good evening good evening and welcome my name is Joyce brown in
I am the president of the Fashion Institute of Technology
and it is my great pleasure to welcome you here this evening I want to welcome
you on behalf of fitn our partners the Institute for new economic thinking
and Shakespeare and Company booksellers there are delighted that we could bring
together to such eminent economist says
Joseph Stiglitz and Paul Krugman as part of our fashion finance forum
to help us think through some of the economic challenges the country is
facing today
especially with the presidential election that is just two weeks away
we all have a stake you know in the outcome
up the election and in the policies that affect
our economy and I want to say just a few words about why
a is president ever FITA worry every day
about where our economy is going you see people forget or perhaps they
do not know that FITA is a public institution
it's a college at the State University of New York
and so it is heavily dependent upon public funds primarily from the state
in the city in addition we are a community college
one that grants bachelor's and master's degree
so I let you think about that for a while as a career based college where
exactly the kind of institution the country and our policy makers look to
today
to prepare our 21st century workforce
so FITC singular combination
business design and liberal arts education
attract 10,000 talented
deeply motivated full and part-time students every year
each one of whom passionately wants to enter that work force
in the design or the fashion industry's or the businesses that support them
we offer as many as 46 degree programs to help them do so
but like every educational institution and perhaps especially
every public educational institution we're challenged almost every time
there's a glitch in the economy
no matter how pruden our budget or how aggressive are fundraising
we're always battling cuts in our budgets despite the emphasis that
policymakers and politicians put
on education it's no secret that state has dropped dramatically over the last
decade throughout the nation
and hear it if I T we receive less in state aid today than we did 10 years ago
in fact we've lost about 20 percent of our state funding
just in the last three years alone so a discussion at the kind we are about to
hear will be very illuminating for all of us
and will be especially important for our students some a former here
and will be voting in a presidential election for the very first time in
their lives
for them the opportunity to hear from these two distinguished an influential
thinkers
just before they go into that voting booth is a real privilege
just as it is for us as well so now
I am pleased to relinquish this podium to introduce doctor Nancy zimpher
who is the Chancellor at the State University of New York
thank you and good evening
I too am thrilled to be here you have to know what
a a privilege it is to work with President Joyce brown
and to support the fashion Institute of Technology
so we've both welcome you we are certainly privileged to be working with
the Institute
up for new economic thinking and the Shakespeare Company booksellers
I think we all feel that fitt the Fashion Institute of Technology
is just a premier institution it represents the State University of New
York
and such a fabulous way right here in the city
this great city on the planet and so we
appreciate the collaboration that that that went into
the fashion finance forum sponsoring this evening
am I can imagine that there might be someone in the audience that does not
know the scope
and scale at the State University of New York so I will say to you that
we are the largest public higher education system
in america out one of our distinctions is the sheer number of students we
educate
about 465 thousand students
every year about 89,000 degrees
that's so much why we cherish the work at FITA here in New York
at something else that's very distinct about us
is that under one umbrella we have
30 community colleges we have
liberal baccalaureate four-year institution's medical schools
research institutions we r
the only system in the country that has the opportunity
to integrate the sector's in such a way
and to provide such as sterling group that citizens and
employer's perspective employees each year
so when I first came to suny wanted the charges was to develop a
strategic plan a big fan have Jim Collins and you know him from his
authorship
good to great we came upon a a big
carry audacious goal that the State University of New York could be the
economic engine for new york's economic revitalization so the topics
address this evening are near and dear to
our central mission is at to use our mission up
teaching and research in service in service to
not only new york's economic revitalization
but the quality of life our citizenry that is such an audacious goal that we
have broken it down into six
big ideas you would expect us to be innovators you would expect us to care
about health care since we prepare so many
healthcare professionals about energy about the vibrancy of our communities
about our role
in in the global economy and
the international relationships we have but one particular big idea
so connects with the theme this evening and that is our commitment
to work with elementary and secondary education
and early childhood education and that the other in the continuum
with workforce development to seal the leaks
in the education pipeline to close the achievement gap
in america once and for all again very fitting
to the themes tonight and then a thirdly
to be able to introduce to the larger education
community a concept that we now have on Wikipedia
yes we have and then to deter it's called
system yes and we given Wikipedia
a very sophisticated definition but you know what it really boils down to this:
that the whole is greater than the sum
at the parts and back friends is the State University
New York and that is why tonight we have many
alumni not only from fitt
but from across are 64 campuses
celebrating their relationship to the State University of New York this is
kinda
new are drive to find all three million
a our alumni so you have to know how privileged and thrilled we are to have
to
Nobel Prize winners in Jessup stiglitz and Paul Krugman
forecasting the relationship quite frankly
between ek education and economics
and our future as a country one of my favorite
New York Times columnist david Leonhardt said this
a few months ago education
educating more people and educating the better
simply the best bet any society
can make so without further adieu
I want to turn the program over to robert johnson he is the executive
director for the Institute for new
economic thinking iiNet and a senior fellow at the Franklin
and eleanor roosevelt Institute in New York
doctor johnson is an impressive moderator a former senior economist with
the US Senate
with degrees from Princeton at MIT
we welcome doctor johnson thank you
enjoyed this evening thank you
thank you very much
thanks to the Fashion Institute of Technology
shakespeare books for hosting that this evening
and also very side
I think we're all very excited to see
probably too people who are
I would say unquestionably the most cited
a columnist in the world today and
the in addition to being most cited
and as you all know both nobel laureates
I would have to say from the vantage point
Institute for new economic thinking the
if I were to nominate to people
as being the most courageous columnists in the world
the most impactful these would be my two finalists
so very excited artist
as you know
each of them so written and
book that pertains to our current challenges and circumstance
Joe Stiglitz book the prices in a quality and
Paul Krugman's book in this depression now or part of your goodybag tonight
they'll we therefore
