in the '90s, special process. they are the only things that have actually succeeded. senator gregg says this as well. if anybody thinks that the regular order is one to deal with these planes -- is going to deal with these things, no way.

it is not. we have the majority leader that said that he reluctantly concluded that it is not going to happen. we are not going to face up to this debt bomb absent some special process. let me just say with respect to the comprehensiveness and the incremental work or -- informal approach, you do not have the trade-offs that will lead to a grand compromise. people who do not want any reductions in social programs -- i don't. i don't want reductions in social programs, but i recognize there is no alternative. i do not want to raise additional revenue, but there is

no alternative if we are going to get this country back on track. and there are a lot of ways to do it to make our country more competitive. my calculation is that our revenue system is only collecting about 76% of what is actually owed. you will not get those numbers from the irs. we have our own internal numbers of what is really going on. it is very dramatic what has to be confronted here on behalf of the country. >> senator gregg, any final thoughts? >> tonight, expanding broadband to rural areas of the country.

on the communicators on c-span2. cs barron on thursday, a look back at world leaders including the dalai lama, ted kennedy, or ronald reagan, walter cronkite, colin powell and others. and then, a look at what is ahead for the new year. vladimirthe creator of the segue co-founder of "guitar hero." >> >> , a discussion on president obama's economic agenda. from today is "washington journal," this was one hour.

-- this runs one hour. host: for the next hour it is the obama administration and economy. we are joined by dean baker, economic and policy research, and university of maryland economics professor peter morici. thank you for joining us this morning. we will take a look at the president's comments from the signing of the stimulus bill earlier. but i want to get iraq on where the administration started this year -- a wrap on where the administration started this year, what they did in response to the economy, where we are now and what is ahead. this is back in february, the signing of the stimulus legislation. >> i don't want to pretend that today marks the end of our economic problems. nor does it constitute all of what we are going to have to do to turn our economy around. but today does mark the

beginning of the end. the beginning of what we need to do to create jobs for americans scrambling in the wake of layoffs. it the beginning of what we need to do to provide relief for families were read a will not be able to pay next month's bills. the beginning of the first steps to set our economy on a firmer foundation, paving the way to long-term growth and prosperity. host: dean baker, the president saying it does mark the beginning of the end. did it? guest: it marked -- things were getting bad less quickly, so losing 700,000 jobs a month if you go back to the beginning of the year, and last month only 11,000 and my guess is we will probably lose more in the december data. but the economy is deteriorating less rapidly. not a great thing to say but i think the stimulus did play a positive impact. should people be satisfied? well, looking at double-digit

unemployment. the projections, congressional budget office, double-digit unemployment through much of 2010. even 2012, projecting unemployment still over 7%. still losing close to 200,000 homes a month. if you are looking at the economy people still looking badly. so things could have been worse -- i think they definitely would have been worse without the stimulus. probably over 11% unemployment. host: at the top of the economic agenda for 2010, what would you put there? guest: i would say another stimulus package. you have to do something to boost jobs. it is criminal talking but unemployment over 7% for four years. host: peter morici, you saw the president of the beginning of the term. where are things now and likewise what is the priority for the administration? guest: it is important to recognize stimulus spending has a short-term positive effect in terms of how well it is

structured and how effectively executed. however, this was the great recession because with great structural problems in the financial define mandell sector and trade sector. we have banks that -- financial sector and the trade sector. with banks -- that basically continues. last quarter gdp growth. all of that and more, the rest of the economy contracted, all of it in more were financial sector. paying it in bonuses, never mind profit, bonuses than the economy grew in the third quarter. on trade, you had the problem with china. the president campaigned he would do something about it. it timothy geithner said it was a problem when he came up for confirmation hearings. now have amnesia and there is no problem at all. if we have another stimulus, it may help. however, it would have to be more effectively structured than the last one and is still doesn't fix what is broken.

the financial structure that is out of control, getting us ready for another crisis, and another set of trade problems with china as the economy -- host: congress has not come through with the financial regulations it needs to? guest: one of the basic problems we have through democratic and republican administrations is the white house and treasury has not been leading when it comes to financial regulation. and has been letting dodd and frank -- congress overseeing the regulators. and even now if you look at the process of financial regulatory reform, very little leadership from the white house and even less from treasury. as a consequence, politically motivated financial reform in congress. you've got to remember that one of the best places for democrats to raise money is wall street. it is no accident the average pay at goldman sachs is going to be $700,000 in this recession year. host: dean baker, would see

financial regulation through congress this year? guest: we may see a bill get through. but peter is right, the structure, month -- most of the meat was taken up. derivatives, most were saying we have to regulate derivatives, aig, assets traded in the trillions of dollars and that led to the meltdown and bailout and they say let's regulate derivatives. there is an end user exemption in the house bill you could drive a truck through. anyone who wants to trade on regulated derivatives can. so there -- anyone who wants to trade unregulated derivatives can. guest: this reminds me of a scene out of a spaghetti western where the army is putting the throne of rome, that imports come up for auction. the level of corruption we see in the triangle between the two congressional committees, big

