we'vgot a society of elites that not only don't think this is a bad thing, they're raising kids in schools to be workers, not citizens. >> well said. gentlemen, thank you. ome back, that is is it here, see you tomorrow >> where ist? winning streak on wall street goes on, and where is the austerity? let's bring economist frifdrich hey yeck back in the mix. >> what is austerity anyway? >> i do not know. >> i have no iiea.

the fight over austerity. that is our show. tonight. >> now john stossel. john: the word austerity means self-denl, when applied to government iteans cutting spending. i put the word in quotes here, because, despite media whaling abou it -- wailing about austerity there have been few real cuts here or in europe. ther are books outike off ofausterity kills. he said this comic strip explains it all, portrays. aliens who want to destroy ear earth. aliens sho him for reveals the

truth. >> i proud to be an off the an austaria. unfortunately, only a few people in congress actually take my side and want to cut spending. i am happy to have one of them here with us, senator rand paul. proposed spefic cuts, but senator, i'm told if he cut now, when the economy is not great, this will make unemmloyment worse. >> well here is the azing thing about people sing that we are living in an age of off the austerity, we have not cut any spending in washington. spendi still is growing, in washington. when they say if you tutt spending --f you cut spending that will cause lack of economy growth. people spend money, just who spends it, friedman had this he put it well, heaid nobody spends some o else's money as wisely as they spend their own.

john: you talk with you colleagues about there have been no realuts, do they look at u like you are wrong? >> no, i think a lot of people up here understand it. people like krugman take it and demagogue an issue they know fu well we're not cutting our spending we're slowing the rate of growth at best. butteven that rate of growth, you saw they went crazy, the sequester, the sky is falling, the same wee they do, that they sent extra $250 million to egypt. they have enough money to send around the world but notnough for white house tours, that does not pass the smell test. john: ha you a plan, you would eliminate commerce, education, energy, housing and urban development. you say that to people that frightens them, i assume? >> well, i telllto people is that really what is extreme is

what is going on up here. balancing our budt, if you talk to a family about balancing their budget, not spend morgue than comes in -- spending me th comes in, it sounds like a reasonable notion, i can take money fm the economy i it build a bright shiny building say this is what i did with your ney. but we don't see what entrepreneurs and individuals would have done with that extra money in the economy that gs back to from friedman says, who spends moneyore wisely when it is your own or government. government are waste irs of money they hav no clue has to how to making any, i want to live more mey in the prproductive economy. john: creates thousands of jobs, we don't know what they might have done. >> right. but really who can make things better? the private world orhe government. we have a great dial of evidence that government wastes money,

misdirects it, i can give you example aer example of millions of dollar spent on roll up beef jerky, million-dollars spent on studying collective action of fish. there has been no austerity here in the united states we have struggled to slowdown the rate of growth of government, and they fought us on the sequester that slows the rate of growth, i think that american people are not buying it they see there is a plate of gamesmanship. >> president saying no more level-guided white house tours, no more air traffic controllers, most people believe you could move money around. and cover some of the things. one example. how, if the president would have behavinger rationally, if you don't rehire the people o are retiring from government, that is 6 billion a yr. so the sequestster was passed a

year and a half ago. he did nothing. fo year and a half, if he would have instituted that, it would have been $9 billion, a fourth of what we needed to cut. john: thank you senator paul. now, americaas big fincial roblem in europe, they are worse. this riot was in greece. greece had the most riots, there have been big fights in spain effort gal, portugalleportugal and england. >> there has jt been cut cults. john: manyay europe's troubles prove that the free market argument is wrong. the europe troubles gave he

pause. could ite true? cato economist dan mitchell. why haven't the budget cut worked? >> because there have not bn any tha woman from england. the cut, cut, government spending h gne up in the united kingdom every single year. for at least a couple decades, and even since their so-called conservative government took over, and it is rising faster than ilation,ou look at france, governmenttspending going up. >> we have a graph. france, italy, united kingdom, ain. >> they are increasing government spending at a rapid rate. all of a sudden, fiscal financial crisis hit, we have to do austerity, it was not prune ck the size, they said let's raise taxes, they are raising taxes, driving private sectors into the dirt, that dii not work, now finally, in greece,

we're seeingga tiny bit of spending cuts, only because they have reaed end of t the rope, they cannot getore bailouts they rsed taxes to a point where the imf said you get less revenue, so, amazily, like,al the greeks made a tiny spending cut. >> why all of the publicity about draconian cuts, people there experiencing it believe it. >> the fight in europe is between so-caed austerity crowd and growth crowd, but the growth crowdrr paul krugman, keynesianing and ing and big sed austerity people want higher taxes, tre is nobody in europe that's advancing the pition

