that idea of protecting some sort of property right is widespread. we could decide that we protected dna with something other than patents. i would think a fantastic policy in the session. in the end, i would say that i would find out. i do not have a great answer for that. >> does anybody have a solution to the problem? >> talk about a complex topic, i think that patents are too long. there should be an ocean of the frivolous patent. i'll also say that if you're going to apply for a patent, particularly in the area of public health, it should be --

it should expire. there is a vehicle for taking open source ideas and making the available so that they can be used, but that whole area is just now being developed. . . this could not have been in the minds of the founding fathers when they rose a single

sentence that exclusive rights to the inventors and authors. never has the world in in more need of desperate innovation. this whole stimulus package is nothing compared to the people being incentivized to solve problems. there needs to be big changes. my fear is that in the process of trying to change this for the convenience of some currently powerful industries, the unintended consequence of what is now being viewed as a reform of the patent system could lead it neutered and it would be a

terrible thing to remove the incentive. a terrible thing that he will not see until the next generation goes through. >> i could listen to you with the rest of the day, the rest of the week. need to ask each of you for your prediction and hopefully it is an optimistic. >> we have a temporary reprieve from the high food prices that we have seen from 2006-2007 because the economy has backed off. we have some space between it resource production and

resources . the consensus seems to be here that economic growth will come back next year, maybe slowly but it will be there. my prediction is that we will see a return to higher prices because we will run up against our production limits very soon. food prices, the oil prices, etc.. >> thanks for that. >> i'm not sure that i can do 10 words but my theme is still education, particularly about innovation. i will give you a quote from a political leader. i think that i will get the whole thing right but all of those that have meditated on the art of governing mankind and the

fate of empires depends on education. was that obama? was that bush, was that clinton? it was aristotle. there is not a lot of new news here,'s. -- there's not a lot of news. we need to get the government understanding that technology. >> what is the prediction? >> my prediction is that the public is becoming more empowered and more educated.

innovation would become faster and more easily acceptable because of the crisis that we have and that is a good thing. my prediction is that things will get better. >> i think there has been a national and global debate for years and it has been a slightly ta different debate about the innovation strategies and policies. too many people are out of work today. i think that there are too many diseases than me to be cured. in 2010, one or more countries start driving a real reform and the technology policy that addresses jobs, technology, education. >> one country will start to lead? >> someone has to. >> this is serious stuff and all

i do is play games. there is a transformation from a packaged goods business to a digital business. if you look at what is happening onside of our direct area where if you look at asia where this model has already happened and they will never move back into the type of business that we see here today and in europe. if you look at iphone gaming, this is the number one category of applications on the iphone and the most of them are free. we have seen an evolution from purchasing games at a high premium and then it moves in to where it is free. you get the user to pay for some engage but that they want to pay.

as the game industry transforms from packaged to digital coming gaming will eventually go free. >> i like to thank the panel for a very stimulating conversation. thank you very much. [applause] [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> is gone, you lost it, you do not own into any more. we were trespassing, that hurts. my possessions are in a storage bin. >> this week, a discussion on american casino. there award winning documentary on the impact of subprime

mortgages on minorities. >> sunday, a look at the rise of al qaeda in yemen. then a discussion on a new law that takes effect today. then a fellow with the center for education reform talks about the state of education in the united states. "washington journal" taking your calls live every morning at 7:00 a.m. on eastern. monday, the president of the internet corporation for assigned names and numbers is interviewed by the the wall street journal technology reporter. >> in this next panel, and look at what could be the driving

factors in the u.s. and global economies in 2010. we will hear from a member of president obama is council on economic adviser. this is just under one hour. >> we will talk about the world economy in 2010 now that the world has emerged from what is clearly the deepest postwar recession, what will the economy look like and what are the risks. the economy has been propped up mike government and by huge stimulus. what happens when we try to exit

that? to leave risks sovereign debt crisis? what will asset markets to do? do we face the risk of an asset bubble? those of the kinds of questions that i want to talk about. we will have some predictions, some very concrete predictions. i have two terrific analysts. their biographies are in your packets. austin coolclear joined by the present'president's economic bod

representative. on his left, but carmen reinhardt, the director of economics at university of maryland. she has had a very our illustrious career and it is one -- she is one of the experts on crisis analysis. how workers have been at the cutting edge but for more than a decade. much of this work has been together in an absolutely spectacular new book which is one of the best performing the government books of all time called "this time is different, 8 decades of financial falling tholly."

