that we were able to work with the uaw to bring down the cost of labor and make us more competitive, not only the united states versus other countries, but a round the world. there are a lot of important partnerships. the uaw is one of them. our dealer network, the fabulous for store owners, and our suppliers -- we try to develop relationships with all our partners and do the best job we can to be competitive throughout the world. host: the ziad ojakli from the ford motor company, thanks for being on the "washington journal." guest: thanks for having me. host: and thanks to everyone who has been part of the "washington journal" today. we will begin live coverage of the elections at 7:00 p.m.

eastern time. we will go through the evening with live coverage. again, the details are on our website c-span.org. thanks again for watching this edition of the "washington journal" and we will see you tomorrow morning at 7:00 a.m. eastern. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> today is of course election day. these midterm elections will determine control of the house and senate. join us later today for election

results from around the country. we will give you a chance to add your voice to the mix. it all gets underway at 7:00 p.m. eastern here on c-span. we have been following key races from across the nation, one of those is to be the next senator of alaska. we will keep a close eye on this race and will will have the results for you as soon as they become available. we have dozens of debates, speeches, and the campaign rallies for you online, available to you any time at c- span.org/politics. we invite your phone calls on our companion network, c-span3, right now. the numbers for a democrats,

republicans, independents, and if you are not voting today, you can tell us why at the numbers on your screen. in addition to the campaign coverage and archived debates, there is a lot more at the c- span video library including nonfiction authors and everything we have aired since 1987, all free and indexed online at the c-span video library. the u.s. chamber of commerce's institute of legal reform posted a daylong summit here in washington. this segment features bp gulf

coast compensation fund administrator kenneth feinberg and it is just over an hour. need an introduction. the presidt and ceo of the u.s. chamber of commerce, tom donahue. under tom's leadership, the chamber succumbs the most effective and influence on what to get for the american business community. and since tom has been at the chamber he has created several programs and initiatives to address the unique challenges facing the business community, not the least of which is the institute for legal reform. and in the last year he spearheaded one of the chamber's most important initiatives, the american free enterprise dream big campaign to publicly advocate for policies that will support the free enterprise, and entrepreneurship and economic growth, because after all it is about jobs, jobs, and more jobs, so please join me in welcoming

tom donahue. [applause] >> thank you very much, lisa. good afternoon, ladies and gentlemen. we are going to invoke the family world, and that is we will do what our mothers told us long ago and that is eat quietly. [laughter] i very much appreciate the opportunity to be here today. i want to cogratulate lisa and her staff for putting together another outstanding summit. this is the 11th time that we have met and ech year the program gets better and better and bigger and bigger. some people might wonder why the u.s. chamber is devoting so much time and energy to beating back frivolous lawsuits and confronting the trial bar when there is so many other pressing issues facing the nation. the answer is pretty simple. they continue to pose a significant obstacle to achieving the american people's

number one priority for jobs and a stronger economy the trial bar and i am talking about the class action and mass action bar perhaps only a few of the lawyers in this country, the debate in ways both subtle and overt. they do it wh huge financial resources. good f them, we do that, too, and the dewitt without regard to the cream of the conflict on businesses, the public, the economy and american jobs. and they will continue to do so until we succeed in slowing them down. and that is what we are here for today. so, yes, the nation is confronted by a host of big and complicated challenges but no, we re not takg our off the ball when it comes to legal reform. here are a few reasons why. in 2008, the trial are made a significant investment in the election, and they have been working hard to get the return

on the investment ever since. and we have been there to challenge them at every turn and i don't believe that they are keeping up with the stok market. the attempted to pass a bill giving them a tax break to underwrite more contingency lawsuits. this wouldave amounted to a ten year $1.6 billion upfront load from the government, providing the cash flow for more mitigation. think about it with the unemployment rate near 9%, the economy in the worst recession since the great depression and millions of americans hurting, the trial bar is looking for a handout to further underlined the economy while lining their own pockets. you can't make that stuff up. they signed a broad spolight on this money grab and led the effort in congress to kill it. in another attempt to legislate their way to more lucrative

lawsuits, the trial are launched an all-out attack on federal preemption and arbitration. they tried to pass the medical device safety act, sounds really good, doesn't it? which would have overturned the supreme court decision saying th state tort clai orie pre-empted by federal law. an avalanche of the news state based lawsuits would have been post significant on device manufacturers, not to mention stifling innovation in the development of life saving and improving medical devices. the if ior and chandler worked hard to block this measure in the congress. the trial lawyers then pushed hard for the so-called arbitration fairness act that would have rohibited most forms of consumer employment and franchise arbitration. that bill sold thanks to a coalition assembled by and led by the institute for the legal

reform. the state level the case of the activity also continues to increasend of course so as ours. this year ior was able to push through a new sunshine law in florida that it's reasonable parameters amount the state a.g. use of the contingency council. in louisiana, the ag attempted to change the law to allow for the contingency contracts to outside law firms and the lr stuff that as well. some people might argue that the election could make many of these issues go away that's more pro-busiss that might help answer our problem and stop the lawsuits creating these kind of problems. maybe, and let me be clear the chamber is going to be fighting

like hell to elect more pro-business members of congress both democrats and republicans, and ilr is working equally as hard to educate voters in the state's about the state supreme court races that are currently going to be decided. but regardless of how significant the changes or after november 2nd, the trial lawyers will still have plenty of opportunities to expand lawsuits and you can bet our bottom dollar they will pursue every last one of them after all they are great american entrepreneurs. we believe the trial are supposed to open the new front on the federal regulatory agencies after all we are going move from a huge pieces of legislation in the ealth care and capital markets and activities in the epa that are going to give them an extraordinary opportunity to carry on their work. put simply, the massive

legiation recntly passed is the perfect breeding ground for the lawsuits. why? because these leave most of the important details of implementation to be decided by the agencies, an with unprecedented thity to make and enforce their own decisions. so we are going to be concerned and push a cocentrated effort to challenge these efforts by the trial bar to take it advantage of what is going on in the rulemakings system and make sure it is done right. byhe way you've noticed we sued the sec on the question of the proxy access and then we are successful in getting them to hold off the implementation of that decision until after the lawsuit. so it is sometimes hard for me to criticize people for going to court becae we go there on a regular basis ourselves.

now just to give you an idea why i think this is interesting, this massive health care law creates 183 agencies, commissions, panels and other bodies. all of that is challeing. the financial reform bill authorizes nearly 520 regulatory rulemakings and 80 sties and 90 reports that suggest another whole series of ctivities that are going to be required. when we did sardines' oxley italy took more. my grandchildren are going to be retiring before we get some of this stuff done so i think it is a bonanza for the trial bar on less we challenge them effectively. now look, let me give you a few specific examples of what i am talking about. if you ook at what happened in health care in their reporting

disclosure provisions in the studies that can be used as a basis for a litigation it is the same thing that's goingto happen when we go ahead on the dodd-frank bill. when you get all the studies, all of the reports, all of the new groups were going to be set up, just think the consumer protection bureau to enact restrictions limiting or prohibiting the use of the pre-dispute binding arbitration they are going to push more disputes to the courts. it's going to be an explosion of lawsuits, and i get you that our next speaker is going to find a great way to come and help us resolve this matter. >> so the list goes on. he can only imagine that, you can only imagine the problems that this economy is going to face. let me and by simply saying that we are living in a time of unbeatable on the certainty. if you go talk to a ceo of a company right now and ask him what he is thinking about, he's thinking what's going to happen with health care, what's going to happen with capital markets, what's going to happen to the

epa, what's happening in the labor department. all of this is now regulatory, and then he's going to ask you what's going to happen on the tax bill or bills and what's going to happen with the deficit reduction and by the way, until i find out some of that, there is no way i'm going out to spend the $1.8 trillion of cash we are sitting on. and by the way, small companies all over t country are doing the same thing. so i would suggest to you that we need to address those issues which are now going to be contained mostly in the regulatory side. we need to challenge those who would put this into a tsunami of new lawsuits and don't let it happen. we need to send a very clearfcun creating 20 million jobs in the next ten years and if we don't we're going to leave a lot of people on the sidelines and we are not going to be a will to

get this economy going again. .. that put this operation together, and i am going to end it by introducing our next speaker. first, kenneth feinberg is someone i met under a number of conditions and circumstances, and i first want to say that we absolutely agree with them, that there are better ways to resolve questions, such as how do we compensate the people who were

injured in the bp oil spill? how do we deal with corporate compensation without doing it in the pressroom of the white house or upon the hill? how did he in an effec tv way deal with the compensation for the september 11th victims and it is to do it in a way that settles disputes fairly, quickly and looking to compensate true victims. much of the time without the involvement of massive numbers of lawsuits involving thousands of trial lawyers. ken's work in providing an alternative to this expense litigation on major issues as the ones i discussed is setting a way of resolving these problems i hope will be followed for many years to come. so it is my pleasure to welcome a reasonable man with whom i agree with on many occasions to

continue to spend his -- spin his approach on how to solve these problems because we like it. thank you very much. [applause] >> i want to thank tom for that introduction. i'm pleased to know tom is going to shoot out of here and not listen to what i say. i don't want spoil his lunch but i am very, very honored and pleased to be here today. i always worry about any conference anywhere that has the word reform in it. you've an always got to worry about that word. in the 19th century there was a british hiorian which was asked one day what do you think about parliamentary reform in england? and he said parliamentary ref m reform. reform don't tk to me about reform we're in trouble already.

that's what he was talking about a century ago. i'm always a little bit leary of expectations when the subject is reform. now, tom in his gracious introduction mentioned the 9/11 fund but he didn't mention my book. whici wrote after my experience with the 9/11 fund. and that book was entitled what is life worth? now, you may have trouble finding that book today public affairs ess 2005 now available in paper back. you may have trouble finding that book at borders or barnes & noble. don't worry. my personal supply of that book is virtually inexhaustible. and if anybody has a problem just let me know who the

chamber. i'm sure we can get you a copy. people ask me all the time can't, is there any common denominator that you can look to as a public policy matter that describes your various work in ent orange with vietnam veterans, the 9/11 victim compensation fund. the hokie spirit memorial fund arising out of the massacre at virginia tech. pay czar at treasury. i hate that phrase. pay czar. that's a media coined phrase. that makes it sound -- first of all my grand mother in lithuania would be very confused by that title, but beyond that it made it sound as if i was issuing imperial e dick about pay. arbitrarily not so.

most of those compensation decisions were consensual after tough negotiation with aig and bank of america and citigroup and the others and it was more a mediation and a negotiation than imposition of sanctions. but that's another one i'm asked about and then of course now as tom referenced bp. bp. now, all of ese tragedies in american history going back to agent orange in the 1980s which is my first experience at coming up with designing, implementing and administeringompensation systems. all of theseragedies have a few common denominators when it comes to my work. first they are exceedingly rare. over the past 25 years of

practicing law the number of tragedies that give rise to a creative innovative alternative to the traditional legal system you can put on one hand i've witnessed efforts at trying to expand the notion of creative funds and creative alternatives statutory, judicial, private negotiation, largelyhey don't work. . they don't work. but there are a few examples that i can point to that tom points to that you know like 9/11, like bp. we are policymakers -- where policymakers decide in a consensus way there's got to be a better way.