that senator rand paul was talking about. we have a big expensive inefficient government. if we' more groh we have to shrink burden of government spending. the transfe of resources from private sector to the government that is what hurts your economy. john: the g government has no money of its own. >> and all likihood they will not spend the money as efficiently. >> and the coverage is so insane. the atlantic, a respectable magazine,ditor matew o'brian, the more country has cut, the more unemployment it has, a recov is worth the deficit. >> i bit he agrees with paul krugman and thinks that more government spending ll help an economy even though is did not rk for hoover and roosevelt in the 30s, not for japan in 90s not for bush in 2008, not

for obama in 2009, it never worked anywhere. john: people believe it. >> politicians lov the tory. it tells them their advice have is a virtue. >> they like to spend. yeah, i am with you, i will be first i line. line. >> any good examples? any count that has done it right. >> iust go the back from europe,ot off the plane today, came her because this show is the best place to be, the baltic countries. estoni they have done the right thing, they cut government spending, i say cut, i am not talking about washington thing, we increase spendingt 6% inead of 8%. no, in battle tick countries -- battle ticbaltic county its was. >> those economies are growing?

they are growing, they recored, jobs are coming back, they have positive gtp, economy growth, while the country that have gone with the tax increas approach, like italy, spain, greece, portugal, and et cetera, et ceta, they are i recession recession. moral ofhe sry, you have figure out ways to reduce burden of ggvernment spending and taxes an mt country in europe have nottdone that. the btics are a tinyy glier of good news. john: back on this continent. years back in 90s canada maae bigeal cs, and prospered. the canyon dollar was worth 70 something cent at the time,ow parody with our dollar it works. >> amazing most o those cuts, actual genuine real spending cuts in canada happened under a labor party government. john: a liberal government.t. >> new zealand did the same thing in 1990s, and actual to

be fair, bill clinton was much better than a lot of republicans. at least he restrained the growth in spending. reblican in congress made a big role in it too. evidence shows if you restrain the growth of government or better actually cut government spding, you are freeing up resourcesor productive sector of the economy that is where you get growth. we have t focus on taking government, which figuring out, how to at least restrict it so it is growing slower than privacy sector. john: well good luck with that, dan mitchell. coming up. two economists will argue about austerity. >> if you first, a man who said that must tert off the turty is like debtor's prin.

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hn: i say, bring on what the punditting calling austerity. let's cut stuff.

government spending $3.8 trillionsow. and sorry that is just theefeds, stat and local government spends more, it is too much, every dollar they spend is a dollar the private sector does not have. free individuals spend cutter that is why cuttingovernment spending is good. but bob kuttn said that austerity is lik prison his new book. "debtors prison: the politics of austeritve posibility." and he wants to cut. so bob i start with you, we haves there are assistant s there are the national debt. as we age, the baby boomers, are you sayg we don't need to cut? >> this is a question about deficits in the context of a depressed economy. time to cut deficits is when the economy is i recovery as bill

clinton did in 1990ss clinton got economy to surplus in conte of high growth, you have a soft economy, that is a time t have defkit sit spending because you need stimulus. john:ark,espond? >> what we' suffering from today is imprudent fiscal policy, what the government is doing with their irresponsible welfare payments with interferin with business and so forth. is keeping the private sector, which is the majority stakeholder that should be the focus here, with employment and so forth, they are the key. we have to really encouge. john: what abou don'to point - o point? >> there are many examples in private sector where banks, companies i was a consultant for ibm they went 3 a difficult down size -- through a difficult down

siding in 1990s they fired a quarter of their workers. a hundred thousand worke, like at ibm today, united states, sa situation. if we adopt austerity, prude austerity we can turn our country and blossom like we've never done before. john: bob, when you say now is not the time, when is the time? >> the time is when the economy is healthy and the clinton era, and late 1990s, one time in recent htory the budget was in surplus we were on track to have no national debt. and 2000, economists worried about how the fed will conduct monetary policy, when have paid off national debt, i am not the sort of guy who says we shod always have a deficit, this is t a time to tighten you bblt. you may agreee i don't think we

