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electrical generators. we have to link it to the national grid. you got to change the fuel. the people told us we haven't done that. we'll probably have difficulty but we're going to do it. they have it put a different cladding. they have to learn that. the fuel has to be enriched. the typical enrichment they told

us, 3 1/2% of the yerm isotope 35 and the target of completion is 212, that's the targeted completion for every major project. i think that's unrealistic. however, the claim they're going to build a reactor which a lot of people suspensed is credible -- creditible. what are the concerns with them building a reactor? my biggest concern is safety. you know -- in this country we lost the capacity to do things like do reinforcing big structures like the power reactors. we have to relearn that because we haven't built one for such a long time. they're going to build a small one, but it is really important that containment structure can actually hold a potential accident. the role of the regulatory agencies is crucial in the -- in assuring the safety in the

safety of a nuclear power reactor. they said i have one and didn't make me feel comfortable. it is a new design. they have a new team working on that. what i mean by n 4 and the nuclear power operators in the world, after the accidents, the rest of the power opúf 6úfúfú'úv

the international inspectors expelled and had a missile launch and a u.n. security council statement condemning that. they completed it a few days before our visit. i'm not sure what completed means. reconstruction and restoration of building four. i'm going to show you on overhead, they took a previous building i was in and they renovated it. this building 21 meters long and 18 meters wide. it looked new from the outside.

you couldn't see the roof. in a minute we'll show you, it is blue. there's other new buildings at fuel fabrication site because you need the feed materials for the uranium enrichment. this is the fuel fabrication facile. if you looked for something new what would you look for? the blue roof. it is like putting a bull's on top of their facility. people say they built a secret facility for heaven sakes. they walked into the fuel fabrication facility and at this time they told us they had done centrifuges. the best u thought they could do before was the news reports and actually the president in his book said that they sold them

two dozen centrifuges. four of the p 2s. i thought we would see a couple of these in a workshop. we walked to the second floor and looked through the windows and ail show you that in a minute. sorry. the comparison of of 2010 with 2009. you could see the blue roof which is shown under the plaque dividing line where i show fuel rod fabrication. that was building four. so obviously things have changed and it is very obvious. and this is what -- what was in buildingtory when i was in 2008 they were disabling it.

izz had sent fruges at different locations. it was stunning np if a clean facility, modern facility, looking down. i thought, they said -- they did what they said they were going to do. they told us the 2,000 send finals if the hall. they were six feet high and eight inch dirmente. they're probably less than six-foot high. they claim to have steel roters. that makes it a p 2. it is an alloy with iron. the stuff used as very high strength steel.

the p 2s stands for pakistan yes two, and they copied it from the german that would take the console from the facility years ago. most important number on here, again this is a tucky number. it is 8,000 kilograms per year. that's the capacity of what they could enrich. what that means, they could make two tons of the -- of the l.e.u., that's low enriched uranium a year. that's enough for that little reactor, it is sized just right for the reactor. they claim to be operating and making low enriched uranium. we could not attest to that. we didn't hear any noises. people running around in the control room. there were dismays up. it looked like there were things going on but in the end we couldn't tell because we were isolated from the halls by windows. this e have the latest screens and l.e.d.'s from readouts and

very different from what we have seen at the facilities. it is consistent with a w.r. i show you this, this is the accept fuge cascade because the plumbing on the one on the right is closer to what we saw on the left. the one on the left is not doctored up. that's the the pike plant. again, don't say that these are the north korean sentra founls but they looked like the ones on the left. the control room, again we have no pictures, but we went to kim il-sung university e-lab. you could see thoont left. you could see the students with the nat panels, computers. by the way these were h.p. now it turns out h.p. is not -- in the export. those screens are not on the export control. the computers are not on the export control. at least the ones we saw. on the right you'll see what the

reactor control room looked like of the five megawatt. the control room looked more like kim il-sung university. what is the problem with uranium enrichment sth the problem is it'll reduce the problem. you need to enrich for reactors. it is easy to get someone to do that for. cass acstan is going to make fuel for a lot of the chinese reactors. they'll make the fuel but the enrichment is done in russia, at least initially at the international facility. they're depending to go to the main russian facility. if korea was in good standing they could get it enriched some place else. they now feel they have to do it all themselves. the same technology and equipment can be used to make highly ep riched uranium. you just do replumbing and then -- you have what i call the iran

problem. they developed the capacity and capability to enrich and then we worry about the fact that they could go to highly enriched uranium. how do you do that? you kick inspectors out and of course now we don't have any and we should by the way, as far as i'm concerned. or you have another covert facility some place. the problem with that in -- for the h.e.u., for any uranium enrichment it is a small footprint. it is a small signature, it is not like a reactor, it would be difficult do detect. so the 2 -- 2,000 cascade, they could make two tons of reactor fuel and these are estimates, 40 kilograms of highly enriched uranium. they replum or have another facility like that some place. that's enough for one or two bombs. other people will tell you more, let's say that's close enough.

unlike what is report so far -- you build the bombs, restart the plat taupe yum facility. all of the arsenals use plat tone yum. the pakistanis which used highly enriched uranium in the process of making plutonium to switch over. everybody has switched. but once demonstrated they could duplicate this capability anywhere. thats the concern, it is difficult to detect. however, they could just build them ad nauseam because they're limited by the materials and equipment. you need high strength steel and vacuum valves and all this technical stuff. we generally feel they can't make that themselves, but i'm becoming very careful with the -- saying what they can and

cannot do. so the indigenous manufacturing capability, we don't know. however, if they indeed duplicate the facility atself other places and make a lot of highly enriched uranium, that changes the dynamics, not what they have now. they could become more like pakistan, 50 to 60 weapons or whatever that number is instead of a handful. but however, still -- the more sophisticated bombs really require nuclear testing or pollute tomorrow -- pollute tomorrow yum and pollute tomorrow yum is superior. the question you ask and i've asked myself many times since november 12th. how did they get this? what we saw overnight, you don't do it overnight. it requires many years of development and manufacture and testing. it most likely decades of procurement and training.

i said before, i'm convinced they have a uranium enrichment program. but i thought it was at the r & d level. they done better. i with call this small industrial scale. the other reason we know they have it, the new stories about highly enriched uranium particles on item that is north korea gave the united states. a sample of aluminum alloy some years ago and then actually the production records, copies of the production records. there was a question that somebody shipped the plutonium, which you only use if you're going to enrich to libya, back in the 2000 or so time scale. the general feeling it was most likely north korea. the current system is likely built and tested outside of i don't think bong. i believe these sent finals require help. the best articles that i've seen

on this is david albright and paul branyan, of ice sis, they just published a month or so ago. they lay out the extensive krpration with pakistan, going back to 1993. including training of north korean people in the k.r.l. the research has beentory. they started a start -- starter kit and laid out the procurement including from russia and germany. my concern has the possibility of connections to iran. but quite frankly, what we saw, ,000 centrifuges. 2,000 centrifuges and this 8,000 kilogram swoop, that's about i'm in the sure that i would go to iran if i were in north korea. it might, in the future

be the other way around. so nevertheless, i worry about cooperation with iran. i'm getting close to the end, another question you have, why did they show us this and why now? the real answer, i don't know. bob collins doesn't know and maybe he'll tell you later. and john lewis doesn't know. but we could speculate. so, the one thing that is for sure let's -- that's serious about building a l.w.r. and a reactor under construction would have been visible soon. only another couple of weeks and all of the analysts from the overheads would say they're building a reacter. they're heading off to spin but most likely people would have spun that into a new plutonium producing reactor and that increases the threat. they have a way of admitting it with a cover story. it is needed for l.d.r. the same cover story iran that.

