captioning sponsored by macneil/lehrer productions >> lehrer: good evening. i'm jim lehrer. a deadlock at the climate talks in copenhagen. >> brown: and i'm jeffrey brown. on the "newshour" tonight, hundreds of protesters tried to disrupt the conference. >> lehrer: we'll get the latest from ray suarez at the summit. >> suarez: another day of negotiations here have still failed to produce a text world leaders can embrace here, but the u.n. secretary general told the "newshour," he still believes agreement is possible. i'll have a report. >> brown: there were some steps forward today, including pledges to protect rainforests. we'll see how that could play

out in the amazon. >> lehrer: then, a performance review for federal reserve chairman ben bernanke. economist james galbraith and former fed vice chair alice rivlin debate his record. >> brown: and the relevance in our time of john maynard keynes: "newshour" economics correspondent paul solman has a somewhat off-beat explanation. ♪ my general theory made quite an impression i transformed the econ profession, you know me, modesty say it loud and say it clear, we're all keynesians now. >> lehrer: that's all ahead on tonight's "pbs newshour." major funding for the pbs newshour is provided by:

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and by the alfred p. sloan foundation. supporting science, technology, and improved economic performance and financial literacy in the 21st century. and with the ongoing support of these institutions and foundations. and... this program was made possible by the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >> lehrer: there was confrontation inside and outside the u.n. climate talks today. ray suarez has our report on day ten of the conference, from copenhagen, denmark. >> suarez: the melee in the streets erupted as hundreds of protesters tried to storm the conference hall. danish police fired rounds of pepper spray and beat back the crowds with batons. >> i was just beaten both by

hands and by sticks and had some pepper spray in my mouth and my eyes. >> reporter: police reported at least 230 arrests. meanwhile, tensions mounted inside the summit as well. negotiators worked through the night to hammer out a deal, with president obama and most other world leaders scheduled to arrive on friday. but one of the first to arrive, venezuela's president and major oil exporter hugo chavez, told the conference he agrees with the protesters-- the burden is on rich nations to do more. >> ( translated ): in the streets they are saying the following: if the climate was a bank, you would have already saved it. and i think that's true. if the climate was a big capitalist bank, you would have already saved it. you, the rich governments. >> suarez: still, deadlock persisted on major issues: first, setting firm targets for cutting greenhouse gas emissions by industrialized nations and reining in emissions growth in the developing world.

second, getting the u.s. and other rich nations to spend billions of dollars on helping poor countries adjust to global warming. and third, verifying that emerging powers like china and india stick to their promises to cut emissions. china's lead negotiator charged again today developed countries are asking too much. and, he said, they are backsliding on the commitments they made in kyoto, japan more than a dozen years ago. >> ( translated ): if we look at the difficulties in negotiations, we find the additional and unreasonable requests made by some countries. they try to leave the regulations of the convention and the kyoto protocol aside, and make those unreasonable requests for developing countries. >> reporter: danish leaders attempted to break the deadlock today by drafting a simplified agreement, but china led an effort to quash the deal. but in an interview, the u.n. secretary general, ban ki moon, appealed to both sides to compromise. >> i would urge all developed and developing countries to come

onboard. developed countries should come out with more ambitious mitigation targets and also developing countries, they should come out with nationally appropriate mitigation action, limiting their growth of emissions. >> reporter: u.s. climate negotiator todd stern said china's cooperation is critical. the two nations are the world's largest carbon emitters. >> i think that from our point of view, you can't even begin to have an environmentally sound agreement without the adequate and significant participation of china. >> reporter: it was widely reported u.s. negotiators had refused to commit to firm pollution cuts until congress can approve the needed legislation. a bill to reduce u.s. emissions has been pending for months in the u.s. senate in the face of strong opposition. back in copenhagen, the

president of the maldives appealed for quick action. his island nation in the indian ocean is threatened by rising seas. >> if we are not able to seize this opportunity, and we are not able to come to an understanding during the course in the next 48 hours, i fear we might very well be doomed. i hope that is not what we are contemplating. >> reporter: the u.n.'s ban said he was confident there will be agreement by week's end. >> i'm confident that there will be a deal in copenhagen, a deal that meets the needs of all the countries in addressing climate change, a deal which will be comprehensive, actionable and fair and also binding. >> reporter: and in washington, a white house spokesman said president obama hopes his

presence will help lead to a deal, so long as it's verifiable. >> brown: and once again today, i had the chance to talk with ray in copenhagen. we spoke a short time ago. >> lehrer: ray, the issues you listed as part of the current deadlock, the targets, the aid, the verification, does any of them stand out as the most important or are they somehow all tied together? >> suarez: on this day of the conference, certainly one of the most contentious issues are the most advanced economies those countries have set a goal for themselves of limiting future emissions to that which would cause less than two degrees more of global heating up, but the poorest countries in the world respond, "sure, that's fine as a global average, but if we allow the temperature to go up another two degrees celsius, roughly six degrees fahrenheit on average,

