economy closely: ken rogoff of harvard university and josh bivens of the economic policy institute. welcome to both of you. and ken rogoff, to you first, what is the european scenario that the united states should be most worried about? >> oh, goodness. i mean, there's really a cliff there. there's a possibility the whole euro can dissolve if they don't take a quantum leap towards unification and we could have a layman moment again. it's not... lehman moment again. it's not hyperbole to say that. they've seen that in europe. they can't agree among themselves what is are they going to do when greece leaves which is the equivalent of lehman going under in the united states. >> and josh bivens, even short of the worst-case scenario, the u.s. is already feeling the effects of what's happening in europe. >> i think that's right. i think slow grooet in europe and now it looks like outright contraction in a lot of europe is meaning we export less. i would say over the last year, over the coming year if they're in a recession, we're probably talking about less than half a percentage point o

josh bivens, ken rogoff, thank you very much. >> thank you. >> brown: now, the challenges of creating enough new jobs in an ever more automated and high-tech economy. "newshour" economics correspondent paul solman has the story, part of his ongoing reporting: "making sense of financial news." >> american labor, management and capital. >> reporter: our favorite economics cartoon is a piece of free market propaganda from decades ago that envisioned a sort of cornucopia machine of the future, manned by the happy and lucky american worker, given the name king joe. >> hi, folks! >> joe's the king because he can buy more with his wages than any other worker on the globe. >> reporter: or at least, back in the mid 20th century he could. today, our "newshour" inclusive statistic of all un- and underemployed, totals more than 26 million americans, nearly 17% of the workforce. how many of them worked at jobs that machines now perform more cheaply? how many so-called knowledge workers are threatened by the likes of i.b.m.s jeopardy champ, watson. >> i've been waiting for this moment for a very lo

ken rogoff, you know him well, has written extensively of countries getting out of debt crises, said once your debt is 90% of the economy, growth is choked off. we're at 101% and growing every day. >> i disagree very strongly with his conclusion. i think he's got the causation backwards. if you look at it, most of the cases that he points to, which are high debt and low growth, it's actually the low growth that led to the high debt. japan is deeply in debt and it's a slow growing economy. what happened first in japan was their growth collapse bawd they didn't do an adequate job of stimulating their economy after the big bubble ended in the early 1990s and the debt followed from that. it's the collapse of their economy and their economic growth that led to the debt problem. >> one final thing i wanted to ask in terms of how to pay for it. you're talking borrowing now, once we get growth, paying it off. the "new york times" magazine, great analysis a few months ago, alan davidson wrote it, had him on the show. he was talking about a whole issue of raising taxes, saying you could tax mi

ken rogoff is the former chief economist of the international monetary fund and professor at harvard ersity. ken, what do these debt levels mean for the economy? for people who don't look at these charts a lot, is it bad, it good, is it the right trend? >> the debt levels are a problem. anyone who doubts that economists have looks state by state and county by county and the states where the debt really ran up during the early 2000s, lots of subprime mortgages, those are the ones that are hardest hit. job losses, sales down, grocery purchases down. it's weighing it our economy. we'll continue to see foreclosures. people struggling to reduce their debt. i think it's the number one problem which needs to be addressed to really get this recovery on firmer footing. >> let me ask you this as a guy who spent time as a policy maker, when you say the number one problem that needs to be addressed, who addresses this? is this a government thing, is it the kind of thing we talk about on tv, is it a public service education campaign, is it just people? >> no, it is something the government needs t

. >> -- i think are threatened with being hollowed out by what ken rogoff and carl rhinehart call the great contraction over the next five to ten years. that is that there will be fiscal contraction in the advanced countries, there will be a pulling back from international engagements, particularly concessionan ones, and to the extent that aid bum ets are maintained and defended, including by civil society partners, they are increasingly bilateral in character. and the challenge that i just want to put to this room is that i think that sometimes civil society organizations have slightly mixed interests in this, because the bilateral agencies are actually quite an important source of funding for civil society. but in my view, a switch to bilaterally oriented aid programs is a retrograde stem from the point of view of development effectiveness, and i wonder how civil society groups are going to work out that tension if i'm right and saying there will be more of these pressures over time. that's a challenge. >> would you like to say something? >> i would like to pick up on that. in addit

they may not be doing well but they haven't fallen into the ocean and it's interesting because ken rogoff and vincent carmen reinhart and a recent paper addressed the long lasting consequences of high public debt overhang mr rogers and they found that across fifty countries twenty six periods have a debt to g.d.p. ratio of over ninety percent for at least five years one of their findings they found the real g.d.p. drops by an average of around twenty five per cent at the end of the deal leveraging episode so is it better to get it over with quickly or to drag it out like japan this is to of course it's better to get it over with japan has it has had to last decades now the japanese stock market is down seventy five percent from where it was twenty two years ago that's not a very good model if you as me and their dad is going on and i are you can compress them with mr to the scandinavia who at the same time twenty two years ago had the problem that japanese did they took the pain a lot of people went bankrupt they had a horrible three years coming out of their scandinavians had a wonderful

. >> let get back to our conversation with our newest squawk masters, adam parker, ken rogoff and raghuramolicy as well. if there's not monetary policy and not fiscal still laws lust co -- stimulus, what does that mean for the economy? >> monetary stimulus i would lick to see. the euro needs to be going down. but if there's no monetary stimulus and no further fiscal stimulus, obviously we're going to continue to grow slowly. but that said, i mean, just pure fiscal stimulus, pure spending would have some effect. but we're in a situation where we could be in secularly slow growth for decades given the overhang of debt. so what i really object to is the idea it's a free lunch, interest rates are really low, there's nothing much po worry about, why are you leaving this low hanging fruit? i really think that's overly simplistic and very dangerous thinking. >> ken, you were on a panel earlier this week. ken be you were on a panel with adam earlier this week. >> a few weeks ago. >> and what came out of that panel, too? >> i totally agree with what he's saying. at the end of of the day, our earnin

my wife and ken rogoff and i just finished this paper where we looked at debt overhanks, episodes since more than 90% of gdp and in those debt overhang episodes economies grew 1.2 percent and points slower when they had high debt than when they don't. we're oaf that 90% threshold. >> now, you looked at all the studies on that book. would you think that his study is valid or would you refute his study? >> i wouldn't refute his study. would you? >> no, i wouldn't. you like the other reinhart. you talk about rogoff-reinhart constantly but i think you ignore most of of the stuff the husband is saying, right? >> vens andrew says it's all the financial crisis. >> i want to be there for a dinner conversation. >> it's all because of the financial crisis, nothing to do with dereeg lags, tax policy. >> i want to be there for the dinner conversation. it would be interesting. >> so there's a couple things going on. financial crisis means we leave unfinished business, we got bad assets on intermediaries, those mortgages are impeding a lot of households' ability to function but we also have legislati

poorest developing countries, i think threatened -- are threatened or being hollowed out by what ken rogoff called the great contraction over the next five to 10 years. that is they will be fiscal consumption in the advanced countries and there will be pulling back from international engagement particularly concessional ones and to the extent that a budget maintained and offended, including civil society partners, they are increasingly bilateral and character. and the challenge that i just want to put to this room is that i think is sometimes civil society organizations have a slightly make state interest in this, because the bilateral agencies are actually quite an important source of funding for civil society, but in my view, a switch to bilaterally oriented aid programs is a retrograde step from the point of view of development effectiveness. and i wonder how civil society groups are going to work out the attention. if i'm right, in fact there will be more pressure over time so that is a challenge. >> i would like to pick up on that. in addition to the revenue stream question and also we