on behalf of them all thank you for your patronage but
I think we should move right to the discussion let's start with Paul
call you you talked about title your book
in this depression now there a lot of people don't believe
we could racial what what agency the human beings have to take on mister
here up so I spend the
fair bit I'm looking back at at the Great Depression sigh I think what we're
seeing is a
something that is recognizably the same time animals the Great Depression
obviously not as bad as the Great Depression thats
that's a are optimistic slogan not as bad as the Great Depression up but
but print really pretty bad and and recognize the same kind of thing any
technology is still there the human skills are still there the resources are
there but we're not actually
making use them and and so we're in that same kind of stuff if you go back
to the nineteen thirties find a lot of people
making the argument that there were no easy answers
no quick fix that and that it was absurd
to think that that you could quickly get out of this thing absurd to think that
particular that these keynesian types said all we need is an increase in
government spending
who dis out crazy and there there are wonderful our articles in 1939
published the American ex-army explaining that's
really either its its is a fundamental problems and and what we really need to
do to
to one make progress in structural reform in
cut unemployment benefits and things like that and then along came
not after the war but just the just the
the war came in Europe United States began preparing we begin our military
buildup really in 1939
and within two years up
unemployment that's our total employment has increased by 20 percent
equivalent to batting $27 million jobs right now
just like that it turned out that doorstep 'til
I was there was not enough spending in the economy and there was 0
one player and the economy could and should have been spending more on was
the government
and thanks to thanks to adolf hitler I all the sudden
fact that they're finally did what should have been doing all along and
began increasing spending
same thing right now with there's every
this overwhelming confirmation that that this is a time when
having the government spend more would be very free would be put into
you're putting people to work with otherwise be unemployed putting capital
to work
that would be basically doing nothing and it's actually very easy
at it's very hard politically up because it's very hard to persuade people
need to do that which is why that's right folks now
some those who would argue with you would say
you do the spending it's like a sugar pill
gives you a boost for transient period time in the fall back
but we didn't fall back in depression after world war two
weapons i think is very interesting story right if if you wanna ask question
why
white did World War two why wasn't a temporary why didn't we slide back
the press which lots of people for what in fact they were
same-store Montgomery Ward was a major store chain
and but the the president Montgomery Ward believe that the Great Depression
was gonna come back and so he courted cash instead
a building stores and kept on waiting for the depression come back in
and by the time it became clear it wasn't going to they have basically lost
their position in the marketplace so it was
I'll not just a question that's been studied as much as it should have been
but the best going story right now about what is really going on
which was also is also the best thing sorry but what's really going on the
nineteen thirties
was it was but excessive private-sector debt she had a debt bubble
that when it burst left people stranded with too much debt
and what happened during world war 2
was that we had first of all period
very full employment which made it easy for people to pay down debt
just couldn't borrow say more was forced to pay down debt
plus significant about inflation affliation so the real value of the debt
felon so you came into there were two with
with quite high levels of private debt
household debt relative to income and by the time the weather half witted
up before the warrant so you don't solve the problem
and so the best thing you can do if your problem is excessive
indebtedness what you want is a a strong economy
and maybe a little bit if inflation but certainly a strong economy so that
people have a chance to pay that debt down and then it it does not come back
that there is
it's not just it's not a sugar high it actually is it's more like that
a diet that the session essential nutrients that enables you to actually
recover
helmet their their couple other factors
that I dad there was some 64 savings
during the war and that meant when we got
I'll after the war people yes had very strong balance sheets
which they can expand at the same time
part of the problem a before
at the time the Great Depression was that we had to move people
from agriculture Int
the problem is your were we had been a success because we had increase
agricultural productivity
enormously in the nineteenth century in the nineteenth century we still had
sixty seventy percent people
a working and farming by 1930 was down to about 25-30 percent
today we have two percent we have to move them into
manufacturing from rural to urban
didn't have the resources to do it but in the war with they had to move because
that's where the plants were
a so we we began to work with people
I'll for this new middle of the century Industrial Co
and then we did something important up we have the
GI Bill so we gave them the education
that made them suited for a this new economy
so we were actually was not just the government spending
government unintentionally in a sax
was restructuring economy making it prepared
for the post-war period outfield also
as a really interesting book in the history this period
and he also point out that in the period the thirties
the government was actually doing a lot of investment and
rose and that
that increase productivity and that after the war
that productivity actually increased returns
to investment in the private sector and so
it it created a the context you know it
plus a lot of R&D that was done during the war so we had a a
a backlog yeah public spending have provided the context in which private
investment
had a higher returns in the section important point its
in general we've got this notion that the public sector the private sector
always
competition but quite a lot special public investment is complementary to
private investment
mean a there's a lot of things that
that people will do if the if they believe that there's adequate
transportation network
believe that the that the power network is adequate they believe that they're
gonna have skilled workers
available because they've had good education ensure
so sure I think I i I i tend to be
stripped out the minimal story in my minimal storm just about the debt but
you the other stuff is there as well
and at chrysalis reinforced a crazy what we're doing right now
in the we have states and
most state governments canceling infrastructure projects because
revenues depressed because the time is depressed which is exactly the opposite
how we got the Great Depression
and and in fact I mean when we were we haven't focused on your part about
austerity we don't talk about it but we're practice at you if you actually
look at the measures what's new about that hundred thousand seven thousand
fewer public employees than we did before the crisis
when if we had normal expansion corresponded increase the labor force
we would have gained about 1.2 million employees so there's a big gap there
caused by this kind of austerity that we already have
to meet the real danger is a
if if the Romney a get selected
I the a
I they might actually do what they say they might do right now and