you will be comfortable but we will be baking. our waters will disappear, our springs will dry up and we are going to have to get paid a lot more money to adapt to that newer, warmer world, or you're going to have to lower your targets to have no more than another degree and a half celsius of global warming. it's one of the central fights of this day of the conference. >> reporter: yesterday you and i talked about the dead lock. a day later do you sense the positions hardening? or are these public debating points being put forward? >> suarez: so far all the drafts that have been circulating around this conference have the toughest nuts to crack in brackets -- meaning that they are remaining to be fully negotiated, and so far it hasn't been announced that any of the really tough stuff, whether it's the back and forth between china and the united states over verification, or the amount and duration of the payments from the richest countries to the

poorest -- nothing has been settled in a final way that can be announced to the public, so if positions are hardening, i can't say for sure but they certainly aren't softening in a way that's been allowing composite. >> reporter: what about the one area where there seems to be some movement -- a plan to help preserve forests, particularly tropical rain forests? tell us about that. >> suarez: this is called the redd negotiations for reduction of degredation and destruction of the world's forests, and depending on who you talk to it's being described as one of the few bright spots in the negotiations. forestry has to be negotiated along with technology transfers, and adaptation, and finance, and several of the other big areas of negotiation, and they have had a couple of breakthroughs, and they've really been trumpeting that progress. but a lot of the n.g.o.'s that organize around forestry issues say there is really less than

meets the eye in that draft document since, again, all the toughest nuts -- all the really hard bargaining that has to go on between countries over preservation of forecasts in the developing world is still all remaining to be set out in detail. the document is festooned with phrases like, "deemed appropriate," and "appropriate decisions by countries" and really, what's appropriate remains to be hashed out. >> reporter: we're talking about what's going on inside the hall where you are there. we saw those pictures and you reported on the protests outside. can you tell how much of that resonates inside and in the meetings? >> suarez: the protests from earlier in the week were pretty genial, because they were planned. the routes and locations were worked out between the authorities and the protesters. this was something of another order all together -- high levels of confrontation between large numbers of protesters who were ready to push, and shove,

and press against the barricades which are being moved further and further away from the convention center where these talks are occurring. widespread use of pepper spray and batons, as we saw in the earlier report. it was a tougher day of confrontation between protesters and police, but i have to tell you, you wouldn't be aware of it here. the security perimeter -- the fences, the barriers, the public transportation that you might use to get to this convention center is leading you off further and further away, so any ruckus that occurs on the streets of copenhagen is kept well away from this place. >> reporter: you have some world leaders there already and you have more to come real soon, including president obama. besides their mere presence, what exactly is supposed to happen that may break any dreadlocks? >> reporter: there was a definite change in tone today. earlier in the week, people who were involved in the negotiations were talking about

the impending arrival of the world leaders as both a reason to hurry along with the deliberations, and as a catalyzing event which might help get things moving. now, they're talking about the possible embarrassment of having all these world leaders here and going home empty-handed. very definite change in the tenor of those remarks about what it would mean to have some of the biggest names on the planet in this convention hall. >> reporter: ray suarez joining us once again from copenhagen, thanks a lot. >> lehrer: now, for the other news of the day to hari sreenivasan in our newsroom. hari? >> sreenivasan: the federal trade commission accused intel today of anti-trust violations. the agency filed a suit charging that the world's largest computer chip maker has shut rivals out of the marketplace by using threats and manipulating prices. intel is a "newshour" underwriter. it called the f.t.c. complaint "misguided" and said it competes "fairly and lawfully." >> sreenivasan: the european union has dropped a long- standing anti-trust case against

microsoft. the software giant agreed today to give users in europe a choice among a dozen web browsers and not just microsoft's own "internet explorer." the e.u. dispute with microsoft has dragged on for more than a decade, and the company has already paid more than $2 billion in fines. the u.s. house voted today to let the treasury borrow another $290 billion over six weeks. that way the government will not default when it hits the current debt ceiling of $12 trillion in the coming days. on the house floor, republicans and democrats skirmished over calls to rein in spending. >> when will it stop? when will washington get the message that we can't borrow and spend and bail our way back to a growing america. and then we come here right before the christmas break, on the day we're probably heading out of this building, and we're going to pass a $290 billion increase in the statutory limit