should raise taxes. i don't think we should cut spending. john: we have a nationalebt now that is 100% aut of gdp does thatcare you. >> about 70. john: interest rates go up it will be horrible. >> everyone has been warning for 5 years that interest rates are going up, the economy is so dead in the water, that inrest rates are not going up. after the war, debt ratio was 120% of gdp higher than today john: it came sharply down, it was a w, the war ended. our welfare spending is not going to end. >> that gets to my point, i think really important, w are an overly generous welfare program, second -- section 8 housing, and fd stamps, the aricans on welfare, they want to work but we have a sim that system that does not incentize them to go

back to work, we need to be like ben franklin. he faced financial crisis all his life, he lived below his means, where is the federal rainy day fund. >> there is notng wrong with debt, per se, but it has to be done prudencely, in my own life i put 20% down when i bought a home, i payoff my credit card every month, called prudee money management in government we don't have anyvidence of prudence money manager. john: bob last word. >> as recently as 2001, government projected an endless surplus. and it was bush tax cut, bush wars then deregulation of finance that created the huge deficits. >> we agree to disagree thank you bob and mark, mark has organized wha we calls world's largest gathering of free mines.

frdom festn las vegas, theme this year is, are we rome? i'll take this show to the road to be in freedom fest in july. and tape a show. tonight, what if youanage your budget like the politics manage their? >> this is a famil budge what do you think about that? they make 24, an spend 35, they lost 10,000 this year. they are already in debt. >> what type of people would do that. >> federal budget, i just took some zeros off. >> that a big number.

john: think about this family budget. real ugly. income last year $24,000, but a

spent 35,000. incurringal left 11,000 in new debt, they had a lot of old detz. i would say they are highly irresponsible. but this is actuly the federal government's budget, i just took off 8 zeros, people on the street had an appropriate reaction to that. >> what? that is a lot. >> formula for disaster, our future is dismal no dbt. john: you pay for this, does it scare you? >> a little bit. >> i'm broke, i don't know how i'm going to do this john: an radioost dave ramsey hps themselves get out of debt. what you think about my time squared gimmick? is it fair to the gernment dget? >> is absolutely fair because of a zero is a zero and a mass is ma when you spend more than you make you go into debt.

isot rocket science and. john: comparingiticians use sees similarities in their pshogy? >> there is. one definition of maturity is learning to delay pleasure, putting it off. when youre a child you are throwing a fit inhe group three -- serial i/o is a maturity. we all have that little kid but as a grown-up we learn to delay pleasure and back away from the table we cannot eat too much food spend too much money we learn these things it is called self control but when you are imager or in the immature culture you ect er people to represent you en you continue to spend more than you make. that is a problem with the politicians. john: ere has been interesting psychological studies putting a cupcake in front of a kid to save you don't have one and and and

now you can have a bunch leader but then they follow them 20 years later and the kids who were best able got to grab the extra treats did better in life consists of 87 exactly. any of us have the ability to start making those choices to take onain or maturity to in later. but we have to belief we're going to do that we will win later. in other words, the care it has to be real. john: talking to people on this tree i was happy they were horrified but i was surprised when i asked them this question. what would you cut? >> i would cut come i don't know to tell you the truth. >> not education john: not education? >> that is a tough question where to cut. john: don't t this or that

item know what to cut. but do the people that called of a radio show don't know what to cut ou of their personal budget? >> people do know but it is the immaturity factor i don't n not want to go out to eat or i don't want to not go on vacation but i have $110,000 of student loan debt that has been around so long i think it is a pet. i have to make choices because it will not go away if i don't change my behavior. jo: the people that listen to after word they say i am happier now? spending less? what is weird is th are happier immediately because when you have a sense of being a grownup to put on your big boy pants to say i will control my dti, i will conol my life and i will not live from impulse to impulse a i write it out even thougi am not out of debt but what i am writing alex is a recipe for christmas and i have to

deliver pizza to give up my income is a tough plan but i get a sense of dignity because am being a grownup and taking control of my future. there is a power in that a whole.eevable it is john: thing too ramsey i wish i had more hope for r federal politicians. , the frederick highjack the economists comes back from the dead in support of austerity. ♪ [beep] [indistinct chatter]

