host: los angeles, good morning. caller: president obama has already said we are taking the back seat in libya. they are against the administration. president bush attacked the country for near reason. they call th the worst president in modern times. wi that president's chief their wives we have presidents that had slaves, but that did not do anything about the civil war. you need to get off of his back. that is all i need to say. guest: for several years out there are still people as this caller is evidence of who oppose what bush did during his administration. i do not think that that will

change. host: lee joins us from latin roots. you have david brody and michael shear. caller: i hear him saying something about what obama run on, and the way i got it was that he was going to spad the wealth aroun. when he got his cap and trade in, he was going to break all the coal companies. i never have heard anything like that in the media when it was happening. you guys had your heads in the sand, i guess. i do not know, like sean hannity said. we just cannot hear from you. they nowome up when we are all in this mess, and i hear him

saying well, he inherited a mess. he did not inherit the mess. he and h cronies, the unions and acorn and barney frank and chris dodd, they're the ones that cause the mess. host: thank you for your call. do you want to react? guest: an interesting obrvation as to spreading the wealth. the president did talk about his philosophy his economic philophy which is let's spread the wealth. here we are in wisconsin, which you can argue certain things about scott walker,ut one

thing they are saying, it is not fair what these union members are getting as a relates to pensions and benefits and salary and all of that. and if you look at this way they wt to spread the wealth. here is predicated obama saying, well no, i do not want a spread the wealth there. very interesting about talking about spreading the wealth, but at the same time when scott walker and others want to do that, the president is not buying into that spread the alth philosophy. host:guest: that came from ohio and joe the plumber. that became the phrase of the moment. one of the things the president has done in the last few months he has shift on some of this rhetoric. the biggest evidence of that shift was in the lame duck session of congres when he acknowledged and compromised on

the task cuts for the wealthy. it had been part of that broader rhetoric that he argued all to the campaign and for the first couple of years of the administration. you could not extend these tax cuts to the wealthy. he finally compromised on that. i think theampaign we are about to cover will focus on that issue as part of the broader economic debate. host: the front page of a pittsburgh newspaper haley barbour testing the waters in iowa. he gave a speech last night in the quad cities. it is available on our website, c-span.org, and our last caller is from new hampshire. mark choices from northfield. are you seeing any republican presidential candidates in northfield? caller: there definitely appear.

my comments and questions are this -- alice the environment anymore safern obama's highs drilli oil off the gulf of mexico and when president bush went to the war, he had a congressional act. with this cpaign, we had a you in act. -- a un act. guest: the anti-work caucus has brought that up. you will see that drumbeat even louder. host: we talked about that with this kucinich and afghanistan. guest: there was a lot of you in actionefore the 2003 iraq invasion as well. i am n sure whether the idea that this is a un-led

initiative, there was a lotf that in 2003 as well. host: this story that you posted, how does that cnge how you write stories for this campaign and how you post immediately on the web? guest: it is faster. the speed is different. the front page of the new york times is very important and it will be very important. but recently the conversation of politics and about election plays out on the internet. that is where people are throughout the course of the day. it is definitely meant that stories we used to sit back and are chair and let -- see how that developed over days even, now we are very much try to attack those stories in the moment. guest: there is a dangerous

policy to use the immediacy of what we're doing, in terms of fact checking. i would say how does that affect me -- less sleep probably. but beyond that, therere two different world out there. the mainstream media/television world of the nightly newscast, fox, msnbc, and then there is the bair role world. . viral-- viral world. that is a big difference. guest: in 2006, we were at the "washington post." wheat posted the macaca video on george allen. that almost looks quaint these days, because of a viral quality of everything has threatened to overwhelm a more considered

conversation. host: you have all the likely republican candidate. tonight herman cain is serious about running for president. guest: i interviewed him about a month ago. we just posted some of that at the blog, and here comes the pitch. ralph reed told me in iowa and at that faith in freedom of been if mike huckabee and sarah palin do not get in watch for herman cain or rick santorum to break off right tackle and do damage in iowa. herman cain is beloved by the tea party movement in this country. go to a tea party rally, you will see signs in you will see herman cain. guest: ron paul was one of these characters and the last campaign. i just sat down with buddy roemer.

he will have an interesting tweak on the candidates as well. watch for some of these lesser- known folks. guest: it will be watching the debates. he will command attention. host: michael shear

speeches likes to find an anecdote to make a connection. so when i asked the told me well, a lot of lawyers accountants, technical people. i went back and racked my brain and remembered an old, old story it is the story of the sea of of the most powerful company in the

world. he has a very critical question that he has to ask. he calls and his chief engineer, calls and his chief counsel and chief accountant. he says gentlemen, i have a dilemma. i need an answer to a very important question. he turns to the engineer and says, here's the question. how much is to end to. the engineer says that's very easy sir. to end to has always been for is for, and will be for. not satisfied with that. he turns to is chief counsel a lawyer. he said how much is to end to. he says, well, sir there are certain jurisdictions in which an approximation close to three. nine or four's acceptable and others that is not accepted. we will have to go out and do a