the other is don't underestimate us, we're not going to come to our knees because bob can talk more about that. my quick observation, in the seven times i've beep there, each time i got there, the country looks better off. it doesn't look like the economy is going -- but in -- if any of you have suggestions, we're ready to listen. let me show you to wind up it -- wind it up with photographs. usual liu yow see photographs of people starving in north korea. practically nobody can tell you what they do. this is one of the most modern wire factories. they make wire electrical cables. this is a garment textile factory that we visited this time. it was great, very modern. this is the university of music. when they build something, they could build it fast and beautiful. we were here in the hall because

poland was celebrating the 92nd and versery of their independence. and they had piano and violin playing. it was beautiful. pole hand has an embassy there as do many other countries but not the united states. there's a swimming pool at kim young sun university. i'm going to introduce him. that guy on the right is none other than bob carlin. for public effect this is -- for those that have been been there the kong crete pyramid 200 years unfinished. this time it was stunning. you look down the street and you see this thing. they don't have it occupied yet. we like to stay there but with i think we'll wait a while. last year they had phone booths. they said wow we now have phone booths but thought cell phones. now they have cell phones.

one of the european there stationed for the embassies, 350rks50,000 cell phones in north korea. they control closely but they have cell phones. so, what do we do now? i think the most important thing is really understand the capabilities. don't hype the threat. treat is seriously. remember the perry process for those of you who were here in the 1990's we had major panic after they lost a missile over japan in 1998, clinton sent former secretary of defense, bill perry to troy to reevaluate the policy and the entire dipe motorcycles of the pence has. what he said dealing with north korea is not the way we like it to be. i think we need to do a policy review. we haven't done one since 2000.

certainly stay the course on nuclear proliferation and contain the threat but for now, the most important thing is don't let it grow. especially in light of the altercation that just happened over there in the sea again. so for me, to contain the nuclear threat is the three nos, no more bombs, no better bomb, and for export. the no more bombs is no more plutonium, that's what they're doing, no more plutonium. on the highly enriched uranium, lett get people in this to make sure they're making lowly enriched rather than highly enriched. no better bombs means no testing. can't make better bombs without testing. no exports. that's really the issue of pakistan and burma and iran and so forth. the yes is, wee not going to get anything. to start off, you have to

address the fundamentals of north korea's insecurity. that's one thing my colleagues have taught me. their op-ed piece underscores the need for follows-- policy review and address the fundamentals. with that, i'm going to say i was going to get off stage. i'm going to introduce my colleague bob carlin. leave the lights down for a second. this is a great photograph. all of the photographs are ones i took with y camera. they wouldn't let me take them in their facility. this is a great shot. they always tell you this is no lights there and no heat around. there's more heat this time. more heights this time. there are even lights at night. >> go pack. somebody took it off. my favorite slide.

with that introduction -- give you bob carlin. i don't see a mouse here. the last slide -- it was left off. it was left off. i'm sorry. the last slide had bob carlin silhouette in front of one of the cultural houses. it was beautiful. the bgs buildings i let lith up. i give you back to bob pritchard and bob carlin will join me. got green lights on both.

you're good. all right. ladies and gentlemen, we're going-to-a microphone. it is going to go down the center row. for those of you that would like to ask questions, if you would please identify yourself and -- very clearly ask your question. so, who is first here? beige jacket. thank you for your presentation. did you have a chance to ask north korea about the manpower for operation of each? manpower and power supply for the enrichment. >> first of all in terms of power supply we saw nothing.

i saw nothing inside, we did not get down to the first floor. saw no power supplies. in terms of manpower, we met with the chief process engineer who runs the facility. we saw a number of people in the operating room. they took us to the control room and then what they called the recovery room. so there were operators in this, half a dozen or so people. we did not get to talk to any of them. in terms of actually asking about their credentials, i did not ask about the enrichment people's credentials, di ask about the -- the reactor diners and what we were told there is that it is a new team of designers and they're being mentored bit people that built the old gas graphite reactors. >> here on the top. we're going to pass the mic down. wabe wait until it gets to you.

>> gerald lech stein. i'm wondering if the program is a cover up and they intend to do weapons in that route. you said nuclear power, all powers prefer plutonium, but my understandings is harder to weaponize the mute tone yum and get them to work the way you want. and the first test, it didn't hit the yield you desired. might there be a reason they want to work on the uranium because of the weaponization being easier or was that not a significant factor? >> one cannot rule out. i would say, there certainly would be -- would be looking at uranium designs also. particularly -- you know, what we know is that they gave the uranium implosion design to the libyans. there's at least speculation that he may have also given those to iran and north korea.

the uranium -- the implosion by the way, for pollute taupe yum. what you have to do is take a ball of pollute taupe yum, the size of a grapefruit, put explosion off of it. and for highly enriched uranium, you could put it in a gun tube and shoot two halfs together. about uranium, you could also make the implosion device, that's the device that a.q. chan gave to libya. if the north koreans had their drawing, they would have a basis for doing an implosion device. i imagine that they exercised their design cape absents that way. we have no idea which test it was. what they told me when i was there in november of 2006 that the first one was plutonium and

what i was told in -- later on also, for the -- no, i'm sorry that was related to the first test. the first test was plutonium. and we do not know what the second test was but my speculation is that it was mute tone yum. first against the wall here and then standing up against the wall. bear with us on this microphone. it is also linked to the cameras. >> thank you. i'm sorry if you mentioned this before, but could you talk more -- >> if you speak up, i have difficulty hearing. >> can you hear me? >> go ahead. >> could you speak a little more about what north koreans said about possible returns to negotiations. you said they were still willing to engage in six-party talks. do they give you any more detail than that? what did they say about the obama administration's diplomatic efforts and china? talk more about the political things that you were hearing.

thank you. i'm just a a scientist. i turn to my colleague who understands the policy much better. >> i'm his escape route on these certain questions. i would say surprisingly, they talked a lot less this time about the diplomatic route. not that they were -- they were suggesting it didn't exist. the thrust of the conversation wasn't really in that direction. they did say thatthey were going to have nuke here weapons for a long time. we better get used to it. unless and until we sat -- satisfied we satisfied their concerns about their security

that if that weren't addressed, they were not going to -- not going to give up their nuclear weapons. i don't think they -- i can't recall they said very much to -- too much about six-party talks. they gave us the obligatory statement that they were prepared to go back and to honor the september 2005 statement, they did say that -- that if we were -- if we wanted to get back to the situation prior to april 2009, there were a couple of things that we could do. one of them really was to reaffirm the sorts of statements that had been made when -- when the dialogue was really on firm ground in october 2000. pretty interesting to me that they did that. i think it is pretty important.

