i want to know where is the democratic budget? i'm told it's by law they suppose to pass a budget. they haven't passed one for three years. what happens, they break the law and get away with it? the second thing is, these companies, these defense companies are suppose to send out notices to employees if there's a big event taking place within 60 days. yet the president tells them do not send those notices out. again, against the law but yet nobody calls him on it. why do we have them there in the first place? can the president say i will break the law and there's no ramification? host: robby mook. guest: look budgets should get passed and we got to figure out the sequestration. the problem is the tea party republicans who came to congress

are drawing lines they won't cross and compromise. they refuse to put revenue on the table and they all signed a pledge for grover norquist. they will do anything for tax breaks for millionaires and oil companies and whole host of breaks for corporations. we will not solve this problem until tea party republicans can come to the table. guest: the democrats will only come to the table if they figure out someone to tax. the fact is, they have to budget. obama -- it's amazing to me that we have a president put a budget up here and got zero votes. we stepped up to the plate and put a solution to the problem. i would love to see the

solutions that the democrat have. host: let me get in one more race. one of the top race that people are watching and that's utah fourth district. again from this political blog from the san francisco chronical. you say jim is at risk only democratic in congress to lose because of mitt romney's coat tails. guest: this is the most republican district in the country with the democrat representing it. his name and representation and job approval is rock solid. host: who is mia love? guest: fantastic candidate.

small town mayor. doing a great job and we currently have a lead in this race. i ....

host: i've got to cut you off because we are running out of time. 30 seconds if you could or less. guest: i agree with the caller inasmuch as there are special interests here. through the superpacks' last cycle. the tea party wave came in. it is going out. we are going to pick up a bunch of seats. guest: i think this focuses on the $800 billion stimulus that allowed a.i.g., corporate executives to get bonuses. the fact is as you look across there is a very clear idea that what we need to do is focus on small business. reduce regulation and taxation across the board. host: thank you both for being here and talking to our viewers. we appreciate it. we are all out of time and take you now to the brookings institution for a conversation with federal reserve board governor jeremy stein.

>> capital allocation, banking, financial regulation, and monetary policy. in gate governor stein served as president of the american finance association, he is a chicago native and received his undergraduate degree from princeton university and ph.d. in economics from m.i.t. i'd also like to note in a shameless applaud for brookings that governor stein has been a participant of the brookings papers on economic activity, serving as a discussant for former fed chairman's alan greenspan's 2010 chaper entitled "the crisis" i am wondering your comments on chairman greenspan's paper would be different now that you have four months under your belt at the fed. upon his nomination, the harvard princeton interviewed fellow economics professor who said, jeremy stein is a brilliant economist who understands monetary issues extremely well. he'll be a great addition to the board. the article goes on to say that

he would strong bipartisan candidate maintaining a core democratic set of ideals but retaining the trust of republican figures. today marks governor stein's first public speech as a board member and we are pleased to host him for what is sure to be an interesting talk about recent actions. after the speech, brookings senior fellow and former vice chair, donald kohn, will moderate a discussion with governor stein. with that please join me in welcoming fed governor jeremy stein. [applause] >> thank you very much. thank you, karen, thank you for that nice introduction. it's a pleasure for me to be here. i want to say it's a special thrill and honor for me to be here alongside don kohn. one of my only regrets about coming to the fed other than maybe the dress code is my timing. i wish hi the good sense to get here a few years earlier so i could have had don as a

colleague and had opportunity to learn from him. now the only way i get to learn from him is indirectly. it's notable that some of the best advice i have gotten from people at the board since i joined has often come in the form of, here's what don kohn would have done in the situation. thank you very much for -- and i look forward to our discussion. i would like to take the opportunity to describe the framework i'm using to think about mon tarry policy and the environment and role of large-scale asset purchases. before doing so let me note the usual disclaimer. the thoughts i'm about to give you are my own. do not necessarily reflect the views of others on the fomc. there's a considerable diversity of views within the fomc and within -- commong economists more generally about the use of large-scale asset purchases and other unconventional policy tools. this is both inevitable and healthy given the unprecedented circumstances in which we find

ourselves. let me be clear on where i stand. i support the committee's decision of last month, namely to initiate purchases of mortgaged backed securities at a rate of $40 billion a month. in tandem with the ongoing maturity extension program of treasury securities, and to plant a continue those purchases if the committee does not observe a substantial improvement in the waiver market outlook. given where we are, given what we know, i firmly believe that this was the right decision. in my comments today i'm only going to briefly review the case for taking that action as that ground has been well covered, most notably in chairman bernanke's recent jackson hole speech. i'm going to explore in more detail the factors that make decisions about lsap so challenging. the chairman discuss the these challenges in his recent speech saying, estimates of the effects of nontraditional policies on economic activity and inflation are uncertain, and the use of nontraditional policies involves

costs beyond that generally a associated with more standard policies. consequently the bar for use of nontraditional policies is higher than that for traditional policies. ok. so with that principle in mind, my aim here is to lay out the thought process i'm bringing to bear in an effort to decide just how high the bar should be and whether proposed action clears that bar. along the way i hope to highlight some gaps in the economist' collective understanding of lsaps and provoke a little bit of further research on some of these questions. let me start by setting the context. the point of departure for any analysis of monetary policy is our dual mandate for deployment and price stability. the path here is clear, that is to say unemployment remains painfully high and in my opinion well above the long-run structural rate of unemployment. moreover, if you smooth through the inevitable ups and downs of incoming data, it appears the

economy is growing at such a pace that absent policy action, progress, and reducing unemployment will likely be so for some time. in the meantime inflation is subdued, running at or below our long-run objective of 2%, while longer run inflation expectations remain well anchored. the federal funds rate were 3%, we would have in my view an open and shut case for lowering it. the complication, of course, is that the funds is at its lower bound which means we can't turn that dial further. we have to use unconventional tools such as land guidance about the future path of the funds rate. with respect to lsaps, my belief, this echos the views that chairman bernanke expressed at jackson hole, is that prior rounds of lsaps have placed a significant role in supporting activity and in preventing a worrisome undershoot of our inflation objective. the case is especially strong with respect to the first round of lsaps which was a very potent piece of policy action that

helped to bring the economy back from the brink in 2009. however, we now face a harder set of questions not about the value of past lsaps but the marginal costs and benefits of future lsaps. a number of observers have raised concerns about either diminishing returns or escalating costs. i think that at least in the limit these concerns must be right. we could in principle push this tool to the point that the hurdle for additional usage would become very high. as policymakers i believe it's our responsibility to be as clear as possible about the nature of these costs and benefits and how they might evolve. so in that spirit i'm going to try in what follows to outline the mechanisms that can give rise to either decreasing marge until efficacy of lsaps or increasing marginal costs. now, while much of my discussion is going to focus on what you might call the direct hydraulic effects of lsaps on the economy, it should be emphasized that their overall impact can be

augmented via what you might call a signaling or confidence channel. that is to say another important tool in the committee's arsenal these days is the use of forward guidance about the expected path of the funds raised and a change in this guidance was a key part of the september statement with the committee stating that a highly accommodative stance of monetary policy will remay appropriate for considerable time after the economic recovery strengthen he -- strengthens. i believe the lsap component of the statement helped to bolster the credibility of the forward guidance component by pairing an immediate and n concrete set of action was a statement about future intexts. i suspect this helps us to understand the relatively strong reaction of the stock market, for example, in the immediate wake of the release of the statement in september. now, in addition to the signaling channel, lsaps also as i just said, have a variety of direct effects on the economy.

to better understand these effects it's useful to compare them with those that make monetary policy work in normal times. away from the zero lowerer boupped, monetary policy is typically thought to work through an expectations channel. that is to say when the fed cuts the funds rate, long-term rates also fall primarily because expectations of future short-term rates are moving down as well. ok. now, by contrast, a principle motive for doing lsaps is introducing rates not through expectations but effectively direct supply and demand effects in the long-term bond market. ok. as the fed buys long-term -- more long-term bonds, their price goes up and their yield falls, even holding fixed expectations about the future path of short-term rates. another way to say the same thing is that the so-called term premium on long-term bonds declines which is just short of a jargony way of saying after an

lsap, long-term bonds are expected to perform less well as an investment relative to short-term. there's a relative price pressure mechanism. now, there's a large body of evidence building that suggests that lsaps do in fact exert significant pressure in this way on long-term treasury yields. so estimates of accumulative effects, this is starting with qe-1 and through the present, estimates of the cumulative effect of past lsaps on 10-year treasury yields are in the range of 80 to 120 basis points. these past actions are one reason why treasury term premiums are now near historic lows and these are somewhat model dependent, but according to one well-known model used by fed staff, the term premium is in the neighborhood of minus 80 basis points. so, here's the central theme or a central theme of my talk today which is the following.

when policy works by moving term peoplea as opposed to by simply shifting the path -- the expectations about the path of short rates, the transmission to the real economy can be altered in subtle but important ways. ok. and these differences can have implications for the benefits of a policy action for its costs and even its consequences for financial stability. moreover, to really address these issues we need to understand not only the hydraulic question of how much an lsap moves term premia but the overall economics of why it does so. i should just note in many macromodels this distinction i'm making between moving rates via expectations versus moving rates via term premia is setaside. so for example in the board staff's main workhorse model, the frbus model, a fall in the long-term rate is assumed to

have the same effect on economic activity irrespective of whether that fall in the rate was caused by a change in expectations of future short rates or caused by a move in the term premium. so, for the sake of concreteness in what follows, let's just think this is a purely a hypothetical, but let's think in terms of a $500 billion lsap conducted entirely by buying long-term treasuries. later i'll come back and speak to the differences that arise when -- that the lsap is conducted with mortgage backed securities instead. for concreteness i'll start with treasuries. a reasonable estimate based on the empirical literature would be such a program reduces the term premium and thus the 10-year are treasury yield by something on the order of 15 to 20 basis points. that would be the effect of an increment $500 billion. now, in my mind this is the best empirically understood and least controversial piece of transmission mechanism, not privately because we can observe

relatively directly the effects on rates. moreover, i should say i have no reason to expect diminishing efficacy on this particular piece of transmission mechanism. all evidence suggests that the past is likely to be a good guide to future outcomes here. now, of course, this evidence on the direct treasury market impact is just a starting point. to fully evaluate the effects of an lsap, one needs to take several further steps, some of which are more open to debate n so doing, it's helpful to clarify the specifics of the supply-demand story. one version of this story works through the market price of duration risk, which is another word for the interest rate risk borne by investor and long-term bonds. now, in this version of the story, all bonds be it treasury bonds, corporate bonds, mortgage backed securities can roughly be thought of as close substitutes for one another and an lsap by reducing the total quantity of

interest rate risk or duration risk in private hands lowers the price of this risk and thereby lowers the yields on all bonds roughly speaking by an amount proportional to their duration. ok. going further, you might argue that to the extent that equities as a long-term asset also embed some duration risk. the return investors require to hold them should fall commensurately thus giving a significant boost to stock prices. however, in other versions of the story, markets are somewhat more segmented and treasuries and other bonds are not such close substitutes for one another. there's effectively separate investors who hold the different assets. in such a case an lsap would have differential effects and an lsap that absorbs treasury supply might be expected to lower the yields on treasuries relative to the yields on other assets or alternatively to increase the treasury corporate spread or increase the treasury

m.b.s. spread. similar logic would say in this case that an lsap might have only a more modest effect on stock prices. ok. so this is a backdrop, let me start with the efficacy side of the question. take our $500 billion lsap and as mentioned earlier, let's just stipulate based on the evidence in the literature it's going to reduce the 10-year treasury yield by 20 basis points. now, simple way to proceed would be to essentially plug this 20 basis point change into one of our macroecono met rick models and what are the consequences that emerge for g.d.p. growth and unemployment? if you did this exercise with the feds' workhorse frbus model, it would tell you that a $500 billion lsap which moves the 10-year treasury rate by 20 basis points should be expected to bring down unemployment by approximately .2% at a two-year horizon. this is an economically

