under lip don johnson and later ran for president and lost. we'll look at his influence on american politics on this week's "the contenders" from the minnesota historical society in st. paul, live, friday, at 8:00 p.m. ian. >> coming up tonight, interviews about the economy with house majority leader eric cantor and treasury secretary geithner. then, douglas elmendorf at the senate budget committee. . >> thank you very much.

we are a week away from another very important fiscal deadline. it has been a year of important deadlines. we had a deadline of the budget resolution that was missed. we had the debt ceiling that was just about it achieved. i know you do not want to talk about the negotiations for the super committee deadlines. can you assure people what they are worried about? there is a lack of political leadership of in washington. we have seen with the fiasco that washington somehow is so dysfunctional that it is not capable of rising to the fiscal challenge. can you reassure people that is not true? >> i will attempt to. we're coming in on the heels of

a ballot snafu. [applause] -- [laughter] thank you for having us and the opportunity to engage in a dialogue. i would say this. , relatingll what may happen next week or perhaps toward the end of the year relative to the need to increase the credit limit of the country, we're not going to see a repeat of that which occurred in august. we provided a backstop in case they did not act in time. it is a sequestered that takes effect at the end of the year. we will not see any kind of a

potential default moment that could have occurred. i think we are better set because of that. in terms of outcomes, and none of us wanted to see that --, william in terms of -- in terms of outcomes, none of us want to see that. that having been said, the question about washington leadership and whether we can muster the will to come together to produce results, i remain hopeful. i do. i remain hopeful we will get there. without getting into the details, i did serve on the biden-talks, and i understand the pressure today are on a round this issue. i do not feel it is helpful for me to get into specifics.

as to what we feel should be the big deal. we assumed majority in january with 63 new seats, now 88 really dedicated to try to fix reform. what is on the case is jobs and the economy. it is on a dual track. we really want to go about making sure the government stop spending money it does not have and do some justice in the jobs.

we put on the table that so- called big a deal. if you include the war finding savings that everyone is counting, our savings are over $6 trillion over a 10-year timeframe. what is important about our big deal versus those being discussed by the other side is that we really demonstrate that we fixed the problem. the deficit is being driven by this health care entitlement. simple facts help me. everyday 10,000 people turned 65 and become eligible for medicare. they receive their support from premiums and taxes. those revenue streams only cover over 50% of the program. that is your problem.

every day you are at least 50% in hole. you cannot tax your way or grow your way out of that. if you have to change the architecture of the plan. that is why we did that. our commitment is to that. we have said that we will put everything for word, revenues included, if we fix the problem -- forward, revenues included, if we fix the problem. we have not gotten anywhere in terms of getting the other side to join us and fixing the problem. that is a divide. i do think there is plenty of room non-committal to try to set the differences aside -- of room to try to set the

differences aside. >> you took control of the house of representatives a few years ago. people felt the first few years of the obama at a myster administration was tough. have you managed to change either legislation or the environment in way that is more friendly toward business and investment? >> we are very excited. expectations remain high. we are almost a minority in this town. we are one of three pieces in the puzzle versus the white house and the democratic controlled senate. we can stop injuries legislation to business from getting across.

there is no more mention of a cap and trade architecture or of another obamacare. there is no mention of another bill that is far reaching and dangerous as dodd/frank because we are there. our challenge is to try to stop the detrimental things we thought were going on with what leverage we have a. the leverage comes to us through the spending process. the old the leverage is tuesday we will shut it down. we do not want to shut the government down. it is trying to go about saying how we can use our leverage in the most effective way, gaining support to give the changes we need for business in this country. >> there has been an achievement on trade. you get these.

is there a prospect for further liberalization of trade? there talk about improving this. do you have some specific plans? >> we're very excited about the accomplishments of the trade deals that have passed. look. that was five years and counting. it is a much bigger deal than what was reported because of the wall that was hit in town five years ago. there is the unwillingness to get around some of the problems that labor had had with the columombia bill. we can do things. we're going to pass a bill that has to do with the withholding requirement for government contractors. it affect small businesses as much as any. it is something that the

president -- we have it in hours. these are the type of things we need to focus on. we can come together. we can resume some type of forward strategy on manufacturing in country. it offers potential. >> if you return the victory and your colleagues are in the senate, let's leave aside the fiscal picture, what measures particularly would you like to see passed quickly that would create a more business friendly environment? >> first of has to be lowering our corporate rates. this mind-set that it is not just pay more. it is about being competitive. i do not have to tell those of you in the helm of multinational corporations that it has to

become justified given our tax code. i think that is probably first and foremost. we then are presented with the problem if you are going to do it on the business side, what you do with the passwords? most comes from small business. that present a very big problem. we can easily achieve that if we all put our minds to it without putting in these preconditions as to additional revenues that are needed. both sides of the aisle will say we need to do this. >> what about immigration reform? this comes up every time. there's a lot of concern. students to come to that state's

get education and not forced to leave the country. -- so that students who come to the united states to get education and are not forced to leave this country. many in your party are very hostile to immigration reform. >> paul ryan was here earlier. it was an effort that fred barnes dubbed it the "young the gguns." the premise was we do not want to be the party of exclusion any more. we want to be a party that can relate to the next generation, it to a much more diverse populace to reflect who america is. we had an agenda from made that says you have got to change the antiquated laws of this country so that america can maintain his place as the statue of liberty

to the world. most in america, our families came out of choice. not all. there were some who were forced here. we're all here now and living in a country that most of us believe is a country that can create and provide more opportunity than anywhere else. we want the best and the brightest. we've got some plans to unveil some changes to the legal immigration system in this country. obviously, what about the legal situation? -- the illegal situation? there is this issue of immigration that has always lacked the decoupling that is needed. you black the law and we did

you lack the law enforcement. we lack need to -- ou the law enforcement. our laws need to endorse. we ought to make it easy for them to stay here. the reality is they can often find just as promising opportunity back in their home country and a venture capital with them. we do not want that. >> can i just move on to the federal reserve? we are in an unusual position. the chair was appointed by a democratic president who seems to be universally ostracized by the republican party. every candidate says they will hang them bernanke from the highest for a stop -- hang seng

ben bernanke from the highest rooftop. is that a healthy position for the fed to become such a political football that the chairmanship is in so much in doubt? >> id is not healthy. it is not healthy to over the fed.e we have concerns about what is lose money. we have expressed that. i am more concerned about putting it in hands of the congress and allowing the process to engage directly what goes on in federal reserve. although we may have differences that we conducted the oversight as much as we can from congress standpoint in a way that is an educated discussion about monetary policy

and how it bears on our economy. >> should he be reappointed? >> i have respect for chairman bernanke. when he came to us during the t.a.r.p. days, he said we are at that point where we need to act or it could very well be armageddon. i do not feel i was in the position to second people who spend their lives doing this. there is no secret as to what bernanke have pursued academically throughout his career as to his policies that he is practicing today. it was out in the open. i do not know if i am prepared to say yes or no. i do have a lot of respect for the man. although many disagree with what appears to be very loose monetary policy, if you look

back in the writings prior, it should not be a surprise. >> on foreign policy, the republican debate -- mitt romney said a striking thing about iran. he said if president obama is reelected, iran will have a bomb. if you elect me, they will not. can iran the stock from getting a bomb that will it take more than mitt romne -- be stopped from getting a bomb? will it take more than mitt romney? but i'll be in trouble for answering this. [unintelligible] we're very concerned about it.

we may reach a point of which the time is too late. that is where a lot of the discussion is focus. when is that? where is the point where we will be dealing with a nuclear iran? nobody wants to get there. we are able to intervene and make it so. the question is how, who, and when? >> and if israel decides they should strike them, with the united states support id? >> israel and the u.s., our interests are very much aligned when it comes to the war we are in. iran has been on the list of the state sponsors for terror more than any other, is a de stabilizer in in the region, and has a lot of influence in that region. my concern is that we in in

america are sending the signal that we are willing and able to stand up with our allies. i am worried our allies' main come to a point at which they think -- allies may come to a point where they take it into their own hands. if there is, we have serious problems. as you know, we work in concert very closely with our ally israel. hopefully, we can see our way forward. >> let's see if there any questions. >> left open it up. can we get a microphone there? >> it would not be a good session if we did not talk about immigration. to give you a view on how serious things have gotten, let me describe to you what we are faced with every day.

it is much broader. i just had my leadership training for our company. we could not get one partner from saudi arabia or a tourist visa to get him nine days outside of new york to train him there. ridiculous. i just spent time in china. the middle class in asia is growing. what do they want after their second car and apartment? they want to travel. we want to create jobs. if you could think of one short term program, all of them would like to come to the u.s. they say you have no idea what it takes to get a tourist visa program. there's the discussion about illegal immigration.

it makes a stalemate. right? you'll not find a middle ground. i have had more than and up debate. it is sickening. there are some very good proposals i believe on the table. also in regard to the illegal immigration. it is a big issue. it proposes not to give it away for free. if you are an illegal immigrant, you can earn the right to become legal. we will i give it to you right away. you have to pass a test of english. that is highly correlated to what economics that is you will get. secondly, if you have to pass a test in our political system. some of you come from countries where you do not know what the right to vote is. right? thirdly, many if you pay taxes, but if you have not, we will charge you with some taxes.

did you have to pay to get your status. i believe these things are really good. they are really appealing. i do not understand why on something that this country has been built on, more than any other place, and at me as an immigrant has chosen to come here cannot get around something that fundamental. >> i would just say to you that this country is built on legal immigration. to say that we at a political stalemate if we try to do this incrementally, i guess i have to disagree. the stalemate is because you want -- we want to do comprehensive. if we can make some progress, what is bipartisan? it is taking areas we can all agree on. most of us on both sides of the aisle agree on trying to do

something about the visa lollaw. we can do that. there's no excuse whatsoever. all sides politically, philosophically are in agreement with that. when you get to these other questions about what to do with the illegals, i can tell you one thing. imagining the york going to deport 50 million people out of this country is ridiculous. you can agree on that. as to the solution, that is when it gets tough. my experience has been the comprehensive notion will collapse under its own weight. let's take the pieces that we can move incrementally. if you have a vision out there. you want to go long term. it is what you can accomplish. as a reporter, you go about executing. i do not disagree with the

vision. evidence shows it is very difficult to get comprehensive done. we should be able to do the easy stuff. >> right there. >> hello. this is about tax reform. it does seem that both sides of the aisle more and more are embracing this idea, which is the idea of lowering the rate in lot of rid a looof a complications. why is it so hard even from both sides of the aisle? it is more than it used to be. >> week is the day while on that answer. i do think -- we could spend a while on that answer. i do think there are preconditions on the outlook of

a 10-year time frame. the time spent on this is staggering. the impact of our tax system and code on the flow of capital to the most efficient use is also an enormous. it should not be. the reason why that has happened is because rational people in competition come to this town to try to exact a little bit of an edge. in my opinion, that is what we're trying to change. if we're able to simplify the code and get rid of a lot of these preferences, all i think can win. transitions' will be tough. if you look at the proposals, whether it was bulls simpson --

bowles-simpson or the gang of six, the idea that we have the revenue target begins the difficult. if you're saying there will be an additional trillion dollars, you take the lessons. if you were to say lower rates to 25% and turn off all the deductions, and on the political side these are important deductions. on the corporate side, a health- care explosion and others. turn them all off. -- health-care exclusion and others. it turned them all off. you can be your rate down. when he began to play with these

and say i do not -- you can begin to play with these and say i do not want to turn them off because it is politically dea difficult. what ends up happening is there is no way to reach a revenue targets without seeing capital up.s rates comes if your target is 28%, you're talking about doubling capital gains rate. i am a real-estate lawyer by training and trade. that is a huge impedimenta embarrassment. it reduces your return on the back end. it is about lowering the risk. it is an introduction over and above net neutrality and the cap on the growth of that.

that is the start of the difficulty. secondly, at the political expediency. we do not want to all turnoff these preferences. i think it is the highest priority to get our economy going again. >> thank you. another question at the back of their. -- a t the back there. >> what is missing? what is the burning crisis they get everyone's attention? immigration is at a burning crisis. one thing you said earlier, medicare and medicaid are $997 billion this year, predicted to double. what the obama administration is

doing will not fix it. we have to have the house is burning down. they do not know what is going on. they are confused. they have too many subjects. the house is burning down because of an " the wall street journal" reported the main reason the federal debt was downgraded in was because of the uncertainty of the federal government being able to pay for health care. if you were to circle the wagon, maybe in some of having 10. we ought to have -- maybe instead of having 10 points, we should have the house burning down. is it going to take a crisis to

get anything tackled? >> think about crises and what that means to different people. students and observers of macro economic trends, people such of yourself is different than most people we represent, small business people who are really worried about their job. they are really worried about repaying the bank note keeping their business open. we've got that balance open. if you want to know about the urgency right now, it is a lack of optimism and growth and the ability for start-ups to begin to grow again. i think the best illustration is 10,000 people a day and 50%

in the hole. you say something like that to people and they say you cannot keep that system. we have taken it upon ourselves to go out there with it. we refused -- we were accused of political suicide. we said let's do it. you are exactly right. we have to build the case. most people do not pay attention and feel like things in washington may not be as bad as all of the hyperbole says it is. >> we may have to wait until the election when paul ryan was here to have something done. one of the thing he raised is can we wait this long? will a crisis happen between now and then? what would you say our

expectation should be? how should we look at the next 12 months? even in a bit of uncertainty, how would you suggest we look at the next 12 months per longer? -- or long hair? >> i am concerned about the type of rhetoric surrounding the political campaigns already. did you think about the narrative that is going on in selection, to me the narrative is either going to be about fairness, and this inherent divide in the country versus trying to bring us all together. depending on which narrative wins, it will dictate the outcome of the next election. if it is really that you all in this room are so bad for this country and have not pay your fair share and the anger rises

toward you and others who are successful and up, that scares me. that is not who we are as a country. in way, and this election is very much asking that existential question pureed do we believe that successful -- question? do we believe that successful businesses can do good? are successful people socially responsible? does the social responsibility correlate into paying more taxes so that this town can decide where the money is allocated? do we want to count on successful people doing good to promote the opportunity for more people to be successful? that concerns me the most. if the rhetoric get so out of

hand, it will be difficult to do something constructive between now and the election. i can tell you we got plenty of things. back to this notion of incrementalism. versus trying to take care of it all. we would all like to take care of the big deal. we have the biggest deal as far as the deficit is concerned. in terms of tax reform, if it cannot come to an agreement because of difficulties put in place, there are some things that we can do. we can do repatriations and bringing up profits. that would be a job creating effect. we could do that if we put our minds to it. i am hopeful the expectations are that see it and rhetoric

that may be different come together. >> do you have some sense of what is inappropriate level of proportion of gdp that should represent total federal spending? we are around 25 right now. >> if you really want to quantify the divide, that is its. that goes back to this excess into question. what kind of country are we going to predict existential -- existential question. what kind of country are we going to be? we positive the reforms, making our medic cave system defined by

benefit. -- we deposited the reforms, making our medicare system defined by the benefit. if we do not want to do that and we want to go about the kind of changes that are being discussed, we have some real figuring to do as to whether we will still be the growth engine. >> given the demographics and cost of health care, you have to see dividend to reduce the benefits we did you have to significantly -- you have to significantly reduce the benefits. >> we are to put them in the budget. the problem with health care is the out of control health-care

costs. we are not saying to reduce benefits. we're saying you have to have comprehensive reform. the president's health-care bill in many eyes has taken us in the wrong direction. we do not see validation by the congressional budget office that the costs are contained through the bill. we believe strongly is about competition and patience centered care, not mandates from washington describing what kind of coverage you have to have. >> while the recount is going on backstage, we have been given a little grace. we have more time. any other questions for a liter cantor -- for lead cantor? -- for leader cantor? >> you said you're very 1%cerned about the de1the

versus the 99%. don't you think i'm not making a deal in the summer you actually have helped those who are making the argument for the 99% and have changed the political dialogue? >> i do not think so. what was behind the opposition to the proposal on the table during the summer was the fact it was not about taxing you. every proposal put forward by the president has been directed at taxing small business. that is it. that is where the money is. it is not the tax revenue with

you. that is the real sense that we need to be about in country. why do we think it is a good idea to impose more tax burden on the small business people that we want to create jobs? if the problem was easily cured by sam we want to up -- by saying we want to up y ouyour taxes, i think everyone would say fine. if we're going to say tax people more, we're not going to continue to dig that hole. there has never been a willingness on his side of the aisle to fix the problem. ande asking to come back tell us how to fix the problem.

in the meantime, do not exacerbate the main crisis, the jobs issue. >> you have been very generous with your time. i greece. is up. thank you. -- your grace period is up. thank you. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> thank you very much. when technology goes down, you are the default position. are you surprised that we're still here with you being secretary? >> i was working very hard to escape. >> you are the guy who did not play politics. you're the washington road kill. you are here.

