forward kind of like when you're in eighth grade, my older brother, i had just finished reading "tale of two city it's request and he was saying that made me worried when i had to read it but i enjoyed the book so much when i got boo it and it just reminds me of this sort of situation that the more negative information people hear about how difficult it is to file your own taxes, they probably don't even attempt to do it themselves. if they did attempt to do it themselves, they would probably find it's easy as pie. . .

caller: it is as straightforward as you can get. host: our next call comes from dayton, ohio. caller: good morning. i've got a very simple solution for complicated question. turned over 60,000 pages of irs into one and simply install a national sales tax. he would not be wasting billions of dollars. -- you would not be wasting billions of dollars by turn to prevent everyone from not paying

uncle sam. why in the world it's something as simple as the tax cut in 1913 become something like this? host: in a moment we'll go live to carnegie where they will discuss the world economy in 2010. we will carry it live for about two hours. while we're waiting we'll take another call. albany, new york on the line for democrats. caller: yes, i do think that prepares should be regulated. there is too much to know these days in taxes for an office to do it. at least if someone is regulated they have responsibility to study, take a test. even with that will happen is that returns might be correct, but they was still a moment a

lot of deductions people could be having. i think that is the biggest problem with the tax code. taxpayers taking advantage of every deduction they are entitled to. host: isn't that what they are supposed to do? caller: yes, but sometimes they're not as successful as a taxpayer would like. a taxpayer would never know. so, i think having prepares to take tests for the irs is a very good first step for accuracy. then we should all move on to getting the biggest deduction we can. host: things for your call. we will go momentarily to the carnegie endowment for international peace. -- thanks for your call. on the panel of representatives

from carnegie as well as the imf, the american enterprise institute, the institute for international finance, and the world bank. back to the phones from tennessee. caller: i don't think this will solve anything. it will add another layer to the complicated process. when you look at test-making that is a separate industry. this will spawn another industry more specialists on how to take a test. host: in the "the new york times yorkex-senator runs for governor in rhode island as independent. the former republican senator from rhode island who lost his seat to a democrat in 2006 despite his family's long term presence in state politics and

not to run for governor there as an independent. his 56 years old and left the republican party after his loss to the democrat saying that the party agenda had grown to conservative. -- had grown too conservative. next, va., on the line for independents. caller: i want to comment on the college and made how we manage to get into the situation from the tax code implemented in 1913. the answer is we decided to mix social programs with tax law. everytime congress passes a new law that has any social ramifications that gets incorporated. it has become a huge mess. it is very difficult to do your own taxes.

i started paying a prepare about five years ago. i have not looked back. it saved me many hours of work each year just to hand over the documents. she is very competent. i don't know what kind of certification she may or may not have, but i have no fears going to her. the answer is really not regulation. it is to decouple the social programs from the tax code. host: will have to leave it there and throw live now to the carnegie endowment. >> and teaching courses at johns hopkins. i am also a non-resident scholar here. this is the first seminar of the year. the title is "happy new year."

the world economy in 2010. there is a question mark behind it. the meaning i think will become clear. the recession we are struggling to get out of this unusual. that is the reason for that? behind the happy new year. -- that is the reason for the question mark behind happen here. these are all heavy hitters in the subject. in order, sitting here -- uri dadush is the director of the international economic programs here. before that he worked for a long time at the world bank or he was responsible for research and

trade policies. and for the publication of the influential will economic outlook publication. next to him we have philip suttle who is the global head of economic research at an institute here in washington, responsible for developing their economic work. and for product develop them. he is the author of many articles published. next to me on the left is jorg decressin, the head of the world economic studies division in the research department of the imf dechlorinates the outlook. he has led a the imf policies

division and a mission to israel. his published widely on capital markets, reform, and stability, and european gross bank. he is also the author of a recent book about integrating europe's financial markets. on my immediate right, desmond lachman. he served as managing director and chief emerging markets strategist at salomon, smith barney. prior to that he was deputy director in the imf, in the policy review development department, and has written extensively on the global economy, u.s. housing market, u.s. dollar. his work at the american enterprise institute is focused on global currency issues. on my far right is hans timmer

who is director of the world bank's development prospects were. under his management they produce the annual publications, global prospects, developing finance, and motrin reports. in addition there is a wide range of forecasting publications that come from the world bank under his supervision. you see we have a panel of heavy hitters on the panel for this seminar. the procedure is slightly different than normal. there will be no lengthy presentations or slides. instead i will ask five different questions. i will ask each of three of the panelists to address each question. they do not know ahead of time which questions i will ask. that is deliberate in order to

create an atmosphere of real discussion to make this summer different from the conventional presentations. after that we will have an opportunity for discussion. that will be for the audience and questions also from the larger audience. the first question -- i will ask three panelists with three minutes each to address it. the first is, as is announced in the program, why did 2009 to not to be better than expected? the persons to my address the question are hans timmer, uri dadush, and jorg decressin. jorg? guest>> was 2009 better than we

expected? let me begin with the observation that 2009 was not a good year. it was one of the greatest recessions we have ever experienced. it is true that we have avoided large disasters. if you look of the current situation even after many economies are coming out of the recession, production levels across the world are still between seven and 10% below before the crisis. unemployment in many is around 10%. there are huge problems emerging for governments. positive growth we see at the

moment is largely driven by temporary factors. by all means this was not a good year even if growth was positive. if you look the forecast, and i cannot talk in detail, because there will be published later on january 21, then you will see that the kind of recovery we're talking about is relatively muted given the size of the decline we have seen. then probably later in the discussion we will talk about the major risks out there still. going back to the question, why was 2009 much better? and would answer with the observation that actually 2009 political reawas a year that grl huge problems and will take several years to solve them.

>> thank you. uri dadush? >> first of all, i agree with hans that 2009 was an awful year. at the same time if you reel back to six to eight months ago we were considering the possibility of the following question -- the bush and now looks remarkably different. we have just finished the third quarter and do not yet have full data for the fourth quarter yet. production is on a sharp recovery path.

one of the fastest growth rate recorded. before i actually explain this better than forecasted of come, there's a marked acceleration in developing countries. if you look of a consensus forecasts made in the middle of 2009 the industrial countries by march are doing better. but only a little better than anticipated six months ago. on the other hand, in the emerging markets particularly, china, india, brazil as the

largest, but several others, the exploration has been significant. the numbers are to% stronger estimated for -- to% stronger for 2009 than estimated in the middle of the year -- 2% stronger. four reasons i will mention briefly. first of all, and the policy measures that were taken were unprecedented, both the financial rescue, fiscal stimulus, and monetary stimulus. they have a virtually no precedent. the aggressiveness of the policy response was extraordinary. the second reason is these

policies by and large worked. not a foregone conclusion. many were very controversial. but if you look at the numbers, the spreads, etc. -- any number of indicators, you have to say we are in enormously better shape then nine months ago. the third factor is the fundamental strength of asia going into this recession and the fact that they were able to respond aggressively. a lot of it had to do with policy in asia. basically the banking sector and household sector and the corporate sector in asia was in very good shape. and has been able to provide a major source of support for the

world. and at the fourth and last factor is that the world avoided the worst contagion effects. what am referring to? to financial contagium. we avoided a serious massive debt crisis. at least so far. this crisis and the past really exacerbated the problem. we avoided under the contagion heading a surge of protectionism. we have had quite a bit, but it has not become a generalized phenomena as it did in the 1970's. >> the last person addressing

the first question is jorg decressin. >> let me first explain what we originally expected to happen. about one year ago, january 2009, we forecasted that the advanced economies would be moving out of recession sometime in the middle of 2010. what has actually happened is quite different. if you look at the advanced economies as a group they posted a growth rate of about 2% in the first quarter of 2009 already. this is a good deal earlier than we expected when year ago. at the same time, traditionally used to be said that if the u.s. catches a cold, then emergency economies catch the flu. it has been different this time.

now in the second quarter of 2009 and a third quarter you observed growth rates of around 8% in them as a group. it's a big difference between asia and latin america. but, hold it is a picture a good deal better than we expected. why is that the case? uri has already alluded to some of the reasons. going back one year" we all did was to underestimate the debt of contraction of the global economy the materialized in the fourth quarter of 2008. we were all puzzled by the deep fault and attributed it to the fear global depression. so, to confidence factors which are very hard to gauge

correctly. we have had a very strong policy response to this fear. exceptional monetary measures with interest rates cut close to zero in many advanced become is with unconventional support for banks made available. we see this as a stimulus deployed. we also see recapitalization of banks and guarantees to get the financial sector running again. this has changed fundamentals on the ground, but also confidence. it is very difficult to forecast confidence. this recovery is off to abuttera better start than expee year ago. >> we're doing well on time. the second question, do you

expect the recovery to continue in 2010, and if so do expected to be l, u, or v shape? i would like to address this question first to desmond lachman. >> you left out letters like w and square root sons. i'm in the camp of people like marty krugman and marty feldstein, expecting the recovery to be extremely subdued. i commit talking about this both at the u.s. and global levels. i would be rather concerned in policy-making circles before us all with a massive stimulus we have had a fiscal stimulus unprecedented and monetary ease

-- 2.2% growth in the third quarter of the year -- the big question arises as to what happens when the stimulus fades? it certainly will fade in the second half of 2010. there's a real risk for double- dip recession . there are extraordinary strong headwinds against u.s. recovery right now. the most notable is the situation in the labour market. not only do we have 10 percentage points of americans out of work, but if you include those working part-time on an involuntary basis and nose discouraged. and if you look of the labor department's -- we are at 17.5%.

that will exert a strong downward pressure on wage and income growth. without that growth there is no possibility of getting a meaningful recovery in consumption. additionally, what federal reserve officials keep alluding to is that we are on the cusp of another big downturn in the commercial property market which could cause real problems in the regional banks. we have a wave of foreclosures the will still hit the residential market. we could get declines in housing that continue. you have a banking system still dysfunctional. they are cutting back on credit, a special to consumers and small and medium-sized enterprises. i do not see the basis for a sharp recovery in the u.s.