contributors on wall street and larry summers at the white house is so pathetic that it makes me cry and worry about the future of the country. host: let us hear what our viewers have to say. you can always reach as by e- mail as well. brad on the republican line. caller: i believe what the obama administration did not address along with the bush administration was job creation. a lot of problems in a lot of countries it is caused by unemployment. if you don't get people back to work, you have serious problems. that is pretty much all i have to say. guest: we have very weak job

growth in the bush administration. but in fairness we had a bubble economy. he walked into the collapse of the stock bubble. he didn't have good answers to that and it was not until 2004 that we regain the jobs lost. a very weak job growth vendetta again, as peter was saying, the stimulus could have been better directed. one thing i have been very impressed, in germany a work share policy where they encouraged companies instead of laying off workers, have them work shorter hours and a remarkable story is that even though the downturn has action been steeper than in the united states, there's been no increase in unemployment rate. a really remarkable story. there are things we can and should be doing to get the unemployment down. host: gettysburg, >> , pennsylvania. betti on the democrats' line. caller: my question really has to do with infrastructure. at the very beginning of the administration i had written a

letter to stephen wright -- not getting into why i wrote it -- one of the things i was concerned about was the fact that we were not going to begin with infrastructure. i had a sense that was not going to happen. it seemed to me that even though during the roosevelt administration when the ccc was developed and we had all of the public works jobs all over the nation to put people to work, my question to you two economists this morning, is how would that kind of program -- is a possible that kind of program would work today and what would be impediment to success? host: peter morici? guest: only $100 billion of the 787 billion was or is the structure. the obama administration essentially asked congress to write a bill, so all congressman hung on to the bill would ever their pet projects were and

there were a lot of tax cuts there were a lot of tax cuts which did not do congress is so suspicious of the bureaucracy that they have such a network of things of this nature that a federal official cannot have an investigator. the money has been very slow in getting out. if i could spend 400 billion instead of 800 billion, i could make it so that you could not look out the window and not see a hard hat that is not paid by the stimulus. . . capital formula, $50 billion of have to spend within 90 days, 100 billion in 180 days -- the

exact numbers with a workout -- but get it out fast and tell but get it out fast and tell them, we will have spock -- these of the principles have to follow. but going through the department of transportation -- one of the reasons americans is so suspicious of health care is we have such an incompetent civil service so policed by inspectors and accountants of all mankind that is simply cannot get anything done. now but congress was due to the poor federal reserve. host: on the stimulus bill, your thoughts, particularly on infrastructure i guest: think it is a mixed bag. i do agree with what peter was saying -- we should spend more, the thing is getting out quickly. but all along we have been in a situation where everyone was saying, well, we don't want to commit to much infrastructure because it will coley affect the economy to we recover. the first in less package in february 2008, exactly what was said and that is why very little when to infrastructure there. again, the same attitude last

year when president obama was putting his back as ford. i think we should put money into it. there is a lot of the infrastructure that can be useful rebuilt. the tracks -- track record as a little more mixed than peter suggested. some has been spent. the story is look where we had been successful in getting out quickly and try to replicate. guest: one of the basic problems is instead of in this structure, let us go into pet projects. president obama's -- green buildings. a bunch of architects' drawing up plans for buildings to be built in 2012 or 2013, or electric cars. guest: a lot was retrofitted. guest: has a lot of retrofitting been going on? but what about grain buildings -- a lot of architects working and so forth. the obama administration says a lot money has not been spent when the job numbers are bad, and the money has all been spent and things look great when the job numbers are good.

a bad month black october, we have not got the money out, good numbers and november, it work -- he has the most flexible view on earth. look at the johns number for that month -- if it is bad, we have not got the money out and if it is good, it is all out and making gangbusters' work. host: there is still money to be spent. guest: 400 billion next year and 200 billion the following. guest: we should agree on this -- just to be clear, the impact, the stimulus from the spending depends on the rate of spending. guest: and how it is spent. guest: but the rate of spending, we are pretty much at the maximum rate by fourth quarter 2009. we will stay at that rate through the first quarter 2010 and second quarter 2010. guest: would give the biggest bombs in gdp the first two quarters next year. i think we would of gotten more if we spent on bricks and mortar

is in shambles, but instead, a lot of pet projects. data field day on the hill. the latest estimate is package the house -- not a lot of that is the infrastructure. a lot is having fun again. host: a lot to cover. lake ozark, missouri. ron on the republican line. caller: thank you. mr. peter morici, i appreciate it. guest: dean baker is a good economist, too. thank him, too. he is working really hard for you even if he is on the other side. caller: i am not an economist. i have had my own businesses for years. i am so sick of what they have done to this country. the stimulus package, as you just mention a few minutes ago, or a few seconds ago, was a total joke. they haven't done anything to stimulate. instead they promote all of

their ideals, they're far left calf and tax, far less -- cap and tax, far left health care reform and all they have done for anybody who wants to start a business, grow a business, increase the economy, is put up some any roadblocks and question marks that no one is willing to take a chance or take a risk and allow the american public to do what it does best, which is work hard, be deficient, get the government out of our way, get back to the constitution -- and i am just so frustrated. i have lived my life pretty much as a normal american. never went without. in the past year i pulled two of my own teeth. host: dean baker, go ahead.