. whether it's the volume of claims, the complexity of the claims the absence of a wrong doer. the absence of efficient alternatives a decision is made almost always by consensus that the traditional legal system doesn't work. now, you have to be careful about this. i'm a lawyer. i happen to believe that in the run-of-the-mill every day life in america the legal system works pretty well. it works pretty well in. every village in hamlet and city in this country every day courts are open to do justice and i think they do a pretty good job. that's my personal view. i can also cite examples like

9/11 where the 9/11 victim come pen fund created by congress only succeeded becau the trial bar helped and stood up and provided 1500 families with pro bono legal as is tans -- assistance around the country. the fund would have never succeeded as it did without the firm committed support of the trial bar. . so when tom criticizes the trial bar i join in saying there are situations there are circumstances where any profession can be criticized in the few areas over the past 30 years, 35 years where alternatives have been created.

they've been created because everybody came together and decided we need a better way. in agent orange the vietnam veterans who were suffering from various injuries and maladies allegedly caused by eosure to dioxide agent orange in vietnam. we sat down. i was the court-appointed mediator. rather than go to trial. rather than roll the dice in the court room everybody the chemical industry the plaintiff vietnam veterans agreed we better settle this case and we better find an innovative way to distribute 180 million dollars which at that time was the large tort settlement in american history. that was an interesting negotiation agent orange. the first day, show you how a

mediator has to be optimistic. the first day of that mediation we got everybody in a room. the ag chemical companies dow -- eight chemical companies dow, and others and the lawyers for the vietnam veterans and i said to the lawyers for the vietnam veterans how much do you want to set this will case? -- to settle this case? collectively aggregate o lump sum. what will you take? and they said to me we'll take 1.2 billion dollars. then i looked to the chemical companies e 8 of them as an industry what will you pay to get rid of this case. they said we've thought that over. together we'll pay 25,000 dollars. said we're making progress. we're closing the gap. and six weeks later it settled

for $180 million. everybody thought including in that case the court is a better way than litigating this case. and trying the case. 9/11 was all together different. the 9/11 victim compensation fund was set up by congress it was a statutory alternative, voluntary alternative to the tort system. congress said in that matter in return for placing barriers to litigate against the airlines and the world trade center. barriers that were statutorily imposed that raise serious obstacles toitigate. in return the trade-off we will allow any family that lost a

loved one on 9/11. world trade center. the airplanes or shanksville or the pentagon. or anybody who was physically injured as a result of those attacks to enter a voluntarily enter a no fault administrative legislatively imposed taxpayer funded fund. to be administered by the attorney general delegating to feinberg and over the next 33 months we designed, implemented and administered that program and virtually as victor schwartz and everybody else knows virtually everybody came into that voluntarily at the end of the 33 months we paid taxpayer money over $7 billion dolla tax ~-- free to 5300 claimants only 94 people, 94 decidedlet's

not take the fund. let's go litigate in federal court in manhattan. and of course those , 93 of those 94 subsequently settled their case. now that is a perfect example of a fund created and established as an alternative to the tort system. but beware about that fu. that fund will never, ever be reicated. it was a unique congressional response to an unprecedented historical event rye valued only in american history by the civil war, pearl harbor and the as is nation of president kennedy. and that fund was funded entirely by the taxpayer and everybody in that fund who was

el lidge received a different -- eligible received a different amount of money as an incentive to opt out a tort system and quick and efficient payment in lieu of years of litigation and all those people were represented by lawyers. they all came in. they made their case. we calculated the damage. we paid them they signed a release end of story. it will never be replicated that way nor should it. nor should it. i think the 9/11 fund was absolutely the right thing to do. but i've got to tell you, it's a very close case. i think if congress had waited two more weeks they wouldn't have done it. at least not that way. you should have read some of the e-mails i got when i was administering the 9/11 fund. mr. feinberg i lost my wife in oklahoma city.

where's my check. mr. feinberg i lost my daughter in the basement of the world trade center in the original atcks back in 1993 committed by the very same people. where's my check? mr. feinberg, i don't get it. last year my wife saved three little girls from drowning in the mississippi river and then she drowned a heroin. where's my check? you've got to be very, very carel in establishing a very generous come pen caution -- compensation program that compensates only a very few people in this country who are the victims of life's misfortune. bad things happen to good people every day in this country and they don't get on average tax-free $2 million as survivors

with taxpayer money and yet i will vigorously and have vigorously defend the wisdom of the 9/11 fund. it was the right thing to do at that moment in history not from the perspective of the victims but from the perspective of the country that wanted to demonstrate its allegiance. its empathy. its community with the victims' families. it was the right thing to do. but don't replicate it and if you're going to replicate it don't tie it to the tort system so that a banker's widow is getting $3 million and the fireman's widow is getting $1 million and the fireman's widow is saying to me you know mr. fireman, you never even met my firem husband. what do you have against him? why are you denty grating his memory by giving me 2 million less than the banker's widow. and when you try to explain, too

emotional can't explain. but that was the 9/11 fund. now, along comes virginia tech. that was a private settlement that was $8 million in private donations unsolicited from people around the country who were just shocked that in a rural college like virginia tech, 33eople could be murdered by a crazed gunman. there the governor of virginia, the president of virginia tech asked me to design and implement a program there. now, there i came to the concluon i think wisely all 33 families that lost a loved one get the same amount of money. i'm not making distinctions between deaths. you lost a loved one whether it's student or a faculty member contrary to the courts i'll give everybody the same amount. there one any objection. not much.

the problem with virginia tech was whether or not to pay purely mental anguish as a result of the killings. and we concluded that we would pay mental suffering. without a physical injury only as to those students who were in the classroom when the carnage took place. so one student said i didn't sufferny injury. the person to my left had her brains blown out. the person to my right was shot dead before my very eyes the gunman pointed the gun at me and pulled the trigger and was out of bullets while he was reloading i escaped. . but i can't get out of bed today. we decided in those cases that mental depression, mental suffering would be compensable but if you were watching across the street from your dorm or on cnn no.

not enough money. didn't want to open the fund to all of those thousands of claims. we decided not to do it. bp you know, tom donohue introduced me and said it's wonderful he's come up with the idea. i didn't come up with the idea of the bp fund. the idea came from the administration in direct ne ghoeshuation -- negotiation with bp and bp and the administration decided together there ought to be a way to get claimants in the gulf damaged by the spill paid and paid quickly and so tey agreed long before feinberg arrived on the scene. to set up a $20 billion escrow account. that would be used not only to pay claims of private individuals and private

businesses but also claims brought by government entities states. cities counties, lost tax revenue. et cetera. and also cleanup costs. all of those costs coming out of the $20 billion. the administration and bp together asked if i would come on board to design, implement and administer a fund to pay claims the overwhelming number of claims involve enomic loss. . business interruption. are you all right? that's your expertise. economic loss. business interruption. there are 11 deaths. 11 too many andhere is some physical injuries but for the most part i've received probably

in the last 8 weeks 275,000 claims. from the gulf. 275,000 claims. we've paid out already to 90,000 residents of the gulf individuals and businesses. 1.7 billion dollars. now, there's still thousands and thousands and thousands of claims that have not been paid. why not? well, i'll tell you why not. of the roughly 175,000 claims that are sitting in the cue about 110,000 of them are claims with zero documeation. not inadequate documentation. no documentation. thing. mr. feinberg i lost $30,000 as a fisherman. okay. what do you have to back it up?

here's my fishing license. where's your damages? what do you got? where's your tax return? lost it. okay. you lost your tax return. those things happen. but can you demonstrate with something. now, when you get that, and then there are thousan of claims that are woefully lacking in documentation we'll work with these claimants and we'll try to get these claims paid. the 1.7 billion paid to date are emergency payments that do not require a clay to wav any rights to sue. none. until november 2d any eligible claimant who can document their damage will receive compensation without any requirement that they wave a subsequent right. now, after november 23rd a delay

manlt -- clay imagine will be given a -- claimant will be give a choice. here is a final payment for all of your damage that is not yet been compensated now and forever more but in return you've got to give up your right to sue. if you don't want to do that. if you think geez, i don't know about the future of the gulf the oil may still be in the floor of the gulf ocean floor. the shrimp and the ohs oysters, i'm not sure. here are quarterly interim payments. that don't require you to take a lump sum paymentnd wave your right to sue. will continue to give you interim payments while you decide over the next three years for this facility when and whether you want to sue. you want a final payment and you

have another option. if you don't want the interim payments and you don't want the final payment and you'd rather litigate in court that is your choice. that is up to you. butly as -- but i will as i have in the past urged those claimants stay in this fund. . don't roll the dice. i will be more generous with this fund than i was with 9/11 and virginia tech and agent orange. ..

and not heading to the courtroom. final point. why do i say "publicly and privately? " why do i say that these alternatives to the vacation, like 9/11, like bp -- why am i so skeptical? why am i skeptical that they can be replicated? why do i say that they are one of examples tied to the individual circumstances? and are not affected precedence to anything we are talking about today? i will tell you why.