a v-shaped recovery is wishful thinking. what i'm really worried about is the situation in europe. what we have now is real tensions emerging in the . i'm not just referring to greece, but to portugal, spain, and ireland. all of those have really got trouble. they're going into big it downturns with double-digit deficits. it will be a huge drug for the global economy. i would not exclude the possibility of a full-blown crisis in those countries and your head. regarding japan, it makes the u.s. budget situation look very

prudent. they of the debt now moving towards 207 gdp and are fighting with deflation. don't expect them to pull us out. in short in an the camp of and l-should recovery at best. >> thank you. when next panelist, will the recovery continues and if so which ship will be? that is pieter bottelier. >> i was a confused on the shape. it is like join the dots. bottom line, if you look at our forecasts we are already seen them in the sense that we have

modest growth in 2007/2008. -- >> philip suttle. >> i think with this kind of interesting these days about the global outlook discussion is really in that most discussion is not about the issue of what comes next. we take it for granted. most of us would that the global economy will grow at something like 2.5% of this year. it is what comes in 2011 and beyond that is key. desmond raise a series of issues i'm sure we will return to. those drive much of the medium term outlook. returning to the 2010 outlook, a

position myself relative to the rest of the panel as an optimist. i would highlight four aspects. unfortunately, our industry tends to be very extrapolate of. we tend to think when things are going well there will continue to, and when things go poorly, that will continue. i'm not sure that is the right way. here are four factors. first, the synchronized nature of the upturn. we have a synchronized downturn very powerful and the fourth quarter of 2008. we have seen a synchronized upturn about six months in duration. will continue for another six months. it will feed on itself as most

do. for the second feature, a point i think very important is the growing role of the emerging markets in leading the expansion. it is not just asia. it is latin america. it is not just east asia. it is parts of south asia as well. even in emerging eastern europe there are some stronger economy is beginning to show signs of vigor, such as poland. the third factor, a big unknown, is the turnaround level to occur in the corporate sector. one way of thinking about the downturn of 2009 is we had corporates adjusting very aggressively. in so doing turn their potentiafootage a position to of

borrowing to substantial surplus. maybe that position will remain for the next six months, but my suspicion is that will increasingly turn into more corporate activity. whether on the capital spending side or the employment side. the test me to my fourth and final point. we will get a turn in the global employment picture. -- that takes me to my fourth and final point. desmond is the high unemployment and weak labor market as a reason for extended weakness. i would turn it on its head and say as the economy picks up in the u.s. we will see a turn in labor market conditions. we already see it in the high- frequency indicators. it will become global. in some of the hiring surveys we look at we see the global employment picture potentially looking much better by the middle of 2010. that is not saying that

unemployment will go away. we seem to be coming to an election point. >> you have heard two very contrasting views. i'm curious uri would you feel on whether the recovery will continue? >> my view is that of course the recovery i believe will continue certainly in the course of 2010. i'm much closer to phil, probably even a little more optimistic, then to desmond.

i have four factors to say that we have in the advanced economies at least a u-shaped recovery, not necessarily a sharp v. but" easily .5% better than consensus. my four factors overlapped acquitted agree with phil's. the first is the push by the emerging markets. -- my four factors overlapped quite to a great degree with phil's.

they did not have a massive banking crisis or a financial crisis of the classical type. they suffered a large external shock, but by and large their financial sectors remained whole. if you look of the three largest emerging economies -- china, india, and brazil, they are basically somewhere near their long-term growth path. even in to those nine there are a little below, but not much. the underlying momentum in the part of the world is very strong. war is driven by domestic demand. less by exports. -- more of it is driven by

domestic demand. the second factor is that i am very impressed by thought the speed at which the non-financial corporate sector has reacted here in the u.s. there's a lot of evidence that employment has been cut very rapidly and more significantly than warranted by demand. this is reflected -- and so has investment in inventories. this is reflected in much better than expected earnings. earnings of non-financial corporates. but only in the u.s. by europe.

this suggests to me along with many others, unexpected turn in the employment picture. especially given the latest numbers coming from the pmi's that suggests we're still on the strong expansion path. the other two factors devi will point to that go beyond or are different from phil's -- policies remain supportive in 2010. a large part of the stimulus package is still to be spent. rmb -- only about one-third has been spent.

financial support to the banking system remains. i'm encouraged by the fact that the largest banks in the u.s. and europe are repaying the government. unless you are convinced that the new boards and ceos of them are suicidal you have to assume they're looking at their businesses. the third and most important factor in policy is i believe the power of monetary policy has increased very significantly in the last six months. one year ago you could argue that we were in a liquidity trap. lowering interest rates did not matter much because risk aversion was so extreme. all indicators of risk aversion have come down.

the historically low rates are now having an important positive impact on economic activity. and will in the foreseeable future for 2010. finally, just briefly, we're coming off a situation where all deferrable expenditures were deferred. we deferred capital expenditures, cars, as is, the buildup of inventories. all you need is for some improvement in those deferrable items compared to the large declines from to the ninth to seek rapid growth for 2010. >> my next question deals with

something various panelists have already commented on. that is the difference in recover performance between the established, industrialized countries and the emerging economies. my question really is, how do we explain that and what is the outlook for the near-term future for these two major groups? the first person is hans timmer. >> phil said and that the recovery is a synchronized in nature. that of course is true. we were talking about a global downturn and recovered. the fact that is synchronized has a lot to do with the functioning of the markets. given that it is interesting to

see there are major differences between the emerging economies and the rich ones. and their major differences within the developing world. half a year ago in a panel here and made two points. one is that the recovery will be relatively muted given the size of the fall in production. the second observation was that the strength will depend on the emerging economies because they had become the driver of growth in the world. that is especially true for emerging asia. if you look at their contribution to growth, not their size -- their contribution was more than 50% during the

time before the crisis. more importantly, a contribution to growth and investment is significantly larger than that of the other countries. this crisis was characterized by a sharp movement in investments. a huge fall came from investment also. the recovery is driven by the turn up in production in emerging asia to a large extent because of the stimulus in china. if you look at their import growth that is probably faster than in history in recent months, much faster than their export growth. it pulls the region of the recession also. their production levels are now higher than before the crisis. in the high income countries

russia's still 12.5% below before the crisis. despite the fact of the this synchronized to see a big difference -- despite the fact that it is synchronized. within the emerging economies there is a major difference become a recovery we see in asia is not there in central europe. despite the fact that poland is relatively solid and performance. there are still many countries where recovery is hardly there. the drop in production has stopped with no clear signs of recovery. latin america is very diverse. a strong recovery in brazil.

the fall in production there was also strong. in a country with a strong policies like chile would do not see strong recovery it. we're concerned about the low income countries. they were not that much impacted by the crisis with fall in production. much more so by the fall in income because of the fall in commodity prices. we expect the impact of the crisis is more for the medium run it in those low-income countries. they do not have the fiscal space to respond to the events. many of the mechanisms important in those come with the dynamics of poverty. it is a diverse picture.

what is positive is that emerging asia is playing a leading role forecasted. >> not the only emerging asia, but several other large emerging economies are doing better. my next panelist is desmond. what explains this remarkable difference in performance between larger emerging economies in 2009 then be established, industrialized economy? what lies ahead? >> before i address that i would just like to go back to some points that have been raised earlier. something being missed is the very different nature of this recession one of its features of is the damage it has done to banking. imf estimates suggest we have still got losses that have to be

recognized. the u.s. and european banking sector or cutting down on credit. despite what the fed is doing we have a reduction in credit particularly to consumers and smaller enterprises. research done by roebuck and reinhardt and their 800 years of financial follies suggest that we have major crises of this sort you're recoveries and tend to be very shallow. you have risk of having another leg down. another point i would like to make is on the employment situation. certainly you're not going to get unemployment continuing to rise. but we will have for 2010 is economies like the u.s. being characterized by unemployment average close to 10%.

as long as that exists you have downward pressure on and comes. that will make it difficult for recovery. as to emerging-market, i greet the fundamentals of many are a lot better than the industrialized ones. most notably, better public finances. the deficits are much smaller. the levels of debt or something like half. in the industrialized countries they are near 100 but the emerging ones are close to 50% of gdp. those in asia and let america -- latin america have learned from

past crises is better to have their finances in better shape so they can weather a recession like this well. the emerging markets are benefiting from a couple of factors i am not sure will persist for 2010. if michael is correct that you won't get much global recovery, that is. commodity prices have boomed in the way we have not seen in the postwar period. there also benefiting from risk taking returning on expectation that you will get a v-shifter cribbing that if you do not get a v and you get risk-shaped recovery returning, you'll begin to see problems are emerging in places like eastern europe.

you did the ukraine, bulgaria -- the eastern periphery of europe is likely to be in trouble. -- you do get ukraine and bulgaria and those types in trouble. china has surprises and a positive way by its rapid growth in 2009. -- china has surprised us in a positive way. the question i have is whether for 2010 we will not see problems emerging for the global economy from the chinese situation. i am referring to much of the stimulus package going to build up additional excess capacity which will come on stream at a time that europe and the u.s.

will have high unemployment levels. that may not be a positive development for the world economy. you will see a heightened protectionist measures. you already have them now. if china will provide additional supply, that will make life difficult for the u.s. and europe. >> my final panelist on this question, what is the explanation for the difference between the large, emerging economies and what lies ahead? >> let me talk first about similarities and then talk about differences. on similarities, if you look at growth rates in advanced economies for 2007 they were somewhere around 3%. in to does a 9 there were - 3%.

that is a 6% difference. -- in 2009 they were - 3%. i would much rather have 2% growth they and - 3% growth of the emerging economies. that leads me to the dissimilar it. fundamentally, the structural growth prospects of the emerging economists are good deal stronger than those of the advanced ones. in fact if you look up what happened to the emerging economies during the downturn they did much better than in previous downturns. why is that the case? many are tapping production potential that has remained bottled up for many years beforehand.

that is via market-from the reforms. they have learned from past mistakes and typically have a conservative approach toward regulation of their financial sectors. the third aspect is in terms of market policies and have also had a conservative approach. as a group that went into the downturn with a broadly balanced budgets. they had plenty of ammunition to practice counter-cyclical policy. all these things together make for a fundamentally stronger performance than that of the advanced economies. this is largely the way it should be. in economiceconomics over israel long periods, typically poor countries grow faster as long as the but the right conditions in

place in economics historically over long periods. there is also a good deal of [unintelligible] you have examples that are fairly successful even in these economies. contrast this with the advanced economies. we're looking at very high, rising unemployment rates the much of this year which will weigh heavily on growth. this will contrasts greatly with those from previous decades. what is the repercussion of

these differences in their outlooks? capital increasingly is knocking on the doors of emerging economies looking for investment opportunities. the growth fundamentals are stronger and yields are higher. in ways there policies have been quite prudent. >> the third question i would like panelists to address even though you may have already hinted at it or spoken explicitly about it is" really major risks do you seek? and what degree of confidence do you have for your expectations? the first person of like to address it is uri dadush. >> ok, first of all there are downside risks to this forecast.

let's take a consensus. there are both upside and downside risks. i want to stress that. it is not just about downside risks. the second thing, the gamut of possible outcomes is more narrow than it was between six and nine months ago. essentially because the likelihood of relapsing to major recession is much lower. upside risks first, and then the downside risks.

the upside risks relate upside"phil said about synchronized recovery. it's a long history of forecasting records that suggests there is a lot of inertia and economic forecasts so that we miss turning points. when things are going up we tend to underestimate the speed. when things are going down as they did until recently we tend to underestimate that speed at which the go down. we are in a turning point of situation and it is a synchronized recovery around the world which countered the upside risks which are a strong synergistic effect.

the implication is you want to worry about the inflationary pressures building up. you want to worry about the asset bubbles building. this is a country by country situation. it is difficult to generalize. i did want to emphasize the upside risks. the downside risks to the forecast primarily come from economic policy. here i would highlight two things. one is the withdrawal of stimulus and how will happen, and whether the private sector will be by then strong enough to support the economy going for it. the other is protectionism.