>> do you think i am a political person? it was not my idea. it is a simple thing. the president asks you to do something. you do it. i catry to talk him out of it. >> there are ways after waves of crises that you have to deal with. has the experience of crises made it any more easy to deal with circumstances? you have a little bit of growth here. >> you know i believe this. we have talked about this. i do think even with all of our challenges, and the base

formidable challenge -- and we face formidable challenges, we are in a much better position today. we did some tough and hard things early to put out the worst of the financial fires and force private capital back to the system to clean out the weakest. i think that was very important. much better position today than if we had hoped the crisis would burn out or pretended not exist. -- or pretend it did not exist. what happens is governments look at the political cause of it and pull away from doing it. that is what makes crises ores and much more expensive.

we did not get everything right in the u.s.. we did what this country always does. this country, faced with peril, as a remarkable capacity to act and to do hard things. we will be stronger if we can revive that basic political strength in the way we did in the crises. there are some bipartisan moments there. >> some would argue that the peril has not been poignant enough. >> it is pretty acute still. we are facing a consequential debate as a country. they are fundamentally about what role can government play

and should not play in trying to create conditions for stronger growth. how are we going to go back to a point where we are living within our means? how do we do that? the fiscal balance without hurting the growth? most of the debates are about those basic fundamental choices. how do we get more revenue out of the economy? how do we do that in a way that makes the system more fair? how do we get our commitments on health care and the pension

funds more sustainable over time? how do we do that and still preserve the basic commitment to americans for retirement? those are important questions. we do not need to solve those things in a week or two weeks, but we need to keep making progress toward those things. the confidence in our future depends a lot on the political system. >> you are focused on the unemployment. if you were to pick one indicator in the short or medium term of an area you are focusing on, would it be housing prices? there seems to be a lot of effort going into solidifying the market. is that because you think it will gain confidence? >> housing is very tough and hard. there's a huge amount of damage out there now. what is tragic about it is a lot of those homeowners are really

just in its as victims. there is a very good case for trying to make sure if we reach as many people as we can, that they can stay in their home. that is a very strong and compelling economic, pragmatic case for doing that. housing now mostly reflects the overall weakness in the economy. housing is going to be harder until economic growth is stronger and more people have a chance to get the job. the biggest driver of the pressure you see is the hardship that comes when someone loses a job. well we're going to do is continue to use the authority we have, and it is not unlimited, to reach as many people as we can. we can make a difference for hundreds of thousands of people. we will reach as many as we can. that will not substitute for

congress to do more in the near term. the most important thing for the economy now, particularly because of the pressures caused by europe, is for this congress and washington -- it requires both parties. it is doing some sensible, a substantial things. that there is a housing policy that can compensate. >> what happens if the economy picks up and housing recovers? >> you cannot engineer a recovery in housing beckon with the broader economy up. it has to be the other way around. that is not an argument for saying get growth stronger and ignore housing. you cannot do that. you should do as much as you can to get more forced to the economy now.

you can continue to reach as many of those people who, given a chance, it makes sense to help them stay in their homes. that is the right strategy. >> you mentioned whatever policies are generated here, you are at the mercy of europe. is europe having a liquidity crisis or a solvency crisis or a liquidity crisis that could become a solvency crisis? >> i do not think you can talk about it in the same way. what you are facing is a terribly challenging mix of really substantial growth in the southern part of europe. government ought to large relative to the capacitivy. financials got too large. if they are trying to gradually put in place a framework that

allows them to resolve this basic problems. it is terribly difficult. it'll be difficult for our country but much more challenging for them. their basic challenge is make sure they stabilize italy and spain are at full interest rates but make sure that there is progress on these reforms to make for a stronger. this is the difficult balance. you can see they're shoveling with it. they're gradually making process. i am not sure the proper metaphor. it is like 3 yards and a cloud of dust. it is very tough. this is within europe's capacity to solve. it is within their ability and grass and reach. -- grasp and reach.

they have to figure out a way to get in the political support to do it as quickly as possible so they do not fall behind. >> do you feel it may be the european suffering? >> there have been a few of those. there have been avoidable mistakes. >> in do you find yourself in the morning been unnaturally interested in [inaudible] >> i am mostly interested in this country and how fast we are growing and what is happening to income growth. as you said, we have been affected around the world by pressures in europe. we have to pay a lot of attention to where they are making progress and where they are not. >> how much progress do you think you and the president can have?

you were almost mediated between northern and southern europe. >> we have a big stake in helping them get ahead. we're helping them directly and indirectly. we have a lot of useful lessons from our experience. we have some value. not completely. they have been trying to replicate some of the things we got right. the returning to us for advice. -- bay are returning to us for advice. they will have to return. there have been moments were there trying to use us to help resolve some of the internal difficulties in this context, which we can do. this is europe's challenge and

crisis. fundamentally, the resolution will depend on the choices they make going forward to. we hope to make some progress more quickly. >> this is a very unfair question, but if you were to rank these three institutions in order of importance the ecb, europeanand the, governments, how would you do it? >> the european governments, the ecb, and the imf. one of the most important things we did was to have the government working alongside the central bank or be protected the independence and doing the things you have to do. there are brutal things you have to do to stabilize the financial

system. it is very hard to do that if those fishermen are working in conflict and not a together predict if those instruments are working in conflict and not take hard thing tovery do if those instruments are working in conflict and not together. it can provide some financial assistance. in europe, add the rule will be supplementary. the imf can do a lot in the crisis. >> should the ecb be the last resort? >> i do not want to get in the middle of that existential question for them. i would say the following.

there are lots of ways for the central bank to play a more effective role in resolving this with out of violating the obvious constraints we respected here. we respected them here. making sure the central bank is not providing a source of financing to governments. it is not rocket science. the alternative is uncomfortable as you are seeing. it is very hard to get it to work. if you do not figure out a way for them to work together. >> are you talking to people in europe most days? do you know who to call in europe? >> yes. that is a very good question. you have to call a lot of people. they are sovereign countries.

question was the right question them. there are still sovereign countries. they happen to share a currency. you have to talk to all of them. >> do you think in five years' time the eurozone members we have now will be the same? >> what i think does not matter. they believe absolutely it will be. their basic view is that they will do everything they need to to hold everything together. there are some very tough reforms. i think that is the choice they made. >> we're asking our council members about their concerns. one of the low was concerns with the renminbi. how concerned are you about the renminbi?

how interested are the chinese? is there a consensus internally about the trajectory? >> my consensus is that the chinese appeal is in their interest to allow the currency to appreciate against the dollar. they're doing that at roughly the pace of 6% a year. because there inflation is so much higher, it is moving more rapidly. it is probably tends term he amative -- 10% in real terms. it makes sense for them and us and for the system. it would be better for growth prospects everywhere, not just for chinese inflation, for it to happen more rapidly. it has a way to go. it is no surprise that the

business is so divided on this. yet people in the u.s. that produce in china for expertorts. those things will obviously have different implications. these are not the only things that matter. you live in this world. china has been running a pretty large strategy. if you want to sell it here, we want you to come produce here. if you're going to producer, we want you to transfer technology. we want you to serve your broader market outside of china. that is a strategy they replicated. it is not a unique strategy. it is an untenable strategy long term for a country as large as china. and our interests as a country are not just getting china to move more rapidly but to make

sure they're dialing back and reducing the other very substantial distortions they put into the economy that shifts the plane filled. if they still -- playing field. they still control capital energy land. we want them to move to a system where they are reducing the substantial distortions they left in place that are adverse to our economic interest that undermine the political support here and around the world in system. that is a long answer to your question. they have a ways to go. they have room to move faster. growth everywhere would be

somewhat better. >> is the short answer in the medium term and the currency will become less of an issue? >> it depends what they do with the currency. the challenge for policy -- the currency everyone can see. how you can tell every day how fast it is moving. the other stuff is very hard to know where you're making progress. everybody experiences in a different. some people say it is getting better. some people say there is no difference. it is hard to measure this. this stuff will be more attractive over time. but the latter. matter. will >> there is a lot of cash but it is not in this room or this country. >> a lot is in this country and a lot overseas.

>> should there be one tax? >> and not outside the context of corporate tax reform. organized, ite takes money. it costs between $48 billion. that is a tax cut to by raising taxes on other individuals or businesses to pay for that, it is hard to make the economic case for that we don't have the resources. the central challenge we face as a country that relates to growth

is how we make this a more compelling case for people to create and build things in this country. we will not build everything we need here in the united states, but we have a huge interest in trying to foster the incentives in favor of people creating and building things here. there are lots of things that are important to that, like education, infrastructure, and continued investments in basic science and drivers of innovation. you need to figure out a way to get a better tax system in support of that. our view is that congress should be focused on trying to put in place a better set up permanent incentives to support that basic objective. >> if you lose the loopholes and stop subsidies, is 25% about the right rate? >> let me say it a little

differently. our view is that you can get very close, get the rate down to the average without doing [unintelligible] future deficits. you can clean up a lot of the distortions in the tax system in support of getting rates down that low and make yourself a better system. we think that is worth doing. >> do you have a number in mind? >> i do, but not that i wish to share with you. [laughter] strengthen the incentives for progress. as i said, you can get it lower. lower than 35.

>> the basic imperative is to get the incentives and the fundamentals better for people building in creating things here in the united states. it is our great strength in many ways, but we can do better at it. it is hard to do that without looking at the tax system. you can do it without adding to the burden of individuals or adding to future deficits. >> comments, questions? you can be unfriendly. >> i have been struck by the conversations you'll have had here today. it is a pretty thoughtful group here but they seem to have bad vibes about the president and what he is doing for business. why is that, and can that be fixed in the year left of the term? want to askhink you me that question. you are asking me why the

sentiment is so bad. of course, i hear it. i hear it from any of you all the time, people telling me directly all the time. you guys know what it is the product of. i think it is fundamentally unfair, and the basic strategy of this president -- we are going to work very hard to change that perception. i think it has some cost to us, but i don't think it is justified and i do not think it is fair, particularly given the things this president did to try to fix an economy that was really at the edge of the abyss. of course, building on the initial work that was done by his predecessor in that context. what we are focused on is changing the basic reality, the economy not growing fast enough. it can grow faster, and trying

to push a basic package of sensible proposals to strengthen growth in the context of long- term fiscal reforms that they think will make us stronger as a country going forward. we think there is a lot of room for doing that, despite how divided the country is. we think the things the economy can use right now, extending tax breaks for individuals, targeted tax breaks for businesses, combined with sensible long-term infrastructure programs, more trade agreements, a better education system -- those things are fundamentally practical, good, growth-oriented policies right now, and there is no regulatory reform agenda out there within our reach that will come anywhere close to making a difference on that magnitude as those set of proposals for growth in that context. what we do not want to do is, i don't think we can afford to sit here for 14 months or 12 months

and not act to help an economy that is still so weakened by the crisis, weakened by europe, and that is what we are focused on, trying to change the basic realities facing the average american business now. as you know, given the way the constitution is written, that is not something we can do on our own. >> were you disappointed when bowles-simpson was evaporated in the senate? >> that is not the way to put it. they did an amazingly consequential thing for the beit we are -- for the debate we are having. they took that framework and it was embraced by a group of senators. it is very close to what the president laid out to the community in september on the broad outlines in that context. i am very confident that ultimately it is going to look pretty close to that basic strategy.

>> i can tell you that we call on 300,000 garages is, it is garages, small businesses in the united states, and they have the same view that you just expressed. they think things would be fixed if something would be done of sufficient magnitude. i want to ask you if you think that happens and there is something that could go wrong, are you saying actually, if something happens, if it is is sufficient magnitude, things will go well? you think there are certain things that could happen and that people could agree on, and it will not be the right way to go. >> that is a complicated but interesting question. let me try to frame it a little differently. we face the economy not growing fast enough, still scarred by the aftershocks of the crisis, a lot of storms outside the united states hurting growth, and we

have some really tough, long- term challenges. there are people who say you cannot do anything about the short-term, let's focus on the long term. that is not right. there are people who say, let's ignore the long term and just focus on trying to get growth strong right now and come back to the long term later. that cannot be right. we are taking the basic, sensible, pragmatic view, which is that you cannot do everything. we cannot solve all the problems facing the country right now, but if you do some say is -- some sensible things to help the growth rate right now, and you tie that to reforms on the physical stuff, you can make a big difference for long-term confidence and short-term strength of growth. these are not that hard. they are much easier challenges than many countries around world are facing in this context.

even if we acted -- that think about cost of action right now -- what happens? every american with the job's taxes will go up significantly this year. taxes will go up relative to the way they are now, and you leave the long-term infrastructure to not address. you put much more pressure on the economy right now. if you sit there and debate the long-term future, you are making the economy meaningfully worse in the near term. that is not responsible act for us to take now. again, you cannot credibly argue that if we just do this package of tax incentives and infrastructure investments, that everything is going to be great. we still are left with some really tough things, but the fact that we have tough longer- term things is not an excuse for

sitting here and not acting on the short-term inheritance. -- the short term imperatives. >> i am encouraged about -- i am encouraged by your positive attitude. >> don't read me wrong. i was just being honest. >> from my point of view, [unintelligible] it has passed a point where a contagion is basically occurring. clearly, the banks were not in great shape to help themselves. they need to recapitalize. the way to do that is deleveraged. that is not going to help those economies. the impact and my country and in asia -- i certainly hope we can

find a solution, but it seems to me that the last six months -- >> 18 months. >> now the path has become overwhelming. >> i don't disagree with you. it is hurting us already. it is having a big impact on emerging economies. europe has a very large financial system, compared to this financial system. when their finances are under pressure, you see a much more disproportionate effect. i agree with all those things. this is a problem within their capacity to solve. it is not beyond their ability to solve. they are working through the very tough things they have to do to get there. obviously, not fast enough, obviously not attraction for confidence in the markets and get. they have a ways to go in that context. we have a big interest in them solving it.

>> do you think fundamentally that they understand the scale of the problem, and thus the need for a solution of similar scale? >> they are trying to figure out how to get political consistent behind a set of tools that allow them to do that. not to make excuses for them, but it is tough. it is not like hamilton with a country deciding to be a country a long time ago. it is tough, but i do think they understand the basic imperative of that strategy and are just trying to find a mix of tools that they can get political support for. >> secretary geithner has been very generous with his time. [applause] >> next, testimony from

congressional budget office director douglas elmendorf at a hearing of the senate budget committee. then more from today's "wall street journal" co counseled with erskine bowles and alan simpson. followed by white house budget director jack lew. >> lots of talk about spending at the deficit on tomorrow morning's washington journal. represented jim mcdermott and representative bob goodlatte. also, yuval levin, discussing the political philosophy underpinning liberalism. washington journal at 7:00 a.m. eastern on c-span. >> to those who save, my friends, for those who say we are rushing this issue of civil rights, i say to them, we are

172 years late. for those who say that this civil rights program is an infringement on states' rights, i say this. the time has arrived in america for the democratic party to get out of the shadows and walked forthrightly into the bright sunshine of human rights. >> hubert humphrey spoke those words nearly 20 years before championing the 1964 civil rights bill into law. the two term mayor of minneapolis and center was vice- president under lyndon johnson and later ran for president in 1968, and lost. we will look at his influence on american politics this week on the c-span series "the contenders." that is live friday at 8:00 p.m. eastern. >> congressional budget office director douglas elmendorf said

today that he expects the unemployment rate to hover around 9% through the end of 2012. the country is only about halfway through the economic slump. he also talked about and he released cbo report that makes predictions about the effects of various economic policies. this senate budget committee hearing is two hours. >> the hearing will come to order. i want to welcome douglas

elmendorf. thank you very much for being here. thank you for your good work. today's hearing we will again focus on the economy in steps that can be taken to strengthen the recovery and create jobs. last year at my request, the congressional budget office completed an analysis of the so- called bang for the buck achieved by different fiscal policy proposals. cbo is now -- has now updated at work, so we thought it would be useful to have director elmendorf here to report on his agency's latest conclusions. i am hopeful that congress will consider cto's analysis in developing any near-term economic growth measures that might be passed before the end of the year. i would like to begin by briefly reviewing the economic situation now confronting the nation.

here are some of the factors i believe that are holding back the economy. unemployment remains stubbornly high. the housing crisis that sparked the downturn is continuing. we have weak consumer confidence and weak consumer demand. personal debt is still near record levels. businesses and consumers still face tightened borrowing standards. state and local budget cutbacks for continuing to create a drag on job and economic growth, and our debt is also a challenge to future economic growth. among these factors, the continuing housing crisis is particularly notable. we look back at seven previous recoveries and we can see the resurging housing market was a driving force behind return to economic growth. housing starts rose dramatically in every one of those recoveries. but in this recovery, housing

starts have remained low and continue to be. we know that some of the drag holding back the recovery is caused by the nature of the recession that preceded it. economists have found that following recessions caused by or accompanied by a severe financial crisis, recoveries tend to be shallower and take much longer. two leading economist, and dr. herman reinhart and dr. vincent langhart, found in their research, "real per-capita gdp growth rates are significantly lower during the decade following severe financial crisis. in the 10-year window following a severe financial crisis, unemployment rates are significantly higher than in the decade that preceded the crisis. the decade of relative prosperity prior to the fall was importantly fuelled by an expansion in credit and rising

leverage that spends about 10 years. it is followed by a link the period of retrenchment that most often only begins after the crisis and lasts almost as long as the credit surge. in other words, we could see a time of low growth and relatively high unemployment for some time because we are recovering from a severe financial crisis, the most severe since the great depression. if we look at private sector job growth, we see it has improved dramatically from where we were in the recession. january 2009, the economy lost more than 800,000 private sector jobs in one month. private sector job growth returned in march 2010, and we have now had 20 consecutive quarters of growth -- 20 consecutive months of growth. however, clearly we have to do better. we need considerably more job growth in order to fuel a strong

recovery. the unemployment rate remains far too high. as of october, the unemployment rate was still hovering at 9%. although the recovery is not as strong as we would like, it is important to recognize our economic situation would be much worse if we had not had the federal response to the recession and the financial crisis. including in both the fed monetary policy action and the fiscal policy actions taken by congress and the administration. that federal response, i believe, pulled the economy back from the brink and likely prevented us from slipping into a depression. it may not have been slipping into a depression, we have gone headfirst into a depression. two other leading economists, dr. mark zandy and dr. alan blinder, former vice chairman of the federal reserve, completed a study last year that measured

the impact of federal actions in shoring up the economy. here is the key quote from their report. we find that its effects on real gdp growth are huge and could have averted what could be called depression 2.0. it will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as policymakers -- as if policymakers had not acted at all. the comprehensive policies repulse the response saved the economy from another recession, and we estimate that were well worth their cost. this next chart shows the estimate of the number of jobs we would have had without the federal response. it shows that we would have had 8.1 million fewer jobs in the second quarter of 2010 if we had not had the federal response.