first and foremost, if you are going to take the model that i have worked with over the years in these isolated examples and apply it more generally to is this of the situation or a reform initiative, ask yourself the first question. the first question. who is going to pay for it? who's going to pay for the creative alternative? 9/11 victim compensation fund was 100% taxpayer money. there wasn't even appropriation would not lie was passed. there wasn't even a congressional appropriation for the 9/11 fund. it was simply, mr. fienberg, paid out of petty cash from the

u.s. treasury. no aropriation unheard-of. i asked senator hagel, how come no appropriation? he said appropriation, how do we know what so the first problem i've seen over the years, tremendous civil war in this room over who's going to fund an alternative. asbestos? i've watched for 25 years congress debate on and off the question of asbestos legislation, something that i think is probably needed, but shall never see it. don't they, it in my opinion, don't leave the trail buyer for the failure of that legislation. i've been around for 25 years watching the defendants argue over who's going to fund the program, manufacturers of

asbestos? employers of asbestos? primary insurers of asbestos? secondary insurers of asbestos? forget for a minute the plaintiff's bar. the idea of the creative alternative to the tort system to deal with this pestis, i don't think they can get the defendant industry to agree on who what to fund it. and without funding, the rest of is hypothetical, is theoretical. the second question of ourse if any of these alternative programs, is there a political consensus do with? would bp, with 9/11, with virginia tech, with ancient orange, i benefited from the fact that itas bya much tremendously consensual bipartisan apolitical -- apolitical. and that makes a huge difference when there is a general view that there are to be a better

way. i'm not better way is limited to the circumstances of a particular tragedy, just a lot better. so i'm all for listening today to this discussion about legal reform. i'm all for sitting down as i have over the years for some of the people in this room who i admire tremendously, dedicated people that are in this room, but i know well, that i've known for 25 years, 30 years. and i'm all for setting up a woing group to come up with, can we take the benefits of what can feinberg has done in half a dozen examples and apply them and learn from them and benefit from the conceptual design and implementation of these programs. think it's a great idea?

he can be the subject of a seminar at law schools? i think we would all learn a great deal. but actually implementing the concepts i've learned over the years from these unique tragedies and applying them to a different situation, i suggest that it won't work, that they are formidable, formidable obstacles to thinking that the bp escrow fund or 9/11 or virginia tech or ancient orange, offers us a ready designed blueprint to replicate that type of thing. i don't think so. i don't think so. but i can always be educated. i think that there are people in this room who have labored like me ove the years, thinking

about this stuff, trying to come up with creative alternatives as a sort of column type administrative alternative, simple to describe, very simple, very difficult to implement. so i want to thank everybody. i think what i do is part of legal reform. i think it does have a role to play. i think that the bp program will be a success. it has been a success. the critics, constrct dave has made midcourse corrections in the bp program, and the gulf coast claims facility, designed to make it more track to. i think it is the right way to go. that's an example of a program that the administration and bp decided was a creative alternative.

i'm doing it. and here to help people in the golf. and for the small goal quantitatively that i play as part of your agenda today, i'm honored by the invitation. i'm excited t be here. it's great to see people who were thinking reform the way i think reform every day and a thank you all. and i promised him that i'd reserve 10 or 15 minutes for questions. and he promised me that there wouldn't be any problem and questions coming from from the floor. thank you. [applause] delight must be in my eyes, so i n't see the hands. [laughter] come on, guys. there must be some questions out there. nobody has the- all right, yes, sir.

[inaudible] hold on. >> i was ery intrigued to hear about your decision not to lie on expected future allinson calculating damages in the virginia tech context. can i assume that was statutorily mandated that you take that into account and visit some experience you have in that context that led you to the conclusion that it wasn't an appropriate way to calculate damages. >> that's a very interesting question. now, you see a 9/11 i had to take into account expected future earnings. why? you're right, the statue, but remember in 9/11 we were tryng to voluntarily entice people out of a tort system. we'd better take into account future earnings of the banker or a struct worker. those future earnings will be greater statistically than the busboy, firemen, cops, soldier. and you're trying to get people out of the tort system.

that's the law. so of course we took into account expected future earnings as a mandated requirement to voluntarily convince people, don't sue. we'll give you those expected future earnings regardless of suing. .virginia tech there is no such requirement. and the reason i didn't do and virginia tech is eight, very limited amount of money. i only had private contributions for the entire virginia tech fund was only $8 milli. i had to be very careful about taking into account numbers that would exhaust a very limited plot. but beyond that, i didn't think since anody can virginia tech could take the money and still fail, unlike 9/11. you didn't waive your righ to sue. could take that money and go hire a lawyer. i figured, why promote division

among these people? let's give everybody the same. all lives are equal in the eyes of the fund. if you want to then go get an extra x by fightingthe lawsuit, were future earnings under the tort system could be considered, go right ahead. there's no barrier to doing not like there was a 9/11 fund. so i tought i was a good balance and sure enough it worked. we got everybody to take their money and virginia tech. i don't believe anybody suit. i believe everybody worked out settlements with the state of virginia. yes, sir? >> dan manheim, george mason university. as i see it, there's two components to your approach. one is independence, an independent position and second,

judicious case-by-case consideration. could we apply your approach to other areas of society by having qualified court, for example in the evironmental tribunal for the judges are all qualified and you wouldn't get the situation like madison county and cook county and so forth. >> well, that's the philosophic dete we are ready have in this country about specialized finders of fact and not. i mean, i suppose when you create these unique alternatives to the legal system, you're asking somebody who is independence, you say to render a competent view of compensation and payment. w that raises two interesting philosophic questions. d always the questions without answering them. i give you a sensor of myself.

be very, very careful about these programs that delegate to one person this type of authority. i mean, i must say that when you go to an administrative law cls, a law school, you get into this political science debates about whether or not it's a good idea to concur that type of independent authority on ken feinberg or anybody else for that matter. and i'm not sure it s. i'm not sure it is. i do an end run usually around that issue of independence by saying it is so unique and rare that you have one of these programs since 1986 -- 84, but i'm not sure it's necessary to have a down and dirty final debate about it. feinberg was a meteor in agent orange and theseother matters.

it's sort of a sideshow. i mean, these are very important matters, but there's not that many o them. they come up in the context of a terrible tragedy. i must reserve the political science debates were later. the second issue you raise is whether or not it's a good idea to have specialized tribunals or for specialized finders of fact or not. i woul say courts, but that begs the question. specialized proceedings. i'm still a little dubious about that in this country. i think the problem of counties that you talk about, where there might a problem, that might be addressed separately. whether or not generically it's a good idea to promote the notion that in patent cases, a patent court in intellectual property cases and intellectual property court, copyright courts, environmental court, i think generally the american people don't like that idea.

they certainly haven't historically. and maybe i could be convinced, but i'm not there yet. any other questions? yes, sir. >> yes, sir, my question is this. hesaid the six songs or five sons were unprecedented in american history. but yet you may not have invented this whole entire concept and maybe go in on other places in the world whether involving reparations or whatever. did you find any foreign models that were good guides to yourself? >> not really. it's a very intriguing question, that if we examine foreign compsation systems, which the litigation system is so alien to ours, i'm not sure it'sapples and apples. first of all, i'm not sure that

foreign systems have developed compensation schemes like we have. i've got to tell you, after 9/11, i received inquiries from three foreign countries. mr. feinberg, we are very, very interested in that 9/11 victim compensation fund. we are thinking of doing something similar in australia, an great britain, in israel. we're thinking of doing something similar. we'll explain to us the blueprint because we are very interested. so i start to go through the blueprint. and then i say to them, and everybody who lost a loved one on 9/11 and received an average of $2 million tax-free. click phone, they hung up. [laughter] the minute you get to the dollars, the minute you start talking about dollars like that

in an administrative know fll system, we are paying 7 bilon taxpayer money. not a whole lot of interest. many mentioned reparations. that's very, very different. president reagan, for example in 1980 came into office and immediately signed a reparations statute that compensat for te dems of cora matsuda, japanese internment after pearl harbor. but that's not a reparations program. i'm sorry as a government. that's ver different. in that sense, i think everybody receives the family, the next generation, the relatives. i think everybody received $20,000 an apology. is a reparations is a think different fromwhat's going on

with agent orange, 9/11. the government never apologize for anything. zero apologies. not that it should have. i'm just saying it didn't. bp is not a reparations program. so interesting food for thought, though. one more question and then you'll beready -- let's do one, two, three and that's it. no mre. >> good afternoon. >> wait a minute, hold it, hold it. one, two, three, go ahead. >> customs about possibly for personal and a jury. it seems like you're in a very different context than the bp situation with economic loss. so you questions of mitigation of damages, getting back to work in a very certain atmosphere right now. i'm wondering how you can decide what they fear payout by november 23rd when he don't know what the future purges. >> or not to decide the

november 23rd. november 23rd is the first day when someone can request a final payment. there's two answers to it. one, am now seeking the very best independent science i can find on the likely future in the gulf. so i'm not relying simply on the claimant or bp or state attorneys general or state governments, federal governments , private experts, ella seo, schools in the area. i'm asking a lot of people, give me your best testament on the future of the gulf. now, that concern you have raised in your question is tempered a bit of the fact that the claimant can refuse to take the money and wait another year or two. i'm not sure many claimants away, but thought that option. and in the meantime, they continue to get interim payments for past damage that they've suffered. in that way i'm hoping that over time, we'll get a much more

consensus on filings. the whole thing with bp, the whole thing with 9/11, how do you measure success. it's easy. not easy to get there, but it's ea to measure success in all of these programs. how many people took it? puts the opt-out rates? how many people decided many of these programs are better off taking what is being offered than the alternative. when you guys talk about legal reform, don't forget that question. what is the alternative? and in my business, my goal was to try on the merits to convince people you are better off taking this check them not taking this check. that's your choice. and we'll see. the market, the free market will

be one way or the other. tomorrow. >> and the native bank split off his insurance company. my question is, how will you choose a polygraph or foreseeability concepts in determining which claims are compensable under the fund? >> want to come work fo me as a consultant? [laughter] did you read the times piece on the sunday section? fabulous, it laid it out. it's one thing to say i own a pensacola. oil washed up, pay me. pay it. show your damage, but pay it. problem number two, ione motel not in pensacola. ione motel 10 miles from pensacola on the beach. no oil ever washed out. but we all thought it would wash out. pay it.

i think pay it now. paul's gaph. ione motel in fort lauderdale. no oil, but i can't tell you you, mr. feinberg, the media around the country on cnn that that oil gushing out of that well, e suffered. here's her damage model. we suffered damage, directly attributable to this bill appeared before the spill, here's our numbers and after the spill hears her numbers. there's no oil and there was never going to be any oil. but we have been damaged. that's a paul's graph. what is the duty of the gcc f., the gulf coast claim, what duty do we owe the company, that motel or the restaurant in boise, idaho this is plus 12%

of its business because they can't get shrimp were shrimp scampi. i mean, proximate cause all you portland lawyers. proximate cause. but for causation under the oil pollution control act, there's never been a disasterlike bp. the oil pollution control act was passed after exxon valdez to do with exxon valdez. how do you decide that? originally i said if you're too far away for the spill, you're out of luck. well, i got my head handed to me on that one, so i backed out and said okay, physical proximity, geraphical proximity to the hill is not required. but can you document your damage if you're that far away? that's going to be the interesting issue. last question.