-- support the economy going forward. on the withdrawal of stimulus i think the risk coming from the fiscal cider relatively modest. first of all, effect in the advanced countries has not been that large. second, this is a very sticky policy lever which will not turn on a dime. the way the withdrawal of financial rescue is happening is minimizing risk. in the sense that it is responding to market situations. it is allowing the banks to come and say we do not need all this help. i think that is the right way to do it. where de risks are much more significant is in the

inevitable increase in policy rates. history teaches here again that when you are in the situation inevitably will uncover weaknesses. we're in a position where the world economy continues to be fragile. those weaknesses whether dubai or whatever are out there. they will be uncovered as interest rates rise. the way it is done is very critical. a word about protectionism. so far we have kept it under control. i am becoming more worried about the china slashed u.s. relationship. most recently it was steel and

more recently tires. the chinese have done their share as well. hear that situation and think it bears careful watching. i could say more about it but i will stop there. >> the next panelist to address the question is philip suttle of the institute of international finance. in your earlier comments you have tended to emphasize the more hopeful, optimistic aspects of the situation. what do you see as the risks? >> the issue of timing. in the near term they're probably more upside risks than downside once. a lot of that is things uri and

i have been talking about. as a look further out it is easier to see downside risk. i don't think it is an absolute thing. the discussion is a function of the time horizon. if i can have my cake and eat it in emphasizing near-term strength but returmedium term vulnerabilities. i will focus on the dollar bill is. the second half of 2010. some of these have been touched on. it seems like four is the magic number. i would like to say hi to all the viewers in poland who we seem to be pandering to at the moment. [laughter] the first which no one has mentioned yet is oil. if you think about what gives

you a global recession -- it so happens that oil and lehman brothers came together so is difficult to distinguish, but if we see a live above it dollars per barrel, that would be something to add significant medium-term downside risk. second, the fiscal issue. we can talk about it all day. . .

>> if they are opposed to early, it could act as a severe constraint on the ability of the banks -- of the banking and finance system to finance a recovery. if we get aggressive actions to curtail bank activity, that will come at a significant cost to the economy in the near term. >> my last question -- presenter on this is desmond lachman. i will rephrase his question since most of you have answered already. are there any upside to? [laughter] >> there are two of sites that i can think of, one of which is that you get a sharp decline in commodity prices, especially oil. that could be really helpful.

that could be equivalent to a tax cut for the industrialized countries. that could be helpful. the other upside risk that i can think of is that policy -- policy makers miraculously get their act together and engage in proper coordinated policy response. i think that is the top of early withdrawal from stimulus package as the downside risk. the upside risk is if we would really started talking about a stimulus package in the united states that was coupled -- and i stress this point -- that was coupled with an indication of how we are going to deal with the united states' medium term budget problems. we will see the largest buildup in peacetime public debt. how we deal with that is critical.

i was talking about an "l" shaped recovery, i was not really focusing on the downside risks that i see. i would say some of them have been mentioned and have a very good chance of materializing in 200010. -- in 2010. the middle of 2010 is the short term. the long term is beyond 2010. the full risks that i would indicate -- the four risks that i would indicate, and i would put them in the order of the way i worry about them. the first is the situation in europe. philip correctly mentioned parallels with the convertibility plan. these countries really have to be dealing with budget deficits that are in double digits in the

middle of a recession without having an exchange rate mechanism or independent monetary policy to deal with it. that is a risk. that is a train wreck waiting to happen. the noises we are getting about greece really should be the canary in a coal mine. spain is the key one that i'm worried about, and portugal. i think we could really get a full-blown crisis in the eurozone. the second i would refer to is oil. i would just note in passing, and i do not want to delve into politics, but the u.s. is fighting two major wars in the middle east and iran is on its way to nuclear weapons. who knows what could happen in the middle east. you could get a supply disruption. that could be the death knell for the global economy. the third list that i see and in

which i notice the federal reserve officials keep talking about is what is happening in the commercial real-estate market. you've got $500 billion of commercial real-estate loans coming due in 2010. if those loans do not roll off, as many of them will not, we will get another leg down in the commercial real-estate market. that will have a damaging impact on the regional banks of the united states. half of their portfolio is in commercial real estate. the last thing we need is to get a credit crunch in with the regional banks, which supply credit to the small and medium -- medium enterprises, which are most of the employment. the fourth risk to which we have

alluded is the idea of protectionism. 2010 is an election year in the united states. a veteran of some of persists in fixing it as exchange rate now -- if china somehow persist in fixing its exchange rate now, it is really a red flag in anticipation to having protectionism ramping up. if we've learned anything from the great depression and, that is not very healthy. for the prospects of getting out of the mess we are currently in. >> we are running slightly over time, so i'm going to ask three respondents to my last question to really discipline themselves. imagine yourself in a meeting where you have a chance to address the g-243 minutes. -- the g-20 for 3 minutes. what is being done and what has already been done to promote the recovery in emerging

economies? if you wish to select any particular country or group of countries for recommendations you are free to do so. the first panelist i was asked to address the question is george decressin -- jordag decressin. >> the first -- tichenor them down to three. the first is to shift from public sources to private sources. the second is to engineer a shift in demand from countries that have had large increases in asset prices and housing booms and have relied on domestic demand to stimulate growth. the two countries that have mostly relied on exports in order to -- to stimulate growth to countries that have most about on exports in order to stimulate growth. and the third challenge is that

we need to repair the financial assistance in many advanced economies and up the same time also affect challenges on the supply side of these economies. realistic and financial services will be less important to asset growth in the future and the resources that are free from the services will need to be employed gainfully elsewhere. these are the three challengers. given where we are right now, what would we recommend a policy makers do? first, fiscal policy in our view needs to stay accommodative. at this stage, private demand is not yet strong enough to carry this recovery. and there are, however, as some have alluded, risks and building up in a sovereign and debt markets and they bear watching. what does this mean for the strategy that governments should adopt with respect to fiscal

policy? it means we need to stay supportive now, but the same time address medium and longer run challenges. i give you a great example. if in the advanced economies you were suddenly to link step toward retirement ages to life expectancy, right, this exist in some economies, but not in all. economies, it would do a lot in terms of addressing future fiscal imbalances, expanding -- expanding expenditures in the future and it would give markets the assurance that the expansion that we see right now in fiscal policy will be contained, that the debt we are building up right now will be rolled back. but at the same time, this type of measure would not depress demand today. it would still help the government's support the private-sector. but there are other examples of

policy. in the advanced economies, unemployment is going to be the higher rising in 2010. the third challenge is to deal with the financial sector. there is good news if banks are paying back what governments have lent to them. but what we're really concerned about is that they rebuild their capital and restart lending. these other two things that we need to monitor -- now, progress is being made in that respect but there's still more to be done in the banking sector afford to be a strong supporter of growth in the future. if more is not done, then one can see this economy running into a bottleneck as a credit demand picks up again. these are the challenges that policymakers face. then there is another aspect, which is that we need to shift demand from countries like u.s.

because this savings are rising in these countries were consumption is being cut back. that concerns a number of emergency -- the emerging economies and what we are looking for there is to basically boost consumption. the boards of all, reforms to social safety nets, but there is -- for example, reforms to social safety nets, but there is a range of other things to be done. it is a complex in agenda. progress is being made. the g-20 in that regard is major good news for the global -- for those that are very much supportive of coordinating global policies. >> thank you. next, hans timmer of the world bank. you have the audience of the g- 20. >> thank you very much. i think the biggest challenge for policy makers, including

those of the g-20, is to transition from short-term firefighting as if there is no tomorrow to medium and long-term growth strategies. that does not mean the fire fighting is not important because you can prevent having your house burned down. it does not also mean that premature the you should stop extinguishing the fire. but with the turnaround of the global economy at the moment, with the fact that the acute phase of the crisis is over, we really have to focus to the medium term because with firefighting you are not developing the new terms. there are three reasons, i think, by that tradition is so important. the first one is -- why that transition is so important. the first one is that there are

series of limits to short-term -- there are serious limits to short-term stimulus programs. there is still some plested -- some fiscal stimulus in the pipeline. in the u.s. we believe spend one-third of the amount allocated. this year we could spend another one-third. it should be clear that by spending the same amount as last year you are not generating growth you are just preventing, that there is no negative impact of a withdrawal of the stimulus. and we have seen that in the 1990's i just with fiscal stimulus you are not creating growth in the economy. it is only very short-term debt kind of a policy is effective. -- that kind of a policy is effective. but already now, we're very worried about the dollar carried trade and the asset price

inflation that might come in several countries. you have to quickly find other sources of gross. those are the first reasons, a limit to the kind of policies that have been put in place until now. the second reason is that it is very important to restore confidence in the global economy. and you restore confidence not by continuing to spend as if there is no tomorrow, but by being very medium in the credit crunch. by putting on the table fiscal policies that are really sustainable. by making sure you can take away the bottom ask for further growth, that there is enough money for the infrastructure projects that are needed to accommodate do -- accommodate the growth. and a third reason that i think is the most important one is that this is the kind of crisis that has the potential to create lasting structural changes. this is not a normal prices were you have to look for a turning