we see a similar picture in the unemployment rate. according to dr. zandy and dr. blinder's findings, the unemployment rate would have been 15% in the second quarter of 2010 and would have continued rising to 16.2% in the fourth quarter of 2010. looking forward, it is clear there are further steps that could be taken to help shore up the recovery in the near term. cto's analysis looks at some of the steps and determines which would provide the greatest bang for the buck in spurring economic growth and job creation. here are the key findings. on the upper end of the scale, it shows that policies like extending unemployment insurance and the payroll tax cut give a higher impact on gdp for each dollar spent. on the bottom end of the scale,

cbo once again found that extending the bush era tax cuts provides a much lower impact on gdp for each dollar spent. it also found that the repatriation tax holiday provides very little bang for the buck. i look forward to hearing more about these findings from director elmendorf. to be clear, there is nothing contradictory about pursuing near-term economic growth measures at the same time we pursue long-term debt reduction. we can and we must do both. we need to give a near-term boost to the recovery while simultaneously putting in place policies that will bring down deficits and debt over the long term. the deficit reduction can be phased in after the recovery is on a stronger footing, but it should be enacted into law now. i want to be very clear about

this, and every group that i have served, whether the fiscal commission, the group of six, we adopted that basic strategy. it is clear, we must put into law now a long-term deficit reduction plan. i believe that would provide a significant boost in confidence in the markets as people see the government finally putting its fiscal house in order. is that we will now turn to senator sessions for his opening remarks. -- with that we will now turn to senator sessions. >> thank you. we respect the work that you do and we rely on it. i am not aware, just reading recently alan greenspan's testimony before this committee, quoting cbo numbers, projecting 30 years of surpluses and that we would pay down the entire debt of the united states of america and he wondered what to

do with the surplus. so we have been wrong before. he predicted 3.1% growth this year and it will come and probably half of that. doctors randy -- dr. zandy predicted 3.9% growth. i don't agree, mr. chairman, that there is no contradiction between borrowing and taxing to spend today and the problems that have gotten this country into the fix we are in. as i see it, we are in a long- term financial difficulty as a result of debt. we have excessive debt throughout the system. the government has assumed huge amounts of private debt, and i agree, we have a 10 year or more deleveraging process to go through.

we are just not going to see the growth we would like to see until that is true. but i would oppose adding more debt. nothing could be more simple or basic, and under the plan that the president has proposed, $450 billion in borrowing and spending in the near term plus a tax increase, i do not believe that is going to be 810 your benefit to the economy -- not going to be a 10-year benefit to the economy and i want to hear your view on the fact that you predicted, when we passed the first $800 billion stimulus package, you predicted that in the short run, there would be some benefit, but over 10 years, you predicted there would be a net negative, because there is a reality of debt out there that cannot be wished away.

all that was borrowed. all of that added to our debt. i am sure you would agree that after the 10 years, since we will have paid none of that down, that it will continue to be a drag on the economy for decades to come, long after the short-term sugar high we may have achieved as a result of it. i am very concerned about where we are going. i am concerned about the committee of 12. mr. zandy told us we had to have $4 trillion of reduced deficit, as an absolute minimum. i am not aware that they are moving toward that kind of agreement. we are still in denial, it seems to me. if we have learned nothing else from the financial crisis in 2008, it is that prosperity cannot be built on a foundation

of debt. excessive debt, public and private, provided the air that pumped into the economy that resulted in the burst bubble. surely we know that debt is not the solution, and if there is a second lesson we should have learned, it is a healthy skepticism for the washington elite, the same people who fell asleep at the switch before the housing bubble, did not see it coming, are now urging us to create more debt in the government, a government bauble. -- a government bubble. i call them affectionately sometimes, the masters of the universe. they are quick to explain why the failure of their last prediction should not count against the ones they are just making today. they said the stimulus fail because it was not big enough. or that the explosion in

regulations helped the economy. we need more regulation, they say. advocates for more stimulus modelstly cite cbo's where they projected long-term negative growth. they stated "the increased debt will tend to reduce the stock of productive capital and economic parlance, the debt will crowd out private investment." the projections were that reducing the deficit by two trillion dollars would eventually boost economic growth 1.4%. that is a good sign. that tells us what we need to be doing, which is reducing debt. we need a long-term plan. we should return to basic, core principles, tried and true.

pay your debts, spend within your means, and instead of asking the taxpayers for a bailout, washington must end the this honest accounting waste and abuse that we have in our country. what wewhat we need is a middles agenda. that means creating jobs through the private sector, producing more american energy, making the government lean and a productive, confronting our dangerous debt, adopting a competitive tax code, upholding the rule of law and trade, commerce, and emigration, can deliver the good people of this country the honest and responsible budget they deserve and have not had in over 900 days. thank you. >> two quick things i will say. we may have a disagreement about short term. we have a agreement about long term. the debt is the threat. i think it would be a huge

boost for this country. i think it would be a boost globally if the special committee came back with a 10- year plan that reduced the deficit in the range of four trillion dollars. i tried to convince the fiscal commission to do six trillion dollars. we could balance the budget without the size of a deficit of adjustment. it is not that hard to do. i think some people think this is so hard to do that it is impossible. i showed our colleagues want plan. if you added 6% to the revenue that we project and reduce expenditures 6%, you would save six trillion dollars over 10 years. i call it the 6% solution. we could have a debate and we could have a discussion about

what the mix should be. maybe someone to do all revenue. maybe someone to do two-one or three-one spending to revenue. to meet the real issue is, how do we find a way to come together to get the job done. indices serious obligation. let me just say on the question of not having a budget. we passed the budget control act. the budget control act provides a budget for this year and next. we may not like it, but that is the law. it is the law of the land. the budget control act passed. signed by the president. it lays out the budget for this year and next year, and it provided for the special committee that is a defect the reconciliation process clear and simple.

we have a budget. we may not particularly like it or agree with it, but we have one. we have in the budget control act. >> to follow up on part of what you were saying. he quoted them about -- >> reinhardt and reinhardt. >> a financial crisis takes longer term. i think that is a little bit of a misconception to most care as they think financial crisis means a bank crisis. at the time this bubble burst, people were saving nothing in the united states. we were drawing down our savings which is really unprecedented in history. individuals had great personal debts.

the government is now running for the third consecutive year trillion dollar debt. we have taken over a huge mortgage problems and liabilities from banks and assumed that on the public sector. it is a simple thing. you either default on your debt, or you somehow carry the debt over a longer period of time and try to pay it off and reduce it. we are not close to paying down the debt as of today. i think we all need to understand that we are going to be in a long-term effort to move at ourselves out of the leveraging.

the first thing you should do is not add more to the debt and acknowledge it will be a tough period of time. then we need to do everything possible that helps working americans be successful by creating a climate for long-term growth. we can all disagree and we will agree on how to do that. that is where i am on it. i think that is where most of the american people are. i look forward to hearing mr. ullman door. thank you. >> let me to say with respect to the reinhart story. when they are talking about a financial crisis, they are talking up of not only the circumstances of individual states, but also damage to the financial institutions including private sector institutions. when you have that kind of dramatic break in the financial

markets, and the damage to the balance sheets of major lending institutions, that has any effect on credit going forward. what they have found is that when you have an explosion of credit as we did before this downturn, in part fuelled by federal reserve policy, interest rates kept abnormally low for an expanded. , fiscal period, very loose fiscal policy under the congress and administration, we will -- we were running massive deficits even then. that combination coupled with a lack of work -- regulation of derivatives and the explosion of aig did he enormous damage to the financial structures both private and public and exploded debt to both public and private. the result is you have financial institutions with impaired balance sheets which means they

cannot extend credit in the same way they normally would. that is what they find in their study. first, you have a credible. than nearly 10 years in duration. then you have a recovery about the same period of time. you know, we have put a real state. we have cut the real scoop. a real stew. >> this will not be an easy fix. there is not a quick fix out there. how we handle it, we will have to work together to do what is best for the country. i just believe that the quick fix which are over. as one of our with this is not long -- witnesses said not long ago, you get the benefit from spending today. if you are an a period of a

decade working your way out of this economic difficulty, and it can to before the 10 years is how and before you are out of the recovery. that is why i do not think we can any longer continue to stimulus expand and create more debt trading is simply going to catch us before the 10 years is up. we need to have an honest, long- term plan. the president needs to be honest with the american people how difficult this is. we need to do it in a long-term view and not a short-term be pure >> how the place you and i agree -- the place we have agreement is longer term. somehow, collectively, we have to find a way to be successful here. we have to change course. when we are borrowing 40 cents of every dollar, revenue is the lowest it has been in six

years, spending is as high as it has been in 60 years, certainly, i think we can agree we have a serious problem. we have a collective responsibility to dig out of it. director elmendorf, i apologize for this early discussion but i think it is important to have. please proceed with your testimony pierre >> thank you. to all the members of the committee. i appreciate for the opportunity to testify today about the outlook of the economy and policy options for increasing output and employment over the next few years. as you know, the u.s. economy as a struggle to recover from the deep recession. a total output started to expand more than two years ago, the pace of the recovery has been very slow compared to the average recovery since world war ii. and the -- the economy remains in a severe slump. we expect growth and output will

remain slow. as a result, job gains will be limited leaving unemployment rate close to 9% through the end of 2012. given the outlook for the economy which is similar to that of many private forecasters, a large portion of the economic and human cost of the downturn remains ahead of us. we think the economy is only about halfway through a cumulative shortfall in output relative to the potential level that can be achieved if our labour and capital were more fully employed. the cost of that shortfall is disproportionate to people who lose their jobs, displaced from their homes, or who own businesses that failed. concerns about the weak economic recovery have prompted the consideration of fiscal action to spur economic growth and increase employment during the next few years. cb 0 assessed the cost

effectiveness and boosting the economy of a variety of possible changes in tax and spending policies. figure one from the testimony reproduced on the back of a single piece of paper in front of you summarizes our findings. the figures show the estimated impact on years of full-time employment in 2012 and 2013 per million dollars of budgetary costs. to be sure, this measure of cost effectiveness is only one of the criteria that might be involved in the criteria prefer its policy will show a range of estimates reflecting the uncertainty that accompanies any analysis of this. the policies that we estimate would have the largest the effects of unemployment in 2012 and 2013 per dollar of budgetary cost our policies that would be targeted toward people who would be most likely to spend the additional income. such as increasing age, the

unemployed, or providing additional refunded tax credits for lower and income tax holds, the next board delaware. for policies that would reduce the incremental costs to businesses of adding employees such as reducing employers' payroll taxes, which is the top bar in the second bank, or reducing employer payroll taxes for firms that are increasing their payroll which is the bar below that. the policy that we estimate would have the smallest effects on employment in 2012 and 2013 per dollar of budgetary cost our policies that would effect a business of cash flow but would have little impact on incremental incentives to save or to hire or invest. examples include reducing taxes on business income and reducing taxes are repatriated earnings showed at the bottom two bars in the middle bank. despite the near-term economic benefits that would arise from

reductions in government spending, such actions would add to the already large projected budget deficits. unless offsetting actions were taken to reverse the a commotion of debt, the nation's future output would be lower than otherwise would have been. if policy makers wanted to boost the economy and near term while also having long-term sustainability, accommodations would be needed. changes in taxes and spending that would widen the deficit now and reduce it later in the decade. households, businesses, and participants in financial markets believe that the future fiscal restraint wycherley take effect. -- would truly taking effect. they would change policies apart from taxation and government spending. for example, legislation could

modify existing or proposed regulations. also, the government's role in a particular sector of the economy or change trade relationships with other countries. the near-term economic impasse of such changes would depend on how the effective businesses and hiring decisions, household purchasing power and water, and importantly expectations and uncertainty about future government policies in economic conditions. cbo considered some potential changes related to environment, financial and health-care sectors, and international trade. but there are if you enter -- analytical factors of such changes. but did not attempt to quantify the potential changes with any provision. in our judgment, however, the effects of the specific changes and regulatory policies or policies apart from the scope policies that we considered probably would be too small or

would affect the economy too slowly to make us an important difference in output or employment during the next two years. i should emphasize the policy changes when we examine our illustrative rather than exhaustive. many other changes that might have larger or smaller economic effects are possible. our analysis does not address other critical considerations. including the long-term effects on the economy on people's health and on the environment. thank you. i am happy to answer any questions you have. >> thank you for your testimony. thank you for your work. let's go back to the conversation senator sessions and i were having as we began hearing. i think it is an important conversation. it is an important debate. in many ways the biggest regret i have is that we did not have this discussion and for debate because the country needs it. i think his body needs it.

to that back conversation we were having. senator sessions and i began this hearing by agreeing on the danger of our longer-term debt situation. i have said many times to our colleagues, that is the threat, long term. do you see danger in our long- term debt situation? if so, what form does that danger take? >> as you know, under current policies, u.s. fiscal policy and on an unsustainable path. federal debt is already very high relative to our total output compared with our historical experience. it is on a path to continue to rise. that cannot go on indefinitely. the cost of that are manyfold, partly that rising debt crowds out private capital investment and reduces future output of

income. also, extra pennies to be service. we need to pay interest on it. that crowds out future government spending or forces increase in future taxes. run up and that also meant policymakers have less flexibility in responding to unexpected developments, international crises or crises at home. beyond all of that, there is an increasing risk as that prices of it crisis in which investors will lose confidence in our ability to manage finances. thereby, the government will lose the ability to borrow at affordable rates. when that sort of crisis might hit, we cannot predict. it depends not just on the level of debt at that point in time but on expectations, and expectations not just under current law or policies but also a sense of the ability of the political system to confront the nation's fiscal challenges and make a deliberate choice is to try to stay out of danger.

>> i think you have said that very well. i agree with that. senator sessions, i will not speak for him. >> it may seem like a paradox that rising levels of debt are long -- wrong in the long run. certain ways as we talk in our testimony could be good for the economy in the short run. it is not a paradox, the nature of the economic challenge that we face as a country as it is during the medium or long run. over the median rent or long

run, economists agree that the restraint on our output and in comes to the capital stock, the quality and quantity of our labour force, the level of technology and the way we bring in puts together in businesses. in the short term, again, most economists agree that the constraint of our hope of ending comes today and next year in the year after that is principally in a weak demand for goods and services. we have the factories and equipment to produce more. we have people who would like to work to produce more. the reason they are not fully employed as a lack of demand for goods and services. in the short term, what will strengthen the economy and the analysis of a broad consensus is cutting taxes or increases in spending because those can either sport public demand for goods and services or through lower taxes or private demand for goods and services.

that can help in the short term. in the medium term and long term, that would be counterproductive. even if one does this in the short term and it's a short-term boost, unless one offsets the extra key militia of debt, one would be a little worse off in the long run than otherwise. there are complicating forces in iran that. it matters what you spend money on today, publicly or privately. it matters how you address the long-term this court challenge. the general rule, the debt that will be up to immolated under policies we have analyzed your would be bad for the economy in the medium-term and long-term even though they would provide a boost output in the short term. is not a paradox. he reflects the nature of the economic challenge which is different at different points in time. >> i thank you for that explanation. let me go to some of the specifics of what is in your study. i think it is important to

understand that. let me just say, i notice there is a difference between what is in the study and the previous study in that if i understand it, this is looking at a two your defect. the previous said it was looking at a five-year effect. >> we focused in this case on the two year horizon. >> when you looked at a five- year infrastructure, it was much higher on the list in terms of bang for the pot. here when you are looking at a shorter time infrastructure drop down and these other short-term measures increasing aid to the unemployed, providing tax credits to lower and income households, reducing employee payroll taxes, subsidizing, those things move up in relative position. let me clear my own bias.

i tried very hard when we were doing stimulus to have more infrastructure. i argued strenuously for a package of 200 billion of infrastructure largely focused on transportation. the argument made against it was from analysis that we are seeing here. could takes longer to get infrastructure spending into the bloodstream. my argument was that after a fiscal crisis, you will have a downturn that last longer. therefore, having something that its leader is not a bad thing. it may be a good thing. i wish that you had prevailed then. we are in a longer-term period of weakness. tell me a doubt infrastructure. why in your analysis when you shift from a five-year focus to a two year, does the

infrastructure drop down? >> you have it just right. if we had shown here the five- year effects, infrastructure but have looked relatively better. for just the reason you say and that is the money takes some time to get out of the door. certain products as we know can happen fairly quickly. repaving of reps can be done fairly quickly. more substantial products generally take years to complete. the money basically is bent over the course of those sets of years. >> can i ask the question? the you know how long it took to build the pentagon? >> we did that very rapidly. that was unusual circumstances pure >> that is the argument i made in this circumstance. we are in an unusual circumstance in 2009. the answer to the question is, it took nine months to build the pentagon. nine months. now, we seem to think we cannot

do things. in part, we have done it to ourselves. i can tell you in my state we are having an energy boom of incredible proportions. we are now the fourth largest oil producer in the nation and we are heading to second or third. i will tell you what, we have a need for thousands of people to work in north dakota right now. we needed thousands of people to work there. why are they not there? they do not have a place to live. i was just in williston, north dakota. in the heart of the world and, i had a school administrator tell me she has 14 children who come to school every day who are leaving -- living in their parents vehicles. they do not have a place to live. our unemployment is the lowest in the nation. less than 2.5%. we have a need for thousands of people to work.