I as remarkable feature of the current political environment that your best 0
is that one of the candidates is in fact lying through his teeth about his
plants the hope
we we've set now in
what feels like long stagnation
Jordan written a book on inequality
thus cannot be a positive development for the distribution proceeds to help
idly put what they called reserve army of the unemployed
driving wages down weakening the parking or
yep yet up your inequality a
has become serious problem I think United States I mean it's interesting
while polls been arguing about this and I'd argue
for a long time he's gotten so serious that even economist
realizes yet it's a serious problem when they say it's a serious problem
you gotta believe that Rd the bags you to make this thing that nothing not our
colleagues up
up but the magazine the compass a
I colleagues will never with no outs II it's my job
take them on got a stick on a magazine so
a and and want the reasons that it weakens the economy
you know a Paul is emphasized the problem right now is laptop demand
I backup total demand and that means
people are not buying a as many goods as the economy is
capacity to produce and that leads to unemployment
10 the promises if you transfer money from the bottom up the economic pyramid
to the top
the people at the top save about 15 percent but their income
the people the bottom spend everything
they need to spend everything to get by so you gauge in that kinda transfer it
lowers total aggregate demand
I'll and a
there is now a vicious cycle going on
that because the high unemployment a
wages are being brought down the share wages is
weaker otherwise would be and
I'll so that intern
weakens the man and even before the
even before the crisis a
incomes in the middle we're not doing very well median income today is lower
than it was a decade and a half ago
so there there is a vicious cycle
circle in place where where a
a weak economy leaks to more inequality leaves to
weaker economy I'll well we got there
there there's some technical I I don't go too deep we turn
I'm not totally persuaded that channel is it turns out because
in fact the overall savings rate even now even
is still well below what it was in thirty years
use deadly 8 percent private savings and now it's even now it's it was 0 for a
while as well for now
that's so something
that their that the debt issues I think are very real inequality
leads many people to go into debt to to
attempt to to maintain a middle-class their living at sea
above all attempt to have a house in a middle-class neighborhood their kids
cavities in school
but I'm not sure that it that he is a story that run through Dec rather than
just a simple mechanical
but now let's buy me know that the point I guess who
which by the way or a lot of discussion talked about
a the american consumers coming back
I and before the crisis the
savings rate in the United States 10
and we hope to welcome back that's right well I was not
that was obviously not sustainable and as one of my predecessors as chairman
the councilman said that which is not sustainable
is da can be sustained I that that that that the
that's what the canonical version this time slot was it something cannot go on
forever
it will stop so
so the the the a but the point is that
that if you you know roughly a
divide the population the upper 20 percent
historically save about fifty percent during L
but they have now about forty percent of all the income and you just do that
arithmetic
that means that we should be expecting a 6-percent
right savings rate rather than the four and a half percent that we have now
so in some sense savings are depressed relative to what we might have expected
so it is even conceivable as people get adjusted
a to new standards a living
that we will see savings rates increase from the best friend porn have percent
level and that
is another reason why we should be worried over this
long a recession that that the restorative forces in place on the role
are very weak with regard to
inequality study
talk a little bit about along slope as a contributing
what other dimensions sees causes
wanted the there are there a lot to causes when equality in a box dimensions
to inequalities
you know the the the fractured income that's going to the top
the hollowing out the middle and the increase in the number people
in poverty at the bottom and each of them has their
their own causes a a multiple causes
up at the top which is got a lot of attention
the ninety-nine percent 1 percent I'll
wanted the factors that is to say even the
even economist as long recognized
and that I talk about in book is the
a lot I'll the in command
at the top comes from what economists call rent-seeking
that is a a things like
monopoly power activities where people are trying to grab a larger share the
pie
rather than trying to make the economic pie bigger
I other examples b-sides you know monopolist
gets his profits by Sh by reducing production rather than
you know restricting production other examples were
a a exploited activities love
the financial sector where they were moving money from the bottom
near mint top abusive credit card practices predatory lending a whole set
of things that have now been exposed
that wasn't making the economy more efficient I
argue it was actually making even more unstable and
a you know poker a
said that wasn't single financial innovation
that have that too the increase in productivity American economy
except the ATM machine and what was wrong with the ATM machine is a British
innovation that an american
hi innovation since they said that they raise my fees from a dollar
3.0 shop so a
that's another example a the CEOs have taken a bandage
or deficiencies in corporate governance to increase the
share a the corporate income
they get no evidence that they become that much more productive or that
they're that much more productive than
CEOs and other parts of the world a but what they have become
is better at getting a larger share the pie you have to meet
there's a certain amount of cleverness and that but it hasn't let our economy
to be more efficient back money that could have gone into investment or
or the are R&D I'll is spent on
on on their salary yeah I like to do a division take the
taking US economy since the early post-war years and
it roughly divides about have at this point to two years first euro was
serve legacy the New Deal which was a
I'll Iran love where corporations
view themselves as being more about have coalition of stakeholders rather than
just
ruthless capitalism I'll stay with strong labor unions
course quite high tax rates the top and then a second
Europe watches this era of financial capitalism
deregulation
capitalism red in tooth and claw a and
and and there's a widespread belief talk to people
part of bankruptcy in DC they just know
that that transition from the old stodgy thing
to the new that led to a explosion economic growth and and higher
efficiency and
must've made everybody better off and it's actually not true
growth was slower in the second half and of course
the that the big difference is that the benefits of growth stopped
being spread to the general population all into a
a relative handful of people at the top Michael my complete occupy
was that they're they're actually setting that the cup too low
it's not even really the 1 percent is the point one percent better
the people who made it it being and in the earlier period II
pose after the right about your your period every quintile every bit the part
every group the population
was growing but the bottom part was growing faster in the top
today it's not that way and you know GDP
doesn't really give you a good measure what's happening to our
economy to our society so well that one tenth of one percent or
has been doing very well 1 percent doing very well median income
is lower than it was a decade and a half ago