point which is very difficult to miss at the moment and then everything is ok again. this is the kind of crisis that will change the global economic landscape -- landscaped probably forever. it is true in financial markets. it is true also for production patterns. this is the kind of crisis were whole industries in certain countries can disappear and suddenly lose it against industries in emersion economies. that means that as policy makers -- in emerging economies. that means as policymakers do have to open the way to create new growth. in that respect, i'm very worried that policy makers cannot get a consensus, for example, of effective climate change policies. those are actually the kind of policies that are needed to create a much more stable and predictable environment and

there is no decisive action there. and if there would be predictable and decisive action, you could create in high-income countries new growth industries, the so-called green industries, and you could create new opportunities in the sense that there is a new way of securing -- of creating energy security. it is not just about climate change. it is also about the global policymakers been able to guide the longer-term road forward. >> thank you, haunts. -- hans. philip suttle, you have the last word. what are your recommendations to make the economy more sustainable and more robust? >> first, i agree with most of the points that have been said. i think it is fair that what we need to maintain stability of policies, both monetary and

fiscal for the very near term, there are clear indications and costs that we have been talking about for keeping on pushing. i think the will quantitatively easing strategy, which both the fed and the bank of england in patika there have adopted, is frankly, a bit of an experiment and we need to be cautious as we look out over the next year or so about how the strategy is implemented. i think there are some considerable financial risks associated with what both central banks have been doing. but i think to try to summarize a lot of what has been set, i think there are three sets of principles, if you like. i would play them out today to the g-20 ministers here. they're all very obvious point, but the first is, make sure policy is forward-looking. do not try to fight the battles of the past two much -- too

much. i often hear policymakers making statements about what needs to be done and it is what they really wish they had done in 2004, 2005, 2006. well, that is too late. you did not do it. you messed up and let's move on. [laughter] let's think about what can be done from a forward-looking perspective, taking the existing structures that is given. the second is to recognize consistency and try for consistency. that is another way of saying, try for policy coordination. i think there're two consistency concerns that i have to give you illustrations. one is the obvious one of china running one monetary policy, the u.s. running and other military -- other monetary policy and trying to find a fixed rate exchange between the two. you need to have some give-and- take. in that context, you need

chinese currency flexibility. that is an illustration. that is not my main point. but it is an illustration of at the moment, the g-20 policy statements are loaded with consistency issues. and another illustration picks up on a point that he just made, he just said, the banks need more capital, but they must land. actually, what really must happen according to some of the new rules that are coming out, is the capital ratios will be going up. the simplest way and most like the way of that happening is for banks to restrain asset growth. the reader want one or the other. it is very hard to get them both. do not aim for an inconsistent outcome. in for consistency. and mike -- aima for consistency. and my third point, which picks up on one of hnas' points is

that we need to recognize that the world is in flux here. there is a need for supply-side flexibility. that means giving up certain things as well as gaining things. i think that hans' point about green jobs and the shift to the climate change issue is a perfect example. >> thank you, philip. i would like to thank all of the panelists for their contributions to these five crucial questions. we have about 40 minutes left for discussion and i would like to open it up to questions from the audience. i would like to invite you to state your name and affiliation, wait for the microphone to a rise, and state your question very concisely. and if possible, identify the panelist to whom the question is addressed, otherwise, i will therefore you. [laughter] -- i will do that for you. [laughter]

>> first, thank you very much to the moderator and the panelists. this has been a very rich discussion. i just cannot resist following up on numerous, let -- comments about protectionism. i was wondering if you could elaborate a bit more about the risks. i would like to give you an opportunity to address that issue with a bit more time. >> the first point is that protectionism has been kept relatively under control. virtually all the g-20 countries have engaged in protectionist measures of various types. in the united states, you know, the buy america provisions, and there have been a couple of other issues, and if you go

across the g20 -- the d-20, you will find a number of these -- the g-20, you'll find a number of these in just about every country. this remains a continuing phenomenon. there has been very little of across the board tariff increases. there on specific products, etc. -- they are on specific products, and etc. part of this is wto disciplines. but a buteo -- the wto disciplines a lot more on developing countries ban on their lunch countries. they could raise taxes on water and still stay the buteo compliant. the buteo disciplines are still out there because of the

possible threat of dispute settlement. but i think in the end -- wto disciplines are still out there because of the possible threat of dispute settlements. but in the end, i think it is not the threat of the disciplines that are out there that can be gotten around in various ways. it is about two things. it is about the memory of what happened before and it is about the political pressure. i happen to believe, and i wrote about nine months ago on this issue, that if we had not managed to control the global recession and the possibility of depression that occurred that the protectionist pressures would have become very great and in some cases, perhaps, overwhelming. this is one important factor.

if you believe desmond, then be very concerned about protectionism. it is very contingent, in my view, on the state of the economy. let me say one more thing. while i agree that we need exchange rate flexibility in china and we need some exchange- rate appreciation in the asian countries in general, and this will make it a lot easier to manage the growing gap that exists between the potential of gross -- the potential of growth in industrial and growing countries, i think the central question at the moment has a number of risks. one of them is exactly to animate, to add to the protectionist rhetoric and so

on. and the other is essentially to take the heat off the real questions, which underlie these global imbalances, which actually have more to do with fiscal policies in the united states, household savings rates in the united states, and distortions within china which artificially inflated the savings rate in china than it has to do with the international exchange. the international exchange is some of the way these economies are adapting to these pressures and to these distortions which really have to do with domestic policy. >> since the issue of protectionism is so important and potentially so treacherous, i would like to ask if the panelists have comments on that

question. >> may i make a point, which is a bit of a variant on it, i think the -- it had actually been promoted in the official sector, were saying one way to make our system safer is to ring fenced it. that uc especially in europe. it is in a way -- that you can see especially in europe. it is in a way to understand because you can see the way some of the smaller countries in europe are experiencing cross border difficulties with banking. if you go down that route and impose protectionism in financial services, then it carries with it some pretty negative implications. there's a lot of growth in emerging markets in recent years that has come from the opening up of financial systems and the introduction of best practices -- maybe that is not the right phrase, but certain

practices from the mature economies into the emerging economies. >> i would like to move to the next question. this gentleman on the second row. >> my name is james bond and i work at a meter, which is part of the world bank group. we spent a lot of time on the financial crisis. my question is to philip suttle, and i want to ask him what will happen to the pace in europe, portugal, italy, ireland, greece and spain. in terms of what an unwinding of the eurozone would look like if it became unmanageable and the whole place falls apart. >> good question, and i'm sure desmond will have comments about this as well. i worry because precisely those links are so tied. you know, we have legal structures and physical structures that are not easy to on one, compared to, say,

argentina going off -- or britain during of gold in 1991. i think what it leads one to is the conclusion that -- i will not use the akron, but those countries that you mentioned, they have to tough it out. you would have to use multi year austerity. you could say that we have used that before and it turned out not too bad. ireland being one itself, it achieved a massive reduction in its budget deficit in the 1980's over a number of years and somehow the country survived and even flourished out of it. but then, you have the ability to convert interest rates. they started out high and converged on german levels. you also had the opening up the

of the economy to a massive influence of the fdi. none of those financial support seem to be there. it seems like this -- these countries are in more for austerity on the fiscal side for an extended time frame. >> i was trying to strike an optimistic nerf -- [laughter] until the question was raised. i do not think it is a question of if this is going to happen. i think it is more a question of when it is going to happen. basically, the stakes are incredibly high. the reason is that if any of these countries would be forced out of the row and have to be borrowing in their own currency, what that would mean is instant defaults on sovereign debt. what we're talking about is not a small country like dubai or iceland or something of that sort. we're talking by a series

countries, something like spain, which is very large. you are talking about a huge amount of debt. it would sink the whole of the european banking system. it would be real armageddon. that is the reason that the dot ecb is going to -- that the ecb is going to fight it. we're talking about insolvency issues, sustainability issues. the prospect of this kind of cataclysm happening in europe is going to force the ecb to continue pumping money into it. the reason i am pessimistic about from a long-term point of view is the size of the imbalances involved and most importantly the amount of international competitiveness that these countries have lost. if you're looking at countries like ireland, portugal, greece, spain, they have lost something

like 30% of competitiveness against germany. what they have got to do is not regain the competitiveness against a country that does not believe in inflation. what it means is that you have actually got to get prices and wages falling by 30%, which is then going to complicate their fiscal problem. unfortunately, when you get to my stage -- the stage that i am in my career, you know, you have been to this movie a number of times and the last rendition of this movie i saw was the argentine convertibility plan, which everybody said would not fall apart. and when it did fall apart, you really have to get to follow. the inconsistencies are just so great. if you try to go the austerity route, you know, you try to tie it into your budget, you drive your economy down. if you drive your economy down, you lose your tax base.

you cannot gain much by the tightening. i think this is a fool's errand. but the way in which it will pay out is that the ecb will continue kicking the can forward until they realize it is not just greece, but four or five countries that will be a huge transfer from the north of europe to the south of here. this will have a political dynamic of its own. i cannot imagine that spaniards are going to tolerate unemployment at 20% and rising forever. it will be asking if there is a what -- a better way. that is basically what occurred in argentina. >> maybe we should schedule a seminar like this on the future of europe. you can invite desmond again. the next question from the audience. >> very would, rghg in hong

kong. i would add -- i would like to ask for a look about the power shifting to the emerging markets. why do you really think that is happening? it is not just that in the united states, is it? -- the debt in the united states, is it? i am not persuaded that the domestic demand is going to rise in china and brazil and, thus, sustain this. if the u.s. is going to grow at a new level, aren't we going to see commodity prices declined? -- commodity prices decline from these current levels? >> do you want to go first, hans? >> why is it happening? let me first say why it is not happening. many people think that this was

happening because of export growth, because of peter manipulation of currencies or through other -- because of peter manipulation of currencies or to other factors, such as stimulation in china, for example, these economies were igrowing by exporting. that is a mystery of the data, in my opinion. -- a miss reread of the data coe out in my opinion. i would say that line of thinking is another danger because the trading system as we know it. we talk about protectionism and we talk about limiting the imports. there's a lot of discussion about rethinking export growth, which could also be against the trading system.