study which will take us six months and probably cost $600,000. he said that is not one need. he turns to his accountant. he says, how much is two and two. the accountant leaps up and goes and locks the door palls the shakedown, opens a drawer, puts the phone in the drawer, shuts the door grabs the ceo, takes him over to the corner and says how much to you wanted to be. [laughter] that has absolutely nothing to do with what i'm going to talk to you about tonight. i thought i would come and talk to you a little bit about what is happening in this country right now. i think if you are like me like

anybody in my family, like anyone at the table you are at you have a little bit more anxious to than you used to think you're going to have at this stage in life. what is going on in our nation and what is going on and around the world. i was talking to someone the other day. i hate to say this. i am actually nostalgic for the old days. it was the superpower confrontation with the u.s. on one side and the soviet union on the other side. when every issue we knew what the sides were. they never changed. it was the u.s. great britain, france and our allies over here, the soviet union and her allies over there, whether it was straight to my international conflict whatever it was. blinds were drawn. today on every issue they have

to build a new coalition. you have to go out and beg your friends quite often to be part of it. it is not an easy world. it is much more complicated than it was then when the soviet union was the soviet union. and that is uncertainty. that turmoil that lack of stability seems to be part of the process not only internationally, but within our own country. it doesn't mean that we have not had economic turmoil before. we seem to be going through it now and with a lot of unrest. what i would like to do tonight is talk to you a little bit about the economy, a little bit about energy because it is a very important part of what we are seeing on television every night now and talk to you a little bit about what is happening around the world or at least in a couple of places, and

all those pieces come together and are reflected in what we might call the agenda for 2012. the political agenda for 2012. first of all that may take a look at the economy. we certainly can through a very difficult time. for whatever reason the economic system build up within itself a bubble. bubbles always seem to be the cause of economic problems with the there are a real-estate bubble of the internet bubble or this bubblehead that bubble and the realistic bubble. real-estate -- mother nature particularly the economic side has an amazing way of bringing things back to reality. quite often that collapse is rather calamitous and certainly wasn't at the end of 07 through

08 endo nine. we had a real problem. we won't debate whether or not we are in favor of things like tarp which were put into place to try and keep the system from collapsing. won't argue whether or not in those very critical days at the end of 2008 whether we were on one side or the other but the fact is we went through a process extend the bleeding the fiscal bleeding, and then we have started in 2009 and 2009 and the beginning of 2011, the challenge of trying to rebuild. one of the things that was done by the current president and he had not only power and the white house, but control of the house and the senate they decided to have a strategy of spending money. it is important to understand

how much money was spent. it is important to try and a identify what impact that money had and try and get a handle on how we then reversed the spending trend as any family would have to do if it went through that same kind of cycle or any business would have to do and retrench because retrench we must. nobody is denying the fact that we ought to be cutting spending. we ought to at least identified how serious the problem is. interesting number. the last fiscal year before this administration came into power we spent almost $3 trillion. the year after that when they came into power and put the budget together and went through

the process of implementing their strategy of stimulus we were spending almost $9 trillion. the one-third increase. you can sustain one-third increases for small businesses but i doubt that you will find a major business in the country that can tell you that in one year they can increase by one-third, expand themselves, and not feel any pain. we feel pain. we have increased our national debt tremendously. the chilly from about eight plus trillion dollars close to 13. it is about a 65% increase in three years. a 33% increase in expenditure rate. the strategy that some people are suggesting to deal with is

the freeze it at a 30% increase and go on from there. it does not work. arithmetic is a hard taskmaster. you cannot pretend the numbers are not there. the problem is not just that the federal level. you look around the state's. it's a slightly different order of magnitude, but for each and every one of them virtually each and every one of them a very similar problem. here in massachusetts, as i understand it, the problem of the state budget level is between two and $3 billion. in new hampshire it's almost a billion dollars. for all the states across the country taken together its about $150 billion. and that mock -- that is the

easy part of the challenge for the states. the states have a second problem, and that is the problem of pension benefits and retirement obligations. in new hampshire the numbers i know the best almost a billion dollars of problems in the budget. we have a pension and which the pension liabilities have an unfunded liability of three in the half to $4 billion. that is what people talk about having to fix. that is not all of the problem. i learned a long time ago, if you want to find out the fiscal condition of a company or a city town, or state, the best place to find the real answers is to go back and look at their bond statements, the statements they have to put together when

they're going out to borrow. i started looking at the new hampshire bonds statement from about a year ago. i found this section called retirement obligation. sure enough they talked about the pension liability with year-and-a-half to $4 billion. then i read this paragraph. there were two other liabilities one is health care obligations to retirees. that is not included in the number you are all hearing for each state. and so in new hampshire there is another almost billion dollars in health care obligations. that is not the end of the issue. there is another obligation called 0ppd. other post employment benefits.