>> and from the law firm of bryn mawr's. and your management of the gcc act, >> my own standards, publicly using the oil pollution control act as a floor. it goes back to my previous answer to the question. my goal clearly, publicly michael, let's corral as many claims as possible, pay people as quickly as possible, so that they don't voluntarily ought to sue. there are some very good trial lawyers, litigating in new orleans. i have great respect for them. my chalnge is to see if i can develop a system involving final

payment beginning november 23rd. up till now it's been a skirmish. now, after november 23rd, can i develop a program that will compensate claimants in amounts greater than they would likely receive under the federal oil pollution control act? so i've used the oil pollution control act as a guide, as a floor. and my goal is to see if i can attract claimants into the program in a manner that will make them whole and at the same time avoid the specter of so many thousands of potential lawsuits. ain, i want to thank tom donohue. i want to thank the chamber for the honor of appearing here toda want to thank all of you. i think the people in this room, more than just about any group that gets asmbled weren't

involved, i think the people in this room understand very well most of these issues. and there are various responses and options. but when i was invited to speak with these folks and have q&a like i've got today, i didn't want to pass up the opportunity >> today is election day. the midterm elections will determine the control of the house and senate. join us later today for election results around the country. we will give you a chance to add your voice to the mix. we'll take your phone calls, e- mails, and tweets.

from the associated press, pensively democratic governor ed rendell said if democrats do not do well, it could be because they have not done a good job of explaining what they have accomplished. the gop is ready to work with everyone. the associated press reporting today that president obama will hold a post-election news conference tomorrow. the president will take questions from reporters beginning at 1:00 p.m. eastern time. it will be the first time the for the president to react to the midterm elections. a quick reminder that we have dozens of debates and campaign rallies available for you any time on line. there are newspaper endorsement and political ads available online. this election day we invite your phone call on c-span3. opportunities to

give us your views. the numbers are on your screen. we would like to hear from you. you can also comment on facebook.com/cspan. there's more to the c-span video library. the american story from american history tv and everything we have pared all free online at the c-span video library. the discussion now on the sustainability of profitability of environmental competitiveness from the recent greek intelligence forum. this is just under an hour.

we have jerry taylor, burris klafter -- bruce klafter, a senior editor of "the atlantic" and the chief washington, enter from "the financial times." he is tied to the issue of environment because he has been an amateur landscape photographer for 30 years. he appreciates the environment for that reason as well.

he came to us about five years ago. he was a correspondent -- a washington d.c. correspondent and as deputy correspondent. his work is with "the atlantic" also the "financial times." he worked briefly in her majesty's treasury. thanks to you all and i will turn it over to clive crook. >> thank you. we are pressed for time. i will keep the introductions breeze. many of you are familiar with these issues. many of you will know the panel to begin with. but me say a further word about who we have here. jerry taylor is a scholar at the cato institute. he is a leading speaker on in our mental -- environmental

policy. bruce klafter is head of corporate responsibility at applied materials and is one of the most distinguished corporate lawyers in the environmental area and a former deputy attorney general of california. katherine sierra is a senior fellow from the brookings institute. she was formerly a vice president to the world bank or cease to provide a couple of world development reports produced on these issues. and finally we have jeffrey leonard. your name slipped my mind. jeffrey is a member of the panel i know best.

, thethe president and ceo global environment, a private equity firm, looking to make for-profit investments in the environment and resources area. our topic for this session is the role of the private sector in addressing the sustainability issues. how do we get the balance right between the profits motive in these issues? and it is a fact that many companies are devoting more and more of their intellectual and corporate resources to developing products and services in this field. there is a great deal going on. the private sector is ahead of the public sector in many respects. each member of this panel has

some special expertise. i wanted to start by asking each member of the panel to say a few words and give us an overview on why they think this issue stands. can would be satisfied the role the private sector is playing at the moment if the balance between private profit-seeking in issuing -- initiative is right, or does the balance need to be shifted in the other direction? do we need the government to take a more forceful role to lead the private sector in the right direction? or do we need -- does the government need to step back and see the private sector has this issue under control and things are moving in the right direction? maybe i can get an initial take to that question.

perhaps we can start with jeffrey. >> there is a lot of green- washing going on. there is a fair amount of that from the laggards standpoint. for a lot of companies, this is not a new issue. think about 3m using the term since college and focusing their development into new products and goods around that area of competitiveness. for a lot of ceo's and boards, the environment and the sustainability issues have become like the canary and the coal mine, where they can begin to see quality-control issues. i think the pushed over the last decade has brought -- as more and more companies have requirement to think about cradle to grave and so on.

that is a positive development, for sure. some companies have been able to internalize sustainability and make it a part of their agenda but push it off on others. walmart and others are going around to all their suppliers and st. cleanup, like in your car bent footprint, demonstrate to us that you are a value chain or you will not get shelf space. think about general electric and they have seen whole new markets coming from sustainability agenda. i think that is all very positive. so everything i have said is a positive development.

we need government to catch up to a stable regulatory climate. >> that is a good introduction. >> i would agree with points that were made. i worked on developing countries. " we see is those countries starting to wake up about those opportunities and that will take them towards. they are stymied because of the global deal on energy. whether that is reducing subsidies on fossil fuels are putting in place the carbon markets or other facilities that will give you the right price, that is stopping the intervention of the aggressive movement. the part that proves the rule in china -- the economy is going aggressively towards moving towards great innovation. the question for the u.s.

companies is, what are they doing to keep up? is public policy helping us in that direction? >> let me say a couple of things to give you some context. applied materials -- you may not know a lot about us. we are a $9 billion company. in the context, we are a small company. we are a 45-year-old company. my perspective is from the west coast. 60% of our business is in asia. we sell into the semiconductor market and now the solar market. solar is over $1 billion now. many of our customers are in china. china is making investments in this sector very fast. we would love to see some policies and no development that would help us kickstart the

economy, the solar industry and the united states, as well. we do see there are competitive factors at work here. we are at risk of falling behind. in the display market, we sell equipment that is used to make things like the ipad. that is a cool product. we go out and buy them by the millions. solar tv is a great product and it is a cool product. but still it is an expensive product. it will cost you $20,000 without subsidies to get that in an average home. it is not a decision people make lightly today. we would like to see policies continue that incentivize people by those types of products as well. if you believe everyone in the

solar industry, their desire is to get to grid parity and to do that without incentives. you have to build demand so that there is a cycle. companies continue to drive the cost down. we have done that with semi conductors. that is what we want to see happen in the energy market, as well. >> to promote grain policy and green practices, they will continue to do so. corporate actors are profit maximizes. of course, they have done that by minimizing overhead and maximizing profits. now it can be labeled as something and to bring it out at conferences like this. it is relabeling what cabalists do every day. companies will continue to do that.

-- if consumers again, that is how you make a profit. there is nothing wrong with that. people buy a prius even though it is cheaper to buy a conventional engine alternatives. one provides internal consumption goods. if people want to pay more for the prius because these other benefits they receive, that is fine. and nobody in my camp of the world should have a complaint with that. maybe people spend more on organic foods. it is not necessarily clear to me that green products and read services need to be cost competitive with the so-called non-green alternatives. if people that you agreed as part of the product metric, they will pay a premium for it.

the question is, how much of a premium? that is what markets will find out. i do not want the government to incentivize people to buy these products. that means that we want the taxpayer to subsidize them and we want to transfer wealth from some people in the economy to other people in the economy. these are the people who are able to contemplate putting out $25,000 for that. i am not sure it is a good policy. let them buy them themselves. if the public is as green as them, there should be no concern. people will provide goods and services to make a profit and to serve that committee. >> there are two pieces here

when you think about the array in investment opportunities looking forward. it already makes sense economically. there's an awful lot of waste in the system. we do this all the time. there are projects that would make sense that are not moving forward. that is one category. the other is investments that the world depends on a change in the regulatory frame of walmart where you need a new signal and investors are waiting for that to be established. i would ask you to respond to this. we can take them separately and think about the -- the opportunities to save money, to make more efficient choices with existing technology.

it is rather odd enterprising there should be such things. many economists will react by saying there cannot be a dollar on the side of war. what is your sense how big a prize is there simply in recognizing that there are profit opportunities that are going to waste? and why are they going to waste? what do you make of this? >> there are lots of knowledge about companies not investing in efficiency with the twin dollar bill on the table and not being picked up. the focus on green and consumer preferences looking towards different projects and starting to look for the -- looked at the walmart experience, which probably went in to try to have

a more friendly face on walmart. as they went looking for their energy platform, many opportunities -- >> this is happening. >> it is going to start happening on the watch your side -- the watcher side. perhaps the companies are focusing on those returns that they can get some new capital investment and perhaps not putting their executives and investments into looking internally. >> bruce. >> we also under estimate the matter of ignorance in the business world. we were having some of our first discussion about some energy efficiency projects, and i went to our facility and asked the college how much energy are you

using and so on. all they could do was produce the bills for me. they did not know how many kilowatt hours there were consuming. there was a process of educating them about what they should be looking for. i see this repeated over and over and many companies. opportunities to exploit them did exist. there are many examples out there of companies who have been fabulous things quite some time ago or more sophisticated. there are a large number of companies in this industry who are just learning these lessons today. he did ask about other areas where we need some types of signals. i would suggest that water is going to be one of them. we have looked at water projects many times. the cost of water it is too lowell. so those projects -- the cost of

water is too low. so we have put a lot of those on the back burner for that reason. i hope we can figure out how to make them pay off. >> i think there is a lot of truth to what you said. if all other things are people, is more energy efficient than firm b, that all things being equal, firm b will devour firm b. it is not surprising that as long as companies are allowed to go bankrupt and face the consequences of poor management decisions, -- i do think when we have these conversations, we use the act as if the observation of

the market is not in perfect equilibrium. there'll always be new innovations and new discoveries and learning over time. that occurs naturally in a market. it is not surprising that, the dollar bills -- that $20 bills are found on the ground and people are picking them up. let's not completely go overboard in talking about corporate big difference. one thing i find in talking to corporate managers is they are completely flustered over the fact that there are opportunity costs they can spend money up front to improve energy efficiency, which like a payback time over three years, or the

king used that money for other options which are blind to the regulator or the consultant. but they will make those investments. they are not blind. get a bettercann return somewhere else. there can be perfect knowledge for alternative uses of its capital. there are many examples of managers who do not take -- who do not pay attention. but well-defined these guys, we're doing is telling a company that you know better than they do in maybe 75 different investments. i find that a relatively difficult thing to believe. >> you are looking for profit- making project. what is your sense of the scale

at a given level of regulatory oversight? how much waste is there in the system? is it a big deal? >> i think there is a lot of waste in the system. it has been the policy of the united states for the past 75 years -- we have used subsidies within the system to ensure that. i think therefore that because of energy has been so cheap, even smart companies have found is the best thing it can do. do not look at petroleum prices. look at electricity prices. electricity prices have doubled in most regions of this country. i have never seen electricity prices go back down. they go up, they never go down.