guest: i agree the stimulus is not as effective as it has -- should have been. i would have liked to obscene different things done. to my mind, the point, if you want to criticize economists for doing a badly, why are we here? why are we sitting here with double-digit unemployment? why are we losing $1.50 trillion of output. that is where the economist messed up. we let a huge housing bubble grow unchecked. told lee unpredictable. i was out there yelling about it. peter might have been, too. to this was totally predictable and an incredible failure. i am happy to say -- the obama administration could or should have done more but a much bigger issue is letting this happen. by the way, if we want to talk about blame, the fact that ben bernanke is likely to be reappointed to the federal reserve board -- host: there is a disconnect. if the economists were warning, -- guest: we were considered

heretics'. we like free-trade, but what we have with china is economic suicide. one-sided deal. i was an international trade professor four years. it is based on balanced trade. exchange rate suggesting -- it is not happening. with regard to the financial sector, like milton friedman, i was always in favor of free- market but you have to have aggressive antitrust. we had a chokepoint on wall street were eight or nine institutions is controlling the flow of capital from a large pool of fixed-income investors and what they are doing is ripping off huge profits -- profits for themselves. we have to look at the way of doing business. how can it be the u.s. economy is flat on its back and goldman sachs is paying itself the kinds of bonuses it is this year? i can tell you. chuck schumer, a democratic senator from new york state was chairman of the democrats senatorial reelection -- lots of

contribution. the president, when he went to wall street to give a speech, he had many fund-raisers on wall street. we are talking about here, political corruption. we need lawyers rather than economists now. host: do you agree with peter that is behind it? guest: absolutely. goldman sachs is really amazing. guest: j.p. morgan, too. guest: you have a situation last year, september of 2008, they were on the edge of going out of business. there was a run on the banks, goldman and j.p. morgan. they went running to the fed and they said we need special permission to be treated as financial holding companies, which you will have the protection of the federal preserve board and fdic. government guarantees. that is fine, but then you have to act like a commercial bank. but they are not, they are acting like hedge funds. we have banks in effect hedge funds gambling with taxpayer dollars. guest: think about what you're hearing. liberal economists associated

with liberal think time, generally speaking, business school economist conservative -- both saying the white house is behaving inappropriately to the financial sector -- codling banks. i call corruption but think about what you are hearing. we have gross mismanagement, whether from the right or left, when your show. think about this. one was the last time you could get been bigger and peter morici at this table for 20 minutes and not disagreeing? but we are there right now. host: california, mike on our independent process line. guest: by the way, this wasn't a set up, was it? they thought they were going to get conflict. guest: they make sure we check their weapons. host: all right, mike, go ahead. caller: i would like to get your take -- my libertarian take on health care reform. a lot have been made about petty corruption of democratic senator

-- guest: nothing petty about caller: it. : the special deals. money to louisiana and nebraska. deal with aarp to sell out seniors. what critics miss this is the core governing principle of the major parties. cynical game -- carver of the country and give the piece is to winning coalition. they don't see how the children and future generations are always in the losing coalition of the crooked deals. they have no bones. our political class already burdened them with $100 trillion in entitlement timebomb spirit of what is the democratic solution? new, costly entitlement, which is only going to speed the day of fiscal reckoning. america's children will be stuck with a colossal tax bill. to me it is like a bitter irony

that america was founded on the principle of no taxation without representation. guest: first off, just to clarify entitlement -- it is a health care issue. if you look at social security, costs rise gradually and there is a simple reason, we are projected to live longer. i have been on panels with these 20 years old, saying what a new baby boomers doing -- it will making a possible to live longer. the other story is health care. if health-care costs continue to rise as projected we pay for roughly half, a little more than half, through the public sector -- medicare, medicaid, schip. if we don't fix the health care system, then we are talking more something that will wreck the economy and the budget. the most important thing is we cannot afford it regardless of whether we are paying through the public sector. i think what is unfortunate about health care reform -- we did expend -- extend coverage, so i think it is a very good thing. thinking of my own case. i have of insurance now but if i