median well is lower is as low as it was two decades ago
so all the increase in well is gone
to the top I'll so is clear that
in these ways are you know our economy hasn't been functioning
as well as it did in that period in which we were growing together
all your one of the leading thinkers
called new trade international issues
relate quality we've seen a tremendous amount of fights in Ohio
just in the last month or so between Romney Obama
Wall of China this are you see
international yell so I'll
several different pieces there up
one other just coming back to why is our economy depressed
a week least have much higher part savings rates
we do now how were we able to have full employment
given that we did not have assist
large budget deficits what was telling the whole or what
what what what makes it so much harder at just sort of do the adding up
is the the persistent trade deficit used to not have one now we do and that's
that's a big drag on the economy
up which has gotten better actually we trade-offs is actually significantly del
and some others just because our economy is depressed but not all we've actually
had some
USX become more competitive but thats that's up front
on which we need to work and and there is a that the trouble is
we the political debate has not kept up with the reality here
a we it's all about china actually Chinese the longer the core
that anymore it's a much broader set of countries
%uh something to be worked out the I hope that the next president instead
not not just crew China bashing but will try did say what what we need to do them
world that there is no longer this the world in which we don't have everybody
trying to run a trade surplus
which the Germans believe as possible the rest at this moment
up then this dish issue of trade
and income inequality and
a a lot of a much used to be that we traded mostly the country's
this men fashion betrayal countries the word similar leveling out well
a and that presumably had relatively little effect on
just you if you make the
its US Sens auto parts to Canada Inc sends
assemble cars back United States that's not be making a big difference
that's just increased efficiency up now
but now we do a lot of arching countries that are substantially lower income
a and our are selling us labor-intensive products that problem increasing
inequality up through the income
through skill differentials the highly educated tend to do better although
mostar increase the quality is not something highly educated wristlet
part of it yes and that's and increasing factor I had an interesting evolution
myself I was writing papers
a eighteen years ago seventeen years ago
saying that trade isn't that big a factor in any call
because the numbers are just not big enough which was true
seventeen years ago but the but Canada
where China next door a much bigger factor trade now than they were then and
so that that that is some
that the question what do you do about and
there a lottery it's not what a protectionist
not not something not to have a a general return to protection as well
that nothing else because
response to global citizens this little bit and for the very poorest countries
having access to
world markets is critical Bangladesh
almost literally keeps its head above water just expertly
as a product's the right way to deal with it is to have
the decent society with a strong social safety net
so important safety net II X X
training programs like everything and and and a good people skills I
basic the the standard theory is
the with open markets the winners
the country as a whole be better off the winners could problems 8
losers but they never do
and a that's really the problem that
impact some some the advocate's devil was Asian
at the same time that they're talking about the wonders of globalization
have been saying to compete you have to strip away the social safety net
I and and in that sense there EE hurting
the people in the middle in the bottom yes with actually at Germany is
just in case the Germany's is doing relatively well in this crisis
I think well as the think they are but they're doing relatively well I'll
ads with the European sup
then they'll discover that they have some problems but the but
I'll and but still you the amazing is to watch
conservatives in this country adopter many as a
as an icon to submit got austerity same really don't but they would but they
but he actually wide wise wise Germany able to export so well
they pay very high wages by our standards
they have a very extensive welfare state to a level that that's beyond the
wildest dreams
American progresses but what they have is among other things
very good technical education very close collaboration
between the educational system and industry
strong role the government assist corporate governance that is
much more like what we used to have in this country actually purrs represent on
the boards of companies
all of which suggest that if you really want to be able to the high-wage country
competing in the global economy
you actually want to move in the opposite direction from all what people
say that we must slash social programs
a you actually want to a more integrated more cohesive society
yeah i i and actually the Scandinavian evidence
have done much better in this crisis have grown faster
and have been more stable if you if you took
if you look at Sweet look at what they do and
and you just described the abstract without well
Saint having to do with particular country and put that frontal
that what is that conventional wisdom about how economic works
here we would say they must be grass growing in the streets
must be it must at the Cape possibly survive as the economy and
share some personal run across people less on last couple years but
who are just sure that it must be there must be terrible terribly now situation
say
if like is that Stockham your walked around the a
this is the thought this does not look like a desperate place this look it
looks like they're
they're doing pretty well okay come back to the issue but equality and
globalization
I talk about germany things I think that they've done a lot of other things
in the right direction but they haven't really kept up
with the Scandinavian countries and the result of that is that
while up a
you know thirty years ago they were in the middle the event industrial
countries in terms of quality
there with her manager me as a check today they were they were not
they were when the better country they were not as good as Scandinavia but they
were
a they've now moved into the middle and the point of this
is a that to a large extent
inequality is result of what we do
not just market forces you to market forces overplay
scandinavia yen in Germany
UK we shape those market forces
and the way we shake those market forces has resulted
in the most inequality any the that countries in the least equality of
opportunity
very contrary to our image Marcel Nadia country American
I it's really a male a
and what you also seen over time is
how countries that interesting and imitated United States
have done like the United States
UK used to be the middle of the week table and now which second
to the United States in terms of quality
where Scandinavia's kept up you know X X X
struggle did inequality has increased a little bit
by it is still the least that most equality of opportunity
and we stick low I think this comes that it the this this fatalism
ol its global economy there's nothing you can do and
streams you just cannot happen kinda a
relative the equal society and social justice that maybe was possible
back when rest the world was in ruins I get that all the time
but just looking to say whether our country's
scandinavians best to maintain the high level of I'll
widespread distribution the benefits of economic growth
hyperactivity up you do not have to be
we r me he said I
even Canada is surprise