down to 10 cents a barrel and as high as $200 a barrel. electricity prices are changing industry today. many industries -- if you have 30% or 4% of their cost structure is on electricity costs, and you have just cut people and then you got on the greenspan bandwagon to start looking at technology to cut your cost structure, energy is a larger and bigger -- electricity is huge for you. i do believe corporate america is scrambling to find ways to address that. the japanese use less than half the amount of electricity then we use. that is scarcity. that is a darwinian world. in the area of energy, because it has become so important,

corporations who can become more efficient in the use of energy will be survivors in the long term. other's move to the category. waiting for a price of some kind. a couple of you mentioned china in the introduction a sort of moving forward rapidly in these areas. how far that is -- a hard-headed business calculations about profits about growing your corporate sector and how far is it a bet on a new environment? to sundry, it might be both. i would be interested to know -- to some degree, it might be both. if a company gets too for a head

of the trend, then it pays a price in its own demands competitiveness. one could do too much and it could end up costing the economy. how does that balance strike you? where do we stand on that? >> i think it is a complex decision. they will be facing a massive demand for energy. coal will be an important part, but they're also looking at nuclear. whether that is manufacturing -- what we're seeing in china they are not doing so well on the deployment on some of these

-- they're doing better and they're starting to ask, how can we deploy that interlink? >> we are seeing there are tremendous strides in terms of building manufacturing capacity. they are still exporting most of that. we have 100 customers in china alone. i would wager that 95 of those are companies that no one in this room have ever heard of before. same thing is true in the display business, as well. they did not succeed in everything they have tried to do in china. the semiconductor industry is struggling. korea, taiwan, the united states are still superior in terms of the yields, the quality, and so on. even know they have tried to build the kind of industry, it did not work. in solar, if we don't see

capacity built in other parts of the world, we may have conceded that to them. there are no display companies operating in the united states. it is all overseas. every tv we buy is made somewhere else. that industry was born here and it flourished here for a long time, but it has completely disappeared. >> does the issue of national short-term-ism -- this is the argument. if we do not innovate in these areas, if we somehow don't force the pace, we are going to lose this business. and we will end up suffering economically because of it. is that a valid argument? >> i think there is the possibility. i forget the speaker's name who made the point that it might be dangerous to have components

made in other parts of the world. i do not subscribe to that notion. there is no danger in installing solar modules in the the united states that were made somewhere else. if there is a better way to manufacture them, that is what is going to happen. if we will have a diversified economy, we have to continue to see what we can make here and make it affordable way and the capture more of the value. there is still a tremendous amount of innovation going on here in the united states, not just in silicon valley, but all over the country. i wish to set solar company international in los angeles, 25,000 attendees, dozens of states represented, trying to make a foothold in that business. the question is, what are the necessary factors to help them thrive?

it is not just enough to have a good idea. >> this sort of national competitiveness agenda that requires what you might call a more pro active industrial policy to spur innovation in these areas? >> yes. you're right about that. >> excuse me. [laughter] >> i think that is what it comes down to in practice. >> i am not in charlie -- shintaro ensure that green energy -- all of the studies we have seen which tally of green jobs make no effort -- if we buy more green energy, we will have less need for brown energy. the studies never looked at the lost jobs on the browned side.

they do not look at the number of jobs that were lost. it is a complete mess. let's assume the numbers are correct. pennsylvania offers an interesting point. there was a study that came across recently, an acclaimed summer-like threesome -- they claimed something like 3000 jobs were created. the revolution in natural gas and the exploitation of hydraulic traction has about 89,000 new jobs in pennsylvania. this is complete news to anybody. if we're talking about trying to

create jobs through industrial development, you can embrace natural gas. it is hard for me to believe that green energy will be the backbone by which we are going to create economic growth. if all i have said is correct, green energy is more labor intensive is not a good argument for green energy. you do not create wealth by maximizing the input associated with production. so even if it is a jobs creator because it is more labor intensive, that is a bad argument for green energy. >> i wanted to come back -- a national interests in promoting the right kind of innovation. >> how do we know what the right kind of innovation is?

we believe in trade for a reason. we believe that it makes sense to produce what you have advantages and allow other countries to take evanish of their unique gifts. we trade with one another. it is not for the government to say we want all production to occur in the united states. it would be a not -- it would not be a wealth-maximizing opportunity. it is more economically advantageous to produce them somewhere else, they will do that. if taxpayers underwrite the cost, we should thank the other countries for the gifts they are providing us. >> i tend to keep coming back here.

what is your take on this question, the national interest and the competitiveness agenda that recognizes the salience of environmental and resource investment? >> i am not a big believer and long-term industry subsidies. when you have subsidies, it focuses more and more on washington and it becomes pork- barrel. we have created 600 megawatts of solar power. that is a midsize coal plant. you could put an industry argument on that one. most of the money when the great subsidies goes to the wrong things in the end. there is an argument that people fall into winds talk about the use of capital goods and where

they are manufactured. if you are selling -- if those display panels used for retail consumer goods, you could say there a few jobs associated with them today because they have all gone overseas. this is a power plant and is made to be there for 40 years. think about the multiplier effect in our economy. it is a panel, $600 and it comes from china. it is $600 of wealth created there. it is not a national security problem. bring it to the united states. -- put people on the roof. you create two jobs when you put solar panels on the roof. the utility will use this to sell energy through 04 30 years.

the multiplier effect is hundreds of thousands of dollars. to make it is not that big of a deal. -- to me, it is not that big of a deal. the flip side of that is that the government stimulus program has been used to put a lot so- called new technology companies, to put a stake in the ground and tell them to manufacture it here. that may work. it may create a comparative advantage in the united states. but a place in california will never be the optimal place to create these products. north carolina gave a subsidy to build a new plant for a laptop in north carolina. as soon as the the requirements of the subsidy expire, they pack

the plant up and send it to taiwan. that is what happens when government tries to get too smart in choosing where these technologies should be. intellectual property, that is the comparative advantage of the united states. imagine if we had continued the government spending on new energy sources from 1979, when jimmy carter left office, to today. if we just continued the percentage of gdp at that level, we would be 30 years on and it would rival where we are with semiconductors and other areas. if government spends money, it rhould be into the basic o and d. but real truth venture capitalists take the risk and

finance does business and they will be a leader in the next 50 years. >> i just wanted to invite some questions and comments from the audience. we have a couple of microphones here if you would like to ask a question or make a comment, i will turn to these microphones in a moment. if there's anybody standing there, i will take it. otherwise, i will keep on going. while people are collecting their thoughts, but respond to what jeffrey just said. this goes a little bit against the view you have been expressing, jerry. think about the innovation and you cannot help but notice the salience of the government's role in the past, so many big innovations have come out against big spending.

about european style traditional british style, industrial policy. but that commitment to the early stage to r &d, and that was the seed often that got the thing going? no. let's look at energy markets because these are all broad questions. let's narrow it down to energy. the two biggest revolutions in the energy market have not occurred in the nuclear power world, where we have dumped one of the $20 billion of the last 40 years. they have not occurred in any thing the government has funded. natural gas turbines and the development hydraulic tracking. they have been more

revolutionary than anything we have seen since world war ii. these work for the most part individual private initiatives that have revolutionized that sector. we spent $130 billion on nuclear power r and d. do we have fusion power? no. nuclear power is still the most expensive source of conventional energy on the grid today. what makes pouring so much money into solar or wind or geothermal or biodiesel would have any different a fact? it may and it may not. no matter what you think about the failures of the market, turning to government to allocate that money to pick winners is essentially to turn

it over to lobbyists and special interest and politicians who care about maximizing political clout. you will get a random series of political handouts. >> thank you. my only reservation and having you on panel is that you are always -- you squirm around and you never quite say what you think. we like you anyway. >> i actually agree. we have not put into the discussion of why we're doing this. we are worried about climate change, we are at or about reducing co-2. i would put a price on carbon. whether you do it through cap and trade or a tax, something to get the taxes right.