did seriously ill and those my job, lose my insurance. this will give me protection. but we don't do anything in this bill, are not nearly enough about cost. that will confront the insurance industry, drug industry, and highly paid medical specialists. host: peter morici, you talk about the cost of medication in your op ed in "the baltimore sun." it will increase costs, reduce quality. what do you propose -- the staggering number of people losing health insurance each month? guest: women, like dean, i believe we need health care reform but we did not take on special interest -- wait a minute, like dean. everybody is covered over there and they are not dropping that. i do a lot of work with the bbc -- they are reasonably satisfied with our health system. you could have a private insurance like dutch have, single payer like british, but

you have that something different than what we have and what we have done with this bill is raise a lot of taxes, pour more money into a broken system. we have not taken on the special interests. why? they make large political conditions. again, corruption at the white house. how bad has it become? how cynical has it become one of majority leader of the senate, the man who runs of the senate was confronted with but nebraska deal to get a 60 the boat and he said, well, just about every senator has something in the bill for him and says something about their competence and they don't. in other words, if you are not selling your soul or principles down the river for a few shekels, there is something wrong with you as a senator. with a corrupt leadership in this country right now. it is incapable of leading as effectively. the only good reason i can give dean for voting for republicans now is to probe the scoundrels out and if they don't do a good job we throw those scandals out. but right now this bill is being written by a bunch of

scoundrels. host: phil is on the republican line. go ahead. caller: i have been over the last couple of years reading and of economics probably to make myself dangerous. guest: you are dangerous, sir. caller: i read marx for the first time, adams met -- adam smith, and i starting to read milton friedman and for christmas at that keynes economic theory. and about six months ago i started reading robert hicks, the libertarian. his take on economics is that there really is no solution other than an ultimate collapse. i've got a couple of questions. is it inevitable? is his ratchet theory with the growth of government swallowing more of gdp, and more and more freedom, etc., is that where we are heading?

if it is not inevitable, what is going to correct it? throw out one set of scoundrels and and let someone who will fix this thing or go in the cycle of electing more and more scoundrels? another question i have is,@@@@h i am not a fan of corruption, probably because i grew up in chicago under the real mayor. i am not happy about the way things get in congress but that is not qualitative theiely diff. a been done a long time. horsetrading. what bothers me more than someone getting their road force and delight that are the wholesale deals about, we are going to let the drug companies

just get more money, the insurance industry -- those of the big things. guest: if you want somebody on the take, the drug companies -- i am very happy to give the senator from nebraska a road, a bridge, tunnel, in exchange for him taking on the drug companies and offer him to break his principles. even if you might not agree. but if you follow people's principles as opposed to them selling them out -- guest: we have to take a big interest, and we failed to do that. and following up exactly what peter was saying because it makes the right point, we could compare all the other countries -- i am thinking of the ones with a bigger mess comparable, germany, canada, they all spent half or less of what we do person on health care and yet they have longer life expectancies, they are not dropping dead. one thing i propose, i kind of did this as a joke, suppose we let people on medicare have the option to buy into the health- care system of germany or canada or england, whatever, and we

split the savings with them. it would be a win-win. i do believe in free trade. guest: there you go. books to recommend. -- host: books to recommend. you would hate to promote your own book. guest: far be it from me to exit at that level of corruption. but a good principles of economics book as opposed to the extreme books to the right or the left. get born bush and fisher or whatever they are teaching -- go to your local community college and ask what they are using the principles of economic and read that and get a broad view of economics. you might find it interesting, and you can do that. you can push through a book like that and learn a great deal. much better than reading amrx. -- marx. host: cleveland, steve, democrats line. cleveland, tennessee, i might add. caller: when you look at

economics, the way things are run. when you live and a small community, around 35,000 or 40,000 people, and then you have a large influx -- influx of people coming into a small community with not too many manufacturing jobs, how can that be economically sound for that community when there are not that many jobs available and when you get an influx of people coming inside the community and take those jobs away from some people that live there, that is very, very wrong. host: steve, why are folks coming in? talking about immigrants or what? caller: yes, exactly. host: what is the industry? caller: we have at least four major manufacturers here that are pretty much, i would say the average of 10, $12 an hour jobs

that really helps the community as far as some of the families who live here. host: i will stop you there and follow up with a e-mailer -- both of you cannot a shot, immigrant workers, and also art e-mail from corporate jobs. . guest: you have to consider why

they are willing to take those jobs. in new york city, you see them cleaning buildings at night. you cannot get native-born americans to do that kind of work. it is a very complex issue. guest: i think the most important part is getting the exchange rate right with china. we have not had a consistent position. we would like china to raise the value of their currency but -- >guest: the white house is too busy getting down on it. guest: if the obama administration wants china to raise the rate, they have to say this. we can do this unilaterally. you have low value for the l

uan. guest: administration has convinced the american people that is china's sovereign right to set the value of the dollar. guest: it will have two in packs. it will raise the price of chinese imports. that is a negative thing. it will be more incentive to purchase domestically produced goods. guest: economists say that things would be more expensive at wal-mart. are you better off making $15 an hour in an american factory paying $30 for a coffee maker or being unemployed and being able to get the coffee maker for $20? host: let's talk to rick on the republican line. caller: the only one in congress with common sense is ron paul.