alston, let's start with you. you arenw&x#ñ always optimistic. -- austin, let's start with you. you are always optimistic. optimists talk about a z-shaped recovery. pessimist talk about a w. what kind of letter would you assign to the shape of the recovery? >> i am back to ph.d. time and i have one of those letters in my mind the. it is a greek letter. we hadn't up, down, sideways, and different. -- we have been up, down,

sideways. at the beginning of the year, they jumped all over the administration and the chair of the cea forcing she thought that we would see positive growth by the end of 2009. she said that is a totally rosy scenario. we will have had positive growth for half of the year. i think the question that we are now asking and it is a better question then will the recession and is when will the traditional leg come to an end between when the gdp turns around and win job growth begins -- and when that job growth begins? how much of the recovery is going to be reined in by some of the credit crunch factors that

carmen talks about in her book. we might grow but we might reach some peak that is far less than what we could be. i am fairly optimistic. i think at the end of 2009, it is better at than what people predicted. i think that the beginning of 2010 will be better than what people are thinking about. >> the third quarter of 2009 was 8% growth, fourth quarter was something like that. will we be looking at reasonably robust growth? >> 3% will be robust growth and i think that we will be in the same range for all of 2010. >> what do you think, carmen? >> hopefully it is not an "l."

i think all of the indications point that we have reached a bottom. the question is how strong the recovery will be. i do not think that the v-shape, when it was going through the 1982 recession, i was at bear stearns, of all places. that was paying v-shaped recovery and we had a lot of reasons to expect that real interest rates were very high, the highest since the depression. we had a lot of room on monetary policy. we did not have the leverage situation in households or with banks. for those reasons, interest

rates that are near zero, i'm expecting this recovery to be sub-par. not just in the u.s. but elsewhere. >> there are some very powerful forces skull lying in this -- there are some very powerful forces at play in this recovery. you tend to have some weak and fragile recoveries after that. i think of this as a backwards square root. you go down fast, you come off quite fast and then you love all of the very quickly. how different are things this time, carmen? are there things in this crisis, in the u.s. situation that leads you to believe that we will have a different trajectory?

>> well, i will do good news, bad news. the goodness is that the policy stimulus is more aggressive than we have seen in any prior crisis. the past to be worth a bit. the bad news is that this is a global crisis. we have not seen anything this synchronous across the largest economies in the world. we've not seen something like this since the 30's. if you look at the postwar recovery from crises, from deep financial crisis, one of the

factors that kicks in importantly is export growth. it kicks in because you had a currency crash usually in the year of the crisis. it also happens because you are in crisis and the rest of the world is not. the average growth in a postwar crisis situation which is 10% export growth annually, we will not connect that to help us pull out. that is a downside to the recovery. >> will start with the observation that traditionally economies have helped their way out of post banking crisis situations with export growth how much it is or rosy projection to a point on rapid growth.

>> we can have robust growth in trade in general just to get back to some normal level. it will be up and then flat. the flat as at 3 and 1/2% growth, i have no problem with that. >> new york talking about a growth rate, not a level, so it goes down and up and then instead of continuing and going up up, if it comes up to three and a half percent and we stay there, that is not a traditional shape of 1983, '84 that had 7 or 8% gdp growth for one year.

if we are in some stable robust growth that is not based on asset price bubbles but more based on business investment, some export growth. in a world we cannot totally reliant on 12%, 10% growth, the u.s. does relatively well in that environment. we have always had less dependence on international trade than virtually anyone else. the wesu.s. is the biggest markt for the man credited in this market. -- for demand created in this market. robust business investment, consumption growth that is proportional to the income

growth. we can have sustainable growth without having to go back to household balance sheets where the savings rate is literally less than zero and several quarters of the 2000's. the stage is set where you can easily see the road for the moderate growth rate scenario. it is hard to see what the road is to super growth. in some sense, that is ok. we were facing down a horrendous scenario. tical -- people talk about getting to the bottom of the recession because you will not turn around and gdp growth for at least a year. we are out of recovery.

