when the bush administration came in, they ignored those challenges, cut taxes in a rather ineffective manner. this quarter the opportunity to put the fiscal house in order. -- they squandered the opportunity to put the fiscal house in order. we have lost 10 years to address these issues. . .

>> it is a little hard to score by the scrareyouse agencies exactly how much money we are going to loose. we are buying shares of aig and city bank and getting the money back. this week, we had a discussion over making $7 billion over the investments at citi bank. that doesn't detract from the larger problem that we had financial institutions, insurance companies and banks all working irresponsiblely and

brought down the entire u.s. economy. we do have to address the issue of financial regulatory reform if we want to put the budget in order but also pu the u.s. economic growth on the growth path in the long run. we node to budget. i'm a little less worried about aig's affect on the budget. i'm more concerned about congress being able to pass a delay. >> we are talking with andrew biggs and christian weller. a senior fellow. you can read more about both of them on their respective

websites. back to the phones. from virginia for republicans. good morning. caller: good morning. thanks for coming in. one of you said well, we have time to work on this and turn it around. i've never believed that. if you take care of business now and start this now, later, it will be better. everybody stops driving the car when gas prices went through the roof. when it is fixed, they start driving again and burning fuel the same way again. i read through the healthcare bill as much as i could understand. it's not really scarry to me but it seems to me a little bit of a socialist grab.

i guess for people out there that don't have insurance that could use it. that's a huge expense. i'd like to see if any of you can justify what the benefits are compared to the cost. thank you. >> andrew biggs? guest: i'll start with a point you made towards the end that was if we have time for this. i remember back in the bush efforts. people were saying you are crisismongering. we have the same issue here. we are not in the crisis yet but the ship of state moves very, very slowly. in we want to avoid that 90% debt to gdp point in the

future, we have to start today. we could take up an entire show talking about this. i'll make one point. even if the health points reduces production. which is around $140 billion, i don't believe it is going to do that. that is about $140 billion is about as much as the federal government will baro this month. it's a tiny reduction compared to the overall baroing. it uses up things that could be used to fix entitlements. the savings don't go to medicare. they are spent elsewhere. we have to go back to people and ask them for more. i suspect they are going to be unwilling to do it. the real problem is the healthcare reform bill could be used for something else. you cannot have ultimately a sense of a budget reform

without really addressing the healthcare inflation problem. the healthcare reform act is a down payment on that. we have $140 billion according to the latestests. you are going to get a more sposs tiff impact over the next several years. it's not the entire answer. it gets us there by broadening the coverage. having a more responsive health insurance system and starting to look at healthcare inflation and what's called reducing healthcare inflation. i think that's the right direction to start thinking about how we are going to get the handle on the budget. >> our next call comes from cleveland. caller: good morning. i have a question for mr. biggs. my question is what was the

deficit when the last deficit that was projections put in by president bush. just before president obama took office, everybody is talking about the debt and the deficit, is less than what we need. at the put in the minimal amount to get the country going. all we hear about is the deficit and debt. what did president bush buy his last year when he left?

he put in something p. who is gonna pay for the wars? it's not medicare. it's medicare advantage. the ceo score it had lower for republicans. when they finally come out with the numbers. it was three times the amount that they had originally said it would be. what president obama did is cut out the waist and abuse in medicare advantage. host: we'll leave it there. andrew, go ahead. guest: one point i think i made early on, i don't hold current deficits against the obama administration. they inherited a difficult economy and financial crisis. you are going to run large budget deficits this year and next regardless.

the concern is looking out long term. we are saying if you get everything you want from congress, you are still going to run a deficit. these problems are never going to fix themselves it helps to set the record straight another

35% is pafert stimulus and deteriorated economy. the lesson here, however, is that the bush administration left legacy of tremendous debt. ultimately, it's a story of missed opportunity. the drug benefit was not paid for and the precipitation drug benefit. and then you have tax cuts that by all accounts have not produced the general results they were promised. the legacy of tax cuts and

spending are still with us and create budget problems. that means going forward, we cannot relitigate where we were by going forward, we have to take a hard look. the ones proven to be ineffective, we need to take them back. for instance, paying for some of the healthcare benefits and finally starting to increase healthcare. >> andrew biggs, would you focus on reducing spending or is there going to have to be significant tax increase? these deficits are so large, you have to do both.

they are very large deficits. my case for spending reduction if you are in an aging society, you want people to work more and save more. if you raise taxes, they are going to tend to work less, save less and retire earlier. there's a resent study by two economists who looked over a 40 year period that did what you call a fiscal console i hadation. they found that the efforts at cutting spending were more effective than the ones lowering taxes my experience tells me we should focus on the spending side. >> christian, do we lean on

reducing spending? or increasing taxes? you are still collecting payroll taxes. that tells you this is fairly large. you have to look at where we would actually start cutting. there are some bare bones programs on the spending side that leaves us ultimately

looking at the revenue side. you need to start with the tax cut that's were enacted in the last 10 years. we start with the diff i dend tax cuts and capital gain tax cuts. we take them back and start filling the whole on the revenue side. that's a good start to get us going in deficit reduction. host: james on the republican line. caller: i'd like to have my full time here, please. i'd like to say that our spending goes back to when a prior caller said about the wars in iraq and afghanistan and the whole war on terror.

look at the pretext to going into iraq and iran. i had a conference with general joans about this. you have to look at what caused that attack on 9/11. and the resulting. host: james, we understand you are violating one of our rules and so we are going to cut you off. and move on. caller: good morning. last year in august and september, the government had to borrow money to pay social security because not enough was coming in the till. not enough coming in from payroll to supply those people on social security at the time.