host: that book was about the founding of the fed. caller: getting back to the economy, this is being done by planned with the illegal aliens. it is meant to bankrupt the nation so that they can bring the call for the one world government. this is crazy. the plan for the north american union a european style economy here. it is one step towards the new world order. it is was a fairy in l -- uciferian. host: the bulk of economists increase and higher energy

taxes. they see the advantages but so much hostility that they will not praise them audibly. mr. mankiw sees economic policy being set by the general public. he says the public has a way of forcing politicians to do things they thought they would never do. what is the chance of other taxes increasing in 2010? guest: i think it will be unlikely. we do have the energy issue. i think we should do something about global warming. people talk about the bad things we do to future generations if we let the global warming continue unabated. that will be a bad thing to do to the future generation. i do not see anyone willing to raise taxes. i want to go back to the immigration issue. if you take the jobs that

immigrants are taking now, a lot of them are low-paying jobs that native-born workers do not want to take. that is because the situation has deteriorated. the meatpacking industry is a great example. 30 years ago, it was heavily unionized. that did pay and benefits. there were a lot of people willing to take the jobs 30 years ago. they have used immigrants to break unions. as a result, they are much lower paying jobs. there are more foreign workers willing to take the jobs. guest: i think the ratio of what you would have to pay for other jobs would be higher today. americans have become accustomed to cleaner work. i think of what my grandparents did in the textile industry in new york city in the 1920's and 1930's. meat-packing did not look

nearly as bad then as it does now compared to being an insurance printer. cap-and-trade well put taxes on manufacturers of the way it is structured. obama says he has a great deal from china and from copenhagen where the american manufacturing will not be disadvantaged. if you want to believe that one, we're going to be the two starting guards for the detroit pistons. [laughter] host: we have jasper from taxes on the independent line. caller: most of these people are well educated and everything. why do they not say the truth? i am calling on the independent line. number one, the democrats and republicans are two of a kind. republicans want to send jobs overseas. the democrats want to bring

illegals into the united states. why? to lower the wages for all the big corporations. number two, as far as the health field -- deal, they said they would not let the illegals be on there. number three, they will. obama is going to rush legalizing illegal aliens in 2010. they are going to have to do that so that they can be covered. you know that. the american people know it. the democrats and republicans are out for lower wages, at sending jobs overseas to bring the united states to turmoil. host: dean baker. guest: neither one of us is happy with the trade policy. the bigger issue is the exchange

rate. that would reduce the number of jobs going overseas quickly. guest: they like to use the excuse that the jobs would go from china to indonesia. the indonesians would have to intervene in their currency to keep it from rising. that is observed -- absurd. they will not do that. have you ever seen the larry summers disclosure statement before going to the white house? he took one of its $75,000 for a speech at goldman sachs. -- he took $175,000 for a speech at goldman sachs. they do not want us doing anything about exchange rates. one of the biggest lobbyists against manufacturing in united states is one of the biggest banks in new york. it is a good thing that of people who work on wall street are far away from the people who have access to pitchforks.

host: someone from new jersey says they agree about the corruption in congress. the situation was at least as bad and the republicans. is there no hope for reform? guest: it is hard to say that the treasury department has changed from the bush to obama administration. the difference between the treasury department's is the difference between the sixth and seventh floor at goldman sachs. the sixth floor has republicans. the seventh floor has democrats. they just switch them around. we have a basic problem in that the treasury department is not run by someone who is particularly knowledgeable about economics or banking. it is largely controlled by goldman sachs. guest: we do have some people in congress on the left and right. it is interesting. there was a bill to audit the

fed. i think that is good. alan grayson and ron paul are opposites. guest: there is a minority in the congress with people discontented with what is going on. i do not think picking on the biggest bully on the playground is a good idea. guest: think it is appropriate to target ben bernanke. he was at the fed. it was their job to stop it. host: we have about 20 more minutes with peter morici and dean baker. we will be switching topics in terms of home ownership. the home ownership rates could slump. what has the administration done and what still needs to be done in terms of the housing market? guest: they have made low- interest mortgages available to

people through fed policy. they have the program that is to allow people to stay in their homes throu@@@@e@mdh &am) in the sense you have 270,000 foreclosures a month. you have some people helped through those programs. a lot of people who should have been held and were not. the programs. i cannot think this is the best way to go about it. you still see a lot of people losing their homes. there's no way to avoid that, but you can help many of them. guest: we need to let the housing market play itself out. the support received from the fed with interest rates below 5% has been counterproductive. we have over subsidized mortgages.