on the national debt. the american people don't want more debt for christmas. >> this is not a cheery time for the american people. this is a very difficult time. a reminder, the legislation in front of us now is to pay for the war in iraq, to pay for the war in afghanistan, to pay for our veterans' hospitals, and to pay for next month's social security recipients, to receive their check on time. >> sreenivasan: the house also approved a defense bill totaling nearly $640 billion. and it moved to act on a jobs creation package totaling $170 billion. democrats plan to pay for nearly half of the package with unspent money from the bank rescue program. all three bills need senate action as well. the government of pakistan suffered a major legal blow today. the country's top court struck down an amnesty shielding thousands of officials from corruption charges. asif ali zardari retains his immunity, so long as he's in

office. but after the court ruling, the main opposition party demanded his resignation. iran has test-fired an upgraded version of its longest-range missile. state television broadcast video of today's launch, from several different angles. the missile can travel 1,200 miles, a range that includes israel, american bases in the persian gulf, and parts of southeastern europe. the test sparked criticism from the u.s. and other world powers. they're already weighing new sanctions over iran's nuclear program. for violating existing u.s. sanctions on iran. the justice department said the financial firm hid its illegal dealings with iranian banks for decades. the settlement ends a five-year investigation. last week's string of car bombs in baghdad involved members of the iraqi security forces. prime minister nouri al-maliki said today an investigation shows at least 45 security officers helped in the high- profile attacks on government

targets that killed 127 people. maliki also said the bombings will not alter plans for u.s. forces to leave iraq in two years. and, he offered a reward for information on car bomb plots. >> these bombings won't affect the u.s. military withdrawal. the deadline for the u.s. military withdrawal remains in a final form and with fixed timetables. yesterday, the cabinet adopted a resolution offering a reward of 100 million iraqi dinars-- about to anyone who can help lead iraqi security forces to garages or other places where extremists assemble car bombs. >> sreenivasan: maliki also insisted iraqi elections will go ahead in march, no matter what. u.s. companies will have to make executive pay policies more transparent. the securities and exchange commission voted today to beef up disclosure rules for publicly-held firms. starting next spring, companies will have to disclose more about stock options and stock awards. the s.e.c. also wants more public information on how compensation policies might encourage too much risk-taking.

wall street was little changed today. the dow jones industrial average lost more than 10 points to close at 10,441. the nasdaq rose more than five points to close near 2207. those are some of the day's main stories. i'll be back at the end of the program with a preview of what you'll find tonight on the "newshour's" web site. but for now, back to jeff. >> brown: and still to come on the "newshour," two views on how fed chairman bernanke is doing, and the return of keynesian economics. that follows our look at the plan to protect the world's forests. as ray and i discussed earlier: six nations: the u.s., australia, france, japan, norway and britain pledged $3.5 billion today for a program called "redd": "reducing emissions from deforestation and forest degradation." the money will finance a u.n.- backed plan to reward developing nations for saving carbon-rich tropical forests. can "redd" make a difference? jonathon miller of independent television news went to the

heart of the world's largest rainforest recently to find out. >> reporter: there are many in >> reporter: we traveled 2,000 miles across the amazon basin, which contains more than half the worlds remaining rainforest, to ask brazil's amazon pioneers what they make of this plan. could they be enticed to treat this forest as the global resource we all like to think it is? and, who among the amazons 30 million people, stands to gain? the plans known as redd and a couple of weeks from now, it its success will hinge on wealthy countries convincing amazonians that money really can grow on trees and that they'd literally be better off leaving their forest intact. in the past, logging has simply been too profitable. and now the idea behind redd is that, left untouched, all this will be worth more standing up than it will be in a timber yard. the redd fund could be worth one and a half billion pounds a year

to brazil, yet those pushing it say redd's still one of the cheapest and easiest ways of reducing greenhouse gas emissions and averting climate change. but will redd work? we're on a logging road, miles from anywhere. off to our right, the unmistakable roar of a chainsaw. it echoes through the forest. some illegal loggers have just felled a cedar. chainsaw gangs like this wreak trails of devastation. they're aware that an evermore eco-conscious outside world now brands them environmental terrorists. but they're not bothered. >> ( translated ): we don't want to get paid to do nothing. we want to live here, working at what we do. why is it that rich countries are so interested in preserving the amazon and they don't preserve their own forest?

