-- what to you as a psychiatrist look for? guest: the first thing i do is talk to them as a human being, not as a diagnosis. i will ask them about their jobs, what can you do and i encourage civilian providers may be listening to this to start out by asking them what their military specialty was and find out a little bit about their background. most soldiers in including the coast guard -- most soldiers are very proud of what they have done and their military career. start out by asking them where they served. after you have developed a report, he might want to ask them about the psychological effects of war. there are three main symptoms. there is flashbacks and

intrusive thoughts, numbness, and not wanting to connect to people around you, and then there is hyper vigilance. those are the clusters of symptoms. then you also have, by definition, they last for a while. >> you can watch this segment and all of today's "washington journal" online at c-span.org. next, a discussion at the american enterprise institute about the u.s. national security agenda in the middle east, africa, and asia pacific regions and the role in the 2012 presidential elections. it is just getting started live here on c-span. >> my partners in crime at the

new american foundation, and did center for a new american security. this is a joint projects, and it adds geometrical levels of complexities. but we have been working at 3 for a while. we are pleased to kick off a series of events examining the core issues of foreign and security policy in this presidential year. the three of us are institutions with different policy perspectives. what has brought us together is a shared belief that this will be a extremely consequential election. voters might make choices based on domestic concerns, but the outcome will effect the world, and the world will be watching. we believe the four statistics concerns are the future of the middle east, the effect of china's geopolitical rise,

whether the american military can sustain global leadership, and above all, today's topic -- what role do we see for ourselves in the years ahead? we are lucky to have robert kagan from the brookings institution to lead this conversation. nobody has thought more deeply about the role of american power than bob hess. let me turn to our moderator, and pierre's tom gjelten, -- and pr's tom gjelten. >> thank you. maybe i need to push the button. good morning to the rest of you, too. as is the custom at these events, we have to remind you to do silence your cell phone.

it is a pleasure for me to be here. i am impressed by how many of you have shown up on this spectacular spring afternoon. this should not be a surprise because you have a chance to listen to the thoughts of a writer who has given president obama his main foreign policy talking point for the state of the union. i am not at all surprised if you are anxious to hear him elaborate on a provocative thesis that the idea that america's declining is actually a myth. a very impressive "new republic" article, and an even more impressive small book in which he spells that out. without further ado, i think you all know robert kagan from his writings, and one of the things

most impressive about your record is you are not only a pundit, but you helped to advise administration's and played an important role with the past administration in iraq policy. without any further comment, take it away, and tell us the message you really wanted to put out with this book. >> thank you, and thank you for crediting me with so much influence, especially since i was living in brussels at the time. i consider that to be extraordinary influence i would like to say a few words. we have a terrific panel. i believe this is a consequential election on an issue that is not being talked about very much, which is foreign policy. it is important and timely there you have pulled this together.

it is true that thanks to a certain high-ranking administration official the aspect that as gotten the most attention in my book is the argument against american decline, but the major thrust of the book is about other things, and mostly it is about the special world order that we live in today, and that has existed since the end of the second world war -- how fragile it is, and how, in my view, dependent it is, ultimately, on american power. let me describe this world order. with all of the difficulties in the world today, it is easy to lose sight how from any historical perspective we continue to live in what can only be described as a golden age of for humanity, and i would say that looking at three fundamental qualities that we have been enjoying for the better part of the last seven decades. the first is one of the more

obvious, the enormous spread of democracy. on the eve of world war two, there were roughly 10 democracies. in 1900, there were roughly five. definitions are complicated, but today, there are over 100. if you think in terms of human history, that is unprecedented and unique. the second thing is the global prosperity we have enjoyed. it is hard to measure passed in gdp growth for the world, but some economists have tried and the estimates are that between the year zero and 1500 global gdp grew an average of 0.1%. from 1500 to 1950, it might of been 1%, but since 1950, it is grown on average about 4% a year. that is a huge, seismic

difference. one of the remarkable qualities of that growth is that it has not just been in the trans- atlantic community, but the highest growth rates have happened outside, and we see the growth of china, india, brazil, and other rising economies. this is a unique situation, and in the course of this time 4 billion people have moved out of poverty into some area of the middle class. that, itself, is truly extraordinary in human history. most of human history has been a story of poverty, tyranny, and also were. while there has been no shortage of wars in this time, we have been scared massive, great- power war, which was a feature of the immediate 50 years prior to the onset of this world order with two world wars in the 20th-century, but prior to that

as well, the world knew almost constant great power conflict in the 16th, 17th, 18th, and 19th centuries. these are the kind that killed tens of millions of people, destroyed an international system, and we have been scared of that. if you take those three things together, you realize what an utterly unique. this has been. -- utterly unique time this has been. the difficulties we have had in this time, nevertheless we have been scared the war, the party, and the dictatorship to a remarkable extent. the second point is this world order was created substantially by american power and it rests on t continued exercise of american power in all its

dimensions, economic, political, and will not survive the decline of that power. it is not foreordained. it is not the product of natural human evolution. we have seen democracy fail. we have seen economic orders collapse in the past. we've seen, obviously, wars between great powers break out. nothing about our current era is permanent. it relies on the power that created it to sustain it, and the most important power in that regard has been the united states. the final question, which is the subject that has gotten more attention, is are we not, in fact, in decline, and incapable of sustaining this, even if it is the right thing to do? my argument is that most of the discussion about american decline is based on a myth, and

the number one myth that it is based on is that you often hear it said "the united states can no longer do whatever it wants to do, can no longer get nations to do what it wants to do, can no longer have its way in the world." the myth is that there are worse such a time. if you go back to any decade of the cold war, beginning with the first, for whatever successes the united states achieved, they were at least equal, and in some cases, greater failures. i could move on to the caribbean war, the vietnam war, the oil crisis of the 1970's, the rise of the iranian revolution. i could go on and do go on in this wednesday as a. if you want the details, you can find it there. most of the notion is based on a myth of the past. to the the basic measures of

power -- if you look at the basic measures of power, i would say the united states is roughly where it has been in past decades, not able to do everything it wants, not able to solve the middle east peace crisis, as it has not for the last 40 years, but nonetheless capable of doing quite a bit more than people think. let me leave it there. >> thank you, bob. >> i will ask bob a question or two, then i will ask our panelists to ask a question, then we will get a discussion going among us up here. i want to point out in echoing what tom gjelten said, it is impressive that we have three different think tanks with 3 marginally different views of the world, but i do not want to

bend to far over in the direction of harmony. i hope we can have a discussion because there are serious issues that can be debated, and this sets up my first question for you, bob. in emphasizing that the position of the united states and the power of the united states has been remarkably consistent through economic crisis, political crisis, three different administrations, yet on the other hand you say that this is not sorting. this could change. -- foreordained. this could change. what is it that explains the permanence of this position, and conversely, what matters? this foreign-policy matter? the presidential leadership matter? what could change this if we have maintain this position throughout the administrations,

throughout different ideological perspectives? >> that is an excellent question, and what could change it is a growing consensus either that we simply cannot sustain this role anymore, or that we should not sustain this role anymore. there are certainly spokesman for all of those out there. even the president, who made this rainy reputation of the climate in his state of the union address, sometimes encourages the notion that we should beat "nation-building at home, not engaging in foreign activity" which i think he is the notion that it is time for a time-out. since we are moving toward the possibility of sequestration, cuts this administration believes would be catastrophic. that is a word they actually used -- catastrophic to american

capabilities overseas. if you make that decision and you stick with it a long enough, people do not like to think about the role of american heart power in the world because they think about wars that have not been successful, but they underestimate how important that hard power he is in maintaining this. i am relatively optimistic that that is not where the american people are going to go. i do not think ron paul will get the republican nomination, much less the presidency. i think there is a strong consensus in the country that although we might be having difficulties, the united states should continue to play this role, and i think you will get it regardless of who is elected. >> does that all it -- also explain why there has been continuity despite republicans and democrats in the white house -- would you say, historically, the consensus has largely been

maintained? >> since world war two. there was more fluctuation, obviously, in the past, because americans made a decision after world war one to of dissent themselves from the international scene is as best they could. the major continuities are one, the belief in the special nature of the united states, which goes back to the funding, and has driven american foreign policy consistently, regardless of who was president. the notion that the united states is the keeper of a fundamental truth, about which there are no other truths, and the united states has the special role in the world. the other element has been power. the more power the united states has had, the more it has taken on these responsibilities despite the complexities of what it means. the lesson of both world wars that americans in a way in justed and became part of their psyche, was the world does not

work well without us. this notion is constantly challenged and question, but that remains the fundamental premise of american thinking. >> it seems like you are arguing against the zero-some analysis of the world. you do talk quite extensively about the rise of the rest, and you say there rest can rise without u.s. position declining. >> the rise of the rest needs to be analyzed more specifically. it depends on who is rising. i do not consider the rise of brazil to cut against american power, and i did not mean that in the sense that brazil is not significant enough, but it is

part of the world order. the most dramatic rise was the rise of japan and germany during world war. american share of gdp was 52%. by 1969, it was 29%. catastrophic, right? the only nation that is rising today that raises the real challenge to the united states is the rise of china. in that regard, i welcome the rise of india, because it is a natural check on china. i welcome the rise of turkey, because i think turkey remains interested in furthering the goals of this world order. in my view, most of the rise of the rest is additive to the american position. >> of course germany and japan were more deference to american

leadership. >> by a much more willing to put up with independent nations pursuing their own policies because i think they are contending to the over world -- overall world order, from which the united states benefits. there are many that did not follow the script, and the french would be the first to remind us of that. >> i have an idea that what you say about china is the most provocative point of your argument, and i want to bring in richard on that point. you pay attention a lot to china, and the focus on asia from this administration. what are your thoughts about what we have just been saying with respect specifically to china? >> i agree that china poses the most profound challenge that we will face in the rising of these

new powers, and i also agree that the rise of countries like india is good for the united states, even if they're not tightly-aligned with the united states because they provide a balance to the rise of china, and the question we will face as a country is how do we deal with these rising powers like turkey, brazil, indonesia, india, in order to have a balance of power that frames that the environment in which china continues to rise. in terms of the ticket, plenty have -- pivot, and many quibble with the term. the united states has never left asia. i would point out that it is a goal, rather than something that can be handed down by fiat.

a perfect example is yesterday, when president obama and prime minister kamen word in the rose garden to in their joint press conference, there were four questions the press asked, and these are two key allies that have global ambitions. not a single point was an east asia. it was on syria, iran, afghanistan, and the global economy, so the united states is going to have to pivot to asia, but it can not come entirely at the expense of what will happen in the middle east and south asia as well. no matter how much we want to focus on asia and deal exclusively with china, these are the things will be in the forefront of our minds. >> how about, robert, if i finish with this, and you can think about things you want to

say, thomas donnelly, robert makes this eloquent point about the importance of consensus and continuity in looking at american policy over the last 60 years, and the fact that throw all the financial and political turbulence we have had -- changes of administration -- the american position has been consistent. is that is the case, what does that say about presidential leadership? what does that say about the conduct of foreign policy? does it suggest that the choices we have made far less consequential, perhaps, than they seemed at the time, and the choices that we yet to have to make, are they less consequential than they appear right now? >> i would agree that there are traditions, and legacies, if you

will, that transcend any president, any administration. it is really hard to change a foreign policy tradition when the tradition is a strong and successful as ours has been. there is something to what you say. it has accommodated all kinds of personnel and obviously parties with different agendas. i would be interested to hear whether there are underlying structures that are changing perceptions that is affecting -- that is changing the ability to play the role that we constantly play. whether we can become a social democracy that is spending 20%

to 20% of gdp on what we call entitlement programs or mandatory spending, and debt service -- whether that has any effect on defense budgets, and whether that has any shifting of governmental priorities. once the impulse reasserts itself, will it mean that the means to return to a more traditional leading-from-the- front-kind of american leadership will be just very difficult? we do not see a democratic party debate because they have an incumbent president. in talking to the politicians

that have been left it in the 2010 elections, there was a foreign policy debate that turned into a budget debate. a budget-cutting debate. so, i wonder whether those kinds of concerns are really going to constrain a future president who might decide to assert a more traditional form of american leadership. >> it seems to me with that at least a couple of moments in the last 60 years were there were quite abrupt changes in the national -- international situation. one was the aftermath of the vietnam war. the other was the fall of the berlin wall and this end of the cold war, and the rapid decline in defense spending that

happened in the aftermath after that. bob makes a good point that through both of those watershed moments, there was actually a surprising amount of consistency. we are now facing a situation where we have u.s. forces -- u.s. forces in combat in two ground wars for more than 10 years 10th there was an interesting thought dead in "the washington post" yesterday talking about combat stress in world war run -- world war i, writing that their reservoir of courage begins to empty where the fear of the unknown starts a process of moral entropy -- atrophy that cannot be reversed. i think we have to look to these issues now in the context of having fought 10 really

difficult years in iran and -- iraq and afghanistan, and i wonder what you think the implications of the last 10 years of combat mean for this debate, peter? >> i have to be will points, and first of all, thank you for arranging this -- two points, and first of all, thank you for arranging this. we are broadcasting this terror i just wanted to mention that in 19 -- this. i just wanted to mention that. we are only spending 1% of gdp in afghanistan. so, as a historical matter, we are not spending very much money on these wars. agree with both bob and yourself, you have undercut in

touch with the point of this exercise because you have pointed out that it does not make a difference who is the next president, because essentially policies will continue president obama came in on an anti-war ticket, but we were involved in six conflicts essentially including yemen, a war that was winding down in iraq, tripling the troops in afghanistan, saying they will stay there for five years. so, not only was there continuity with george bush, but it was actually amplification. when we pulled troops out of the afghanistan, in 2014 we will have the same troops in afghanistan that we had at the end of george bush's term. >> the question is looking ahead, we're now looking at getting out of afghanistan as

quickly as we can. >> i am extraordinarily skeptical of that. an agreement will lead 25,000 americans there in some shape or form. they will not be combat troops, and it does not matter who was in office. we have already abandoned afghanistan twice. no american president is going to do that again. >> i have been failing in my effort. [laughter] >> i am happy to throw a quick hand grenade. part of the point of the article is that because the professional force is so struck -- small, a small percentage of us have done the actual fighting. it is true that there has been an ending of political

enthusiasm for these wars but the question is, to go to this, sort of, means-resources, which are changing without actual decisions being made, whether absent some hard choices made to rebuild the means of power, and particularly hard military power, whether this world order that bob describes will run itself, or what it would like to share the load, so to speak, in a way that fundamentally changes the world? >> i think that is the point. has there been any time in the last 60 years where we have had such a debate over the fiscal constraints this government faces as we have right now?