we needed to build roads. it takes over 1000 truckloads, some tell me 2000 truckloads to do one well. our roads are clogged. people are dying on our roads. these hearty doubling roads. these are right through the heart of world country. we need to build robots that can employ thousands of people. let's get to it. this idea that we cannot do anything. we cannot get the money out the door. i know in normal times we cannot get the money out the door. when do we go to a serious flooding of let's get it done? and i believe deeply in by states that if somebody would help us get some of the things we normally would do in normal order of business began out of

the way, we could get a lot done. i will let you respond. i have used my time. >> i think you are right. it depends crucially on what else can get out of the way. projects generally require bidding. there are reviews of various sorts or in our mental purpose or others. as part of why it does take longer today to complete large projects that when they build the pentagon. you are also right that under our forecast in the forecast of most private sector people and with the evidence of reinhardt and ran hard you cited, we expect them to be a shortfall in the vans and goods and services will be on the two years we focused on in the particular calculations. we have the unemployment rate coming down close to 5% only by 2017 in our forecast which is six years from now. there can be justification on the priorities of you and other members of congress.

there can be a macro economical justification to continue that conductus of spending out for an entire five-year period. >> thank you. with regard to this charge you provided to us, it is important to note that 2012 and 2013. on infrastructure improvement, it would not be complete them. you have some predict -- productivity gains in the out years. this is a misleading thing because you tend to favor a media expenditure item like reducing payroll taxes or unemployment insurance has that money goes out immediately. this chart has some misleading characteristics to it if you are looking at a longer period of time. is that correct? >> the question you asked.

i think the primary difference between what this chart looks like and what it toward over five years will look like is the one the chairman pointed out, the infrastructure and got rid of one looks -- most of the other items have mostly the same ranking of cost effectiveness over the five-year span. >> one thing that is really important, i think, you know in your report on page 25, as a result of your ongoing review and relevant research, cbo has reduced its lower range of estimates on the short-term effects of changes in fiscal policy on output and employment while even the upper -- the upper and range stays unchanged.

basically, your experience with the first stimulus made you less optimistic about how large the short-term benefit would be from the borrowing and spending today. >> it is not so much our experience with the recovery act, senator, as the review of the literature. there is some new research based on the experience of the past few years. most of the research in which we and others are -- >> some of that research is probably based on the stimulus, i would hope, which did not achieve the goals we hope for a buy opinion. -- in my opinion. has my granddaddy said, you cannot borrow your way out of debt. we are in deep debt today. we are making proposals to fix our debt crisis by borrowing

more money. the president's proposal and did -- it called for a tax increase to pay for this for under $50 billion increase, did it not? >> we did not study the economic effects carefully. are right about that, senator. >> and increasing taxes has some negative affect on the gdp growth, does it not? >> is, the amount depends on the nature of the tax increase. we did not study the effects. >> with regard to your letter >> with regard to your letter that the tax would have a negative growth over 10 years, i recall asking secretary geithner about that and he seemed to be surprised. he did not think howard was possible that you could spend $800 billion and not -- how it

is possible let you could spend 800 of the dollar's -- $800 billion and not have improvement over 10 years. you think that could be a modest reduction of this in this package that did pass? >> what i said was up the level of the gdp at the end of the 10- year window would be negative. >> the gdp growth at the end of the window would have been without the bill passing. >> let me be clear. i read that the cumulative growth in gdp over the teniers was positive. we said there'd be a big boost in the level of gdp in the first three or four years. then relative what would that happen to you gdp without that, then the level of gdp would go below zero. the level of the gdp would be a little lower at the end. i'm sorry, let me be more careful. the level of the gdp would have

a negative effect on the growth of -- >> and then the next 10 years with the interest value long since gone, it would be a continual negative of some effect. >> yes, it dried on the level of gdp beyond that if no actions were taken. >> you noted that affect this of deficit-reduction. you released a report earlier this year, the macro economic effects for reducing the budget deficit and it included a set of policies that would reduce the deficit by $2 trillion over the next 10 years and would increase long-term economic growth by as much as 1.4%. it is that still your view.

-- is that still your view? >> yes, it is. it would be between 1.4% and 1.6%. >> and that lower debt helps in a, maybe more vibrant and improves gdp? >> yes, that is right, senator. >> one of the things the u.s. has worldwide is our currency is a reserve currency throughout most of the world. is that an advantage for our economy? rex absolutely, yes, senator. >> i just looked at this week's headline. i do not know if you have seen it -- the world's next -- and it says china. and it says by 2020.

that is not far along. would you agree that is not a positive development for the u.s. economy? >> i would not make predictions about how quickly the u.s. dollar might be supplanted as the reserve currency, but certainly, if the u.s. dollar were supplanted as the currency, that would be costly for our economy. >> and part of that is a concern that our debt, at least with trade deficits, but as the decree as to our debt, american debt is a factor and there is a concern worldwide over the

united states dollar as a currency -- a reserve currency, is there not? >> yes. >> and fixing our dead wood improve the reliability of the u.s. dollar as a reserve currency. >> yes. >> senator conrad to justice, and i think is good. some of the things that benefit the u.s. economy as a result of the dollar being a reserve currency? for its one thing that we have seen very clearly in the last -- >> one thing we have seen in the last few years very clearly is a worry by investors around the world about the safety of investment. they come to the united states with their money, viewing us as a safe haven. a lot of transactions are conducted in dollars. and that demand for our financial assets helps to keep the u.s. financial system at the

center of the global financial system, even when our own financial system is troubling, as it has in the past few years. that is, as you said, one of -- we risk losing that advantage if we allow our debt to continue to rise relative to gdp. >> and we have the ability to print more dollars within a limited range before adverse impacts occur. but if that goes too far, that, too, could be a part of the devout ewing of the currency and -- of the devaluing of the currency and a loss of confidence, could it not? >> yes, as in the 1980's, for example. dow would also weaken the dollar's role in international financial -- that would also weaken the dollar's role in international financial transactions. >> thank you.

>> thank you, and thank senator sessions for asking that. it is very important to begin on the record the role of america's reserve currency, the importance of it. senator begitch. garecht i appreciate the debate you had before we started hearing. -- >> i appreciate the debate you had before we started the hearing. we can argue that recovery added debt. so did the two wars, added that. so did the program tax for millionaires and billionaires, added debt. we are paying for it and will be paying for it at the rate we are going. i like debating history, but it is irrelevant to where we need to be going. i appreciate the debate, but where we are today is, we have an economy -- in no, we could argue that if the recovery bill did not happen, what we have

more unemployment? every month we can argue is the straw -- the number is strong enough. but since i have been here since 2009 when i got sworn in a month and a half later, we have had positive job increase every month. sometimes it is small, sometimes insignificant. but we could argue that without the short term recovery go, the number could have gone to reverse. we do not know that. that is the great mystery of the work you have to do as an economist and someone who works with all these numbers, but the fact is, i could predict that -- you know, in a of 2008 we were averaging 5000 or 6000 jobs lost per month. now we are at least in positive territory. we would argue than 9% is a rate we do not watch, which i agreed. -- we do not want, which i agree. but it is stable now.

through the beginning of 2009 and 2010, it was going negative. now it has stabilized. we can argue if the stimulus has worked or not, but i would argue that the automobile industry was the walking dead two years ago. or the driving debt. today, the american auto industry is thriving. in a recent article, the headline was a "automobile industry import jobs from china ." that is a reversal. we can argue the theory of what could have happened, should have happened, whatever. but the fact is, here we are. unemployment is more stabilized. gdp is not where we want it to be. the auto industry is moving up, selling more vehicles.

we have importation of jobs from china. in the seafood industry, which is important to alaska, some of the processing that has been going on in china is going back to the u.s. because of middle- class growth in china. what happens? wages go up, fuel costs go high, and it is better to do it here. we have got to get the unemployment rate down. we have got to get consumer confidence higher. i agree with the chairman. and of course, he hit my issue, energy. you mentioned in your testimony the fuel costs have a direct impact to consumers. but also, development of domestic supplies, as you just heard, have had an effect not only in the oil patch states, but a ripple effect as you build roads and infrastructure and schools and hospitals,

facilities the services industry. -- facilities that service this industry. the pentagon was built in nine months. disneyland in california was built in one year. a whole city, when you think about it. i was the mayor of anchorage will we build a $100 million plus convention center. the date of the idea to completion, which involved bonding, voter approval, construction, and designed bid -- anything is possible if we want to do it. tell me some thoughts on the energy sector and what we can be doing. i was unbiased. i think we should be opening anwar and npra and there are hundreds of opportunities of job openings throughout this country. we spent a lot of time talking

about what could have happened entered the cabin. we are where we are. democrats and republicans are to blame on both sides. it is now time to get busy and get things done. that is what the american people are saying to me every day. and energy is one of those great opportunities for two-fold. not just from an economic security, but a national security. we have the ability to protect oil flow over here. >> we know efforts that the federal government might make to encourage energy. those effects are not likely to have a big impact on the overall economy in the next few years, partly because -- and i think you mentioned this in a way. the state and local officials

have a very important role to play in deciding industry facilities and what companies are able to do. the federal government can open up certain areas that are now closed, but it cannot just easily sweep away all of the other factors that affect the peace of energy exploration. -- piece of energy exploration. it takes some time to happen. at the moment, most of the rigs that are designed to drill, for example, deep waters offshore, those are committed to be somewhere. and there's more space opened up for deepwater exploration and drilling. over time, that would lead to more drilling in those places, but not at a magnitude in the

next few years to affect the overall economy. that is not to say that those are gruba to do. there are many other factors that weigh in -- good or bad to do. there are many other factors that weigh in. >> right, but just in the development -- i will tell you in the two years that i have been here, there has been renewed interest in the arctic. just that alone has cost industries to hire several hundred employees to start the analysis of what is possible. or shell, just in the process of finishing a ship that has been constructed in the last year-and-a-half, it is built in louisiana and it is now in seattle ports. these are hundreds and hundreds of well paying jobs. i would argue how we define short term. we have to be careful. do we want, for example, energy production to be happening? yes, but three years ago, north dakota -- i will tell you that

my mother would drive from minnesota to carson city, nevada. she would have no problem finding a place tuesday. she went through the summer and no such luck. she had to keep driving. she is in her 70's and driving late at night is not the best thing we would have her do. but i will tell you, in two and half years, the short term development in that state as an example. i did not mean to get on my energy ramps, but maybe mr. chairman, -- i just think that energy, both non-renewable and renewable an incredible short- term and long-term opportunity that we have underestimated in this country. and we continue to spend billions with countries that hate us in order to get energy supplies in this country. it makes no sense to me. maybe as a budgetary discussion -- the federal treasury is

reaping the benefits of development in the hundreds of millions of dollars. hopefully, we can have a broader discussion. i do not need to rant on energy, but the chairman triggered me. we do not want to be no. 3 in energy production. north dakota is about to take us over here. we are working to be number one. >> i agree entirely with the senator. maybe it would be good to have an energy hearing in this committee. it has huge implications. >> absolutely. >> senator johnson. >> i have to do, on the energy bandwagon here. -- i have to hop on the energy panel in here. i was making those investment decisions for 31 years. look at our regulatory environment.

you want an answer why we cannot build the pentagon in nine months? because of all of the regulation in building in this country. do you think we could do the hoover dam again? why did president obama take the route -- kick the can down the road on the pipeline? why aren't we drilling in anwar? the government regulation. we are doing it to ourselves. with all due respect, i could not disagree more with your conclusions. my only experience in making those investment decisions -- if you allow those owners to make more money, they will invest it. recent history in terms of short-term stimulus, isn't it true that what happened with a lot of those in -- the stimulus dollars is because of consumer feared? they did not just to emulate the economy. -- stimulate the economy. >> we expected some of that money to be saved.

we cannot track those particular dollars. the >> but we can see that we already did payroll tax holiday. we have extended unemployment benefits and all that occurred is an additional $4 trillion in debt, and another $4 trillion coming on board this year. what is preventing businesses from investing is the end result of all of those debts and deficits. we note as business people that eventually government is going to take. they will tax you more, or they will create inflation. that is why the business community is simply not investing. don't you basically agree with that conclusion? >> we believe, and have written in his testimony that uncertainty about future government policies, future tax and spending policies, future regulatory policies are a factor that is restraining business from investing and household

from spending. but we do not think that is the principal factor. for example, surveys done by the national independent business shows that the main obstacles that businesses report themselves to be facing today relative to a few years ago is weak demand. >> because everybody is afraid of the european contagion, that the exact same is going to happen in the united states as has happened in greece and italy. i want to talk about the real risks. i do not think we are not watching them now in this country. let's first start out by not achieving the growth targets that the cbo estimates. i have no idea how you come up with your estimates. i assume you use a similar estimates that said we were going to grow 3.1% this year, and we are not going to achieve that growth. for every 0.1% reduction in

growth, we had $310 billion. >> that sounds right. >> if that is only a 0.1% less, that is over three trillion dollars in 10 years, correct? >> yes. >> i have seen studies that said it will be five trillion dollars in deficit. >> we have a very wide band in estimates for each policy because we recognize the uncertainty of the analysis that we are doing. >> not a lot of people are talking about that very significant risk. why is that? are we afraid to lead knowledge it? because all we are doing in the super committee -- are we afraid to acknowledge it? because all we're doing a super committee is acknowledging spending growth. >> they are talking about it. they have not reached an agreement in the super committee, as far as i know. congress has not enacted

legislation to reduce deficits, but more was done in the budget control act over the summer. my sense is that people are talking about it a lot, but agreement on how to address it remains elusive. >> people are fearing it. let me go to another significant risk, and this is going into cbo projections, which i think are totally wrong when it comes to the health care act. according to the cbo, only 3.6 million people will lose their employer-sponsored care and get dumped into exchanges. how do you ever come up with 3.6 million people? what economic model came up with that number? >> our model takes account of incentives facing households and businesses to get insurance coverage through various possible avenues. and other people who built models of the insurance -- health insurance market had actually reached rather similar conclusions to hours about the effects of health legislation.

that includes the actuary over at the cms, researchers over a grand, and other places. it surprises many people that we do not show a larger swat in terms of insurance coverage. many people will continue to receive significant subsidies to buy health insurance through their a employer through the tax code. >> let me stop you. have you seen your predecessors provesn makermatrix, which accurate -- which proves conclusively that it is in the best interest of employers to dump 35 million people off of the exchanges? >> we have seen the analysis, but we reach a very different conclusion. for mostsaying, workers, they will get no or smaller subsidies.

>> we have increased our deficit in the first 10 years by over $500 billion. in the second 10 years, it is a $4.2 trillion. let me run what the real decision factor is going to be. as someone who has been buying health care for years. according to the cbo, in 2016, the average cost to the family will be $15,000, which is $2,100 more expensive had it been if we did not pass the health care law. let's put that aside. at $15,000. an employer is going to be looking at whether he could pay $15,000 or a $2,000 penalty. with the health care act on line no longer throwing my employees to the wolves. by making them eligible for very large subsidies. in the case of someone making $64,000 a year, which is $13,000 more than the median income,

that is a $10,000 subsidy. we had at the mackenzie steady that showed 50% of employers that are informed are planning on dropping coverage very shortly after this health care act takes effect. when that happens, if that is half, 180 million people get their insurance through employer-sponsored care. and 90 million people will the gate $4,000 subsidy. isn't that pretty accurate? >> you are right that employers who put their workers into the exchanges would not be throwing them to the wolves in the same sense that they would be without the exchange is in place. nonetheless, their employees would then be forgoing a very large tax subsidy. the majority of people, workers who would have employer- sponsored health insurance without that law, are eligible

for no subsidy through the insurance exchanges. i you get a substantial subsidy with the tax code. there's a reason for the firm to put them into the exchange. it is against the interests of the workers. >> know, but it is in the interest of the employer -- no, but it is in the interest of the employer. the surveys show employers that are informed, 50% said they will drop coverage. how can you continue to deny that? and by the way, as a result, totally under state what our true risk for debt and deficit are going out 10 years? we are really misleading the american people on this factor. >> i have to disagree. there is a great deal of uncertainty around our estimates. it is not true that for most workers they are eligible for substantial subsidies through the insurance exchanges.