not because of the substance of the -- of the statements dating from october 2000 but because of the symbolism of those. tholes came during a period when -- when it was the cull nine nation -- cull manipulate nation of a very long involved series of negotiations. those statements stood at the top of that, when we in fact had an element of trust. we had thousands of hours of contact, we understood what we had accomplished and what remained to be accomplished. most of all, we -- we -- we recognized the existence of --

but we were going to have to deal with them as they were. >> let me add to that. the week prior nicole and i also talked with -- first prime minister king deng wang and others on the issue. we talked about six party talks. as bob indicated they referred back to -- when we go pack to six-party talks, we're interested in going pack to a period of time of april 2009. with us, they weren't going back 10 years to the statement that bob is indicating. they're talking about the -- the preu.n. security council presidential statement that followed their launch of a missile on the fifth of april. what they also talked about was -- a -- a bizarre reordering of priorities. they talked about what was embedded in the joint statement

in which from their point of view we agreed to discuss a peace treaty. we agreed to talk about the normalization between countries. we agreed to talk about compensation for north korea's whatever they're going to do. what they didn't talk about was the denuclearization aspect. my response to them, you got wrong in the pry port. it talks about denuclearization, and then by the way in a separate event we could talk about peace regime separately. and kim also said, we understand from the chinese, that you the united states and japan and south korea are not ready to return to six-party talks so we the north koreans won't be hasy in pushing for six-party talks. if i may add one thing. having the enrichment capacity

that they showed us, even though it is what we sa, and they cheerly got it ready some place else. it clearly complicates the technical part of getting back to the six-party talks. before i could have written the script of what to do with containing the plutonium program. you can't write it anymore. if they're reluctant to give up the bomb, they're not going to give up the centrifuge capability because they could say it is done for the light water reactor. we're building a light water reactor. so one will have to change the dynamics in some fashion to accommodate the fact that they're enriching and building a height water reactor, unless we want to go change it back to what we did in prior years. jill dougherty from cnn. i want to make sure i napped what you were saying. you obviously thought that -- this had come very far very fast. you were very impressed.

how do you think they did that? were they -- were they -- did they get the information that you talked from a.q. kaun and then build on that or is there somebody else out this specifically helping them? do you ascribe to the theory there are other secret sites that may be doing the very same thing. is about to believe to ask carlin about the implications today? >> you could ask him but we'll do that later. >> okay. >> maybe we'll just leave it at that. thank you. >> so the -- the real answer is i don't know. as i said and we could speculate. first they need a lot of material which is very difficult for them to make. it is material that even pakistan and the iran can't make today. and they have managed to -- to import that from other places. if you look at the procurement history, they have been able to

import a numb of important materials, like the -- the high strain steel and the aluminum alloys and also some of the components that iance abouted. so they must have had those already and probably been procuring them for the last 10 years or so. you need that. second, you don't just put up a sent fubling facility -- and start even the recon instructing of the building in april 2009 and have it spin away by november of 22010. you -- the iranians, it took them 20 years to procure all of this stuff and be able to make this work. so what they must have done. again, this is speculation, they did it somewhere else, they have some number of -- it must have been more than a few centrifuges, did it some place else, got it all perfected and then brought it on to the site.

even to do that, you still need to train your people. i think that's where, if you read the albright branyan piece, they had them in pakistan. it is the combination of all of those things. let mezz check the mic. is it green on both sides? >> yes. it is. >> i have one more mic here. now you're red, one more. we got a red button, so bear with us. you got i

korean problems. i have a question for you. dr. hecker asked about the feed to accept knot korea as it is, just in -- just as it was pointed t in the review previously. what do you sense about washington d.c. about this -- americans are ready to accept that kind of -- to need to take care of north koreans sense of

insecurity to solve their nuclear reaction? >> i'm not a washington analysts. it is much easier to analyze north korea than it is washington. i hope people for you recognize that the policies that they have been folal -- could stand reevaluation. that a -- a development like this suggests that -- that at the very least, we need major refinement and maybe need to go back to basics. are thezz ready? i don't know. sorry. >> just one thing. >> because, i put the words up there, you know deal with it as it is rather than what we would like it to be. people would say, it is as it is, does that mean people will

accept this? as i put on my visual, you start with the fact that there will be denuclearization, they had the bomb at least through 2003. they had the bomb for seven years and even though we said they can't have the bomb, but they had the bomb, and so the issue is one -- is clearly you have to start -- the end goal is denuclearization. >> chris? doctor, you were clear in your report when you released it that you don't see this as a weapon program right now, and you were critical of the administration. various officials basically right off the bat saying it is an h.e.w. of some kind. what is you your advice to the administration and talking about it, should they stop dalling an

h.e.u. or does that dramatic ties the point you make that it has a potential if they keep going. and the other question came up, boy, this really puts the chinese on the spot. does it? do r do you sense chinese involvement in the plant or knowledge of it? what do we say to china and how should they react to? >> let me turn on the china question. i'm going to turn to bob. on the first issue of -- of what you were concerned about and that's what one says to the administration. let me address more the newspaper -- at least some of the news coverage. i chose my words carefully and to say, look, take the h.e.u. program and -- i mean the uranium enrichment program and if they make e.e.u., that's

serious. take it serious but don't hype it. i laid out what my. i of the risks are associated with the enrichment program that they could go to h.e.u. with that you could get bombs. if you make a lot of it, that could change just the size of the arsenal. but don't hype it. to get from wra i -- from what i saw to a hydrogen bomb. that's just an incredible step. i don't believe that in any way shape or form. you got question. i don't think -- i don't think we really heard them declare themselves on that. until they do, we won't have much of a sense of what their view is. the chinese have never said the north koreans can't have a peaceful nuke here program to produce electricity.

since the north koreans say that's the purpose of the program i suspect that's where the bulk of their position is for a while. can i use this? >> sure. >> i can't resist this. we're -- this is very ironic. the north koshians are building l.w.r. they have an enrichment fass it. this -- facility. this raises all sorts of problems. concerns about -- will they reprocess the fuel from the l.w.r.? will they change from low enrichment to high enrichment or be able to make uranium bombs, et cetera,, et cetera. we been here before. as a matter of fact, we were going to build them the l.e.r. and have complete control of the fuel. we were going to ship thfuel in and take the fuel out.

for reasons not altogether cheer, we decided we didn't want to do that. so we scrapped that program. this is -- >> he's going to do this because i couldn't get the photo of him up. >> this is an actual kito cap. there is -- this is all that remains. of that several billion expended on this. it doesn't hurt to remind ourselves that we had to -- a bite at this apple once upon a tim. the fact that the north koreans are doing it now, it is not our fault but every -- the more we wait on this problem, the more things develop and make it more complicated for us to address it. >> before the next question, a couple of things on his mind. first of all, you said you didn't know why. whether it is correct or not, you may go back to october of

2002 and the united states suspected that north korea was creating a second route to a nuke here weapon by hide -- highly enriched uranium. this was a confrontation in which we accused the north koreans of this. coming back to the -- from the trip to pong i don't think, the north koreans decided they were doing this and they were in violation, of the spirit and maybe the technical letter of the law of the agreed framework. at that point the bush administration ceased the creation of fuel oil to israel. that created a cascading of events of what we call the second nuke here crisis that began in december of -- december and january of 2003. this is an deckal. after we left, miss misfen mihm and i left, we went to day jing and met with some very prominent

and senior academicing. not government officials. we posed to them the question of what is china going to do if north korea continues with some very serious provocative behavior. now, we got a couple here that you may suggest that qual that. the rev ligse of the enriched uranium, the facility or what occurred yesterday or last night, that was the artillery barrage. we got a superwhat surprising answer from the chinese. this is not -- not a official, but the chibe niece said the chinese will react even milder the next time. they're very concerned about the stability and the long-term surviveability of the regime. this is a chinese academic. >> go ahead. >> and -- don't ask more questions. >> and on the china front, from

putting -- from putting the technical things in perspective -- as far as the chinese technical people, they have continued to underestimate the capabilities of the north koreans. i spoke with them for a long time. they didn't think they could get the reactor up and they did. they at any time think they could process the plutonium and they did. they didn't think they could build a height water reactor and they did. enrichment, they said not at all. the chinese do underestimate. in terms of the -- they're tricking the technical to the policy, it -- this current situation of having an enrichment facility and building a height water reactor, it is difficult for the chinese to say they can't do this because the chinese have said all along, they could do, the -- the sovereign light is develop nuke here energy.