>> today is election day. the discussion now about challenges new governors may face as they take office. scheduled speakers include the executive director of the national governors' association. this live discussion is taking place in washington. >> welcome to the urban institute. i'm the vice president for research. we're delighted you could join us today, whether you are here in person or you're listening in on our audio webcast. at least two dozen states are likely to have new governors today. these new leaders will face daunting challenges in the months and years ahead. a sluggish economic recovery, persistently high unemployment, and many -- in many markets.

and the beleaguered state budget. a lot of the conversation here in washington and much of the urban institute's work focuses on federal policy. but state government plays a critical role in the economic recovery and in the lives of families and kids. states faced different challenges, depending on their economies, their demographics, and their fiscal histories. over the next month, we will be returning to the question about how different states are fairing and how state governments are responding to the challenges that they face. today we have a terrific panel for you. i believe that none of these experts have any intention about making predictions of the outcome of voting today. but they also are not going to

shy away from talking frankly and specifically about challenges facing tomorrow's new governors. kicking off our panel will be kim reuben, who directs the state and local program, where she is a senior fellow. her specialty is our state and local public finance and economics of education. the next presenter will be ray scheppach. he is a former deputy director of the congressional budget office. he helps identify priorities for the nation's governors. he may not be going to bed tonight. ray will be fall by -- will be followed by bob lerman.

he is an excellent on family structure and how it works together to affect economic well-being. ed montgomery is the dean of the georgetown policy institute. he has served on president obama's task force and was executive director -- he was also deputy secretary at the u.s. department of labor during the clinton administration. the last presenter will be richard ravitch. he is a partner in the law firm -- in a new york law firm. richard helped resolve new york negotiating an arrangement with the ford administration and serving as an intermediary between the city

and the municipal audience and their pension funds. moderating this terrific panel will be margaret simms, director of our low-income family project. i'll turn this over to marker. thank you again for being here today. >> i expect this will be a lively conversation. the voters go to the polls in 37 stowe's today to elect governors. in 10 of the states, the unemployment rate wasn't double digits at the start of the fall campaign season housing markets have been in decline in 15 or more states. state budgets have yet to go back to their 2008 levels. these newly elected governors -- will they need to grit their teeth and get to the next two years, or do they have longer

term problems that need to be dealt with now? today's house will address these and other questions. we will have some discussion among the panelists. and then i will open it up to questions from the audience. >> and i would like to welcome you all here. i suggested we should call and see if you really want this chopper went to people want to be governor right now? the current recession has been the longest since the great depression. most states have had revenue declined and have had increasing demands on them for more spending. they have been facing shortfalls over a long period. the start with fairly large rainy day fund in 2007 and 2008, but now they're facing large

budget shortfalls. 18 states face shortfalls of 20% or more. 46 states have some kind of budget shortfall going into the 2011 budget year. the one way to guarantee the way you do not have a shortfall is to be lucky and hope you have natural resources underneath which to govern. unless you can find some mineral or natural gas supply under connecticut or new jersey, it is not clear whether there are any easy answers for the other governors going forward. the 20%, the number of states with budget shortfalls was actually higher in 2010. 34 states have. another 10 states are expected to have shortfalls at that level or greater in 2012.

this is a problem that we have going forward that we have had for a while. part of the budget shortfall is the fact that states have not necessarily made the tough choices to balance their budgets. part of it has been pushed forward in an atmpt to increase -- to deal with the problem in the next year and hoping that it will be easier once the economy gets better. a lot of the states that have shortfalls are california, arizona, florida. states that work hard hit by the house the decline and the foreclosure problem, also midwestern states that have had a hit in manufacturing. they have not necessarily gotten back on their feet in terms of having a balanced budget. if to look at how they balance their budget and how they manage

to do anything, they raised some taxes. it also cut some spending but largely those for one time things. in figure two, shows how big the shortfalls would have been without stimulus. for people who argue the same as it did not do anything come out for state and local governments, it was a lifeline that helped make was a horrible problem more tractable. they have not totally solved it. but if they do not have the money from the government, it would have been that much worse going forward. we're still expecting $160 billion shortfall for this year. going into 2012, it looks like there will still be a $140 billion shortfall. these are the most up to date numbers.

is there any good news? if you look at the government numbers, you will see that state revenues are up compared to last year. there has been a 2.3% increase over 2009. state revenues are still 50% lower than the war in 2000 aid. we have not totally recovered. a lot of that increase in revenue that states have seen have come because they have increased taxes. is not necessarily that they have increased their revenue because the economy has recovered. they have not seen much in terms of economic growth. they have had to make some hard choices going forward. local governments have been doing a little bit better. part of that is due to the fact that they are backward looking

and they have increased their taxes -- their rates. if they have to make cuts, where are they going to cut? one of the things that comes up is they cannot cut all that waste and fraud. we do not need that many state workers. if you look at where states spend their money come there is about $1.5 trillion and half of that goes to education and medicaid. that is where the big dollars are. in total general spending, it includes things like transportation. that will include some of the stimulus money and some of the infrastructure. if we turn to the general fund money, it is even starker. budgets that have to be balanced each year, about 60% of that

money goes for education and medicare. tough decisions need to be made if we're going to balance these things and get through the short-term problem. going forward, even after the economy recovers and we managed to get rid of the short-term problem, there is a longer term problem. other speakers will talk about medicaid and the fact that health care will be a problem for states. i will focus on pensions. there is about a $one trillion

california is always the laggard in terms of passing its budget. instead of needing a super majority, you would only need a majority to pass the budget. if that passes, especially partnered with the open primaries that passed in the primary, we might see a cane changer. it might be possible that california is experiencing something even more unlikely than the giants' winning the

>> from 2010 -- it is normally very bad, because that is when you get the explosion of medicaid. now, we think it is over that three-year time that will be over 21%. the unemployment rate peaks very late in the cycle. that is where we lose the maximum amount of revenues. that will impact 2010, 2011, and 2012. and we are in the jobless recovery component.

if you look at the economic forecasts, states did not come back to 2008 revenue levels until 2013 -- june not come back to 2008 revenue levels until 2013 or 2014. it will be a sluggish time of revenue growth. and we're into the period, 2015, 2016, 2017, has to be used to pay back everything we stole or borrowed from the previous years. information management systems have not been graded -- upgraded. you have to rebuild the rainy day funds the whole pension liability is around $1 trillion going forward. that is not only that they did not put money in. states also barred from those trust funds. when you add that together, you get a three-yearperiod --

three-year period of going back to try to meet the unmet needs you had before. then, of course, 2014, you have the impact of the medicaid expansion, which means you have to pick up 16 million more people into medicaid. so that is going to be a pretty significant drain. i probably differ with a lot of the cost assessments that are bandied around in terms of spending. even if you accept those, one thing that is pretty much true is that over the last decade, we had revenue growth of about 6.5%. a lot of that is due to the consumers leveraging up the whole economy. when they did that, we got good sales tax and other revenue.

going forward, my sense is we are in the 4% range, rather than the 6.5% range on revenues. it will be much more difficult to support medicaid. i think they're really caught in a bind between revenue growth, medicaid, trying to pay back pensions. i just do not think it is doable. one of two things will happen. they have to make huge cuts in education infrastructure, which will have a long run impact on productivity, competitiveness, and economic growth, or the federal government has to come back, as they did in 2002, 2008, 2009, and bail the states out. thank you. >> well, with that very positive outlook from the first two speakers -- i will talk about jobs, which, of course, has its own negative elements. i will try to finish on an

upbeat note. we have today terribly high unemployment, long-term unemployment, which is of special concern, is now 30% of the unemployed. they have been unemployed for one year or longer. this is unprecedented in the united states all the wood has been very common in europe for many years although it has been very common in europe for many years. they're quite big differences. about 1/3 experienced only about a three percentage point increase. their on employment rates are up to about 7%. another 1/3 has increased about 5 points up to nine percentage point unemployment rate. the top 13 has seen almost a seven point increase in the hasployment rate -- 1/3

seen almost a 7-point increase in the unemployment rate. if you take the people who have been unemployed for 15 weeks or longer, the unemployment rate is almost 7%. this is a little surprising, in that the gdp -- you might say, well, we are only about 1% down from the peak three years ago. you might say, well, it is a little surprising. on the other hand, relative to our potential growth promote it may be either nine -- 8% or 9% down. overall unemployment -- overall employment is down 6%. if you look at job losses, in the very difficult states, it is almost an 9% decline. these states vary in terms of the highest-unemployment rates.

alabama -- arizona, california, florida, and nevada. a number of other states, alabama, south carolina, oregon, tennessee. as we have seen and as has been discussed, a lot of this has been driven by job losses in manufacturing and construction. this is well known, but it is good to review the actual magnitudes. if you go from mid-2007 to mid- 2010, again, u.s. jobs are down about 5% or 6%. construction is down by 30%. manufacturing jobs are down by 17%. it in the states that have experienced the biggest drops -- the biggest unemployment increase -- construction jobs are down by 35%. that is one out of three jobs.

it is an unprecedented decline. if you try to use the data on all of the states to see how much is associated with manufacturing and construction jobs, that accounts for about 8% of the variation in the unemployment increases over this period. people have often remarked about the decline in house prices. that is a huge element. in fact, the correlation between increased unemployment and declines in house prices is about -0.75. a very high correlation. on the other hand, some states that have very high unemployment rates have not had much of a decline in house prices. for example, alabama -- prices

in alabama have only gone down by 3%, but their unemployment rate went up by 7.5%. in indiana, house prices only fell by 3% and they are still at an unemployment rate of 11%. a lot of this has to do with manufacturing, as has been remarked. and these housing and construction jobs and manufacturing jobs are very often cyclical sectors. so, you do see big increases and decreases depending on the business cycle. this is a much bigger business cycle and we have seen much deeper job losses, but they tend to come back as the cycle returns. we're seeing that in manufacturing, but not construction. in manufacturing, output is only

a couple of percentage points down from what it was in mid- 2007. but, jobs are still down very substantially. we're seeing productivity growth -- we're seeing a big reluctance to hire. in construction, you see a continuing decline. output in construction is down about 25% to 30%. whereas, manufacturing, in the last year, we have seen increases in output. in construction, we have not. the international monetary fund has done a paper to look at the role of skill mismatches and other structural factors in today's unemployment. i know it is a controversial issue. they say it is only a small amount, but a non-trivial

amount is due to these factors, something on the order of 1.5% points out of our increase of about four to five points. it is not the majority, but it is not trivial either. in my opinion, governors could do something that would move us both toward more jobs and more skills in terms of reducing the mismatch. my favorite option is to try to expand apprenticeship training. that would, and the one hand, get people and to employment -- into employment. the training they would get would be linked to the jobs of today and the jobs of the future. one could provide a set of subsidies. we have a relatively small and apprenticeship program today. most subsidies would cause an increase, not just pay for existing slots. in some states where they have

tried to do this on a small basis, they have been very, very successful in encouraging companies to begin apprenticeships programs and to expand their work force -- workforce. if i time in the future, i will be able to expand on how to do that -- if i have time in the future, i will be able to expand on how to do that. i think it is an excellent option. from the government point of view, it is a big cost of shipping option, relative to spending large sums on community colleges -- big cost-saving option, relative to spending large sums on community colleges. often, training costs are borne by the government. this is a cost-effective strategy that we ought to move toward as the economy starts coming back. thank you. >> ed, can you continue with the upbeat side?