>> your own cbo spread seats -- spread sheet showed the average cost will be around $20,000, but again, the eligibility is -- a minorityligible are a of workers. for what it is worth, when cbo added the prescription drug benefit to medicare a number of years ago, we had to make an assessment of how many employers would stop providing drug coverage for retirees and how many would only get it through medicare. shortly after we did the estimate, there were surveys in which a lot more employers said they would drop coverage of them were estimated, but the end of the day, few were dropped coverage than we estimated. >> i understand, but in light of these surveys, 90 million people. and you will stick to your 3.6

million estimate? you think that is a good estimate? >> we are always taking on board new information. we talked already about the estimate that we made of the fiscal policies that we are talking about today. we are not averse to take the estimates when there is new evidence. -- to change the estimates when there is you evidence. >> i think that was a valuable exchange. and we need it. the country needs it. it is important to have this debate. senator whitehouse. >> thank you, mr. chairman. mr. elmendorf, welcome. if the debt of our country is so important, and i think is pretty widely believed around the and if that's is canno,

debt that is so important can be reduced from two sides -- it can be reduced by spending less, and it can be reduced by revenue if that is the fact, the debt is so important and you can reduce it either with increased revenues or with spending reductions, in that environment, why is it so important that the highest income americans pay lower actual tax rates than regular working americans actually pay back and to illustrate the point that the highest in -- actually pay? and to illustrate the point that the highest income americans pay less in taxes than regular

working americans pay, i look at the top 400 earners who turned over $250 million each and paid a little over 2.2% in tax rates. four rhode island, at least, that equates to where aggregator taxpayer -- where a regular taxpayer gets about $46,000, about what a truck driver would make. as your -- get about $40,000, about what a truck driver would make. as you cross that barrier, you get about where a truck drivers, average pay is in rhode island. and then you go over $250 million and they are paying 18%, why is that so important to our economic prosperity that we

have this tax code in which super-high-end income earners are paying such a low tax rates? >> you ask the question as if i had said it was so important. to be clear, i do not think i have said the things that you're asking me to justify. >> maybe there is a rhetorical passed to my question. >> i would say that by our estimate, the average federal tax rate -- so, all federal taxes, income, payroll, corporate tax and so on -- as a share of household income rises as one moves up the income distribution. every year or so we go up to the top 1% and we estimate that the top 1 percent and has a higher average tax rate than the top 5%, and the top 5% has a higher rate than the top 10%, and so on. economists think, with at

substantial evidence, that tax rates affect people's behavior. and higher tax rates on work from income from capital and -- me from labor affect >> is the irs information wrong that shows the 400 highest income earners paid only 18% in the recent year, and there was something like 15% -- 50%, which is the same as a hospital worker in rhode island. the doormen and janitors pay higher tax rates. those are actual irs reported dollar numbers. >> i am confident that they

aren't reporting accurately what they're reporting. i presume -- that they are reporting accurately what they're reporting. i presume there is some difference in the concept of what we are reporting. the incomes of the top have changed over the last few years. maybe that is part of what changes tax rates in the last few years. it is also possible that they are looking at only certain taxes. maybe that is just income taxes. if we're looking at the broader measure of taxes. i do not know. i am happy to look into that to see if we can explain the differences. >> there is a for the considerable exercise in the senate trying to pass a jobs legislation. we had the president's original jobs bill and that was filibustered. and then we went through different elements of it, and until of veterans peace -- until

the veteran's piece, they have all been a filibuster. the jobs peace was paid for. it would not add to the debt in any way. it was paid for in a way they're required an additional contribution from americans who were making more than $1 million a year, but only on the income over $1 million a year that they were making. and over that point it cannot filibuster. -- it got a filibuster. is there an economic rationale for stopping those jobs bills in order to protect the over $1 million income of over $1 million income earners? did that work through cbo formulas to be a win for the

economy when you protected that income from taxation when you cross america the jobs it would be -- would you cost american it's the jobs that would be created? >> my guess is if we did analyze it, we would find that those would spur output in the next few years. because of the stimulus to of affects of the additional spending would probably outweigh the negative effects of the higher tax rates over the next few years. and a disincentive of higher tax rates and of the additional debt would tend to drag on the economy. one could way that off against the short-term economic gains and one good way that often gets the additional objectives that one has, and so on. >> let me close by observing, mr. chairman, that there has

been a certain amount of criticism of the reinvestment act for only having stopped the employment crash that president obama inherited without having recovered from it. i would say that, clearly, it would have been better if we could have recovered from it more rapidly. but i think we stop that jobs crash. i think we were at 700 or eight dozen -- 800,000 jobs being lost every month when the president took office. just to bring it home to ryland, for the 11,000 families -- rhode island, for the 11,000 families that were getting a paycheck because of the reinvestment act, for the 11,000 families that had that paycheck, and for the

coffee shop, the grocery store, the toy store, and the mechanic, that they were all able to go pay for goods and services from, we were all glad that the reinvestment act to place. and i think the 11,000 families would have had a much worse time without it, and so would have the communities around them that would have not received the benefit of their income had they not got around and spent it in the way that people do. 11,000 families with a paycheck instead of not, that is pretty real. i think we should not underestimate that. thank you. >> well stated. >> thank you. and i commend you, mr. chairman for a good hearing, and a timely one. that is what i want to ask you

about, dr. elmendorf. unfortunately, in the super committee, one of the issues very much at play is the topic of pro-growth tax reform. i want to walk you through a different aspect of it then goes to the heart of the debate about stimulus and particularly stimulus right now. over the last five years i've had the chance to work with two colleagues on the other side of the aisle that would certainly call themselves conservatives, senator gregg and senator coats, and senator bagitch. i have worked with two democrats and two republicans on this. tax reform is enacted, certainly, in 2013. there is discussion about 2012, but let's talk about, say, 2013.

i put together a bipartisan effort. if you are a couple that makes $50,000 a year, $60,000 a year, $70,000 a year, you would get permanent tax relief. permanent tax relief of 3000 to $4,000 a year, the typical person. we tripled the standard deduction for those families. the couple now gets about $10,000. it would triple to $30,000. for a couple making $60,000 or $70,000 a year, in effect, it puts half of their income off- limits for taxation. my sense is that would be, based on your analysis on page 26 of the report, fiscal policies for assisting households, would be a

pretty good stimulus for the economy, if that were to be enacted if that were applied in 2013. do you want to walk me through that, because it certainly applies to other things you have said in the past, in terms of business decisions with respect to investment and hiring depending on the demand for products. greater demand and investment leads to more hiring. that is sort of economics hiring 101. it seems to me there are be a significant effect in cutting income taxes at permanently for those folks in those income brackets -- $50,000, $60,000. and it would certainly be for those folks making $35,000 as well.

>> as you know, senator, we have not attempted to analyze the many economic effects that would arise of the sort that you have developed. by you are right, reductions in taxes for households, especially as revered as permanent reductions, would -- especially as we viewed as permanent reductions, would tend to translate to more spending. that is why we expect increases in aid to the unemployed would have been particularly large paying for the buck. of course, we would have to keep track of all of the aspects of your proposal to see how that would net out. baton -- but what you described is one that could serve they take effect. >> i appreciate that, and i think that is a fair comment. part of the reason i asked --

and you are right. when you look at comprehensive tax reform, you have to look at all the pieces of the puzzle. this is something that has not gotten much discussion in the overall debate about tax reform. part of it, i guess, would be my fault because i probably ought to be mentioning it more often. every time this topic comes up. but it has not been particularly controversial. but i do hope in light of your answer and what you say in outlining the options there on page 26, that people see this is an opportunity for real stimulus that would not raise the deficit, number one, but would generate more revenue, which as you know is something that your companion organization tax on to

the legislation that i offered. any sense of what families making $60,000 would do in terms of their purchases if their taxes were cut in the vicinity of what i'm talking about, 50%? my sense is that they would go out to and make those kinds of consumer purchases, consumer durables that would have a big economic multiplier. let's analyze this in the terms of what you have looked at, which is largely with the lower income brackets, a bit lower than i am talking about. let's say, $30,000. but doesn't the evidence showed that they go out and make purchases of things like consumer durables, which are a good multiplier? >> doing large-scale purchases depends on their expectations

going forward. based on your proposal, that these are permanent features, that would amplify the effects on their large-scale purchases. and in general, as we have said many times, and as many members of the committee has said, the uncertainty of what people will face, what fiscal policies there may be, what benefits might be cut, that is the uncertainty facing households and deterring their spending. the largest uncertainty that people face is their future incomes. but the concern about government policy is important, and the extent to which that can be resolved through any actions of the congress, or produced through actions of the congress, we think that would be good for the -- reduced through the actions of the congress, we

think that would be good for the economy. >> i think individuals, much like businesses, are in the general mode of being cautious. they do not know what is going to happen. a look at yet another proposal that is temporary in nature. i have had people come up to me and say, these temporary ideas, what is going to happen when you are done with your temporary ideas is that everyone will go back to fighting. and they see the economy now building up a restrained -- a sustained recovery. i think the point you bring up need to bring logia a -- ring loudly in this debate about tax reform. i think having this as permanent tax reform, in effect, putting off 50% of what households make, whether they are making $30,000 up to $70,000 is a chance to

change behavior in the marketplace. people will see it is not just a temporary proposition. i think this is very helpful. i will try to get your message to the super committee. and i will try to highlight this as we go into the last days debating the opportunity for the super committee to pass pro- growth of reform that could kick in with the exact timetable that you report. >> i want to thank the senator from oregon. i want to say publicly that the senator from oregon is one of the most constructive members in the body and i appreciate the extraordinary amount of work that the senator has put out on the major controversies and challenges facing the country, whether it is tax policy, health care policy, trade policy.

it really is quite extraordinary that the senator who does not have the staff of the chairman of the committee has put out very significant plans in a bipartisan way that are really well trott -- well thought through. i just want to say that the senator deserves all of our commendation for producing really solid work, and big amounts of it. senator? >> thank you, mr. chair, and thank you, mr. elmendorf. i appreciate the work here to out-analyze the strategies for increasing economic growth and employment. i was looking through to see if there were any specific analyses in addressing the retrofit.

i do not think there is any here. i looked at a strategy for creating jobs and i thought they were at the top of the list. there is a long time read that you have for infrastructure, the construction is flat on its back and ready to be put back to work, that virtually all of the materials that are necessary for energy-saving retrofits are manufactured in the u.s., so there is extraordinarily low leakage. i thought all of this was a analysis that was behind cbo's analysis of this piece of the puzzle. i did not see that in here. maybe i am this-remembering -- mis-remembering that as a

strategy. hazmat cbo looked at that issue? >> i do not remember -- has cbo looked at that issue? >> i do not remember looking at that. but the factors you described are important factors in this analysis. whether the workers are available, the extent to which certain sorts of products are imported or not can matter. the factors that you described sound like the sort of analysis that we do, but i do not remember that particular piece. >> ok, thank you. if the cbo has not analyzed that, my request in whatever fashion is necessary that you take a look at that. because it is certainly -- we're looking for specific strategies that maximize the bang for the in terms of job creation

and i would like to know if that is a strong, cost-effective strategy. let me go on to a macroeconomics concern that i have. this is and less about the things we can do in the next year or the year after that it is about trends over the past decade and what might possibly happen over the next 10 years. what i see happening in oregon is a tremendous amount of jobs going overseas. a piece of this is, whereas we envisioned china coming in and the wto would increase barack ability to sell products to -- would increase our ability to sell products to a growing middle class in china, we did not account for a growing experts that would compete strongly and in some cases undermined american manufacturing, ranging from currency to direct loans and grants and subsidized loans and

a subsidized utilities and so forth. we have a tremendous amount of the chemistry that has shut down across the country -- of industry that has shut down across the country. combine that with computer- controlled robots, if you will, for building things. i was fascinated to go to a shop that makes knives in oregon. in some cases, you have people feeding the blade into a machine. in other cases, you have a mechanical arm bolted to the floor that is picking up a blade and grinding it in a bunch of different ways and dropping it into a bucket. no human involved at all. as that technology becomes cheaper, it poses a fundamental question, which is, when you have machines that increase productivity by a factor of 5% or 10%, a gradual changes, then

wages went up in the post-world war ii timeframe. but when machines completely begin to replace the worker, it fundamentally changes whether or not there are jobs that create a living wage opportunity for american families. combining the loss of jobs to china and the loss of jobs to not just enhancement of productivity, but full replacement of workers, poses challenges to us in how we have living-wage jobs. i wanted to throw that out there. i realize you were doing more but how this might feed into the longer-term. >> as you said, in general, automation has raised productivity in a way that has greatly enhanced at the american standard of living. but it is also true that certain

sorts of changes can change the distribution of output in a way that may take it away from some people and give it to others, essentially. in fact, the leading explanation fothat economists offer for the widening of in comes through much of the distribution of over the past several decades is a shift in technology that have benefited certain people and disadvantaged others. those sorts of long-term trends pose a very large challenge for public policy. if you are interested in ensuring that the distribution of the economic pie happens in a certain way, if you are interested in assuring certain people can make a living, even if certain skills they have are no longer demanded by businesses, that is a very

difficult problem to address. in addition to the work we do on short-term economic issues, we have to address long-term economic challenges as well. the u.s. spends are rather small share of its gdp on retraining workers and relative to many countries in europe, for example. at the same time, evidence on the effectiveness of these retraining programs suggest that not all of them worked very well. it is not a magic bullet. i do not think the analytic community has a magic bullet to offer you. -- house to offer you a magic bullet. but that does not diminish the significance of what you are saying. inre talking about more work

education and training, and that is one way that one could proceed. also, one could change tax policy to raise money from certain people and not from others, as your colleagues sought to do. there are various ways, but i do not think any of them are straightforward. >> i would like to see working families purchase homes now when the prices are low and when the interest rates are at historic lows, helping to absorb this huge surplus of housing that we have and to empower a new generation of homeowners. any thoughts on this? oh, i'm out of time. >> we have been giving everybody a and additional bit of time. we have been giving everybody a couple of minutes over the time. >> thank you, mr. sherer. -- mr. chairman. >> you raised another issue that

is not very straightforward for me. in the housing boom, some people ended up being able to borrow money to buy houses that they could not sustain the ownership of, that they could not sustain payments on their mortgages. some of that is because of economic problems and the loss of jobs and income that ensued. but some of that, most analysts think, was excessive exuberance in buying houses and borrow money that was just too much of a stretch for some people. there is a widespread view that the standards for who will be able to borrow so much money against the house will be tougher going forward than they were during the boom years. at the moment, they even seem to be tougher than they were before the bone, and analysts worry about that. an administration efforts to work with fannie mae and freddie

mac, partly to insure that the standards in mortgage lending are not higher now than they were in what looks to be a reasonable and stable time frame before the boom. beyond that, there are other policies that you and your colleagues could consider to help homeowners in general, or to help potential homeowners in a more targeted way. >> i will be quick in my response to allow my colleague to get into his questions. i do think that i would emphasize less the exuberance factor than the predatory factor. when ordinary working families went to the originator and the originator was being paid undisclosed bonuses, or kickbacks, to steer them into subprime loans, that was a big problem. when the originator was filling out the loan amount and it was a

liar loan, that was a problem. the when there was a pre penalty and the home water did not understand because they trusted their originator that meant they could not get out of this predatory loan without paying into a huge share of the house, a pound of flesh, if you will, we have ended all of those practices that should not have been allowed in the first place. but i am concerned about throwing the baby out with the bathwater. i would attribute most of the bubble to the low-cost teaser rates that started in 2003. you could almost track the growth of those loans with the growth of the bubble. we do spend about $100 billion a year on interest subsidies. very little of that goes to working families, very little. indeed, because the deduction is higher in the interest cost than an ordinary family in the home. in addition to that, shouldn't we be doing matching down payment grants for folks who can

seize this opportunity and whose income does allow them to take a vantage of these lower interest rates read then having them sit empty? that little bit of money, $2 billion to $3 billion that we are spending compared to home mortgages, would be a huge help with the factors in helping with the restoration rates of our children in high school, reducing the non-public assistance and so forth. >> i understand the issue, senator, and i do not think we have analyzed the policy, but we can talk about whether we have the tools to do so. >> thank you. >> very thoughtful questions, senator.

that was good. senator quds. >> thank you, mr. chairman. mr. elmendorf, i'm sorry to have missed your testimony earlier. i look forward to reading it in full. there is a topic that we have discussed on the energy committee a number of times. senator bingaman and i sent the cbo office a letter requesting how the cbo scores and use two different instruments, one energy savings, purchase contracts, of which i have some experience in the private sector, and at the public sector at the county level that i was responsible for. something i think both omb and the department of defense are

looking at more closely. i did get a response in july to the first question. i want to thank you that. as i understand it, the cbo continues to view if there is a mandatory expense because when there is a mandatory omb, the budget is viewed as budget neutral because it saves long- term contractual money. i am still awaiting a response and will welcome any insight you can offer today on that. i wanted to signal enthusiasm for working with you, it being november and i understand there are many other pressing concerns. but i am in a state where we are proceeding with a number of technologies where that might be of interest to us.