and in new hampshire it is another two-and-a-half billion dollars. so instead of the three and a half billion dollar liability as people are acknowledging in the press it is a $7 billion liability. instead of california having $114 billion pension liability i suspect you go and look at their bonds statement. you find out it's close to a quarter of a billion, a quarter of a trillion. unbelievable. this is what we face is a country. the point is as all of you know the sooner we get to fixing these issues the easier it will be in the long run. it won't be easy but it will be easier. that is part of the challenge. and, yes we are watching

television and people are being accused of being so heartless, so cruel, so tough and trying to cut back and address some of these issues. i suggest to you that the most important thing you can do to help people to what they have to do responsibly not to remain silent, but to provide encouragement for those who want to deal constructively with these issues. quite often when i speak somebody will stand up in the back of the room and they will raise their hand and usually they are the ones that seem the most agitated. i call on them, and they will say governor, when are the politicians in this country going to have the guts to make big good hard decisions that need to be made.

my answer is you think in that question you have identified the political figures as the ones who have to do the right thing. in fact if you think about it your real condonation in that question is a combination of us. why in a democracy should be making the right decision be a hard decision. it is up to us to create a climate in which the right decision is easy and we have not done a good job of doing that over time. second issue i want to address in general terms is energy. favorite line on all of the talking head shows and by all the political figures who don't

know one part of their anatomy from their elbow -- c-span this year. , they love to say that this country has no energy policy. in no way they are right. this country has no energy policy because the right energy policy is not politically correct. it is an easy thing for anyone who understands energy to put an energy policy together that is both effective and tool will. some people talk about it. they talk about it as the all of the above choice. we need coal oil natural gas nuclear, large scale hydro. you want to throw wind in fine you want to throw solar in fine, but don't think they will

be that magical fantasy solutions. he needed all. most of all are the traditional sources. that is the right in its policy. it is not the politically correct one. it is not the one that the media likes, not the one that we like to think will save us from hard aspects and investments and issues. now, i know that nuclear is taking a tough wrap this week with what is happening in japan. i personally think it will be working its way out and we will end up with not as dire a set of consequences. i could be wrong, but i don't think there will be a diverse set of consequences. if that happens to happen if the japanese and up fixing this without any different -- serious injury or loss of life then the important message to the world will be exactly the opposite of

what the media is trying to make it now, it will be that energy source can withstand even a magnitude nine earthquake in one of the largest tsunami that have ever hit japan. but we have to have the courage and the strength to create a climate where again, the correct policy becomes an easy policy rather than the wrong policy being a politically correct one that people would hope we would have. it is up to us. we have responsibilities. the third thing i would like to talk about before we get into the political side of politics is what is it going on around the world. we certainly watched with amazement what was going on in

egypt the activities and the young people and the capacity to use twitter and facebook and gather crowds and stand up and protest the reasons that they were not very happy with and with a reason not being happy with and we stand in a chair that and feared what was going to begin to happen in libya. we even gave a strong encouragement as a government in libya. gave the people that are beginning to live to fight. egypt was more peaceful. libya was cheating at each other. civil war. we give encouragement to the protesters. then we did nothing. we have done nothing. how unconscionable to give people the impression that we

would provide some support and then stand back and let what is happening happened there. let me get back to the larger point. watching what is happening in egypt. we see issues like this taking place in bahrain, unrest in yemen, and we are tempted to be sitting at home cheering it on. the fact is we have no idea what will come next. no idea at all. how do we know even the people who were protesting in that country will be better off with what comes back? how do we know the world will be better off with what comes next? we pressed for democratic elections in palestine.

look what happened? hamachi one. we certainly cannot be happy with that result. it is one thing to have democracy as a stimulating philosophy of what it would like to see take place and around the world. it is important to help people get there eventually but i'm not sure the most responsible thing is to hope for democracy by traumatic action. so i see those three aspects being critical as we try and sit down and decide amongst ourselves what we would like to happen in this country in the next few years, what we would like to happen at around the world, and who we want to be the

leader of this nation as we go through the 2012 process to decide who should be in charge on inauguration day 2013. we have an incumbent in the white house. then the republican party must choose. then we as a nation will sit down and select. that me talk of the bit to you. i apologize if it have not partisan flavor, but it's almost impossible for anybody to give you an honest expression of their opinion without tinting at a little. i really do think there is a huge void in the world and specifically the void in this country. i was talking with some friends

from around the world the other day at an as the launch with about four countries represented. very different opinions, but the one thing we agreed on is that there is a really big difference in our opinions, at least on the quality of world today. no helmet, no margaret thatcher ronald reagan no people who were able to take a look at the macro problems up there, defined as set up positions and work hard to employment them and make things better. i offered my opinion that i think the closest thing that approaches the style of is vladimir cuban in russia

today. other than that i don't see any i don't see any defining philosophies, i don't see any commitment to moving in a certain direction. a dance to the capacity to bring things together. i really don't see anyone there that can help reshape the world in the direction that i suspect we would all like it to be reshaped. and so i think that is one of the questions we might ask ourselves, and i am very much aware of the fact that margaret thatcher was not margaret thatcher until after she was elected. helmut khol was not helmut khol until after he took office. francois mitterand was not francois mitterand until after he took office and ronald reagan was not ronald reagan until after he became president. i accept that. we at least have to look for people that give us hope and we ought not to stick with people

who have demonstrated that they can't. it is too critical. it is too critical. our economy is at a tipping adds. what is going on around the world is seriously in turmoil. this is not easy times that we all thought we would have after the soviet union collapsed. this days of euphoria, the end of superpower conflict, happy days are here again. it did not work out. so now let me talk of the labatt about what i think is going to happen as a sickness of a fence politically as we move to 2012 and to talk about some of the cast of characters that will come knocking on your doors asking you to support them. you don't live in new hampshire. the one knock on your doors. you will see them on television.