we need prices to stay down. housing has become too expensive for ordinary people. if you are a young person coming to washington and take home $2,500 per month, you have to pay that much for a single room apartment in washington. that tells you that the price of department is too high. there's going to be an adjustment in the housing market. if someone owes more than a house is work, no restructuring program will ever solve that problem. that is what we are up against now. the bush administration is responsible for the mess, but telling people they will not have to go through this is silly. guest: you could give people the right to stay in their home paying the market rent for their house. they will lose the house but be able to stay there. they will lose the mortgage. they will be able to pay the market rent. if they cannot pay that, they

are still out of luck. guest: that is going to require an abrogation of contracts. it is going to require legislation. if the obama administration wait until things are in a panic and then comes up with a fancy program and expects the banks to miraculously make a cure. a banker cannot tell a bond holder to size up 1000 mortgages and take a new deal by snapping his fingers. host: are those investment products still in existence? guest: these people bought houses. they took mortgages that were bundled together and sold to fixed income investors. we've been making collateralized debt obligations since the savings and loan crisis. good quality loans are a good way of raising capital for small banks to make loans.

the problem is we were making bad loans on overvalued properties. guest: there were being rated investment grade. guest: the only solution that moody's is to board up windows and send them home. they are the most corrupt place on earth. anyone who said this was a worthwhile investment had to be on the take. they were. host: death is on the republican line. -- beth is on the republican line. caller: i admire professor morici. you had a caller say he has started researching the economy and it scared him to death. you mentioned bernanke. he is the expert on the great depression. i have encyclopedias published in 1993. when you look in those,

isolationism is not mentioned as a cause of the great depression. what is mentioned is rampant speculation, making loans to people who could not pay them back, the absolute control of the banks. it is exactly what is happening to us. it also mentioned that in the 1920's, there were a series of small depressions. in 1930, it crashed. there was a small bill that put restrictions on agricultural products from canada and mexico. it was repealed after two years. it was never really in effect. the act was passed after the great depression happened. 60% of all products still command united states without tariffs or any protection. when i hear people say you are an isolationist, look at the great depression.

i wish in your spare time that you would go back to the sources and references before clinton, before 1992, before the free traders made the whole. what was the cause of the great depression? guest: i do not think that tariff caused the great depression. we went into the depression in 1929. i agree it was not helpful. it did make things worse. in terms of the size of the downturn, it was a relatively minor factor. the people who tried to blame isolationism -- i think it was counterproductive and not helpful. but it was not the cause of the depression. guest: we should not fool ourselves into thinking we can live our lives in isolation from the world.

with the size of the global population, in human beings have to specialize in trade for their to be enough resources available to meet their needs. trade needs to be reasonable and fair. it has to permit everyone to profit. we're operating under a model where china gets 99% of the water and the rest of us get a few drops and die of dehydration. we have to get that fixed. president obama's is suffering from a stiff case of amnesia. i have a feeling that larry summers used part of the $5 million to buy some of those pilla. host: i want to ask you what you think that decade has been like. paul krugman calls it "the big 0." he says it was a decade in which

nothing good happened and none of the optimistic things turned out to be true. it was a decade with zero job creation. the headline employment number for december will be slightly higher than that of december 1999, but only slightly. guest: i think that is right. we have enormous potential. what determines long-term well- being is productivity growth. with good productivity growth in the three decades after world war ii. we had a long drought with weak productivity. the was an upturn in the 1990's that most people associate with information technology. that has continued through this decade. because of bad management, people have not benefited.

we're sitting here with double- digit unemployment. i think. none k -- krugman is right. it is a tragedy. guest: you cannot allow about one thing and not much about the broader world. he does point out that the dow jones did not make progress on an adjusted basis. corporate profits still group. where did the money go? it went to hedge fund dealers, bankers in new york, and things of that nature. we're operating under a simple model. productivity rose at 3%. wall street is 4%. the rest of us get 1%. they've called on congress to enforce that model. it sounds radical in front of congress with what i am saying. american companies are

productive. they're innovating in wonderful ways. they're taking the jobs abroad because the administrations have created an environment for that. guest: i want to go back to china. i agree with you about a policy on china. i blame wall street more than china. guest: fixing the exchange rate is reasonable? guest: we are giving them options. guest: it is to the benefit of goldman sachs. i do not know why people ask barack obama questions about the economy. it is j.p. morgan and pulls the strings. guest: we had given china and menu and told them they could fix the exchange rate but let goldman sachs do with a one in china. let's tell china no if they do not fix the exchange rate. do not let obama off the hook.

they control the policy at this point. guest: i cannot make up our mind if it is a provincial capital of the empire of beijing or of goldman sachs. the answer is probably both. host: with a call from houston, texas, on the democrats' line. caller: how many people do you talk to in a month? host: are you talking to me? what is the point of your question? caller: mr. oricmorici as an animated personality like keys on a game show. the things we're talking about our series. i agree with the previous caller.