meaningful effect. so naturally all models rely on a host of assumptions so the true effect could be larger or smaller than what comes out of the frbus or any mod until that vain. i would like to focus on two sources of uncertainty in particular. first uncertainty relates to a point i mentioned is that a given impact on treasury bonds may not pass-through fully to other rates that are morel vant for consumption investment decisions such as corporate bond rates or primary mortgage market rates. now, if you read the recent academic literature on this question, it seems somewhat divided. some papers argue effectively that the pass-through is strong. near 100%. others argue it's quite low. my own kind of attempt at sin they thiesing this evidence is thus far there's been fairly substantial pass-through from lsaps to things like corporate bonds and mortgages. somewhat less, some, but

considerably less, pass-through to more distant asset categories like equities. that's kind of my reading. now, leaving aside this one set of complications so that we suppose that a $500 billion lsap will have a 20 basis point impact not only on treasury rates but say corporate bond rates, there's a second and i think maybe more fundamental issue. how should we expect a company to respond, how should we expect a company to respond when its long-term borrowing costs fall but they fall not because of a change in the expected path of short run rates, but rather they fall because of a change in the term premium. as i noted before, many macromodels assume that the effect will simply be the same. but is there any reason to believe that in reality the response to the two types of movements in rates might differ? a basic corporate finance

analysis suggests the answer may be yes. to see why, let me suggest the following example. imagine a firm that faces a rate on its 10-year bonds of 2%. so the long-term rate is 2%. at the same time, that firm's expectation of the rolled over sequence of short rates is 3%. so that's what i mean by a 1% term people yalm. ok. long rate is 2%. the expected path of the short rate is 3%. so there's a term premium of minus 1%. so what should this firm do? well, clearly it feels like it should take advantage of the cheap long-term debt by issuing long-term bonds. but it's less obvious that this bargain 2% rate on these long-term bonds should exert an influence on its capital spending plans. after all, it can take the proceeds of the bond issue and use these to pay down short-term debt, to repurchase the stock,

to buy short-term securities that is to say to make a variety of capital structure adjustments as opposed to capital spending changes. and these capital structure adjustments implicitly yield an effective return of 3%. can you see that most clearly in the case when it basically issues the long-term bond and uses the proceeds to invest in some -- pay down short-term debt, let's say. as a result, the hurdle rate for new investment might remain pinned at 3% even as the long-term bond rate continues to fall. so as a result at least in this highly stylized example, the negative term premium matters a lot for financing behavior, but investment spending is somewhat decuppled from the increment movements in the term premium, and is instead more influenced by the expected path of short-term rates as opposed to simply the long-term rate. so this is -- in my view the reasoning that suggests why one might in principal think that

future rounds of lsaps might be expected to have diminishing returns. as i noted above, the data are quite clear that past rounds of lsaps have pushed down rates and have pushed down term premia, but this argument would suggest that the further term premia are driven into negative territory, the more previous logic comes into play and hence the weaker is likely to be the response to aggregate spending. this example is also -- this corporate finance example is also consistent with what we have observed in markets in recent months. issuance of both investment grade and high-yield bonds has been robust. in fact, domestic nonfinancial corporate bond issuance is on pace to set a record in 2012 and the sec laive grade, high-yield segment, may also register a new high for the year. at the same time, a large fraction of this issuance has been devoted to refinancing, either to retiring existing

debts or payouts to equity holders via either dividends or stock buybacks. these uses of proceeds have accounted for about 2/3 of all issuance by speculative grade firms so far this year. and as i tried to suggest such patterns ps are what one would expect in negative -- a world of negative term premiums. this caveat of the ineffectiveness of lsaps can be thought as a specific version of what's sometimes referred to as good hearts law. under normal circumstances changes in 10-year rates have significant explanatory power for economic activity, perhaps in part because their proxy 4 the expected future path of short rate. but it doesn't follow when one sets out to influence the 10-year rate directly via asset purchases without changing the future path of the short rate, that the usual historical relationships will continue to apply. while we should acknowledge these doubts, it's also

important to keep them in prspective. in addition to lowering interest rates, lsaps also boost equity prices and other asset values. taken together, these effects of lsaps seem likely to be meaningful, even if the benefits to rates are less than in the baseline scenario sketched above. to be sure there is a wide confidence integral around any estimate we might make of the benefits. moreover, it's worth repeating a point made earlier, which is whatever direct hydraulic effects lsaps have by pushing down term premia discount rates, the overall rate made be stub sanctionly reinforced via signaling effect where they enhance the forward guidance about the future path of the funds rate this. signaling benefit strikes me as an important part of the argument for lsaps in the current environment. ok. let me now turn to the cost side of the equation. several potential costs ofsaps have been discussed by others. -- of lsaps have been discussed by others. one of the exit problem, namely

a large balance sheet may make it hearder for fomc to raise rates when the time comes, to pay on the reserves and the draining death thod, i'm confident we have the tools to raise rates. if the fomc needs to act in the face of an eamericaning threat to price stability, there is little doubt in my mind we can. as to whether we will, the federal reserve has repeatedly made clear its commitment to both sides of its mandate, to price stability as well as to maximum employment. a second set of costs those do with the possible effects of further asset purchases on various aspects of market function, including market debts. and it would be a concern if fed ownership, large fed ownership of some segments of the treasury or market would cause market liquidity to deteriorate. we have seen little evidence of such problems thus far and we continue to closely monitor the conditions. if problems do begin to crop up, we will know it and be able to adjust.

a final notion of cost relates to the currently low yields and term premiums on treasury bonds i have been alluding to. an intuitive level one might think for the fed as any other buyer contemplating a large asset purchases, information on expected returns should be a relevant factor in the decision. said differently the case for an lsap might seem more appealing if the term premium on treasury bonds was 200 basis points instead of minus 80 basis points. this turned out to be subtle. to make sense of this intuition we have to return to the underlying request why lsaps move term premium. one interesting and i would say admittedly speculative possibility is that in a world where other sovereign debt has come into question, long-term treasuries, the reason that they are valued so highly, is that they are uniquely able to provide a money like safe haven to certain investors. by analogy here think of

currency which investors are willing to hold as a low, in fact zero yield, because the flow of services of convenient services that currency provides. similarly, the negative term premium on long-term treasuries may in part reflect the scarcity of this money like asset. if so, it would be economically costly to remove treasuries from the system. and this is -- this logic is really an application of what is often called the friedman rule. so key question is to what extend this analogy holds, to what extent is it the case removing treasuries is like removing currency. this is a hard question to answer and it turns out to depend on the details of how you tell the story. if you believe that only nominal treasuries but not something similar like agency securities or triple-a corporate bonds, if only nominal treasuries provide money like services to investors, you can try to measure the value of these money like services by looking at the spread on a treasury bond relative to something else

that's very safe but not exactly a treasury bond. so for example, you could look at corporate bonds coupled with a credit default swap to eliminate the credit risk. people at northwest erp university have done a study and their conclusion is between 24 and 70 basis points of the yield premium on treasuries is attributable to this money like effect. numbers in this ballpark suggest that the costs of further lsaps on this dimension are likely to be nonzero but modest relative to even a conservative estimate of their potential benefits. now, a couple of caveats worth noting. first, this methodology probably provides a lower bound on the costs of an lsap, since its flawsible that not only treasuries but also agency securities and triple-a corporate bonds could have some degree of moneyness to them in which case a spread of the sort

i just described might conceiveably underestimate the value of the monetary services provided by safe and near safe assets. so as i mentioned before in terms of future research, this area is one in particular where both our conceptionual understanding and measurement techniques remain somewhat underdeveloped and we are -- more work would be of great value in informing polcy. things can change over time. one episode of interest is the clinton era debt buyback program which in many ways was aal gas to an lsap. between -- analagous to an lsap. the treasury purchased bonds with a face value of 63.5 billion which was then 10% of outstanding stock of treasury securities. much as with an lsap this repurchase program appeared to have a powerful negative effect with long-term rates falling sharply relative to short-term rates.

in contrast to what we have seen with lsaps thus far, it was also associated with what appear to be a quite pronounced increase in treasury specific scarcity. one way this scarcity manifested itself at the time was a widening, this is a little bit of a techie thing, a widening in something called the treasury swap spread which rose to something like 120 to 130 basis points in the spring of 2000. we have not seen anything like that in the current environment. so the lesson i just want to highlight is that we should continue to develop and monitor a variety of metrics of the scarcity phenomenon because they may be helpful on a going forward basis in terms of providing an early warning if lsap cost does begin to rise relative to benefits. now, for the sake of concreteness i have been talking in terms of a hypothetical treasury lsap, in light of our recent initiation of mbs purchases it's natural to ask what the salient differences are between buying treasuries and

trying m.b.s. n my view there are two, both of which suggest that m.b.s. purchases may offer a better cost benefit profile that treasuries at least in the current environment. first on the cost side i just alluded to the idea that treasuries may provide money like safe haven services to certain investors such that removing them from the system could entail a cost. presumably m.b.s. are somewhat less money like than treasuries so this element of cost would be reduced when buying m.b.s. second, if the efficacy of treasury purchases is diminished by the fact that many corporate borrowers already have plentiful access to low-cost funds, it's natural to focus on a sector that is more sensitive to financing costs. and housing market would arguably fit this bill in the current environment. so to the extent, and this relies on market segmentation, but to the extent markets are segmented and m.b.s. purchases therefore have a more effect direct and powerful effect on

mortgage rates than treasury purchases, this possibility might be another appeal of going the m.b.s. route. finally, let me touch on the implications of lsaps for financial stability. some observers have argued that a long period of low rates can create an incentive among market participants such as banks, insurance companies, pension funds to reach for yield by taking on higher levels of risk with potentially adverse consequences for stability. these concerns should be taken very seriously and there is a lot of work ongoing at the fed devoted to monitoring such risks. a short summary would be to say there is qualitative evidence for reaching yield behavior in certain segments of the market but we are not seeing anything quantitatively alarming at this point. the worry one often sees the tip of the iceberg in these situations so one needs to be careful in interpreting the data. taking as given that reaching for yield could be a problem, what are the implications at the margin for monetary policy and

for lsaps in particular? first, it's just a fact of life that we are likely to be in a low rate environment for a considerable period of time given the economic outlook. it's not a choice at the margin. while we are going to have to pay careful attention to the attendant financial stability issues and be prepared to intervene with supervisory and regulatory tools as needed, i would find it hard to accept the proposition that we should attempt to preemively resolve them by saying starting to raise the federal funds rate today. the potential damage that could be caused by choking off the recovery is too great. second, one can argue that by reducing term premiums, lsaps in particular have actually have potentially significant benefits in terms of financial stability. if you think about the recent crisis, a major source of problems was excessive maturity transformation by financial firms. that is to say, these firms rely too much on short-term debt. and one of the thrusts of

regulatory reform has been an effort to attack this problem with regulation, for example via the constructs of the liquidity coverage ratio and net stable funding ratio that are a part of basil 3. however a complementary way to deal with the problem is to influence the underlying incentives for short-term debt issuance. these incentives are in turn shaped by the structure of rates and the structure of term premiums in the market. as i noted earlier, a natural response for any firm facing an unusually low term premium is a financing response. that is to say, it makes sense to alter your capital structure by issuing cheaper long-term debt to replace your short-term debt. it's therefore not surprising if you look at the data the average debt maturity of large nonfinancial firms has increased notably in the last few years. it's a natural response to the rate environment. moreover, the same pattern shows

up among large financial firms. they, too, have been significantly lengthening their average debt maturity. now, it should be noted that the current cheapness of long-term debt contrasts with the precrisis configuration where there was frequently a pronounced vantage favoring issuers not at the long end of the yield curve but very short end. in other words, the fact that the yield curve often tended to be steeply upward sloping at the very front end tended to give financial firms a strong incentive to issue overnight paper. the bottom line of this is i suspect that lsaps have by changing the structure of term premia in the market helped to enshaorch an extension of debt maturity by both financial and nonfinancial firms and all else being equal i think -- this development a good thing from a financial stability perspective. let me conclude. just to restate i believe that our recently announced policy of m.b.s. purchases coupled with the change in our forward

guidance these are strong positive steps. i'm hopeful these actions by the federal reserve will help to give economic growth a much needed boost. at the same time, i'm keenly aware of the many uncertainties we still have about the workings of nonconventional policies and of lsaps in particular. as i tried to explain, lsaps really are something of a different animal and it is important for us to try to better understand these differences and do our best to take them into account when making policy judgments. in short there is a lot left for to us still learn. thank you very much. [applause] >> thank you, jeremy, that was a very thoughtful and thought provoking talk. i, too, am sorry we didn't overlap at the board and i think most of the learning would have come -- going in that direction. let me start off with a few questions arising out of the talk. the talk was focused on the