2012, two parties, and republicans and democrats had tried to make this a little bit more orderly than it used to be. two national committees, democratic and republican have both adopted a set of rules that of virtually the same and have set aside the month of dead urey february 2012, as a time in which nevada to i welcome the new hampshire, and south carolina are allowed to go first be in their delicate -- delegate selection process. all other states can start march 1st and schedule themselves in. of course neither the democratic or republican national committee really has much power. it there are rumblings. other states think that they ought to be entitled to go early. i suspect we will see

particularly florida michigan, and texas making noises as if they would like to go into during or even january. when they asked me as former governor of new hampshire, and i was going back to be state chairmen to clean the rascals out last year, which we did they asked me what will happen if these states start jockeying the mac i remind them that the one advantage we have in new hampshire is that our secretary of state is empowered to move our primary as far forward as he has to in order to keep it first in the nation primary. that reminds me of little bit of a story. and i was governor, a southern governor who i will not name here out of courtesy to him came into my office when i was

governor. a courtesy visit to tell me that he was going to run for president. coming to new hampshire for the primary. he wanted me to know that. what started off as a courtesy visit, he started to get all he did and started showing how angry he was that new hampshire somehow was allowed to have the first in the nation's primary. he told me he was going to go back to is state of florida. i let a little out of the bag. see how what it takes you to good will that. he will go back to florida, and florida would move their day forward and would end up ahead of us. you can go back and change the law, but our secretary of state has tremendous powers in new hampshire and will just keep moving forward. he said we are going to move it so far forward that there will be no room left to move new hampshire forward.

so i turned to him. somehow i kept a straight face. i said governor then will just put in provision be utilize provision be of the law. he said, what is provision be? i said the law permits under dire circumstances such as that. the governor of new hampshire did declare that the primary has already been held and to fix the winner. and he really went down to the secretary of state's office and asked for a copy of a provision be. i don't know if we can use provision be, but there will be jockeying, real jockeying, and it will be fun to watch how this process works out. there will be early voting probably in january, and it could even be as people get ridiculous as early as december.

with that in mind i think you're going to find some people who have hoped it did not have to come in san beginning to commit pretty quickly over the next few weeks. i don't know who is really going to be in and to is not going to be in. in know, all of the list of suspects. certainly governor romney, former governor of massachusetts will probably be a candidate. the former governor of minnesota will probably be a candid. haley barbour will probably be a candidate. there is a good chance that mix daniels will be attended. jon hunstman has said he will be a candid. newt gingrich has suggested he might be a candidate. and then we have the hecate's and palance and bachman said. i actually think that it is not pulling to be that large a field. i think that at some point

people are going to decide there are too many. people always ask me what my personal preference is. i have not decided yet. i will tell you i have a terribly huge bias toward governors or former governors. i have for governors that are old friends one way or the other. governor romney, barbara plenty, and daniels. i suspect that my personal preference will probably go to one of them. i got asked the other day by the press about jon hunstman former governor of utah. i guess i give an answer that got a lot of headlines. i said he was obama as ambassador to china. why would the republican party nominated and obama night to be their nominee? i really mean that. i don't understand that process.

then they ask me about speaker gingrich. i reminded them that at least for me it was pretty disturbing to see newton gingrich sitting there with nancy pelosi talking about a carbon tax. i think that's calling to be a big problem. i suspect that all of the others are going to find out that it is easier to be kind of brash and get headlines when you are not a candidate without responsibility. but if you want to run for president you have to start speaking with little bit of discipline, of little bit of focus, the clarity on issues and a little focus on direction. i think it's going to be a very important race. at think there is a huge responsibility on the part of republicans, and i urge republicans across the country

to understand that they probably are going to be picking the next president. acting president obama has serious problems. i think the last two weeks have been his worst two weeks whether he understands there not. at think he underestimates the impact on people of what has appeared to be his indifference over the last few days traumatic issues around the world. i think his encouragement to the protest in libya and then the failure to provide any or action when the europeans for begging us to take us position of is going to be a serious problem. and i think that continued coolness which became clearly indifference as we watched what was going on in japan is going

to hurt him. the fact that i at least from what i have seen in the press may be going to mardi gras this weekend while these issues are still critical i think creates a huge political problem. i don't understand it. i listened to -- i serve the president the took these issues seriously. i serve the president that understood that comes not only from putting a policy out and defining it and urging the rest of the world to support us but it also was reflected in the body language of the presidency. this president's body language the last two weeks has been in my opinion absolutely not presidential. these are critical times.

everybody here has their own particular political perspective. i would suspect that at least half of you think i'm of horses asked for everything have just told you. the fact is of want you to go home and think about him. they are real issues. there are real defining aspects of leaderships. we have of role still to lead the rest of the world even though there are some in washington who would like to suggest that we are just another one of the boys were the girls. these are critical times for our country. economics matters, energy policy matters, foreign policy matters. america's capacity to lead matters. experience matters. wide-eyed favor governors?

