she'll be at the dispatch and lean back and let the wall of noise build up so that she is shown as the lone woman against the mob of baying hooligans and i think that play well work to her advantage. >> other party leaders will be seen this afternoon include patty, a liberal democrat, he will be right after, i'm not sure the order, and neil of the labour party, how will they come off? >> neil is the leader of the opposition. he like me has not got that much hair. he said he's rather worried about the way me looks on television. he said to some of his colleagues on -- the labor front benches, what we got to do is make sure we grow hair because the camera shot, it comes from -- rather above as one saw with the gow himself who didn't have much hair. you could see, and just the top of a balanced head. so i think that is -- this play sound sort of fansful but this

is the sort of thing that people are -- are concerned about, because it is, television is an impressionistic medium. but the other thing about neil is he's the heard of the opposition. he wants to become the next prime minister, the moment he is 15 pins ahead of mrs. thatcher in the opinion polls, here's a unique opportunity for him to try to influence the electorate, people that wouldn't normally have seen him or wouldn't normally switch on to him. they will switch on because they're watching the historic televising of the house of commons. and so he i think will attempt to be very prime ministeral, he will also try to curve, he's -- he's, -- he's called a waffler, that he talks too much and uses three words where one word will do. and extremes of sentences with no false starts. i think he'll try and curb that and seem a little more measured and statesman like. >> what do you expect this afternoon? >> for neil a lot of respect

this afternoon and every tuesday and thursday there's what is called prime minister's question time where for a quarter of an hour, the prime minister gets up and answers questions for any member of the house. but traditionally the leader of the opposition is allowed to ask four questions to the prime minister. this is always seen as a gladiator contest. and a lot riding on it for both of them. >> pending the house of representatives scheduled in the united states, we'll bring this first question time when the -- when the first prime minister's question time one week from today on the 28th of november that is scheduled. and we thank you very much for coming by. we're going to keep you here as much of the afternoon as we can to help us fill in the spaces where the american audience and us play not understand. right now let's go back to the house of commons. >> second speeches over the years. and that research revealed that during the last parliament, there were two other members of the class of 1983 with similar majorities to my own, who seconded the loyal address.

at the subsequent general election both of them lost their seats. [laughter] now, mr. speaker, the pat tron of secretary a marvel of kindness and courtesy and although i must tell him i got his message loud and clear, the return to the house of my honorable friend the member for the forest, who was one of those seconders is proven that there is political life after political death. our political life mr. speaker has been -- are being lived out in the most kiting and dramatic of time. recent events in germany and eastern europe have shown that history is a scon assistantly ruling pageant and that nothing is setting -- set in concrete, either literally or metaphorically. it was mr. speaker, john kennedy

whose words we have all recorded overed last few days at the berlin wall. it was kennedy that said, some men see things that they are, and wrong quote. some men see things that they are and ask why. and i dream of things that never were. and ask why not? it is because mr. speaker, i believe that the program revealed by the gracious speech is in accord with the spirit of that message. that i have no hesitation in commending it to the house. point of order, mr. -- ed pepper. >> here. during the course of the -- of the previous speaker's statement, it he made reference to clemens boy. i remember clarence floyd and i never agreed with him

politically. my many arguments with him but he --ee is it right during the course, knowing that he's televised, to make -- >> yeah. >> to use -- use -- use intelligent, to use the occasion to make a snite comment about -- somebody whose no longer here and who in fact did put his time in the house of commons. and although i personally disagreed with him politically was a good member and i trust, some speaker, that we're not done -- going to hear that sort of thing in the future. >> here yee. >> order. even order. >> and even before we were televised the house would have heard me say that we have freedom of speech in the house and that every honorable member would take responsibility for what he says here. weld order. not a matter for me.

order. the question is a humble address be presented to her imagine jestity as follows. most gracious sovereign, we are the most beautiful and loyal subjects, the commons of the united kingdom of northern ireland and parliament assembled lead to our humble thanks to your imagine justity, for the gracious speech which your imagine jessity has addressed to both houses of parliament. the leader of the opposition. >> yeah. >> mr. speaker. for those who -- who play be uninitiated, it is one of the most pleasurable customs of the house -- that the -- the heard of the opposition is allowed on this occasion to -- toe pay compliments on their speeches to the honorable gentlemen who have moved and seconded the loyal address. and i do -- i do that now with

-- my usual passion and enthusiasm. and particularly, for the usual sparkling performance of the honorable member maurice bourn who gripped the house. as i looked across the chamber at him, he struck me as one of our number who like myself has not presented himself at any television charm school for grooming. and the only concession that i have made in that direction myself, mr. speaker, i suspect the honorable member is much the same is to take possession of a kindly and generous of made to me by one of my honorable and learned friends wo should remain anonymous, of something called preppy poodle which looked to me like sort of cerebral blotting papers apparently for the purpose of mopping one's head. after the ordeal of moving the loyal address, i would be more

than happy to pass this across to the honorable member should he require it. he of course in any case needs no tuition in -- in charm, or in jen tilt or subtlety. it was all of these quality that is i am certain earned for him the -- the the not unaffectionate title was the work for the prime minister as parliamentary private secretary of supergrass. well, mr. speaker, i suppose it is better than supericeberg. but it is -- it is the case, i'm certain. mr. speaker, that he will suffer no difficulty in this new era of televised democracy from the fact that -- that, on another share, he like me suffers from a certain deficiency. he didn't worry at all about

that, mr. speaker, for it is the case that he only has to look along his own front bench and see the deputy prime minister and the foreign secretary and the chairman of the conservative party and the chancellor and the home secretary, and the transport secretary, to be absolutely assured that the gray hair is not necessarily evidence of wisdom. the -- the -- the honorable gentlemen has many talents, so many, i've been tempted from time to time to try and convert him to provide him with lecturing lessons and a different pair of glasses. since he bears a much more than passing resemblance. his speech was a considerable delight. i mean of course in all respects other than political. mr. speaker we heard from the member for maurice celts who is