>> and here from seoul university. my question goes to dr. hecker. you mentioned, there should have beep research and development of light did the water reactor in north korea far before they announce it. does it go prior to akid -- a kedo project? you mentioned it is a completely new design. how do you know? what aspect did -- did light water reactor, is different from what we have seen in the world? they are either completely new that i mentioned not the design, but the designers. okay, so the new design team -- the younger generation i asked them and they said they were this their 40's. and they been trained at the universities and been there learning the nuclear trade and they're going to design this. and so it is not a completely

new design. the height water reactor designs are out -- the light water reactor designs are out there all over the world. this is a small version. 20 megawatts instead of a thousand. -- this is tiny. it is five times birg than the wrge -- bigger than the one they currently have. in terms of them having had interest before. that was always to get it from somebody else. as hate as 2008 in february -- as late of 2008 in february, i spoke with their technical people and asked them, so do you have your people over at -- at the kedo project? the answer was no. the light water capability, somewhere they gave up. they started to actually design

of the past. then whether -- what we found in the reprocessing part, they patterned that after someone else's. and the reactor was the cull reactor in the u.k. in terms of the reprocessing facility, it was a reprocessing facility in belgium. they built them themselves. they were patterned. interestingly 1/2, i have this in my report, so i'll say it here. when my colleague john lewis asked, so are these you know, p 1s or p 2s and he wouldn't answer that. he said they're modeled after those that those in the maryland, and then he said, mur a. so again -- they have some patterns out there. they look at them and study them and bring them in and they do it indigenously. that's my view. >> who at the site at the site,

on the construction equipment, they had selected a -- than excavator, i don't know if this was deliberate or not. but anyway, it was hitachi which i think they were delighted to be able to show that they had some sort of japanese support for this project. too bad we didn't have a camera. but couldn't take it. >> so long as you're plugging the elevators in the hotel are also hitai. >> in the back of the room, mark manian, go all the way back to your wright. -- right. >> mark manian from the congressional research service, dr. hecker, i'm wondering if -- you talked a little bit about how this could complicate a return to the negotiations because the north koreans could claim somewhat creditably that they need these senl centrifuges for lech -- these centrifuges for electricity.

i wonder if you could talk about how it complicates the verification process and would -- that we wouldn't -- we would want and the value of inspectors. it seems it would reduce the value added that inspectors would have. previously if they were there, they could keep a close eye on the pollute taupe yum facilities but now -- plutonium facilities but as you said, we don't know what is going on in other parts of the country and it is highly unlikely that the north koreans would allow inspectors to roam around the country to conduct onsite inspections. could you talk about how this complicates the whole problem of verification and inspections? the biggest problem on the ver fiction is -- is -- on fourth fiction would not be the facility, it is very simple. certainly with an onsite presence to know whether it is l.e.u. or h.e.u. it is actually simple, with just having some equipment monitoring

-- monitoring equipment installed or going pack and taking swipes around the place if you're allowed access. so for that facility, it would be simple, if we got access, to the facility, at least periodically, we could say whether it was l.e.u. or h.e.u. the complication is from what we saw as i said before, i believe they must have moved it in from some place else. they must have had a whole bunch of centrifuges spinning some place else to be able to do it so quickly. we're not going to be able to find those places without having presence in the country. and that is going to be very difficult. so, so i think in terms of -- of looking at the future then it makes this verification issue as to whether they have nothing or if they should get -- start getting rid of what they have, it makes zero really difficult. before we could -- you know, assume, we -- they don't have enrichment.

it is not important to find it. if they have the mom and pop shop. but now we saw the halls it changes the picture. that's my concern. right next to you. i'm mere dr. hecker you say the chinese underestimate north korea. i think the same of american officials because they don't -- enrichment capabilities. and -- they show the -- they showed you facilities, the plant strike. the theory is they don't -- they don't care about entire techical because they have many more. that? >> what he's suggesting is that american officials have underestimated the north koreans, the fact they have

shown you this facility, which -- obviously could be used by -- in military surgical strike that they don't think that is -- the american woos do that. it is relatively safe from that. >> the chinese underestimated and -- let's say, i underestimated them on the uranium enrichment on the basis of what we have seen. now it turns out in 2002, be it looks like the americans may have overestimate whad they could do in the 2002 time frame. so what one has to do is -- i've always said, is we know the least about the enrichment, and i wish we could get a better handle. so they gave us a better handle, by inviting us in. >> okay. and go over to all the way in the back the lady with her hand up. >> i'm laurel with voice of america. my question s this revelation to

you and to the world, can this announcements? in your view? >> could you just repeat in the microphone? >> the question was could this be related to the ces session issue in north korea, the fact this revealed the facility to you? >> mr. car lip? [laughter] >> sure. >> sure. >> i am not a fan of -- of -- single explanation you notice, rationale if north korean action. you got to be careful not to choose the last headline you read and assume that's what is behind the north dorians are doing. if what -- if it is true -- if it is trow -- if they say it, it is true. they been at this a long time.

so the program itself is not related for -- related to the second session. the question is was this time friend, november 13th related? it could be the target of opportunity. they needed to show an expert, there's not a lot of experts going in fp that may have drove it as well. there play b -- may be the sec session thing in this. not my top choice. nowly a chance to think about it -- >> okay. >> okay. >> the -- in previous visits, we always got quite a bit of propaganda and -- in my experience, on this one we got less of -- of the state propaganda. i was asked before, whether -- did they actually tribute -- attribute this facility to kim chung i don't think and they

never did. that was not mentioned at the facility. and going back to the previous question, of underestimating and seeing this now and i should point out, i have asked to see the facility. typically when you arrange your visit, they say, well, you know what do you want to see? so actually, earlier this year, i had asked and i said look, i want to get an update on the pleat tone yum facilities a bong yung. nobody been in this. now you have announced because they did, and in -- in 2009, we have been successful in the -- in the experimental procedure -- i didn't know what that meant. i said, look i like to visit your uranium enrichment facility now you said you had one. they took us there. >> okay. there you go. right here. far right. hand up, gentleman, stand up.

there you go. there you go. thank you. >> hi. paul branyan from ices. thanks for the report. i wanted to get your thoughts on china but this time on the export control law. the -- our aers isment is that -- that much the program as it exists in north consideria is due in large part to china's poor export control laws and wanted to hear your thoughts on how do you stop that? 7ñów/mwç?óççóóót

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[captioning performed by national captioning institute] that's where i think we need to focus. next question? >> i want to ask about one aspect to have c.f.o. act that you didn't touch in your talk. the c.f.o. council. there have been a number of other councils established in government. i want to get your sense of how you see those councils in and of themselves functioning and operating on and coordinating among each other, because the proliferation of councils is in itself an issue for agencies. >> it is a very good question and i will certainly emphasize the important threel the council

plays and i appreciate the question because i should have mentioned it in my remarks. if we attack these issues agency by agency and not bring together the combined knowledge and expertise and shared perspectives, then we are really missing a huge opportunity and that is just within the c.f.o. environment. one of my jobs is to make sure we have a robust agenda and that i'm bringing people together around common challenges. that i'm creating networks amongst c.f.o.'s and deputy c.f.o.'sened that we're taking our agency hats off and putting our government hats on in order to tackle our problems more globally, but the question you raised, which is a good one is we have to take a more multidimensional approach across council and government. if we try to attack things only

with our audit and finance tool bag, we're going to swing and miss, if we don't have i.t. and procurement and program working together. one of the things i will mention is that one of the major elements of this administration's management agenda, which is called the accountable government initiate i ever, one of the major elements is to try to focus on that and really the high prorte goals for the federal -- pirate goals which is a huge part of this initiative, i think drives that. it was asked to develop a series of high priority goals. it doesn't have these things on achieve them whether it is reducing the homeless necessary rate at hud, it needs to be attacked with tools.