[laughter] >> i think we're sufficiently depressed. we're moving to california. i have a few things to add. i think the lansky -- the landscape has been laid out pretty well by the previous speakers. if you look at the labor markets, we have lost about 7.5 million jobs since the recession started. as bob correctly pointed out, the big losers for that -- the big sectors or those job losses occurred, a little over 2 million in the manufacturing jobs, about 2 million in construction, of the 7.5 billion, that was 4 million in those two industries alone. if you look at professional business services, which is often the sector where manufacturing has -- outsourced is a bad word, but changed the production process to use these

guys at an incredible rate, whether it is temporary help or not -- it is another 1 million people. between those three sectors from a professional business services, many veteran, and construction, that is 70% of the total -- manufacturing, and construction, that is 70% of the total and limit losses. perhaps that should not make you feel too uncomfortable because these are very sickly-sensitive sectors. if we go -- a very cyclically- sensitive sectors. if we go into a cycle, we could come back quickly because of the cyclical nature of these industries. it is important to remember why we went into this crisis. the recession was brought on by financial crisis. it made credit dried up, which made those industries where credit availability is really important take a big shock. what of the two groups' biggest purchases that people make on credit? their house -- what are the two biggest purchases that people

make on credit? people's houses and cars. they took a big hit. it was all the financial crisis, perhaps there is reason to be optimistic -- if we could solve the financial crisis, perhaps there is reason to be optimistic about the employment. politicians do not know what is going on. we all have to be humble about our forecast and are forecasting ability. when it came to the size of the crisis on the financial sector, most economists dismissed the vote. when it came to whether we could .tave off -- missed the boat when it came to whether we could stave off -- we just have to be humble about our forecasting abilities both positively and negatively in terms of thinking about the future. in any case, there is some reason for optimism. that is, if you think this will be a run-of-the-mill cycle.

there have been many papers on the financial cycle. financial crisis -- you'll be lucky to recover in 10 years. if you look at the japanese, the swedish, most financial crises and how long it takes for employment and the economy to grow, she says that eight to 10 years is the outside. that is the pessimistic view about how long it might take. it wanted to be optimistic view, this recession is a little bit worse than 1982, but not demonstrably worse in terms of how unemployment went. if we simply grow employment at the same rate that we grew employment over the decade of 1980's, we would recover in a little over a year- and-a-half. there are your extremes. if we have the truth typical

financial crisis, we are talking about a decade. the world between those -- if we grew like we did in the 1990's, it would take about 2 1/2 to 3 years to recover. if we did like we did in the 200's, about -- in the 2000's, about 4 1/2 years. it is about how we think about this cycle. i think the evidence is very mixed. on the labor market side, certainly long-term unemployment is far worse than it has been before. it is not really talked about -- minority and plymouth is far worse than it has been before. that is -- minority unemployment is far worse than it has been before. african-americans lost about 9% of their jobs. it is another 1/3 as big for

that particular population. their growth has been dramatically slower than the overall population growth. if we revert back to previous experience, it will take typically around 9 to 10 years for african-american employment to recover as opposed to the overall economy. it is about twice as bad. the governors will have to deal with pockets of the population for whom the labor market prospects may be particularly dismal for a long time. if you think construction is simply cyclical in terms of these pockets -- almost all of the drop in employment for hispanics can be explained by the drop in construction and manufacturing. if you think welcome back, that population could rebound quickly -- if you think it will come back, that population could rebound quickly. again, a lot of construction drops are driven by residential construction employment. the states that have highest

default rates are those that had lots of growth in residential construction -- nevada, florida, and so forth. i personally have the view that something will be fundamentally different about how we think about home buying and the amount of credit for homeowners will be significantly different. i do not see home buyers or construction coming back in the same way. those are reasons to be not as sanguine about how the economy is going. but they give you another. while manufacturing has a big cyclical -- let me give you another. while manufacturing has a big cyclical, even though we had expansion, it has been dropping steadily since 2000. some the structural has been going on. big productivity changes. there is reason to be pessimistic about whether manufacturing, even taken the cycle, would come back as unemployment soars, not as a sector for a -- unemployment source, not as a sector for

output. let i think you mentioned that you survey the talks about how the public reacts -- that pew survey that talks about how the public reacts. 80% of the public think that states could have cut spending without any effect on services. this was done in states like arizona, california, a variety of states. 80% of the public thinks that governors can give them what they want -- the services -- without having -- even in the face a big budget cuts. you have an uphill battle to convince the public. when you ask the public, would you be willing to pay additional taxes to protect vital services, the good news was, when it came to education, they said yes. one day asked whose taxes -- when you ask whose taxes to increase, it was always somebody

else. one last smoker would pay all of the income taxes in the world. [laughter] i will stop and we can have more conversation later. >> it is clear that if the last smoker is not for at the beginning, they will be at the end -- not poor at the beginning, they will be at the end. let's turn to the lieutenant governor who can give us the inside story. >> i am not sure it is the inside story, but compared it to me, you have just heard from a bunch of optimists. [laughter] but me just say, i do not pretend to have any prescience as an economist or forecaster. i do not find a generalized statistics to be meaningful in the world that i and have it -- i inhabit. i think a fundamental mistake was made. what happened in 2008 was not a recession. the cheap money and availability

of credit masked the fact that our economy has been in a decline for 20 years. we have manufactured less every year. when the credit bubble burst, it merely exposed the reality. people were buying things, whether it was homes or even basic consumer goods or basic necessities -- there were paying for it with borrowed money. i respectfully suggest that the numbers of state budgets are misleading. very few states use a system of accounting -- any generally- accepted accounting some practices or cruel -- accrual -- the numbers do not have to match. i can tell you this for a fact in new york state. i have learned anecdotally, it

is true in many other states. states have balanced budgets by which they mean that they have enough cash to pay their bills next month by selling assets and borrowing money. new york used $27 billion on a one-shots, asset sales to balance the budget. let's look at a couple of statistics which really bite. we talked about pensions. we talked about those of different studies. obviously, the price -- the precise amount is not clear, but it is over $1 trillion. the most state unemployment insurance funds are broke. collectively, they owe the

federal unemployment insurance fund well over $60 billion. i would respectfully suggest that states, particularly the larger states, are running out of assets to sell and running out of revenue streams to hypothecate. this is predicated on the assumption that either the dog will talk or we will be out of a recession and revenue growth will resume at the level of before. there are several problems with that assumption in my judgment. again, i do not know the case in every state. i can tell you in new york, within the last 20 years, there were two points in time when the prosperity was very flush and the tax system was generating a lot of revenues. there were two years in which it generated more revenue than were actually budgeted for.

in both cases, the governors at the time -- [no audio] they were delighted to cut the taxes. let me tell you a few other things. one is that the congress has increasingly been willing to enact laws that limit states' ability to tax. as ray said, quite accurately, generally, these state tax systems were created in what was a very different economy than we have today. secondly, what states are doing now and you do not read about very much in the papers -- maybe in local papers you do -- they are pushing government programs and governmental expenditures

down from the state level to the local level. and states -- local governments, cities, counties, are now struggling with the same set of choices. how can they borrow money and what assets do they have to sell in order to balance their budget? and throughout fiscal -- this whole period, states have been muchwing money, not so through the general credit of the states, but borrowing money in any way that wall street as unable to get an investment- grade -- has been able to get an investment-grade rating for. borrowing against a promise that a state will appropriate the debt service of the future, even there is -- though there is no sure right for the state to make those payments. i would suggest we do not have

good numbers about how bad the state situation is. when i was told that california sold most, if not all of the state-owned, steep-occupied realistic, for $1.2 billion -- real estate, for $1.2 billion just to get the cash for next month bills -- the fact that the credit markets are willing to continue to extend credit means two things. one, in those cases in which revenues are trusteed, put in a lock box and the bondholder has a first lien on them, they're good, credit or the instruments. to the extent that state are hawking their income tax -- hocking their income tax

revenues, which california and new york certainly are, i would remind you that more and more of those revenues are consumed by debt service and less of that revenue and then flows to pay for general governmental expenditures. i think that, if you believe that the rate of growth of our economy is going to be what the average rate of growth was in the prior two decades, then there is arguably some justification for kicking the can forward and using borrowed money to cover today's expenses. if you do not believe that growth rate is going to be that great, then you have to ask yourself some very fundamental questions. what is our federal system really all about? people forget that, basically, under our constitutional system, states have the primary

responsibility for public safety, public infrastructure, education, health, in the sense that they license doctors, hospitals, nursing homes. they do not much pay for them. we have lost our perspective, as ray said. medicaid expenditures have grown exponentially and they will, in the next three years, before the possibility of funding the obama health care bill is placed before the congress of the united states, because of increased eligibility, higher nemployment, because a state cannot reduce the eligibility requirements that existed as of the date of enactment of the obama health care bill -- i can tell you because of the falloff of stimulus money, it helped

enormously. itt to use ray's analogy, t also built a cliff a lot higher off of which the states will fall in 2011. i have no political forecasting stilkill. i do not think it is reasonable to assume that stimulus will be extended. we're reading every day that the federal deficit reduction commission cannot seem to put together anything to put together -- put together anything to address the federal deficit. people are concerned. certainly for people of my generation, these facts require

a sort of totally changed paradigm to try to figure out what is going to happen in the future. i think it requires questioning every assumption we have made about what is good and worthy in public expenditures, entitlements, cost of paying debt, of paying benefits, things-- words that i never would have heard myself say 10 years, 20 years, 30 years ago. you have to question whether or not everyone in this whole economic system is not going to have to use the vernacular and put some skin in the game in order to avoid a real catastrophe for federal system. >> thank you.

thank you to all of our panelists. assuming that the governor does not resign on hearing all of this good news, what do you advise the governors to do first to deal with the budget problem? >> i think the pope wrote about that is not really clear that we know -- the point that we do not know the problem clearly is fundamental. we need to figure it out and get some good numbers. we need to figure out how big the structural deficit is. it is not released -- if it is not released -- just having an idea of how big the ditch is. there are all sorts of things that should be put on the table to get the public sector workers to come to the table and the deer tick wage freezes -- to either take wage freezes or increased contributions.