ayman who is an ernest member of particle thement -- parliament and has shown not inconsiderable courage, for it was he who at the time of the 1983 general election to his considerable credit called upon conservatives in stockton, not to vote. for the ex-national front man who was the conservative candidate and i think everyone would acknowledge the exhibits of -- and strongly support the honorable member in that. i know the honorable gentleman's wife caroline who is an extremely active supporter of the campaign for soviet jury. we have had mutually productive in the cause of securing precisely that liberty which is celebrated in many ways, rightly so, in its advance in today' speech. the honorable members is also -- a star touched, not only is he the consultant for the northern

independent book makers association and an office of some distinction and considerable advantage i would imagine, but he also -- he also, he also shows -- no i leave the prime minister to talk. it is more entertaining. theed honorable gentleman for maurice celts shares a birthday, indeed the same birthday with charlie watts the drummer of the rolling stones. and the next election, as the honorable gentleman graciously play become something of a rolling stone. until then we shall continue to be informed and delighted by his contribution. [cheering]

>> mr. speaker, sir. and play i first join the -- the leader of the opposition, in crating my honorable friend the member for eastbourne in the way in which he moved the loyal address. he did it in his own style, and dry as always, for which i'm eternally grateful and with his own particular way of showing that even the opposition has benefited very much from periods of conservative prosperity. and he -- i know when we were in opposition, which i'm sure we will never be again. wlf- [laughter] >> he was -- he was -- he was the head of the then mayber government and he proved private bill after private bill and a bill to tell council how it is, a bill to privatize bus companies and privatize the

national freight corporation and a bill to privatize cable and wireless and to privatize the british steel corporation. of course privatization got nowhere with the labour party. they're socialists and want nationalization of production and distribution and exchange, but i'm happy to say to all of those things, you have achieved under my administration. play i also congratulate my honorable friends for barry south who seconded his emotions. he's well known for having won his state and attained it against all of the odds and he will do so again. he has truly looked after his constituents, looking always after both the constituents and the members and they have rights in this house will secure him another return and i was very glad that he point out that we learned during the life-time of the labor government that inflation is a father and mother of unemployment and during the life-time of this government, this -- the queapts have  profitted enormously for more

jobs for them to choose from. it is -- yes. play i just finish? play i just finish thanking my two honorable friends then i will give way to the honorable gentlemen. it is of course a matter of very happy ko incidence that the year when the gracious feat contained important proposals for heigl reform that both the proposal and the seconder are distinguished sliss terse. and the bears ter and myself, i welcome this early start to giving them rights of audience. both my honorable friends are to be warmly congratulated. i give way to the honorable gentlemen. >> don't leave. in what respect -- do you -- you can't give thome by the almost transfer of the executive. of the departure was inaccurate. >> and -- they saw the honorable gentlemen coming on to dealing with the economy in a moment. if you would give me time.

and in the meantime, i like to deal with some of the things which we -- the honorable gentlemen and the leader of the opposition which i hadn't proposed to put in my speech and i better deal with them now. the national health service, he admitted to point out that every one dime the labor spent on national service this government has spent three. and yes, we did achieve economic growth and the postal rates are european competitors and that is unemployment, a record number of people in jobs in this country under conservative governments and a record number for all time. and he talked about traffic congestion and he omitted to point out that under a labor government, they actually had to cut the amount spent on motorways and roads. of course they did. and they ran their economy so badly. he then came on to pension and he then came on to pensions and he admitted -- omitted to say the way the pensions are managed

and the pension rights in the european community are different from here and moreover he omitted to point out it was a labor government that was not able to honor a pledge, to protect pensions against rising prices when the rising prices would have required the 20% increase and they just hadn't the money to do it. when you spoke about teach eshesrersion, he omitted to say there's a higher proimportance of teefers to pupils than ever before in our history. there's also a bigger number of students in higher education. he spoke about war widows. he omitted. -- he omitted it was this government that freed the tax all together and omitted to point out that the age allowances which we increased and the actual rate of age allowances will go up very much more than inflation next april. indeed for those age 65 to 69 the allowances will go up 14% and those age 80 and over, by some 30%.

pe said what they had in the soviet union was not socialism. of course it was. the soviet socialist republic. [laughter] >> massive -- massive -- massive nationalization, and if you look back at my speechs in opposition, he wanted more and more nationalization. and massively high taxation, which again is a way of taking people's rightful earnings against them and massive detailed controls, such detailed control that at the end of the last period of -- of labor government, the -- at the end of the last period of labor government manufacturing output was lower than ffs at the beginning. and he omits to say that. he was -- they he said that manufacturing output went up during the period of government. it didn't. it was lower at the end than at the beginning. he said, we're being dragged

along behind the eec. play i point out that far from being dragged along behind we are in fact ahead in the way in which we are implementing ahead for example in the way in which we're implementing the direction for the single market by now some 6 single market directors should have been implemented by the end of june. and france has yet to implement nine and denmark and netherlands 12 and all others more than 12. and with italy at 33. and we play -- we made the united kingdom. we have the record with only three measures. only three measures being unimplemented. we have many other things lead the field in europe. he tried to suggest -- he tried to suggest that competition policy wasn't an essential part of having the single market. of course you cannot have varying subsidies if you're to have fair terms to compete with