i've ever devised because they have been in the firing line of chief executives of a large public entity that had to make decisions in the public domain. that experience is important. i urge you as we go forward to the next 11:00 months left its shortened by the process. about 11 or 12 months we as citizens are called on to make important sources. we have to decide whom we will support. i just ask that you take the time to think about this serious parts of the decision. the decisions should be based on philosophy, perspectives, issues, based on experience, at capacity to lead, based on an

understanding of what the responsibility of the job is. if you do that i suspect the country no matter where you come down as an individual, if we all do that and go through the process, i suspect the country will be a bit better off than if we fail to do our homework. you're very nice to let me come down and visit with you. i think you very much and i will either take questions or go away quietly whichever you prefer. thank you. questions? if you prefer i won't look so you can ask them anonymously. the gentleman in the back.

the gray-haired gentleman in the back. >> talk about libya and the conflict that is going on there and the military image of the united states. our country it's a superpower. rejecting out of iraq. now we're in afghanistan. we have spent cost the lives which can never be replaced. the financial aspects we spent billions and billions of dollars on two wars. i just don't find it justifiable to go into libya and give them a no-fly zone like want because if the europeans want to do it like england and france and so forth let them do it. why do we always have to carry the whole burden of the world? we are financially broke, can only do so much give them a nuclear umbrella protect them, but they want a no-fly zone.

>> i was not suggesting that we have to get actively involved in order to support it. as you point out the europeans were so strong that they probably if we had encouraged them would have gone in and taken out at least the runways to keep the planes down. i think that would have been an important thing. if we had joined the europeans in recognition of the opposition instead of failing to recognize and merely saying that he must go the would have provided coalescing around the and coalescing around leaders is what gives opposition's crowd strength. there are a lot of things we could have done besides just saying, hey, keep doing what you're doing. so those are the kinds of things that i think could have had a significant impact. if we had moved quicker and earlier with encouragement instead of waiting until where we are now it would have made a big difference.

>> you're going to up lose that aaa rating. are you fearful? >> the nation on the state? >> nation. >> i am not as afraid of that as others are. i really do think our economic system is the strongest. i really do think we will fix the debt problem. i really do think we will demonstrate the capacity to have fiscal discipline. we have had this kind of a problem before. one of the reasons and 90-91 the george herbert walker bush, the first president bush, one of the reasons that we had to have a 5-year budget plan the very controversial budget plan that we finally agreed on was that the rest of the world was hinting that they may not continue to buy treasuries if we did not get a multiyear plan. when push comes to shove at think we will be smart enough to fix it but that doesn't mean we

should not be working awfully hard and providing encouragement to fix it in the right direction. >> thank you for asking. anyone else? sur? in your opinion is the answer to the pension problem facing the states, what is happening in wisconsin will was there something in between that can be done? >> the most important thing the states have to do is to negotiate with their pensioners and movement from defined benefit plan to a defined contribution structure or 401k structure, and that has to be negotiated because there are contractual obligations. i really do think the most important thing we can do is to provide the political support and the encouragement to those that are trying to do that so that people don't come to the table and say we are not using

anything. the worst thing in the world is for the pensioners for these plans not to be fixed. so i truly think that that kind of a transition is an important part of it. there are two great studies out there that have been put together not to, a lot of great studies. utah, for example, have made some movement in that direction. i think those are the kinds of solutions. the general objective of what has made the headlines in the last week to are the right objectives i would like to see a process in which it was more negotiation and less confrontation. it's up to us, i think, to try and stimulate the difference. >> governor, first of want to thank you for showing up. i was worried about a tough

crowd. my question is, there are many problems for us to face in the world. i look at iran as one of the toughest in the long term. what is your opinion of how the united states should be dealing with this moving forward. >> well, i think, again, when peron had its internal unrest a little over a year ago. i think, again we fail to do the right thing. there are lots of things that we can do to help things coalesce internally. we can't do it in such a way that people get killed for no reason but we can provide support in a number of ways. our allies we're encouraging us to take lead. we didn't. so i think the most important thing to do is to charlie, as much as we can support our friends in the region who are scared to death. a lot of the arab countries that

are going through difficult times are scared to death. saudi arabia is not very happy. most of the other countries are concerned that they have ambitions. so we have to first of all support our friends rather clearly. secondly, the find a set of actions that are intolerable. that might even if we are standing as strong as we used to stand, that would include in my opinion funding and arming terrorist groups in the region. the third thing we can do is to try and encourage the internal democracy movement. they have a democracy. they elect, but they don't really elect. interest serious restructuring of an opposition that can get public support and provide an alternative in the long run. peron is a very big country. it is a very powerful country. it is a country that we should

work constantly on trying to make sure that it does not do the kind of things it has been doing. there have been some estimates that a significant proportion if not the majority, of u.s. casualties in iraq were the result of equipment and munitions imported from her on. that is how serious the issue is. >> server. >> this is probably a follow-up. i'm concerned about how you see the linkage between energy policy and the moves will make or don't make in libya and the rest of the oil-producing middle east where we are deeply indebted to saudi arabia and any movement favoring democracy in brain could upset that balance.