is a much less harsh unequal society that hours
and that their pre obviously operating pretty much the same environment we are
for the most part even speak the same language and its the
so it's it showing that these are choices say
its choices both about how we run markets
market the distribution marketing is not something that's god-given there's a lot
you
dude as a choice about what you do afterwards as well
and whether you provide universal health coverage when you provide
a decent support where the provide educational system
that is well-funded were for everybody not just for people
up eleven the right deferments and and also the tax system
is obviously important and all these are important
not only for this UV quality inequality
an opportunity but also for efficiency and grow
so for instance if you have a tax system like ours
where speculators are taxed at a fraction rate
up people who work for a living or
a with if you can keep your money in
bank account the Cayman Islands a rather than
in the United States I you having centers
you know those rules not only give lower taxes
tax rate to those who can take a pale built themselves
these but it distorts the economy you wind up with more speculation
morning stability I and a
you know the money is in in the Cayman Islands because it grows better in the
sunshine their
I back to the lack of sunshine that
a is the reason that people keep their money there
resist has just had a conversation with
a someone from that the financial industry
was trying to make the defense about things like carried interest
special with which is even investing company gets taxed Elizabeth was
15 percent well you know but there's a lot effort put in
with uncertain return and so you need to and my
by I couldn't help by know what else is also a lot of effort with on certain
return
reading books I as somehow I don't get that
expect you don't get the tax break but there we are
just a to clarify this question carried interest
win fund private equity or hedge fund
earns money from their customers
they are the three that is there in Co
they're allowed to do for their I used to work management is you could do for
that
keep it invested in your business at the and
on any gain you pay capital gains from the original fee income
paid income tax now
they've transformed that incall into
a capital gain which it is not it hasn't called this is legalized
brought yeah
other confessions of a former hedge fund
a the they were up
healthcare you talked the phrase you used was
how we manage our markets well I remember
thinking one of the most profound papers I read soledad
was Canada rose paper in the early nineteen sixties why
healthcare is different why does free-market
rest here work for health care system in what
and what other designs with the ticker
so what a road did said we have a picture we haven't this wonderful
idealized version of the market that we all
that's in all of our textbooks and
which is which in which a market is a is up
perfectly efficient way to organize activities
and not this early fear which is a different question but at least it's
insufficient
and and your budget things that you need
that that their budget assumptions that are involved their assumptions that
that everybody has the same information there's something there but knows what
they're doing
that they that the buyers understand what what the sellers are providing that
you are
are able to make informed decisions and what can a rigid
great economist their in more than
I guess almost 60 years ago up he said look if you
if you made a list that these things and thought but the various ways in which
markets can sail
which this this doesn't doesn't
paradigm doesn't apply every one of those things applause healthcare
healthcare is the absolute nightmare for for the proposition that markets are
are good we organize things up that you have asymmetric information out there
it's
sites people people may have a better notion that there
well first you have to rely on insurance you cannot have a as
health care because the big costs are unpredictable and huge
if they occur up very few people can afford to pay for it out of pocket so
already you're having to
rely on third-party payers which is going to be a big problem for any kind
of decision see
you have a situation where when applying for insurance people may know more about
their health condition
insurers do on the other hand in dealing with health care
issues itself those are highly technical you not going to be able
to to know whether your doctor is recommending the right thing
so there's a whole setup I'll in your patience there are certain patient Press
by the
as those that we actually talk about health care consumers
that has become standard language it's deeply disturbing
I i'm not consuming healthcare why I'm receiving a patient and
at of course that the notion that we're your view see people talk about what
people need
to comparative shopping right if you've just been rushed to the emergency room
with a heart attack because I
no I think that the better deal at the hospital dal
up and up and
at the bundy an arrow actually said that while he points out that a lot of the
things we do in health care we didn't healthcare
sixty years ago were obviously responses to this the whole
we expect that ethical standards from doctors
that you don't expect from used car salesman up because
the cuss a used car salesman who missed the issue was not going to kill you
and so you have a a lot and what's happened is
okay so so healthcare happens to be a all
just on general principles in the area where free market principles do not
apply
it tanks there one in which is a remarkable book in a row
was a that for
to a New Year's 175 years before he
written I there was this very influential idea by Adam Smith that
market the market we
pursuit of self-interest we as it by Invisible Man
to the deficiency the economy and can narrow
with the person who actually proved the
right circumstances under which it was correct so
anybody who talked about the wonders the free market
he was the one who actually show data Smith was right
but we're showing was right also understood
that it was only right under a very restrictive conditions
and the healthcare sector was one condition in which was never right
and you know someone
my own work on economics I'll
asymmetry and information mention that that's
court understanding this is just working a wouldn't showed is the reason the
invisible hand seems invisible
is that it's not there and at
in this sector is is is a a real case
a point and just to add that is all abstract reasoning or
but then you look at reality and it's overwhelming
the up the looking across countries
nice it has the most market-oriented health care system and also by far the
most expensive
without getting better results we were results or results
upper yes ranked 37th world by the World Health Organization's
while right and within the United States although medicare is very expensive
attacks been much more successful
a cost-control the private insurers have been medicaid even more successful
and the great thing about america we're so big and the first we actually have
everything
all all possible systems exist and some burst here the Veterans Health
Administration which is true socialized medicine actually the government
you think that the doctors are government employees is incredibly
efficient
relative to the rest for health care system in Rob
you did a calculation show that if we had a health care system that was a
sufficient
as the best in Europe or France Canada
Germany or the UK take your pick we would have
no no no deficit give her the baby ball
demographics that's right we we are that's where we
the everyone else other one but the but
the system which very right canada is is just a single-payer system but not a