you make the point that defense spending should not necessarily be the focus of that debate, but nevertheless it has introduced a new element, has it not? >> in the interest of not emphasizing continuity, as i recall, the debate over the defense budget during the reagan years was greater than it has been up until about one year ago. i actually used to make the point that i was somewhat astonished how little the u.s. defense budget, which was creeping up toward $700 billion a year was the subject of political debate in the united states when reagan point of defense budgets were a major democratic party platform. now things are more like where you are saying because of the fiscal crisis. we are capable as a nation, because we have done it in the past, of over-cutting our

defense capabilities, and getting to the point where we have weakened our ability to shape the international system, and brought ourselves to a potentially perilous point in the conflicts that we might get ourselves into, because we have a way of getting ourselves into conflict even when we do not think we are going to do that again. if history is a guide, and that is always a good question, is history a good guide? if history is a guide, something will happen that will lead us to another direction. the trend in the 1990's was declining defense budgets. it was not dramatic. we were only spending $400 billion a year, or whatever the number was at the time. then something happened in 2001 that led to this explosion. that is not the first time that

has happened. there is a cyclical quality to this. it is an interesting question about having been in war for so long. my son, who is 13 years old said to me not long ago has there ever been a time when america was not at war? when i grew up, we were mostly not at war scared for much of my life we were not at war. that is an extraordinary thing. i do not know where that leads. there is a whole generation of young people for home september 11 was a defining moment. many have gone into the military. they go into international relations fields. so, has this conceptual. that we have been in created -- conflicting time for brought in a one ness, or brought to us to the time where we have to do

something? where barack obama has been as president is really the most compelling point. if ever there was a time when the world thought america was gone with intervention, they thought it was the election of barack obama, and i get to tell this joke. people told me if i voted for john mccain we would attack another arab country and vote for another -- and overthrows another leader, and they were right, and i voted for john mccain. that is what happened. >> i also have a feeling that you and richard were on the same page, and richard, i took your comments to mean that the move toward asia -- asia might not be reality, because he's got a lot to deal with in the middle east.

>> i would also pick a fight with the pivot. i do not want to get in the way if you want to ask richard the question first. ok. your point is we never really left. the point that is made today in europe and the middle east, to some extent, is if you are pivoting for something, that means you must be going away from something else, and there are conference organizers in europe having a field day with what it means for europe. that is the subject of every conference in europe. i think it is a mistake for a nation of america's global responsibility talk about picking anywhere. we cannot. our interests remain very much in europe. our interests -- we are not

leaving the middle east, as you rightly pointed out. we need to increase our attention to asia, certainly in terms of our capability, but there is a misunderstanding of our role in the world to even talk about to 15 in one direction or another. -- pivoting in one direction or another. >> you convinced -- confessed to voting for john mccain, so defend his position. he had leon panetta talking about syria, and he said before we put people in harm's way we have to make sure what the mission is, whether we can achieve the mission, and whether or not it will make matters better or worse, and senator john mccain said you do not mention america's leadership. america should lead in this, standing up, building

coalitions, and we are not leading, mr. secretary. syria is a case in point where we can play out what does the idea of american leadership mean in the context of a difficult policy conundrum like syria presents right now? >> i am going to hear what you say first. [laughter] >> to push a point that bob made, and going back to my original obsession with domestic politics, he did not hear politicians talking about how do you international system fits together. -- you do not hear about how the international system fits together. even libya and the dialogue around syria is so much about the humanitarian aspect, which is compelling and real, but if

you target of a great strategic opportunity, you know, if you are worried about the largest problem in the middle east, iran and iran with a nuclear weapon, this is a tailor-made issue to use as a prism for a larger understanding of america's role in the world, and again, it seems to me, there is no conversation on the political spectrum about this. look, everybody in the region that.nly grasps -- grasps it is one of these moments where we might be defining for ourselves in defining american leadership downwards, to channel charles murray in this regard, so there are issues of syria in an of itself, but it is not a dispositive.

it is -- i worry that it would be a leading-edge indicator of an america that is in this contraction mode, particularly in the middle east. >> what would be? if the u.s. were to what? >> there is a series of events. there is the withdrawal from iraq. as you suggested earlier, who knows where the afghanistan drawdown will end and what the pace will be. the message has been, even since the announcement of the obama surge, that time is limited, and we will not commit as much. our role in the arabs bring, and the egyptian revolution, you can then get that in a multiplicity of ways.

our ability to decisively constrained iranian nuclear programs -- we can go on and on. it is a region that has a certain amount of the flexion in its own politics, and americans have been working for this moment when a whole generation of autocrats are losing their grip on their own people. this should be an opportunity for us to seize. again, the overarching message, at least sometimes, appears to be we want to back off and do this from a distance without getting involved in these messy situations. >> do you agree that is the over-arching message, peter? >> this is just a comment. it took two years for president clinton to intervene in bosnia. it took nine days for president

obama to intervene in libya. why did he intervene? they actually did something, giving the intellectual framework to allow the u.n. resolution, to allow nato to do something. what is different in syria? it is a u.n. problem. that is something the obama administration has been trying to deal with, but you have two countries that a veto any kind of operation in syria. i think that will change. i think it is possible china's resolution is reworded. if people are working to make this happen. i'm not an expert on the syrian military, but i think it is more formidable than the libyan auxiliary's from other african countries. it is easy to say that we should do something, but what is it

that we should be doing? are we talking about a naval blockade? are we talking about a no-fly zone? the devils are in the details. >> so, what does american leadership mean with respect to what to do in syria? >> in a way, if we were not in this phase of the election season, if we were in the first year of, let's say, obama's second term, where we were two years ago and we have not done libya, i think we would be moving quickly toward military action in syria. circumstances are everything. i think the president does not think the american people want another military intervention now, and he will not do it before the election, and he may not do it after because he has a ran on his mind. i do not rule out the possibility that he might use force against iran. that is part of the calculation

as well. i do not think we would have these conversations about our inability to do anything in syria. what i find amusing is that people like senator corker said this is not obviously easy like libya. are remember some hall during the bid up to libya, that it was impossible, what could be do militarily? of course the syrian military is stronger, but i would guess our capacity to create a safe zone if we wanted to and carpet out in syria using air power is something -- carved it out in syria using air power is something we can do. i think we should not over state -- as unhappy as i am, i suffered miserably to the clinton years when they would not do certain things, and ultimately two years later than

necessary, they did it. my favorite moment from the clinton administration is when asked why they did not do anything about rwanda, they said they were too busy with bosnia, and the question was busy doing what? this is not the first administration to have the feeling that they're not eager to get into this. i think the trajectory they are on is that they're ultimately going to intervene. if the president does not want to intervene, he really should not say president assad must go. that rhetoric ultimately leads to action. because of the timing, we might not get action when we want it. >> if it gets more difficult to longer you wait, too. >> because lives have been lost in the interim. >> i am a little more skeptical, maybe, then you two, about the idea that we will intervene in syria. i think the circumstances in

libya, my reading of that was the europeans were so far out in front, the british and the french want to do something, a no-fly zone, and the president said everyone is telling me that it will not matter much, and if we do this, we have to do this the right way, so the stars are aligned in the backdrop of all of this. you had the sense that if khadafy was able to start this -- stopped -- gaddafi would be able to stop this in its tracks. i do not doubt the you have a tragedy in syria, but in terms of diplomacy with europeans, it certainly will not authorize force the we did in libya. the administration would then be in a situation to do what it is

doing now, or some kind of military intervention without u.n. security council resolution, without arab league endorsement, and i am skeptical that they will. >> the military aspect of this smells to me a little bit more like an excuse than a >> -- explanation. the syrians have not shot down an israeli airplane in years, if ever. how the conflict would end, and where it would lead are really great questions, but, you know, the conventional syrian military is just the kind of target that our high-tech forces are certainly completely capable of reading devastation upon. >> al qaeda is part of the

opposition in a way that we need to be careful appeared >> and they had a whole recruiting infrastructure in syria. >> that was with the suicide bombers in syria. >> this is been an interesting discussion. i want to raise one other issue before i turn it to you folks. do you talk hear much about education? >> you did not miss anything. >> i did not think so. >> you do not have to read the rest of it. >> there is plenty more in there, i in this point to ask if that is not a weak point in your analysis. america's education decline is pretty clear relative today educational attainment in other countries. is that not a very important part of america's strength, and if it is declining relative to

some of the other advanced countries, is that not a worrisome development? >> it is worrisome, and i am not an expert on education, so that is why it is not in the book. i only pretend to be an expert about some things. my sense about the american education system is that it is a mixed picture. on the one hand, we have the best universities in the world that everyone is trying to get into. so, at the level of higher education, i think the united states is way ahead of the rest of the world. european higher education is in crisis now. i am not sure the people are dying to get into chinese universities. >> they are coming to our universities, and they're going back home. >> that is the way life is. there are also many come in and stay in. this is anecdotal, but some parts of the american secondary system in high school are very

high, precisely because immigration is so great. where my kids go to school as a stream of asian immigrants coming in driving up standards like crazy and making it hard for us to compete. in any case, the overall level is extremely high. there are big gaps, obviously, in the american education system, and in some places they are doing as well as anyone in the world, but many others are not. i do not want to update your question. of course we want to -- you gave your question. of course we need to upgrade our system. as it happens, i think the united states it is still at the forefront of that kind of economy, but you can lose your place. >> we have focused primarily on wars and foreign engagements so far, but you make very clear when you talk about our you're

talking about comprehensive national power. any other thoughts before we -- >> just to keep this comprehensive national power thing, it makes perfect sense, but some of these things are better tools for some than others. the soft power, sticky power -- is all important, but you cannot order american culture around the way you can order a american military around. you can order the american economy around, but that has more downside consequences than upside consequences. our whole conversation about our has become -- about power has become, sort of, debased, in

some sense. what i like about bob's book, it is when he talks about the international order what is underlying it is security architecture, and you would not discount the value of american political beliefs, or culture, or anything, but making the world safer and -- read music is not an important issue. >> there is no easy illustration of that. over the past two years, at a time when the american economy has been in terrible shape and the chinese economy has been successful and soaring, and all these elements we are worried about have existed, but if you ask anyone looking at the diplomatic and geostrategic score sheet who has done worse over the last two years, it is

actually china. by overplaying their hand in the south china she, -- south china sea, you have south asians coming to the united states. china is a net loser so far. look at what is going on in the international system in terms of syria, libya, and iran. china has been forced again and again into positions they would not otherwise take. they're not in the business of helping democracies overthrow other autocracies, but they have been forced into this position. for all law weakness in gdp and education and other things, but the level of grand politics, it is still the case we will to enforce. >> you could say china has been a net loser, but you could say europe has not done well either. >> i did not write a book about

how europe is in decline. >> you did say that it came at the decline -- at the expense of european power. >> right. but i decided i was optimistic. >> let's open it up to the audience. please follow the ai3 rules, which for the microsoft -- microphone, then make your statement in the form of a question. >> deere in mitchell. i write the called the mitchell report." -- i write the "michel report." i want robert kagan to respond to the continuity of foreign policy argument. the point of view is that post-

world war two, to the present day, for much of that time the differences on american foreign policy were, sort of, easily described as hawks and doves, or terms of that sort. that tended to be more a reflection of party affiliation. that, at some point, and i am not sure where, nor whether this thesis is right, but at some point that has shifted, and we are not so much in hawks against dogs anymore, but perspectives -- dove's anymore, but perspectives about kinetic positions taken by this government have more to do with

the ins and outs. >> are you asking bob if he agrees with that? >> i am asking if that is an accurate perspective. in kosovo, clinton wanted to do it, and the republicans were against it. some of the same situation pertained in libya. my first question is is that remotely accurate, and if it is, what has made that transition, and how does that augur for the likelihood of continuity moving forward? >> well, i think that it generally has been true throughout american history that the ins were activists and the outs or anti-activists. the president wielded enormous power and influence in foreign policy, and congress is about stopping it. even in the cold war when the