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john: [applause] the serious debate of austerity stimulus began 80

years ago with the economist john maynard keynes and say we can spend t way back to prospery and friedrich hayek said it no way. not those exact words but i would like to think if friedrich hayek heard about the obama stimulus plan he would have said something like this. ♪ the party is over ♪ ♪ are you kidding? conoco it works perfectly fine knockout there was a recession back in 2009 no. things could have been worse john: that is what i hear the recession would have been much worse without stimulus spendingnd when unemployment is still hayek that is the time to spend and jump-start the economy. ♪ john: is an ennine that needs a spark and this makes sense to people so let's

turn to the producers of that rap video that has reived millions of views on new tube ross roberts and former mtvroducer, keynes argued the economic slowdown prime the pump like a car? >> it sounds good and3 politicians like it t doesn't actually work? >> when the stimulus plan worked using the keynesian model they said if we did not pass it unemployment could reach eight point* 5% we did and it went over tens of the model was wrong so there is a historical example for more than a fancy statistical dels and i argue the evans is a mixed john: plenty of people say unemployment would be backed up if it was a bigger if you had keyneses' say it. >> if we would have done

better if we spent more than a happens if there is a world war. >> they argue world war ii ended the great depression. but to stimulate private nsumption it is a time of austerity in the real sense of the word. john: they were making tankk >> iis a measure econom if you are in the munitions siness you did greatut the arage person if you wanto buy the reigerator or car you could not because the steel was used for the other stuff. that is reality government spending crowds out privat acvity. john: afterwards governme's spending went down we went into a horrible receion. >> that is what the keynesian is predicted -- predicted a fell 40% as truman pnted out in his discussion afterwards and plan it was high despite that there were 10 million

soldiers coming back some went to school and a lot of them found new work sehow the economy thrived without the government's stimulus. >> what is strange about the keynesian approach is they don't seem to care whether value is created by economic activity onot. as a producer i have to create value for my audience and make something people want to see but in a keynesian world it doesn't matter how y end the money you could build the bomms are the tanks or also have projects to build appear in it or have alienations. jo: speakingf that we don't have a world war but on cnn paul krugman suggested it would be good we had somethingike a wa >> if we discovered space aliens needed a massive buildup and inflation and

budget deficits took secondary places, this would be over in 1 months. >> in a way that speaks for itself, doesn't it? john: a lot of back -- economic activity. >> i could sell you my sock and you could sell back to me and if we kept doing that in a ircular flow to measure it as gdp then we would be amazingly wealthy and the economyould grow. john: i don't want your socks. [laughter] >> in a keynesian world field is all stimulus it doesn't matter. every fight the aliens we get richer and it ignores come from to build the anti-alien space weapons. john: talk about austerity. we have tried it and it doesn't work? >> where have we tried it? we hear about the united states for the united states government over the last four years has not grown a dramatically as as in the

past government spending actually went down a little bit that was at the all-time hihigh. john: now it is predicted a little more because of the quester. >> can we run a deficit er $1 trillion the easing could be pretty keynesian peace. hn: but it is not enough. >> evidently. that is what friedrich hayek made the point* very well that it is a complex world of what is going on at once but is easy to say would have been worse if we had not don it. it is hard to prove that then it is a religion of both sides. >> something i find offensive is we talk about austerity in the richest nations the world and the largest governments the world has ever seen that when you talk about cutting 3 percenis austerity. with the rest of the planet that means your kids and

belly is crumbling because they are hungry and the lture of calling what we're doing austerity is propulsive when you think abt it in the broader scope of the global community and the people who really have to figur ut what they will do next. jo: with the critics call us as the austerity and it sounds like austrian economics which some of you know, about and i assume most don't know is there a connection? it is a play on words to make fun of the austrian economist like friedrich haye that was skeptical of the keynesian prescription. it is a little jab. i wear it proudly. john: thank you. cocomingp, i willaul's our decit problem. but first you and the audience get that quiz -- get to quiz our guest.

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[applause] john: we're back with your questions for our case no economist and ross roberts

and john head made the rap video. so first from the facebook page has. bill: defined the end game principles whedeciding what programs to fund or cu >> for public goods like proper rights are good for an economy that type of spending is helpful and some type of physical and man capital spending grows education and can be good if done efficiently. but the bulk of t budget today whether europe or the u.s. this transfer or consumption spending andhe evans is that diverts resources from far more oductive resources and if you do cost-benefit test and the transfer consumption spending looking at that types about lay. john: the port and the helpless? that is what the transfer

payments are supposed to be. >> if you get the private sector growing the four will be better off than he would much rather be pour in hong kong or singare because you ha a better future than france for theest you can hope for is the politicians will for ever catch you on the head to keep you dependent ward of the state. >> people now more than ever are graduating from university into a terrible job marketsually having a degree in something that will not help them. dealhink this for job market is reflective of just a bad the economy or is there fundamental problem with the edutional system how we educate our udents? >> it is a personal choice with a majo and if it is not profitable that is your choice. but there's nothing wrong with that i don't think that knowing abou poetry could help you to get a job that