tell me that. >> reporter: brazil's modern amazonians have a wild west mindset. not that long ago, the government was handing out free land and chainsaws. productivity measured by the number of trees you felled. the more you cleared, the more land you could claim. for amazonians, the forest isn't just a big nature reserve. they have to work and trade and get around and for that, they need roads. and this is the most controversial road in brazil. the br319 cuts through the heart of the amazon. it's controversial ,because it's being paved-- all 500 miles of it. when you put down tarmac, it makes it even easier for people and big logging trucks to pillage the jungle. they build little roads off big roads, like the 319 here, and satellite imagery shows that in the amazon alone, there are now 173,000 kilometers of

clandestine, illegal roads. that's enough to encircle the earth four times over. 80% of deforestation takes place within a three mile radius of these side roads. but it's not just loggers who blaze trails of destruction. in an isolated jungle clearing known as new el dorado, illegal gold miners have devastated the forest for miles around, polluted the ground water and rivers with mercury and caused one river to completely dry up. the question for those designing redd is how on earth does the rich world get its money to illegal miners, illegally occupying land in the middle of the jungle? until it can, there'll be little incentive here to do anything but keep on digging and destroying, although the miners don't think they're the problem. >> ( translated ): an illegal miner destroys less forest than a rancher. in one year, a rancher can

destroy millions and millions of hectares and an illegal miner can stay in the same place for years. we destroy a fraction of what they destroy. >> reporter: brazil's meat industry is the biggest in the world and flavio the miner is right: cattle farmers are indeed responsible for the vast majority of the deforestation. early on, ranchers grabbed land up here too, and like the illegal loggers and miners, felled great swathes of rainforest. most farmers have fake titles to the land, but possession is nine tenths of the law. >> reporter: the ranchers here are all-to-often painted as the bad guys. they've chopped the forest down, they've made a lot of money from the timber and then they've raised all these cattle and they get a lot of money out of that. the interesting thing though is that they are going to be one of the chief beneficiaries of redd. and so they should be, says augair vuicik, who bought her

2,500 hectare ranch legally 25 years ago. more than half of it's still forested. if it's to stay that way, she can't expand her herd and for that, she says, she should be compensated. >> ( translated ): it is not our fault what is happening to the world. they have to give us a financial incentive to stop cutting down the trees because people can not just stop working because the world thinks that saving the amazon is going to save the planet. to preserve the forest, you need money; you need to have people around to make sure that conservation does take place. if i wasn't here, all this forest would have been cut down. i left part of my forest untouched. >> reporter: even brazilians who agree that the forest should be saved, insist there has to be a balance between protecting it and feeding a country of close to 200 million people.

we're on the move again. from amazonas state, 500 miles southeast to mato grosso, and we're still in the amazon basin. "mato grosso" means thick forest. spot the irony. among the endless fields of soya, there aren't that many trees left for redd to save; what few remain lie mostly within native indian reservations. we've come to meet a parecis indian chief. cacique kazaizo kairo turned up with her daughter riding pillion. the parecis pose no threat to the forest, of which they have more than a million hectares. they grow only what they need to eat. they tap wild rubber, harvest forest fruits and hunt and shoot and fish. but the parecis don't stand to gain from redd which would pay only those posing the greatest

danger to the forest. the chief says its a recipe for conflict and corruption. it rewards the white people, she says, by which she means, anyone who isn't indian. >> ( translated ): it is an injustice that the people who are destroying the forest will get paid. if that's the case, we will destroy our forest to see if they pay us as well. if the white people have land today, they want more tomorrow and even more the next day. if they are going to pay those who are destroying, we will destroy too. >> reporter: the cowboys stand the amazon is vast, so how do you police it? the long arm of the law is already over-stretched. these are the amazon's airborne enforcers, whose job it is to catch illegal loggers. we're now 700 miles northwest of the parecis reserve. rondonia, a small brazilian

state that's bigger than britain and for which the amazon police have only got two choppers. each of the tiny triangles on this map is a g.p.s. fix on suspected sites of illegal logging. the plan is for redd to be policed using satellite intelligence just like this. we're on an operational mission and they're coming in fast and low. they circle their target. redd will need enforcement and in brazil, these police are the only enforcers around. they're constantly clamoring for more resources. but unbelievably, they face closure because of pressure from the powerful agribusiness lobby. the raid is a total failure. the suspects have fled into the forest; their rice and beans still piping hot. forest police would be the eyes and ears of nations which

bankroll redd. if it's this hard to catch the culprits, there's a danger redd could end up throwing good money after bad. the police admit that arrests are incredibly rare in operations like this and if a case does finally make it to court, the case can take years. the risks for the loggers are low and the fines are miniscule compared to the profits. redd will mean nothing to illegal loggers. a man arrives. the police are immediately suspicious, but he claims he's an innocent banana seller. in the amazon, guilt and innocence, hard to tell apart. he argues with the policewoman, lecturing her on how the cops shouldn't be wasting their time on operations like this but should be after the big fish, who get away with destroying the forest by paying huge bribes, he says. brazil is pretty pleased that