democrats were in power, the republicans were fundamentally isolationists, and the democrats for the hawks. that basically persisted until the democratic cracked up in the the vietnam war. been opposed to war came after nixon was elected. there is a certain continuity there, which i think is still true. there is general continuity throughout the history of foreign policy and this is not always true, but it has been true, the more progressive of the two parties domestically has also tended to be more progressive in their global approach. at the end of the 1890's, the conservative party were the democrats because they were the party of the south to some extent and they were the more isolationists. you could see that flipping

woodrow wilson becomes a progressive, and republicans go back to be -- to being conservatives. [inaudible] >> my name is trevor. thank you for your talk. i wanted to ask the panel what they viewed the role of the international committee, current american partners and the united nations is moving forward in afghanistan, post-2014. >> nato has made it clear they would be in afghanistan after 2014, and in may there will be a meeting in chicago, and i think the hope was there would be an announcement of a strategic forces agreement with afghanistan and the united states. one of the big impediments' has gone away, which is the

question of will the afghan government be able to get detainees in their prison system, and the answer to that is basically yes. the international community has a good reason to be involved in afghanistan going for. we're still in okinawa six decades after world war two. i do not think we will leave the place we were attacked from when decade ago. we sent a lot of mixed messages about when we are leaving. every time it looks queer heading for the exits, it causes caused -- it looks like we are headed for the exits, it causes consternation. a partnership is a desirable thing because it will effect hedging strategies of the country's surviving afghanistan, making it clear that we will be there. >> a slight wild card is we may have a new french office taking

office, not squabble last policy. i've been warned about that. -- who might not swallow the last policy. i have been warned about that. >> my name is hugh. before the editorial i was thinking we had the a number -- vietnam-ization, because the local population is not keen to their being there. when people make money by opening their mouths, -- is a psychological effect that is

tremendous, and none of us in this room except for the guys that served in iraq and afghanistan can attest to it. how will we deal with this troop fatigued? -- 50? -- fatigue? >> i >> it is worth thinking very hard about this and not leaping to conclusions about anecdotes, although it is is true that the stress and suicide statistics and things like that -- it is is very worrisome. for us military geeks, if you step back from the headlines of the day, it is remarkable how well the force has sustained us. we should never take this for granted, but if you said to me or a lot of the students of

military affairs, and here is what is going to come in the next 10 years -- oh, the force will break. the performance of this force has been above and beyond, and that includes the reserve components, who played a huge role in this guest: t s it is somethingis wor -- that is worth watching and being sensitive to, and would be nice if politicians were not just thankful for the sacrifices, but encouraged folks to share burdens as well. it is one thing to serve castro, it is another to invite them to sign up -- serve casserole, it is and other to invite them to

sign up. given what they have gone through, the discipline has been astounding by any measurement we have. >> thank you. a good friend of mine, kind of the andy marshall of nato, talks about the need for a gentle giant, and that we are in there is no one else and probably never will be. i remember jim morehouse, the commercial attache in paris 20s ago, would tell me that the commerce department wore black shoe -- wore brown shoes and state department wore black shoes. it is not just commerce that determines our foreign policy.

with that in mind, after 9/11, all the focus naturally moved to the middle east. nothing was said today at all about central and south america, and yet it is our next door neighbor. we went to europe to help them time and time again when they get in trouble, but are we really watching? i guess the bigger question is can we afford to be that gentle giant and have some sort of balance, and i'm talking both under the previous administration and this administration, where there was one of friendly meeting with the president of mexico with bush 43, and then 9/11 happen and that was it. are we able to keep looking at that balance in looking at all areas of the world? >> latin america -- >> no --

[laughter] >> it is 130-plus pages the line over a very long time is that the united states will do everything about latin america except think about it. it is a recurring theme. you could have gotten up any time the last 100 years and say we could pay more attention to latin america. we will invade it more easily than pay attention to it. the answer to your question is yes, we ought to pay more attention. we ought to be able to walk and chew gum and pay attention to latin america at the same time. it is not that demanding. things in latin america and not that bad. there are positive developments about latin america today, including the relative success of democracies.

you have the rise of a global power in latin america. that has not been true for a while. there are a lot of things moving in a helpful direction. columbia is in a hopeful direction. the american approach in two administration to chavez, basically to ignore him, as been successful. i was happy to see the obama administration get those trade agreements through. they were symbolic commitments to the region. don't underestimate the degree to which latin america benefits to some degree from a certain amount of american neglect, because when we get heavily involved we tended to be bigfoot, right? i agree with you that things are not so bad as they could be in the region.

>> right here. >> thank you. i am an independent tv program producer. i think about the nationals a dirty and democracy, education -- the national security, and democracy, education. in a propaganda that sense, america is not doing right. i wonder if you could address that more. eisenhower -- industrial complex of defense is bad for our nation, but we ignore this. you know that obama at the beginning wanted to end the war but continues to fight and continues to detain prisoners without judge. and education -- ph.d. should be

in higher positions, but many -- [unintelligible] i wonder if you could address all these inconsistencies so we could move forward. there should be war against injustice here domestically rather than overseas. >> well, i am not sure this is much inconsistency as you are suggesting, but first of all, i thought, among the many things i likdid not like about eisenhower, that speech is one of them. i don't know what he was talking about. i don't think our country is controlled by the military- industrial complex, by any stretch of imagination. i think that the united states is constantly forced to measure itself as it passes judgment on the rest of the world. there was a time when the united states was, you know, expressing

its moral disapproval of other nations. certain minorities in this country had no rights. one of the products of the cold war was greater pressure on the united states domestically to live up to some of its pronouncements and globally. there are few countries in the world that work harder to try to perfect their imperfections and then the united states. very few nations are more self critical that americans are and work harder to try to address inequities in the system. by the way, they frequently fail. hypocrisy is a human attribute, an inescapable human attribute. my view of the united states is that we need to compare americans to humans, not to angels, and to compare humans, americans do pretty well. >> tom? >> apropos of the military

industrial complex and civil liberties, i cannot explain it constantly, but there is a coalition through the cold war between american power -- coalition through the cold war between american power and expansion of domestic the bodies -- domestic liberties. beginning with brown v. board of education through women's rights, gay rights, rights and rights and rights. historically, an internationally, too, there is a correlation between american power and human liberty. to say that it is causal requires elaboration, but compared to other world powers of ages past, going back to bob's our original plan, this is not only remarkably peaceful and prosperous era, but are remarkably free era, especially

for americans. i become worried that if we are shrinking and in decline, whether we will be so expensive -- expansive granting rights encouraging civil liberties here at home. it is a question that never gets asked. >> just a quick point. because the united states as a human rights agenda, it will always be accused of inconsistency, and consistency with our values apply it, and inconsistency without -- with how it is applied abroad. if we can do something right with the human rights agenda even if we cannot do it in other places, i would rather be accused of inconsistency rather than be accused of doing nothing. >> this is intended to set up a presidential election. this might be a good point to bring up a minor issue that has arisen in this campaign, and

that is president obama's apology to afghanistan for the burning of the korans. that was immediately criticized by several of the republican candidates. i'm wondering what any of you think american leadership, american exceptionalism, an america's claimed to stand for human rights and liberty -- what does that imply? what does that imply about the united states when you have a situation like this when u.s. troops do something that is so offensive to people you are trying to serve? was that the apology appropriate or not in this context? >> i think it was very pragmatic. at the end of the day, the commander in chief has a responsibility to his soldiers in afghanistan. that was a way to reduce the tension. that was his primary intent not

all the other observation is that as the world's only superpower, we can apologize without it being a problem. how does that damage our side? particularly when an apology is needed? on november 26, which killed 24 pakistani soldiers. there is an investigation on both sides of the border about what happened. as is often the case in war, there was miscommunication on both sides. at the end of the day, pakistan is supposed to be one of our allies. to me, that is the opposite mistake. even if it is inadvertent, it is ok to apologize, in my view. >> no, i'm not really concerned about the apology in and of itself. i just worry about the measure of sporadic attention on the part of the president. point, worsekistan

than having to deal with people karzai -- thehamid pakistan army's neglected doing so. what i would like to see is more active engagement. we are not managing the people who really are our allies, for better or worse, as well as we might do. >> in that case you are referring to pakistan? >> well, both. we -- defer to peter -- actually have a balance, a coalition in afghanistan that could be sustainable but, again, requires a certain amount of energy to put together. >> let's go back to the audience now. >> thanks, hi.

new america foundation. similarly, i am wondering if we can talk it a little bit about the extent to which the subject of america's rule in the world is being talked about on the campaign trail, and i wonder if any of you see the gop candidates of doing a particularly good job of thinking about for addressing this issue aside from putting out reactive comments about afghanistan and syria. >> the most comprehensive position is ron paul's. i think the republican candidates have a very consistent problem, which goes to what we have discussed already -- you can critique around the edges on afghanistan, but at the end of the day, there were 30,000 troops in afghanistan in 2008 and went up to 100,000 going down this year. what would you say? we are going to put 400,000 troops in, stay for decades?

there's not much you can say to critique it. same with pakistan. obama tripled the number of drone -- obama quintupled the number of drone strikes. would the republican candidate in office quintuple the quintuple? no one has proposed what the syrian military intervention would look like, a lease on the republican candidate side -- at least on the republican candidates i'd. >> as an adviser to governor romney, i think he has done an excellent job. [laughter] now, in fact, he has laid out a comprehensive, by far the most comprehensive approach to foreign policy. perrylawn white paper, given a big speech on the subject -- very long white paper, given a big speech on the subject. as is the nature of most primary

campaigns, it has not been the topic du jour. you do not get a chance to lay out your vision of foreign policy when you are debating contraception and all the other important topics they are debating. the better time to ask this question will be in the general election, because then i think there will be a discussion about american foreign policy. i think there has been room for criticism of the obama administration. i know that one of the major approaches of governor romney, for instance, is that for quite some time in various parts of the world, president obama has not been great with a number of our allies. he is now, by the way, scrambling to repair that image. is meeting with david cameron is intended to undo the slyke was allegedly committed when he returned -- the slight that was allegedly committed when he returned a bust of winston churchill. he has had to work very hard to

prove he is a friend of israel. there is the case to be made that in much of the administration's early out reached adversaries and potential competitors, the reset with russia, the outreach to iran, inevitably some of that has come at the expense of traditional allies who may have been themselves competitors and adversaries of those players. that is a legitimate criticism. >> let richard go first. >> if i could add one thing in terms of the foreign policy debate, having worked for the presidential candidate in 2008 that didn't win, i have some insight into how these debates take shape. this time around, "everybody knows" that this will be an economy election and foreign policy and national-security issues don't matter. we around the table have a vested interest in that not being the case, but it has the

added virtue of not being true. both candidates will have to convince voters that they are the commander in chief who at the end of the day can be trusted with preserving the national security of this country. that is why you are going to see all kinds of speeches and activities to bolster their case for that. even now you see the press pay most attention to the economy, behind the scenes, at a minimum, you will see a real debate on national security matters, and it will matter at the end of the day. >> not to criticize the press, but at every one of these debates, the number of foreign policy questions asked by the media as opposed to the infidelity questions asked by the media -- the ratio is low. >> one attempt to add something of value -- one way to look at this divide is not so much partisan war hawks versus doves.

it is a generational split the differences tend to be -- senator mccain and senator lieberman being the uber- examples of this, guys with the traditional and conventional view of america's foreign policy and it will, versus a host of younger politicians, post-cold war politicians, much more diverse and coherent set of policy views -- [unintelligible] ok -- right and left. the point is that they have not congealed around the consistencies and traditional habits, and it has been some time now. in many ways, it has been a

continuity of the things we saw during the clinton years, for a whole host of reasons. >> center for a new american security. this is very much a follow-on question. all the panelists address this in part, by not explicitly. what are the issues that will define how the national security will be determined? how will that come down in terms of one, two, or three issues? >> quickly down the line here. >> any president has to deal with the cards that have been dealt, and the cards that have been dealt this president and the next president are what is happening in the arab world. the most substantial event of our current period is the arab awakening, the arab spring, what ever you want to call it, because however it shakes out is going to reshape that part of

the world, which remains a very important part of the world. i would think that managing as best we can, understanding the limitations of our ability to manage it, ought to be at least in the top two. i do think that how the united states -- you are saying beyond levels global leadership, but the defense budget, given the sequestration issue, really needs to be way up there. >> i would put iran first, because i think that the candidates will draw a distinction on their approach to preventing iran from obtaining a nuclear weapon. even if the debate is on the margins, that will be an element in the debate, because we're seeing so much in the news on this. third, i agree that the middle east and the way the middle east is added. -- headed. >> some people have predicted

that china is going to be a big issue, certainly in the context of trade difficulties. >> it would be an issue -- maybe if i had four rather than three, i would put china as four. the content of the debate i would put behind those three. >> the 4 big issues we are addressing are serious. anyone who deviates from that is out of the triumvirate. yeah, write that down. look, we're living in a world that we made. nobody can unmake it or change it better than we can, for better or worse. in historical terms, all the challenges of there are relatively manageable -- out there are relatively manageable, compared to, say, napoleonic france, the rise of germany, or something like that.