let's look at history. i suspect it is awfully hard to find any serious conflicts throughout history that did not have an economic component to them. this is not new. economic interdependence is an issue. there is no question that it is irresponsible not to acknowledge that we care about who rig controls major economic assets around the world. we do care. of course we care. we care who has who controls the loyal to be we do care about the relationships we have with those countries that have the oil. it is a part and parcel of the debate. takes place all the time. it is part of the nsc papers that are presented.

it is part of the discussion at the state department part of the discussion in the oval office. of course it is part of the discussion. we have to include it. it is important, and we ought not to pretend that it does not exist. it does and we have to pay attention to it. it should be part of our discussion and debate. >> you're great to let me come down, come on up to new hampshire. the skiing is great this winter. another month of great skiing.

i want to emphasize that their purpose is not to blame crisis or to revisit every vote taken before and during the crisis.

if you have this data the percentage point is so much greater than the the gdp

excluding those, then you do with it. compare that to the unemployment rate. [unintelligible] there is an extraordinary opening of the gap scents 2007.uince 2007. the issue is what is causing that. there are some benefits that

have been heavily discounted. it goes to the process in which corporate investment is made. what they do is a look at the cash loom and they have to make the decision, how much they are going to invest in. this is not taking cash flow and putting it into securities. everything is three minutes.

the rates are usually quite significance they are obtained over the life of the assets, not a front. the basic with a in which the corporation chooses its is they take a look at the expected rate of return on a new assets. then they get a distribution of those rates of return.

you have to have some confidence in what the structure will look like. many have major problems, because they do not know what the cost is one to be. it tells me what they have had in this crisis. it collapsed in capital investment. corporations are choosing to make that allegation. i look at the data.

i carry this back into the time. they look very much like they did back then. this similar fear of what government will do occurred in the 1930's. it was basically dictated by the country, marched down from the supreme court. zero activism has never existed.

it is an issue of relevance. the reason why we have activism as a problem is it increases the number available to corporations. from the statistical sense we look at the rate of return. the evidence suggests that you underestimate the potential rate of return. it also suggests that there is a risk that means the most. >> if this gap between the

historical relationship between cash flow and investment that we're now seeing and it accounts for the entire rise in unemployment and the primary reason for the gap is business aversion then the implication is that if we have not had the activism, the market would be better. >> that is the conclusion. it has to be proved. one concern about that is -- i have had too much experience. the basic issue is what they do.

the worst area of capital appropriations -- it was not [unintelligible] it is creating a pullback in the average expectancy of the gdp. i look at the actual expectancy. it is going down very gradually. it flats in celled and in 2007

it falls sharply. what is unqualified is where the whole of the economy dips. it is the question of proof that the activism is a part. i try to look at the actual ratio -- it may be true in households. . we look at the pullback, which is quite significant. they are asking the question

why are households doing this. perhaps a fifth of the shortfall in capital investment is contributed to crowding out. what is a surprise to me is how robust the statistics are it does not come as a surprise looking at the savings balances.

it as a whole has to be equal. we can set up a series of relationships if we set up the difference between growth and investments by households, state and local governments corporations, and others. there are very sharp lines that account for a very significant part of the shortfall. the numbers are very robust for

those that's like that sort of thing. it works very good in the united kingdom. parts of the data are not readily available. there is a threshold in which the deficits gp does not show up or give any particular impact on private investment. part of it is picked up.

it is awesome how close the issue of shortfall of capital investment quarter by quarter matches the official data of deficits. it is perhaps the same. it is very balanced to the rest of the flow of funds. you can, to this in a number of different roadways. it appears as though the growth statistics requires this element

that is crowding out. the ratio of investment to cash flow, about one-quarter seems to be attributed to the northern investments capital on six -- cyclical adjusted aspects in business. it is difficult to judge where it is coming from. observe what happens -- you take the position that unless the government comes in and keeps pushing, it will not leave by itself. what we need to do is calm down.

activism has been formulated quite significantly. the statement couldn't demonstrate cause and effect. >> you see what this is provocative. the implication is that had we not had the stimulus and the surge in fiscal deficits investment growth, jobs, would have been better. that is a very important question. i want to ask you about lending. there is an analogous point about lending.

my reading implies that lending has been suppressed that has been harmful to recovery. >> i think it will. i do not think it has significantly yet. the number is not scheduled by the regulatory agencies until july. there are many regulatory rulings require. if we had [unintelligible]

that was a lot. something like a couple of 100 required one of the problems i had with the dodd and frank bill -- this is simplistic and does not capture the complexity of what is going on in the marketplace. there has been a major move towards three regulating the financial system. and affecting them to alter the market.