it has to be a combined effort. so i think you start fostering better integration amongst the areas by setting the right goals and what we're going to be held accountable for. i think those high priority goals allows things to come into place rather than just saying my high priority goal is to make sure this particular activity runs more efficiently so i'm going to bring in just the c.f.o.. it has to be the c.f.o., i.t., the program people all need to figure out how to make that program work more effectively and efficiently. i think it really starts with a goal. >> this will be our last question. >> i'm jason jeffers. i work in government. from my own experience in our government, we have often not done well with that approach because -- ones that we might

have actually been recovering on our own. how did you zeal with making sure that those auditors you are hiring are not really adding much? >> that is a great question. it has to deal with the fact that nothing is easy. and you have to be strategic and you have to be business-oriented. if you just say ok. here is the work. i'm going hire an auditor on a contingency basis and they are going to get their recoveries and then you go on auto pilot. you hope that structure and framework is going to work in and of itself, then you're likely to not be hitting the sweet spot in terms of return on your investment and your efficiency. you need, i think, to be successful, to understand your payment life cycle. where is it that i can deploy

these auditors more effectively. i'm not going deploy them in this part. i'm going to deploy the auditor and set the scope on the contract on this particular part of my payment cycle. i'm going to set it up in this particular way to make sure the relationship, it is a symbiotic relationship is most effective. going back to my earlier issue, getting the right expertise in the room and thinking about things multidimensionly and that you have your c.e.o. or business hat on to stay ahead of the curve in terms of managing your contact and activities. it is not easy. and it has to be done very deliberately and very smartly if we're going to be successful. so with that, i will reserve the last question and let me just say, i looked around and i didn't see one closed eye in the room. so thank you very much for

staying awake and i appreciate your time. i enjoyed the discussion. thank you. [applause] >> my name is john stehle. welcome to our symposium, the budget act, the recovery act, a balancing act. i would like to introduce the others at the table with me today. i have melissa merrill who was last year's president and evidence brigham who is serving as our acting v.p. our spaniel entitled looking back to move forward. less fordsh panel is entaillighted looking back to move forward. to tackle this topic, we're fortunate to have four budget experts with us today.

robert sunshine, director to have congressional budget office. barry anderson, now a private consultant. marvin phaup, director for federal budget reform initiative and sue irvirnings director for budget issues at the u.s. government accountability office. we will have plenty of time for questions and answers shortly. i encourage you to think about them and right now i would like to start off the session with the less formal title "the good, the bad, the ugly of marketing." and turn it over to marvin. marvin? [applause]

just to say a word or so about this panel, one of the big issues in organizing a panel ke this is to decide the order in which people speak. when we arrived here today, it was unclear, what kind of reason would apply to the difficult task of figuring out which order we would speak in, but it was all pretty much settled when jonathan said well, we are going use a danny werfel performance measure. this panel will succeed if at least half the audience is still aweek. my -- a >> actually marvin wasn't here when we picked the order. >> not true. not true.

actually, i like the other -- i like the formal title for this panel better. looking back in order to move forward. because actually, i had some trouble with trying to apply a good, bad and ugly classification to the federal budget process. for a couple of reasons. one of the reasons is i'm not really sure about the hierarchy. is it true, as the order seems to apply, that ugly is worse than bad? i mean, because there are many parts of the budget process that i would say are so ugly that they ought to be rated p.g. or higher but they are not necessarily bad. some of them are effective and so, for me, i'm not sure i can make that hierarchy, that classification hit but i'm sure others on this panel will do a better job of that. there is a second reason i think we probably agree on more than the way good, bad and ugly fits.

that's the question of how do you judge a budget process? how do you determine whether it is a good one or a bad one? i think you have to judge it as a whole rather than by the individual parts. in fact, it seems to me many budget processes are better than the sousm their parts. i think the criteria for judging those results is does a budget process and a budget itself succeed for form an effective financial plan, more specifically, does it accomplish the two key objectives of budgeting whether we're talking about family or government. i think the first of those objectives is to smooth consumption over some planning horizon. i would like to restate that and say what we really mean by that

smoothing consumption is can the household, can the government plan its finances in such a way that consumption can be smoother than income so that when disaster strikes, when a war comes along, when a recession occurs, or when the breadwinners lose their jobs or when the price of an owner-occupied house mortgage defaults can we get through that period without the deprivation and chart reduction in living standards that a better financial plan would have succeeded. does it provide consumption and financial stability? i think the second objective of budgetsing is not so much overtime but for every point in time and that is does the budget process result in good choices? do we choose those things that we really want to have that are most effective or i guess in

danny's terminology are they the best investments for our money? do we get the biggest bang for the buck? the first someone, and i think it is absolutely the -- there have to be limits or constraints on the resources that are to be used during the period and i think those limits have to be acknowledged upfront rather than the end. it is not budgetting to take a sequence of actions to spend money, whether it is a household or a national government, and then at the end, when the process is finished, add them up and say well, that is our limit. because all of those things on which that we are confronted

with, they are all good things. there has to be a constraint or a limit to a budget process for it to succeed. the second thing it needs, and maybe this is so obvious that one shouldn't say it but i'm great fan of the obvious, and that is that there needs to be an empower and rational motivated decision maker. resource decisions don't just happen. theyave to be made by someone and they have to be made by someone who has the information at least as much information as anyone else in the group has about the choices that we're going to make. and the third thing that i think budgets need is they need comprehensive and timely recognition of the cost of every action. make a decision to do this. not to do that. and you want to recognize at that point in time, all the cost of that decision when you undertake it. i think the panel will agree,

although i'm happy to be shown wrong, that recent experience suggests that there are two periods within all of our memories, well, at least the members of this panel's memory, in which the budget process for the federal government worked better and when it worked not so good. i think the 1990's, under the budget enforcement act were -- were generally agreed to be a period in which the budget process performed better, at least in in terms of providing financial stability, neighbor choices that people made, that we made about particular budget items were not the greatest. maybe they didn't meet danny's requirement for best bang, best value for the buck. i think the way the b.e.a. has played out during the period of 2000, is a less effective -- it

shows signs of a less effective budget process than during the 1990's. i think that the b.e.a. in the 1990's had two of those essential elements that were missing in the 2000s. one was there was an effective constraint provided by the discretionary caps and second, backed by the political commitment of the president and the leadership of the congress, the budget committees were an effective, empowered, informed committee. cape capable of making decisions that reflected a broad agenda. in the 1990's, i'm not sure that any of the three elements have been present. there has been little evidence that there was a limit that was effective for decision making or that anyone was capable and prepared to make those decisions. this has been the error to have deeming resolution, meaning that

we simply deemed that there is a resolution being adopted. more over when you talk to member s of congress, who refuse to adopt a budget, you end up with explanation like why endure high cost of passing a budget resolution when it has almost no effect on subsequent decisions. i think limits were missing and an empowered decision maker were missing. i think also in both periods we were missing this upfront comprehensive measure of costs in many cases, but in -- two out of three is not bad for government work. thank you. [applause] >> first of all, let me say how glad i am to be here piano. i'm sure you people remember "seinfeld." one of those episodes, kramer

had a thing on, doing a coffee table book on coffee tables. a great thing that i thought of. i thought i would do a coffee table book on the buildings housing the budget bureau and went around the world talking to people. i really have done this -- not the book but if you want to look at the most interesting building anywhere i've ever seen the n berlin. the budget office in berslin in a building that survived the war and it is next to the berlin wall and if they were sitting in their luggage room, they overlooked the remnants of the berlin wall but my purpose in raising this wasn't to talk about this but to talk about the people. in the past eight years, i've been talking to the people, it makes me so happy to be back here. i would do this not trying to be an ugly american and come out and instead, i would just listen