there are many better reasons to think of a good outcome with regard to china. there are many problems in the middle east, and the iranian nuclear one could be a transformative one that would shift to this collection of issues that we've been able to manage into something sort of -- that gets out of hand. but there doesn't seem to be anything that is beyond our ability, particularly because we are starting from such a position of inherent strength, a century's worth of success establishing this world -- i guess i wanted to start with this framing issue. >> five years ago on this panel it would have been al qaeda and jihadi terrorism. we're not even been discussing that today. al qaeda is basically out of business.

a sovietologist in 1989 -- i need to find something else. something we tend to forget in these discussions is that pakistan is going to be the fifth largest country and it will, it will have more nuclear weapons. managing our relationship in pakistan is a very difficult and important. and one of the challenges for president obama, president romney, who ever it is, is mumbai 2. the idea that tourists can buy or acquire nuclear weapons is the area of fantasy. what is not fantasies triggering a weapon in a place like pakistan. pakistan has tactical nuclear

weapons. you can sketch out the scenario. that is a major foreign policy challenge that any president will have to be thinking of a carefully in the future. >> i am interning at the cato institute. my question is about the nature of diplomacy. as you saw through 2000, the rise of the status of violence, al qaeda and what not, and also, obama's massive escalation of drone warfare. we were always hyper-diplomatic. but in a time when you are not necessarily talking to nation states, and violence can be a lot more anonymous, and anybody can be attacked by anybody, it seems, a big leveling of the

playing field, how does that change our diplomatic priorities, first of all? we saw obama attack in pakistan without contacting the state first. it seems like diplomacy might be taking the back end to simply american policy. is this something you noticed? do you share these anxieties? >> very interesting question. whither diplomacy? >> the new complexion of the international system is something we have been talking about for well over a decade. without minimizing the issues you have raised, i am actually under whelmed by how revolutionary it has all been. i find state to state relations it remarkably relevant in the current era. i'm not overwhelmed by the presence of non-state actors in

the international system. we have obviously dealt with al qaeda and others and will continue to deal with them. but as i look around dealing with most of the crises that people are dealing with, they are very much about state-to- state cooperation, and that includes dealing with weapons of mass destruction, which is about cooperation among the states on the high seas, protection, shared intelligence resources. that is very much about diplomacy. i continue to believe that diplomacy is still of the greatest value. i don't really think it has changed. >> just today we have seen that the swift organization has agreed to sanction iranian banks. the front page of "the financial times" had a story about iran at's oil output being at a

decade ago. as far as the conflict with iran is concerned, diplomacy is front and center. >> even on this question of drone strikes, diplomacy is critically important. you want to have drone strikes? drones after takeoff from somewhere. most of the time we are securing the rights from foreign governments to do certain things. it is the rare case that we are doing something unilaterally completely on our own. overflight rights, landing in bases, intelligence cooperation, diplomatic and coordination, all those sorts of things get at the heart of what we're doing diplomatically with countries. even in the case of drone strikes, diplomacy's critically important. >> tom, peter, final thoughts? >> actually, everything has been

said, it just hasn't been set by me -- said by me. [laughter] we have covered the landscape extraordinarily well. >> all right, thank you all for coming. bob's book is "the world america made." i cannot believe you are not selling it here. >> it is not all about money. [laughter] >> it is about promoting your message. a very readable, very well written, very well thought out. i like to thank my panelists -- paul kagan, -- bob kagan, peter bergen, richard fontaine -- rival think tanks. thank you very much. [applause]

[captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012] >> our system is fundamentally undemocratic in a number of ways. one of the ways is closed

primaries. in half the states of the the country, 50% of voters cannot participate in the primaries. they have no say in who gets nominated. as a result, we get more and more extreme candidates on both ends of the spectrum. >> saturday night on a 10:00 eastern, linda illia killian wrs about independent voters and out they have decided every election. david brock talks about how roger ailes has turned fox into an extension of the republican party. mark levin with his thoughts on politics. booktv, every weekend on c- span2. >> this homespun cloth would be much more raw textured, much

less fine then the kinds of goods they good input from britain. but by wearing this kind of homespun cloth, women were displaying their political sentiments. >> sunday at 9:00, george mason university professor on the role of women during the revolutionary war. >> vice president joe biden has jumped into the 2012 presidential campaign, speaking at the united auto workers hall in toledo, ohio this morning. he told the crowd that president obama had been right to support the government's rescue of the auto industry, saying it saved more than 1 million jobs and staved off a new depression. you can watch his comments at c- span.org. rick santorum is in puerto rico, newt gingrich is in

illinois, which has the tuesday primary. he had a rally this afternoon. ron paul house are rally at the university of missouri in columbia. misurata's caucuses are on saturday. mitt romney -- misurata's caucuses are on saturday. mitt romney does not have campaign events but has media interviews. you can watch the events at c- span.org/campaign2012. president obama responded today to presidential candidates who blame him for high gas prices and the lack of drilling in the united states. he says there is no such thing as a quick fix when it comes to high oil prices. this is about 35 minutes. >> thank you. thank you.

thank you. thank you so much. thank you. thank you, everybody. thank you. thank you. well, what a wonderful reception. [applause] that is so nice. thank you. you are just cheering because i know michelle. [applause] well, it is wonderful to be here. folks who have a seat, feel free to take a seat. i want to thank roy for that introduction.

[applause] he is pretty smooth. [applause] it is great to be back in maryland, great to be here at prince george's community college. [applause] i love you back. now, before i start, i want to thank your other president. [applause] your governor, martin o'malley, is in the house. [applause] lt. gov. brown is here.

[applause] we've got one of the finest members of the united states senate that you could hope to have in ben cardin. [applause] congresswoman donna edwards is here. [applause] and county executive rusher and baker is here. [applause] i want to thank all of you for coming out here today. [applause] i just finish learning about some of the work that you are doing here at this community college to make sure that homes are using less energy, helping folks save money on their heating and air-conditioning bills.

i was very impressed. i was more impressed because i know this program is giving a lot of people a chance to live a decent living, everyone from veterans to folks with disabilities to folks who have just been down on their block or what to wear. -- down on their luck or want to work. i want to let you know how proud i am of this program and this institution and all of you. [applause] the skills you have gained at this community college will be the surest path to success in this economy. if there is one thing we are thinking about a lot these days, it is, first of all, how do we make sure american workers have the skills and education they need to be able to succeed in this competitive global economy. community colleges all across

the country and all across maryland are doing an outstanding job providing young people at first opportunity after high-school, but also helping older workers retrain for the jobs of the future. the economy is constantly adapting. [applause] so community colleges are big. community colleges are critical to our long-term success. what is also critical to our long-term success is the question of energy. how do we use less energy? how'd we produce more energy right here in the united states of america? i know this is especially important topic for everybody right now because you guys have to fill up at the gas station. and it's rough. gas prices and the world oil

markets right now are putting a lot of pressure on families right now. you know, one of the things that is important to remember is for a lot of folks, just doing what you have to do to get your kids to school, to get to the job, to do grocery shopping, you don't have an option. you have got to be able to fill up that gas tank. when prices spiked on the world market, it is like somebody is going into your pocket. we passed the payroll tax at the beginning of this year to make sure that everybody has an extra $40 in their paycheck on average. [applause] in part because we anticipated

that gas prices might be going up like they did last year, given tight world oil supplies. that doesn't make it easier for a lot of families out there that are just struggling to get by. this is tough. now, the question is how do we meet this challenge, because right now we are starting to see a lot of politicians talking a lot but not doing much. [applause] and we have seen this movie before. gas prices went up around this time last year. gas prices shot up in the spring

and summer of 2008. i remember -- i was running for president at the time. this has been going on for years now. every time prices start to go up, especially in an election year, politicians dust off their 3-point plans for $2 gas. i guess this year they decided they would make it $2.50. why not $2.40? why not $2.10? but they tell the same story. they head down to the gas station to make sure if you cameras are following them -- a few cameras are following them, and then in they start acting like we have a magic wand and we

will give you cheap gas forever if you just elect us. every time. been the same script for 30 years. it is like a bad rerun. --, here's the thing because we have seen it all before, we know better. you know better. there is no such thing as a quick fix when it comes to high gas prices. there's no silver bullet. anybody who tells you otherwise isn't really looking for a solution. they're trying to ride the political weight of the moment. -- political wave of the moment. usually, the most common thing when you ask them how are you going to get to $2.50 a gallon of gas, specifically what is your plan, typically what you hear from them is if we just

drill more for oil, gas prices would immediately come down and all our problems would go away. that is usually the response. maryland, there are two problems with that answer. first of all, we are drilling. under my administration, america is producing more oil today than in any time in the last eight years. any time. [applause] that is a fact. that's a fact. we have quadrupled the number of operating oil rigs to a record high. i want everybody to listen to that. we have more oil of rigs operating now than ever. that's a fact. we approved dozens of new

pipelines to move oil across the country. we announce our support for a new one in oklahoma that will get more oil down to refineries in the gulf coast. over the last three years, my administration has opened up millions of acres of land in 23 different states for oil and gas exploration. offshore. [applause] offshore, i have directed my administration to open up more than 75% of our potential oil resources, including an aria in the gulf of mexico we opened at three months ago that could produce more than 3 million barrels of oil. don't tell me we are not drilling. we are killing all over this country. -- >we are drilling all over this country. [applause]

there are a few spots where we are not drilling. we are not drilling in the national mall. [laughter] we are not drilling in your house. [laughter] i guess we could try to have, like, 200 oil rigs in the chesapeake bay. well, that is the question. we are drilling at a record pace, but we're doing so in a way that protects the health and safety and the natural resources of the american people. [applause] all right, so that is point number one. if you start hearing this "drill, baby, drill," if you

start hearing that again, just remember, you've got the facts. we are doing that. tell me something new. that is problem number one. here is the second problem with what some of these politicians are talking about. there is a problem with a strategy that only relies on drilling, and that is that america uses more than 20% of the world's oil. if we drilled every square inch of this country, we went to your house and we went to the national mall and we put up those rigs everywhere, we would have only 2% of the world's node oil reserves. -- known oil reserves. let's say we miss something --

it is 3% instead of 2%. you don't need to be getting an excellent education at prince george's community college to know that we have a math problem here. [applause] i help out sasha occasionally with her math homework gi know that if you have 2 and you've got 20, there's a gap. there's a gap, right? anybody good at math here? am i right? if we don't develop other sources of energy, if we don't develop the technology to use less energy to make our economy more energy efficient, then we

will always be depended on foreign countries for our energy. [applause] and that means every time there is instability in the middle east, which is the main thing driving up oil prices right now, the same thing driving up oil prices last year -- every time that happens, every time there is unrest, any time there is concern about a conflict, suddenly oil futures shoot up. you are going to feel it at the pump. it will happen every single time. we will not fully be in control of our energy future is our strategy is only to drill for the 2% but we still have to buy the 20%. and there is another wrinkle to this. other countries use oil, too. we are not the only ones. you got rapidly growing nations

like china and india, and they are starting to buy cars. they are getting wealthier. they one cars, -- they want cars, too. that means the price of gas will rise. in 2010, china alone added 10 million new cars. that is just in one year. there are about 1 billion chinese. more peoplea lot who are going to want cars in the future, which means they are going to want to get some of that oil, and that will drive prices up. we can't just drill our way out of the problem. we are drilling, but it is not going to solve our problem. that is not the future i want for the united states of america. we cannot allow ourselves to be held hostage to events on the

other side of the globe. that is not who we are. america controls its own destiny. we are not dependent on somebody else. [applause] we cannot have an energy strategy for the last century that traps us in the past. we need an energy strategy for the-future, and all-the of- above strategy that involves every source of american-made energy. yes, develop as much oil and gas as we can, but also develop when power and solar power and biofuel. [applause] make our buildings more fuel efficient, make our homes more fuel efficient, make our cars and trucks more fuel efficient so they get more miles per gallon. that is where i want to take this country. [applause] here is the best part of that -- thousands of americans have

jobs now because we doubled the use of clean energy in this country since i came into office. i want to keep on making those investments. [applause] i don't want to see wind turbines or solar panels or high-tech batteries made in other countries by other workers. i want to make them here. i want to make them here in maryland. i want to make them in the united states of america, with american workers. that's what i want. [applause] when i came into office, i said how are we going to start moving america in that direction? it is not asking you get done in one year, but how do we start moving in that direction? after 30 years of not doing anything, we raise fuel economy standards on cars and trucks so that by the middle of the next decade, our cause will average nearly 55 miles per gallon,

double what we get today. [applause] 55 miles per gallon. so, you know, the young people here driving those -- [laughter] getting, you know, five miles per gallon, we will get you to 55. that will save the average family eight belles and dollars over the lifetime of carper -- $8,000 over the lifetime of a car. that will pay some bills. those are the cars we needed to keep building here in the united states. yes, we can do that. [applause] all right, so -- now, to fuel

these cars and trucks, obviously, if you are using less gas, that is great. but we also want to invest in clean advanced biofuels that can replace some of the oil that we are currently using. that is important. already we are using these biofuels to power everything from city buses to ups trucks to navy ships. i want to see more of these fuels in american cars, home grown fuels, because that means we are buying less oil from foreign countries and we are creating jobs here in the united states, including big parts of rural america, rural maryland, where the economy oftentimes is struggling. you have an opportunity to create entire new industries and put people to work. and it is happening all across the country.