not socialized medicine up its actually called medicare
but it's better care for everybody a France
is complicated its a
very gallic up but it's but it's a mixture of public provision
public health insurance but it its but
a much heavier hand government the canadian system
it's about the same cost the Canadian system but spectacularly good
outcomes relative anybody's are and Britain has a system which is pure
socialized medicine
and up the outcomes are a little better than ours
at the cost is forty percent about us so
sure all of these things as we were able to emulate these things we would be able
to
a our budget problems with God
and also our competitiveness forms based and its
est and at its just Chris defies
so so what is the yeah whatever to
presidential tickets that signature proposal is to take
one other parts versus that works pretty well and privatize
repeal would as a governor well that's what I saw your Romney
by but let's let's make sure that nobody else it gets to do what I
as governor Massachusetts but then alright want to assess the privatize
Medicare privatize and underfunded so dismantle Medicare
which is a credible its its its
its rejection up both theory and evidence
a FF I pretty impressive with when you look at this
interface between medical costs in the budget this
this ideal that we have to have all these commissions
like Paul Simpson all these rituals about shares between spending and
support
why don't we just have health care cost Commission white when we look that in
the
because that would be death panels no I mean that
I'll I but I I'll I also think
we have to the reality of american politics is
a the drug industry's are very influential the insurance industry is
very influential
and it has beaten back reforms
over and over again you take one provision in the
one-line almost in the in the Medicare drug bill
the bill that provided prescription drugs for
medicare and it says that we the government
the largest purchaser drugs in the world couldn't bargain
with drug companies that estimated to be a gift to the drug companies over 10
years
a half trillion dollars now you know
anybody serious about doing with our deficit
that's a good place to begin but I'll
hardly talked about and by the wall
is it creates an interesting problem for
if you're an economist advocate up how much
how much imperfection are you willing to accept how much
fall short at there was little bit less I a lot of us
me the really thought that that a lot
I really think that health care reform should take the form a single
if we Medicare for All is where we should go
but that was on the table the question is
so we we have had this planned for
really Jake Packers plan which became a
the part the that the genesis of Obamacare eventually which was
to passing which was actually run through the markets it's a Rube Goldberg
device
that badges to try and get at the effects up
up up a single pair system without the actual single pair but
should have a public option in there so it's not entirely Plainfield insurance
companies
the public option gets killed in the political scram you still
supported and I at in the end might buy judgment was yes you do because
the important thing right now is for us is to establish the principle
universal health care and once that's in place then there'll be a lot of pressure
to make it more efficient to make it
work better eventual managed to squeeze the insurance companies out there
controlling role but
but first get it in place and that's course that more than anything else is
what's at stake in this election
so some people would say we'd was a $47 million people
on uninsured who came onto the school's
the the health care passage that's right that's transformed into a budget problem
because they're playing Monopoly prices except its said
turns out not to be a big deal it to the amazing thing is the uninsured
America are by and large young adults
which were not expensive the the expensive people in
are are the elderly who are covered under Medicare and and the other aspect
to that
is that america's not so inhumane
that at the end when they need
you know desperate they do get into a hospital but because it's been delayed
the cost are larger and then it gets shifted
in the complicated counting they have to somebody else
so in fair one of the reasons why we have such an inefficient health care
system
is that we are don't buy was urged to
large fraction population yet the
the amazing thing when all is said and done is that getting to a
sort of universal health care system despite the absolute public option
despite the
the compromises made is it's really not a big budget
bust the it to a they were able to pay for it with relatively modest cost
saving measures in medicare
and a a little bit extra taxation and on balance
see wrestle Budget Office says that the health reform bill
is actually going to reduce the budget deficit increases and it's not gonna
lead to huge burton's on the public so
a that made i that's that's said that's really very much at stake in two weeks
it if about reelected the sting survives America finally joints the community a
civilized nations
the provider that provide some form of health insurance to all their citizens
I and if he's if he loses with that it gets killed
I'm expert comment coming the same sense in which we r
out of tune with with the rest the
rest the events the industrial countries a
I'll is our cozy who is it was on
the right in in pracs came to Columbia gave a talk and
at the time that that about the health care
bill was under discussion
college students asked him at the comment
on this debate he said why don't want to meddle in the affairs
but up and then you said
I don't understand you know I in in France we take it is a basic
right human right that you should have access to health care
a matter you know what your income level is so
for us we we just don't know you know in this is a question that the right and
the left there's
this is basic a
human rights and at and he just couldn't understand a bit Olympic ceremonies and
in Britain with the dancing
dancing nurses wear where with people here
what is that across the British love their health system we we think that's
its
you know if you list people here it's a tell-all disaster
she's ever been treated it stopped but it's a it
yep with with its and by the way 1 I'll one again the other
the thing about the politics of is if get
always meet the become irreversible be people say how
by inconceivable that we would with it's like me right here
it's like Medicare that most Americans
a really think is a good system
back you know the joke in the in the debate about the
Obamacare was a person
who said a I what you keep
the government's hands-off out really at and
and quite a few people are saying don't let the government gets hands on
medicare
yep and that out to you I think raises a a fundamental issue that we've been
circling around
which is what is the role government in
in our society in our economy and
the a for thirty years now
americans have been sold a bill of goods that
government can't do anything well that's the problem not the solution
and and therefore I'll
you know if medicare is successful can't be a government program
I and the same thing
in terms of social security they find it very difficult to believe
that the transaction cost associate with social security
are fraction up that any private
insurance companies providing annuities and provide two kinds a
although a a insurance against inflation
against a other things that you can't get enough private insurance
a private annuity so I'll
you know that that really raises I think so deeper issues that have been
at the center I'll up this Spain
there was a study done in our school years ago number
people participate in that study in Germany
UK United States and Sweden
their last as a battery of questions