i'm one of those. i just turned 62. we are going to increase those numbers to around 70 million within the next 10-15 years if the social security trust fund is solve ant, why do they have to baro money to pay the recipient. you cannot put ious in there. it's broke. the system is broke. it's not going to come back. it's going to have a huge -- that doesn't even count medicare and medicaid. it's a pyramid sceem. it will collapse. it has to. >> the simple answer is that the trust funds are real and

backed by the government. nobody is talking about defaulting on them. we can pay full benefits until 2037 with the trust fund. that requires the federal government to come up with the money in other forms. this was never a surprise. that was always the plan starting in the early 1980s. the challenge we faced under ron alt reagan and under bush. part of the other deal was that the administration would make whatever is necessary to protect that money. that deal wasn't upheld. we have a problem on the budget side that is now spilling over to special security.

it's not a problem created by social security. we node to get a hand l and start looking at this in a serious fashion. host: we have a twitter message, the problem is when you suggest entitlement cuts, democrats suggest that republicans -- republicans whine that democrats are killing old people. guest: really? if there is that rhetoric, it's certainlyly going both ways. i don't think healthcare reform has to mean dying sooner.

i'm skeptical about the current cuts they need to see more of these costs. we think about what we are getting with our money. as long as they have a system where people are not baring a cost of the healthcare. no, we don't need to die sooner. host: i just want to ask you, if the numbers hold up going into 2010, how is that going to affect this administration or any other easy ability to try and get more people working and grow the job ranks?

guest: it looks like the 30,000 foot level. we need to grow the economy. we have to get back more than 10 million jobs to catch up to where we are the second challenge is to reign in the short-term deficits. then we are left with these long term structure problems to a large degree created by the healthcare issues. there is some disagreement on how we ultimately face the healthcare issue. healthcare by it self is a

fairly complex issue. you expect them all to be brain surgeons and financial wizards. you ask only push so far. you ultimately really need to create more transparency and competition and you have to have the government wield the big axe incase things go off the rail. that's where the healthcare reform package comes in. it's starting to make a downpour on those things we are in a box here. if we had a perfect economy today. we are solving two problems at once. we have a slow economy today. that means larger budget

deficits. at the same time, we are looking at large debt down the road. it's a tough thing to solve both of these at once. if we don't solve them both, we are going to be in very deep trouble. the president and the congress has to take up some leadership. there's no choice but to make these choices wisconsin on the line. good morning and welcome. caller: this comes down to people needing jobs payroll gets cropped. i've been trying to find always american made stuff. it's almost impossible.

if we had more stuff produced here, that would create more jobs and more payroll tax. would that help the problem? guest: there's no simple answer but certainlyly more jobs would help. if you look at the current numbers, we are at the lowest level of revenue since world war ii. if you raise jobs, people have more money and pay more income taxes. the question is how do we get there. clearly, this is the first step to get us on the road to recovery. that's not enough. one thing we know for the

entire economics. what businesses really like is predict blet. in that world, creating a certain predict ability for businesses, you need to see healthcare reform. it creates center in terments of energy crisis and financial market. it make it's easier for businesses to plan for the future and spend their money. smch of the economy is uncertain. that ultimately has to be part of the long term growth and jobs picture to create an environment that's predictable. >> walter on our line for

democrats. >> my question is would the new reform be open. what happens to the major insurance companies then and ultimately what affect would that have on the people? >> andrew biggs, go ahead. the insurance company will remain in business. they'll become more like regulated ultilities rather than free standing business enterprises in terms of what they can do and what the charge will be more prescribed by the government than has been in the past. there has been an undue emphasis in the insurance company's roll in this issue. you see a lot of the profits. health insurancer earns a profit of a very low percentage. total profits nationwide are

around $12 billion a year. but total healthcare spending going through the companies over $1 trillion. we could see limb nate profits for health insurance and it would make no discernable difference in the amount of healthcare in the fanl time this is morning, china hints at currency, provided a visit this month by the chinese leader goes smoothly. christian, china holds a lot of the u.s. debt. they are adjusting of their currency stharks going to have

an effect on our debt? implet over time, it will have an affect. we have to be real is tick. this eventually will come to an end. eventually in the long run, we'll see the interest rates. we have to contend with the unwillingness of the over seas lenders whether japan, china, switzerland and germany. foreigners no longer want to hold dollars i think the chinese announcements will make more explicit than when we know anyway. it's another piece of the puzzle that puts pressure on the administration and the

congress to address the deficit in the long run. host: assuming this comes up between president obama and the chinese president, what would you suggest the president say? guest: we are in a tough position with china they said in the past, american presidents have talked forcefully to the chinese about human rights. today, president obama is talking to america's leading lender. when you are very dependent on people for your capitol, it changes you to your other concerns. certainlyly, it seems to me there's a couldn't ra diction there. it seems both for economic policy and federal security, we have to reduce the capitol for

abroad. host: a call from tulsa for inds independents. caller: politicians are unwilling to raise taxes. would they be more willing if it was called war tax? how are we going to recoup the inheritance tax we are losing right now. i for got the third one. host: we'll leave is it there. can you address the politicians and tax issues? guest: nobody really wants to cut spending either. when it comes to the long run keff sit problem, we have to do both, we have to take seriously the revenue side and build up revenue. we take a hard