all of these steps have put us on a path of greater energy independence. here is a statistic i want everybody to remember, next time you talk to somebody who doesn't know what they are talking about. [laughter] since i took office, america's dependence on foreign oil has gone down every single year. [applause] in 2010, our oil independence, the amount we are bringing in, the percentage we are bringing in, was under 50% for the first time in three years. [applause] better than do that, and we can do better than that. yes, we can. but in order to do better than

that, we have got to tell folks who are stuck in the past that our future depends on this all of the above energy strategy. it can't just be drilling for more oil . oil, drilling for more but that cannot be all the solution. that is part of the solution. lately we have heard a lot of professional politicians, a lot of the folks who are running for a certain office -- [laughter] who shall go unnamed -- they've been talking down new sources of energy. they dismisse windpower, they

dismiss solar power, they make jokes about biofuels, they're against raising fuel standards. i guess it they like gas guzzlers. they think that is good for our future. we are trying to move towards the future, they are stuck in the past. we have heard this kind of thinking before. let me tell you something -- if some of these folks were around when columbus set sail -- [laughter] founding've been members of the flat earth society. they would not believe that the world was round. [applause] we have heard these folks in the past. they probably would have agreed with one of the pioneers of the radio, who said television won't last, it is a flash in the pan.

one of henry ford's advisers was quoted as saying that "the automobile is only a fad." [laughter] heh. there have always been folks like that. there have always been folks who are the naysayers and don't believe in the future and don't believe in trying to do things differently. one of my predecessors, rutherford b. hayes, reportedly said about the telephone, "it is a great invention, but who would ever want to use 1?" [laughter] that is why he is not on mount rushmore. he is looking backwards, he is not looking for words.

he is explaining why we cannot do something instead of why we can do something. there will always be cynics and naysayers who just want to keep on doing things the same way we have always done them. they want to double down on the same ideas that got us in some of the mess we have been in. that is not who we are as americans. america has always succeeded because we refuse to stand still, we put faith in the future, we are makers, builders of things, where thomas edison, we are the right brothers, we are bill gates, we are steve jobs, that is who we are.

[applause] that is who we need to be right now. that is who we need to be right now. i don't understand what i hear folks who are in elected office or aspire to elected office who ignore the facts and seem to just get a cute bumper sticker line instead of actually trying to solve our problems. what i just said about energy, by the way, is not disputed by any energy experts. everybody agrees with this. so why is it that somebody who wants to help lead the country would be ignoring the facts?

if you want an example of what i am talking about, considered an important issue that is before congress right now. i think somebody may have fainted. remember next time, if you are going to stand for a long time, you have got to eat. [laughter] no, no, that's true. you got to get something to eat, you got to get somei'm just say. they will be ok. just give them space. there is a question before congress that i want everybody to know about. the question is whether we should keep giving four billion dollars in subsidies to the oil industry. >> no! >> the oil industry has been

subsidized by you the taxpayer for about 100 years. 100 years. 100 years, a century. so some of these same folks who are complaining about biofuels getting subsidies, or wind or solar getting subsidies, or electric cars and advanced batteries getting subsidies to help get them off the ground, these same folks, when you say why are we still giving subsidies to the oil industry, well know, we need those. oil companies are making more money now than they have ever made. on top of the money they're getting from you at the gas station every time you fill up, they want some of your tax dollars as well. that does not make any sense. does it make sense? >> no! >> it is inexcusable.

it is time for the oil industry giveaway to end. [applause] so in the next few weeks, i expect congress to vote on ending the subsidies. and when they do, they will put every single member of congress on record. i guess you could stand up for the oil companies who really do not need much help, or stand up for the american people, because we can take that $4 billion, we an be accinvesting it in clean energy future and fuel efficiency, we could actually be trying to solve a vital problem [no audio] the energy of the past, or we can place our bets

on america's future, on american workers, american continuity, american science, american productivity. we can bet on america and our capacity to solve this problem. that is the choice we face. that is what is at stake right now. maryland, we know what direction we have to go. and every american out there, as frustrated as they are about gas prices right now, when you actually ask people, they will tell you, yes, we have to find new sources of energy. we have to find new ways of doing things. people understand that. we just have to get washington to understand. we have to get politicians to understand. we have to invest in a serious, sustained, all of the above

energy strategy that develops every resource available for the 21st century. we have to choose between the past and the future, and that is the trees we should not be afraid to make, -- that is a choice we should not be afraid to make, because we always bet on the future and we are good at it. we are good at being head of the curve. we are good at being on the cutting edge. [applause] ending the subsidies won't bring down gas prices tomorrow. even if we drilled every inch of america, that won't bring gas prices down tomorrow. but if we are tired of watching gas prices spike every single year and being caught in a position where what happens in the middle east and the taking money out of your pockets, if we want to stabilize energy prices for the long-term and medium-

term, if we want america to grow, we're going to have to look past what we have been doing and put ourselves on the path to a real sustainable energy future. that is the future you deserve. i need all of you to make your voice is heard. get on the phone. send an e-mail. write a letter. tell your mom there -- tell your member of congress to do the right thing. tell them that our optimism, our brain power, our manpower, our womanpower, tell them yes we can, tell them we are going to build an economy that lasts. tell them we're going to make it the american century just like the last century. thank you prince george's community college. thank you, maryland. let's get to work.

god bless you. god bless america. ♪ ♪ [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> the vice president had a campaign event today in toledo, ohio. we will show that to you later in our schedule. on the republican campaign trail today, rick santorum is in puerto rico, which holds its primary on sunday. newt gingrich is in illinois.

ron paul is hosting a rally in missouri at the university of missouri in columbia. mitt romney has no campaign events today, but he is fundraising in doing media interviews. there are three remaining primaries in march. we are following all of them. campaign 2012 primary and caucus results are on the c-span networks. you can check out c-span.org /2012 for the latest delegate count. >> gives us an excellent base to remember the date of november the fifth with. in the beginning, the electoral vote that comprise the states of the south, and when you combine that with just a few other states in the union, then you

have 170 odd votes necessary to win the presidency. >> as candidates campaigned for president, we look back at 14 men who ran for office and lost. go to c-span.org/contenders to see video of the contenders who had a lasting impact even though they lost their elections. >> do not let anybody be misled. you have given here in this hall and moving in dramatic proof of americans who honestly defer moving forward shoulder to shoulder. >> i was quite a radical as a young person.

i thought singing we shall overcome was not a very effective way of gaining civil- rights. i felt more confrontation was needed. >> economics professor, columnist and substitute host for rush limbaugh walt williams on being a radical. >> radical is any person who believes and personal liberty and individual freedom and limited government. that makes you a radical. i have always been a person who believes that people should not interfere with me. i should be able to do my own things so long as i do not violate the rights of other people. >> more with walter williams sunday night at 8:00 p.m. eastern on c-span's "q&a." >> former treasury secretary under bill clinton and obama economic adviser larry summers gives his thoughts on the

current economic situation. he was part of a summit hosted by the atlantic. this is about half an hour. >> first of all, rick is the senior managing editor at mckinsey and former editor of fortune magazine and an old friend. i guess it was a year, a year- and-a-half ago, before dr. summers had left the administration, he hosted an event at the ritz carlton and larry spoke at it. there was an article that was held up about what was different, what have we learned that we had not thought about before. i heard larry summers give one of the most -- he seemed to be thinking out loud without worry about the political repercussions of what he might be saying -- and it was one of the most extraordinary -- i wanted to have a huge press conference after because he was

exploring questions about, do we need to begin thinking about multi-national corporations and how their national objective -- it was very interesting. he spoke recently and martin wolfe of the financial times interviewed him. it was another thinking out loud moment. when you spend times with larry summers, you not only get someone who is deeply engaged, you get someone who thinks aloud in ways that are often different than the larry summers we got to know in the media. >> thank you, steve. >> thank you for that introduction, mostly. others would say that the reason people come to hear me talk is a little bit like going to run on the race. you never know when i will crash. >> larry, i was going to add to

just remind people who did not know who you were that you're the former head of the nbc, former treasury secretary, former president of harvard and future we do not know what, unless you want to comment on that? ok. we have spent a lot of time today talking about not much happening between now and the end of the election. we have a fair number of speakers who have talked about what happened to -- what happens between and. it is an important moment for our country. ed rendell said if we do not do something in those five months, we are cooked. how do you see it and what would you put as your big priority? >> i am not sure there is one priority, and if i have learned

anything over the years, and an it is that nine months is a long time in the world may look very different in mid-november than it does right now. but i would make these three points. first, the single most important determinant of almost countrypiration becauthe has, whether it is healthy government finances or rising wages for middle-class families, whether it is reducing poverty or whether it is maintaining leadership in the world, is the rate of growth of our economy in the next decade. so, if we do not succeed in maintaining sustained economic growth at a rate that puts a rising fraction of our population back to work, we will not succeed in anything else, including, we will not succeed

in repairing the government budget situation. so maintaining its policy focused on ensuring an adequate level of demand and growth in demand, whether that means promoting exports, whether that means performing and spending appropriately on infrastructure, whether that means appropriately designed tax reform is a critical issue. but in our concern with posterity, let us not forget that we get to posterity through the next few years, and that if our economy stagnates as japan's did after several false starts, as america's did in 1937, that is what will be the most serious threat to the nation's fiscal health and much else.

so frankly, i am very encouraged by the statistics of the last few months. i am more encouraged than i have been any time in the last five years about the situation of the american economy, though there are no certainties. but its is terribly important to maintain the momentum of growth. that is number one. >> does it look self sustaining to you? >> i do not think it is right to make an absolute declaration on that question, but i have much more confidence in the likelihood of it being self sustaining right now than i did in either 2010 or iditarod in -- or i did in 2011, and it feels like the pieces are coming together. but i would still say the risks are much more on the side of the

economy being too cool than on the economy being too hot. the second thing i would say is that in a recent presentation i saw, the speaker reduced our budget problem to something simple in a way i had not heard put this way before but i found very helpful. he basically said that, you know, there are things you can do with domestic discretionary and things you can do with defense, but a lot of toothpaste is out of those tubes. in essence, what we have to do by 2022 to have the nation's finances in a stable place is reduce spending by a quarter or

raise revenues by one sixth to have things in a stable place. as far as i can tell, he is right. it is the nature of the problem, as far as entitlements and as far as revenues, that it is difficult to act suddenly. people need to know what is coming. in the case of health care, we're going to need to experiment a fair amount because the truth is the world does not completely know how to predict health care costs or how to control health care costs. there has been some recent encouraging development with respect to medicare costs on one hand. independent payments advisory board, which is a huge controversial issue, is being scored for 10 years at $3 billion right now which suggests that it is not an issue of quite

the magnitude that people thought at the time. health care is an area where we are going to have to feel our way. social security is a matter of political choice. health care is a matter of experimentation and analysis. if you ask me what is the issue that unites the broadest range of economic concerns in the united states, it seems to me that it is tax reform. because it is tax reform that is central to revenue, central to the budgetary challenge. the tax code and the incentives it provides that are central to spending decisions which go to demand and growth. it is taxes and their

productivity that are central to issues of equity and fairness in this society. look, i will add one thing here that will touch on someone running for president, and i think you'll get the reference. i do not think anybody is under any obligation to pay more taxes than they ago. i really do not. the tax code is what it is and people should be allowed to take advantage of it, but they should be in favor of changing it. i think it is stunning and unconscionable that there exists million-dollar iras in america when there is a contribution limit of two thousand dollars. i do not think the law was

broken, but if there was ever an example of the adage that it is not the things people do that are legal -- that are illegal but the things people do that are legal, it is that. i think the chance that that is the last big abuse that nobody has noticed is roughly zero. the third reason tax reform is important is fairness. the fourth is confidence in our political system. there is a reason why congress's approval ratings make bankers approval ratings look stratospheric. and it is not that there are not good people in congress and that they are not enormously good people.

it is the set of pressures that come from the way we finance our campaigns, the way we are responsive to lobbyists and all of that. and i cannot think of a better way to show that it is a new day than to clean up the tax code. so, it seems to me that for those four reasons, the integrity of our politics, fairness, prosperity and the avoidance of debt, all of those run through tax reform. now, i do not think it is impossible to do comprehensive tax reform in a lame-duck session. but i think it is unlikely. and so i think we're going to have to think about a political formula that is going to find a

way of handling the trifecta of sequester and the bush tax cuts ending that we referred to, of handling in committing to a set of things and allowing the time to do a comprehensive tax reform proposal. but i think whoever is president, tax reform should be the top of the national agenda, and i think it will be. >> you wrote an article recently sang and nothing could be more important than the next four years -- saying nothing

could be more important than the next four years of the presidency. it sounds like you're reaffirming that. paul volcker spoke about this and said he would like to be even bolder than the grand bargain, moving toward integrating personal taxes with corporate taxes or moving to a consumption tax. i do not need you to tell me your detailed plan, but directionally, how would you look at revenue raising versus incentive trade-off. can you say more about the framework he would bring to this? >> i think we should be open to every possibility. i first quit in 1985 that -- quipped in 1985 that america is

has never had -- that america has never had a value added tax because conservatives think it is a money machine for government and liberals think it is regressive, and we will get it once conservatives think it is regressive and liberals think it is a money machine for politics. i guess i would want us to keep a pretty clear awareness on the four things i said as a test. i worry -- i think we're going to need more revenue because i do not think we're going to cut entitlements. i just do not think it is going to happen. i think the response in national defense is likely to be more unfavorable than favorable. i think discretionary spending

cuts are laudable, but they are already tightly squeezed. entitlements -- unless we are lucky in the way that health care adjusts itself, which is not what i would expect, but not something i would rule out. so we're going to need more revenue. look, in simple numbers, simple numbers, the top 1% of the population used to get 10% of all the income, and now they get 20% of all the income. that works out to about $8,000 per taxpaying unit in the bottom 90%. and it works out to about $800,000 for each taxpaying unit in the top 1%. i would suggest you a simple criteria. while that is happening, the relative tax burden on the top