>> let's talk about the other aspect, there has been huge government stimulus. we are running a double-digit deficit. and we see an average prediction at 9% gdp. the debt will be higher across the rich world than when the crisis started. carmen, one of the most stunning statistics in your book is that public debt tends to rise in 80% in real terms after this kind of crisis. how much do you worry about that being repeated? how much do you care about the rise in public indebtedness

here. will this restraint the recovery that austin is talking about? how much should we worry about the scale of the budget deficit and that the buildup in debt? >> well, i have lewis thought that we should worry about getting out of the whole we have been in before we worry about medium-term issues. we want to make sure that the recovery is solid, even if it is not robust, we want to make sure it does not to the same thing that happened in japan and the mid 1990's. the case for stimulus is there and that is something that i will come back to later.

the consequences of height that concerns me. it concerns me about that overhangs which do bad things to growth, for example. if you look at the 80% figure, that is over three years. we are on track to come very close to the experience. the u.k. as well. ireland is ahead of the curve. spain, all the countries that have had financial crises. we have seen a dramatic increase in indebtedness. >> one of the big debates will be when it should you start at the exit strategy from loose fiscal policy. ireland's budget deficit has

already been cut. they are raising taxes and cutting spending. the logic in the u.k. is that in means to be done fast because otherwise investors will freak out. do you think that it is right that policymakers should be thinking about tightening fiscal policy? >> thinking about it, yes, acting on it, no. that is in a nutshell. thinking about it is critical. it is important to have in place for having confidence and to avoid risk considerations getting out of habit. one of the lessons that we should be taking away from the 1930's is that declaring victory too early can be costly. that was also the japanese in

1997. >> thinkin the president said there was a need to focus on the rising debt. >> i don't think that those are contradictory. i think that what carman has said is exactly right. there are people that are just getting confused. in the middltail end of the deet recession since 1929, you do not tighten the belt of that moment. that is incorrect. if you did that that is extremely dangerous.

there is a zero connection to the current crisis. the downturn has affected the deficit but that is not the long run fiscal problem facing the country. the long run problem is the same one that has been facing us for the past 25 years, the aging of the population. >> in the long run. the lesson of the book is that there is a fiscal consequence to financial crisis. >> we are running a deficit for two to three years. >> if we think about the balance sheet, that stuff is not affecting the budget. if you look in the 10th a year, the deficit is forecast to be

substantially worse than it was two years ago. that is the case because of the way we to the forecast, the boom times, the tenured deficit's coming better than expected. -- the 10-year deficits come in better than expected. the main point is not to pay for the stimulus. the stimulus is almost totally out of the deficit five years from now. you have additional interest,

that is a small component of the deficit, 50 billion a year where the long run deficits are up $400-$500 billion worse than ever forecast to be. there is this criticism that the obama socialist are spending this country into oblivion. i defy you to look into any program that is increasing the deficit. >> i have to object to that strongly. one of the points that we have been making consistently is that even if there is zero stimulus, the consequences of financial crisis are very difficult for the budget because revenues collapse. even if you have no stimulus, you have very serious budget

consequences because revenues from property, income taxes, any sort, this weakened substantially. i think that the the the issues have brought forward the issues that you raised. there are aging population, social security. that has been brought forward because of the financial crisis. not necessarily because of the stimulus. >> i will move on. i think that we can all agree that you both said that it would be wrong to tighten fiscal policy next year but we need to worry about the medium term. there are long-term problems from entitlements and that the recession has made that worse. i want to get a couple of more subjects in. one is asset bobbles. six months ago, the whole debate was about policy makers needed