to what they have to say. and it is amazing how much we export overseas. how they really listen to process things and adopt them. sometimes they are not always good. sometimes they misuse them but it was never a problem for me to talk to groups like this because i knew you could understand what i was saying. where most of the time overseas i had to explain some of the ideas. so i am very happy to be here today and see this group. with that, let me start off with something that i really think ought to be said upfront, and that is something that i think you have heard many, many times before, and that is the process is not the problem. the problem is the problem. and even though this is a process group and that we're talking about it, i think we need to talk about the problem a little bit and then tie it to the process issues. we have just had a variety of different policy proposals put

forth by some commissions and groups and different people. and taking the view of the good, the bad, the ugly, i would like to talk about some of those. first of all, the good. my experience with commissions was not good in the past. i wasn't pleased at all when i heard that the president's budget for 2011 really didn't budget at all for the out year. just put in some numbers there and didn't have any idea what to do and instead it named a commission. i was thinking back to all the commissions i've been familiar with and with the possible exception over the capital budgetting commission, which i think possibly did do some good, i can't think of another positive commission that i can recall. that said, the boles simpson commission, i am incredibly impressed by. they have done such a good job even so far. why do i say that?

well, first of all they ignored the phony assignment that they were given, balance the budget by 2015. look at the baseline. the c.b.o. baseline accomplishes that without doing a thing. yes, you to let laws expire that are currently in place and are due to expire but given process that we're facing now, that may well happen in the next month or two. what kind of target is it where it is in the baseline you don't have to do anything for? let alone for you who know about primary deficits, not a concept that is used frequently here in the u.s. but is used frequently at the i.m.f. for third world countries. that is for countries that can't quite actually get their act together, you say well, why don't you guys just try to balance the primary deficit first of all and then do something real after that? that wasn't exactly an ambitious

target to give to the commission. but what did boles and simpson do? they ignored -- they did what they should do. they looked at the larger issues, particularly the level of government issues. what level of government do we want in in country? i don't mean today or next year or the year after that. the long-term issues that we are facing, mostly demographic, those issues you must resolve a level of government question before you can address it. i am very enthused that the boles-simpson chairman's plan did exactly that. they looked at the long-term. they looked at also tax expenditures. something i've been talking about overseas quite a bit. an export i wouldn't say was one

of the better ones. they looked at the solvency of the social security system. the that's what they should be doing. looking at the solvency of it, taking a long-term look. i also think they did a very good job. you'll note that i'm saying praise about this not because i agree the specific proposals and that. there are pluses and minuses in all of those, but it is rather the idea of looking at the long-term, addressing the level of government, ignoring some of the gimmicks and things that could have been done and taking a broader view. thank goodness for these. i'm so positive on boles-simpson that i would suggest to you that a week from now when they finally do take a vote, if the vote is 16-2 against, still think very good of the commission. i think they have done what should have been done. i don't know what will come out. but even if everybody else votes against them. even if it is 18-0, even if they

change their mind, i think it will be good. well, that is the good. let's talk a little bit about the bad. let me take representative sarkow 401 (k) i's proposal. there are prolspoflse in it. i'm not taking a position on it. good for her. but it is not a serious effort. if you also -- also if you look behind some of the things she has had in the printing costs and vehicle budget, i don't think are really going to address the trillions of dollars of difficulties that we are facing. so i'm very critical of it. i would call it the bad because it really doesn't address the long-term and doesn't address

the size of government issues. all right. that's bad. what about ugly? of course those in this room when talking about ugly, we can't get by our former vice president. deficits don't matter. i can't even though i speapt good portion of the last five or six years overseas, the impact of that resonated with the vice president of the united states saying that deficits doesn't matter is still something that can't be underestimated. let's get more immediate on some of the ugly. in response to the boles-simpson proposals we had the speaker of the house saying simply unacceptable. ok, fine. but where is your plan? do to say something is unacceptable and not come up with another plan, i would suggest is ugly. you had richard of the labor saying that the boles-simpson

plan basically says drop dead. well, we have all heard that language used in budgetting before and if he doesn't like it, fine. where is his plan? what kind of spending does he want for the future? what kind of revenues? we had grover coming out and saying oh, no, this is a lousy plan because it violates the no new tax pledge. another thing i love about boles and simpson is they both didn't fall into the trap of what do we do about the tax cuts? that isn't the issue. particularly it is not the issue in the near term, i moon in the long-term. the issue in the long-term is what can we do to change this hid rouse tax code that we have to make it better in terms of raising the revenues for the size of government and efficient in promoting economic growth and they both -- they both tackled that. i admire them both for doing that.

he only says it violates a tax pledge. this is what i would call ugly. unless these people are going to come out with an alternative themselves and address these positions, then taking these sound bite potshots at this, i don't think is good. so if you don't want to cut taxes or if you don't want to increase taxes to pay for the level of government that we have now, fine. show me where you're going to cut spending. if you don't want to cut spending. fine. then let's be upfront how much of a tax increase it is going to take. and if you don't want to do anything, then i'm afraid that is what i would call something that belongs in the ugly category. thank you. [applause]

>> i'm delighted to be here. the last time i was here, several years ago, the organization was gracious enough to present me with an award for work i had done at the congressional budget office doing budget estimates on the same day it presented rudy for an award for a paper that he wrote that analyzed and was very critical of c.e.o.'s budget estimate. i wasn't quite sure how to take that but i'm glad to be here today. first of all, in terms of the good, i think we need to -- i think some historical perspective is useful in that we have come a long way, i think in the last few decades. i wasn't working in the budget area when the budget act was initially put in place in 1974. but we got mechanisms that are much more effective now than we had in the decades several decades ago.

we now have a system for looking at the budget overall rather than just one piece at a time, before 1974, committees did their thing. somebody added up at the end of the year and whatever it turned out to be, that's what it was. now, at least, we have a system of an overall budget resolution sometimes. and a mechanism to budget committees pulling things together. so we now at least have a forum and a mechanism for looking at the budget as a whole. we have the congressional budget office, which provides independent cost estimates to the congress. which -- and it doesn't have to depend on the executive branch and whatever biases there might be in estimates that it provides. and c.b.o. is a place -- been there for over 33 years and i think we all want to be proud of the things that it has done and the ability it has given the

congress to function independently of the executive branch. we have a framework now for looking at more than one year at a time. we have budget baselines and we have budget resolutions that go out over a period or number of years. we didn't have that before the 1970's. and we have frameworks like pay as you go nats place now that was not in place for a few years. and mechanisms that we have tried like caps that have worked at various times. so we face some significant challenges, but we as a nation have put in place some mechanisms and some procedures and some institutions that would better equip us to deal with them than we have before. on the other hand, i think we don't have in place, effective mechanisms for addressing the problems that loom 20, 30, 40

years from now and we're already on a path towards -- i mean those problems have already started but there is nothing in the budget process. there is no structure. theris no mechanism. there are no agreed upon tools for dealing with really long-term budget issues. in terms of what i think we need, the first thing i think we need to be effective in addressing our problems is a broad recognition of the problem. both in the congress and in the public. and acceptance of the fact that we are on a the path that is really not acceptable over the long term. secondly, i think we need some kind of agreed upon target and metric for deciding what is a good path to be on? some people talk about let's set up a target of some percentage of debt as a percentage of g.d.p.. we need to agree on something,

some metric that we think is an appropriate metric to use for the government's long-term fiscal sustainability and we need to, we, the public, the congress, need to agree on some kind of target. that is a good target? a reasonable benchmark for us to aim at accomplishing? then we need to make some decisions. one of the fundamental decisions is how big do we want our government to be? we are used to over the past 30-40 years, we have paid about 18% of g.d.p. in taxes. and other forms of revenues. we're on a path to spend maybe 25% of g.d.p. by 2020. so do we want to -- so that if we want a government that we're only willing to play 18% of g.d.p. for, then we have got to trim our spend big oh, maybe