other people. if you permit subsidies, the richest country will have the biggest subsitties and there will be no common market and no single market and there for nothing for us to enjoy. he then pointed out that there were times when britain was isolated in her arguments. yes, we were isolated in the european community where we tried to get a fair deal for britain for the budget. and we stayed isolated and we stayed isolated until we succeeded and got the fair deal which -- lewded the labor government. yes, you're isolated when we had a common agricultural policy. and we got it. yes, isolated when they wanted a common withholding tax and we went on and with our argument and eventually we won. what he calls isolation is really here and winning your argument. mr. speaker, this new parliamentary session will --

will mark the start of a new decade. the 1970's will -- were a decade when britain was in decline and socialism meant we had to be treated like a third world country and rescued by the i.m.f. and 190e's have been the decade when britain regained her strength and pride. we're no longer afraid of change, we could respond to it with confidence. british industry has -- e one moment when i finish this particular paragraph. and this industry has been set free to adapt a new way and new technologies at an unparalleled rate. and visitors can once again get a good return on investment and that's why over the leis latest three years, we're seing a 40% increase in business investment. and unprecedented advance. and that's why industries like steel and newspapers and now the docks who is -- whose equipment and working methods were barely adequate for the 1950's have now

been transformed to compete with the best in the 1990's. and that's why this country has been getting the lion's share of overseas investments coming into the european community. >> yes. they prefer to come 0 britain. and the government sees two main tasks in the period ahead. first we must do everything possible to encourage and sustain genuine democracy throughout eastern europe but this the euphoria. in the euphoria of the moment, we must not underestimate the magnitude of the task. and by genuine democracy we mean not just the outward trappings but the underlying substance and re-elections in a multi-party system. >> order. order. >> i think the whole house heard the prime minister say that she wants to get on with her speech and she wasn't going to give way at this point. the prime minister -- >> mr. speaker, i don't think anyone has given away more than i have. >> during the course of this.

>> by genuine democracy we mean free elections in a multi-party system together with all of the freedoms that were set out in the hell singy final act. that's certainly not going to come about quickly. indeed in some european countrys to achieve jen whip democracy and economic reform, may well take years so great are the changes required. and britain is already helping pole hand and hungry but we're ready to do more as part of an international effort. and our second task is to enable the great changes to take place in conditions of stability. in europe. so that there's -- no country feels its security is -- its alliances or its borders threatened as a result of them. we should remember the changes would not be happening were it not for presidents gorbachev's president and -- 0 presence and vision. we want to see his reforms in

the soviet union succeed. and this -- mr. speaker, these methods were discussed by the european community heads of government at a very successful meeting in paris last saturday evening but -- at which disapproach received wide support. we all welcome changes in eastern europe and agree that the community should continue to give them every possible help. >> and the particular urgency of poland and's hungry's needs was recognized. the europe council in just over two week's time will decide on the additional help that the community can of. and carving not just financial help but further food supplies and training. and we shall also consider the possibility of extending european community programs, and in areas such as technology and education to eastern europe. and britain's recent suggestion of looking at various options for bringing eastern europe into closer association with the community will also be studied and discussed further.

and at the same time, mr. speaker, the same time mr. speaker, we agreed that naito -- nato and the warsaw pact continue to be the basis for defense. their boarders are not on the agenda and that we well continue to abide by the helsinki final act. indeed without nato and the european community, these great events would surely not have happened. hear hear. this is an excellent meeting and a very satisfy outcome. the next step is forinate nato heads of government to meet on the 4th of december when president bush will report on his meeting with gorbachev pf before that happens before that happens, i shall be meeting president bush at camp david later this week. so the action of the right honorable gentleman, the leader of the opposition is to see what is happening in eastern europe,

as yet another excuse to weaken our defenses by getting rid of nuke here weapons. even though they're a fundamental part of nato strategy. and it is because we had nato, because we have kept defenses strong and but we deployed crews and perching against the soviet union's ss 20's and because we convinced the soviet union it could never sugged succeed in intinl dating or threatening the west that we're now witnessing these great changes. >> here here. >> and mr. speaker, times of great change are times of great uncertainty, even danger. and we have to be prepared if any threat, however, unexpected. and events -- and demonstrate even more conclusively, we're winning the battle of ideas. we must make sure that subsequently, we do not lose the peace. and our nuclear deterrent and the collective security provided by nato remained the corner

stone of our defense. and how will we react to what is happening now will shape europe and the wider world for decades ahead. and against the background of a sure defense, our program set out in the gracious speech of enlarging opportunity and enhancing the quality of life and improving well-being, is the right one for britain of the 1990's and i commend it to the house. >> yeah. >> points of order. >> you're watching live coverage of the british house of commons on c-span television. just watched the speech by margaret thatcher and prior to that a speech by the leader of the opposition. and the leader of the labour party. and joining us in our studio is michael, the former chief political ropetter of pan ram that ma and author of some books. is thept arrivive of what you

have -- representative of what you have seen on the floor? >> yeah. but everyone is on their best behavior. both neil and margaret have give enway. and in your own words it allowed people to interrupt them a great deal more often than normally they would. and sometimes indeed, the prime minister can be positively sort of aggressive about it. and i'm not giving way, i have given way. the convention is you give way. sometimes people can -- can stand up and try and interrupt you in order to put you off your stride. and as we see, she was she was very gentle about it and said i have two customers there, i'll take the first one and then the second one. i suspect when they're not on their good behavior, and they're not playing up a bit for the cameras, they'll tend to revert a bit more to the traditional form. >> you have watched mrs. thatcher a lot and have written about her on television, as for television. how do you think she hooked today? >> i thought she was nervous to

start with. i was saying before earlier in the program she had this problem about whether to wear her glasses or not. it seemed to me that the way she had overcome this problem was that, that she had got her speech written in very big type so she didn't have to wear her glasses because neil raised points she didn't anticipate, she had written it down in handwriting and had to put her glasses on in order to be able to read this. and -- and at times she wasn't quite clear whether she wanted to have them on or off. but, for most of her speech, she didn't have her specks on. she -- i thought looked a little more tired, a little more matronly and a little older than -- g with has seen her sometimes before. because normally she will come into a -- a television studio, for interviews, and -- and it'll be a great deal of work, which