not surprising United States response
distrusted government more than you
the other countries and the one question that stood out is
do I trust our government to protect powerful
the American answer Knoll
was of the skills to 15 points more
distrust no part of the reason for that maybe
related to to the subject to inequality that we've been talking about that
a polled written about this as well that we have
a high such a high level inequality economic inequality that
inevitably it gets transferred into political inequality
and particularly given the rules the game just like the rules the economic
game
determine how the car aka
economic system place I'll lead to this high-level
inequality we now have political rules to the game
a like Citizens United that give scope for money
we move closer to a system rather than one person one vote
to one dollar one vote and then that becomes a self-report reinforcing so you
have
more political inequality that generate was in regulations
Whittemore economic inequality in that reprobate
back into more political inequality example
that I just fine astounding are something like
our bankruptcy law you know something very technical nobody
normally get interested in up one provision the bankruptcy law
is a that when you go bankrupt the question is who gets
papers big issue and the answer is
the derivatives not a surprise a
because they put it and when everybody else was not noticing what
you know who pays attention to bankruptcy laws what do that mean that
means you
courage that kind of economic activity but
at the other extreme student loans can't be discharged a
even in bankruptcy so that means that
the bank's do well body really discourages people
borrowing up for student loans and in a
a country where we have
tuition going up the last three years I think
average State University tuition got up about 40 percent
because up the cutbacks and state San
state budgets incomes are going down
the only way that people can afford it is borrowing
and then they realized that if they get cheated as
the lotto Matt been particularly in the
were profit private schools
a result that is that
if you don't get a job given the recession I'll
XO it's a noose around your neck your ball
teachers what do you tell your people right now look at those tuition bills
those low rates I'll and the unemployment level for you
you know problem where journalist something like this problem is the
prince
such rarefied a
right its very its it's not percent
who it is it is the one percent or less than 10 21 and
a and add to the extent that students are not the one percent they go
pretty generous scholarships school a lot of money
so I don't think it's okay rest up right but not me at II
but certainly have
young people I know relatives and
really urging them to have find ways to not be dependent
nephew thank God teaching English in Japan
so he's got a job urging him to stay there until the job market has been here
is it not this is
I'll by the justice or comes back a
we sorta most of the questions up current
depressed economy but among other things what people say
or can we really afford spent to
boost the economy costs are up not doing that
are are lost Jenner among other things a lost generation young people
it's a terrible job market people are a know people coming out of school
Cup our college or even if issues not for college coming out of high school
into a market that has no use for them they never get that first job that
that makes use of their potential they never get started on the latter
and this is going to would be paying a price
for our inaction in the face a pass on a player to be paying that price thirty
years from now
still because I've what we're doing human potential station
oppose after the right and particularly pollution right now
US government can borrow at a negative real interest rates right
US government's cells among other things bother protect against inflation
so that they will not the valuable eroded by inflation and the interest
rate on
on 10-year inflation-protected bonds is -0.8 percent
the people into paid US government to take them so
what you recognize that and you you recognize that we have these
high return investments and technology infrastructure anybody look at the
infrastructure in New York
a you have the feeling that we're a third-world
a country except it's an insult to some third world countries
up and I you really you know
investments in technology a a
that would really provide the basis we began by talking about why we got out
are the Great Depression those going to investments
would be a compliment to the private sector and
create jobs now and promote growth in the future
an improved our fiscal position because
you have these positive real returns and the negative real cost
above a fund's it anybody looking to balance sheets are you crazy not to do
it
my pet thing of course is that the greatest city in the greatest nation on
in the world is linked to the 20 points west
by a single rail tunnel completed in the year 1910
a and a and the project the long-standing project to
at a sec withdrawal which runs at a hundred percent past during rush hour
and the a long-standing project at a second title has been cancel
at a time when the US when the federal government can borrow it negative real
interest rates
credible at in all these idle resources
do not pay taxes but know that people are worried about that
it Larry Summers and and break the law a
now that he's a free man larry is something a lot more
like join me actually but a I'll
they had a paper making a very
strong purse persuasive case that that even a purely physical terms
up spending more money now as a positive that what it will do
to the long-term budget long-term US economic growth
will more than pay for itself in future tax rate
that's because the borrowing costs alone because the the long-term shadow
up mass unemployment on the on the economy is
is quite large so yep it's a covers the cutting back
at times like this is is self-defeating
it actually worsens the fiscal situation course then what happens is people sell
inflict more pain just as the situation really it really is like medieval
doctors with all that you treat illness by pleading
people and then they got sicker so you let them some more and that's that's
right now
out cities well I'm getting depressed
you guys still I have to turn to the audience now
up the people have questions there ugly
microphones in a couple places your
please come up got some time for some questions
yessir the
like make an observation before I put my question
appreciate the opportunity here in three billion people like yourselves
discuss the issues I suspect that we had
3 distinguished economist different political persuasion
we have different incident different observations
so let me get my questions okay number one
you think the problems the 99 percent
a result what one percent is doing to them the one that was my good wishes
three questions not disappear so first question is the problem to ninety-nine
percent
result what one percent done to them secondly
what do you think the appropriate maximum tax rate should be
on the highest incomes site in 3
how would you narrow the income differential between the fact the flow
worker in the CEO
thirty years ago that different about 30 times the today to 500 times
okay and I wonder how you go about narrowing the French Russian the
differential is
occurred to some degree because China has brought down the wages
American factory workers know why CEOs make what they make i think is an issue
governance I totally agree with the observations you made
but I those three questions if you could shed some light on your opinions
1 percent cause the 99 percent role
well I you know what I try to explain
Korea's is that the the difficulties have the 99 percent
middle the you know are are