1/3. on the other hand, if we want to have a government that is 24, 25% of g.d.p. then we have to increase our taxes by maybe 1/3. so we as a society, have to make a decision as to what type of services and benefits we want our government to provide and we have to create a match between how much we're prepared to pay and how much we want to receive from the government. right now there is a mismatch. we're accustomed to and expect to receive much more from the government than we are accustomed to and which to pay to the government to provide those good and services. and we as a society are going to have to make that judgment. do we want a government that is 18% or 19% o of g.d.p. or 23% or 25%? and that's key decision i think in terms of oe we decide on a target in terms to have overall budget metric then we have to decide what kind of government do we want?

ened that that is a big decision because if, in fact, we're going to match the government to the amount of revenues that we take in now or would take in under current policies, that's dramatic change in the nature of the government. on the other hand, if we want to match the tax system to the amount of o the obligations and services and benefits the government is providing, that is a dramatic increase in tax and somewhere, obviously, there is plenty of space in between to work out some kind of match. but that's going to be a real challenge for us as a society. and ultimately, i think the political system will only be able to do that effectively if the public is prepared to support it. stand -- and if the public is willing to say ok, i'm willing to pay for taxes or accept less

in benefits then whatever mechanisms get put in place can work. but if the public doesn't agree to that. if the public says -- wants its cake and wants to have its cake and eat it to too, it is going to be very hard for the board, whatever mechanisms we put in place. so the need for some national consensus on addressing this long-term problem is critical. we need a system that puts in place some kind of mechanisms to meet some targets. it has to be flexible. be able to respond to emergencies, economic disruptions, wars. but not too flexible so this can't be misused or taken advantage of to avoid the constraints. we have to control health care costs. and not -- and the other major entitle identicals. but the most recent baseline

estimate, social security, medicare and medicaid came to 9.7% of g.d.p. in 2012 growing to 11.5% in 2020. that is a 1.8% increase. in today's dollars that would be about $250 billion. just to keep doing what we're doing. and we have to figure out ways to constrain those programs or, unless we're willing to pay lot more in taxes than we are paying now and again, that is an important decision we have to make. finally, i mentioned before i am concerned about -- i think we are all concerned about not just the five or 10 years that we're used to thinking about budgeting but what happens in 20 years or 30 years or 40 years, what kind of metric should we use? what kind of mechanism can we put in place so that

congressional committees can actually have some kind of incentive to address problems and get credit in some kind of mechanism for addressing a problem that is going to occur 20-30, 40 years from now. [applause] >> well, it is always hard -- everything has been said but not everybody has said it. i would like to try and -- first, actually as some of you know, we ran the first long-term simulation in 1992 so before everyone did it. the comptroller at the time felt really, really strongly we needed to highlight --

unfortunately, if i get to measure my effectiveness on wlo those reports created action, i might not be doing so well. we of course would agree strongly in the need for education in the public. in fact, we would view the simulations we do as motivational since we go out far enough to include areas where it can't happen. he is quoted as saying that things that are not sustainable tend to stop, but as he pointed out, it matters how they stop. the soviet union was unsustainable. it petered out rather than blew up. we have been lucky and able to carry on a sustainable fiscal policy because we are the most secure economy in the world. you can see that by what treasury is going for today. every time someone makes a speech talking about i don't know how people move their money

to the euro-zone. first of all, there is no euro bond market. second of all, they are going to buy irish bond or greek bonds? what i think the public has come to agreeing there is a problem, i think they label it incorrectly. the problem is debt. we have to oppose debt. debt is the result of all of these other actions. when you do focus groups and surveys, what people think foreign aid makes up about 15% to have budget. we can cut back. and sometimes i worry -- sometimes i worry that overlapping duplication has become some, you know, the silver bullet. and i would like to stand back, you know, that said. i absolutely agree. i would like to stand back and look at the process a little bit

differently. first, does sf anybody asked me what the greatest contribution of the 1974 act was, i would agree with bob, which was the creation of c.b.o. the ability of congress to get independent estimates and to get them on time. if you asked them, if they didn't like your proposal -- and some of you may or may not know, there was some disagreement or disconnect between the house and the senate views of c.b.o. at the time. the house was a manhole cover and you drop the bill in and the senate envisioned a place that would be broader. ansd there was sort of an impasse over who would be the director and in the end when brock adams became chairman he said we're fighting over what? the story is they flipped a coin.

any of you who are interested more about that story, i'm happy to talk to you later. but and in terms of other good developments that had to do with r with facilitating choices, i would put credit reform on that list. it is hard not to list credit reform as ugly. in the sense that it is messy. it ranges from really good efforts to rotten but it is compared to this an era when we treated direct loans as grants and loan guarantees as free. in which case, creating a balanced budget amendment, the first thing we asked is to convert all programs to loan guarantees. most balanced budget amendments measure only one year at a time. i'm a little concerned however that our discussion has focused on an idea at a process and a

particular policy goal. are you looking far process that is general and will survive different times? i understand it won't. or, a process that overlaps with enforcement for a goal you selected in advance of design of the process? for instance, i do not think i would agree that the process should be sure that you move forward the process and structure be sure that you move towards sustainability. it should, however, highlight what is real. that is where you're going so that you can discuss whether you want to head off that cliff and i think the other thing you judge a process on, does it highlight the important choice? that is if you think to have range of decisions members of congress and the president have to make in this debate, you're not possibly going to examine

everything. does it service the choices you think are important? how much are we spending on investment versus consumption? what is the distributional burden? as good estimates as possible for the near term and the medium term and then you should have order of magnitude and direction for the long term. i'll get back to that again. some programs it is easier to run plausible on long-term methods. does it allow you to compare like things unlike -- that's sort of what i mean about the credit reform change. does it, in fact, disclose what you putting the federal government on the book for? this is where people like me and

c.e.o.'s tend to be pretty rinled about upfront funding. i know it is a great benefit to agencies to pretend to lease a building for only two years at a time even if you're planning to be there for 20. it is more expensive for the federal government. it is -- similarly if you want to think of some of the supposed leases for things that are only used by the federal government, we're going to pay another company to borrow the money? we borrow more cheaply than that other country. i used to people, you have a couple of choices. you can raise taxes or cut spending and pay for it now. you can add it to the credit card and have your children pay for it later or you can pay someone else to borrow money and have your children pay a bigger bill later. so i don't think i would judge a process by whether i agreed with the decisions.

each one of us, confronted with the federal budget outlook now, could, although it would not be easy, make our own decisionses about what kies government we want and how we would like to pay for it. but the challenge is to have a discussion about that, and i frankly don't believe in the rational aftermath model of political discourse and i don't know what -- the english language thinks of as irrational. frankly i think it is too hard. none of these guys are really saying that but i think that it means which things you service and which things you pay attention to. one of the things i think is probably both bad and ugly. the unwillingness to use the budget resolution as a framework and then stick to it in enforcing and enacting. i think the reason there is no budget resolution is people know

they can't enact a appropriations bill to stick to that name. it becomes a symbol. if you add up all the things that are important -- that is because the american people don't know what is the composition of the budget. i think there are places where we can make improvements. we have suggested that you insurance budging, something you might call the missing premium. i'm old enough to remember when it was a profit center in the federal budget because we scored the increase in premiums on a cash flow basis. cash in, it was to offset a trade agreement, which raises another problem. i think you want full funding for things like military housing, the core of engineers dams.