it is in his read of the data. -- a misread of the data. two to three times as fast as the high-income countries in places like china. the accelerated their growth while nothing was happening in the high-income countries. growth was not excellus ready and import demand was not accelerating. this was basically -- was not accelerating and import demand was not accelerating. this was basically happening while there was productivity potential they have not used yet. taron enormous increase in productivity and, with that, is -- an increase in supply of profits, they were gaining market share and ever-increasing their trade. but not only their exports, but also their imports. as i said to my think earlier on, if you look at china at the moment, despite all the

discussion about their exchange- rate manipulation, their imports are actually growing much faster at the moment than their exports. this was happening because of reforms in their economies which enabled them to catch up in productivity level to what was already achieved in other countries. this created a huge growth potential and made it possible to grow with limited inflation and actually kept inflation very low all over the world. as a result of this process, they have become very important not only for their a -- their own economies, but actually, very important for the world economy as a whole. in 2007, it was a very good illustration of that. the recession, or the downturn in the united states started in early 2007, or you could argue that the end of 2006. that was the moment that housing

prices started falling. as a result of that in 2007, there was no growth in consumption. there was no growth in importing into the united states, and still, the united states was growing because there was no export growth to a large extent, there was a gross of export growth going to be emerging economies. it was a good illustration that not only did the rest of the world depend on the u.s. consumer, but actually, the u.s. guard depending on investor demand in the rest of the world. -- the u.s. started depending on investor demand and the rest of the world. and what happened with the lehman brothers crisis is that suddenly that dynamics stock. everywhere in the world people stopped investing -- dynamic stopped. everywhere in the world people stopped investing.

it affected especially japan because they're so specialized in their products. for the world declined -- economy to grow again, you need to go back to very fast growth in emerging economies. the danger is that too much, perhaps, in the short run is still driven -- driven by stimulus. and there is more needed to go back to the very fast growth that we saw before the crisis. but it is a real phenomena and is home grown. >> very quickly, the image that i have been pushing, and living with for the last couple of years is that this is a world turned upside down in so many ways, not the least of which is we actually have the official sector in the emerging world supporting banks in the mature world. that is a tremendous inversion of the official capital active

in the 1990's. but i think, the point i would really highlight youhere is thai came into this business in the early 1980's and the first part of my career, the world was about financial crises in the developing world. starting with the ldc debt crisis and the more extreme crises in the 19th -- the 1990's. an amateur world was smug and kind of ticking along. sometimes it did well, sometimes it did poorly. inflation was a concern and of this. but the emerging world was a world of financial instability. china was a bit of an exception, but it was occurring particularly in latin america. i think we have seen a dramatic conversion of the financial instability. -- conversion of the financial instability. a big part of the market's strength is the benefit that this region is now enjoying,

from the long run, and reads the bushmen of financial stability. it is very paradoxical because that benefit is coming from the very time we in the richer world are suffering financial instability. it need not have happened that way, but it has. brazil is a very good example. after many years of hyperinflation and total destruction of not just the capital markets, but also their banking system, for the last 10, 15 years they have gradually reestablished an orderly financial system. the long run benefits of that in the form of financing to the broader economy, but especially to the corporate sector, those benefits are just coming through now and coming through strongly. and it just so happens that it is coming at a time that the mature markets are going in another direction. is that sustainable? it probably is. but it is not inevitably sustainable and it very much

will be a function of will they get back into the bad habits that they themselves got into in the 1970's and that we clearly got into in the last decade? that is a policy challenge point, one of the big issues that we face in the world. reestablishing financial conditions in the mature markets, but also ensuring that the boy and financial conditions that we have out there in many of the emerging markets, we need to be sure that those do not to become over -- to overheated. -- too overheated. >> the next question to the gentleman in the middle there. >> i'm john ring from morgan stanley. the panel has not talked about tax policy at all. i have two questions, peter. the first is, do you think that governments will ignore growing evidence that low tax rates foster economic growth in interest of fiscal austerity -- austerity going forward?

secondly, as an economist, do you think that you should be considering a higher tax rates in your growth forecast going forward? >> this is an increase -- an easy question. [laughter] jorg, you are the most obvious candidates to have a first go at this one. >> it is clear that a good deal of fiscal adjustment needs to take place. i've already said that. ideally, it should be performed along two dimensions. one is on entitlement systems and one is actual adjustment. when it comes to actual adjustment, everything has to be on the table. expenditures, cuts, tax increases. the relationship is complex. it is not straightforward. there are many ways in which you can raise more revenues without altering growth. what you really want to do is remove forms of taxation that end up being distortion mary, or eliminate subsidies, or tax

expenditures, as we call them. it is really the interaction between -- what i want to leave you with is the interaction between the tax system and growth is complex and is a function not only of the tax rate, but the structure of this tax system. i'm convinced that in many countries you can in chief -- you can achieve improvements that will also bring about more revenue and at the same time not hurt growth. but that will mean taking on special interests and all kinds of things that are very tough in the political agreement. >> desmond, would you like to add? >> i think the question raised is a great question because it really raises the issue of what is going to happen to potential is going to happen to potential no carrierringno carrierringcon0

frankly worried about the rating agencies indicating that if the united states does not come up

with the medium term adjustment plan the united states could lose its aaa ratings. i just do not see a way around having to engage in expenditure cuts, revenue, increases to put the public finances on a bit of a better footing. otherwise, what we would be doing is just inviting a major crisis down the road. >> do you have supplemental comments on this critical question? too controversial? >> no, i think these are very good comments. i do not have much to add. >> next question to the audience -- from the audience. >> i am from cctv china central television reason. i have a question for mr. dadush. you have mentioned that china

needs to improve its international influence in the world. i want to know how. you have specific suggestions for the chinese policy makers? >> my observation is a longstanding one that comes from many years spent in frustration trying to nudge the doha negotiations along. and noticing two things. one, china is pretty much destined to to be the world's largest trading nation. it is not already, it is going to be within the next several years. -- if it is not already, it is going to be within the next several years. and that, in a sense, is trade

power. if you relate it to this concept, you know, britain was the free trade power in much of the modest -- in the 19th century. the united states was the free trade power in a good part of the second half of the 20th century. and the free trade power is basically the world's largest trader, but it is also a competitive trader. it is a trader that is confident. my point about china is that they could be doing more, could have done more to promote the doha negotiations and to recognize that no country has a greater interest than china in a free trading system.

those were the particular point comes. but i think the point could increasingly become generalized. in so many areas. in climate change, china is now the biggest emitter of carbon dioxide. and of greenhouse gases. therefore, moving forward on the climate change negotiations will not happen unless china, together with the united states of course, which is the second largest emitter, come to some sort of agreement, especially since these two countries are the opposite -- in some sense, are at the opposite side of the spectrum, developed and undeveloped.

it is really a point about china recognizing, on the one hand, is growing influence -- and i think this is obviously happening -- but on the other happening -- but on the other hand, recognizingno carrierring0

defuse the protectionist pressures that are becoming more and more important. but it is very important and it will help china to move in that direction. >> if i may add, because i am to focus on the china questions almost full time -- even though i am the moderator -- and i completely agree with his response, but i would like to add one other comment. many of the leaders in china still have to become used to the idea that china has become a

major factor in the world in every dimension. it is almost certainly already the second-largest economy in whatever way you measure it. it is probably the largest trader, the largest co2 emitter, and so on and so on. but in the minds of the senior people, china still is struggling, developing country that has to do -- to fend for itself. china has to adopt the mindset where it is, accept the role of a major player in all dimensions of the world economy. with regard to specific recommendations, the comment i would like to make is beis that the exchange rate, and i support, but still it is not all important for different reasons. i believe a flexibleization of i believe a flexibleization of the exchange rateno carrierring0

demand. that will be good for all of us. next question. this gentleman. >> bob davis with the wall street journal. the we have talked for years and years about how growth in the rich countries affects in a positive fashion growth in emerging markets. i am wondering in the context of the u.s., where most everyone here thinks there will be slow, two of these moderate growth, what are the linkages from the

emerging markets to the u.s. in such a way that you can see -- or are there such linkages that you can see 8% or 9% growth in china affecting positively growth in the u.s.? >> the linkages, throughñr the trading system. these emerging economies, although they are -- of their weight in global gdp has been rising very rapidly and we are focused on that, we also have a waiting in global consumption. it is small relative to the way they have in global gdp, but still appreciable. if you have consumption growth rates on the order of 8%, 9% in china, this does make a difference for the u.s. economy. that said, if you put this into perspective and you realize that

the extent to which the emerging economies can do something for the advanced economies, it is still relatively limited. let me give you some numbers. if you take consumption in all of the country's that ahead of this crisis have been running current account deficits and are now experiencing increases in savings rate that are quite large, too, these economies are comprised like the u.s., the u.s., the u.k., portugal, ireland, greece, spain --ñi the acronym is a badçó acronym, really. if you take consumption in all of them and you put in their relation to consumption in china. the trend -- the consumption in china as one-third. china alone cannot do the whole adjustment. consumption there is still too small, even though it is growing rapidly. it does make a difference for the u.s. economy.

but it cannot pull the u.s. and all of these other countries of recession. that is the way we see it. >> [inaudible] these people have been talking here about official stimulus and helping u.s. banks and so on. >> there were two clear financial linkages. one of them you could argue was a bit of a mixed blessing, which is the provision of that capital into the economy. in recent years, the emerging markets have been major buyers of primarily prep -- treasury papers, especially in the last year. also before that, mortgage backed securities. less so since the crisis. and it has not kept interest rates down. that may be a mixed blessing in that it may have contributed to the whole problem. one of the financial linkages is somewhat underappreciated. it is the support given by profitability abroad to u.s. corporations.

and us, to the u.s. stock market and the u.s. economy more broadly, i would argue. example -- a good example, or the best i can think off the top of my head is general motors. general motors has obviously gone bankrupt in this country and been a bit of a disaster, but its operations in the emerging economies, most especially in china, did not say it, but there were part of a stabilizer. and i can contrast that with their operations in sweden, for example, which they basically have had to walk away from. it is an interesting contrast, sharing the supporting role been provided to the corporate sector by the emerging world. >> i would like to make the point that brought the growth in china needed to be supportive of -- need not be supportive of the united states economy, particularly if it is an export- led growth of these to a large

surplus. that really has been the path that -- the pattern in china. running surpluses means that you are effectively taking demand away from the u.s., sucking it out of the united states. i think when you have got a stimulus package that goes in for excess capacity, excess supply, that is not often going to be very supportive to the united states going forward. >> we're going to leave the last few minutes of this live program. the u.s. house is coming in, beginning their second session of the 111th congress today. the constitution requires the house to meet the first tuesday of january. no legislative work is planned. that begins next tuesday. members may make short floor speeches off the floor. democratic leaders are meeting on health care legislation. and they will meet with president obama later on today. as negotiations continue, speaker nancy pelosi and democratic leaders steny hoyer will meet with the president.