only 2,700 square miles of the amazon rainforest was chopped down in the first eight months of this year. that's the lowest on record and half as much as last year. but brazil still leads the world in acreage lost. around the tropics, the felling and burning of rainforest releases more greenhouse gases than all the worlds ships, trains, planes and automobiles put together. >> lehrer: next, assessing the tenure of federal reserve chairman ben bernanke as a senate committee prepares to vote on a second term. "newshour" correspondent kwame holman begins with this report. >> reporter: the federal reserve kept interest rates at historic lows today-- near zero-- and in a statement, it reported the fragile economy continues to pick up, and job losses are slowing. to the man at the helm-- chairman ben bernanke-- it may be further evidence the fed's

policies are working, as he told a senate hearing this month. >> we played a central role in efforts to quell the financial turmoil. for example, through our joint efforts with other agencies and foreign authorities to avert a collapse of the global banking system last fall. >> reporter: and today, bernanke received a boost of his own. the fed chairman was named "time" magazine's "person of the year," for helping-- in the magazine's words-- to "ensure that 2009 was a period of weak recovery rather than catastrophic depression." in an interview, bernanke countered criticisms that his actions have helped wall street at the expense of main street. "i come from main street, from a small town that's really depressed. this is all very real to me." he said adding, "i'm not happy with where we are, but it's a lot better than where we could be." the former princeton economics professor is expected to be confirmed by the senate for a second four-year term, in the near future. but he's also been taking some heat, like this, from republican

senator jim bunning. >> the a.i.g. bailout alone is reason enough to send you back to princeton. >> reporter: his critics on the right, left and in between say bernanke did too little before last year's crash, but used unchecked powers after crisis set in. and today, vermont independent senator bernie sanders-- who has put a hold on bernanke's nomination-- continued his push to have the chairman replaced. >> one of key functions of the fed is to oversee soundness. and all around him was wild speculation, gambling type taking place. where was ben bernanke when this was happening? >> reporter: the nation's top banker has taken extraordinary actions-- using the fed's power

in novel ways to pump trillions of dollars into the financial system. last year, amid debate over the wall street bailout, he answered critics who said the government should let the crisis take its course. >> why don't we allow free market system to correct itself? >> my response is that the pain would be very significant, it would be very difficult for main street, if this credit system broke down, it would be very costly to average people. here's a better solution. the better solution is to recognize that things went wrong, we've got a problem that we can solve if we address it with enough force. >> reporter: bernanke defended his use of that force again at his senate confirmation hearing two weeks ago. >> taken together, the federal reserve's actions have contributed substantially to the significant improvement in financial conditions and to what now appear to be the beginnings of a turnaround in both the u.s. and foreign economies. >> reporter: even with that nascent recovery, the fed faces moves in both the house and the

senate to strip it of some powers and increase oversight of its balance sheet. >> lehrer: and two differing views of chairman bernanke's performance... alice rivlin served as vice chair of the federal reserve during the greenspan era, and was director of the congressional budget office. she's now at the brookings institution. and james galbraith is a long- time observer of the fed. he's a professor of government and business relations at the university of texas at austin. professor galbraith, you do not believe bernanke should be confirmed. why not? >> well, i have a great deal of respect for chairman bernanke, both as a civil servant and as a professional economist, but this was an institutional failure of the first magnitude. he was chairman of the fed in advance of the crisis. he failed to heed the warnings that were being offered about

the dangers in the housing market, about the dangers in derivatives. the fed was lax in its approach to the regulation of the financial system at that time. and, the crisis happened on his watch. in a sense, he was the admiral of the fleet. it went aground. it seems to me that, in the principle of command responsibility, the institution should get new leadership at this time. >> lehrer: alice rivlin, you see it differently. >> i do. >> lehrer: tell us why. >> i think the whole financial community bears a lot of responsibility, and there were regulatory failures, and the fed acted too slowly, but when the crisis came, ben bernanke was absolutely the right person to be there. he was calm and collected. he was very knowledgeable. he was bold in using the powers of the fed to stabilize the financial system. it was a really dangerous, chaotic situation.

we could have had domino effect, big institution after big institution going down and a total meltdown you of the financial system. he avoided that. >> lehrer: but you don't believe -- you don't buy professor galbraith's captain of the ship analogy -- right? that it happened to his watch so he should go? >> no, i don't. i don't have a good explanation of why so many people who watched the fed carefully and who watched the markets carefully missed this crisis, but almost all of us did, and i don't think bernanke, who came in rather late in the development -- he took over the fed in 2006 -- now, they might have acted more quickly in 2006 and 2007, before the crash, but nobody saw this coming, and i don't think it's fair to say bernanke should have seen it