you want to avoid either real or imaginary cliffs. some expirations. if we don't like sudden expirations, then you don't want to score an expiration you don't believe will be allowed to take effect. on the other hand, we need to let things fade out. frankly i think we can learn a lot of things from the successes and failures that marvin pointed out. graham rudman went across the board so if you were the one complying, you got hit twice. it succeeded as far as its reach but it did nothing about dealing with the base. finally, i think i would like to say it is important to remember that everyone wants a small government until they don't. [laughter]

most of the -- if you read the surveys in louisiana, most of them want very small government. but i seriously doubt that they meant from that no support when katrina hit. the federal government built their power, built their roads, all of our roads and we set aside land for the land grant colleges that educated a lot of you from the west. i don't think today is the same thing. although we have to get to decision about what size government you want and what you're paying for, we first have to, i think, start with this is what the government you're getting now is. this is how much you're paying for and go back then to a various point which is this. if you don't want to pay any more taxes, then these are the kinds of things you have to cut. not just the amount. if you don't want anything cut, then this is the kind of tax we're talking about.

we have done this. people say oh, you mean either of those? ok. now let's talk. where in the middle are we going to end up? stuart butler once said coming to an agreement about the long-term, is less than a numbers problem than an analysis problem. who goes first. how do you make commitments? how do you have a discussion that in 24 hour news cycle doesn't have everybody announcing that everything is unsustainable. i actually think everybody on both sides said it was a terrible thing. and there is just an awful lot of things that we don't know what the implication is and we need to have information structured in a way people can process it and decisions that matter. i would like to make one more point about a missed opportunity. the functional categories, which

served as a prophesy for what we called national means or the goal of a process will be one way to think about all the different ways we do things. you don't want to just look at the appropriated programs that go toward goal exmp. what about the mandatory programs? what about credit programs? what about tax extendtures? what sf you want to know how much we support different parts of energy, you have to look at all of them. that's just a hard call, but i'm encouraged and hope that maybe we can make progress. anyway, i think on behalf of all of us, we would like to thank you for being a group that can sit still on a panel on budget process. [applause] >> if you're a student watching on c-span right now or in the room right now and say you don't have a dissertation topic or

your next project from this discussion here, i would suggest you turn your volume on because they are all right there. they are all ready. microphones in the center. we'll be happy to take your questions. the first one, if not, i'll -- while you're thinking about it, we talked beforehand about transparency. we heard it here again today. it has become routinely advocated. what does transparency mean in the context of federal budgetting? what is or should the goal of transparency be as it applies to the federal budget process? i open that up to our panel and then look forward to your questions. >> well, i -- i think sometimes something like transparency gets floated, it becomes a universal good you have to worry about information overload issue. to me it means some of the things we have all talked about,

which is the action that you're about to take, the policy you're about to enact, does it move on a straight line over the next, you know, 40 years as enacted? does it grow with g.d.p.? does it explode? does it grow with demographics? what drives it and what are you looking at? there are some areas where you can do things concretely. every time we commission a nuclear submarine, we commit the federal government to do waste cleanup. it is a relevant sfoint you were going to do better at dizz close. every time we do an insurance program. every time you create a tax provision or a direct spending benefit program that grows with some other indicator that you don't have a clue how it grows. so i think that you need to think about that. >> i think when i hear the word transparency, i think of other

word like clarity, understandability, accurate measurement of costs, which others have also talked about. i think it is important -- and there are conflicts, i think, between some of these things. credit reform. credit reform is complicated. and some of the estimates turn out to be wrong. from an economic point of view, it does a better job telling us what a credit program is but it is not as simple or easy to understand as simple cash flow numbers. the recovery act information. the website has chose jobs created in various places by spending that accounts for about 1/5 of the budgetary impact of the recovery act. that information and it is useful information within the context in which it is presented but then there is the other 4/5

of the act, various tax cuts, business for people. benefit payments. a whole variety of things that are not showing up there. so we have presented information -- sometimes you wind up with information that is really good information about the tip of the iceberg. and various people have done esmates, you have always done estimates, a disagreement about what the rest of the iceberg looks like. we have to be careful about not mistaking the -- the tip of the iceberg for the whole iceberg when we're presenting information. that is a little bit of transparency, but it doesn't actually tell whole story. >> in fact, i followed him there into the housing branch at o.m.b. when i first got there, i tried

to cover up his mistakes but failed miserably. we looked at programs in the federal housing administration that had to do with middle and low income housing. a.f.c. i was there for a short time, -- after i was there for a short time, i realized that basically what changes we made didn't have much impact and it was at that time, i think i can still remember that i first came across the concept of tax expenditures. basically what was running these programs was at that time called syndication of the accelerated depreciation. and so i convinced a law firm that was very popular in selling these things, blaine and edson. if you go to moithg montgomery county there is edson lane that

is named after that. i started learning how tax expenditures, these tax laws, really dominated the program. and although they were changed dramatically in 1986, but at least you can have an impact on it. i say that now because that was 20 years ago. 30 years ago. we have come a long way on tax expenditures. thank goodness, with respect to transparency, we really have gone so far that now these proposals that i have mentioned before, now they are explicitly targeting tax expenditures, which really, really need to be done. i would mention another broad view of transparency, that is -- they talk about a payroll tax holiday for a year. thank goodness, because with respect to the social security

trust fund don't have any trust in it. by that, i mean it is not a trust fund in the same sense that private individuals, you and i might classify a trust fund, well, at least they are being transparent and saying ok, you guys won't have to pay fica tax for the next year. they think that will create 2.5 million jobs or something like that. the important thing to me is look, don't worry about getting your benefits. we'll have the general fund make up for what is not in the trust fund. well, of course the general fund is going to make up for it because there really isn't a trust fund and all they are trying to do is paper over what has been an unfortunate myth in budgetting for oh, 60 or 70 years now. so i am very optimistic of the trend towards transparency, building on what both sue and bob are saying. >> can i just -- one thing we haven't done, i don't think, is

thought about the pollses broadly in is sense of lumping together and tax expenditures and spending. when we think of housing policy, the government often thinks of spending programs and thinks about them over here and the mortgage interest reduction and thinks about them over here and we don't often lay them up against each other and say how do they interact? the same thing with home policy. -- health policy. we still have them in separate areas. we have spending programs and the tax expenditures. i think we're doing better at identifying the tax expenditures and measuring them but we still are not -- it partly has to do with committee jurisdictions. they are not all on the same committee jurisdictions. >> those are the two really big ones. but there are smaller ones that

maybe the steps will be made there if you think about about, you know, there is a regulation requiring a certain amount of -- didn't get one tax provision for doing it and there are other things where if you think about some of the educational provisions for higher education, tax provisions and some -- grant provisions and some loan provisions so that even in areas that are dramatic and huge, housing and health, the question is could you at least start recognizing it as you're trying --hen u're looking at renewing the higher education act, could you just bring into the discussion what are the tax and grant provisions and direct spending provisions to sort of interact with that because sometimes, families were not even making the choice that was most to their advantage. we don't -- there is no way to

eert look at the tax provisions and the grant provisions together. >> sue had mentioned national needs. i see ken kelly here, who predates me at the o.m.b. we used to do a much better job job at presenting tax expenditures. mandatory programs. appropriated programs. in a section on functions in the national needs and that was -- if my memory serves, gotten rid of in 1990 that we changed that. but your point is still valid. even if we go back to the better way we presented the information and tied it with performance, which we never did, you know, some kind of performance measure, still, the congress is not organized in that way and th