we will not go along without those certain circumstances to impact the system. they tried to issue and asset backed security. they cannot get an opinion. credit agencies are liable to a certain type of credit rating. a liberal case, you have to show some kind of negligence. so what happened is they got a reversal we will not bring this

issue up to the commissioner. we saw a similar thing in the fixing of stock prices collapsed and it was an implementation of this bill it was basically a debit card. the legislation requires a sharp reduction in those. the preliminary judgment was

even stronger than what the market had expected. the fed is flooded with all sorts of arguments i do know this is the tip of the iceberg. failure to understand secondary consequences. one aspect in response to your question in determining capital of less than it is in refinancing. it is not a simple one shot deal. to the extent that there is uncertainty in the structure, it

raises issues that affects capital investment to cash flow ratio. it is significant but not critically important to the process as much as the financial system. there are a number of things out there and where we see the impact. we come to the bottom line. the stimulus program -- i cannot demonstrate using the system --

>> it does not prove that the stimulus system is negative, it just suggests it. >> it is a two legged stool. there is no question that had we doubled the stimulus system and doublingdue to fraud and abuse. there was a necessary structure in isolating the impact of the government structure. you have to make a judgment of

an increase or tax cuts or something. there are impact multipliers in the gdp. the difficulty that i have with that is that there is no other way to do it, looking at the models. the reason is the way we build the models. i do not want to get too technical but the technical

efforts tend to converge to this data. aaron when we put this into a model, we create this. it is not an accident that the best of these models has not ever forecast the recession. it cannot. that is not the way i would have done this. the reason is, why do you assume that we have these multipliers and that they are any more accurate than the models which were reasonably demonstrated?

there must be some debit which is the crowding out issue. i then say how do we know what the growth is? the data that i have directly down to the offsets. it does not make it turn negative. i am serious about what it is. i am struggling to find a mathematical means by which i can convert rhetoric into since. >> in the paper, you say, the one area which a government let

alone the equity markets have recovered strongly and a 35 trillion or so of wealth that was lost, about three-quarters was in the recovery. >> that is global. it implies that the one injun that is working in terms of the intended wealth is equity prices which was not the object of any government response. it struck me, because the implication is that by leaving it alone you manage to recover its with a quite powerful effect can you comment on that a

little bit? >> let's go back to the $35 trillion loss. that market value of equities in which financial institutions climbed very sharply. the liabilities for the institution has come down. if you have a significant collapse in financial equities

or equities in financial institutions the collaborative station process almost collapses. -- the collaborative process almost collapses. it got into the banking system just when it's needed it's. the market value of equities and financial institutions are rising and falling. we could see the financial collapse in terms of the decline in stock prices even though the quality of debt caused the problem.

we have seen eight dramatic rise debt clearly impacts consumers. just as important in the financial system is it has enabled a good deal of it being paid off with capital gains. if you look at where the equity is coming from, what happens is we get a dramatic rise in stock prices which in liquefies the whole system.

it increases the value of collateral in the system. there is also longer-term lending. even though it was never enough to bring capital investment down there is no rate of return on capital investments. what turned this around as that for other reasons corporate profits fell sharply. in is due to a large extent the result of a relatively short time of cost saving capital investment. this is not structure or software equipment to reduce the

living costs of energy which has been here for quite a while. there is a very strong growth in energy and materials which affects the material and the cash flow associated with it. all of the profit rise was in a very early stages of the recovery. what we are seeing now is the profit margins are flattening out.

sales increases are picking up. there is a big surge in profitability in what economists call the rate of return that is required to invest in equity. it was the highest level six or eight months ago. it has come back down. over the past few days, it has gone back up. it is still rare and is reflected in the premium in equity. it has propelled a substantial

rise in stock prices. the wealth effect is across the board. you are quite correct in my view. i left the stock market to function by itself. it turned around. >> let's open this up to questions. one or two observations before hand. please identify yourself when at the microphone. make sure you ask a question and not give a speech. in the middle. >> how does this argument differ

from an argument in 1929. it seemed to miss the macro psychology. how can we say the stock market was left alone when these huge banks and auto companies were rescued? the confidence was dependent upon government intervention. you can argue the degree of activism. wasn't essential to prevent something much worse in the economy? -- was it essential to prevent something much worse in the economy? i looked at government activism right after the crisis.

what i argue is the basic surge that occurred was very largely localized to what i would argue was the largest financial crisis globally ever. the question is an economic sense. we have never seen a complete shutdown in short-term money markets or of the type that we saw subsequently in the commercial paper market even the

repo market showed something extraordinary. money-market in mutual-fund showed does. if you have got the type of structure in which the financial system tries to have capital adequate to every loan and loss provision -- [laughter]

[unintelligible] if you have a fractional reserve system and you do not cover all of the possibilities you are always left with the possibility of a very small probability which becomes 100% when it happens. what we have just been through is a unique phenomenon that is my presumption. many things rest on it. with respect to the activism in the '30's remember, the whole

thing came tumbling down. there is a huge amount of activism in the 1930's, which led to nira. it did not affect the supreme court rule of this being unconstitutional. the evidence is that what was coming from that continued on. there are several interesting papers on that issue. it is a very debatable issue. much of what was done in the

1930's was essential. >> let's have another question. yes. >> university of maryland. a few weeks ago, i had a conversation with someone who is now famous. we talked about whether the stimulus would have a rapid effect as the administration hoped. she said to not worry, this recession will be with us for a long time. the reason she was saying so is because the recovery of the financial crisis is historically much slower than recovery from garden variety excess demand recessions. i may not be describing the economics just right.