when nobody else did. >> lehrer: what about that, professor galbraith? nobody else saw it. why should bernanke have seen it? >> i might go to court and change my name to "nobody." there were people who saw it. very well respected people. warren buffett warned that derivatives were weapons of financial mass destruction. there were warnings from within the federal reserve board about the dangers that were emerging in the mortgage market and the subprime sector. there were warnings. i think -- it is the job of the federal reserve to be on top of financial danger, to be skeptical about speculative activity in the system, to both warn and to act. and it's characteristic in advance of a crisis that that is very difficult to do, but it is their responsibility, and while i agree with alice that action

on a very, very large scale was warranted and carried out, in the wake of the crisis i also think it's a mistake to personalize this too much. ben bernanke played a useful role, but so did the congress in extending insurance on bank deposits. so did the president, in putting the exchange stabilization fund to work behind the commercial-paper market. in many ways, this was a team effort, and it would not be right to do what "time" magazine did today and essentially attribute it to the extraordinary powers of a single individual. >> lehrer: alice rivlin also just said that he was the right man at the right time to go forward -- in other words, to meet the crisis head-on. you don't see it that way at all. >> well, as i say, i think ben bernanke performed well under extreme pressure in the fall of 2008, but i don't think that should qualify him to lead an institution which very, very much needs a new culture, an institutional reform at this time.

if he were coming up for chairman for the first time, i would be in favor, but i think the overriding consideration now is, are we going to get a regulatory structure which acts with the aggressiveness and the skepticism that was so lacking in advance of the crisis? >> lehrer: alice rivlin, you served in the fed. you watched it for many years as has professor galbraith. he says a whole new culture is needed and it can't happen with the current chairman. you don't see it. >> i think a lot of changes are necessary, and some of them are in the process of being made. we have a bill from barney frank's committee that will -- >> lehrer: in the house. >> in the house -- that would change the regulatory structure rather considerably. i don't agree with all of it. but i think bernanke is an experienced person who was a student of the great depression,

had handled himself extremely well under fire, as jamie galbraith said, and is the right person to go on leading the fed now. >> lehrer: professor galbraith, if not bernanke, who? or do you think in terms like that? that, well, there is a better person out there who could do the job? or is it what you say, a cultural problem, not an individual problem? >> i think there are capable people. there are capable people in the federal reserve system now who would be put in charge. people who have the requisite experience and the leadership capacity. the president made a choice to -- in effect, to continue mr. bernanke, but the senate can, if it chooses, oblige the president to make a different choice and i guess my view is, without disagreeing with alice very strongly about chairman bernanke's personal merits that that would be the better policy decision at this moment. >> lehrer: but that's not going to happen, is it, alice rivlin? >> no, it's not going to happen,

i think the senate will take some opportunity for those who are angry -- and angry at the fed, angry at the banks, angry at something -- and they have a right to be angry. they'll take an opportunity to vent, but they will confirm bernanke. >> lehrer: let's move ahead. let's assume for discussion purposes only, professor galbraith, that bernanke is going to remain chairman of the federal reserve. what do you expect him to do? or what do you think he should do from this point on that's different from what he's doing now, or otherwise? >> well, he has a very -- >> there are several important -- >> lehrer: let's go to alice rivlin first and then to you, professor. sorry. >> he has a very delicate job at the moment, because the economy is beginning to recover but it's certainly not there yet, and anything like raising interest rates would slow down the recovery. >> lehrer: today, the fed and his colleagues -- the chairman

and his colleagues said keep interest rates low -- almost nonexistent. >> right, and i expect them to keep them there -- >> lehrer: is that a good thing to do? >> yes, and i expect them to keep them low until we have quite strong evidence in the labor market that unemployment is on the way down. >> lehrer: how do you feel about that, professor galbraith? what the fed did today under bernanke and what you see when you look ahead. under his tenure? >> i think monetary policy is an extremely weak read, going forward. the banks are simply not prepared to resume lending to the private sector in the way that we would need to see in order to have a strong economic recovery. so the task of generating a recovery really remains with the president's team and with congress, with the tools of fiscal policy, and i don't think that chairman bernanke is all that central to that problem. on another set of issues, it

seems to me that chairman bernanke is heading toward a serious confrontation with the congress on the fed's responsibility to come clean about its activities during the crisis. the congress -- members of congress are pressing, i think, in a very serious way for more information. chairman bernanke is refusing to give them that information. and it seems to me that the federal reserve really does not have the authority or the right to make a decision about what information it may give or not give to congress. so i expect that -- assuming that he is confirmed, that that issue is going to cause him a great deal of trouble in the months ahead. >> lehrer: do you agree with that, alice rivlin? a great deal of trouble for this man still to come? >> i think there will be trouble, but the chairman's main thrust will be to protect the independence of monetary policy, as he should. >> lehrer: that's the federal reserve.