>> senator, i'm very sorry that we did not respond to that earlier letter of yours completely. i confess that i did not realize it was an outstanding request. i will be sure that when i go back that we are working on it. i'm sorry that it has fallen through the cracks. we will double check and see what happened. on the purchase contract, i know less about it at the moment. how much money is a government saving on balance depends on how the contracts are written. and the second issue that you raised, which is how the estimates work. the issue you're referring to is that the contract itself counts as a cost. the savings can be realized by the government letter to the extent that appropriations actions reduce the funding to purchase power.

those things are kept track of separately but we try and our estimate -- we try where we can to offer an assessment of what the savings would be. but they recognize -- the paygo not refer to category discretions in the same way. we try to provide information on different pieces of the people can see the whole picture. i think we could do that on the purchasing contracts. i do not know the details of a. >> i am relatively new to federal budgeting roles and i am trying to keep my eye on places where there are a broader view and real opportunities for savings but for budgeting

scoring rules we do not receive them. i help identify something where i can contribute a more detailed conversation about that and i would be grateful to learn more about it. i am convinced that long-term federaluld improve prices on technologies. two more questions. on a range of a cumulative effects of policies that you have laid out today, a repatriation scored particularly low. urinalysis for reducing their raid on repatriation of income -- your analysis for the reducing of repatriation and compared -- in common. -- income. would you continue to scored at

up barlow win? >> it the policy could be written in a way that it created additional incentive for referring to invest, then it would have a higher cost effectiveness performance. but i have not thought about if it was feasible to do. the companies that have a lot of earnings overseas not yet repatriated also have a lot of assets in the united states, usually. they are not constrained by having those funds -- by not having those funds available. how what would construct a lot to link -- a law to link that to higher rates of hiring, we could

probably better talk to our colleagues on committees who are much more experienced than we are in that sort of issue. but the reason it gets a low performance by this measure is that we think the companies to bring the money back, it does not change their decision whether to hire an extra worker. if it could be reported in a more reliable way, it would make the policy more effective. >> there is a policy that attempts to do just that. which i have so far not supported out of skepticism about the mechanism and its effectiveness. there is another method used to repatriated tax revenue as a way to fund the infrastructure bank. my core concern is there any way to give the punch ability of funds to demonstrate a

reasonable way that those repatriated profits are being deployed, the court criticism of the previous opportunity? i appreciate that you may have covered this in some detail already. a quick reference to what you might see that three most effective economy strengthening fiscal policy measures that you think could come and bipartisan support. >> it is that last clause. senator, about -- i i am probably the least politically knowledgeable person within 5 miles of this building. all we can do is offer our analysis of what we think is more less effective by this measure. and as we talk about the various criteria about how you can evaluate this criteria, but i cannot apply of criteria of a

political viability of that. >> recognizing that difficulty, earlier today, we announced an introduction of a bill, and one of the many features is extending -- expensing provisions for small businesses. that also scores on a broad range and i may miss the previous testimony. is part of a concern about the range of its effectiveness the duration and the length of the period for an extension? 01-year or a two-year extension of depreciation provisions being less effective than a longer- term extension? >> i would emphasize first the uncertainty, the state of the business cycle. and the low rate of utilization of this capacity. along the cost which would spur

some investment but how much might be limited by the fact that businesses have capital on hand that they are not now using. it is hard to know how much difference that makes. analysis of past variations in this sort of provision of the tax code has reached varying conclusions about how effective these policies have been. i think this is a case of policy where short-term is better than long term. one looks to a permanent change in policy is more effective at altering behavior, but if they view this as a truly temporary measure, that could spur more reaction such as a store with low prices just for this weekend might get customers into the store for just this weekend. it could accelerate the business investment spending, people

doing things next year might do it this year if the policy was in effect. that is complicated, but over the last decade we have policies like this on a number of vacation. -- of occasions. it is less uses 01-time thing and more of the revolving nature of our tax code. -- less as a one-time thing and more of the revolving nature of our tax code. i think the uncertainty we have is not easily addressable due to pad -- particular changes in the provisions and reflects the difficulty of judging how businesses will respond under the circumstances. >> thank you for your testimony. >> excellent question. thank you for your answers, director elmendorf. just on repatriation, there's not much of a mystery, i do not believe, because we have done it. we can now go back and look at

what happened. it is very clear what happened. the 15 companies that were the biggest repay creators -- repatriator to backs,, soda companies, those corporations that count and then -- that accounted for more than half of all the incomes repatriated reduce their income -- their work force by 21,000 jobs after the tax break that was predicated on them creating more jobs in this economy. what they did do, they did not hire people, they laid off people. what they did do is accelerate stock buybacks and increased executive pay 30% a year between 2004 and 2006, and

interestingly enough, the accumulated offshore funds at a faster rate than before the tax break. i just say to my colleagues who are intrigued that this idea, corporations that use offshore tax havens get the largest benefit. after the 2004 tax break, a substantial share of the repatriated funds came from tax havens. boy, is that a surprise. i tell you, if we get in the habit of repeating the repatriation gimmicks every few years, what incentive does that provide companies? about as clear as it can be. it is a huge incentive to take jobs overseas. take jobs overseas, safe and secure in the knowledge that

congress will answer the siren's song to allow these repatriated holidays, bring the money back, at a fraction of the normal tax rate -- talking as low as 5%, 5.25%, instead of the statutory rate of 35%, and that they will be able to convince congress that if you just allow us to do with this one time, home oil -- only maybe we will do it again in a few years, then we will bring this money back at a fraction of the normal tax rate, just-in-time to lay off some more people and increase executive pay and have some more stock buybacks. my goodness. i mean, fool me once, fool me twice, fool me three times. at some point, shame on us. for buying the siren's song. but of all the things i have

seen -- and by the way, we talk about being worried about the deficit? the joint committee on taxation said it will cost the treasury $79 billion over 10 years. so it adds to the deficit, it adds to the dead, the companies to repatriate our very concentrated in tax haven countries, and they bring the money back and lay off people. there is a brilliant game. had to the debt, have further job loss, create additional incentives for companies to move jobs overseas, so that they can set themselves up for that as repatriation holiday in which they come back here at a fraction of the normal tax rate. my goodness. i hope we do not fall without one again. i think the director. >> thank you, mr. chairman.

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but next on c-span >>, from the wall street journal ceo council, interviews with the co-chairman of the commission on fiscal responsibility and reform, if erskine bowles and alan simpson. and then the white house budget director jack lew. a look of the global economy with mitt romney's economic adviser glenn hubbard and former treasury secretary lawrence summers. gen>> the ceo's of fannie mae ad freddie mac testify tomorrow on executive bonus. live coverage of the house oversight hearing begins at 10:00 a.m. eastern on c-span3

and c-span -- c-span.org. >> the c-span.org home page is now easier to use. the newly designed page features 11 video choices, making it easier for you to watch today's events, live and recorded. there's a section to access our popular programs like "washington journal," book tv, american history tv, and "the contenders." we have added in a handy channel finder so that you can find where to watch our channels on cable, radio, and satellite systems across the country. at the all-new c-span.org. >> the supreme court will consider challenges to the federal health care law and have decided to hear 5.5 hours of oral argument in the case. c-span has requested to broadcast the proceedings live, something the high court has never allowed. you can read our letter to chief justice john roberts on our

website, c-span.org. >> erskine bowles and alan simpson were interviewed at the annual meeting of the wall street journal ceo council to talk about government spending and the federal deficit. if we will also hear interviews with jack lew, former treasury secretary larry summers, and house budget committee chairman paul ryan. this is just over two hours. >> we will talk about the pocketbook and its condition. i am wondering, given the dimension of this problem, if we could take a minute to do all laying of the landscape and then address what is on the mind of the ceo group. every year i've talked to the ceo's and inevitably the discussion of uncertainty about the future comes up. we do not know what the

regulatory structure will be, but tax structure, and so we cannot make business decisions. if you ask about hiring, that is one of the fundamental problems. at root is our fiscal well-being in this country. i am wondering, erskine bowles, if you can start us off with the dimension of the issue now for folks who may not have spent the last five minutes reading the newspaper and whether or not you think that the super committee is actually going to have the political will to do something about it. >> shore. good morning. if you have not blown up yet, you're about to get ready to. [laughter] >> ♪ >> like you, i am a business guy and makes me sick. [laughter] i think we're facing the most predictable economic crisis in history. i think it is as clear as the

nose on my face. i know that the fiscal path they are on here in washington is not sustainable. worse yet, i know every member of that fiscal commission knows it too. the economics are very clear, the politics is very difficult, and someone asked me the other day, to give them an analogy. i said, yes, these deficits are like cancer. they are simply over time going to destroy the country within. i will give you a simple arithmetic. then you can draw your own conclusions based on your own company. if you take 100% of revenues that came into the country last year, not 20 years ago or 20 years from now, came in last year, every single time of it was consumed by are mandatory spending and interest on the debt. mandatory spending in english is

basically the entitlement programs, medicare, medicaid, and social security. that means every single dollar we spent last year on these two wars, on national defense, homeland security, education, infrastructure, high value-added research, every single dollar was borrowed and half of it was borrowed from foreign countries. that is a formula for failure in anybody's book. we did nothing but just take the hostage terry and stick our heads in the ground or do very little -- the ostrich theory and stick our heads in the ground are do very little. this is not a problem that we can sell in grow our way out of. we could have double-digit growth for decades and not solve this problem. it is not a problem that we can solely tax our way out of.

if there is another democrat in here, and there is usually one r two. [laughter] i can tell you, you cannot tax your way out of it. raising taxes does not do a dern thing to change the demographics of the country and health care growing at a faster rate than gdp. we cannot simply cut our way out of the problem. i think that has become pretty clear as they have gone through this last debate. that is why alan and i came up with a balanced and what i think is responsible, reasonable plan that takes $4 trillion out of the deficit, $1 trillion from the revenue, and $3 trillion from spending, so we do not get caught in one of those deals back in the 1980's. and we have a supermajority vote for it. we got a majority of republicans and a majority of democrats. we had six u.s. senators on our

commission, 5 voting yes, all three republicans. and two of the three democrats. the vote was as the spurs from the far left purging -- as disperse from the far left to the far right. we built it around six basic principles. but the first principle is simple. we did not want to do anything that disrupted a very fragile economic recovery. i do not think there is any doubt that this recovery was pretty fragile. today, where are we? obviously what alan and i want this group to do is to go dig, to be smart and bold, and i am not sure that they're going to do any of those three. the reason we came up with a $4 trillion is not because the no.

4 we thought was a great number. $4 trillion is not the maximum amount we need to reduce the deficit. it is the minimum amount we need to reduce the deficit in order to stabilize the debt and get it on a downward path to gdp. if they end up just doing $1.2 trillion, i guarantee we will be back in this game as early as next year. we hope they will solve the problem. my best guess is that the probability is very low that they will. >> alan simpson, if $1.2 trillion is not enough, my guess is that you two wonder if they will even get to that at this stage. is that a fair characterization? >> first, i want to reflect on that thing before the last panel started. the work fiscal looks like --

right down there. all these great things were said and i found that fascinating. we do not use charts. we do not use powerpoint. we speak all over the country together. this is a magnificent man. if you spend more than you earn, you lose your butt. if you spend a buck and spend -- and or 40 cents of it, you worst to bed. doing that today and tomorrow and the next day, you have got to be dull. and that is where we are. why is it not moving? what is happening? the $4 trillion is an absolute -- we thought it would be something they could swallow. we thought we could restore the solvency of social security without balancing the budget on

the backs of poor old singers. stick your finger down the throat the next time you hear that baby. we protect social security for its own sake. we cannot raise the retirement age to 68 by the 2050. we cannot change the co to thela change -- we cannot change the cola to the chained cpi. you have seen the ads from the aarp, they are savage eds. they point the finger. and they are impossible. and in grover norquist wanders the road -- wanders the earth with his white robe on. i tell you, it is not funny. because grover norquist has 95% of those republicans and says to them, don't you raise taxes one shred unless you reduce.

so coburn stix and the thing to get rid of ethanol, 6 billion bucks, it passes, and grover calls it a tax increase. that is ludicrous and deceptive. he is going to ask them to deliver. i think this disappoints both of us. what can he do to you? he cannot murder you. he cannot burn your house. the only thing he can do to you is that beat you for reelection. if that means more to you a date and your company in extremity, then you should not be in congress. -- if that means more to you than your country in extremity, then you should not be in congress. >> [applause] november 23 comes along, there is an all-schneider beforehand if there is any sort of history playing out again, and i say we do not get a deal. and the triggers fire off. $1.2 in trillion comes out of

defense and discretionary spending. is that an acceptable, painful resolution? >> no one will get blamed for because the election will be over. it only takes place in 2013. if he really gets up, they would just going to session and take the sequestration away. all they have to do is let just chile -- legislate -- -- or rethink the defense portion of the trigger. >> it will be a tragedy to do that. i say let leon panetta alone. i've known him for 40 years and he will do it with a scalpel. he is dealing with health care system that is $470 of your premium? $470 a year for military retirees? i was in the military. 2.2 million of them in a cost

that much? bob gates, what the he is al? l he said, you take them on. i have to take on the professional veterans. the reason things are so hot now is that we were so specific. we knew the interest groups would tear up if they ever thought this goofy thing would work. they laughed at first and now they are thinking, man, here we come. here comes the whole mortgage in the insurance industry and blue cross, all of those tax expenditures are trillions. $100 billion a year and they are only used by 6% of the american people. the little guy never heard of half of them. >> you would have loved it when we went to see gates. we were talking about these things and the defense department that we could cut. we got around to contractors. [laughter]

i said, how many contractors view actually have? and they all huddled up and came back a few minutes later, we got somewhere between 1,000,010 million. that is a narrow range. but that is the of -- 1 million and 10 million. that is a narrow range. i'm afraid the american people will think it solves a problem and it certainly does not. worse yet, as you are intimating, john, we're going to go to the sequester process. the cuts are basically $600 billion in defense and 600 billions in non-defense with a few exceptions of to decide. -- off to the side. if we only do the $1.2 jury in, most people will look at us and decide the debt and a full the s

-- default fiasco that we went through in the summer, this proves that these guys cannot govern. if they put the sequestered and and then they turn around and try to figure out the but the sequestered, because as allen said, because to not go into effect until 2013, then i think you can see some really negative effects in the marketplace. >> you're saying before we came on that the various groups that you have spoken with have said please save us from ourselves. we're looking for some outside divine intervention to untangle the political seizure that we are in. can you describe that a little bit more? you mentioned a a r p and various interest groups. why is that? why is that so on movable this time around. and second, what can this group do to help the process? who needs to be given some

backbone? >> if was not the groups we were surprised that so that, because we spent 10 months on the campus here -- i college campus, because there are a lot of students there. -- i call it a campus because there's a lot of students there. that would come up to us as they go out to roll call votes, democrats and republicans, saying, save us from ourselves. these are good people in both parties. they are frozen in place. they are frozen in place by a system -- and we did not spend any time on how we got there, but let me tell you about that. we were sent to congress to bring home the bacon. we were sent to get the tax code change. we were sent to get this and that. this gimmick, that gimmick, this grant, this railroad, this whatever. and if you did not do that, you were not reelected. now they are caught.

the pig is dead. there is no bacon to bring home. they cannot leading gay guys on the appropriations committee -- they cannot even get guys on the appropriations committee. the power of comte brain -- of campaign contributions is reached its ultimate point review help the guy with the primary, maxed out on on the generals, and at the end of the day, he came in and said, we never bought you, we just love you. that is how we do this so gingerly at all times. but now, when they see what could happen to them, they are in that congressperson's office, saying we never ask you for thing, buster, but this is it. we go down the pike if we lose this tax expenditure and you're going to deliver. i do not mean that in the form of retribution a bribery, forget that. it is called washington reality. and that is what is out there right now.

>> these guys are absolutely understand the need to do something and the need to do something now. and do it in a smart way. it is the politics that keeps them from doing something smart. you know, i spent my life in the business world. we really do need your help. and the problem you all have is not too different from the problems that the members of congress have. as i talk to -- alan and i both together talked to thousands of business leaders from the chamber to hear, and all of you had your individual thing appeared that you are worried about. you have your issue, your sacred cow. by god, someone like us talk and you get it. you know that these guys have to

really cut spending and they have got to reform the tax code. whenever a form a task code, they have to get rid of some of this back door spending in the tax code. things called tax expenditures. so you get charged up and you say you are going to help on that. and then you go back and talk you're washing guy, and they say, wait a minute. we've got this big issue and if we do this this guy would get mad at us. you can be for it in the general but do not do anything specific. so the business community really does need to step up. if you think this is really important. alan and i happen to think it is one of the most critical issues the nation faces today. i do not care if you are liberal or conservative. this is going to bite us all. the one thing we did fine as we went through this process is the more comprehensive we made it, the more people we got to support it. no one wanted their own office

to be gored. ox they said, if everyone's is going to be gored, then everyone is being asked to sacrifice somewhere. so we were able to get a broad coalition of people to come on board, because they saw that we were doing it for the country and everyone would pay a price because as a nation we had promised more than we could deliver. >> we have half a minute before good questions. but make sure that i'm clear on the answer -- what is going to happen, november 23? no deal, a deal? >> in my opinion, there is a 10% chance that they will go big. that is about 9% higher than anyone else in town gives it. [laughter] all they have to do is get a simple majority. we had to get a supermajority

and we got it. i think the politics has changed some since last december. because of what is going on in europe, because of that old debt default fiasco in the summer, i think more people understand the problem in the polls show that. and last, we have this hammer that makes these across-the- board cuts. and as you know, across-the- board cuts are never the way to get any budget under control. we have about a 10% chance to go big. doing about $4 trillion over 10 years. probably a 25% chance that they will actually come up with a real cuts that add up to $1.2 trillion for $1.5 trillion, which is their mandate. hopefully they will not all the gimmicks. that leaves about a 50% probability that they will not

do anything. it would just completely failed. >> allen. -- alan. remind that you can submit questions on your thinkpad. no as well as anybody that this cannot be solved by committee. it ultimately requires leadership. it is a dismal view of the state of our leadership at the moment. what are the chances that after the election you have the leadership and the political will in place to really tackle this in a serious way. >> i think after the election, the people who have been hiding and do not have the guts or courage to come forward when their country demands their leadership and their congressional leadership, i think in the elections some of those people will be defeated instead of allotted to the high heavens that you did not cut

social security, you did not touch the fence, you did not touch medicare, if you did not touch medicaid, and we love you for that while the country sinks. forget obamacare. colin l. this press late care, i don't care, it cannot possibly work. you know that in your heart. the honeywell ceo was on our commission and got up after six months and said who are you people? it's just stupid. but the problem is that politicians think that business people are stupid and business people think politicians are stupid. that is a real thing. i did not answer your question but i got a lot off my chest. [laughter] >> if if you look at the forecast, you would die. again, you can imagine what's $1 trillion does to the contras

operating balance statements. if you put a balance sheet and one side and an end, she and the other side, they could not tell you which is different. most of them, you can see what the results are. the current path is not sustainable. the markets are not going to let it go forward. as soon as the markets get their eyes of europe and refocus back on the u.s., i think you will see a real reaction. i think it will be a crisis and it will force these guys to it. >> how did you describe our country, as a horse? >> selwyn ask why interest rates were so low, because we were the best looking horse in the glue factory. >> it will not just an election, it will take a crisis. >> i think will will have a crisis before these guys will act. i hope they will light now.