both documents a slow recovery from financially driven recessions. that may be proper regarding the crisis driving them. it is very different in terms of economics. this is not necessarily a mutually exclusive explanation. if you can get to the specific decision making process which is creating the problem, it is

somewhat slow somewhat superior one person is having great credentials. she and her husband are in great economists. the question is what constitutes proof. by analogy, it is not proof. there are things that everybody does. i tried to get a step deeper in looking at the decision making process through the distribution of probabilities and looking at the facilities.

that should be the view of what is causing what. i am not certain but i suspect in retrospect that -- you have to look at why is that. it is related to the collaboration issue. the question is how deep and how long it continues. all i can say is that i have done a step beyond in trying to answer the question of what

specific creates a 7 rise in economic activity. you can get analogies in the say when the financial system runs into problems, it takes a long time to pick up. i do not deny that. you need to get the data by analogy or come up with a specific analogy. i demonstrate the crowding out issue. i have a body of data that is highly significant and not basically by the analogies of

historical episodes. they are very valuable and the central for getting first judgments. i do not consider it to be enough. without knowing the individual reasons as to why, each individual financial crisis led to specific delays in economic activity -- it has to get down to why the crisis was different from 1893. why did that one last so long? these are questions that i do not know the answer to. i recognize they are important to insert. i do not know the answer.

i do know the sufficient condition to explain the existing state of affairs is capt. by the statistic into deals with what part of their liquid assets they are willing to convert into long-term investments. it is a very critical decision, because you're holding the equity of shareholders. this is why the equity to asset ratio is close to 50%. before it was 10.

one of the issues are raised in the paper is liquid assets are very different from liquid asset investment the issue of the effective maturity of an investment depends on how long it takes for you to get your money back. this bond, 10 year bond, for example, into the market, which is liquid what is interesting is when you get what they got in 2008, the liquid market turned against the conversion

and these previous liquid spreads against countries starts to converge. >> let's have another question. >> peterson described what we lived through in 2008. it was a result of animalistic capitalism. do you share that view. . -- do you show -- share that view point? >> i do not think he means it exactly the way the words are.

there are aspects of human nature that to you could characterize that way. i do not think the economic structure is the problem. i think it is the matrix. i would never argue that if you go back and look at socialism in its early stages, it looks far more rational and many people looked at the model. they prefer the to the distribution assets were done by people who were much knowledgeable indeed win the

british troops moved out of the area on the grounds that it was the best way to organize the society. it was done in the most rational way i can imagine. it did not work, because human nature prevented it from happening. the problems that we find in capitalism and socialism is one of the reasons why marks is wrong. it is a rationally constructed book. but it opposes human nature, which does not exist. we have problems we see in

marketplaces, whether it is greed or short-term aspects of the way the market tends to be. this is not the structure of human nature. >> we will take one last brief question. >> i have a little trouble with your logic. he said the capital expenditure ratios were at the lowest level since 1940. then you talk about crowding out. when i hear the lowest level of expenditure, i hear the company had an enormous amount of money they could spend on capital expenditures, if they wanted. how are they crowded out? i do not understand that. >> can i answer that question

first? the crowding out is such that you have a very large cash flow or occurring. the question is what do they do with it? liquid assets. it is an increase in liquid asset holdings. >> how are they crowded out by the government when they have all of that cash? >> savings that the federal government absorbs. let's assume that the balance is zero, which means savings and investments was equal. the amount of investment must be equal to the amount of savings.

what the studies show is that what happens when the federal deficit drives-savings, it must be of set somewhere in the rest of the system. the data shows and this is an analysis of the funds, a huge increase in big savings and a huge decline in capital investments. those are the two major moving parts. >> how are they crowded out if millions of dollars of cash comes in from corporations? >> the basic problem is there is a limited amount of savings.

the question is who is going to employ those savings? the u.s. treasury will pay whatever interest rate is required in order to achieve the net part of the savings. what it means basically is it is moved up to a level in which certain people would like to invest but cannot afford the interest. >> interest rates have been as low as they have been in a decade. >> microsoft is not being crowded out. ibm is not being crowded out. the ones that are crowded out

are the "b" rated corporations. some interest rates are very high. if you look at where the shortfall in investment is, it is in small business in construction particularly. it is not the large corporations that are crowded out. they do not crowd out at this level. who is crowded out? i could probably find a list of names if it is necessary. the 9% interest rate is required on a junk bond or smaller business. it is too high for them to get a

reasonable rate of return. you can argue that because microsoft is not crowded out nobody is crowded out. it is a question of acquired a balance between savings in the business. >> on that note, i want to be faithful to our closing time. i want to thank all of you for coming in this morning. [applause] a want to thank alan greenspan. i would like to remind the members that the next meeting here on march 17, is a president of richard trumka. thanks for coming. have a good day. [captioning performed by national captioning institute]

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>> next, q&a and live at 7:00 p.m. your comments on "washington journal." tonight on c-span, marking the eighth anniversary of the department of homeland security. the current secretary will be there janet of peloton of. -- napalitano. >> people ask if i miss being secretary. in a certain respect, i say yes. in a couple of years, -- i