>> but it's the monetary policy function of the federal reserve, setting interest rates, if you will, and acting as a lender of last resort, that's not something you want politicians mucking around in. that's why we have an independent federal reserve. now, sharing information about what their -- opening their books, their books are mostly open already, and i don't think that's going to be a controversy. but allowing the congress or another agency to second guess them on monetary policy would, i think, be a disaster. >> lehrer: ok. alice rivlin -- >> my view is it's the congress that can decide what information it's entitled to and what information should be wheld, and if information needs to be provided -- should be withheld, and if information needed to be provided in confidence the congress has a way of doing that in other ways, national security information, for example. >> lehrer: thank you very much. >> thank you. >> thank you.

>> brown: now, weighing the legacy of another famous economist. one from the past whose theories are part of today's national debate. "newshour" economics correspondent paul solman has the rap on the man behind the idea of government intervention in the economy. it's part of his continuing reporting-- "making sense of financial news." >> reporter: british economist john maynard keynes. born 1883. died 1946. he was an economic revolutionary in the 1930s, an icon of orthodoxy by 1965-- pretty much passe from 1980 and the advent of ronald reagan. but thanks to the financial crisis and all the stimulus spending based on his theories, keynes is back, perhaps bigger and badder than ever, as in this educational rap video from producer-director john papola and economist russ roberts. >> ♪ john maynard keynes, wrote the book on modern macro ♪ the man you need when the economy's off track, whoa. ♪ depression, recession now your questions in session ♪ have a seat and i'll school

you in one simple lesson. ♪ >> reporter: the counter-tenor, if you will, is friedrich hayek. >> ♪ this is hayek, winner of the nobel prize. >> reporter: a colleague of keynes, during world war two and hero to conservatives ever since we've been going back and forth for a century. ♪ i want to steer markets. i want them set free. ♪ there's a boom and bust cycle and good reason to fear it. ♪ blame low interest rates. no, it's the animal spirits! >> reporter: russ roberts is, like hayek, a government spending skeptic who acknowledges, however, that grand master keynes is today's economic force to be reckoned with. robert skidelsky, a member of the british house of lords, is keynes' famed biographer, interpreter, and author of "a new appreciation, "keynes: return of the master. " we invited lord skidelsky and professor roberts to debate keynes' cure for today's great recession, appropriately enough, in the board room of the international monetary fund, an organization keynes helped

create to deal with the aftermath of the great depression. skidelsky sums up keynes with three ideas: one, markets are inherently volatile; two large scale unemployment can develop; and the third idea is that there's nothing to stop that unemployment growing unless the government comes in with a stimulus to replace declining private spending by public spending. >> often with borrowed money and in the current situation that's what we're doing now, and i think it's mistaken, but i think it's very much a keynesian argument and people invoke keynes all the time. >> reporter: and so the essence of keynes in that sense is the economy because of uncertainty has the propensity to occasionally contract and maybe stay contracted. >> yeah. >> reporter: with too many people unemployed, therefore whenever that happens, we've got to as a government spend the money to get the economy back up and moving.

>> absolutely. and you don't wait until you have reached this low point before starting spending; you intervene in the downward slide by injecting extra aggregate demand into the economy. >> reporter: aggregate demand means just more spending from everybody? >> more spending. yes, total spending. >> ♪ i had a real plan any fool can understand ♪ the advice, real simple, boost aggregate demand! ♪ >> reporter: what's not to like about stimulating an economy when millions of people-- 15 million at the moment, at the very least-- are out of work? >> capitalist economies have slowdowns, contractions, slumps, recessions and depressions. some of that is due to natural forces, some due to government mistakes. we have a long history of contractions in the united states- the 1933 depression was not the first one. we had one in 1894, we had one in the early 1920s and the economy bounced back fairly quickly without government intervention. >> reporter: yes, says skidelsky, but... >> there were terrific sufferings, i mean people, whole communities were uprooted and

everything. but in the end, things got going again. we do not live in that sort of world and i don't think we can take risks of the kind i think you're implying. i think the political downsides of taking those risks are going to be too great and in germany they were absolutely horrendous in the early 30s. >> reporter: is that not true? >> well, my claim is that in our attempts to engineer our economy from the top down, we've actually made in many cases the world less secure, workers less secure and lowered our prosperity and hurt people. >> reporter: because otherwise the system would have adjusted? >> would have got better. >> reporter: to keynes, however, it was spend or suffer, as the papola-roberts rap recounts. >> ♪ boom. 1929, the big crash ♪ we didn't bounce back economy's in the trash ♪ persistent unemployment, the result of sticky wages ♪ wait for recovery? that's outrageous! ♪ >> reporter: a modern economy simply doesn't quickly adjust to a shock, keynes argued. prices don't simply plummet