i hope it will act next year and right after the election. but again, in 1997, i negotiated a balanced budget between president clinton and gingrich and lo steelt websitet. wanted to get a deal done and they were ready to put their partisanship aside and there was severe partisanship then, and they work toward a common goal of getting a balanced budget. but it takes up the leadership of both parties to get behind it. without the megaphone of the president who has been largely absent, it is really tough. >> question right over here. >> good morning, bob reynolds from popular investments. you're a presidential commission. you deliver your report in december.

how surprised were you that your commission gave the president tremendous coverage to do something and it was not even mentioned in the state of the union? and i like to hear your reaction. i thought was an unbelievable opportunity for him to really take control of this problem. >> if you think your surprise, you should have looked at us. as i said, and the [laughter] gushy headed the budget for president clinton. -- as i said, i negotiated the budget for president clinton. i knew what success was so i could go in there and negotiate the deal. i did not know president obama. neither did allen. we spent a tremendous amount of time up front with him and his economic team defining success. we did not want to come back with a plan that was here and they were here and the plan

would fall apart. it does not do anybody any good. we negotiated a deal that got a majority of republicans to vote for it, we had plenty of cover on the other side, that exceeded every single one of the goals that he gave us. so i fully expected them to grab hold of it and say that is great. though i like clinton, i created this, it is wonderful. -- go out like clinton, i created this, this is wonderful. [laughter] like every white house, there is a small, all of people that surround the president that he -- small cabal of people that surround the president that he trusts. they thought that it would be

smart for him to wait and let paul ryan go first. we fully expected in the state of the union when he mentioned the stimulus that that would be a great time to say, not only are we going to do this to get the economy moving forward, but we have to do this in the context of long-term fiscal reform and responsibility. he did not. we were sure that it was going to be in the state of the union. if you remember, he talked about the real need for this country to invest in education and infrastructure and high-value research to compete in a political economy. he was right about this. but he left off doing it in a fiscally responsible way. limited resources main choices and priorities. >> the terrible irony is that the mandatory programs are eating a whole for those programs. they are on automatic pilot. they cannot be stopped. i mean, medicare is on automatic

pilot. and medicaid and these things, and every day that they get deeper in their train wreck, if it takes it out of the things that he is speaking out. these things will disappear, get squeezed out. >> i spoke to the president of the university of north carolina. the money that we spend on k-12 is not up to international standards by any stretch of the imagination. we wanted to do our part to do a solution. we wanted more teachers and better teachers, more math and science teachers, and i said, are there some federal programs to do this were to mark this said, yes. let's look at it. >> 82 federal programs. do we need 82? hell, now. these guys when we were doing as, this would be a great nobel

prize winning scientist, when his nobel project was running out of money and he turned to his team and said, we're running out of money. now we have to start thinking. [laughter] that is what america is. we're running out of money and we have to start thinking and use our money more wisely. just like you do, you have to spend your money more wisely. >> question, comment? >> there is one thing that is very difficult and that is the word trillion. no one understands what a trillion is. a trillion is 1000 billion. if you really want to know that is -- what that is, the big bang theory of the universe was 13 billion years ago. we 016 of those babies.

-- owe 16 of those babies. the unfunded liability of the united states and all programs is $63 trillion. what we have these deficits? we always say, what you all think? i swear, we get the same core answer for tempered people say, is waste, fraud, and abuse. it is far and aid. -- foreign and oils a city'sid nancy pelosi's airplane. those other little things. the first thing is health care. we spend twice as much as any other developed country on health care, whether as a percentage of gdp or on a per- capita basis. and unfortunately, while we

spend twice as much as any other country, how outcomes are not as good. we rank between 25th and 50th on things like infant mortality your life expectancy or preventable death. so health care is number one. we have to get the cost of health care under control. secondly, defense. we spend more than the next 14 largest countries combined on the fence. -- defense. that is causing us to hollow out the rest of what we're doing in this country. we're not making the appropriate investment in education or research. it is not even making common sense. we have this treaty with taiwan that we will protect thai one of their invaded by a chinese. there's only one problem with that. we have to borrow the money from china to do it.

[laughter] it's crazy what we do. listen, the third reason is, it would give away half of our revenue in the form of back door spending in the tax code. the plan we put ford, we said, look, let's get rid of all of the tax expenditures. 100% of them. to's use 92% of the money reduce income tax rates and 8% of the money to reduce the deficit. if you do that, you can reduce the deficit by about $100 billion a year for 10 years, so about $1 trillion, and you can take marginal rates to 8%, up to $70,000, 40% of to $210,000, and have a maximum rate of 23%.

and you can take the corporate rate to 26% and you can pay for a territorial system so that we can take that up to $2 trillion captured overseas and bring it back to this country to bring -- to create jobs over here. i think that would have real dynamic growth. our tax code is the third reason. and the fourth reason is interest on the dead. i know you guys understand the power of interest. when interest rates go back up and we get downgraded again, it will hit us like something you've never seen. and that $1 trillion i talked about in 2020 of interest on the debt, it will not even come close. >> when that tipping point comes, markets will decided. one not be anyone with a chart from the white house of the congress. markets will decide when that comes. an interest rate creeps, guess who gets hurt most? the little guy, the most

vulnerable people in society that people talk about and babble about all day long around this place. >> that is a perfect example. we talk so much about trying to make social security sustainable. i am a democrat. i thought democrats were supposed to be for something that would actually be up the pavement to the little guy. and we did that, we took the minimum payment to 125% of poverty. that costs money. we get a bump in every economist told us that is when people's personal savings or now. and we made the -- we were the devils, right? we made a grave mistake by retiring -- raising the retirement age according to the aarp. we raised it one year, 40 years from now. we want to get -- give people a

chance to get ready. [laughter] but we did get the rate of growth, we slowed it down. we increase the pavement for the people at the bottom. -- the payment for the people of the bottom. the people attacking us are the aarp you're supposed to be protecting these people. >> then when you reduce the payroll tax to stimulate the economy, guess what system goes further into insolvency? social security. >> i hate to interrupt this presentation. thank you very much for your time. [applause]

>> for those of you do not know, he literally just walked into the door. so you missed the simpson-bowles or show, but you're in the middle of it. now showing that you are a brave man, you agree to respond to it. if you did not agree, that is what you are going to have to do. let me start with what the crew just heard from those guys, and you have probably heard a variation of their presentation before. they say things about the federal deficit like unsustainable path, broken process, and ability to get to the heart of the problem, and erskine at one point said we will have a crisis before those guys figure it out. by those guys, i think the man everybody in this town. you, cant by asking you offer a more optimistic

scenario than that? >> if is not hard to be more optimistic than that. i think they did an enormously public service this year in bringing their commission along to a set of bipartisan recommendations. while it did not get the job done, it helped shape the debate and in a lot of ways, we've all been working in a world shaped by the work that they did. i have to be more optimistic than that. i've said this a lot of the last 10 days. it is a parlor sport in washington, calling process is dead before they had their final chance. i've never seen something that complicated done before the last minute in washington. so the next few days are critical. i will not sit here and say that it is not% likely that a big deal comes out of the super committee. but i think it has been written off prematurely. let me take a step back and then

i stepped forward to frame it. if you look at the negotiations that went on the summer, the president and the speaker were this close to a really historic agreement. one could take the depressing view that it fell apart, therefore nothing can happen, or that they started to show way toward working together. but working together is ultimately this week or sometime in the future going to be a balanced package, as the bowles- simpson commission did to put revenue and spending cuts on the table, big enough to get something done, that inspires confidence. it is not going to be done in a lopsided way. over the summer, president obama was willing to do things which were quite painful from the perspective of the democratic presidents. it was willing to enter unchanged changes in the coal -- he was willing to entertain changes in: and payments for

various services that there are no payments for medicare. at the end of the day, we had all wall in july and august, and another story has been told it somehow the president raised the bar. i think we had a wall because ultimately republicans in the house were unwilling to accept revenues as part of the package. if you look at where we were in the summer to now, we put our views before the super committee in a quite comprehensive package at the president sent them in september. they are now struggling with the same thing we were struggling with in july. what is the balance between mandatory entitlement savings and revenues savings that is fair and balanced and protect those who are at the most unfortunate position in life? and i am not sure what the outcome will be this week. i think if one can read in the tea leaves, they are struggling to get to revenue number that is

large enough to have democrats move forward with serious and common changes, and it is still not care whether they can sell that in the republican process. >> you are describing the situation in which a deficit reduction plan up $4 trillion over the next decade in the summer was unsustainable. now we're back up few months later to talk about whether a reduction deficit plan of a $1.2 trillion is even achievable. that sounds like it is walking backwards. >> let's remember what we did over the summer. over the course of the negotiations, we did not accomplish $4 trillion as we hoped. we did like emplace $1 trillion of savings in discretionary spending, the annual appropriation. if someone is putting together a 2013 budget, those caps have real meaning. the measure of doing well and an agency will go from did i grow or did i get frozen at last

year's level? frozen will be the new high one. -- i w closeon of by. billion dollars in savings and the defense. these are serious tradeoffs. we have made clear we think the sequestered, work that happen on defense, would not be a good thing. that should not erase the thing that there are $1 trillion in savings. >> are you arguing -- >> the target for this committee is to get from one $1 trillion to another $1.2 trade and. i think this committee and members of the committee are going back and forth as we did over the summer and in an odd way, it is easier to go bigger than smaller.

if you're picking just a few sacred cows, it is very hard. everyone in it together, it gets easier. i am not sure what number they are shooting for. in some ways, they may get a slightly larger number. they may not succeed at all, but and make it a larger number rather than a smaller number. >> and a desire to inject some optimism here, are you suggesting in its own messy way washington has turned on the spending debate? the significance of the discussion is not whether to cut the spending, but how much and how soon and how fast? >> i think we have started. most americans do not realize that we have already started. it is not reasonable to say the goal was $4 trillion. we did $1 trillion and then we got up for an accomplice. -- then we got nothing accomplished. getting more than half way there

would be a very important step. i have been rooting for success in the super committee. i think it would be hugely important for the country and for confidence, both to get the politics accomplished and to show that washington can work. it was a very bad day to have a display of dysfunction in washington. if you compare the united states to europe, look at the rating agencies have said. we do not have an immediate economic crisis in our deficit. we have a problem that we can see staring us clearly in the face, just a few years down the road. we have time to deal with it. the reason the downgrade happened was not because we did not implement immediate cuts. it was because the rating agency as the american people did, saw washington that was dysfunctional. i think breaking through that would be as important as the economic accomplishments.

>> the cynical view of the process at the moment is that the white house would be more than happy to see failure, because it sets up an election year dynamic of a president who wants to do the right thing against republicans in congress who will not budge. >> i think we i think we have ce debate. a very small number of extreme members of congress were able to hold everyone and the -- at the edge of a cliff. would we be willing to default or would we give in to what were the kinds of policy changes that with an even distribution were unacceptable? we said no to that for a good reason. you cannot deal on those terms. you cannot capitulate. we are not in that situation

right now. the reason it was important for the world for us to get agreement on the debt limit is recreated a window of time to have a more civil debate. i think there has been that kind of conversation. they are struggling. these are hard decisions. to turn it into a political issue is a mistake. it would be better to be done sooner rather than later. it has to be done right. it has to meet the same standards. is everyone being asked to do their part? get something meaningful done. >> you prefer success to failure. you being the obama administration. >> we have been routine for success. we have been trying to strike a balance. this is something congress set up. as you were saying, al simpson,

the process is broken. it does not take a majority to get something done. it takes 60 votes to do routine business. it is almost impossible to do difficult things in that environment. this process was set up to critic congress could function. a lot of people have said where is the administration? we sent a document in september with the detail. we went through a negotiation or the whole world saw what the president was willing to do. i do not think there has been a congressional prague -- process with more transparency than this one. we have been giving the committee some room because they are in the best position to get a majority. one of the things they are focusing on is how to balance

short-term actions the economy moving was medium and long term action to get a definitive amount of deficit reduction. that is the right balance. >> one step back. the thing that would be reassuring to the markets and the people would be a deficit- reduction agreement that was a bipartisan and had the consensus behind it that allows it to endure and lasting. when you look at the budget that you have put together, you are projecting a percentage of gdp for government expenditures. you have republicans talking about expenditures the code down to 18%. that is an enormous gap. hundreds of billions of dollars.

is there consensus? >> there is more consensus on what we need to do to stabilize the medium term. there is a strong consensus that if you look at the beginning of the year, $4 trillion would keep the debt and deficits from going into the danger zone. we would have to take more action. this question of government size, it gets very abstract very quickly. i have to bring it back to what is driving the numbers and are you willing to accept policy. i do not think democrats or republicans are willing to accept the consequences. it would mean a massive reductions in the national defence. a massive reduction in social security and medicare beyond

making those programs sound for the next generation. on an abstract level, it would be attractive on the campaign. i would doubt if they would own the consequences of those policies. it would mean ignoring the fact that we have a new generation retiring that is driving up social security and medicare. that is going to happen. they are getting older. the system was designed to pay for that. we need to deal with the shortfall. doing it as a percentage where it pretends these things happen without consequences is a mistake. we need to balance revenue with expenditure but we cannot pretend that we are willing to drop our guard in the world or

eliminate social security and medicare for many of those who need it. >> you think the consensus will be in the 22% range of gdp? >> i think you have a mixture of issues. on the regulatory stage, if we were where we were in the late 1990's where we were balancing the budget, i do not think you'd be hearing this debate. what has happened is you had a tax cut we could not afford. wars we did not pay for. a recession. we need to get back on track can be honest about what it costs to conduct war. we need to be honest in terms of tax cuts. i think that the issues on the

regulatory side are related to the conversation. we have tried -- i do not think it is well known or understood, to take the regulatory process and bring it into a check. we can show the benefits of regulations and have a better record in terms of out when costs than the clinton or bush should ministrations. the president had stopped regulations he thought we could not handle. we had a debate over health-care reform and wall street reform. these issues are inflated. we're not taking a step back from the fact we need to implement those initiatives. that will involve having rules. the sooner the better. the debate is creating uncertainty that is self fulfilling. a delaying action only adds to uncertainty. we should implement it and

settle things down. >> let me ask you one question. you have seen this process for a long time. i am wondering if you think one of the things that is obscured is the fact there may be a consensus on the need for tax reform. is that correct? when the dust settles, is that going to be a realization? >> prior understand to be the conversation, tax reform has been at the core of dealing with revenue, a balanced approach. i think we need reform on its own. we have a system that has gotten out of shape again. every 30 years you need to clean it up. the tax system should not skew

investment or creating disparities of burden that, apart from being unfair, creates a lack of confidence that the tax system is on low level. you end up with confidence in the basic instrumentalities of the public sector. i think we need tax reform. to potentially lower rates and end up with a more progressive tax system. it has to be connected with dealing with the deficit. then we will be back where we started from. >> let's open this up. alan, do you want to start? the lights are tough. let me ask jack on behalf of the group. there is a strong sentiment in

this room, and we heard it again last night, we have heard it over the last three years that this administration is unfriendly to business. does not understand what drives it and what would be necessary to get to these companies to start creating jobs again. i know you have heard this before. you oversee many of the policies on the budget front and the regulatory front. what is your response to that criticism? >> at the core we have overlapping interests. there ought not to be that sense. we know that the key to the economic future is all of the private firms investing in creating jobs. right now you have a situation where washington does not have the resources or the ability to create long-term engine of

economic growth. the private sector is sitting on resources and lacks confidence in the economy to make investments. unlocking the confidence is critical. my own view, and conversations i have had, issues tend to get conflated. if we saw demand going up, i think there would be more confidence. i do not think it is because of the rule making. if it were about will making, there would be more of a sensitivity to the fact that there are many areas where we roll back rules, we have tried to create a lower burden of regulation. thethe latest one was decision to delay the keystone pipeline. >> in the area of energy and

environmental policy, we have been trying to balance our core responsibilities to protect the health and safety of americans and to make sure we are planning ahead while the energy security of united states in a way that gives both halves of the equation the time and space to work get out. if you look at rules, they are a model for how to do rulemaking. we have had the auto industry and some of our biggest critics in the business organizations acknowledge that is a way you ought to deregulation. we have been working hard to do it that way. our record is outstanding compared to the predecessor administrations. the fact that the economy has not picked upper is not because of the regulatory policy. there have been studies on it.

we started this administration with an economy will in a deeper recession. if you look at the pattern of the recovery, it is more similar to other recoveries than not. in a long recovery from a recession, that was something the president inherited. the actions he took, i was not part of that team that was working on that in 2009. i think it is responsible for a significant amount of growth and millions of jobs. our opponents ridiculed it and that is fine but we also have to ask, what would add ripped demand have been like if we had not done the recovery act? would we have had a long recession? when the double dip have been inevitable? there is a lot talks but we are

to be able to continue to grow. the economy is coming back. the regulatory program is more balanced than it is given credit for. we understand the need for there to be a partnership. we also have to ask our friends in the business community the financial crisis put an imperative on the public policy process to respond. wall street would -- reform was necessary. it has to be done right. we cannot be at a place where we look at the past problem and have a government intervention and to save the financial system and not reduce the need for the government to step in. >> a question from one of the

members about tax reform, does fair and balanced mean more than taxing millionaires and billionaires? doesn't class warfare impede the ability? >> i think that the charge of class warfare is overstated. if you looked at what we have said, no one is criticizing people who are wealthy or successful. in the conversations i have with ceos, i have yet to meet a ceo who has argued that the tax rates should stay where they are. maybe some of you have different views. i think it is a broadly held view among the people i have talked to that we should be talking about tax rates. political rhetoric is not the core of what i do. it is hard to talk about fair and balanced going up from where

they were in the bush administration without critics saying it is class warfare. if i can offer everyone in packages that would accomplish meaningful reduction and establish a corporate tax system with lower rates with tax rates that reflected what we can afford, i would give most of the people to sign up to it. i think it is common sense. >> ron, did you have a question? >> i am ron williams. we heard from the panelists about the impact that medicare is having. we also have an introduction of the care act. how d.c. the title of programs

being modified -- do you see the entitlement programs being modified? >> the affordable care act had substantial savings in health care. they were scored in savings from the congressional budget office. i think they were politically validated because in the midterm elections, democrats who voted were accused of cutting medicare. because of the savings. the affordable care act is the largest set of health care savings ever. in addition to the size, it put in place a process that is intended to ban the cost curve. you look at what is driving public's help -- sector health

care spending, it is the same thing in all of your corporate insurance plans. it is the inflation in the health-care system. the public sector is not growing faster than the private sector. we have to address some of the issues in our health-care system if we're not going to get our hands around it. if the only decisions are to say that a poor person does not get care, i do not think that is going to do the job. i used to run the academic hospital. you have to cover it and charge everyone else more. if you look at the affordable care act, it was a systemic change. it is hard and controversial. the supreme court is going to have to decide. it has to be given a chance. if you look at the things the

speaker was negotiating, it was taken on on the provider side and the beneficiary side how to get a balanced package. there was an openness on our part to things that would have been considered heresy. we are going to have to get out of our comfort zone and set some boundaries. we cannot go to a place where we say we're going to start cutting benefits for the poor or disabled or the elderly. we have to bend to the class curve and put more burdens on providers and individuals. that is what the system is willing to do. there has been substantial progress over this year in terms of the debate. i think the negotiations -- >> we are out of time. one more question.