will have gone into the makeup. yet, here -- no doubt she has been made up for television, she's in a hot sweaty chamber for an hour before she got up to speak and she couldn't very well go off and powder her nose beforehand. >> our viewers are seeing in the larger screen the leader of the liberal democrats right there and bernard wetherell and we'll go back to that in a minute. we have 20 minutes more to bring the viewers. i wanted to ask you a couple of things to help us understand. the waving, members were waving something when we saw the wide shot. what are they waving? >> they're waving their order papers. in your own words, that's the order of the day's business and i was saying that one of the things they don't do in the house of commons is actually to applaud. so they have various ways of showing their approval and one of the traditional ways it to wave their order papers. and often say here here at the same time. >> we had heard that the -- that the shock of the speaker was

going to be mostly head and shoulders but looking at most camera angles of thatcher and others, you were able to see the person sitting in back of them. it was a wider shot than maybe i expected. >> yes, i think -- reports which many broadcasters had about how restricted the coverage was going to be turned out to be a bit exaggerated. . .

it will be interesting to see whether on the british network news tonight they run the pictures where it looked to me as if the deputy prime minister was falling asleep during the prime minister's speech. it will be interesting whether we highlight that or pretend it didn't happen. >> we will be back to chat in 10 more minutes as we wrap up our coverage. let's go back to the floor and listen to the speech of paddy ashdown. >> it is a matter of record that spoke for 18 times and the honorable member spoke for six times. mr. speaker, we have all listened to the prime minister's speech with great interest. i must say that for my part,

the most remarkable statement that she made was the statement and she made at the start of her speech in which we said we, we will never be in opposition. now, mr. speaker, what a remarkable statement that is. i remind the right honorable lady that this is a democracy. and that a little more humility on her part, a little more understanding of her electoral mortality might lead to better government in government and rather less of the abuse of power that we have come to see as the hallmark of this government. now, mr. speaker, both the right honorable gentlemen of the opposition and the right honorable lady were right to lay down as a criteria for judging this gracious speech. the fact that it is the last gracious speech of this and

maps out the program for the first year of the next decade. we should look at it in those terms. look at it in those terms of what is it then that we assess of the fruits of the decade. and whether or not they measure up to the requirements that now face britain in the 1990's. i'm bound to say any rational judgment of this speech must lead to only one conclusion as the program of the first year of the next decade this speech is peculiarly sad, visionless, often irrelevant and downright eccentric. i don't say that in the spirit of negative opposition. i don't say that. this party has supported and does commend many of the things this government has done in the

last decade. we believe they have done some of the things in britain that needed to be done and those things should not be under. we have supported them in the trade union movement. we have supported them in moving forward on enterprise and liberalizing the markets in britain. but we are not measuring this speech against what they have done in the past but how they measure up to the task in the future. and right at the heart of this gracious speech is the program for the next year of the next decade. lies in our judgment, a vacuum where it speaks what it says is irrelevant to the real needs of britain in the future and where it does not speak on the issue of training, on the issue of re-investment on the issue of europe where britain needs a lead. it is a gracious speech full of leftovers.

it is a speech that reflects the back end of the thatcher decade. i would like to look at a moment at the program it might have addressed itself to. first of all, the program it might have addressed itself to to the regeneration of the industrial base of this country. industrial base of which is calculated to have been wiped away in the recession with which this government visited the first years of this decade. is it not peculiarly brutal on the legacy of this government that the end of the 1980's with a vicious, long-term recession that damaged british industry and the end of the decade that the government has purged and edge of another recession in the future? maybe it shouldn't be called a recession. you will tell us this is not a

recession. stagnation? will that suit? his own figures, mr. speaker, his own figures shows the growth in the next year would only be .075%. given the government's record of accuracy in these matters, is he so confident that a tiny plus mark will not end up as a substantial minus mark at the end of the year which we now start. what we hear from the government is and the prime minister said it that this is all the price of success. this is all the price of success. well, mr. speaker, again, the house needs to remember that when we came into the 1980's, we had to have this because of the price. that was the price we had to pay for past failures. now we are told we have to have a recession and a hard year

ahead of us and that's the price we have to pay for success. it would be a sick joke, mr. speaker, where the truth not so painful and the truth is that overall production in britain has only now just blipped if i may use that phrase, above its level in 1979. after 10 full years, our market share has dropped and continues to drop on world markets. the truth is inflation is running at the highest level of any of our major industrial competitors. the truth is that interest rates are higher now in britain than any industrial countries. wages in britain are now running ahead of inflation faster than any other our major industrial countries and the truth is, mr. speaker that we now have a trade deficit of record proportion, a full six

billion pounds above what the government predicted what it would be six months ago. that is the precision in britain. >> right honorable gentleman could you tell us what a liberal government would do to control wage inflation? >> the honorable gentleman has heard the statements made about this. it would be to see this government enter into european market system which means we would begin to control inflation and therefore control wage rates without using high interest rates. but i'm here to discuss the government's program. the honorable gentleman -- i'm here to discuss the government's program. in a relatively short speech, i do not have time to put forward all the alternatives which he seeks. mr. speaker, the government tells us that the success story is investment.

well, the record shows that investment is a percentage of g.d.p. and has now again only blipped above its level in 1979 as a percentage of g.d.p. and interest rates at their present level, that investment levels will begin to plunge back. mr. speaker, this is described by the government as an economic miracle. i say it is not an economic miracle, it is an economic mirage. you can only call this a miracle if you were entirely capable of your propoganda. >> speaking before the first televised session of the british house of commons. the floor of the house of commons has gotten very small compared to what it was during the speeches. the chamber is empty.