makes you a beautiful father but ithould not subsidized as much as is we subsidize people ttking things that are not practical that means the people making those choices are not using their own money. that is a mistake. >> nobody has brought up entitlements. i don't see how they can be sustained with government, a city, the employees that get life healtinsurance and pension, where does the ney come from? >> with the federal government level it is about medicare and medicaid and al security it is about health care entitlement but normally i of bill was gloom and doom but the house of representatives in 20112012 voted for entitlement reform of medicaid and medicare with a fairly substantive way and they got reelected in 2012 and that and think

they are suffering at a have sobered up and realize looking at the calamity in europe we have to addss the long run fiscal problems and unrestrained entitlements for once in my life i wi sound optimistic >> those setter, the syrians a lot of times they not talk that we believe civil society should be larger looking back to history you can find there is a rich civil society that took care of our brother. >> natalie did they do the benets that they did iin such a way that isocal and help people to account because you look your brother in the face because ife had a plasma screen tv while unnmployed it is harder to do that when you know, the people that are supporting you. there is more to this th just what we will cut the wheat allowed to merge after that. john: to counter your

optimism from twter a file clerk says is untr this austerity will o only go on hurt the pork? >> we like to think it does that most government spding goes to the rich and no class people. john: food stamps and medicaid. >> that is a tiny portion there's a lot of things to cut fore we get to the poor corporate welfare orn time of programs that go to rich people why should erybody contribute to social security and every by the get some money back? reserve for the people who are poured it is not to pay for hlth care and retirement who are able. >> but they said it encourages people to not to say if we don't need to save the government saves for us then we get more spending. john: katchis sarcasm. [laughter]

>> if the gornment is deed irresponsible because of rampant spending what is your solution to that same government to dcide responsibly what to cut and what not to? [llughter] >> that is a great question. we often talk about the government as if it is th pers who decides of course, there no single the cider and it is the emerging progress of the members of congress and it is not a logical but we do better than othe countries out like to see the constitution john: thank you. comingp my austerity program. i will show you how to cut

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this is my computer? this is your computer. let's go on the interne let's go. click it? yes. ok. i cursoin between the r and t e. when i say dot, i want you to just push the period. she's going to love me all over again now. here we go. all right. good job. thank you. thank you. i did it. by myself. feel smarter.

john: if you just tune did earlier i was in times square showing people this family budget. >> what you think of these people making 24,000 in spending 35,000 almost

$11,000 in debt. >> facias stop spending their money. >> they should get their priorities bennett -- straight from wt they need to spend their money. john:his is the federal budget actually i took off the zeros. >> battle think there is any way we can make th up. >> craz john: what would you cut? >> that is a tough question. john: what would you cut? >> make different choices i guess >> web when i cut? john: you are cory know the government. >> i would cut i don't know to tell u the truth. john: they don't know? we spend almost $4 trillion and most people have no clue about wha t cut? i know. i was struck by falling grand falls plan by cutting

entire cabinet departments like a bloated education department. it has long been paid for by states the fed spending $100 -- $100 billion per year is not better just more bureaucratic. who needs a commerce dertment? got just happens the politicians getpower to help the cronies. so does the energy department they take your ney to fund comnies like solyndra, a solarrust, all of them went bankrupt. we don't nd annergy department americ already has won it is called the free market. if you invent a better feel you will get rich. with those dartments on i would go beyond senator paul's plaed to cut more and close the labor department it is done by workers a does not need a department for also the agriculture departme it is done by farmersnd bureaucrats mostly

subsidized the big business. there is so much more that could be cut. in tha book just out in paper book we cut all the way to serve less. it isn't hard it and it would create prosperit that most politicians are eager to spend more. check out there website at benefits .gov th suggest i am eligible for 55 of them disability, environmental sustainality give me a break. ending handouts to people like me is not austerity it is common sense and right now we're on the road to gree but if we could cut government to ll limited govement the founders had in mind poverty would be so where --here our kids would have to learn about in history bks. that is our showe will have anoer show him

thursday night. thank you for watching. [applause] >> tom: with all the scandals rocking washington, there is plenty of advice going on. how should the president react. can congress really get answe and solutions. sage advice is needed. so let's ask a man who served many presidents and spent a long time in our nation's capital. we're talking with donald msfeld right here and right now. >> tom: thanks for joining us. here at the top of the stack, the gernment, his government service started as a naval aviator then as a congressman. he ran the office of economic opportunity the ambassador of nato. white house chief of