senate democratic leaders will be on conference calls since the senate does not return to session since june -- until january 20. however, there is a pro forma session and no legislative work until later this month. live coverage of u.s. house now on c-span. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2009] esentatives.] the speaker pro tempore: this being the first -- being day 6th, pursuant to the 20th amendment of the constitution by public law 111-121 for the meeting of the second session of the 111th congress, the house will be in order. the chair lays before the house a communication from the speaker. the clerk: the speaker's room, washington, d.c., january 5,

2010. i hereby appoint the honorable donna f. edwards to act as speaker pro tempore on this day. signed, nancy pelosi, speaker of the house of representatives. the speaker pro tempore: the chair lays before the -- the prayer will be offered by our guest chaplain, reverend kiley of washington, d.c. the chaplain: loving god by whose grace our land has been blessed with such bounty and by whose guidance our nation has been formed, be with us even now as we open this second session of the 111th congress. grant us a fuller share and the gift of your spirit which is strong, loving and wise. give us strength to face the challenges before this congress with courage and patience. give us a loving spirit so that compassion for our fellow citizens and for their deepest

concerns may find a first place in our deliberations. give us wisdom, discernment and good judgment so that we may serve what is to the best interest and common good of the nation and to the general welfare of all people. do bless us now as we begin the important work ahead of us and may you who begin this good work in us bring it to fulfillment. we ask in your holy name. amen. the speaker pro tempore: the chair will lead the house in th i pledge allegiance to the flag of the united states of america and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. the chair lays before the house a communication from the clerk. the clerk: the honorable the

speaker, house of representatives, madam, pursuant to the permission granted in clause 2-h of rule 2 of the rules of the u.s. house of representatives, the clerk received the following message from the secretary of the senate on december 24, 2009, at 8:14 a.m. that the senate passed with an amendment, h.r. 730, that the senate passed without amendment h.r. 3819, h.r. 4314. with best wishes i am. signed sincerely, lorraine c. miller, clerk of the house. the honorable the speaker, house of representatives, madam, pursuant to the permission granted in clause 2-h of rule 2 of the rules of the u.s. house of representatives, the clerk received the following message from the secretary of the senate on december 24, 2009, at 10:31 a.m., that the senate passed without amendment house concurrent resolution 223. with best wishes i am, signed sincerely, lorraine c. miller, clerk of the house.

the honorable the speaker, house of representatives, madam , pursuant to the permission granted in clause 2-h of rule 2 of the rules of the u.s. house of representatives, the clerk received the following message from the secretary of the senate on december 29, 2009, at 10:56 a.m. that the senate passed with amendment h.r. 3590. with best wishes i am. signed, sincerely, lorraine c. miller, clerk of the house. the speaker pro tempore: pursuant to clause 4 of rule 1, the following enrolled bill was signed by the speaker pro tempore van hollen on wednesday, december 23, 2009. the clerk: h.r. 4284, to extend the generalized system of preferences and the andean trade preference act and for other purposes. the speaker pro tempore: pursuant to clause 5-d of rule 20, the chair announces that in light of the resignation of the

gentleman from florida, mr. wax wexler, the whole number -- mr. wexler, the whole number of the house is 434. pursuant to section 9 of house resolution 976, no organizational or legislative business will be conducted on this day. messages requiring action will be laid before the house on a subsequent day. bills and resolutions introduced today will receive a number but will not be referred to committee or noted in the record until a subsequent day. executive communications, memorials and petitions, like-wise, will be referred and numbered on a subsequent day. pursuant to section 10 of house resolution 976, the house shall stand adjourned pursuant to section 2 of house concurrent resolution 223 until noon on tuesday, january 12, 2010.

>> and was instrumental in developing and organizing the course from which this came. he joined the world bank in 1995 in bucharest as an economist, or he worked on macro economic monitoring, trade, agricultural, and rural development and

finance as well as poverty and social protection issues. the next speaker is going to be ron haskins, a senior fellow at the brookings institution's, or heat code directs the center on children families. he is a former white house and congressional issues and was the it staff director of the influential subcommittee of house of representatives which had jurisdiction over several key anti-poverty programs. he was a key player in the 1996 effort to overhaul the nation's welfare policy. finally, if the clubs of transportation are benevolent, we will hear from martha burt -- has been a senior scholar at the institute for decades and has focused on homelessness,

welfare, and hunger. the moderator for today's discussion is jason deparle, a reporter at the "new york times" who has written about u.s. poverty. in the packets on your chairs, there is an article he wrote recently which explores the mind-boggling complexity of the american social safety net. his book, published in 2004, " american dreams, three women, 10 children, and nations tried to win welfare" chronicles the struggles of the welfare system. let me turn it over to you. >> thank you. about one year ago, my editor approached me and said he had been thinking about the recession and had one question -- how strong is the safety net?

it was a seemingly simple question, but it has a simple answer and there is no single safety net. there are instead multiple safety nets, a food safety net, housing say that, a medical safety net, and income safety net. each has its own rules, finances, incentives and culture. food stamps emphasizes about reached to bring in the needy. cash welfare and assizes diversion to keep all but the media's out. there is great variation within programs by state and county. tennessee gets food stamps to 90 percent of the people qualified well california serves about 50% as -- about 50%. as anybody that's been any time in these offices knows there's a great element of capris in the administration of program in both their rules and human interaction in applying them.

an unemployed college librarian in mississippi could have gotten unemployment benefits if she were laid off from the university of mississippi, but she worked for magnolia bible college, which as a religious institution is not required to pay and employment taxes, so she was left to face the recession with no unemployment check. one woman i spoke with in baltimore made slightly to much to qualify for food stamps, but her case worker was in a generous mood and enlisted her in prayer and gave them to her anyway. if this is complicated, imagine how some of our speakers must feel. at been trying to explain this in spanish, portuguese, and russian, trying to explain this. i was in florida to write about food stamp recipients with no cash income. people only living on food stamps. i have been doing this for a while, but i cannot recall a set

of stories so vivid and so unlikely. i met a woman who said she had grown up in the bronx, in the projects, to a mother who was a drug at a. she moved to the gulf coast and made $180,000 selling real estate, only to have that go bust. it sounded unlikely, but not many people go from $180,000 to food stamps, but she had to pay stubs to prove it. another man answered the door covered in tattoos from the gun rights movement -- the liberty bell and an automatic rifle with the initials for a right to keep and bear arms. he says he had posttraumatic stress disorder and was able to work. he had suffered from this condition since he shot a would- be robber a pharmacy where he worked. it was not your run-of-the-mill story, but another one that checked out. the fort myers paper had a brief

account of the shooting. there were a lot of inventive survival strategies. one cancer patient lost her running water and was running a hose from an outdoor spigot into her kitchen and shower. the firearms and diseased was selling his guns and had put the breeding services of his pet chihuahua up for bid on the internet. he was sharing his prescription -- is sharing his sister's contact lens prescription even though they had different perceptions. probably not a good thing for someone involved in shooting to do. after the story ran past week there was a lot rhetor commentary on who is and who is not worthy of government support. one reader wrote to complain that the open-ended ability of women like realtor from the bronx and it harder for men like him to find wives because they could get the government to support them instead. he wanted a 30 day time limit and then they should be forced

to find a man. i have been struck by how often people themselves have raised the question of moral worthiness in my conversations recently. perhaps it is because there are so many people who are new to public assistance programs -- one out of eight americans are now on food stamps. many are quick to assure me they're not like the way they imagine other people on food stamps to be. as i was thinking about the palace morning, a person i thought of the most is in no way an emblem of the innocent for -- innocent for. i met him in the courtyard of the fort myers rescue mission. he was 8 -- it was a dusty, sad looking courtyard blurring christmas carols. there was a tall guy standing there, in his mid-50s and had no front teeth. he introduced himself as william and cities to pitch for the

chicago cubs in the minor leagues. and i'm likely story and of course it was true. we looked up and he had an earned run average in 1979 of 1.24. he worked in a car factory outside detroit and sold cocaine. he was good with numbers and said he went to prison on 8/10/96. this turned out to be true. when he got out, there was not much place in the car agency for aging ex commons. he met a guy who promised him work on a shrimp boat in florida. he never showed up and had been working -- had been at the mission ever since. he did not qualify for insurance, medicaid, cash welfare programs and had about $200 a month in food stamps and of the rescue mission. he turned up an odd job here and there and ordered talents as a bicycle mechanic for cigarette money. its safety nets are for saints,

he does not qualify. i wish i could say he said something profound to me, because i've been wondering why i was singing about him. he had an eloquence in his bearings. he said food stamps but by a hoagie when it is looking for work. that allowed him to maintain and trace of independence. now he was a institutionalized at a rescue mission. he says when you have food stamps, you can browse. window wishing means a lot of people. i don't know how to translate that for people in your way, but i don't -- and you're quite, but you can have the floor. >> thank you to all of you for coming. year-ago, when the world bank asked if we would develop a little coarse explain the social safety net in the u.s. for an international audience of

policymakers, together, we had about three-quarters of a century of experience looking at all these programs and we said we can do it. eight years later, at 6 session course has been translated into several languages and hundreds of administrators around the world have attended our virtual lectures. so the course and the book it urged out of the world bank initiative. the world -- the urban initiative asked us to turn it into a book. thanks to the world bank, eight urban institute, and hundreds of students at john hopkins university over the years have been in my course, we have formed it into a book. needless to say, we very quickly realized there were some basic, simple point that the clarified before we proceed. first, how does one define the

social safety net? in our book, we offer a very general definition -- a social safety net is the way society insurers its members have with the need to survive. but who is the safety net intended to save and who decides what people need and how much? how is it that we have what we have in the united states and why is it different from what exists in other countries? i'm not going to discuss all these things, but these issues and more are covered in the book. but a few more definitions and context is important to guide what i know will be an interesting discussion today. first, what is in the safety net? the social safety net is not just about anti-poverty. persons of all income levels, as jason explained, are at risk of harm, crisis, and victimization. the most disadvantaged and