1% should not be going down. you can argue about whether when you have a lot of inequality should have more redistribution. it is an interesting argument, but it is very difficult to understand why we should have less. the least honest advocacy in a town where there is a lot of dishonest advocacy are the people who say the top 1% are paying a lot more in taxes than they did before, there for the burden is already on the rich, neglecting the reason they are paying more, which is that they have more income. >> in addition to thinking about it as we look at reforming

taxes, are there other things that policy can do, that should be doing to deal with the various factors, globalization, a technology change, and things that are causing it to get worse? that is's a lot of this going to be very hard to change. look, if you think about the evolution of the publishing industry from -- >> i prefer not to. [laughter] >> publishers, wholesalers, distributors, a little bookstores, barnes and noble, borders, amazon shipping books mailed, amazon selling e-books, which there

were more of sold last month than print books. you get more variety, lower cost. it got better to be stephen king. because he had access to much better distribution. what got worse was to be working behind the cash register or be a store manager. that is basically what happened. those kinds of forces are happening almost everywhere. and you cannot change them. and if you did try to change them, you would be taking us that from the world's cutting edge, which is not where we want to go. that is why a fair amount comes back to tax policy. but there are other things to be looking at. much more transparency in compensation is clearly a helpful thing.

where the government is in the business of conferring rents, more options and less give away. less responsiveness to political pressures. that is something that is helpful. i do think we need to engage the -- and this is a very difficult set of issues, and is easy to descend into populist known nothingism in this dimension, but with the citizens united decision, we decided somehow in america the corporations have a free-speech right of citizens. well, you know, it goes back to the framers that citizenship

comes with privileges and comes with obligations. i think we have to think very hard about what we ask american corporations to do in america. when you think that the orientation of our commercial policies, we have to think about whether our object of focus -- this is a point that bob reis highlighted years ago, whether the focus of our concern is productive activity that takes place within the united states and employees americans, or whether the focus of our concern is corporations that are legally registered in the united states

that may be producing anywhere. i think some greater focus back toward the interests of american workers in our commercial policies would be constructive. >> interesting. i'm going to ask one more question and then i think we have about seven or eight more minutes. i suspect some of you would like to ask larry a question too, and you are welcome to walk to the microphones. we discussed energy policy. would that be a big priority for you if you're called on to give a piece of your mind to the next president? >> if you think about the large systems in our economy, there is a health care system. we passed comprehensive reform. we will see how it works. there are a lot of questions you can ask about it, but we had a bit -- a big consideration and

we did something. financial system, we had a big consideration and we did something. we're in the implementation phase. there is an education system. we have worked that system and are striving to reform that system. i think the areas that are less touched by reform and that need to be touched our energy and the broad infrastructure. by broad infrastructure, i embrace both public infrastructure and -- like highways, and infrastructure that is primarily exploited by the private sector alike spectrum. i think both of those systems, infrastructure and energy, are very much in need of attention. i think energy is a classic area where it needs to be both.

yes, we need a greater commitment to renewable spirit yes, we need a greater commitment to the substantial national gas resources rediscovered. yes, we need a substantial commitment to energy efficiency. we need, more than we have traditionally in the energy area, instead of doing what this town has a tendency to do, which is the intersection of policies that nobody hates too much, we need to do the union of policies that some set of people think will be terrific. i think if we do that, we can make some real progress on energy, and i think whoever is the next president, that is something that should be on the agenda. >> great. great. i see people are standing.

let me start here and we will go over there. >> thank you. secretary summers, you were there the very key time at harvard during the incubation of facebook. i was wondering if you could touch on the hands of lessons learned there and how that might translate to some of the thinking here in today's program. >> i get blamed for all sorts of things i did at harvard which i actually had nothing to do with. i am sorely tempted to take credit for facebook even though i had nothing to do with it. i guess i could call having nothing to do with it creating an enabling environment. [laughter] it might be the most shameless claim ever made. look, i think the fact that we

have enormously talented young people, we bring them together in a hothouse environment and encourage them to create and to innovative strengths things f the great strengths of this country. every year that i was at harvard i gave some kind of speech to be graduating seniors, and the one piece of advice i always gave was to not be fungible. do not make yourself fungible. do something where you have some kind of uniqueness. i think that was good advice and i think that kind of culture contributes to why the united states produces.

you look for a non-united states larryo add to the leist of page, as their day, mark zuckerberg, larry ellison, it is not easy. >> i have a question about our defense budget. i think the correct figure is about 1.2 trillion dollars a year on a full cost basis. my question is, why is it so difficult, politically and otherwise, to discuss seriously reducing that? we spent more than all other nations combined. it is a huge piece of the total expenditure of the budget. why is it difficult? why is it an area that is not

discussed? >> is discussed, and indeed the current plans call for significant reductions in defense spending, and if you ask about the longer trend, today we are running at three. something% of gdp in defense spending. -- 3. - something percent of gdp in defense spending. in the 1960's, we were spending something like 8%. we have reduced spending, if you take the long view. i am not an expert on anything, but i do not claim to be an expert on national security. i do claim to be an expert on some other things.

i guess i would ask you to think about, when we sent 200,000 soldiers abroad, 40% of what we allocated to the first iraq war or the first be in on, we are -- or vietnam, we are stretched thin. maybe it is important to be able to maintain our posture. maybe being able to maintain our posture while we have 300,000 people abroad is just untenable. but i would not say that is 100% obvious at this point. that is why i would want to be very careful. national security is like fixing the brakes on your car.

it is good to save a little money, but it is really very dangerous to over economize. i think that is worth keeping in mind. >> i think we're going to have to end on that note. thank you for joining us. >> our system is fundamentally undemocratic and a number of ways. one of the ways is closed primaries. in half the states of the country, 40% of all the voters cannot participate in the primary. so they have no say in who gets nominated. as a result, we get more and more extreme candidates on both ends of the spectrum. >> saturday night at 10:00 p.m. eastern on afterwards, linda killian writes in "the swing votes" that the most powerful voting bloc in the u.s. is independent voters and they have decided every election since

world war ii. on sunday night at 10:00, syndicated talk radio host marc levin and his thoughts on the current state of politics. book tv, every weekend on c- span-2. congratulations to all of this year's winners of c-span student camera video documentary competition. a record number of students entered a video on the theme, "the constitution and you," showing why the constitution is important to them. what all of the winning videos on our website, c-span.org. enjoin a saturday when we show all of the seven -- join us saturday when we show all of the winning videos. we will talk to the winners on washington journal. >> the next panel looks at the impact of government

regulations. it is about an hour and 15 minutes. [applause] >> thank you very much. on behalf of steve clemens and the atlantic, i want tothank all of you for your participation in this extraordinary conference. it is a privilege to be here. in this conference, we have very specifically tried to include voices from across the spectrum. in some respects, you might say that is the purpose of this conference. we have asked them the very straightforward question, what should we do now? through the day, we're hoping to hear different ideas, and hopefully some provocative proposals. for my part, i would ask a few questions to keep in mind. as the u.s. private sector

already started to re-lever, taking the need away from more stimulus? shouldn't we be taking measures for stimulus that is more productive than unproductive? have we properly framed the population question? the most important phenomenon in the last couple of centuries has been the unprecedented population growth. in many respects, the world is still in expectation of higher population growth, our social security programs and the like. lastly, in any discussion of job creation, should we not be focusing more on innovation than monetary, fiscal and trade policy? will nanotechnology, genetics, robotics and the cures for

toore diseases have far more do with job creation in the future than these types of policies? in any event, here is hoping for a great exchange of ideas. and now it is my distinct privilege to introduce james bennett. since 2006, james, who is a graduate of yale, has been editor in chief of the atlantic. prior to that, he was the jerusalem bureau chief for the new york times, where his coverage was widely acclaimed for its balance and sensitivity. before jerusalem, he was the times' white house correspondent and he was preparing to go to the beijing bureau when he was snatched away by the atlantic to be its editor. please join me in welcoming to the program, a true leader and visionary, james bennett. [applause]

>> thank you very much, richard. i would like to tell you all a quick story about the atlantic to tell -- to explain why the conversation we're going to have today mean so much to us. the atlantic, as you may know, was founded a very long time ago in the 1850's to advance a culture of ideas in society and particularly to promote the abolition of slavery. when the magazine actually launched in 1857, the country was very preoccupied with a different issue, which was the economic crash of that year. there was a big public policy offering in that issue, and it was not about slavery, it was about the economy. the writer survey the landscape and had identified about four different areas of what had gone wrong.

if you'll bear with me, the pros is very much of that area -- of that era, but the critique maybe familiar. one critic cries that we americans are an unconscionably greedy people, ever hastening to get rich, never satisfied with our gains and in our quest for wealth this regarding justice. it is not so much greed, the vice of the miser, but extravagance, the vice of the spendthrift. as soon as we get $1, we spend 10. when the time comes for paying for all of this glorious revelry, we collapse, we wither, we fleet, we sink into the sand.

a third voice he says complaints that the problem is actually the absence of a protectionist trade policy. there is no high tariff. the fourth is the existence of a credit system which is by its very nature inflationary. the writer went on to say that all of these views have some merit, but that the real problem was the ease with which our currency was inflated by the american banking system which he says of varies from state to state and outside of new england and new york where it is by no means perfect is as bumbling a contrivance as was ever inflicted on mankind. financially be more than 50 years before the federal reserve was created to deal with at least some of the problems he identified enough for story, which actually brings us to the issue -- the new issue of the

atlantic which appears today. our cover piece is on ben bernanke is effort to use the federal reserve to address the economic crisis in which we find ourselves. it is a wonderful piece by roger lowenstein. on the cover he is the hero. inside, he is the villain because he has managed to enrage both the right and the left, with what roger argues is a daring effort to get things moving again. i hope there'll be some disagreement as well as some agreement with our conclusions over the course of today. this issue is out today. there is some other wonderful stuff in it, if i might say, including a piece on how our spending habits have changed over the last few years. a piece on how market logic has seeped into our consciousness, and for those looking for something more fun, a terrific

profile of the man who successfully took three separate casinos for $15 million and how he did it. at the same time, our special money report on our web site goes live later this afternoon. now it falls to me to bring steve clemens up here. i generally feel silly introducing steve clemens because everybody already knows him. steve, if you do know him, is a man who believes deeply in servicing the next provocative idea and hearing from as many different points of view as possible which is what makes him perfect for the atlantic. he is the editor in chief of our atlantic abroad division and the guy who brought us all together today. steve. >> thank you. i want to say that we are being

covered today by cnbc, by bloomberg. we're live all day today on c- span. we have a lot of blogs streaming this as well. we have a big community outside this room. if youf you who tweakeet, like something, you can tweet it, or if you hate it. last night, i was having dinner with an msnbc commentator and a good left radical player. after we left, he said good, fantastic, cerebrum discussion, but boy does that differ from the politics out on the street. that is what we hope to achieve. we want to bring together people with different views on the economy and the effort to fix

it, but do so in a way that uplifts the conversation and does not tear it down. the notion of being both provocative yet constructed is important today. -- constructive is important today. now have the pleasure of bringing up our next panel. we will not delay. we have ed luce, the chief commentator for the financial times to will moderate the next session. peter hooper, managing director at deutsche bank securities and co-head of deutsche bank global economic team. , kelly, chairman of the global society of fellows at the global -- paul kelly, chairman of the global society of fellows. i would like to mention one thing a e aboutd luce. not only do we have -- one thing

about ed luce. we have the financial times out there. ed is also the author of a forthcoming book which you can order before it comes out next month called, "time to start thinking: america in the age of escent." >> thank you. an amazing audience here. thank you for that introduction. i want to re-introduce our guests. we have about an hour to discuss what caused this fall of

capitalism and how to fix it. i'm sure that is enough time. you have trenchant views, well- known books. from the perspective of today, looking back on 2008 and the buildup to 2008, you can almost indulge in a kind of murder on the orient express in trying to identify who is responsible and what is responsible for the meltdown and find that everybody has a different theory and essentially there are so many fingerprints on the dagger that there is no one real culprit. what, from a slightly different perspective, what you think would have happened or not happened in 2008 had dodd-frank

already been in place? >> honestly, i am not sure that the outcomes would have been materially different. the big profile of what happened is that we had more and more consumer debt in the united states. the biggest culprit was, of course, the housing bubble. we had all other kinds of consumer debt. some people were calling the housing bubble as early as 2002. but it probably died in early death in 2005. countrywide was even predicting in 2004 that its origination levels would fall in 2005. what turned out to keep the party going was the introduction of the protocol on credit defaults swaps that allowed people to make short bets, and ironically, the other side of those short bets ended up being aaa trenches of -- traunches of

cdo's. traders could gain their bonus systems much more than u.s. banks. it led to a demand of subprime debt and an extension of that market. dodd-frank does not address the credit defaults swaps market. the volcker rule has some provisions regarding repose. those were able to be gutted. then the other sort of hope for dodd-frank was that we would have these resolution procedures, the banks when they get sick, the fed could put them down in a more orderly manner. no one has ever put down a major bank trading operation cleanly. at some point, you have to stop the music if you're going to

resolve it, shut down the trading positions and value them, and no one wants to be exposed to that. if you are a hedge fund or trader, you do not want to have your positions frozen. the notion that you can have a bank that people think is in trouble and have a dodd-frank resolution -- i am very concerned that we are not there. >> so, the short answer is no. [laughter] i was not being facetious. you have a book coming out, "from financial crisis to stagnation: the destruction of shared prosperity." that might presage a little bit

of what you're going to say. do you agreed thatdodd-frank would not have prevented it? do you agree that ben bernanke is a hero? >> that is two questions. let me take question no. one. dodd-frank would not have allowed a lot of the excesses that developed. what would have happened, we are trapped in stagnation now. that is what my book is about. what would have happened is that we would have tumbled into stagnation. i think when economics -- economists come to look at this era, they will see it beginning with the bursting of the stock market bubble in 2001. what the fed managed to do was keep the thing rolling along by

i would have been making some of the same decisions -- if i had my aunt regulation already -- as a result, six years of letting the bubble run on, we accumulated massive amounts of extra debt. we had a tremendous destruction of credit worthiness which is essential to the working of the capital's -- capitalist system, so are a stagnation would have been milder. >> we will come back to what the new bubble looks like. you used to work at pimco, which is the biggest player in that that market. you are now a philanthropist and