to steer between deflation on one hand. we have a lot of talk that even as we can't have very much inflation, we have asset prices, i am looking quite frosty in the u.s. and in asia, particularly, how much is next year, will it be committed by worries about asset prices. what should it be? -- will it be made worse by asset prices? >> with uncertainty about the strength of the recovery and, monetary policy is going to be dominated by concerns of asset bubbles as the main driver of

policy decisions. right now, more money has been lost searching for high yields. we have a lot of search for higher yields in the emerging markets. many have acted to try to dampen that and i think there are concerns about asset price bubbles. i don't think that u.s. monetary policy, if that is the question, if that is primarily reacting to that. it will remain focused on asset conditions. >> this is a formula of what should the rule of thumb, the monetary policy should depend

upon conditions. you plug in the formula. right now, says the interest rate should be - 6%. this is not the time to be talking about an exit strategy. that is the time for the fed to be talking about raising rates or doing something to pop asset bobbles. -- obubbles. they might face a difficult issues like you are trying to figure out if you are in a bubble. >> do you think are any signs of a bubble here?

>> it is hard to tell when you are in one. if you have this in addition to huge leverage, we have seen that go wrong time and time again. we are in a time of the leveraging in the u.s.. people can argue about whether there is an asset bubble or not, we are doing the right thing in getting this out of the market right away. you have places where there is high leverage and commodity prices shooting through the roof. >> one big topic that people are concerned about is the dollar and the dollar's role as a reserve currency. do you think that is a question that people should be worried about?

will there be more concerned about the dollar? >> is hard to see how there would not be. if the dollar will be replaced by other currency, what currency is it. if you look at history, the writing was on the wall that if the pound was to be displaced, that was by the dollar. that natural succession has not been determined.

>> will it be the euro? >> we don't have a unified treasury market for euro. people don't buy your wrote or dollars, they buy government securities. -- people the purchase euros or dollars. you don't want to buy greek debt. i don't see the euro as having a unified market that is competing with the treasury market. >> the u.s. dollar policy is determined by the u.s. treasury and i have no comment. whenever you see any announcement that sparks fear in the marketplace, unheard people

run to the u.s. dollar. the idea that people cannot see the u.s. government has a column in the middle of a star has been disproven. >> -- a calm in the middle of a storm has been disapproving. >> last friday's jobs figures, the unemployment rate fell. i would submit that we are going to have an uncomfortably high unemployment next year. we have midterm elections coming up in november. it is not a particularly pleasant number for any administration. there are two things which one can worry about. to what extent does this put pressure on the administration to come up with policies to deal with this?

there's also the risk of protectionism. something i have long worried about in this whole crisis and frankly i have been surprised how little there has to insofar. if you have an environment of relatively weak growth by historic standards and unemployment, shouldn't we be worried about this being the clear ingredients for rising trade tensions? >> you are always trying to scare me i have not seen any of this massive rise in anti trade sentiment. unlike any previous recessions where there is a nasty rise in anti-immigrant sentiment, night to the issues of trade or immigration have become central in this economic debate. -- neither of those issues of

trade or immigration have become central in this economic debate. the job market is basically correct, even in a normal recession. it takes a lag between when the gdp turns around. this is usually before it affects unemployment. it goes in the order of gdp growth, then productivity growth, then hours of existing employees go up and then payroll employment. the good news is that the gdp growth appears to be around. this past jobs report you sought hours of the employed start to pick up and down maybe we will see payroll employment growth. this was much worse than a normal recession. the unemployment rate could be going up even when you're generating jobs.

the unemployment rate may still go back up even as it improves. how much do you think that the american people are just being driven by the current today or how much did they take a step back and have understanding that to this was a really tough spot. a lot of economists look at the last quarter and say that we've really were that close to the depression. the financial system goes down and we are not on a self correcting past. -- path.