lsaps channel for monetary policy easing at the zero lower bound. the other channel is the expectations channel, the rate guidance channel. am i correct in interpreting you to think, to say that that channel might be less subject to some of the costs benefit diminishing benefits and rising costs than the lsap channel? and therefore perhaps a more effective way of promoting economic activity if more promotion is needed, and then do you have any ideas on how the federal reserve might reinforce their guidance, make it extended further out? make that a more effective and more used channel rather than the lsap channel? >> yes, i think in some sense the forward guidance more directly maps into monetary policy in the standard way, because although we are some

ways reaching further out into foot ture, we are using the same tool that is used in normal times, which is chapinging the expected future bath path of the bonds rate. my expectation would be that would work more as it normally does and i think that's the reason why you see an effort to use this in complementaryry with large-scale asset purchases. in terms of making forward guidance more effective, as i noted in the talk, i think that there is supportive signaling value, in addition to the direct benefits of lsaps, there is a supportive signaling value. and then the other aspect to which you are alluding is effectively how we go about doing our communication. here's maybe useful to take a step back and say that in my view the goal of our communication policy is to try and articulate as best we can the nature of our reaction function. that is to say how the fed will behave under various contingencies. when you say that, you can see,

i think, something of a shortcoming of the type of pure calendar-based guidance that we have been using before so when you make a statement, for example, like we anticipate that current condition or that economic conditions will warrant keeping the bonds rate at such and such level to 2014, that has a problem that potentially confound a statement about your reaction function with something about your own internal forecast. that i think muddles the objective. having said that, i think that the step that we took in september to change the way that the forward guidances are arcontinuing lated is a mingful step forward. where now the idea is to separate a little bit and say even after the economy strengthens there is going to be a desire to have a policy. that has that conditionality that reaction function thing in there. what can be done to kind of take that further, naturally leads i think to the question of, triggers and thresholds and so

forth. that's a very interesting and timely discussion for us to be interesting. and there will be a variety of views on that. the way i conceive this, there has been the underlying constant here that is been to do a better job of articulating the reaction function and we are sort of working on that job. >> thank you. the thrust of a lot of the discussion was what can policy do to promote greater economic activity given the level of unemployment rate? maybe we'll come back to that in a second, but the other aspect of monetary policy obviously is inflation. inflation expectations did jump at least a little on the recent fed announcement. some people have interpreted where the federal reserve is going as consistent with some of the academic, like mike woodford in jackson hole who said the federal reserve should be

deliberately seeking in the short-term and medium term inflation above its 2% target. this would lower real interest rates, stimulate the economy, etc. i would be interested in hearing your views on your reaction to the fact that those inflation expectations did jump, whether you perfect seesk the federal reserve moving in the direct -- perceive the federal reserve moving in the direction of this academic advice, behavior responsibly for a short period of time? with respect to i nation. >> let me take the mikewood ford question first and clarify the views i'm going to express are my own not necessarily shared by everybody. i understand the sort of economic logic, i understand how the model works when you right down a model in which you say it might make sense to you proactively in some sense try to create inflation. my own view that's just not right. i disagree fundamentally with that. i think it would be a mistake to seek higher inflation not only because it would do damage to

our inflation leg of the mandate, i don't accept the proposition that actively seeking higher inflation would be helpful on the activity employment leg of the mandate. i understand the logic of the models, but they are quite sensitive to the assumptions. one assumption you have to believe here is that when you generate any kind of inflation that people are really tuned to the real rate and that heighter nominal rate that go along with inflation don't discourage activity and don't discourage investment. we can think of a lot of behavioral or accounting or other reasons why that might not be the case. i would just distance myself a little bit from that proposition. >> all right. thank you. the other side of this, this is the economic activities side. you stated chairman bernanke has stated many times that you thought what the federal reserve is doing has been very helpful for economic activity. at the same time i think it's fair to say there is a lot of skepticism out there because the economy has been so sluggish,

growth hasn't really picked up. if anything it's slowed down a little this year after all the feds' actions. -- fed's actions. how do you go about convincing somebody that those actions actually have been effective? that easier policy affected through lsaps and having a positive effect on economic activity? >> it's a very good and very difficult question at some level. and it's not a question that's really specific to the current environment. it's always hard. as you well know decades of research trying to understand what the effect of monetary policy on the economy is because we can't really run the counter factual. what can we do? there's pieces of transition mechanism that we can observe that are tangible enough we can feel. the effect of either the forward guidance or lsaps on trfment rates is directly observable. almost directly observable is the effect on mortgage refinancing which surges in the immediate aftermath.

but from that point forward it is certainly the case that we are using a model which said, based on history and based on past experience, a certain change in interest rates tends to translate into a certain change in activity, and all we can really do to refine that is ask ourself, are there reasons to think that the model wouldn't apply now as it normally applies? in deaf prens to your question -- in deference to your question, one might not apply. in my own view, the expectational channel, the part that we work on with forward guidance, i don't see a reason to think that that would be stronger or weaker in the surnt environment. of course there are lots of uncertainties, but my base line estimate would be to say those effects ought to work as they normally do. there's so many head winds facing the economy it's hard to unscramble the -- do the counter factual. >> one of the channels that you

mentioned and the federal reserve often mentions is the channel through wealth and equity prizes. i think sometimes that gives rise to a sense that somehow monetary policy is favoring better off people because less well off people have savings accounts, the rate they are getting on that is declining. they have -- equity prices are being boosted. how do you deal with this sense that policy -- the effective policy aren't being equitably felt in all parts of society? >> so, you're certainly right the monetary policy is a blunt tool. certainly it's a blunt tool for working on income distribution. the first order i would say we can do for income distribution-type concerns is make progress on economic growth and unemployment. obviously unemployment by definition affects people at the lower end of the income distribution. to be the extent that the policy

has poetentcy, i think that's important. the other thing, impliesity in your question, is the absolutely correct premise that at the lower end of the income and wealth distribution there is less stock ownership. there is also more borrowing. if you can just look at the demographic data, people at the bottom of the lower income and wealth distribution tend to be on net borrowers rather than investors. while they may be losing on wunt hand by earning less interest on the savengs account, they are paying less interest if they have been able to refinance their mortgage. even with the difficulties in mortgage world, auto loans have become much cheaper. have become quite broadly available across the income and wealth distribution. small business loans. again, if you take the sort of broader perspective, where you look at both sides of the balance sheet, i think -- it doesn't sweep all these things under the rug. i think it's somewhat a different picture. >> thank you very much. we have some time for some questions from the audience.

yes. wait for the mike. identify yourself, please. and then state your name. >> my name is cindy walsh, i'm an academic, national academic, political activist. this is a very broad subject so i'm going to try to make a concise question. >> please. >> chairman bernanke is claiming that these qe-3, qe whatever are answers to main street's problem. i would like to represent main street in saying that we actually feel that these policies are creating the stagnation. when you are giving banks and corporations the ability to have free money, they are going to use it to invest globally and not actually work for their money. so that is what we feel is

causing this economic stagnation. number two, as you said the asset and mortgage security buybacks are making main street invest into stock situations that are risky. the low interest rates are making it impossible for us to put our money into savings accounts that we would rather do instead of being in the market. so we are seeing all of these policies as actually working against main street and not for. i just want to end it by saying it appears that the fed's policy more -- the long-term philosophy is that main street -- domestic main street will profit after companies are able to expand globally to the fullest extent and middle class around the world is lifted, then that will

come back domestically to main street and that will be decades away. that seems to be what the policies are promoting. >> thank you. jeremy? >> maybe not surprisingly i don't completely agree. i'll just restate what i said. i think we are extremely focused on main street and the best main street policy that i can think of is one that helps to foster job creation and reduce the unemployment rate. in terms of the workings of the mortgage granular workings of the polcy, if you look at the data you'll see it's not just stuff going on in market, it's the primary mortgage rate that families face, and refinancings at those lower mortgage rates have gone up. the rates people pay for auto loans and so forth are going down. so of course there are collateral effects in financial markets, but the clear focus of

the policy, and i would say the evidence supports, that the policy has been of benefit to main street. >> thank you. all right. i think is that craig back there? >> i'm craig, from bloomberg. i'm not an academic. governor stein, the fed's strategic written in june of 2011 didn't contemplate extending the maturity of the port yole foe, which means the runoff rate is going to be slower than it was. i'm wondering if in your financial stability analysis you are including very large asset sales out of the fed's portfolio? and the question is, do you think inflation expectations would hold in if you didn't sell any assets and just kept the portfolio around $3 trillion?

>> i think the sort of important thing to note here is -- with respect to inflation expect agentses -- expectation, we have multiple tools to tighten -- it's really i think it's much less different from the normal situation than it's often made out to be. there is always a situation when the economy strengthens, when is the appropriate time to tighten? we'll face that judgment. we'll have to make that judgment. and how well we will do on inflation will hinge most importantly on whether we make that judgment correctly. but given the judgment, the tools are there to raise short-term rates through interest on reserves, and sort of there is an additional tool which is, the sort of incremental effect you have on long rates -- loan rates if you vary the pace of asset purchases. the first order of thing is we can always raise -- away from the zero lower bound, which you are once you start raising

rates, i think we are back in a much more convential world. i think -- i have a high degree of confidence in technological ability to move the funds right upward. >> ted truman? >> i thank you. ted truman from peterson institute for international economic. i thank you for your remarks which i think probably qualifies as one of the more sophisticated presentsations at brookings the last year. -- presentations at brookings the last year. my is a criticism you didn't mention. as an actual economist. that is the impact of this -- a, the impact of this on the rest of the world. and whether the in general, and whether in some sense a channel that you left out was the exchange rate effect. there is some suspicion, i think, in the world in general that in fact what you talked

about was completely irrelevant and it's all about weakening the dollar. exporting unemployment, whatever you want to call it. and then the other part of it is you're also exporting at the price of inflation to parts of the world that don't want it. i would be interested in your response to that kind of criticism of this polcy. >> well, i mean first of all i will acknowledge that the -- your statement in the sense that it is certainly the case that there is an element of the transmission mechanism that works at the margin if the dollar weakens, that plays some role. if you pan back a little bit and look over the last couple years, the evidence would suggest that's not a dominant thing. for example i alluded to the fact that the term premium, adorable -- a durable effect of lsaps has been to lower the term premium on bonds by 80 to 120

basis points. if you look at foreign exchange over the same time, there is no sorsing -- corresponding effect. obviously there are a lot of other head winds and the dollar has been strengthened by safe haven flows and so forth. you don't want -- it's not my view that a dominant aspect of this is working for the dollar. the other point i would make is back to kind of considering the broader context. one of the things that the federal reserve and other central banks can do that's positive for other countries is to raise growth globally. to the extent we are able to do that through these other channels i think that will ultimately be beneficial rather than harmful. >> great. yes. america online ryan at the economist. -- >> ryan, at the economist. practically speaking what's the difference between a policy in

which you try to use lsaps to raise real growth and also say you'll react more slowly to inflation after the recovery strengthens, and a policy of actually trying to get more inflation? certainly while there are risk in the short-term to higher nominal rates, given the cost and zero lower bound, is there not a case to be made we want nominal rates to be a bit higher in the long run? >> first part of the question, again, i disagree with the premise of ginning up -- what we are doing is seeking to gin up inflation. let me try to explain to you how i think the reaction function and why you might make a statement like it would make sense to keep rates low for a considerable time. it's precisely because, this has nothing to do with inflation, it's precisely because we talked about how life is difficult near the lower bound. policy doesn't work as well or there are various costs. or life near the zero lower ground is a bad place to be.

that suggests as you start to move away, you want to take steps to make sure you don't fall back. in my mind that's the motivation for this lower for -- it doesn't have to do with stimulating inflation expectation. other people may think about it differently, but i think it's the logical counter part -- counterpart to a pit of skepticism about lsaps is to be a little harder on the other piece. could you remind me of the second piece was? >> second piece was just whether because of the zero lower bound wouldn't it be a good idea to get nominal rates up a bit in the long run? i guess you sort of got it were your -- with your answer. >> one last one. yes. >> i'm basil, i used to deal with economic policy at the state department and my question relates to a figure i thought i heard correctly that the lsaps over a two-year period have an

impact of lowering unemployment by 0.2%. that seems -- unless i misunderstood. >> yes. excuse me. that was a hypothetical of the incremental effect of a $500 billion lsaps. first of all the past lsaps have been bigger cumulative than $500 billion. will i fumble on the exact figure. moreover, qe-1 for example was done as a time of quite serious market dislocation. my subjective view would be that qe-1 dollar for dollar had substantially more bang for the buck than that figure that i recited for you. i think the cumulative effects have been substantially bigger. >> thank you. >> jeremy, thank you very much. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2012]