poorest in this society have the highest risk. so the disadvantaged and the poor are most directly touched by an often targeted by the social safety net policies in any country. in your folders, you will see a few charts. the first was a diagram that shows that the social safety net is comprised of social and economic policies, such as crisis intervention, welfare food programs, income supports, social insurance, health and pensions. but other policies fears are also important -- energy and environmental policies, transportation, immigration, those rules and policies affect the lives of individuals and families. they affect their ability to survive and well-being. in short, the social safety net includes all policies or actions that are supported by, encouraged by the government, that directly or indirectly

assure members of society can obtain what they need to survive. so we take this concept of the book one step further to include in the social safety net policies designed to prevent hardship. this means educational and employment opportunity, civil rights protection and social justice, and just as important to the safety net as the crisis intervention services and welfare. so where did our social safety net come from and how is the u.s. different from what exists in other countries? the second and out in your folder shows a simple but complex for a more used to help explain that the system. at the most basic our nation's history, political culture, government structure, and economic and fiscal conditions at different times, as well as the notion of societal needs, together interact with some fundamental shared national

philosophies and beliefs. in our blood, we draw upon the explanation of several -- in our book, we drop on exploration several conundrums of our society and the ideological dilemmas they present for policymakers addressing social issues. the national psyche is constantly struggling with contradictory but shared values. bally is such as the supremacy of liberty and freedom and compassion, fairness, and a sincere willingness to help those in need. but these values are also coming into conflict with equally powerful shared beliefs. the importance of work, work ethics, the sanctity of family, and the importance of self- reliance. many of the values that make up our nation's psyche come from some longstanding western european philosophies dominant in the 18th-century

enlightenment. have been refined over the years in the 19th and 20th centuries and are still being refined. just as the american nation was developing, some of these were particularly in vogue. calvinism strongly emphasize the work ethic and the value of work and workers. by contrast, it condemned non- work and i was. social darwinism promoted that individual strengths and arrival of the biggest was a virtual bridget was a virtue. classical liberalism laid the foundation for laissez-faire economic policy and capitalism and minimally intrusive government. but also, if you'll the distrust of government. so the resulting governance structure in the u.s. that emerged at this time is a complex web of checks and balances, separation of powers at each level of government among the three branches, and a

strongly held belief in the states' rights. it also means the idea of space support is built upon employment and work and based heavily on notions of charity and assertiveness. so the deserving poor and needy can and usually do receive some assistance, but usually at a minimum level to guard against dependency and idleness. says the emotional debate around universal health insurance is one example of how these values sometimes come in conflict. health insurance with the last century was within the sphere of a plan. workers earned it the right to get insurance as workers. over time, the government's role has gradually expanded, first for the elderly, veterans, or children, and destitute and sick people. as the underlying nature of work in the u.s. and employment has changed, so too must the

assumptions of employment and health insurance. a smaller percentage of workers today have employer-sponsored health insurance than 20 or 30 years ago. the policy changes in this area and others cannot come easily because of the shared version of individualism and government limits that permeate our history. so the philanthropic struggle makes policy revolution's difficult and to some extent, nobody is satisfied with the results. so the help example is one of many that show a conflict of different values. we will talk later about the conflicting values, but i want to know the current social safety net in the u.s. is premised on long-held beliefs about the centrality of work, the value of individual responsibility, support for

people who are considered deserving of help, and not for those who can or should be taken care of themselves, and a general distrust of government that translates into a more minimal role for national government. what are the goals than of the u.s. social safety net? we laid out three types of goals in the framework which are in your folders. first is to provide basic financial security, second is to protect vulnerable populations, and the third goal is to promote equality of opportunity to minimize or eliminate problems are required the first two. so there are literally hundreds of programs in the u.s. say to that which we organize according to which of these general goals each is intended to achieve, whether the benefit of the service is considered a right or whether it has to be earned, or whether it is considered charity and whether it is

targeted on a particular population groups like the elderly, homeless, the unemployed, or whether it is available more universally. we categorize the programs according to which lovell of government is most responsible. before and during -- before ending this discussion, i want to make a note of the support we provide to the needy in the u.s.. while many might disagree on the adequacy of benefits, in general, it seems the more generous and intact parts of the social safety net the most generous part server group's consideration -- considered the most deserving, often because of a former life. elderly former workers and veterans are among the party groups. perhaps the most adequate social safety net program in the u.s. is social security, veterans' benefits, and the earned income tax credit for low-income workers.

at the other end of the continuum are those who might be considered undeserving groups, most homeless, criminals, sex offenders, some of the chronically unemployed. the safety net for them is much less intact with the possible exception of the food stamp program, now renamed the supplemental nutrition program. food stamps really is the connecting string in the current safety net. all of those with low incomes are eligible for food stamps. but the other strings that could or should connect to the food stamp loop are afraid or fraying. the most vulnerable groups, many children, poor families, undocumented immigrants, victims of crime and abuse, some unemployed workers are somewhere in the middle of the continuum between deserving and undeserving. sometimes in some places, they

may be considered deserving enough to receive help, but not everywhere all the time. for the vast majority in the west, the safety net is clearly for aid. health care -- is clearly afraid. healthcare, a safe environment, fair social justice and opportunity are available, but not universally. finding help when in crisis is a major challenge both for the individuals in need and the agencies and organizations trying to help them. so, as a nation, i would say we have much to be proud of in the way social protections are made available to members of our society, but to truly repair the safety net, we need to tie up the freight and, but do it within and outside the shared values that we have -- respect for families and individuals, security for all workers, compassion for victims, and

opportunity structure accessible to all regardless of income. it is not easy and it is not cheap, but as a nation we should make a high priority passage of comprehensive health insurance legislation would go a long way to repairing the now frayed and outdated social safety net. expanding unemployment insurance and the earned income tax credit so those programs cover all workers and not just some would help. but we have many other problems to address and we will get to some of those in a minute. for now, i hope that is an introduction to some of the issues we address in the book. >> thank you. it is a pleasure to be here. for me, this is a much anticipated event.

i met the two others back in 2004 when the world bank approached the urban institute and scholars from western europe to develop a training course for practitioners and policy-makers, especially from our middle income company -- middle-income country clients. together with the urban institute, we get together and thought about how the rich protect their port. i am here because i share most of the time working with them on these training events, but the idea of having a training course on the u.s. safety nets was coming from my colleague there. i worked on this course with my colleague and it was a very nice

experience for us. i will cover three thing, and i want to be brief. so, why it partnership? why the world bank with the urban institute and the focus on u.s. safety nets? i will share some stories on how we use the materials in this book and discussed the value added for the people outside the u.s., especially our colleagues and partners and in middle income countries are on the world. you may know that the world bank that is developing countries in setting up or reforming social assistance, welfare, or the social thicket program. we use this interchangeably. depending which area of the world we're in, we called by different names. why the u.s.? our middle and come country

clients wanted to learn how similar programs are designed and implemented in developed countries. hence the idea of having a training event that will put face-to-face, using video conference and facilities, practitioners from the u.s., western europe, and all client countries. among the developed countries, the u.s. experience with social safety nets lent itself at the very interesting object of study for a number of reasons. more importantly, it underwent a number of reforms, the welfare reforms in 1996, expansion for the same time spent, and unlike many developed countries, there

is a large volume of academic research devoted to social safety net problems. plus, the federal structure of the united states safety net, to experiment -- it makes a unique case for which other countries can learn. so the world bank was simply a facilitator for this transfer of knowledge. as was mentioned, we partnered with them, basically used their experience on advising how to do safety net and embark on this endeavor and having a training course on the safety net.

the materials fell in a book and was presented to a large team of brilliant practitioners and then in the western part of russia and a few other regions, which would call states in the united states, then in the ukraine, argentina, chile, and uruguay and the eastern part of russia. we actually went to central siberia in the winter, when it was at minus 40 degrees celsius. i think that is almost the same in fahrenheit terms. not surprisingly, we had to focus our training on how to basically protect the low income family against the effects of an

clement weather. something like housing and heating subsidies were the main stuff of that region in siberian -- in siberia. part of the safety net was me landing a hat to marti, it was totally unprepared for the siberian weather. what is the value added of the united states safety net for other middle-income companies -- other middle income countries? topics that were in high demand and generate high interest for our clients were understanding the rationale behind the safety net in the united states. getting a sense of the design parameters, but also the implementation -- that was a lot

of firsts for information on how in this country, you implement it get programs. also, topics like how to organize safety net in a federalist setting. that's very important from brazil to russia. how they are evaluated, the issue of accountability, measuring and using error and fraud -- all of these subjects were of high interest. while learning about the united states if they get programs, our clients would have to adapt ideas that they may borrow from the united states for their own country settings. this process of adaptation

brings a lot of excitement for us as a practitioner in the world bank, what we accompany a client government or partner from a developing country in this process of setting a principle to their own country settings. i will pick one example to illustrate this point. one of the principles that was mentioned which is taken -- the principle of targeting assistance to low-income households, which is one of the key principles in the united states safety net. it is so ingrained in our culture and is based on targeting on the basis of income and assets, identify and low-

income households. many of our client countries, the informal sector is very high. this type of identifying low income households is not a possibility. so, an alternative has to be developed. in many countries in which the informal sector is large, low income households identified using proxy means, basically predicting the level of consumption of income on the basis of some observable characteristics of households like the quality of their dwelling, their number of assets, education of family members and so on. is this adaptation that somehow makes the transfer of experience

in the end successful from the united states to the other countries? i will end by saying that having this book basically will facilitate further this transfer from experience from the united states to the other countries and i'm very happy to be here with the authors for this special moment. >> marti's train has been delayed, demetra nightingale will summarize for us. >> a couple hours ago, when the train at destruction, she did call and passed on her comments. i will now give them to you. the social safety net and on an exceedingly complex structural programs -- structure of programs and policies. in your folders, i think figure 6.1, it shows the many routes by

which the funding comes down from the federal level and eventually gets to people in need. i am not going to go through it that at that, but it is important to look at those different routes. each of which reflects a different value position that was dominant in different eras in the u.s., depending on a blend various programs were developed. for example, when a goal of equality is high on the list, policies and beat out. more uniform. social security, food stamps, medicare are examples of the more federal, uniform policies. if a program or policy is being developed at a time when there is a major goal to reduce the role of the federal government or the size of the federal government, which was true in the 1980's, the goal is to

devolve decision making from the federal level down to lower levels. then you end up getting policies like the current welfare system, temporary assistance for needy families, and work-force development. if, on the other hand, a program is developed at the national level at a time when there is distrust of state and local governments, but more trust of the federal government, perhaps like in the '60s, during the war on poverty, then you may see more federal control of programs, but devolution down to the local level -- community action agencies, like public centers. depending on when a public -- when a policy or program is enacted, the philosophies, the values better, at that particular time heavily influenced the structure of the programs.