[unintelligible] who is responsible for that? >> we are responsible for the men's ski moment. the essential contribution to economic thought is that capitalism is inherently not self-stabilizing, but self- destabilizing. we pathologically moved from boom to bust and proper regulation can dampen that human nature but cannot eliminate it. the is central contribution was that we should assume boom and bust tendencies to the economy as opposed to self-correcting tendencies. therefore, we are responsible for collectively what happened with the men's the moment. i think we would catch it -- we

could have done things and that would have dampened it, and i do believe in the power to dampen our own pathologies, but we did not. given one, it would be the federal reserve. luckily starting in 1994 when the fed was explicitly given the right to declare what was and wasn't an acceptable mortgage to be [inaudible] and our country and not use the authority to define what is acceptable mortgage and capitalism to run amok and find out just how low it can go.

if there was one thing that could have been done differently, it would have been if the fed had constituted an acceptable mortgage in our society. no money down, teaser rate with no documentation does not strike me as an acceptable mortgage. >> [inaudible] >> i'm a huge fan of ben bernanke and i think he has learned from experience and i think he's a very smart man for a very long time. i take my hat off to mr. bernanke, both as a governor and chairman of the board of governors. he is a hero of the piece i'm presenting in a couple of week'' time. >> we will get back to that.

you were an ex that official, 26 years at the fed, i believe. could you give the case for the fed? nobody has mentioned what some would describe as the a proximate cause here -- is american over consumption a factor here? >> let's go back further and look at a slightly larger picture and to go backed to where the fed was fighting major inflation. with unemployment getting into the double digits -- that started off a two-decade bull market for bonds as well as for stocks. inflation came down over time

and the fed was successful and bringing inflation down and engineering to great moderation lasted for 25 years, during which inflation not only came down but risks came down as well. we also had a bull run in the housing market and had policies in place to encourage home ownership and a belief house prices would never drop. this was a factor that fed into the financial engineering and some complacency at the fed. i am not going to disagree on the regulatory breakdown. there was a philosophy at the top that said markets to a better job of policing

themselves than government regulators. unfortunately, that was one of the contributing factors. certainly the success of the fed taking risk out of the system and allowing home prices to go up -- greenspan was proclaimed a hero himself for this success. >> [inaudible] i was surprised to find that it was the eighth largest bank in that u.s. and had a good vantage point to observe what is going on in the last few years and what has not been going on. could you share some insights there? is there more we could learn from canada?

>> let's work through the differences and experiences because i think it is a good point. your example of murder on the orient express works well because i can't find anyone not to blame for what happened. people took mortgages they should not have landed -- they got away with it because they could parcel them out to investors who did not appreciate the risk and should not have been buying them. it was facilitated by incentives like mortgage interest deductibility that encourages people to take out bigger mortgages and a host of other policies that a encourage the behavior, the regulatory oversight was not robust and people could not keep pace with what was happening.

regulators fell behind the curve and so everybody was to blame. part of the reasons interest rates remained low for so long was the global imbalance and recirculation of china's foreign-exchange that created be alan greenspan conundrum. it was a complete fallacy -- economics tells us you go through business cycles. at some point, a shock will hate you and it will cause an unwinding of balances. as we had lower and stable inflation rates, there was a greater willingness to extend credit and there was a push for a low yield environment that many people going up the risk curve. ultimately what was happening

was as imbalances built up, the fed lowered interest rates which increased the credit bubble. we have a credible but it wasn't just a credible for the united states. >> you have much, much stronger regulations. >> when the housing bubble in the u.s. collapsed, and was the unwinding of accesses and one of the core reasons the canadian financial system weathered the storm so well was that the number of regulators is much smaller and can coordinate with each other. there are only five institutions overseeing the system. you could get people in the room and say what do we do and how do we deal with the problem? canadian financial institutions

carried more capital and were less leveraged than many other large banks. that's partly because of culture. >> canadian banks were more boring? >> and criticized for it. you can find lots of examples of stock analysts that were highly critical of canadian banks for not having a strong enough writ raised year -- strong enough risk appetite which at the end of the day turned out to be a positive thing. the canadian financial system does not do a lot of innovation. it tends to watch what goes on in the united states and says that seems to work pretty well. then canada will start doing things and as the risk appetite went up and we saw increased numbers being done, canada had far fewer subprime loans.

in canada, it got up to about 5%. when the financial system ran into difficulty, it was a liquidity crisis. the central bank stepped in and said here is liquidity to get you through the crisis and once the system settled down, the banks came back to life and operated very well. >> of the dodd-frank -- that was supposed to be your site. >> the dodd-frank bill provides greater oversight but would it have stopped what happens? absolutely not. >> i agree. many crucial elements could have

helped ease some parts of that but at the same time, you would be looking at a higher cost of capital which may or may not have been desirable. >> i agree that it would not have stopped it. >> [inaudible] >> from a global perspective, basel 3 is very important. it make sure that if something goes wrong they remain solvent. need to reduce the leverage you have your system to ensure what a shock hit it is not too big. while we tend to look at what is going on with dodd-frank, basel 3 is better at looking at risk.

>> everyone knows what happened with your minski moment and the banks were saved and are back to where they were before the crisis. in terms of looking at the recovery today and assessing whether the recovery is durable, the role of the housing market is absolutely critical and the degree to which has delivered. was it a mistake not to have some kind of massive bazooka for main street, the kind that was there for wall street? just sort of pension in -- was that a mistake -- a sort of pitch in.

was it not -- was a mistake? >> yes. we have thrown everything toward it for three years now and facts get created that cannot get reversed. huge mistake and we are paying for it. >> the economy is a liquidity trap. money is not circulating the way it really should be and part of the reason is not circulating is because of the impediments coming from a housing market that is a continuing to decline. >> there are other elements to this. we like to hold as a point of pride that we have a resolution process. when a company gets in trouble, there's a discipline process to write down the debts so that it goes forward and some companies have to be liquidated or, having

the reverse happen in housing. before the era of securitization, if a bar were caught in trouble, is he worth more to be dead than alive? a vast majority of quiet -- vast majority of cases, they would to a modification. nobody would know and there is no social jealousy. now we have a significant amount of housing debt. their payments to modify our an adequate and they make money by attenuating foreclosures. they charge more servicing fees and late fees. we need to build a significant infrastructure and the consequence, we've got a huge number of foreclosures in the

pipeline. the banks have 3 million houses somewhere in the foreclosure process. there is another 5 million houses in serious delinquency. we have a big overhang here. the federal settlement is not going to make any difference. it is it too small and badly structured. >> you are pessimistic about the mortgage modifications? >> to our hero on the atlantic monthly cover, i ask the question why did we wait until 2011 to go after the mortgage

security markets? the fed should have targeted that market and we could have gotten a huge windfall that is not possible now because once your credit is gone, you cannot get a refinancing. this is a black mark against our hero, but let's be balanced. >> i am assuming that there is agreement there should have been more aggressive action on the housing market. >> we had a problem that was going to have to be resolved. the policy could have made things a little easier, but prices went way higher than they could sustainably maintain. the stock of vacant homes rose

several million units above a longer-term trend. we have a lot of excess inventory that needed to be run down. home building dropped sharply, home prices had to come down. that was going to create a lot of pain to the economy that was not going to be avoided. unless we are going to put a lot more people into home ownership than was sustainable in the long run, you were not going to be able to avoid a major adjustment to the imbalances that had been created during the bubble. there are moves going on in washington today to begin to work off a stock of vacant properties to begin to finance investors in a bigger way than

has been in the past. the housing market is one where homeowners are no longer getting financed. if you are going to have principles write-downs and allow people to foreclose, you are going to have to find some way of financing this. then you get into the fiscal problems we're dealing with. things can be done to ease the problem, but there are costs. >> why wasn't this done? >> because it smells incredibly badly. we did what we did for the banking system and it was a sorry spectacle to launch the political process. we got to see it voted down and

we had congress holding it knows that he was going to buy the assets and then he quickly changed his mind. it essentially, it passed because it had to pass. it did not pass the smell test of democracy. it unambiguously was favoring a class that would not have gotten the benefit. he said either you pass it or -- it passed because it had to pass. it did not pass the smell test of democracy. it is basic unfairness. it was unfair and it would have been unfair then and now to

reward with government assistance those who should have been called winners and not homeowners. that's why we have taken so long to deal with it. it's the notion of fairness. democracy demands some notion of fairness. >> is it logistically more difficult? it is a far tougher to deal -- >> that is not the fundamental reason we have not done it. it rewards those who essentially did what we consider to be immoral, which is to take that we could not afford. if you are a homeowner on main street america, we want to punish you. >> i think there was an

underestimation of the ability of the market to actually processed the foreclosures in a timely fashion and deal with the problem. there was an underestimation of how big the problems would be and i think we are in uncharted territory. you can look at the policy reactions of the time and it was very much making it up as you go along because you truly did not know all of the moving parts. >> we had a lot of time to make up the story on housing. >> but aftertarp i, it was politically too challenging to deal with. a great example as if we look at mortgage modification, the

mortgages held by banks have been modified. 2% have been modified and none of them government sponsored and it -- entities have been modified. there became political issues and fairness issues but at the start there was an underestimation of how difficult was going to be for the market to deal with the problem. >> there are a couple of things -- there's tends to be moralistic paintings of what happens and part of the debate as we could had had a tarp that had punishment with replacing bank executives and bank boards. [applause] that would have made a huge difference -- witness the audience reaction.

there is still a lot of discussion about the deadbeat borrowers. is much more complicated than that. people who really took out the mortgages, a lot of those have been foreclosed upon. in 2007 and 2008, a lot of people are gone. the people who are losing their houses had their hours cut back or had a more normal situation like medical bankruptcy or things like that. there is significant evidence that -- no one knows the number because there has been no investigation of service-driven foreclosures were the banks applied fees inappropriately and wit compound them. they will apply a late fee first and then more fees will kick in. nobody knows how significant,

but people who represent the homeowners say it is quite significant and the cases where people have hired forensic accountants, which most people don't do, they found significant abuses. it is more complicated than anyone wants you to believe. >> bearing in mind we are not likely to see a hail mary moment that is going to solve it in the future, i would like to ask how you assess stick quality of the recovery we're going through now. we had jobless this falling by almost a quarter of a million. we've seen growth in the final quarter of last year and we've seen the markets and is this the kind of recovery we are used to?

is this a japan style recovery? >> i will try to be short. i am not a believer we are on the way to a sustainable recovery. the numbers look better and the strengthening faded. we still have more downside on housing. the fed has been talking about a fiscal cliff we're going to reach in 2013. they actually thought would be 2012 but some of the tax breaks, the lower payroll tax rates were pushed back another year. unless measures are taken, that is it going to be another drag on the economy. >> i would like to stay on the

discussion we're having because i don't think we have framed the problem right. the prescription is not worth a damn unless you do diagnosis right. there are three explanations of this problem -- what is the republican-american enterprise institute's -- that means you blame the fed for holding interest rates too low for too long. he blamed the government for interfering in the housing market. the policy prescriptions are very clear. number two is what i call the market failure hypothesis. you say there was a failure in financial markets due to inadequate regulation, too much

deregulation and incentive pay arrangements that fostered loan pushing instead of lending. they said there is a market failure. that solves the problem, but the financial crisis has caused a deep recession and we need fiscal policy. that's all you need to continue to do. but how long do you continue with this fiscal stimulus? this is what i want to get on the table now -- the destruction of disparity hypothesis. in 1980, we changed our growth model and moved to what i call a neo-liberal growth model. i can -- we started driving it

up with asset prices and some of wages driving demand. that created a demand it gap, but we have painted over the cap. this is the reality of the great moderation. this went on far longer than any of us -- in-line >> you say you're concerned as policy makers. >> now that this thing has broken, we cannot go back to driving the economy. we are filling in the economy by having the public sector philip in.