>> more live coverage coming up this morning as ms. magazines celebrates its 40th anniversary

live from the national press club. at 1:30 eastern, former secretary lawrence summers will be at the center for american progress to talk about the fiscal cliff. that is live at 1:30 on c-span to. >> i want to go back to the last comment, and then i will come back to israel and palestine. the reason that he tried to attack halliburton is they want to obscure their own record. your record is not very distinguished. you missed almost 70% of the meetings in the intelligence committee, meetings and tax policy, energy, energy reform. your newspaper has called you senator gone. in my capacity as vice president

and the president of the senate and providing -- presiding officer. i am up their most tuesdays when they're in session. the first time i ever met you was when you walked onto the stage tonight. with respect to israel and palestine, suicide bombers were funded by saddam hussein. i think one reason why we do not have as many suicide attacks today in israel as we had in the past is because saddam hussain is no longer in business. we have put in forward replace a policy that said we will -- in place a policy that said we will support the establishment of the two states, but first there yesterday trust, and we do not have that, and we need to

have that. >> your turn for a response to >> that was a complete distortion of my record. i am surprised to hear him talk about records when he was one of 435 members of the house, he was one of tend to vote against headstart, when of four to vote against banning weapons that could pass through the -- metal detectors. he voted against the department of education, against funding for meals on wheels for seniors, against a holiday for martin luther king, against a resolution calling for the release of nelson mandela in south africa. it is amazing to hear him criticize my record or john kerry's. >> the -- the record speaks for itself, and frankly is not distinguished. >> a portion of the vice- presidential debate from 2004.

tonight, watching and engage with c-span as the vice- presidential candidates meet for their only debate. our live previous starts its 7:00 p.m. eastern. the debate continues at which it starts at 9:00, and then your opportunity -- starts at 9:00, and then your opportunity for feedback. we will take you live to danville, just outside of the hall with the debate will take place and a look at the media gathering in the advance of tonight's debate. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute]

>> again, a look at the norton center for the arts, the site of tonight's debate beginning at 7, our coverage on c-span. and, if he missed any of the debate, you can see them in the debate hub, as well as last week's presidential debate.

when a broken back down by topic and segment. -- we have broken that down by topic and segment, and you can create your own video clip c- span.org. on our facebook page, which posted the question what question would you like asked, and responses include what is amendment 3 in the bill of rights. i bet they would both talked a blank. rich says i want to know why paul ryan is pro-licensee is in favor of war. many of those questions -- pro life, since he is in favor of war. we continue to bring you debates until election day. jeff flake of arizona faced off

against richard carmona for the senate seat of retiring jon kyl. this race has been rated as a tossup. this is one hour. >> good evening. welcome to the debate. >> it is the first debate between candidates for the seat vacated by jon kyl. this is an open exchange of ideas, an opportunity for give- and-take between candidates for one of the state's most important offices. as such, interactions are allowed, provided that all sides get a fair shake and we will do our best to see that that happens. they are in a alphabetical order, democrat dr. richard carmona, the former u.s. surgeon general. congressman jeff flake.

and libertarian mark victor. each candidate will have an opportunity for an opening statement. the honor goes to richard carmona. >> thanks, ted. i am happy to be with you and my colleagues. this is an opportunity -- the fact of the matter is is that over a year ago when my colleagues first approached me, the cops, the firemen and ems personnel, and said there is an open seat, you should run. the first thing i said, is i will run as far away from washington as i can. i have been there. i was not sure i wanted to go back to the dysfunction. the more i thought about it, i realized that we need leadership there. this gridlock has hurt our nation. we have a fiscal cliff. congress has stalled. i have been very fortunate in my life.

my mom only wanted one of her kids to graduate from high school. i have been able because of a great country to get an education and go to medical school, to be a police officer and a professor. that is because we have a country that is full of opportunity. >> your time's up. dr. carmona, we turn to mark victor. >> i'm a person who believes in freedom. i believe in individual rights and individual responsibility. that is why we are a superpower because we have had more freedom relative to other countries. i am not a politician. i say what i think. i do not sugarcoat things. i cannot change my views based on the audience i am in front of. i keep my promises. i am a man of principle. i started my first business at age 17. i am an honorably discharged united states marine.

i served in desert storm. i am a criminal defense attorney for 19 years. i started off my law firm in 2007 and i employ 11 full-time people at my firm. i know what it is like to run a small business. we have strayed far from the principles of limited government. our government taxes and spends out of control and our civil liberties are constantly under attack. we can fix it, but we need to get government back into its cage. >> our final opening statement is from jeff flake. >> good to be here. two days ago, cheryl and i received a wonderful phone call from my son ryan and forming as we are grandparents. aidan was born into a wonderful family, but he was born into $50,000 of debt. his share of the federal debt we all hold. that is why the stakes in this election are so high. we have to have somebody who

understands fiscal discipline. that has been my record in the house of representatives, where i fought my own leadership on issues like earmarks. they punish me for it, but i kept at it and we do not have earmarks any more. that is the kind of attitude i will take to the united states senate. my opponent have a great résume. but a great resume is not a plan. he has been running for a year now and we do not know where he stands on the major issues of the day. we have a choice in this election. we can elect somebody who does not have a plan, will be an echo of the obama administration. or somebody who will continue to be an independent voice for arizona. i would appreciate your vote. >> thank you for your opening statements. let's fine tune things a little bit here. why you and not him? >> happy to have the opportunity. no, my life has been one that has been best exemplified by the infrastructure of opportunity that this nation

has. i am a high-school dropout from an immigrant family. i have prospered because of this great infrastructure of opportunity in our nation. i have been able to serve my country as a physician, a police officer, as a professor, as a teacher. and doing all of those things has allowed me to appreciate how great this nation is. what i want to do is make sure we can preserve this infrastructure of opportunity so every kid can get that american dream. >> what you and not him? >> that is exactly it. that opportunity will not exist unless we get a hold of this $16 trillion debt. that is why we have to have somebody who has a record, who is willing to stand up for that record. that has been my record in the house and that is the record i will take to the senate. it is the same reason, but i see that opportunity slipping away unless we can get this under control. >> why you instead of these two gentlemen? >> the problem here is the republicans and the democrats.

the two parties got us into this situation to begin with. we have had republicans in office, republicans controlling the presidency, we get more government. we have democrats, democrats controlling the congress and the presidency, we get more government. the republicans and democrats are not the solution. they are the problem. they caused the problem. we need a new plan which is an old plan. we need to get back to what our country is about which is freedom, individual rights, free market, limited government. >> let's get into jobs and how the best way to create jobs in arizona, the best way to create jobs in this country. how'd you do that when so few people have jobs and the money to infuse into the economy? >> there are a lot of opportunities at this time. our state is suffering right now. when we look at arizona and the unemployment rate, the housing prices, the fiscal cliff, it's

extraordinary. amid all of that, there is opportunity for us to grow. we have to look at this in short-term and long-term. what is it that we can do to bring jobs right now? what we have to do it is provide incentives to be able to get small business started again. we have to be able to look it infrastructure needs. one of the challenges as i have travelled around the state and i have gone to the old williams air force base. i have gone to the other air force base. i hear from the businessmen, we need infrastructure. what they tell me is, congressman flake is not available because he believes these things are bad. i think we ought to be doing is working with business to create infrastructure to make arizona the most attractive place to live and people will come with their ideas and business will grow. even the mayor of mesa, who is a republic has said to me, we cannot depend on congressman flake. i will be there to provide that help to build infrastructure. >> respond, please.

>> i will give him this. he is a quick study. is only been a democrat a year now. the source of jobs in this country is the federal government and not businesses. this notion that we have to have the federal government to provide incentives for business, what we really need is sure the on taxes and then to get a moratorium on these burdensome regulations that are strangling business in this state. the notion that all we need to do is pick winners and losers like the obama administration has been doing, that is the wrong prescription for arizona. >> is there no place for incentives? >> the best incentives is to allow individuals and businesses to keep their own money and to let the market

allocate capital. does it so much better than government does. as governor romney said very effectively the other day, president obama is trying to pick winners and losers. the problem is he is just picking losers. . >> the characterization that the congressman has mentioned is incorrect. what i am saying and i agree with them -- there are many things we agree on. the fact is is that we need an infrastructure to be able to build our businesses. so when we look at what actually is needed, we need innovators to come here. why would i come here? because there is infrastructure. again, if you look at some of the incubators we have created already, they are dying to be able to have help. congress and flake has pursued this earmarked ideology for a long time. in 12 years we are still struggling. our businessmen tell me that we need help. when you are a senator, you need to work with us. >> just a second. >> he has to respond regarding the year mark situation.

you are known for fighting earmarks. >> we do not have the earmarks right now. that is a wonderful thing. businesses in cities and others can compete for federal grants on a merit-based basis rather than by political patron is. that was a terrible system we had, and it is a good riddance. i am proud of the road i played the role i played. the last thing we need is to go back to the earmark era where politicians in the house and senate are picking winners and losers. that is not what we need. what we need is for the federal government to establish and create an environment where the private sector can flourish. >> talking about earmarks is exactly the kind of craziness we do not need any more. earmarked -- $16 trillion debt. earmarked account for 1/2 of 1% of the federal budget. we are better off, but talking about that is like talking about a drop of water in the ocean. the government does not create jobs. the private sector creates jobs. if you one example, take a look at texas.

the people in texas are close to the people in arizona. why and there -- is their economy doing so fantastic? they are consistently ranked as one of the top state friendly to business. what does that mean? they mean lower taxes, low regulation. and not worry about government trading infrastructure. all the government has to do is get out of the way and let the free market to its thing. >> you have been criticized for not bringing home the bacon, not doing enough to get federal money into arizona. how do you respond? >> most of the earmarks, in the transportation bill. that had 6300 earmarks, including the bridge to nowhere. arizona has been short of for a long time in our transportation largely because of the earmarks, because delegations from donor states will say, we will take a lower formal amount in exchange for a few goodies -- earmarks. that has meant that arizona has only got 90 cents on the dollar

rather than $1 for $1. now we're marks are gone and the next authorization bill, arizona will get 95 cents on the dollar. that will mean hundreds of millions of dollars more for the state and a flexible manner. arizona is far better off. >> let's look at this. the fact of the matter is that all the remarks are not poor. there are necessities the federal government can provide. the congressman has been in congress for 12 years. he has had this ideological streak. it accounts for less than 1% of the budget. it is almost insignificant. his colleagues have figured out other ways to circumvent this. what we are talking about a smart investment in our communities. a republican mayor would reach out to me and say we need your help because congressman flake is unwilling to work with us. this is about infrastructure, this is about the federal government investing in a community and the return on investment will be huge when science and technology and engineering is in the incubators that we have here.