until consumers will buy again; people are loath to sell their homes at steep discounts; workers, unwilling to take deep pay cuts. that's why prices and wages are called "sticky." government has to protect the economy from itself, keynes thought. but roberts thinks markets, unprotected, do a better job. >> what markets do is they punish you if you systematically make the same mistakes over and over again. when you destroy the punishment system that markets naturally perform, you're going to see more myopia, more hubris, more overconfidence. >> it's interesting, the word "you." they punish you. if it was just that you made a mistake and the markets punished you, because you were out of a job that's fine, but they actually punish millions of people for the mistakes of a quite a few people and no government, no democratic government is going to allow that degree of punishment. >> reporter: unemployment for long periods of time? >> unemployment and the bankruptcy of lots of companies

who are not making mistakes, they're just affected by the people that have made the mistakes. >> reporter: so then lord skidelsky, what do you think keynes would actually have us doing now? >> i think he might have wanted a bigger stimulus, actually, because the stimulus hasn't actually brought about a recovery, it stopped the slide. >> reporter: but what would he have said to the comment: look, in the long run it will all turn around and be okay. >> he would have said in the long run, we're all dead. i don't think he believed that economies would remain depressed forever, he thought they would recover, but that they wouldn't recover fully to a full employment position once they'd been severely shocked without a continuous stimulus for a long period and i think that's the prospect we face today actually. incomplete recovery. >> reporter: and do you not worry about that? >> well, unfortunately what keynes has done is he has given solace to politicians who want to spend money wastefully on special interests rather than on

things that would help us. >> reporter: is that completely unfair? >> no, not completely unfair, there's a lot of waste. there's going to be a lot of waste in this, but the waste doesn't matter. there's more waste if you have heavier unemployment. you're balancing a smaller waste against a larger waste. there's no ideal way out of the hole. >> this right now, right now, not six months ago, not two years ago, but right now is a problem of anxiety, wariness about the future. the question is: how do you create people's confidence going forward? >> reporter: and thus the question becomes one that keynes posed 70-plus years ago: amidst the irrational ups and downs, how do you nurture the real impetus of economic growth: confidence, optimism, "animal spirits." ♪ there's a boom and bust cycle and good reason to fear it ♪ blame low interest rates.

no, it's the animal spirits. >> reporter: because, as a memorable newshour voice reads keynes memorable words... >> "if the animal spirits are dimmed and the spontaneous optimism falters, leaving us to depend on nothing but a mathematical expectation, enterprise will fade and die." >> reporter: but, says roberts... >> you have to face the possibility that the stimulus package which has increased our federal deficit this year to maybe $1.5 trillion is actually discouraging confidence. >> ♪ your so-called "stimulus" will make things even worse ♪ it's just more of the same, more incentives perversed ♪ and that credit crunch ain't a liquidity trap ♪ just a broke banking system, i'm done, that's a wrap. ♪ >> we're doing a lot of things that are bad public policy that i as an economist believe are going to hurt our chances for growth in the future. >> reporter: but robert skidelsky thinks keynes' theory of spending does stimulate confidence, making him again the man of the hour, and therefore aptly rhap-so-dizing here one last time. >> ♪ my general theory's made quite an impression ♪ i transformed the econ profession ♪ you know me, modesty, still i have to take a bow

♪ say it loud, say it proud, we're all keynesians now! ♪ ( laughter ) >> lehrer: again, the major developments of the day. the climate change talks in denmark were deadlocked, with president obama and other leaders set to arrive in 48 hours. the federal reserve kept a key short-term interest rate unchanged. it said the economy is starting to grow very slowly, and iran the "newshour" is always online. hari sreenivasan, in our newsroom, previews what's there. hari? >> sreenivasan: ray suarez has an update from the climate summit in copenhagen, including excerpts from his interview with u.n. secretary general ban ki moon. the head of our patchwork nation project explores new data showing who benefitted from the "cash for clunkers" program and who did not. on our afghanistan war page, a podcast features military experts and human rights watchers. they debate the wisdom of paying protection money to the taliban

in order to guarantee the flow of supplies. and on paul solman's "making sense" site, there's an excerpt of robert skidelskys biography of economist john maynard keynes. and from our series "on the economic year ahead," a look at conventional wisdoms that some economists now pronounce wrong. all that and more is on our web site: newshour.pbs.org. jeff? >> brown: and that's the "newshour" for tonight. i'm jeffrey brown. >> lehrer: and i'm jim lehrer. we'll see you on-line and again here tomorrow evening. thank you and good night. major funding for the pbs newshour is provided by: >> what the world needs now is energy. the energy to get the economy humming again. the energy to tackle challenges like climate change. what is that energy came from an energy company? everyday, chevron invests $62 million in people, in ideas-- seeking, teaching, building. fueling growth around the world to move us all ahead.

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