>> i will keep it short. sticking with the deficit reduction plan, if the super committee is not successful next week, to you think it is possible to resurrect simpson and would you recommend that the president take the leadership sense even though -- they would have failed to do something? >> i think the notion -- it is important for the super committee to succeed. i think it would be important to do it now. it is a mistake to think that should they fail, this issue goes away. if you look at the end of the year, there is a perfect storm at the end of 2012. you have an automatic set of cuts that is triggered now that takes effect in january 2013.

i think that is unacceptable. most republicans think in this. and democrats. it was designed to be obnoxious to everyone. it was supposed to focus congress on getting its work done. one of the reasons the super committee is in gaged is because they want to avoid those cuts. another thing happens in january apart from these automatic cuts. that tax cut are set to expire in january 2013. the tax cuts should be permanent. for the top brackets should go away. i do not think there is going to be a strong sense that taxes should go off on all americans. on the contrary. there's pressure on congress to take serious proposal to send

the payroll tax cuts until january 2012. we need to move this year. should it get to the end of 2012, there will be action. if the super committee fails, i'm not sure it is the goal but the consequence of failure is that it will become a political issue. a framed with real consequences at the end, creating a window for action. it is better for that to happen now. i am willing to be optimistic that the risk of being rotten -- written off as a pollyanna. i think there is a lack of desire to fail. i think they may pull something out. >> jack, thank you very much.

[applause] >> i think we are all here. i would like to welcome my guests. there is no better group to have right now. we have spent a lot of time on united states fiscal position. taking a look at european markets, we have the 10-year government bond all at record highs against the german tenure -- 10-year. austria and france, four 0.5%. the first question i have is, what role is the imf's going to play in the european debt

situation? is it really too big to fail? -- italy too big to fail? >> if you are looking for them -- i think that brings the picture. net income is moving in the right direction. we are working closely with european members. we are pushing for comprehensive improvements. we are happy politically that the new government in italy and greece, we're looking forward to working with them. italy is in the g-20.

we are happy and honored to have them. >> the yield is above 7%. that is or greece and portugal got bailed out. >> that is true. they're determined to do cuts and reform. that is all the right direction. they have to act now. implementation. >> larry, is there room? >> i am discouraged by what my friend zhu min said. recognition is the beginning of a solution. the october agreement was ludicrous to suggest that to greece was not going to default. it was impossible to suggest

that the esfs could be leveraged and the kind of arithmetic in the stress test on the banks, if you believe that i have some stuff i would like to sell you. it was the beginning of having a solution to this problem. recognizing the things that have been said before have not been right and have been in denial. if the imf continues to stand with the october framework, it is continuing to perpetuate the denial that has brought us to this point. the great concern here is we have seen major changes in government for greece and italy. we have seen as much commitment to fiscal discipline as we are

likely to see. it is likely to be erosion. the markets are giving a verdict. the prospect, this is not new. every financial crisis there is a moment when people stop worrying about the fundamentals and they start worrying about the other guys and when they're going to flee. we crossed to the point about a week ago. the prospects for success depend on discontinuous change with respect to the nature of the support to prevent panic. we have not seen anything like that yet. perhaps we will from the ecb, the imf, or some coalition of

countries. this is not about road shows about your measures on the deficit. this is about a panic and whether it will be contained. >> i am encouraged by my friend, larry. he is right. this is the starting point but it is a good starting point. finally they are at that moment. confidence is key because we observe that consumers start to change the way they behave. a stable confidence with the new government, we work closely with

them. obviously we are encouraging governors to move as fast as they can. >> i am very worried that the situation learned very few lessons from the u.s. one discussion is what do we do to wall off the prospect of financial crisis? that is about to the esfs and ecb. there is another conversation about initiating plants that provide growth as well as austerity in peripheral europe. both of those conversations need to happen. half measures do not get you halfway there, they make it worse. we learned that in the u.s. >> buying european debt is the only way out, true or false?

>> is the most natural way out. there may be other ways. they have to be mobilized and demonstrated. i thought anyone in the official sector who invested their credibility in the esfs was putting their credibility at a substantial risk. how could anyone suppose that people would a value insurance from a group of officials who were not recognizing there was a default in greece? it is like buying crash insurance from the pilot. it is not a viable mechanism and i think there has been a consistent failure in europe.

it is not like we have never made a mistake like this in the united states but there has been a failure in europe and in the imf to recognize that credibility is something that is crucial. when you speak anyway that is directed at improving confidence by being optimistic, it may work for a time but there is a cost to your credibility. the nation of the -- nature of the assurances have taken a substantial toll. speech wasgarde's a breath of fresh air in terms of identifying reality in this situation in a stark way. i hope that the imf will return to that kind of pattern rather

than into the pattern of expressing confidence with whatever the europeans come up with however flawed the underlying concept is. a sense of they oive crisis? what is the threat here? >> looks, anyone who knows for sure should not be heard seriously on this subject. i say this to you, there is, reading the wall street journal, there seems to be a substantial doubt about the location of the sum of $600 million that was tied uppe at

mf global. it is hard for me to believe that anybody has a a good handle on all of the exposures coming what is happening in europe. we do not know all of the channels of contagion. it is not seen this is an experiment we should be eager to undertake. if financial history teaches us anything, it was a hedge fund with $4.5 million of capital. it was pronounced in the summer 2007 that subprime was only a couple of hundred billion dollars and the market was measured in the trillions. everyone who was walked into a troubled company knows that the

surprises are not neutral. they have a consistent way of being bad. i cannot predict where all of the exposures and links are but it seems to me that the likelihood is that the ramifications will be unfortunate. to take up one other comment, it is sometimes suggested that exposure is complicated. people have had a long time to get ready. this story has been unfolding for a long time. those who favor passivity had a major consideration that people had learned from the experience. therefore it would be ok. they did learn a great deal.

the lessons had to do with accelerating their exits in the face of trouble. i would hesitate to buy into the syllogism that exposures have been run down, therefore it will all be ok. it might be. >> i am always on larry's side. he has a good point. if you're looking for -- there was more on this market to the other side. it is really almost 100 percent pro rated. the european banking system has

lost 800% of their gdp. the risk to the banking system would be a global issue. the leveraging -- deleveraging has some costs already. it is a pretty serious issue. the whole world should work together to help europe and to push them as will to solve the issues. >> i want to give glenn a chance. you are an adviser to mitt romney. most people were watching a rerun of ncis. the number of times europe was mentioned was once, maybe twice. we're talking about parallels to 2008.

should mitt romney be more focused on this issue? >> on the european situation, we have some strong suspicions, european banks getting in trouble, money market fund issues, a repeat of 2018 with a nasty downside which is the fiscal ability to offset that is much more attenuated. this is not an experiment we want to find a race to the bottom. i think there is concern among all the major candidates about the global economic situation. governor romney has said this is something we need to have the u.s. engaged in. he has talked about the need for a strong mechanism in europe. >> what is the role here?

we have to fill any void? this is not a situation where we can pinpoint this moment. italian debt became a toxic accept -- asset. >> toxicity changes over time as people's attitudes change. the fed has been the organization most seriously engaged in the european situation. some of that is unfortunate. the fed is walking a line because the treasury has not taken the actions it should have taken. the fed is on the case. >> should the fed to do more? we have the european situation and the question of weak growth in the u.s. as well. there has been some talk if they have been too aggressive or not aggressive enough.

>> that has the dual mandate. the real role of the central bank is low and steady inflation and to be a lender of last resort. the fed has performed well in those tasks. it has politicized itself more than i would think wise by getting involved in regulatory debate. >> larry, do you think it has been too aggressive? >> i'm at a loss. i understand about political pressure. until the last 12 months, it has always been from the populace left. people want easy money. the fed does not give easy money. there is a fight between the political process and to the fed. that is a common theme.

we understand it. what we are living through is inexplicable to me. it is a serious attack on the fed for the access -- access provision of liquidity. if you think it's too easy to get loans, and you think it is doing damage to the economy, that is a natural critique to make with respect to the fed. i see an economy where the growth forecast has been missed every quarter. i see an economy where nobody is clear what the engine of recovery is going to be. it seems if there is a debate about monetary policy, should we be doing more to support growth, not whether doing too little.

i am at a loss. you have proposed radical schemes to bring down interest rates on every mortgage. they may or may not be good ideas but i don't know how you square those with the view that seems to be ubiquitous in your political party that we have a major problem of an active fed providing too much financing to support the economy. >> that is not what i said. i gave the fed high marks. my concern has been -- >> those for whom you advised to not to draw the sharp distinction between regulatory policy and monetary policy. >> let me speak as a glance --

as glenn. we do have an issue a policy can do more. i do not think operation twist is going to be successful. we have to understand that the consumer is over-leverage. -- over-levered. i think that monetary -- monetary policy can do more. i happen to think it is a good idea but the government is not acting. it has pushed the fed into a territory it should not be in. >> is it your view that the government should be pushing to expand the current activities or that the government should be pushing to contract the role of the public sector with respect to the housing market?

how do your views compare with the general run of views that have been expressed in a debate? >> the difference between the serious candidates and the current president is they are and -- focused on short run decisions. the canada -- candidates have said it will give as room to do the things right thing in the short term. the refinancing of mortgages does not require an expansion. if we rotate guaranteed mortgage credit. not something i would have done but we have done. >> let me ask min about asia, underpinning the caution about the outlook for the u.s. is the

slowing in china. how severe is that going to be? >> is nice we are moving away to china. >> an interesting comment. >> china is moving into a softer landing. inflation is down to 5.6%. it is still way high. export growth is high but dropping. it is roughly 4% of gdp. we have 9.2% gdp growth this year and 9% for next year. compared to the chinese growth

is slow but compared to the world, it is very strong growth. obviously china is facing a lot of challenges. the global economic growth is slowing down and china has implemented -- implemented fiscal policy. whether china keeps hold for a while, i think that is the challenge that we have to be careful about, particularly inflation that is high. we will see of china will remain high around 5% in the next few years. the second concern is too strong. last year china had 47.8% of gdp. that is not sustainable.

you have to be careful. if you slow down investment, how you make growth? that will be the second challenge for the chinese government. >> one last question before we open it up, i'm still struck by the speed at which the european debt crisis continues to worsen. and a lack of real options for anyone to do anything about it aside from the european central bank. is there a sense of urgency about dealing with this crisis that is missing? and my overplaying the problem of -- am i overplaying the problem of getting our arms around the situation? >> i wrote in the financial times -- excuse me, an

alternative newspaper. [laughter] about how the best analysis of the vietnam war had established that the way the vietnam war happened was policymakers were presented with three options. if you do nothing, it will collapse. if you do a, b, c, there is a process of success. a and a bit of b, you can avoid disaster in the next month. again and again and again they chose option 3 and eventually the policy collapsed around them. that is the product -- a process we have been witnessing in europe for the last two years. the challenge is to break out of

that kind of approach. pieties about fiscal rectitude have the virtue of being right. there needs to be more fiscal rectitude. one should not confuse actors with sufficiency. they are not sufficient given or the situation has gotten to stabilize the situation. contrast to these financial experiences. the swiss have spent the next to no money and have moved their exchange rate by 10%. they made a commitment. the japanese have spent vast sums and have achieved in negligible movement in their exchange rate. there has been no commitment.

policy has been episodic and with an uncertain future. there is a lesson about the kind of ways you do and do not succeed in solving financial problems. the doctrine about acting with overwhelming force has a resonance in the national security area. something similar is instructive in the financial area. >> that is the point wanted to make. i agree with everything larry said. i'm concerned we do not see the lesson for ourselves. our failure to act, many economists did the math two years ago on greece. i think we have a day of reckoning coming here as well. our leadership needs to be as focused on blending austerity and gross as the sermons we're

giving across the atlantic. >> we have a question for zhu min. you talk about a soft landing but one of the members of the council who knows about the chinese economy asked if there is a possibility of a bubble in real estate. could there be a hard landing there? >> he is a big owner in china. where is the bubble? >> the question was directed for you. [laughter] >> i will give you the answer.

the property price is clear. it has become a problem because affordability is a big issue. things are more expensive than in new york. where there is a bubble, if you're looking for the realtor, 15% are mortgages. the total lending is relatively low. the prices have stabilized. i would say the focus has a lot of issues and has trouble. >> other questions?

>> a question for zhu min, should china increase its contribution to the imf to help europe? >> you had better ask larry. [laughter] >> i will make you this prediction -- china will contribute substantially to any international effort where there are many other contributors and where the situation has all zero -- already been stabilized so it is unlikely that their contribution will be decisive. the best bankers always have a standard rule. they are certain to give you a loan if you do not need it. [laughter] if the situation is not realistic to expect that china will put a large amount of money into a risky european

situation, just as the united states was not willing to put a large amount of money into risky situations in asia. >> you did not ask about whether you would put more funds in the imf. china is the third largest. china also has the members contributing. they can open the bilateral credit line as well. there is a lot of pooling resources. if you hear from the emerging markets, it is clear they are willing to help. china also says they are willing

to lend a helping hand but obviously a lot of details needed to be worked out. >> the probably the only italian passport holder in this room. a question for larry summers. you said it really is too big to fail. i think it is too rich to fail. it has a lot of private wealth. it has a background in manufacturing infrastructure and has an economy. for the first time i heard the toxic word to a g-8 country. we are in a situation where things can go under control. somebody should do something. the ecb should step up their efforts but there is no willingness to go there.

the question for larry summers, if you had a european passport, what would you do? what would be they guarantee, what would be needed to trigger the ecb or whoever to detoxify the debt? >> let me say an two things. business people like yourselves suggest that economists are unworldly and a variety of respect. you are often right. let me say the single thing or business people tend to make errors in judgment. to confuse the strength of technology, the basic function

of the micro economy with the health of the macro economy. in 1999, it was phenomenal in terms of technological leadership. a staggering in its dynamism. stood out to the rest of the world. when finance was mismanaged, it did not matter very much. it is a mistake to suppose that the kind of strengths the site of italy, which are right, necessarily ensure you against financial distress. where the deal has to be is more reform and more support. what is the degree of commitment on privatisation on a five-year plan that is coming from italy?

what is the willingness to look at labor laws? what is the willingness to accept common european discipline over fiscal policies in the future? what is the willingness to seed issues around various subsidies from the northern part of europe to the southern part of europe? what is the willingness to look at gold resources. these are the kinds of questions that have to be put on the table if a deal is going to be reached because, make no mistake, there are politics in

the south of europe and the north, the dutch right-wing that wants to go back to the guilder is a signal of things to come. i think the basic answer has to lie in been willing to put more on the table in return for more support. the very hard to challenge is, as you understand better than i, italy is not a single unified actor. to say that italy should put something on the table eggs the question of who can speak for italy over the next five to

seven years. >> any final word? thank you, min, glenn and larry. [applause] >> will come back. this is paul ryan. he is the happiest guy in the room because the packers won. he is not running for president, contrary to -- >> that makes me happy. >> you can urge him on later if you'd like. the most important thing he does in this town is run the budget committee in