it is a tool used to keep the american people divided and conquered. you throw out those republican terms that americans will not do any jobs, but they are not being given. guest: what is the question? host: she was commenting on your performance on the program. i will give you a serious economics question that came from email. talk about the relevant fiscal policy multipliers and why they are so difficult to estimate in a time of such high unemployment. which estimates of the tax and government spending multipliers do you trust? guest: the multiplier is somewhere between 1.8 and two. if you spend a dollar, he should get an additional $2 in gdp over five years.

most of that is front and loaded. -- most of that is front and loaded. it depends on how you spend it. if you do it through infrastructure spending and not many of the materials come from abroad, then you are going to get that pop. if you give it to people with a tax cut and they go to wal-mart and buy imported goods, you will not get much of a pop. they use different multipliers for different types of spending. i even thought those were high. unfortunately, we've not gotten anywhere near 1.8 or we would see different indicators from the data and we have seen. that is where i come down. guestthey want us to talk like

economists and it gets complex. if they want us to talk to each other, we can do that. we will have three viewers, our mothers. guest: i may be more conservative on the government's spending multipliers. we have evidence of taxes for more normal times. people now have heavier debt burdens. in normal times, you give someone a 500 attacks. and they do not spend much. when you have someone who has just lost a lot of equity, they are much more likely to spend it. guest: you have to consider the condition of the state and local governments. a lot of them are furloughing people. i teach the same courses but do not get paid for the eight days. by giving the government days,

they did not create a job. at a time when people are increasing savings, he will not get the same pop out of the money that you would normally get. that is the problem. they did not spend the money properly. a lot of local governments have bloated themselves with the rise in property values. they do need some adjusting. we do not have the government employees where we need them. the dow host: under of minnesota is seeking to limit his state's spending. he is pushing a possible amendment to the constitution. guest: in terms of state governments, that is destructive. i will understand he is considering running for president in 2012. it is difficult to do that. health care costs are rising more rapidly than other costs.

unless you are going to have big cuts, you are going to run into big problems. he is probably being disingenuous. guest:@@@@@@@ @ @ 50 worst welfare recipients are the state governments. after wall street, the next 50 guys are the governors. they're running to washington to get them to pay for a new initiative while shifting the burden of taxation down to the mayors and county executives. a lot of responsibility is imposed on the counties and states. there are counties closing

libraries because they cannot handle the medicare expenses. it is difficult to make national policy when you are imposing national program burdens on counties to resolve. host: let's go to pennsylvania. dan is on the republican line. caller: i want to tell a personal story. it has to do with what you talked about earlier with immigration. a year ago, i was laid off from a job in the construction field. i thought the immigrants were taking my jobs. i thought i would try to play their game. i went down to main street for three days and stood on the corner and watched american people, homeowners and small business owners, stopping by and picking up the immigrants. they left me standing there.

part of the problem may be the american people think of ourselves as being lazy, as not wanting to work. i have one comment to make. awhile back, the politicians were making comments about the economy. all we're hearing about now is health care. that is all i have to say. guest: we spent more time in the senate recently debating the health care bill than we did the entry into world war ii v. the only time the senate spent more time debating was the entry into world war i. i hate to tell you this but the

senators are out to lunch. jim benning lives for hearings with ben bernanke. after we did that 50 big welfare recipient of awards, i think we should give them to the 60 democratic senators for chewing up so much time. i do not think you will like what comes out of it because of the cost. they did not take on the big issues. how can you give them credit for that? host: let's get one more call from mississippi on the independent line. caller: i have a question about the great depression. it is called the grand illusion. in 1929, there began a great reckoning for the speculation that occurred in the years before.

as wall street declined, the fed issued more liquidity to the market. that stopped it for awhile. it was only a stopgap measure as things begin to free fall. do you think we're in a new grand illusion? will there be a world wide crash? is the liquidity of long-term measure to try and stop something that is going to happen anywhere like the great depression? guest: rubini is the only person more consistently pessimistic than i am. i am concerned about how we will get over it. we have not put in the controls that we need. we're watching morgan stanley and goldman sachs run wild.

that is a recipe for more trouble. it does not necessarily mean a great depression, but it is riggeirresponsible. guest: people were essentially buying houses on margin this time. people were getting a five-year mortgages with blue rates under the notion they would be able to refinance in five years at higher value. they were betting that the houses would keep going up in value for ever. it did not happen, just like the stocks that they bought on margins. with stocks, you can clear it out quickly. the houses are still out there. it takes much longer for the market to adjust. there are too many houses in america. it will be awhile. roubini is ian example of a literary phenomenon.