>> one of the things that happens is that following the two big speeches, everyone is there. it shows how the effect the television has worn off. the m.p.'s are prepared to go back to their normal practice. most debates in the house of commons are very thinly attended. partly because members have other things to do and have committee meetings and so on and it's only really for either the big speakers like the prime minister or the leader of the opposition and some of the famous parliamentary names that they attract people in. but most of the time it is very thinly attended. one of the things you're seeing, when you see the cutaway shot, you see how few people. when you see mr. ashdown, it looks like there are a lot of party. he had the smallest party, the third party which has only 25 members compared to 200 or 400.

and what they have worked out, those members were all bunched behind him. called doughnutting. it would give him the impression that all his people are supporting him. >> your work in covering british politics being the chief political reporter, how do you think m.p.'s are walking out of the chamber now, what they're feeling about television? >> tough. i think they'll all be absolutely on edge because of this, what i say a great day, historic moment. and the wung thing they will be doing is ringing up their wives, mistresses, their journalist friends to find out how it came over because they don't know how it came over. all they know is what it felt

like when they were in the chamber. and in the bars in the house of house of commons tonight, there will be endless talk. the house of commons has more bars than any other place. >> within the house. >> within the palace, there are 13 different watering holes and they are specifically for the members of the house of commons and the privileged community and they meet and they'll say how did it look like and they will be scanning the newspapers tomorrow and watching the highlights on british television tonight so they can make up their own mind. >> in the united states, there are a variety of books that can be bought or received regarding background on members of parliament and we will go through the ones we know of that are available here. one is go to "parliamentary

companion." it has all the pictures of the m.p.'s, background and much more extensive version. i'm going to drop this one and show you another one which is called the m.p.'s chart. and you can see that address at the bottom of your screen. it is from a group called parliamentary profiles and it is a lightheight hearted look at the members of parliament. and finally the cheapest form was one called "parliamentary companion" you can write to the addresses at the bottom of your screen if you would like to get one of these so you can more easily watch members of parliament and learn a little bit more about them. what do you think will be the

impact of television in the house of commons as regards to the future? >> i think on the basis of what i've seen today, m.p.'s will certainly vote to keep the television cameras. we're in for some thrills and spills ahead and the broadcasters will have to decide whether we put in the cheeky shots of someone falling asleep. but that can't turn the clock back. this was democracy in action and mother of parliament using the most powerful means. we can't say go back. for a long time they refused to even allow writing reporters, journalists into the house of commons because this was thought to be -- would have an effect on the privileged of parliament and only 150 years ago that they allowed the

journalists in. it didn't ruin the house of commons. indeed, it made reporting much more accurate. what people would do is invent what they thought the m.p.'s must be saying and this is what happens now. and all you had was the written version, like a parliamentary sketch, like a notice and now you can actually see the live flesh and blood and guts. i think it's here to stay. >> the british parliament returns from its winter break this week we'll have coverage at the time, 7:00 a.m. on westerns wednesday with a replay next sunday night at 9:00 p.m. eastern here on c-span. >> tomorrow on washington journal, michael scheuer discusses the alleged terrorist

attack on the delta airlines. "new york times" and author of j.f.k. and vietnam" and compares it to president obama's policy towards afghanistan. "washington journal live at 7:00 a.m. here on c-span. [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> and now federal reserve chair ben bernanke talks about policy. he spoke to economists about the need for additional financial regulation to prevent housing bubbles. this event was held in atlanta at vanderbilt university. this portion is over 40 minutes. >> welcome to this event. it's an honor and pleasure to

introduce this morning's speaker, ben bernanke. he will speak for about 40 minutes and take four or five questions and then try catch his plane. ben and i have similar academic pedigrees, we both have the same undergraduate thesis advisor, dale mortingson, and our thesis on the same subject. we both learned academes at m.i.t., and then ben became one of the most powerful people in the world and my only claim to fame is having been briefly ben's landlord. a decade ago ben and martin published a definitive paper claiming how decreasing values

affect the society. and that claim is an outpouring to events, and take a look at that paper when someone tells you that macroeconomics were result of the problem of 2008. ben, thank you for joining us today. [applause] >> thank you, bob, and dale for coming as well. the financial crisis that began in august, 2007 has been the most severe of the post-world war ii era and it's range of financial constitutions that

failed or came close to failure, possibly the worse in modern history. although forceful responses by policy makers around the world, avoided collapse to spark a global recession that we only now are beginning to recover. even if we stabilize our financial system and revigivate our economy, it's essential that we learn the lesson from the crisis. and because it's so complex, its lessons are many and they are not always straightforward. surely the private sector must improve their ability to monitor and control of risk taking. they not only have oversight of financial institutions, and

more fundamentally of important gaps of architectual around the world. we have policies and practices and have legislative and regulatory reforms that were exposed by the crisis. as for legislative policy, we must learned lessons for monetary policy. some have concerned the monetary policy an essential role in the crisis. they claim that the monetary process by the federal reserve in the first half of the decade caused a bubble in the housing system. the proponents argue for a

greater role in policy for preventing and controlling bubbles in housing and other assets. in contrast others have taken the position that monetary was appropriate for those that prevailed. and that was not the housing bubble or the right tool for controlling in the housing crisis. obviously by the economic damage caused by two bubbles over the past decade. a great deal more of accuracy rides on resolution of this debate. the goal of my remarks today is to shed light on these questions. i will first review the mern american policy and assess whether it was appropriate given the state of the economy at the time and given the information to the policy makers. and i will discuss evidence from the sources of the u.s.