>> hold on. >> there is this philosophy again that all jobs have to be treated by the federal government. that is why dr. carmona is comfortable party in comfortable priority, because that is the attitude of the obama administration -- that is why dr. carmona is comfortable in the democratic party. >> the fact of the matter is, i am not here to defend the obama administration. i have been an independent my entire life. i understand what businessmen are telling me. we need help. we are willing to invest, but we need roads, sanitation, clean water. that is beyond the scope of small business. infrastructure will help entrepreneur is to take risks, to hire people, we will get schools and get economic growth. >> i wonder what the founders of our country would think about this very discussion. i wonder what they would think

of the federal government taxing people in arizona and then having our representatives to go to washington and bad for our money back so we can have a road and schools. is on american. we need to stand up and take a principled stand -- it is unamerican. we need to decide how we spend our money. how about the people who made the money decide how to spend the money for a change? >> dr. carmona misunderstands how federal funding works. he says that earmarks make up less than 1% of funding but acts the way that the only way arizona gets funding is through a earmarked. that is not the case. earmarks influence a lot more than that. it is good riddance to get rid of that. now businesses and municipalities and others can compete for grants where there are federal programs on a merit basis. that is better than political patronage. >> i want to work on to the

idea of tax cuts for those making $250,000 or more. what to do with the bush era tax cuts? >> we have to extend them because we have to protect the poor and middle-class. so the fact is they need to be extended. i would be in favor of protecting the middle class and the poor. i have no problem with somebody like myself paying a little bit more tax now but in order to cut the deal in order to deliver and protect the poor and middle class, i am ok with going to a full extension of the bush tax cuts with a proviso that my colleagues would agree that we stop kicking the can down the road because congress has failed to deliver on tax reform. this shows us that we are in trouble by continuing to kick the can down the road. >> a deal? >> we need to extend the tax cuts. now is not the time to raise taxes.

people say this just for people making $250,000 or more. a lot of businesses, our best corporations -- if you tax them more, these are jobs that are not created. dr. carmona seems to have a position on every side of this issue depending on the audience. i have read of several positions he has taken on this issue. >> how do you respond? >> congressman flake is trying to characterize me as something i am not. i have been an independent all my life. i chose the democratic party because when i looked at the republican party and what congressman flake was doing voting against a veteran benefits, against the combat bonus, when i looked at whether the republican party was denying women access to health care and what they're were doing to seniors and putting them at risk, i could not line up with the republican party because it is not the republicans that were fiscally conservative that i used to know.

it is not a perfect fit. but i am being is characterized because he is running from his record. >> one thing i can agree with is that the republican party today has nothing to do with the republicans that used to talk about small government. i know barry goldwater, had he been there, i'm sure if he asked mr. flake about his vote for the patriot act, i will bet he will roll in his grave. the bush era tax cuts do not do enough. we need to abolish tax cuts -- taxes entirely. barack obama said he did not want to raise taxes on the middle class because the middle class buys cars. so did the rich. the rich spend money, too. the rich are part of the crowd that invest money to create jobs. that is what we need to be doing in america -- cutting everybody's taxes as far as possible. >> we got you.

congressman, would you ok $3 in spending cuts for every $1 and revenue? >> you will never get that bargain. i believe there are some republicans who say you go -- if you lower the top tax rate, that you cannot produce any new revenue for government. i do not believe that. i say if we generate new revenue, then pay down the debt faster, by down the rate further. so i am not one who says he cannot generate any new revenue. there was a question a while ago about and ethanol subsidy that i have been trying to get rid of for years. we finally did. that is about $6 billion. some republicans said if you get rid of that -- it's price revenue neutral. get rid of a bad subsidy. >> to be clear, if it means getting rid of $3 in spending cuts, you have to raise revenue by $1. you are against that? >> you will never see it.

every time we get a plan, we do not see the cuts. >> the congressman, what he is accusing me of, not answering the question -- he is not answering the question. >> i am saying i would not oppose. >> the idea that lower taxes equals growth means more revenue to the government. supply side, laugher curve, what ever you want to call it. valid? >> markets are much more complex than that. i am in agreement mark and with the congressmen that we have to do everything we can to lower tax rates. we have dug ourselves into a hole because of the fiscal irresponsibility of congress. our gdp is exceeded by our debt. the fact is we have to do something about it. so we do not want to raise taxes now because that will push us further into recession but we need to start generating income. economic growth and we have to cut spending. that is what the congressman has said.

i'm sure mark feels the same way. >> i would never, ever support raising anybody's taxes. >> for no reason? >> there is absolutely nothing that anybody could say to me that would justify me lining up to say i would invoke the power of government to take money away from my neighbor. people have the right to the money they earn. we are going off a financial cliff. if we do not do everything it immediately, the republicans and democrats together have taken this country to the brink of financial collapse. we need to cut government by 50% just to get started. >> i have got to keep it moving. what was learned by the great recession? >> well, that you have to have an environment conducive to economic growth and we did not have that. we did not have a situation where private sector could move ahead. the private sector seeks certainty. you have to have certainty on taxes and right now we have

certainty on regulations coming up. and we have a lot of that in the great recession as well. if you read "the forgotten man," it is a great tale of why some of the common knowledge about the great recession and how we got out of it had does not square with the facts. >> said those who say supply- side economics that we had during the bush term, and we've seen that for 30-odd years, that supply-side economics led to or helped lead to the great recession, he would say -- >> no. >> what would you say? >> it is more complex than that. but i think that is a generally true statement. >> the republicans and democrats are continuing to do the same thing they have always done. who is here talking about getting our money back to the sound system? we need to get back on the gold standard. until we have that, we will have the government printing money out of control. we have the congress spending out of control. we are headed for financial

disaster unless we have not tinkering around with earmarks, we need to be talking at this table about what departments of the federal government will be cutting on day one. there is along list. not earmarks. >> doctor, should medicare be reformed, should medicare be eliminated? >> i do not believe it should be eliminated. i think we should keep it but it needs to have an overhaul. the fact is, we are spending 18% of our gdp on health care. but is really sick care. 75 cents of every $1 is spent on chronic diseases. there is a lot we can do it in savings. there is $750 billion wasted in fraud and abuse. people need the help system. if they do not, that was shot in the emergency room and we all pay. having a system that will allow people to appreciate pursuit of

optimal health and wellness to drive down the cost of care is going to help us. >> about of voucher system? >> a voucher system i am concerned about i am concerned with -- as it transfers the risk to the patient. the patient shops for health care. does not drive down the cost. the patient will still drive up costs because they are eating the wrong foods, they are smoking. the cost rises. both parties got it wrong. the costs will continue to rise from 18% of gdp to 25%. >> medicare, what do you think? >> it has to be reformed. we have heard what we have heard throughout this campaign, what somebody referred to as happy talk bromide that absolutely nobody could disagree with. we have to make sure that people have a greater health choices. we are facing a crisis here.

medicare as we know what will and unless we reform it. will and for those who are currently in their senior years and it will and for others as well. what we have done in the house of representatives have put forth a plan -- it is not a voucher plan. it is called premier support for those under 55. will not affect those over age 55. but the doctor will criticize republicans are actually taking a position but he will not offer one of his own. >> the congressman is showing you what it is like to be a chronic politician. he has been there for a dozen years and it is always somebody else's fault. republicans have it right, the democrats have it wrong. both parties have gotten it wrong repeatedly. you have to look at the short term and long term. the big cost drivers are chronic diseases, most of which are preventable. if you forget that, it will keep going up. if you give them a voucher, and you cannot do anything else, the cost of care continues to rise. >> let me addressed -- the crown a politician is one who will

not take a position. -- the chronic politician is one who will not take a position. we have taken a position in the house of representatives. but the senate will not even pass a budget. the senate has not come under democratic control has not passed a budget in three years. >> all i'm saying is the plan they have does not deal with the rising costs. it transfers the risk to the patient. >> he asked, what is your plan? >> short-term there is a lot of fraud and abuse within the system you have to eliminate. you have the go line by line to what the programs are to be able to reduce them. in the long term, you have to -- the public cannot do what they want to do -- smoke, drink excessively, do not wear seat belts. >> respond to this, please. >> there we are again, a

statement nobody can disagree with. to put forth a plan, we get criticized for the democrats will not put forward a plan. we know that compromise is essential in washington. the problem is we have put our stake in the ground with the ryan budget. the senate will not put their own stake in the ground so we can say, here is the middle. perry brought water said that politics is nothing more than business. -- barry goldwater said that politics is nothing more than business. we cannot get dr. carmona's party to put forth a plan. >> he says we have to eliminate fraud. if you think there is a lot of fraud now in the medicare- medicaid world, wait until you see the kind of fraud and corruption in things that are over budget under president obama's healthcare plan. i am going to say something that is on popular because i

would rather take a principled stand. number one, there is no support in our federal constitution for the federal government getting involved in anything related to health care. show me where it is in congress's powers and i will change my mind. number two, involving the federal government and healthcare is one of the worst decisions are country got involved in. we have a situation and we need to move in a way that does not cause harm to our citizens to get out of that situation, but we need to stand up finally in our country, take a principled position that there needs to be our wall of separation between government and health care and government and most things. >> the for care act. how would you have voted? >> the way it is, -- the affordable care act. >> i would not have voted for the way it was. the reason is that i believe it is unsustainable in the long run. i was a surgeon general.

as a nation, we could come together and not politicize health care and make sure that all people have access to health care. when we look at adding 32 million people into the system, the way the business plan is set up to take money from doctors and hospitals, they are being threatened. they are not signing up to take more medicare patients. i would encourage the president -- is a big document. it is complicated. it rolled up too fast. business plan needs more work. i am fully behind the aspiration to ensure that every american has access to basic health care. >> single payer plan? would you be in support of that? >> the fact of the matter is it would not work. we teach that school. will never be able to get it done in this congress. >> the affordable care act. >> i know how you feel. >> we do not know how dr. carmona feels, because when he started this campaign he said he supported it. it is on tape. now he is saying he does not. you have broken new ground because you have gotten him to

take a new position tonight. >> the congressmen, again, is mischaracterizing. what i said and what they take out of snippets when they do their videos is that i fully, 100% support care for all. then i would have the provides. here is the problem with the aca. yes, i am a doctor. but people have to participate in the system. they cannot get a car and drive up the cost of care and expect the government to pay for it. >> they have to participate whether they want to participate or not. how does that mesh with what we are about in america? we are free country. the federal government will get involved and say what you like it or not, you are part of the system. everywhere else in the world, this has been tried, every version will result in rationing. we will go from the belt health care on the planet to one of the worst -- the best health care to one of the were. >> this is a new position. dr. carmona has been on each side of this.

in 2010, when the democrats took a bath nationwide, according to the fema county recorder's office, dr. carmona did not even vote in the primary or the general election. it is not surprising that we have someone who will not take a position on most issues and when he does he abandons it soon afterwards. >> that is certainly on this characterization again. the congressman is doing all he can to run from his record. the fact of the matter is, where we need to be spending time is talking about why is the blocking access to health care to women? why is he not supporting our veterans? i am a combat veteran. he voted against the gi, the veterans' benefits. he voted against the transition and the combat -- he voted against many other areas repeatedly. when i looked at his legislative record over the years, i mean, it was reprehensible how he has done so

many things. the fact of the matter is he is putting people at risk whether it is social security, medicare, our veterans, and women especially. >> yes? >> especially with women right now because the fact of the matter is is he who partnered with congressman akin on that bill to define legitimate rape. >> start with a veteran's benefits because we've heard this. i want you to respond. >> you bet. if you been in washington for more than a year, you voted on a thousand pieces of legislation. i voted for more than 100 veterans bills in my time in congress. dr. carmona will pick three or four bills that have veterans and the title that work larded up with extraneous items. one of them, we have funding for the national science foundation who funded a study $150,000 to determine why politicians give a vague answers. that was part of it.

to vote for a bill simply because it has a veterans is that -- in the titles is why we have a budget deficit of $1.30 trillion and a $16 trillion debt. >> the question would be, is it worth not getting these benefits to the veterans if it means no more lard? >> what happens is those bills will be brought right back. they are popular pieces of legislation. people want to support veterans and they should. when this ad ran that claimed that i would deny care for veterans with missing limbs and legs, it did. it showed pictures of them. my father is a korean war veteran. my brother has done two tours in afghanistan, two in iraq. april white, when she saw that ad, she called our office and said that may be sick because when i cannot get the benefits i was due only one person without the and that was jeff flake. >> let's look at the facts.

we can stipulate -- my father and uncle served in combat. my brother served 30 years and special forces. that is not the issue. the congressman is trying to evade the issue. there are three specific bills he voted against those issues. it is not only me. the iraqi-afghanistan veterans organization gave him an f. the vietnam veterans gave him a zero. organizations to follow these things says he voted on the wrong side and the time when our kids need the support the most because they are coming home with traumatic brain injuries and amputations and he voted against it. >> this is part of the problem with politics. everybody is afraid to say, i am in favor of not giving more to veterans. i am a combat veteran. i served under the gi bill. i was happy to do that because i served my country. what i support as a senator everything that's said veteran on it to give more to veterans? no. because we have a job which is to get our spending under control.