economists always said that the world is coming to an end. a lot of people are talking about the bible. he is now credited with calling the bubble. he is now running around saying the world is going to and again. once someone gets credit for something, people listen to him for ever. it is like a cult with people waiting for the world to end and it does not. host: we're going to ask our viewers about the fed and whether it has to much power in a minute. guest: it does not >> while members of congress are back in their home states for a holiday break, work on health-

care legislation continues. max baucus of montana said he expects talks on a compromise to the house and senate versions to becombegin by phone. leadership hopes to have many of the major points of disagreement worked out, according to the chairman. the house returns january 12 and the senate will be back on january 20. >>n tonight, expanding broadband to rural and under certain areas of the country. an update from bleier lovaine -- blair levin. >> president obama made it remarks on the attempted bombing of a northwest airlines flight on christmas day. he spoke from a way where he and his family are spending 10 days on a christmas vacation. his remarks are under 10 minutes. >> good morning, everybody.

i want to take a few minutes to update the american people on the attempted terrorist attack that occurred christmas day and the steps we're taking to ensure the safety and security of the country. the investigation is ongoing and i spoke again this morning with attorney general eric holder and janet napolitano and my advisor john brennan. i asked them to keep and continue monitoring the situation and to keep the american people and members of congress informed. here is what we know so far. on christmas day, northwest airlines flight 253 was on route from amsterdam to detroit. as the plane made its final approach to detroit, a passenger allegedly tried to ignite an explosive device on his body, setting off a fire. thanks to the quick and heroic actions of passengers and crew,

the suspect was immediately subdued and the fire was put out in the plane landed safely. the suspect is in custody and has been charged with attempting to destroy an aircraft. a full investigation has been launched into this attempted act of terrorism and we will not rest until we find all who were involved and hold them accountable. this was a serious reminder of the dangers we face and the nature of those who threaten our homeland. the suspect succeeded in bringing down that plane. it could have killed -- if the suspect succeeded it could have killed passengers and crew, innocent civilians preparing to celebrate the holidays. the american people should be assured we are doing everything in our power to keep you and your family is safe and secure during this busy holiday season. since i was first notified of this incident, in order the following to be taken to protect the american people and secure

air travel. first, i directed we take immediate steps to ensure the safety of the traveling public. we made sure that all flights still in the air were secure and could land safely. we immediately enhanced screening and security procedures for all flights, domestic and international. we added federal air marshals to flights entering and leaving the u.s. and we're working closely in this country, federal, state, and local law enforcement with our international partners. second, i have or -- order two reviews because it is critical week prevent future acts of terrorism. the first is our watch list system which the government has had in place for years to identify known and suspected terrorists and we could prevent their entry. the suspect in the christmas incident was in the system but not on a watch list such as the

so-called no-fly list. i have ordered a thorough review not only of how information related to the subject was handled but of the overall watch list system and how it could be strengthened. the second review will examine screening policies, technologies, and procedures related to air travel. we need to determine how the suspect was able to bring dangerous explosives on board an aircraft and what additional steps we can take to thwart future attacks. third, i have directed my national security team to keep up the pressure on those who would attack our country. we do not yet have all the answers about this latest attempt, but those who would slaughter innocent men, women, and children must know the u.s. will do more than simply strengthen our defenses. we will continue to use every element of our national power to disrupt, duke dismantle, and to defeat the violent extremists who threaten us whether they are from afghanistan or pakistan,

yemen, or somalia, or anywhere. -- anywhere where they are plotting attacks against the u.s. homeland. the american people should remain vigilant but also be confident. those plot against us seek not only to undermine our security but also the open society and the values that we cherish as americans. this incident like several that have preceded it demonstrates that an alert and courageous citizenry are far more resilient than an isolated extremist. we will do everything in our power to protect our country. we will never give in to fear or division. we will be guided by our hopes, unity, and are deeply held values. that is who we are as americans. that is what our brave men and women in uniform are standing up for as they spend the holidays in harm's way. will continue to do everything we can to keep america safe in the heat -- new year and beyond.

before i leave, let me briefly address the events that have taken place in iran. the u.s. joins with the international community in condemning the violence and unjust suppression of innocent iranian citizens which has resulted in tensions, injuries, and death. the iranian people have saw nothing more than to exercise their universal rights. each time they have done so, there have been met with the iron fist of brutality. even on solemn occasions on holy days-and holy days. the world has watched with deep admiration and courage for the conviction of the iranian people who are part of iran's great and enduring civilization. what is taking place within iran is not about the u.s. or any other country. it is about the iranian people and their aspirations for justice and a better life for themselves. the decision of iran's leaders to govern interfere and tierney

will not succeed in making those aspirations go away. it is telling one governments fear the aspirations of their own people more than the power of any other nation. along with all free nations, the u.s. stance with those who seek their universal rights. -- stands with those who seek their universal rights. it has to respect the rights of its own people. we call for the immediate release of all who have been unjustly detained within iran. we will continue to bear witness to the events that are taking place there and i am confident that history will be on the side of those who seek justice. thank you very much, everybody and happy new year. >> c-span thursday. a look back at tributes paid to u.s. and world leaders including the dollar,, ted kennedy, colinow