>> when you said maybe not tell them, let me remind you, the s.e.c. issued a cease and desist order against the state of new jersey for failing to disclose all of those facts and their borrowing. most of the statistics that were available, from information that government has furnished rating agencies -- one may find that does not meet the tests that are security law requires. -- that our security law requires. >> do you have anything further? >> largely, they have been in survival mode. they have done a lot of consolidation and cuts and so on. they really have to take the delivery systems of each one of the major components and redesigned them -- redesign them. that means prisons.

we do just about everything wrong when it comes to prisons. because we went through three strikes and you are out, prisons have become homes for the elderly. to keep people there, it is often $200,000 per year. we have to redesign elementary and secondary education, much more consolidation. we have to use much more technology in its. it means somewhere, higher education needs to be changed. you can only do politically one of these per year, but it is better to pick one, do the complete reworking of the delivery system and then move on. because all of these have to be cut and redone in order to reach another level of sustainability in the long run. >> speaking of redesign and so forth, to a group of our

panelists have dark about -- two of our panelists have talked about structural unemployment. how can governor's address that -- governors address that? how can they move to start rebuilding jobs in their economy? >> they should use more resources for apprenticeship training. it has been proposed and it works in other countries where you have a very high share of young people getting their post- secondary training through partnerships and sometimes going to college after the fact. sometimes, they get the credentials in that program. one of the good things about a from the governor's stand point is that you should be able to attract -- aobut it -- about it

from the governor's stand pointp -- standpoint is that you should be able to attract many people. we're doing the opposite. we're making it into a purely academic program, although apprenticeships does have courses that are linked to the professiosns you are training in. a lot of training takes place on the job, in a job, getting paid, no long-term debt for students, much greater transparency about what kind of dog ladders -- job ladders they are looking at. i believe if you move in that direction, you could have a great impact on the structural problems. there was a person who headed a

chamber of commerce group in texas that was telling me a story about the demand for high- level machinists in texas where they're producing high-level aircraft. they could not find any. as a good labor economist -- at least as a labor economist -- [laughter] i said, well, what do you pay? it was something like $80,000 or $90,000 per year. he went to community colleges and could not find a program. he went to the work force investment act people and could not find one program. we do have a lot of mismatches in terms of skills. it is not by far the majority of our unemployed today, but it is a segment. you could do something there constructively.

>> i think the two biggest and lubbers that governors traditionally push on for economic development -- the biggest levers that governors traditionally push on for economic development are not likely to be places where they are able to invest significantly. k through 12 is obviously -- it is the biggest source of the expenditures. that is likely to go in a downward direction, even though there is public support for trying to hold the line. whether you could get action out of the reform movements is an open question. there are things you could do on the margins -- school to work efforts, apprenticeships, they can help for target populations. that can be one ever. on higher education, -- that can

be one effort. on higher education, i think states are going in the wrong direction. the are shrinking funding. the share of the budget being accountable -- being accounted for is going down. the university of virginia get 12% from the state. the university of maryland is 25%. that is a pretty consistent model. state universities are state in name only. it is not much optimism on that front. infrastructure -- they are talking about an infrastructure bank that might be a source of both economic growth and short -- in the short-term and long- term. those are expensive. states are not likely to borrow for infrastructure. there is reason to be pessimistic. some states do a good job of trying to attract foreign capital. it is a very untapped resource.

we are so used to attracting domestic capital. it is a corollary of the president's directive on exports. how'd you get foreign companies to grow here? the money that the department of energy put out for wind turbines and other types of green manufacturers actually ended up attracting foreign companies to locate in the united states. the auto strategy is about attracting foreign auto companies. you heard about south carolina attracting a big bmw plant. that is a relatively untapped resource. i think it is interesting that bmw put the facility here. it is about half of the wages they are paying in germany. there are some parts of the country where we are the low- cost labor alternative, i suppose. it is an untapped market.

governors have to be careful not to engage in wars where you bigger your neighbor -- beggar your neighbor. it is like michigan and ohio. it just ends up costing the taxpayers money and does not create any new jobs. if we could steal them from foreign countries, that is a different story. [laughter] >> thank you. >> i have one thing. i agree with you fully that it is infrastructure and higher education that suffers most by the cutbacks. nowhere near enough attention is being paid to the things that's ray points out of how you restructured central governmental functions. i also want to remind everybody that states, because governors are under enormous political pressure on the employment issue, on economic growth, the

tax-expenditure budget of states is increasing. they are giving up an enormous amount of revenue. new york, i think, gives tax credit out to have more movies made in new york. in terms of lost tax revenue, it probably cost us from $400 million per year to fight leonard million dollars per year. that is a lot of money -- to $500 million per year. that is a lot of money. you cannot look for every state to tax its way out of this terrible dilemma. the more you create differentials from state to state that cause in efficient location of decisions -- inefficient locational decisions -- it is perhaps perfection of the political motive in this country to think that the federal government -- a

reflection of the political motive in this country to think that the federal government is not going to be able to help solve these problems. if you look at the cost and the allocation of burden between taxing people at local level and taxing people nationally, it is a very different perspective than people are traditionally looking at. when you have 41 million americans on food stamps and 10% unemployment, and i forget how many people below the poverty line, you have a very, very serious national problem. i do not think you can solve it deferentially in 50 different ways -- differentially in 50 different ways. >> this question comes from someone i think who signed up for the webcast.

i have modified the question somewhat. i think the question turned will still get that it is their question. in the midst of these adverse circumstances, is their governors to talk about or develop a children's agenda? -- is there space for governors to talk about or develop a children's agenda? that is for anyone out here. >> they started doing this before we hit the recession. there was a lot of movement into early education. trying to tie what goes on in schools and what goes on in the house will -- there is a research being done to show how important it is -- in the household, there is some research being done to show how important that is. it seems like a lot of people are trying really hard to have

their part of the budget not cut. something like a children's agenda would actually require thinking about the trade-offs between spending the extra dollar on early education versus health care. it is tough, but it is definitely a direction we should go in. it seems that the place to go for innovation. >> to any other panelists want to address that? >> i agree with her. the children's area is one of enormous fragmentation. just coordinating -- getting a better handle on what is available. there is a lot that can be done in this particular area. it will be tough to get additional investments in it, but this is an area that a lot can be done through people really coordinating effectively through these programs. >> i'd like to say one thing. we do have, still, in this

country for out of 10 children going to unmarried parents -- born to unmarried parents. there are some services that are done routinely at the state level, for example, child support systems. that is very state-centered. that system could do some more preventive work, working with couples, working with families. the evidence seems to indicate that, as the relationship between the parents -- it is at least as important as an in parenting skills they have in terms relating to the child -- as any parent in skills they have in terms of relating to the child. that. it's a little bit sensitive, but it is critical -- that area is a little bit sensitive, but it is critical that we faced up to that, in terms of child-ring, in

terms of couple staying together -- child-rearing, in terms of couples staying together and maintaining a long-term presence with their children. >> we will turn to the audience. you might want to get up and move around a little so that you can be seen. do not speak before you have the microphone. question. back in the back. >> i would like to address this to lt. gov. ravitch and anyone else who wants to comment. what would happen if the dollar was allowed to revalue through high inflation? >> well, i think there are two parts to that. if some believe that the burden of debt we have, we will not get out of without record inflation

in the future -- that is good news to some who own fixed assets and bad news for people who are dependent on social security and fixed-incomes to maintain their life style. i would hope that the politics of this country would permit a rational -- i know this sounds a little naive -- but a rational process by which all of the competi8ng -- competing needs and wishes could be compromised. when new york city averted bankruptcy in 1975, we got the

debt holders to take a hair cut, we got the public employee unions to agree on all the assets of pension benefits, and wage freezes. we did a lot to make government more efficient. everybody partook, if that's the right word, of the composition of obligations that we had to subsume because of excessively optimistic views and sloppy fiscal practices. states must go to some kind of accrual accounting or for budgetary cut purposes, there has to be an obligation to match revenues and expenses. if we do not use our bonding capacity to rebuild our infrastructure, then, you know,

we are in even deeper trouble. infrastructure was largely built on a totally different era -- buildings, subways, roads, bridges -- they're like us. they do not last forever. >> infrastructure -- inflation does not necessarily solve the problem. there are a lot of cost of living factor is. -- factors. social security has a lot built in. it is short-term debt. unless we switched to issuing much more 20-year debt and 30- year debt and do not make it inflation -- protected at -- it inflation-protected debt, it will not solve the problem but be a fair amount of this location. >> we are massive international

debt or. if we have big u.s. domestic inflation, we run the risk of becoming -- of not being the currency of the nomination. the risk is catastrophic -- of denomination. the risk is catastrophic. i would encourage out of thinking that inflation is the solution. there'd be a lot of unintended consequences. >> bob williams of the tax policy center. why is state spending up? , to of it comes from the federal government mandating -- how much of it comes from the federal government mandates? how much of it is because people took on the spending patterns they could not maintain during boom times when the spending went down?

>> well -- [laughter] i think ray said it. our whole tax and budget system was essentially established before medicaid became the biggest driver of state budgets. and one of the things that has been fascinating for me to observe in new york is that nobody 's behavior changed. everybody assumed that the fairy godmother would descend with a solution. we have 650 school districts, everyone of them as a transportation commissioner, but some do not even have a school bus. [laughter] it is all politics. everybody wants their boy junior

to get on the school basketball team or star in the school play and nobody wants to give up the power to confer jurisdiction to broader authorities. it is the most inefficient system in the world and we cannot afford that anymore. >> question from the front row. >> a lot of the changes that you referred to in terms of the state starting to restructure have already happened. i was a public official in the state of ohio for 10 years. three of the last five years, i was there and we did not receive raises. state employees were forced to take 10 unpaid furlough days. that will probably increase when the new budget is constructed. it is happening pretty generally around the country. with respect to higher education, which is our real problem, because of the mandates on other state spending, higher education is generally the largest discretionary part of

every state budget. as these mandates continue to eat up more and more of state budget costs, what is left over gets to be allocated between higher education and of areas. -- and other areas. if there is -- i want to ask if there is any state or particular governor that is administering best practices, that is looking at a function of government, the operation, how things have changed. is there anybody we can look to for leadership for other places? >> it really depends on the category. there are 22 states that have made changes in the pension area in the last year. there is a bunch in prisons. texas is the leader in prison reform. we have a publication that points to states and what they have done in these areas. no state has been a leader

across the board, but in individual components, there is a lot going on that is very positive. >> do you have the title if people want to look for it on your website? >> no, i don't, but i can send it to you. >> please give your name and affiliation when you ask your question. >> i am from the d.c. rape crisis center. could you please address the argument that job losses across all sectors mean that it is probably not structural? i heard this rip recently at -- i heard this recently at the new america foundation. >> i thought i was pretty careful to say that most of it is not. the imf study was a very careful study. their indication shows that may

be about one point to 1.5 points is structural. is structural.