if you start to pull back on the deficit -- we've got to tackle the underlying problem of inter -- of income distribution. >> this only keeps going temporarily. we are heading toward stagnation. and if we -- [unintelligible] >> that is essentially the 1937 scenario. >> i think we have a recovery were the of the name. it -- will it be different than the recoveries of most of my

lifetime? probably. income distribution troubles me as a citizen. it is a real recovery. is a recovery found on both the private sector and public sector and my biggest concern about the longevity and robustness of the economy is that the mind set on wall street and in this town is that the government sector should look for the earliest and first opportunity to exit the stage, which i coined keynesian interrupt this. we did it in 1937 and it did not turn out well.

i think it's an enduring part of the landscape and we accepted part of the new landscape. not just sit quickly until we can get out. i think we will be okay and that we will not be exuberant, but perhaps we have little much exuberance anyway. the last 30 years of my life -- [unintelligible] i just turned 55 yesterday and i want to leave something meaningful. >> [inaudible] >> is it sustainable? it is already the weakest recovery in the postwar time,

without question. the first time we followed a financial crisis of this magnitude as opposed to a fed engineer recession. i will note that we are not japan. the stock market is -- it is a very different animal, but we are suffering from some of the same problems. i am encouraged and i look at what is going on. we've been recovering from the trough of the recession in 2009. time is the big healer. we have had an extended time with home construction less than half we need for the growing population and we are growing down the excess stock of vacant

homes. home building can rise to more normal levels and that is going to be an extra image of growth. one of the key things everyone is worried about this household deleveraging. the debt to income ratio has come down at at unprecedented rate. if you look at household finances, the ratio is well below historic norms. that interest rates are very low and we see that default rates down sharply and consumer credit, after having declined for some years is growing at a good pace. it is not a big surprise we are seeing moderate growth in

consumer spending going for it. there is a black cloud on the horizon and we talk about fiscal policy. if we take this gdp clip that's coming as the sequestered gets in place, we are facing a problem. i don't think anyone expects us to go through this without some major modification. the question is do we begin to do the right things in washington next year? do we tackle tax reform and give the markets something positive to look ford to and getting a downgrade from the ratings

agencies in the process. but at least if we are moving in the right direction, of the parties can communicate -- that i think it is sustainable. >> [inaudible] the americans have delivered quicker and are growing quicker. is there a concern there is re- levering going on? is there a concern we are heading back -- >> one of the core concerns is income growth is so weak. that means in order to spend it -- there is enormous pent-up

demand. people are not saving much and the savings rate needs to go up higher. if we continue to see the labor market improve, we should see income rising a little bit better. in terms of the question of whether the economy is sustainable or whether it is japan-like, a normal business cycle with a recession is about 2% drop in gdp and in the year after, you grow at twice the rate you declined at. in this cycle, the u.s. went down 5.1%, but the only -- the average rate of growth is only 2.5%. that is a reflection of the legacies of the financial crisis. things like the housing market and we're making progress on that. the magnitude of the imbalance buildup was so big that when the housing market corrected, if it unwound quickly, it would have

created a depression. governments cut interest rates and provided enormous fiscal stimulus. we transformed the personal savings problem and to a government savings problem which will constrain the rate of economic growth going forward. even if the washington gridlock diminishes, there will be a fiscal drag on the economy. i have to do a five-year projection but my assumption is the u.s. will grow at 2.5%. how you feel about that is dependent on whether york -- whether you are a glass is half empty or half full type person. you never get the above-trend growth you normally get in a cycle.

it is important when you do the parallel. the stock market is completely different. japan in its lost decade, the growth rate has been trend because they have a declining population and that a declining labor force. that has a population growth and is an incredibly productive and innovative economy. the japan-like experience is a growth rate above 2.5%. >> productivity growth in the u.s. for gdp over the last year has been negative. the trend over the long run may be 2.5%, but because capital formation has been so depressed and because we have a huge boom in productivity early in their recovery, we may be looking at

very depressed trend growth, certainly sub 2%. the labor force right now with the aging population is growing about 0.75%. there's no question of productivity growth is going to be quite depressed over the next several years which says 2.5 gdp growth gives you a fair amount of improvement and employment. the data on employment are very much at odds with the data on income right now. employment is growing at a rapid pace. the revisions are starting to come in and upward. historically, there has been an average --

>> we are going to have hobby it -- we're going to have audience questions as well. >> you had an important question about the changed economic paradigm. one thing that is not in that debate, a lot of people have talked about business innovation. as the household sector saves, that's why you don't like government spending too much because it will crowd out business investment. business continues to be a net saver and corporations have over a trillion dollars of excess cash on their balance sheet. even the last expansion, business was a net saver. that is unheard of. the incentive corporations have these days are actually impeding the process is that would be more helpful for economic

growth. >> i am glad you mentioned businesses. you go down the road in washington d.c. to the chamber of commerce or national association of manufacturers, you will get the perspective that regulation and regulatory uncertainty is a big inhibiting factor to the return to the recovery and an explanation for the lateness of their recovery. do you agree with that? is regulatory uncertainty holding back growth? is that epa responsible? >> this is a third, fourth, our fifth order factor. >> and surely the chamber of commerce will raise this. their economic policies are designed to serve the interests of their people. this is not a supply-side recession. our profit rates are at the highest in history, a profit share is at the highest industry, pushing the profit sure hired as nothing. this is a demand-side recession

and we need to solve the problem of demand. in an economy, you can have too high profits. this is something we to get onto the discussion. i can promise you a capitalist economy with a 0% profit rate will fail and an economy with a 100% profit rate will fail as well. we have too much profit right now. it's not coming back in the form of capital spending. what will happen eventually, if this goes on too long, the demand shortage will kick in again and you'll get another ratchet down in terms of spending. this is a classic mechanism of what is going on. we need to change the discussion from sustainable were economy -- stable economy to shared prosperity. that's what we lack. i think we can get a sustainable economy.

everyone here, business sector people say that we need a crutch of government deficits and continuous rounds of quantitative easing. that is stretching the meaning of the word to call that sustainable. i think we can get by with something less, but how do we get shared prosperity on the agenda. we should be raising people's expectations when we talk about in the way we are, we are downsizing people's expectations, and that prevents change. >> for those arguing regulatory uncertainty plays a role here, you asked people in that industry how this is going to turn out. you will get five different opinions. that is uncertainty.

this is a lack of low visibility. we have not even mentioned the regulatory changes internationally. >> no question that regulatory uncertainty and capital requirements -- i a agree fully it is critical to stability down the road. there is an adjustment here and it will not be friendly to credit creation or the cost of credit and there are elements in the volcker rule that one can debate. prop. trading and the extent to which you affect market makers which are necessary and the corporate bond market, there are 25,000 issues of corporate bonds that have fallen as well. they in-day out, there is not always a market there. you have to have firms of a

scale that are willing to buy and then sell when the buyer comes along to make the market work. if you do not have that, the cost of business goes up substantially. >> the survey shows regulatory uncertainty contributes to the cautionary approach the businesses are taking. >> that ranks surprisingly low down. >> that is actually where i was headed. regulatory uncertainty shows up as having an impact, but there are other things going on in the world that make it an extraordinarily high risk environment from a business point of view. businesses are not confident the economy is going to be sustainable. only four or six months ago, pundits were predicting a 50% probability of the economy going back into retraction.

it would create a financial environment far worse than 2008. businesses are being cautious and you can see the caution when you dig below the surface. if you look at the payroll numbers, the reason why payrolls are rising as because of the decline in layoffs. that is a signal that businesses are saying we can see our orders and we need people to fill those orders. but if you saw them hiring additional the people as opposed to reducing layoffs, it would be a signal that there are growing more confident about the need doubt the road. there are a lot of signals in that market, a high degree of uncertainty about what is going to happen. the message i have four businesses when i try to talk to them -- when i get to do an event like this and it is a foggy outside, i don't want to make drive, but i don't have a choice.

>> we're going to go to the audience for about 15 or 20 minutes of questions. does anybody have some observations to make? this has been a fairly dour and rigorous economic dose of pessimism most of you have been giving us. where is the silver lining? >> i an inherently an optimist. i am still the house optimist and i think our economy is a growing concern. americans get up every morning and go to work and support their families and have aspirations for their children and enjoy a romance. life is ok. it's not what we would like to be, but our economy is growing and our population is growing at we are benefiting from continuing technology.

ipod and iphone and i find it fascinating that learning how to use it at wife is ok. >> can anyone cheer us up without mentioning apple? [laughter] >> i am not the person to go to for optimism. >> perhaps we will have to go to the audience. >> optimism of the spirit and pessimism of the intellect. we have a problem and we cannot dig our heads in the sand. i feel certain there is a map out of this but there is -- but it is not on the table right now. let people know there is a map. they will demand the map. if we don't offer it to them, i get politically and economically pessimistic. >> we have some time for questions and we already have several hands here. >> if you would like to queue up

and share your name and organization. >> he had a comment while they were lining up. >> i was going to go out on a limb and say the euro will likely survive. the developments there have been promising in the sense that you have policy developments in spain, italy and a recognition among the political leadership of what needs to be done. you also have the ecb which has taken the risk of bank failure of the table being very supportive. these factors continuing, you have it taken away a major downside risk. >> we have questioners lined up. >> my question is for yves.

i understand your point about wall street and everything. i share the pessimism because one of the things i got from people who work, these to work their saying let's talk about the regulations that are not in place, it's not going to be emplaced the tissue don't have regulators who don't know the inside of how wall street works. i agree -- >> could you get to your question? >> how can we get the agenda on the table? was a -- iid there wish there was a simpler answer. i don't get a high percentage of success, but there are some of the groups around occupy wall street -- occupy the sec group

submitted a 325 local route -- volcker rule letter. when you get to the point we of citizens' groups making useful input at the with regulatory process and the media, the " financial times" have taken that seriously and you're getting pushed back from an expected areas. we have had very aggressive efforts by the obama administration and the fed to keep the banking system healthy. if we continue to see more problems, for example the major european banks, if they were to fail, i cannot see the problem is ricocheting back here. during the cuban cry for why didn't we fix this? we thought we fix this. >> i'm with the naval postgraduate school. one of the problems we have is that nobody understand how all

the system works. where do we find a collection like you that can sort of try out, what is the process, who are the players in a way the general public can understand how screwed up the system as? maybe there is nobody that understands it well enough that can explain it to us voters who are also the victims of this process. >> good question. who would like to take it? >> he has the answer. >> i'm really interested in this stuff at a sixth grade level. looking at the american voter, it has to be at that level. >> the gap between the public and so-called experts has never been wider. it's never been wider in this section we have been talking about this morning, the financial sector. can anybody explain it to the

public? why aren't the politicians explain it -- explaining it to the public? >> i would recommend to make as part of your daily reading three journalists -- one also has another job. paul krugman at the "new york times" and martin wolf" -- martin wolf at the "financial times" -- you will get a nice flavor in easy turns of what going on in the economy and they're not all cut from the same political cloth. >> i like the second on the list. [laughter] >> as i listen to the panel, there was no mention of the world oil.

-- no mention of the word oil. the increase of the price of oil has a role in the meltdown that we had. now the price of oil could impact the recovery. >> that is a good question. clearly we are already seeing some impact on economic confidence with gas prices. how big a threat is this? despite predicting when iran and israel are going to war. >> starting at this year, the number one risk was europe, the no. 2 issue was the u.s. economic recovery. oil was not even on the list of what the top three or five risks were. all of sudden, because of increased tension in the middle east, oil is on the plate as a major risk to the economic forecast. what we saw last year was when gasoline prices got over $4 a

gallon, we saw empirically the impact that have on retail spending. when it got through the $4 mark, it started to damper economic growth. higher oil prices and unquestionably act as a drag on the economy. if oil prices stay where they are, it only knocks down growth by about 0.1%. the real risk is what happens in the middle east politics, which is the one thing you cannot predict with any degree of certainty. but that doesn't stop financial markets from batting. the financial markets are betting a 30% chance of a strike by israel against iran. but these are made up numbers. if we did actually see a disruption in oil, we would go up to $180 a barrel if there is a major problem in the straits of hormuz and it would be a major risk to the global economic recovery. but that's probably not the most

likely scenario. >> i'm sorry, i accidentally ignored you. you have been there from the beginning. >> i am curious -- one of you mentioned a sustainable recovery is not a big enough goal and that in fact we should be aiming for shared prosperity. which i happen to like. i'm curious whether any of you what address what you think some of these steps would be that would be different in terms of going toward shared prosperity? >> did someone plant that question? the policy configuration we have had, i call it a neo-liberal

box. we put workers inside the box and pounded them with a particular form of globalization. we pounded them with labor agenda. we pushed what is called a small government agenda. those are the issues. we need -- we have to be pack that box. we take workers out and put corporations and financial markets in and put the rules around them so they work for the surface for which they are made. these are creatures of law and we need the federal reserve to take full employment seriously. when times are good, not when times are light now. what happens when there are tough questions? we need what i call a solid labor market agenda that ties wages back to productivity growth and we need