housing bubble, including the role of the monetary policy and i will define lessons from these policies. i will begin with a brief review of the monetary policy in the past decade, focusing from 2002-2006. as you know the economy had a largely recession from the dot-com boom and the large rise in stock prices. after the terrorist attacks in september 11, 2001 and the attacks in iraq, and scandals in 2002, clouded the information from the early part of the decade. slide 1, shows the past from 2002 to present. with one key monetary policy,

the target of the federal fund rate set by the foc. the federal reserve controls the rate for one association to other. you see that this lowers from 6.5 to 1.75 in 2001, and to 1% in june, 2003. after reaching the then record low of 1%, the target rate remained at that level for a year. and in june 2004, the rate was raised reaching 5.25% in june, 2006 before pausing. and more recently as you know, and the right part of the slide indicates that rates are cut sharply once again.

the low policy rates were accompanied at various times by guidance of the committees. begin in 2003, the policy was noted to remain accommodated for quote, a consider period. the monetary policy response in 2002-03 was note -- noted by two factors. first the recovery remained quite weak and jobless until 2003. real gross domestic product rose at an average rate of just above 2%, a rate insignificant to halt increases in the

unemployment rate that peaked by 1/2 percent, and second there were concerns of a possible unwelcomed decline in inflation. taking note of the painful experiences of japan, policy makers worry that the united states may sink into deflation and that was one consequence of the rate hitting zero bound. limiting the scope. those decisions in this period were faced with the risk of hitting zero-bound, policy makers should control the rates and being constrained by the lower bound on the policy interest rate. although these were warranted in policies in subsequent years, the question remains if

the policy was necessary. since we cannot know how the economy would evolve under policies, the answer to this question is conjectual. one approach by this question is to compare policies during this period and the recommendations from the taylor rule, developed by john taylor of stanford university. this approach is subject to a number of indications. notably simple policy rules like the taylor rule are only rules of thumb and important people can disagree about the details of such rules. moreover simple rules may leave out factors that may be relevant such as the risk of the policy rate hitting zero-bound. which is why we don't make policy based on such rules

alone. for these reasons even strong components for simple policy rules are advised to be only used as guidelines and to ensure robustness that recommendation of alternative rules should be considered. that said much of the debate about monetary policy after the 2002 recession, make use of such rules, i will discuss them here as well. slide 2. the well known taylor rule relates the prescribed setting of the federal funds rate, the rate of the monetary policy with two factors. first the deviation and consideration points of the long-term inflation objective and second, the output gap, that defines current output usually defined by gdp and the

normal and projection of output. the taylor rule is given in this equation in the slide. in this equation, i sub-t is the rate. and pi t minus pi star is from the rate of period t. and yt minus star, the output gap is the real inflation output from output star. the period of these describe how strong the output is from the target to the potential. as we would expect the taylor rule tells policy makers that interest rates should be higher when inplation -- inflation is above the target or greater than the potential.

taylor in 1993 estimated the real value of the federal funds rate to be 2.5%. and it shows that the federal funds rate expressed here in nominal terms is two rates of inflation. the real value of the federal funds rate should equal 2% according to the rule. to make the taylor rule operational, you need to specify "a" and "b" and choose output and measure the potential output. in his 1993 paper introducing his rule, taylor suggested setting "a" and "b" to 0.5. for example, according to the original taylor rule, if output

rise 1%, then the rate should be raised by 0.5% or 50 basis points. following taylor's suggestion, in slide 3, @@@@@@@@@@@@ @ 2000 to the present, with inflation measured by the consumer price index, the fed assumes inflation targets, output measured by g.d.p. and measured by the federal reserve primary forecasting model. the taylor rule prescription is proposed that the actual policy taken from slide one and again shown in blue. the comparison displayed in slide three displays monetary policy was too easy from 2002

to 2006 as the actual funds rate was below the rate applied by the taylor rule by 00 basis rates over the five-year period 2002-2006. that the output gap by taylor rule "b" in the output equation should be 5 as shown higher by taylor. these represent policy rates by recessions and the aftermath. the descriptions of the taylor rule have difficulties of measuring the output gap, these are well known. the choice of inflation measure

may be consequential, in the original 1993 paper, taylor chose to use inflation by the gdp inflator. in slide 3 this is based on the cpi measure by inflation. for its part in the past decade, the focus on inflation is based on the price index because that measure is less dominated by cpi by the commuter rent of occupied housing. as it matters there were alternative measures that gave policy makers some different signals in real time. notably core inflation was reported in 2003 to 2004 of having slowed at 1% and it appeared to be on a steep

downward deflectary. in contrast the cpi data showed core inflation in 2003 at 2%. and these were raised by inflation of the period implying that inflation was rest of a risk than thought at the time. and that such indicators would not be known in advance and policy be available at a given time. for my purposes today, however, the significant concern of this taylor rule as a policy benchmark is indication that monetary policy depend on curves of the value of output. the taylor rule in slide 3 relates the prescribed policy rate to the inflation rate and output gap that correspond in

the same quarter. however, monetary policy works with a lag, and the monetary policy is forecast gap of the variables than the current variables. therefore in that spirit there are projections that have current input on policy decisions. the distinction between current and forecasted values does not matter much. like high levels of output today may signal those in future. however over the past decade this has been an important one. on several occasions in this period, surges in energy prices led to inflation. according to the taylor rule,

these episodes should have lead to a significant tightening of monetary policy. however, both the fic and private forecasters provide for these to coincide and not forecast for inflation. consequently policy was not tightened as much as would have been called for by the standard taylor rule. to put it another way, the standard taylor rule makes no increase says in inflation expected to be temporary and those long lasting. in contrast policy makers have expected temporary to give strategy that policy affects inflation only with a significant lag. slide 4 shows the quantitative implications of this point. that in blue and the policy