nevertheless, the things that affect people the most are largely local, like schools. over which federal policy has almost no control. the same policies have determination of which sectors to work with people, with the government, the public sector, the nonprofit sector, or the private sector. each of these have some good things and some difficulty. although usually a relative strengths of the public as opposed to private as opposed to non-profits are ignored in policy-making due to the dominance of ideology. what is the government at? the government is good at standard setting and policy- setting. the more standardized a policy is, the government is a very good place for those decisions. businesses are good at job training. most job training in the u.s. is

done through private businesses. if the economy of scale is important or technology, then perhaps the business sector is a good partner in the social safety net. non-profit organizations are major players in the social safety net in the west. they're particularly good for case management services, service delivery, and doing things and providing benefits and services that one might not expect to make a profit from. so, dealing with the most difficult and troubled populations often nonprofits play a major role. for each of these sectors, there are risks of abuse from excessive rigidity in some government programs, to selective flexibility and some of the nonprofit sector programs to -- two examples, -- as rare

as they may be, is out right bribery. one of the stories is a story of a judge who was being paid or bride -- bride, to convict use offenders and send them to institutions -- is being paid orbribed two centers that would be paid for by the government. been the fact is, in the u.s., policies to an embarrassingly bad job at the major goals of the social safety net. reducing poverty among the elderly and children, the u.s. ranks 20th or 21st of 23 industrial companies. -- industrial countries. as far as in the mortality, we

rank 21 at 23 countries. we're only the above mexico and russia. huge numbers of young men are in prison. we cannot waste these resources. we have to shift from survival of the fittest mentality to one of serving national interests, which provides support to insure the entire population has the chance to reach its full potential. so what can we do to retrieve the support, to recapture the resources being wasted, and to repair the social safety net? there are three areas -- one is to focus on equality of opportunity. long-term investments in education, not just giving schools what they have always gotten, but insisting on real outcomes -- that children are learning to read, that have the math and science abilities we

need as a nation, and they are prepared for life. invest in human capital, both for youth and adults and best in neighborhoods. the second category is to focus on programs and policies for individuals who can work. from there, to improve the social safety net, we need health care insurance for all, child care, tuition assistance expanded, food and housing subsidies greater than what we have today. provide up to 200% of poverty and expand for more comprehensive countercyclical policies during times of recession like we have today. the third category she has identified is for improving policies with people of vulnerabilities. this should absolutely be the main priority of any country boss social safety net.

here, we need more investment in health and mental health care. housing, mental care, and housing to allow a seamless integration of services for people who need them from one point to the next in their lives. the characteristics of the people that become homeless is an indictment of the failure of these systems for people with bonner abilities. can we afford not to make these commitments in the 21st century? we cannot as a nation and we need to make a commitment to invest and improve in the well- being of all members our society. >> thank you. one quick correction before we turn -- he was introduced as a key player in the welfare debate. he was the key player in the 1996 welfare debate. >> this is his attempt to get me

in deep doo-doo with this audience. i have had two thoughts since i walked in this room, which is quite remarkable. some of you may remember that conservatives have no thoughts. that's something called inner murmurs. i have to enter murmurs. the first one is the other paulette -- other panelists -- we did not know the guy from florida that you interviewed with the idea of a 30-day time limit. we got in a lot of trouble for five years. if we had bought a 30 days, we might have done that. the second thing is you need a new editor. you don't admit to having worked with someone and having three- quarters of a century of experience. you are old. you will never be on twitter.

you have to cover these things up -- three-quarters of a century? i like this volume a lot. there are lots of interesting things in it. my favorite is chapter 7, which has lots of information about policy analysis and data. it has a section on national data sets that is absolutely exquisite. it is the best thing i've seen to tell about cps and other national data sets, when they began, kind of a commission you can get. the editing may have that is more useful is a series of examples of how these datasets can be used to answer questions that policy makers might mess. this is it the ultimately concrete thing about what policy means. there is a section about the effects of welfare reform which is not too bad. i'm not going to say anything

else good about the book. so now i want to talk about some problems. the first one as i do not think the book gives anything like an accurate idea of how huge our safety net is and how much has grown. there is a wonderful series that has unfortunately not been updated since 2004. i can hardly wait to see it through 2008, but 2004, they began in 1968 -- roughly 85 programs divided into eight categories like nutrition and so forth. over that time, in constant dollars, spending on these programs increase from $88.8 billion to $583.3 billion. that's a 650% increase in dollars. the readers from foreign countries would not know our system had grown that much. something must have been going on that americans were deciding that we ought to pay more

attention to social issues. it may not be enough, i'm not making that argument, but it's a huge growth. compared to the population, it is an increase by a factor for, and that is a huge increase. many new and very good programs like the earned income tax credit, the child tax credit, major changes in medicaid for virtually all kids to have an entitlement to health care. we have done a lot of good things that have improved greatly. the second thing is i'm not as sanguine as the authors were about the effects of these programs. i think the evidence that our programs have the impacts for which they are intended is extremely weak. for example, they cite the program which is an admirable one which produced interesting impacts. the minnesota family investment program.

it increased work and even seemed to have an impact on marriage rates which made sense, it turned out that did not turn out. this was implemented by one of the two or three best social service programs in the country. the idea of implementing something like this in other states -- someday it may run for office, but mississippi would come to mind. there are not too many voters there. they could not implement a program like that. requires a lot of great implementation. the new home program in milwaukee is spectacular. but it is a very small program, implemented with lots of resources, tremendous local commitment. you could argue that more local commitment that any program implemented in the country. they also mention success for all, which is very impressive public school program.

whether it can be replicated and if it were evaluated by people not associated with the program, -- there are problems with all these programs dimension and i am not sure our social safety net produced the impacts for which it was intended. the third thing, and far more serious is that there is not enough emphasis on individual responsibility in this book. what a shock i would say something like this. but really, we are not going to solve poverty in this country unless people behave more responsibly. if we had the same marriage rate today as we had in 1970 -- and you can determine this by selecting males and females at random -- our poverty rate would fall by almost 30% without any new government programs or changes. why is the marriage rate falling? i don't think anyone really understands, but it ought to be

a focus of public policy. the president gave a spectacular father's day speech about the responsibility of fathers and never mentioned marriage. how can that be? his whole point is fathers need to be committed to children and people lived and worked in this area would be forced to admit that unless the father lives with the children and lives with the children's mother, it is very, very difficult to continue to see the children because both the mother and father one new relationships and so forth. individual responsibility is a huge part of this. similarly with work. here is a message relearned clearly and i have given to figures that will show this and i will talk about for one second. unless we have more work, we also will not solve party. -- solve poverty. the united states congress, the president, especially given the

situation, are going to double welfare -- it follows from that the liberals and conservatives who believe it is solving property and getting people people opportunity, they have to teach responsibility. they have to tell people that you must work, there's no way around it. you have to work and we ought to focus on work. they make a good point in this book that much of our system is focused on work, but i think the pope is blurs with a number of our programs like food stamps and housing which have virtually no work requirements. we have very strong evidence that you could relate substantially increase work rates and reduce poverty by adding work programs associated with our housing programs, yet we have a miserable, lousy, virtually non-existent work requirement for the housing program. we have to requirements of the food stamp programs that are completely observed in the breach. all these allow people to get benefits without saying we have

to work to do it. if you insert the realization that without work, it will never escape poverty, that looks like a serious flaw in the social problem -- the social safety net. the last point i want to make with things that i wish were in the book is that we have had dramatic success but a lot of people are reluctant to admit with welfare reform. i give you a chart that shows the increase in work -- not people looking for jobs, people who have worked and especially among never-married mothers, a 44% increase over a five-year time frame in the percentage of all never-married mothers working. these are mothers who would most likely be on welfare. this 44% -- i realize correlation is not causation, but this was correlated with an actual decline over those years in collection of welfare benefits, defined broadly as housing, food stamps, and so

forth. a dramatic increase in earnings plus the earned income tax credit, which led to about a 25% increase in total income for those households. simultaneously, the child poverty rate fell more than it had fallen since the '60s and early '70s. black child poverty and poverty among kids and female-headed families reached its lowest level ever. that was a time when welfare benefits were declining. work is the key if we want to solve poverty. another part has to be the work support system and the book does a good job of talking about the work support system. these are programs we have neither created out of whole cloth or have modified so that working families can get benefits from the program. the child tax credit needs a lot changes -- medicate, we need changes in farming bill to make

food stamps easier to get for working families. that has worked very well if you want a case for a seminar in how public policy can work, that would be a textbook case. so we have done all lot and is probably the single most successful than we have done other than give increased social security benefits for the elderly. still, in 2008, the poverty war aid despite the recession was still lower among female-headed families and among black children that was before welfare reform. we're doing some things right and i wish they would have focused on that more. i think there is a lesson for all countries there and not just the united states. finally, before closing, i want to admit to this year is probably have that has its origin in 1966 in welfare reform legislation -- performance in the recession has been crummy. there is a chart i included that shows you enrollment in food stamps.

first, the first application for benefits for unemployment insurance programs and the unemployment rate. as you see, at the unemployment rate goes up, food stamps goes up. this is a perfect response to a safety net program in a recession and should increase when unemployment goes up. the same thing happened with unemployment insurance, perhaps too much in some people's estimation. but look at the bottom graph -- it is as flat as it can be. it may have increased in the last year, we don't know for sure. this is not the fault of the original bill. in the original bill, or several provisions. we have heard of recessions we drafted the letter -- the original legislation. including a $2 billion contingency fund. but the states did not use it and the democrats put in a $5 billion contingency fund, but that the total pool of $7 billion for states to draw from

and yet they did not drop very much from it. they may be doing better now. it was reauthorize next year and this should be the no. 1 or no. 2 item to figure out why they're not more responsive during a recession. it could have to do with states that had to put a match in both programs. we need a cash welfare program that responds during a recession and this would be another important lesson that should have been covered. thank you. it is an excellent book. i'm glad i had a chance to read it and i highly recommend it to everyone in the audience. >> we are running a little behind and a meager to get to questions. when i would like to know what strikes middle-income audience about the middle -- but the income safety net in the united states? states? is there something that