if the unemployment rate is not down, i would hope that people would understand that we took on what actions that many of which were not popular and they continue to be popular now by saving the financial system. >> when you look at the political economy, does that give you any insights into thinking about what things would look like here over the next year or two. -- over the next year or two? >> no, unless -- the only patterns that emerge from the

political side are very clear are those extreme cases where you have had a sovereign default in which any administration in place at the time of default will not survive. apart from that, there are very high grade political systems and different stages of being in to a tactic of administration. seldom does growth pay you -- daily out in terms of the debt accumulation. >> [inaudible] >> it is not often that you can do that.

whichever administration is in place post crisis. >> what about the military

costs? >> i have not seen the budget. i did not think it would have impact on economic growth or the recovery. >> i think that the balance is off. i think that you are forgetting the most important thing is people. people go within themselves.

i think that we should think about the money. >> can we restrict this primarily to questions, please? >> one of the things that we are seeing, there are a lot of people suffering.

what can we do in the country to get back in the long term? how can other sectors help you? >> the goal in the stimulus and the coal and what the president and the administration are saying is that if you will do jobs programs, you want to do something where you can do this partly because the fiscal position, it might be more sustainable.

in recessions, the businesses come back because the credit conditions are what they are and banks are the disproportionate a source of funding. there is a risk that the engine is not functioning. all around, we had this jobs forum. the ceo of the biggest companies said that their biggest fear is that small

companies cannot get credit. one answer to the question is direct job growth policies. >> one area that we can do better is to explain the link between employment, small business, credit availability. one thing that could be done is to light in the toxic asset load.

credit activities should be an important priority. >> i think we have time for a couple more questions. >> the head of u.k. regulator

has opposed a tax on financial transactions. this is something that all financial markets across the world due to hedge risks. what do you think of the code in texas. -- of the taxes? >> just when you think the proposal has disappeared, it comes back.

the u.s. and the u.k. derive from more of their income from the financial industry than the rest of europe or other countries. so, they are getting agreement on the scale of a global tax. i did not attach feasibility. >> will it happen, a financial transaction tax.

>> to not overlook the temptation of a bunch of -- there are a whole bunch of singapore or some financial center. everyone has to do it together. don't we need a stronger the regulatory environment? this tax is serving as a proxy for don't we need a tighter, more robust oversight. obviously we do. the regulatory oversight has to be done internationally for the

same reasons. we have to have tighter and more robust oversight and the financial system. >> unfortunately, i cannot allow any more questions. however, i would like some concrete predictions. what will be better in 2010? >> the good news is that it is not 2008.

it is really about how strong the recovery is versus how strong the collapse. >> it will be a recovery but not another collapse of his >> exactly. there is too much complacency. there is the prospect of default in the emerging markets.

the emerging markets have weathered the storm and this is this perception. i think that many of them might default. >> what is yours? >> each of mine has a twist of good and bad. there will be no upturn in inflation in 2010. the prediction is that productivity growth will come back down to some normal growth

rate. in the short run, it has a feature of one of the things negatively affecting job growth. >> firms will not be able to push their workers much further. thank you both very much. . [applause]

host: calle[captioning performey national captioning institute] [captions copyright national cable satellite corp. 2010] >> saturday on "washington journal" we will look at the rise in al qaeda in yemen. then, a discussion about a new law that takes effect today. later, a fellow at the center for education reform discusses the state of education in the united states. "washington journal" taking your calls and e-mail every morning at 7:00 a.m. eastern. >> after a while, it sinks in. you have lost it, you did not own it anymore. you are trespassing. that hear hurts. >> this week, a discussion on

"american casino," an award winning documentary on the impact of subprime mortgages on minorities. >> now available, c-span's book, "abraham lincoln," is a unique and contemporary perspective on lincoln from 56 scholars, journalists, and writers. "abraham lincoln," in hardback at your favorite a bookseller. b