restriction by the standard taylor rule, the dashed line are the same in slide 3. also shown as the dotted green line is the policy path described by the taylor rule by projected inflation over the current inflation over the subsequent three quarters. forecast are those made in real-time, that is the time that the corresponding policy rate was chosen. these are the staff forecast, the so-called green book forecast prepared for each policy makering. because green book forecasts of the period for 2004 are not publicly available, from 2000 on they are projected using methods developed by

invoker-wheelland. these are measured in the graph by the pce price index that was available at the real-time than by the cpi. the slide shows that the alternative taylor rule prescribes a path for policy. in other words when one takes into account that ÷t

forecast, monetary policy reports with a lag and that policy making should be forward looking. one may look at current inflation values. however note from slide 4 with current inflation values would recommend that the f 1 c raise the policy rate into 2008. just as with the financial crisis in september and october. that's a policy decision i suspect would not have garnered much support. the forecast inflation in green dots explains the monetary policy early in the past decade and as well as to not respond as aggressively that turned to be a temporary surge of inflation in 2008. this suggests that the taylor

rule using forecast inflation is a benchmark and a guide for appropriate policy. although monetary policy from 2002-2006 appears to be consistent with the goals of max stability. we have not addressed that monetary policyings perhaps appropriate for output goals contributed to the housing bubble. let me turn now to that question. to set the stage for the discussion, slide 5 shows the annual increase of nominal housing prices. after slow growth, the housing prices rose in the 1990's. growing at an annual rate from 1998 to 1999, thus the beginning of the run of housing

prices predates the housing policy. 2007 dates the boom of 1998. on the other hand the rates were in 2004 and 2005 and the housing increase and thus this does not rule out the housing policy. to try to assess the importance of that contribution, in the remainder of my remarks i will consider briefly two major questions. first the housing prices shown in slide 5 is quite large. could a monetary policy have contributed to the increase that we observe, if not, what does account for it. second, houses rose in this period in many countries.

not just the united states. if monetary policy was the source of housing increase in the united states, it seems reasonable to expect that international perspective that those houses would have rise as well. is that the case? with the respect of the magnitude of house price increases,economists have found that only a small portion of increase in the housing prices in this decade can be contributed to the housing policy. this can be used in models that make no use of economic theory. to demonstrate this finding in a simple way, i will use a statistical model that summarizes the historical

interfaces of the housing model. this model is similar to economists that seek to analyze the evolution of data series over time. the model incorporates seven variables including measures of economic growth, inflation, unemployment and house prices and the federal funds rate, and it's estimated using data from 1997-2002. for our purposes the value of such a model can be used to predict the behavior of any areas studies, assuming that the historical situation holds and that the other historical values are included. slide 6 shows these from 2003-2008. . .

it shows the range of possible outcomes that will be considered normal to the federal funds rate assuming the other six variables took their actual variables through 2008. value fall in the shaded area are close to or technically wven two standard deficient yations the corresponding values. the figures suggest that although monetary policy following the period following 2001 was accommodated, it was not consistent with the historical experience given the environment at the time. the right panel shows the forecast behavior of house prices during the recent period. given conditions and the actual

path. as you can see the rise in house prices falls well outside the predictions of the model. when normal historical relationships are taken into account, it is hard to describe the price level to the broader macroeconomic environment. the conclusion is that because of methods of housing, responsiveness of house prices to monetary policy may have been different than it was in the 1980's and 1990's. during 2003-2004, patients for a.r.m. products. low policy rates went through the mortgage interest rates and tied to short-term interest rates. this could rationalize the stronger effect of monetary effect on housing prices.

some evidence on this question is provided in slide seven which shows illustrated initial mortgage prices for different types of mortgages. the interest rates are the actual angst for prime borrowers from 2003 to 2006 as provided by freddie mac. a comparison of the initial monthly period in an a.r.m. shows it is 16% lower and consequential but not dramatic. the payment is not substantially lower than the fixed rate payment because it includes amortization of principle and a spread. monetary policy would not have a substantial effect on a.r.m. payments. using the model, staff stimulated the effects of the economy of a monetary policy that followed the original 1993

rule taking into account the effects of monetary effects on the economy. th rate would have been slightly higher than the base line and that the initial monthly payments for a borrower under the policy would have increased by only about $75. this results does not suggest that tighter monetary policy would have persuaded many potential borrowers. slide 7 also shows the initial monthly payments for alternative types of variable-rate mortgages including interest only, long amortization, negative amortization in which the initial payment is not cover interest and pay option which give the borrower considerable flexibility given the size of the monthly payments in the early months of the contract. these more exotic mortgages it shows a giving a reduction in the initial monthly payment then

to ban could be obtained through a standard arm clearly, those who want to lessen their initial payment was important for some. these alternative products proved to be quite important and has many have recognized a likely problem of the housing bubble. a slide eight is mortgages that arise with various exotic features beginning in the year 2000. the use of these non standard features increased rapidly from early in the decade through 2006. because such features are presumably not appropriate for many borrowers, slide eight shows the change in mortgage writing standards which is further exacerbated such as the no documentation loans. the picture that emerges is

there. both lenders and borrowers became convinced that house prices would only go up. borrowers shows and were extended mortgages that they could not be extended to service -- expectations. for a time, rising house prices became a self-fulfilling prophecy, but ultimately further appreciation could not be sustained and prices collapsed. this description suggests that regulatory and supervisory policies rather than monetary policies would have any more effective means of this. i returned this point in my conclusion. let me turn to the international evidence on the link between monetary policy of house price appreciation. cross-country evidence is shown in slide 9. the figure is drawn from a