rather than talking about that, would you want to help the veterans? we need to get out of this ridiculous afghanistan situation. how did we get into this iraq situation. >> we will get to foreign affairs and a second. senator john mccain, a veteran we all respect, saw that at that dr. carmona ran and said it was deplorable that -- to insinuate that i would deny care of veterans. it is deplorable. >> he can defend it, run from it, have excuses. the fact of the matter is, he voted against it. that is not by me. that is by the veterans' associations i quoted. a let's move forward with topic th is always front and center in arizona, and that is immigration. congressman, we had on the program talking about this. you have been criticized for changing your position. is that criticism valid? >> no.

we have to have broadbased immigration reform. we have to do more than secure the border. but the reality is in washington for those of us who have worked on this issue across party lines, worked with senator kennedy on this issue. for 10 years i worked on this issue and hit my head against a brick wall like everyone else. myself, senator jon kyl, senator mccain realize that until we to have border security nobody will trust the of federal government to move ahead on other items. we have to have a border security in the tucson like we have in the yuma sector. >> we hear that alot. what is a secure border look like? when is the border secure enough for reform? >> i can tell you exactly. there is the metrics that is used -- the yuma sector, we have operational control. if an illegal alien crosses the border, we have a reasonable expectation of catching them. that is what we have in the yuma sector.

i worked with the democrat who endorsed me who will say that we have operational control. we do not have anything approaching that in the tucson sector. once we get that, we can move on to the other reforms. >> hold on. should we be adopting comprehensive immigration reform now as opposed to waiting for a secure border? >> we absolutely should, because the fact is i do work on the border as a deputy sheriff. i understand the border better than most. it is not just a theoretical construct. i have been there. that is a dynamic issue. the congressman, trying to take what is happening in yuma and transfer it to tucson sector does not transfer easily. we need to have comprehensive immigration reform and we need it now. the congressman, when it is politically correct, he flips and flops. when he was running his primary, he was off to the

right, we only need this control. he had sarah palin and he talked about her endorsement. as soon as the premier was over, he starts moving back to the center. he goes on hispanic television and told them, i will take care of you and do something for you. he is playing a political game. we need comprehensive immigration reform now. no sense in stalling. >> have to have a secure border. if we have learned anything the last couple of years with the death of brian terry, we need to have other reforms. we have to make sure that our labor needs are met. we have to deal with the humane -- in a humane way with those that are here now. individuals that are here that were brought when there were two years old. it is a complex issue but has to start with border security. >> it is not that complex of an issue. we did not have these kinds of problems many years ago. we came from a place where the statue of liberty was facing

outward. we had waves of immigrants who walked into our country and the late 1800's and early 1900's. we did not even have a term illegal immigration. the problems at the border are a function of the fact that we have not -- we have an ever- increasing welfare state. if people want to come to the u.s. for the purpose of pursuing happiness, like they did in the late 1800's, that does nothing but good for america, just like it did then. if people are coming here perfect of its, the way? that is get rid of the benefits. -- people are coming here for the benefits, the way you fix that is get rid of the benefits. the drug war is why we are having a problem at the border. if we do not address the drug war, we cannot get the border situation under control and we cannot get our justice system under control. no one is talking about ending the drug war. the need to end the drug war. >> should comprehensive immigration reform include a path to citizenship for those already here?

>> i think it should. when i looked at comprehensive immigration reform, the concept of securing the border is a dynamic one. there is never a day when he would be able to say the border is secure because our adversaries have countermeasures. we have seen that for years. until we decrease demand by this side for whatever people are coming for, we will not be able to secure it. it will be an ongoing challenge every day. but we need comprehensive immigration reform. i support that and i support the dream act. but are not citizenship. we have to stop letting congress use this as a divisive, political wedge. president bush and senator kennedy came up with a great idea. two different politicians acted in a statesmanlike way to provide as a plan, a pathway to citizenship in the dream act. >> for those that say that plan as a shortcut for amnesty, you say -- >> i do not think so. it is a solution to a complex problem. the fact is, you will not be

able to support 12 million people in the united states. so you need a reasonable way to adjudicate this problem. and i think president bush and senator kennedy had it right and congress failed them. >> do you support the dream act? >> the dream act, if it has certain provisions in it. i introduced the strive act. with it was included a version of the dream act the did not mandate the state's offer in- state tuition. we have to deal with those who were brought here illegally. if the version of the dream act is good, i will. >> does this mean that he believes that were brought here it -- that those that were brought here as children need to go back to their country and reapply for entry to the united states? >> i do not think so. i think we can find a way to deal with that, but it has to be part of a broader picture. >> then you had before. thes tory changes.

>> i introduce legislation for this. how can it be different? >> congressman, you flipped on a number of times depending on where you are in the political cycle, to ingratiate yourself. >> that's not true. >> i was in court today representing someone who was illegal. the judge sentenced him to several months, got 16 months in prison. now we all as taxpayers have to pay to put him up in the bureau of prisons. this is ridiculous. he did not come here. he came here like most americans -- he did not come here looking for a benefit here he came here looking for work. he was shoveling gravel in mexico. but if we get this crazy national health care thing, if we wind up keeping this nutty, more government involvement with health care, what we are

doing is we are sending a call to attract people. come here and use the government benefits. we are creating a welfare state. >> you just said it is a fiction that they are coming for benefits and now he said they're coming for benefit. >> some of them might be coming here for benefits. i know there are people who come here to have birth and had the baby said they can both get citizenship as well as get the pregnancy coverage. we need to eliminate that. no person has a right to live at the expense of another person. that is an american principle we have forgot about in this country. we need to get back to that. >> congressman, how much should the united states police the world? >> i think we ought to detect our national security interests abroad. it ought to start with what is our national security interests, does our activity overseas for that interest? and two there are other reasons to be active overseas and one is humanitarian. it is a great thing we respond to natural disasters or intervene sometimes when we can

save lives. but the foremost thing in our thinking has to always be, does this activity for the national security goals of united states? >> your colleagues have criticized the administration for leading from behind. do you agree? >> i do not know how to characterize it, but it is a bit schizophrenic. we are seeing on the libya situation, where the administration simply cannot decide what it believed and when in terms of why our ambassador got killed. was it in response to a video that came out? that is what the obama administration said for a couple of weeks. now they are conceding, it seems, that this was a calculated effort by probably an al qaeda operative. >> our position in the world, is that where we should be? should we be more or less involved? >> what we have to do is ask the question, what is the global footprint we need to protect our national interest and also the allies were obligated to?

the congressman mentions the issue and libya. the fact of the matter is, having been in the military and having been in the department of defense, health policy board, dealing with issues, we know intelligence built over time. it is difficult sometimes to ascertain specifically what happened. i am not offending anybody, but some of these issues are more complex. what is the and the congressman is typical, chronic politicians stuff. everybody is wrong on the other side. the democrats and republicans do it. and everyone of these issues. i think it is really, really unfair because is it -- these issues are much more complex. when the incident happens, you do not have all of the intelligence. you wait and see. >> chronic politicians. >> the other side is wrong. since i have been and the congress, i have been able to pass more floor amendment then my republican colleagues. in the past four years, no democrat or republican has

passed more floor amendments that i have. that can only come when you work well with the other side, when you have the temperament to sit down and work with people. i have worked with others in farm subsidies. i worked with luis gutierrez on some immigration is huge. this notion that i blame the other side. your record shows you vote more than michele bachmann with your party. >> they said congressman jeff flake abandoned me on the issue of immigration. it was not bipartisanship. when he needed to move, he abandoned me and did not falter when he said he was going to do. >> do we want to talk about who abandoned whom? the obama administration had two years of republican house and senate and they did not

introduce the same reforms that had been introduced before. >> this is all politics. we are not the world police. we are not supposed to be the world police. you go back to george washington and he was saying, to not be the world police. what i want to know from the congressman is, will he admit he got hoodwinked on iraq? the government sold us a bill of goods about weapons of mass destruction for a country that has the gdp of a small city that was no threat there. it was no threat made or no ability to harm the united states, but here we are nine years into a war in iraq for 4,500 servicemen dead. he got faked out on that one. that is something we should not have been involved in. i wonder if the congressman would admit he was wrong? >> hindsight is 20/20. you had virtually the entire

congress move along with the resolution to go to war. >> there is something happening in iran with nuclear weapons that is getting a lot of attention. how can we handle the threat of nukes in iran? >> right now there is an embargo. two step process -- they have to enrich uranium so much that they can weaponize. they are not there yet. the estimates are six months, maybe a year away. if we can get china and russia to cooperate, we can make the embargo hurt them. right now, there are substrates flying over syrian air space. we need to do everything we can to prevent them from getting nuclear capability. the problem is, if they do, it is not just a threat to israel. we have an extremist group with

nuclear capability. that would be a point where we have to act to prevent that from happening. >> do we have the resources to act? we can do it if we want but we have had a couple of wars. >> we are broke. we have the debt up to the level of our gdp. it is something we do not want to do, but to protect our nation and to make sure that extremists do not have nuclear capability, we might have to act. >> iran. all options have to remain on the table. we hope we do not have to go there. >> that's every option. >> one second. back to iraq. this is why before we send troops around the world for things like iraq, congress is supposed to declare war. they did not. that should have been a debate. rather than sit there and get hoodwinked by the administration, now 4500 servicemen dead, congressmen should have a debate before they send troops abroad. the situation with iran, america has a right and

obligation to defend its citizens. if there is a threat over there, and there may well be, if that threat becomes imminent we have an obligation to act to protect our people. but i am not going to get hoodwinked. i will be a lot slower on the trigger to go after a country like iraq that really did not have any capabilities. >> obviously, the campaign is for the senate. the filibuster has been used in this current united states senate a lot. has it been abused? >> i think every party will say the other party abuses. i like the system. i like the requirement to get 60 votes. it requires working across the aisle. that is something i am well- suited for. i would not vote to get rid of the filibuster. sometimes it is abused by both parties. >> 1917-1970, 57 cloture votes. the current senate, 109. >> you have a dysfunctional son.

we have not had a budget passed in more than three years -- we have a dysfunctional senate. the last time they passed the budget, the ipad had not been invented yet. >> can it be functional if the filibuster is rearing its head? >> it can. we have had a filibuster for years. senator john mccain said that this is the first time in 51 years the senate has not passed a defense authorization bill. so the problem right now -- i do not think we will convince harry reid to change his stripes. in an election year, you do not have to convince. you have to replace. that is why we need a republican majority. >> given the people we have in congress, i would rather see gridlock then them getting through some of the crazy ideas, putting us more in debt like raising the debt ceiling. you know it is coming again. you know congressman how flake will look for it. maybe he will correct me and only vote for raising the debt

ceiling when there is a republican president -- rather than have these people march down the same road, we are better off with gridlock. we need to change hearts and minds. >> i want to know your opinion on the filibuster. is it being abused? should it be done away with? >> it is being abused. i would favor doing away with it. it is being abused. >> you do not think it is being used properly. >> it is not. >> before ago, a couple of quick questions. are you a member of tea party? >> no. >> are you proud to be backed by tea party? >> you bet. >> dr. carmona, we have heard that you are at times in the past have been difficult to deal with, difficult to get along with, your temper and has been questioned. how you respond? >> i have had tough jobs. when i was asked to come in and run the county health system. the board wanted to save the

hospital. we saved the hospital. i have had tough positions throughout my life and sometimes leadership requires you to take this tough decisions. every one of these issues that have come up, when i was vetted to be surgeon general, and they were all looked up here the fact is that i got a unanimous senate confirmation. i think the senate saw there was no merit in any of those allegations. >> and he would be able to cooperate with others in the senate. there is a question of whether or not is on my way or the highway situation with you. >> it is that way and the senate right now. as surgeon general, i got things done because i was able to work both sides of the aisle. i worked for one of the most conservative president in history -- president george bush. i work with democrats and republicans on issues of health, safety and security for the nation. >> did you sign the grover norquist no tax pledge? >> no. >> would you sign it? >> no.