recent study of 20 industrial countries by the international monetary fund and replicated by the board staff. the vertical axis shows the change in inflation adjusted house prices in each country from the fourth quarter of 2001 until 2006, which is the sharpest period of price appreciation and most of these countries. countries represented by diamonds that are further north had relatively greater house price appreciation over this period. you can see from the figure that house price appreciation, though of course large, was actually less than that of the majority of countries in this sample. the horizontal axis of the figure following the study shows the degree of monetary policies or tightness in each country measured by the aviation policy in each country from the

description of the taylor roll over the corresponding period. countries shown further to the left had more accommodative policies over the period. the united states is shown as having a relatively accommodating policy, as you can see. that is driven in part by current and not forecast of inflation as i discussed earlier. interestingly, essentially all of these countries had monetary policies easier than those prescribed by the taylor role as shown by every country is situated on or to the left of the vertical axis in the figure. as this slide shows, the relationship between monetary policy and house price appreciation over countries is quite weak. for example, 11 out of 20 had both tighter monetary policy relative to the prescriptions and a greater appreciation than

the united states. the overall relationship between house prices and monetary policy commissioned by the solid line, as the expected slow in that tighter policy is related to slower appreciation. however, the relationship is insignificant and economically weak. moreover, monetary policy could explain only about 5% of the appreciation across these countries. well, then what does explain the house price appreciation across countries? in earlier remarks, i pointed out that capital influx through emerging markets and industrial companies -- industrial countries helped appreciation and low long-term interest rates in those countries, the hypothesis. today is not the appropriate time to visit that hypothesis in any detail, but i would like to

take a moment to show that accounting for inflows it is providing free fall. slight 10 which is analogous to slide 9 shows the relationship between capital inflows and house price appreciation for the same set of countries as in the previous slide. also, house price appreciation is shown on the vertical axis of the figure. the horizontal axis shows the increase in the current account or the increase of capital inflow for each country measured as a percentage of gdp. the downward slope of the relationship is as expected. countries in which accounts worsened and inflows rose are shown on the left half of the figure. they had greater house price appreciation. however, in contrast to the previous slide the relationship is significant but statistically and economically. over 31% of those appreciations

is explained. this simple relationship requires more interpretation before any strong conclusions can be drawn. in particular, we need to understand better why some countries do structure causes than others. i will know here that with more accommodating policies reduce capital inflows, the relationship appears to be inconsistent with the existence of a strong link between monetary policy and house price appreciation. my objective today has been to review the evidence on the link between monetary policy in the early part of the past decade and the rapid rise in house prices that occurred roughly the same time. the direct linkages are weak because monetary policy works in a lack. their response to changes in inflation and other economic variables and it should depend on whether the changes are expected to be temporary or longer lasting.

from that point it is taken into account that policy during that period the accommodative has not been appropriate given the state of the economy and of policymakers meeting objectives. house prices began to rise in the late 1990's. although the most rapid increases were the lowest levels, the managing was too large to be explainable by the stance of monetary policy alone. moreover, cross-country evidence shows no significant relationship between monetary policy and the pace of price increases. what policy implications should we draw? i noted earlier that the most important source of lower initial monthly payments that allow more people to enter the housing market was not the general level of short-term interest rates but the increasing use of more exotic types of mortgages and the seceding decline in underwriting standards. that conclusion suggests that

the best response would have been regulatory rather than monetary. strong regulation and supervision and the problems with underwriting practices and lenders' risk management would have been a more effective approach for constraining the housing bubble than a general increase in interest rates. moreover, regulators, supervisors, and the private sector could have been discussed about risk-management without having to make a judgment about sustainability of house price increases. the federal reserve and other agencies did make efforts to discuss this. in 2005, we worked with banking regulators on nontraditional mortgages and arm products. in march 2007, we had interagency guidance on a sub- prime lending.

in 2006, we used authority granted to us to issue rules to apply to all mortgage lenders and not just banks. however, these efforts came too late or insufficient to stop underwriting standards and constrain the housing bubble. the lesson i take from this experience is not the financial regulation and supervision are ineffective but that their execution must be better and smarter. the federal reserve is working not only to improve our ability to identify and correct problems in financial institutions but also to move from an institution by institution supervisory approach to one that helps the financial system as a whole. it towards that end, with comparative evaluations across firms and analyses of interactions between firms and markets, we have further strengthen our commitments to

consumer protection and we have strongly advocated financial regulatory reforms such as the creation of the systemic risk council that will reorient our country's overall regulatory structure towards a more systemic approach. the crisis has shown us that indicators such as leverage and liquidity must be evaluated from a system wide perspective as well as the level of individual firms. is there any role for monetary policy in a dressing bottles? economists have pointed out the problem of using these to pop bottles and many of these were illustrated by the recent episode. although price bubbles appears obvious in retrospect, all of them do. in its earlier stages, economists differed drastically over whether prices were sustainable for whether the bubble was a national or merging or in a few markets. an interest-rate increase in

2003 and 2004, it could have weakened the economy at just a time when a recovery from the previous recession was just being established. that being said, having experienced the damage that the bubble can cause, we must be vigilant in ensuring the recent experiences are not repeated. all efforts should be made to strengthen our regulatory system to prevent a recurring crisis and to cushion the effects should another crisis occur. however, if adequate reforms are not made or they are made to insufficient, we must remain open to using monetary policy as a supplementary tool for adjusting risks. proceeding cautiously and keeping in mind the inherent difficulty to that approach, clearly we have much to learn about how best to make monetary policy in this new era. maintaining flexibility and an

open mind will be essential for successful policy-making as we feel our way forward. thank you very much. [applause] [captions copyright national cable satellite corp. 2010] captioned by the national captioning institute --www.ncicap.org-- >> republican and democratic strategists talk about framing political issues and lobbying. sarah similar -- simmons on absentee and early voting. >> tomorrow, american university continues its forum on campaign strategies, some of the topics, climate change, campaign funding and polling research.