the only pledge i signed is a pledge to sign no more pledges. we have got to ensure that we go back and represent our constituents and away -- i believe the limited government, economic freedom, individual responsibility. i do not want higher taxes. >> we have to stop right there. you will get your closing statement. each candidate will give a one minute closing statement. going in reverse order of theopt with jeff flake. >> the hallmark arizona, where the beat of the sunset is only eclipsed by the beauty of the sunrise the next day. we have to understand the proper role of the federal government, that it is there to establish a

tax environment where businesses can flourish. it does not do much more. right now we have a government that is part to large, $16 trillion debt. we need somebody who will stand up and fight. i have that record in the house. that is the record i will take to the senate. that is why i will appreciate your vote. >> the next statement is from mark fictor. >> we are about free, to define and pursue your own happiness. it is about americans being in charge of themselves. these are the principles that made us a great nation, but we have strayed so far. we have a busybody government that is into everything. it regulates and taxes everything to death. it is involved in our lives

cradle to grave. the highest incarceration rate in the world. over 2 million in prison. perpetual wars we keep paying with more debt and human life. we are speeding in the wrong direction, and guess who is driving -- it is republicans and democrats. if you like how things are going, do not vote for me. >> our final closing statement is from richard carmona. >> you heard the debate tonight with a lot of different issues, and we have to get our spending in check. we have to look at how we can effect economic growth. what i am yearning for, i want to make sure every kid has an opportunity to appreciate the american dream, just like i did. the fact is congress is broken.

congressman flake has been there for eight dozen years. we still have communities that are struggling in arizona. when you are a senator, you need to help us is what people say. it is about us having an infrastructure, crows, and opportunity. i am not want to run to worry about being reelected. i want to change washington and make sure we have the end infrastructure for opportunity for all those kids to go for parry >> thank you for watching this debate featuring candidates for the united states senate. watch the debate thursday, october 18, on arizona horizon. to replayed this debate cannot be sure to visit our website.

that is it for now. thank you so much for joining us. you have a great evening. [captions copyright national cable satellite corp. 2012] [captioning performed by national captioning institute] "ms" magazine celebrating its 40th anniversary this year. at 1:30, larry summers will be at the center for american progress, talking about the economy and the impending fiscal cliff and the cuts that will go into effect in january. recently he was the head of the president's national economic council. >> let me help you with the

difference between iran and the embassy in lebanon. iran, we were helped by foreign government. in lebanon, you had a terrorist action where the government opposed it. we went to lebanon to give peace a chance, to stop the bombing of civilians in be rich, to remove 13,000 terrorists from lebanon. we saw the formation of a government of reconciliation, and for some way to suggest that these men died in shane, they better not tell the parents of those young the marines. they gave peace a chance, and our allies were with us. >> let me just say first of all that i almost present vice president's busch patronizing attitude that you have to teach me about foreign policy. i was there when the embassy was

held hostage in iran, and i have seen what has happened in the past 17 months of your administration. do not categorize my answer. leave my interpretation of my answers to the american people watching this debate. let me say that no one has ever said those young men who were killed to the negligence of this and is stationed ever died in shape. -- in shame. >> from our video library, the 1984 vice-presidential debate. tonight, the vice-president of debate in danville, kentucky. your reaction following that at about 10:30 live on c-span. we are also live this afternoon in danville, and the debate

fest will feature the marshall tucker band, and they will also show the debate on the campus lawn at center college. this is a live look at this stage here on c-span. -- centre collete. ♪ ♪

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[indiscernbile] >> hamas a look at the area that will be the site of the debate in danville, ky at centre

college. a portrait of a graduate delivered a portrait to the debate all, a totem, a tradition they call dead fred will be looking over the debate this evening and a halt. at the debate hub at c-span.org, you can watch it broken down by subject. on our facebook page, we have posted a question asking what you would ask. steve says he would ask representative rye and about health care. ed says in relation to libya he said, why should any american vote for an administration whose

present exhibits incompetence? the presidential candidate hitting the road today. obama leaving washington shortly for florida, a couple of events today. mitt romney is in north carolina and he will have a rally this afternoon at the u.s. cellular center in asheville. here on c-span, at 1:00, live to the national press club for the "ms" magazine celebration. up next, thomas donohue and business roundtable president and former michigan per governors talk about how the policies of both candidates might impact business and growth. this was hosted by that speaker agency leading authority. we will show you what we can until the advent gets underway.

[applause] thank you for turning out here on this cold, wintry morning in washington, d.c.. it is now four weeks until america goes to the polls, and it could not be a better time to have this conversation about what is the single biggest issue in this campaign, the economy, jobs, and represent every aspect of the economy. we have really ever sector of the economy here this morning. thank you. i want to ask a question thatdid you about are we in a position where i come down to 7.8% and whether this is really what america faces.

>> i think the right policies to put the united states on a growth trajectory in march of this year. the ceo put out a report on economic growth and jobs. we made a number of recommendations in the sector that the kinds of strategies that the government need to take and allow the private sector to move forward with, the night states is poised to lead the world in an economic recovery if we could get out of our own way. i think the last four years can be reversed with the correct policies. it those really are a question of leadership in washington and decision making. often we are held up by decisions that are simply not made. >> back in 2008, i remember speaking to an economist says america faces a decade of

having around 10%. how can america bring down unemployment we have a crisis in europe? >> let's look at the employment numbers and say we are glad that unemployment on the base numbers going down and more americans going to work. look at the full number and find that we still have 14%, 16% of our citizens to not have a job or are working part-time. why is that? the point you made about the global economy is critical. china finds europe as their largest export market.

all of this is under challenge. the fundamental issue is to understand if we get rid of uncertainty, if we step up in a clear way and decide what we're going to do about our unemployment by using energy, by expanding tourism, by working hard to change our regulatory system, and if we face the fundamental realities, we can fix this. we only need one thing. we need leadership in the white house and congress. >> can this come significantly down? >> that is the choice americans are going to make on election day. i think most americans would say no. the american spirit is alive and well.

for manufacturers it is more expensive than any other country in the world. when you look at our policies on taxes and energy and our regulatory regime, at those are the things making it more expensive. makes it difficult for them to invest and create jobs. it is not just manufacturing. >> is that it? ever else is happening in america will be extended again? >> this is a bright spot. we should recognize that and embrace it. this is an opportunity for us to leave and emerge from the session. we can reestablish this economy as the leading economy in the world. there was a lot of attention

paid to the numbers last week. the important point is 7.8% is good if it comes down. we have to look at the bigger number which is much higher. i note some have been out for 27 weeks. they have become much more difficult to import. -- to emply. -- employ. we have a mismatch. if we're going to look at numbers, the way to fix this is not focusing on employment. it is focusing in on growth. the g.d.p. was 1.9% in the first quarter. we should be attacking the gdp in growth number. >> if you're all saying the policies are wrong get america still the single biggest bright spot, might it be right? >> it might suggest we have the most innovative people in the

world, at that we have an extraordinary university system, that we have the greatest collection of entrepreneurs in a structured society. i mean the small business group in this country is phenomenal. we are doing as well as we are doing and facing what is going on in the rest of the world despite ourselves. we could do much better. >> do we want to continue to do as well or do we want to grow? this is what is missing in washington, recognizing that this is a world economy. everybody wants to take from us what we have. we have had a very strong economy. we have a great standard of living.

we should be focused like laser beams at making sure that we maintain that in grow that. >> in 1986 as a last time there is comprehensive tax reform in america as it relates to the business factor. we were indeed around the world. we have these incentives for research and development. everybody around the world took notice. they have been working away. a couple of weeks ago the swedish government announced they were what began lowering their corporate tax rate because they have to come pete in the eu -- compete in the eu region. he really did not even have a tax code in the country today. he talked about the uncertainty

he mentioned. this is for medium-sized business. what are the roles? it is like we're playing with the replacement referees and the irs. tell us what the rules are. >> i hear them saying we should emulate the swedish model. >> or the french or the others. >> the point everyone is trying to make is that we created most of these problems for ourselves. we should not be discouraged by the opportunity to resolve these issues. we should not be sitting around crying in our soup. we have to get up and pick ourselves up. if we fix the tax code in this country and if we establish a clear path forward, and says will invest. they will take this off the balance sheets. they will start lending its. we can grow our way through

this. this will require us to establish a tax code that makes sense. the retail industry pays the highest tax code in the world. we cannot be competitive that way when the rest of the world is at 25%. everyone agrees it needs to be fixed. we need to step up front and lead. >> i here all speaking about uncertainties. >> we do not what is going to happen. we do not want to make investments. we do not know what the tax situation is going to be. there is something and that uncertainty. is it really be uncertainty about taxes and health-care that is preventing businesses from investing are is that something of an excuse?

>> i would say it is those things because labor rolls -- rules. it is not just uncertainty. it is fear of the worst-case scenario coming down the pike. the worst-case scenario is that you do not do with this and their unbalanced tax system. you don't take seriously our long-term energy needs and demands and create an affordable and reliable supply of north american energy. >> you fly right off the fiscal cliff. >> it was a shocking experience for a lot of people to go back a few months. all the seven whether you were a lender or somebody here who is proud of the way this

country had managed to fair, all the sudden policy makers are running right at to the edge. what we're saying is that people in charge of both parties said it takes leadership and the execs -- in the executive branch. i see governors in both parties have legislative bodies of varying persuasion. they've got constitutional restraints. they have to balance their budget. as difficult as the process is, they are working through its. in washington we do not seem to be able to work through everything. you want the states to succeed. the national government still has to be a barrier and an obstacle.

>> you mentioned some earlier in the business is technology and metal side of things. the chinese have a 40-year plan for medical technology and innovation. we cannot have a 40 day plan here in washington. >> in the health care bill we say everybody else in the world would celebrate that and say how to expand our lead globally? the fda slows down approval by at least two years an additional comparison. go compete in cd can still be leaders in the world. pretty tough to do. >> the health care bill is a perfect example of the government getting in the way. thingk about dictating to an interest company everything. we the government will decide that on your behalf. there's not a better example anything that has happened and the health care bill when comes to the government being in the way of businesses and entrepreneurs.

>> you have all outlined the worst-case scenario. we mentioned earlier the fiscal cliff. that is what is leaning come november the seventh. they are already working on it. some republicans were already saying they will agree to those tax cuts. >> i think a lot of people you're talking about are not only leaders and the republican party but leaders in the business community. they are making the mistake that has been made by many others before them, and negotiating with themselves. they want to be seen as leaders. they want to be seen as an

agreeable and knowledgeable about the problem. they are saying we will make this deal. the guys on the other side are up on the hill. after that we'll probably be in good shape. >> a bad negotiation strategy? >> in this town it is. when i sit across the table, my theory is not to let people have our way. [laughter] it is fine what they're doing. a lot of those people will not be in the room. it will be interesting how we get it to go. i look forward to getting down to the realities. it will not happen until november the seventh. we are talking to a lot of these folks. they're all getting together. the bottom line is we're first

line to see who wins. that is going to tell you a helluva a lot of stuff. then we are going to figure out what marvels we have to play and then we're going to try to make it happen. i think we're much better served talking about the issues and not what we're going to get up. on the tax side better remembered that on the top group of people what it is is a lot of small companies that are llcs and take that money out and roll back in. we need to be careful we know what we're talking about. >> this is lost in the presidential debates when we are talking about the tax code. 2/3 and manufacturers, and we hear everybody who is running for office at any level talking about revitalizing a back strain.

-- revitalizing manufacturing. if you raise taxes on the supposedly wealthy, you are a disincentive to manufacturers for raising jobs. resell is the same way. small businesses matter in this country. you cannot penalize them for taking risks and creating jobs. >> your also worried about the deficit. clearly america has large and ever-growing deficits. the proposed a tax cut. >> this is a two-step deal. everybody knows we need the big deal. we talk about that and 30 seconds. we're not going to get to the big deal by jumping off the bridge. what we're saying is that it is not the right thing to do to have the largest tax increase in the history of america and

to have up $1.20 trillion worth of spending cuts that do not even look at medicare and medicaid across the board without thinking through what is the deal is going to be. anybody from either party should come to a realization that the big deal counts. all we need to do is get a small part of an extension. when you talk about these taxes and spending, it cannot be done by 10 people in the back room. it has to be done in normal order. they are the only people that understand what you're in those bills. >> to and if you really think we're going to jump off a fiscal cliff? >> i think it is at least that the tax cut scheduled to expire to expire. maybe slightly higher. >> you have members of leadership on the hill saying

that this should happen. in an economy in which manufacturing makes up a lot of jobs, there is 42 million retail jobs like macy's. -- in this country. the positive word they use is "cautious" because of the concern about where this country is going to go. we have people walking around the hill saying, we should let this happen. the chilling effect does not cover it in damages of psyche. >> there is a chance that we end up with the sum of governments that we have today. we have barack obama back in the white house, democrats are holding the senate, and

republicans holding the house. can you outline what you would like to happen? the thing that would be the easiest if we had republicans in the senate and in the white house as well? and especially with the divided government we have had? how come to get things done in washington? we have not been able to get things done in the last four years. >> the reality will face us because of the things you have been talking about. we are either in making a big deal or we are not. we are either getting the debt limit extended or not. those issues are going to bring people to a fundamental reality that might be the same structure, but i hope not. it is not the same time. you can either fix it or live

with it. >> if we have the same make up that we have, politicians would come to january and think that doing a deal -- the tax code, regulation, energy, immigration -- issues all of you believe should be fixed. >> we have a lot of committees. >> assuming that there is a bipartisan committee in washington. >> you have chairman cantor and chairman baucus talking. you have a new ahead of the treasury. a lot of things are up in the air. i think it is a question of if

there is a willingness in a bipartisan commission. if we go back in history, there are very few major accomplishments that have been made with the absence of leadership. that is a very short list. if you have a new president, or you have a re-elected president, what changes? what changes the day after? how will that manifest itself? that is a complete unknown. >> it is not totally unknown. whoever is president and leads both houses in congress, they have the looming debt issue where they will run out of money. when they decide, we will fix that, finally they will say, we need to have some give and take. they will look at the problems all around the world and not

just economic problems. from what everyone is saying, the european issue will not be getting better for a long time. look at china today. they just announced an hour ago that another 47 billion in their banks on top of the party some billion that it but in a week ago. i have a hunch that whoever is here will be looking to people to cooperate. >> otherwise, financial markets will look at america and say to the politicians, if you cannot fix this -- >> the markets have stayed at a certain level based on the belief that we will fix this. >> let's talk about a couple of

specifics. energy reform, for example. jay, do you think some politics should be taken out of this? >> i think there'll be some agreement going forward. the keystone pipeline is a perfect example of this of sound energy policy. there seems to be an emerging consensus that we can beat north american energy independent within the next few years as long as we do things right. the devil is in the details. make sure you do not raise taxes on energy producers. when you do that, you raise taxes for all consumers. from a manufacturing standpoint, we have a stake in this. we use one-third of this nation's energy output. any time energy costs increase, the costs of manufacturing increases.

of course, the regulatory burdens are enormous with the energy industry. getting that in check will be vital in the next four years. >> can you discuss immigration reform? >> gasoline is the biggest one. there are some in the retail industry in which you can draw a straight line. that is an important one. i think on immigration, that is one that has not gotten a lot of discussion. there is a mismatch in this country between the skills of the people that are coming out of school today and the jobs there are.

there are 3 million jobs that are vacant and need to be filled with the people that have math and technology and engineering backgrounds. the students that come around the world steady in our schools and garden and go back to their country. they do not stay here because we will not let them. that is to be addressed. >> you all agree that immigration reform needs to be addressed. >> it will. >> i think it will. >> something on the top and something on the bottom. bottom line, we are getting closer to having to do a reasonable immigration bill. i think it will happen whenever "when" is. >> an order to get immigration reform, we will have to take a very hard look. frankly, there will have to be a lot of concessions. we need it all.

the republicans have to back off that cliff. >> everyone has to do what they promised people that they would do. they have promised immigration reform. what we have to do is write the bill that cashes in on those promises. it is government negligence to educate its foreign students and require them to leave. no place should do that. it is part of the economic strategy for growth in the future. you want to be a magnet for the best talents in the world. we will compete for the best talents. we have the best environment for that talent. >> energy and then campaign finance. >> you are looking at california right now. their massive increases in the

costs. when consumers are paying for gasoline, they're not able to purchase their basic commodities every day. what is happening? governor brown is proposing a relaxation of regulation that impact energy industry. that is clearly a concession that regulation drives the costs of energy. we need to have the same focus of discussion in washington. what is happening in california can happen -- >> if you have a stool with two legs, it will fall over. look at what the canadians did with their cash cow.

we can do spending, taxes, and energy with our cash cow. >> tom, you think this will happen with the makeup of the government we have today? >> i think when people figure out there is a big chunk of change and there is a debate of people trying to protect entitlements and those trying to kill energy, who are you going to bet on? >> in california -- it will save as much as 50 cents per gallon. they pay as much as $5 per gallon in california. california -- it is a scary thought. we can see the future.

look at california. no one would want to go there. they could sit a lot of money if they pull back from their own agencies and regulation. i do think we have this opportunity. it fits under a growth lead, if you will. it is happening at the state level. you take that energy research and say, now i can fix some of those infrastructures that are piling out. if we start doing that, we will be short on labor in this country. we will need to retrain those people who are not trained or skilled up. the potential is enormous if there is any vision in the leadership. >> i want to ask about a store and the front page of the new

york times on campaign finance. there are small super pacs run into congressional races. all of you have been previously involved in congressional races? >> we are all out switzerland. >> there has been some major effort going on for some time in various ways to force business to back away from participating in the process of government. the constitution's fundamental the agrees as the right to petition the government and the supreme court continues to support that right. why do people not want us to do it?

we started getting organized. wait a minute. we did not invite them to the party. we like our deal. we will win our elections. good luck. it ain't happening. american businesses are beginning to see that if they do not play in the game, someone will steal their lunch. >> that is a good thing that american businesses are getting involved. we have had a debate about this for 40 years. manufacturers are very concerned about the future of the country. they believe that they need to have a voice on those issues that we have talked about -- taxes and energy. we need to point to the american people what we need to fix in order to invest in the united states and create jobs. >> i can tell you from my own experiences as a governor in a

competitive state that our best teachers were that labor unions. you cannot afford to sit on the sidelines. go for it, i say. >> we do not do endorsements. we have pacs. we encourage them to be involved. if we are going to address any of these issues, maybe we can get something done if everything looks exactly the same. it is an example of people having a better understanding of our position. that is why been we have engage our membership on it. >> let's go to questions from the audience. please raise your hand and give

me your name and your affiliation. and that would be wonderful. there are microphones. the lady with the red jacket. >> good morning. i am the ceo of women's and structural owners association in alexandria. there has been a lot of discussion about the size of government and how do we get the money that we need. what about the discussion of cutting the size of government? it is too big. in any downturn, all the businesses and cut staff and cut expenses. government has not done that. they have increased their expenses. >> we need to look at medicaid. it is a big storm of debt in our country. there has to be a focus.

i think entitlements will need to have a serious look. reform will be necessary in order to change the way that we are spending money if we want to continue to ensure that those who need to benefit do benefit in the future. everything can be examined. every business in this country examines what the are spending money on. they make sure that their processes are lean and that there is no waste. government can do the same. i have work for a former governor. states often times lead the way on civil responsibility. >> the role of government is one of the big issues in this country and whether you believe government helps or doesn't.

in terms of their programs, they do not want to cut. even in the example of governor romney is suggesting that if we had spending cuts in defense, it would kill jobs in virginia. >> that is where you need leadership from the top. i will point back to the governors. successful governors do two things really well -- provide leadership and propose a bold initiatives to their legislatures. they also have a strategy or a blueprint, if you will, for economic growth for the future. those are the successful governors. >> no president has had the reorganization of authority since ronald reagan. i think that needs to come back. there has got to be a combination.

you cannot leave the size and the structure of the garment we have in place. this is a government functions on an old model despite a 20 per century technology model. it is painful and slow. look at the demographics of the federal work force. they are aging.

>> next question. let's get a microphone to you. >> i consulted in lobbying. you talked about energy. we have enormous potential to develop our energy resources. it seems that a lot of it is a communications channel. when you have a lease, that does not mean that you will find the oil. we talked about having enormous reserves. it takes a long time to find the energy and develop it. it is very expensive. how do we better communicate that to the average citizen? and that will be key in the order for us to have sound energy policy and develop our resources. it can benefit all americans. >> the chambers is very active

in politics, but we do not do presidential politics. if you spend all your time beating up the current energy system, while putting $92 billion in something else, i mean the fundamental reality here is we know we have a lot of this energy. if we do it right, the country owns 68% of the land. we do it right by hiring people. the companies will pay taxes. it will take time, but we are talking about a 10-year deal on spending and taxes. it ought to be on energy.

beating up what works is not what we will have to do. we will have to double down on what will work. >> the dramatic explosion in energy availability has come on the drilling on private lands. if you start to bring in federal lands that can be available, there are literally millions of acres of wilderness land still available while you open up millions of other acres for exploration. it is a win-win situation. after the gulf, we had a slowdown on federal land. all it takes is the right attitude and let's get this done. of course it has got to be done. it will be done in an environmentally appropriate fashion. we are the best in the world at doing exploration in

environmentally sensitive areas without damage. >> next question. >> while we are waiting, let me jump in on the energy discussion again. you cannot have eight serious discussion about expanding energy supply and making it affordable and reliable by demonizing success. you cannot call out a specific claim in a major form for their own success. we have a bounty of energy resources that we did not even know and about five or six years ago. we are talking about shell natural gas, of course. and characterizing energy companies as anything other than what they are, which is providing an economic boost to

this country, we need to look at an all of the above approach. fossil fuels are essential to our ability to compete as a successful nation. alternatives, nuclear. no one talks about nuclear. we need to have a strategy in place, which would be endorsing for the department of energy to do. we have not seen that in this country. >> we have the greatest conservation in the world. it has led the way in energy conservation. >> i think of the communication side is missing. that is something the public is not aware of. that is a question of how to do a better communications job. i have one more question for all of you.

you have a great paddle up here. -- panel up here. take advantage of them. i hear this from a lot of individuals. access to credit. it is incredibly hard. what are solutions to that? >> there is a question that the ease of access to credit -- right now it has swung too far back the other way. consumers need access to credit to grow their business. we need to have a more responsible conversation with the banks and the lenders about what kind of loans they are making. you have to appreciate that they are in a tough place. on one hand, you have consumers and businesses saying, we need more credit. on the other hand a policy makers and lawmakers saying, do

not make bad loans. i think they need clarity just like everyone else does. if there was a sign of clear growth going forward, also of an as institutions would say, we can go ahead and invest more on behalf of the people that we represent. on the absence of some clearer path of growth, they do not want to make any loans that are risky. there was a provision in 2009 of the penalties winning too far away. -- the pendulum swinging too far one way. if you were a stay at home mom so you could be married and have a full-time companion, if the other person worked and you stayed home, you cannot have access to credit because he did not have a job. that has been fixed. that is one thing that i think they did right. that is one small example of a credit issue.

>> dodd-frank is written in anger. it had a lot of new regulations and hundred 50 some suggested new regulations. we're still just getting warmed up. [laughter] if you are running a bank, there are now five regulators. all of them are different. when bunch comes in and says, you need to lend some money. the other guys come in and says, when you get the rest of the money back from the loans, we will lock it in the vault and not lend it to anyone. you would not want to run a bank come up big bang, bang, any kind of bank. we are just getting started. we have more regulations and restrictions to build.

we have more regulators to hire and you wonder why companies are sitting on trillions of dollars worth of money? >> ok. we have time for one last question from the audience. the lady in the gray jacket. >> hello. i work with leading authorities. most americans would agree on two things if you look at the polls. one is that we need to get jobs created and our business back in order. the other is the most americans believe that it would be okay to raise taxes on the wealthy 1%. why are those in each of the exclusive? why do we have to have that discussion where we have to lower taxes and personal income but not on the business? i think what we need to have it both ways. >> tom, i will give this one to you. it will have to be brief.

>> it is simple. history shows when you raise taxes on the 1% of people that pays 42% of the taxes, you will collect less money. the big fundamental issue is, what are we doing on the constructive part of the economy? we have to address them. >> ok. >> george bush entered into a deal that was supposed to be balanced. the trade-off was reduce spending. we are still waiting. the negotiations are very complex. there are a lot of pieces to it. there is no question that you need to curb long temp entitlement costs.

it is the number one spending program in the government. that will need to be looked at and a whole bunch of other things are complex. you cannot do one without looking at everything. >> very briefly i want to ask the things you think need to be done to restore business competitiveness over the course of the next four years of whoever wins the presidential election on november 6. >> i am 100% certain they can all be done. will they? i think there will be enormous pressure for the business community. this is an opportunity. 2013, in many ways, could determine the first half of the 21st century in terms of economic growth and opportunity. this will be a very good time this will be a very good time for america if we make