a result of a whole host the different things that
we talked about are you know right now the major problems
unemployment but up education
a a ho-hos to
you know the knack financial sector deregulation allowing
predatory lending and use a credit card practices and things like that
now you can say a lot of these are resolved
all the way our political process has passed rules and regulations
supported education not supported education I
and that is affected now we say by the one percent by
by the way money the impulse that money is had
in our political process so yes a lot of their plight
years as result that I don't say all that is
on the issue over a issue corporate
the issuer above the a
co-pay relative to ordinary shareholders
ordinary workers a lot of that has to do with
corporate governance is a a we had
stronger laws about saying pay
I I think that would be curbed me some that
to some extent it's a different racial here than in other countries
well Australia brings things has a strong same pay law
and it very different ratio and and their companies are pretty you know
just a sufficient to as our our company also also stronger labor movement
we've had a very heavy toll to a policy against
labor organizing and that's important restraining factor II
oh and about the middle question %uh yes resistive touch
73 percent 73 said Peter diamond
a whose
former colleague of mine and and Nobel laureate
and and deemed unqualified to be on the federal reserve board
I republicans in congress up but
as it's actually the you don't have to take that exact number but
although he did actually to put in that that's not that's not up
up to have this done with a lot of careful estimates but there's a very
strong
are economic argument that says that that that
best we should be taxing very high incomes at rates that
that yields revving with yet one more so it won't work factor
well it doesn't quite feel that without knowing it I think
the it above my pay grade but up but a
but the in this book sells you might with right
the but but there's desert clear
ClearCase the notion that that you need to keep tax rates at the top
low because of these wonderful spillovers it
it's just not right yup word up by theory or evidence and a much higher
rates than currently have at the very high and would actually be perfect
and remember we've talked before about appeared before 1980 and I
after nineteen eighty up for nineteen eighty would appear we will hear a
growing the fastest
top tax rates were seventy percent that's right with 702 one more
more thing that that I would add which is I'll
you want to think a little bit about the sources of income at the top
and if the you identify a lotta
sources become a monopoly power a all coming to bring seeking
if you could target taxes on that kinda bring seeking
you actually generate income and improve economic efficiency
I so you know most economists say to the extent that you could actually
target those kinds of Rams got a tax that is close
two hundred percent as you can I
I sense that if you had a higher marginal tax rate at the top you would
discourage the pursuit once again there there's a slow start exactness
there's a fair bit of evidence as the can size but they were the
that the that that one of the reasons why we've had this explosion
up corporate pay a executive pay is that the kind of brutal
gaining up the system that CEOs now do in order to get these very high
paychecks
wasn't worth doing when the tax rates were much higher so
so with the causality goes both way that that when you have more
economic inequality the political process
weeks to less progressive taxation and more distorted tax system
but it's also when you have up less progressive taxation in this
kinda distortions you wind up with an economic system with more inequality
because people buy them worthwhile
to try to game the system take or two left here
hella yes yes so
there's there's been some criticism
the notion that that economists as a group
and look at the world is it the only thing that matters is efficiency
and see the so-called rational solutions to you
to problems inefficiency a.m. and I'm
getting this strong sense that to view are not
exactly camp in that there's some sort moral code that is at least in part
underpinning your your work and your views and I wonder if you could
articulate what that moral code years
a code for economists to live by
while I mean I don't think tomorrow codes
to for a person is any different if you're an economist anything else
try and but not I think needed
let me answers a slightly different question usually which is what it what
is
what what it's your social
vision what is it you want to see it an old joe with subtract this but I think
that I am
more or less roles in without being too
the roles this notion was that that you should
a think about society
as if you were devised society without knowing who you're going to be within it
that you should think about it that the hypothetical ability
rights say it if I didn't know whether I was going to be born the son up
up a corporate executive or or the sign up a
a migrant worker up which what's that society would i look forward
given that through the answer so that the and it's a little bit slow but like
a a golden rules for nothing
that just just consider the possibility of
what would you want if you were going to be someone else
that's a don't have to be super formal about
I think that's the way that's actually a was a great line saying that
well whatever two presidential candidates that the building
it starts social philosophy that starts bill Americans a
anyway yeah a let me just at one other thing
that so the argument we've been talking about this evening
say that no matter what your
you about a your moral loss P years
that the level than equality that we've achieved in United States
is bad for almost all us yeah
that that we've actually got to a a push the boundary beyond the point
all I'll we where where all this in a way sup are so are
will separate so if we thought about this in terms of our liking
self-interest the one percent thought about
terms are there like self-interest they would realize that stop probably in
their
this want her long-term study education and socioeconomic status that
I always think up in this context it turns out that in America right now
it looked at at students by test score by socioeconomic background and tracked
them
for a number of years later it turns out that in America right now
basically a a don rich kid
is more likely to graduate college that any
the that us course market that
is telling is just enormous waste of human potential that there are
millions probably tens of millions of young Americans
who could be doing great things for themselves and for for the rest of us
who because we have such unequal society are being denied that
so that's that's not only quality quality opportunity where again we are
performing
worst have any the back and at the notion that
that you can divorce equality of results from
quality opportunities to before 28 when the results are so unequal
it turns into an equality opportunity as well well they glow plug i
that's doing your joint venture with the Union Theological Seminary
Joe Stiglitz kicked off the first discussed
his book months ago will be continuing that in filming
for our website economics organ
Joe Midwest question a lot to me you afterwards and it's an invitation to the
next session which is George Akerlof talking
about formation identity 28
up see questions I look at the last decade I see
I Crean in debt run-up under the Bush administration
the comparable amount under Obama administration this is the stentorian
seems to me to be a legacy extraordinary amount pump priming
fiscal pump-priming and yet we have I see if economic problems
now are our sovereign debt is
roughly around GP and this is the point at which
at least in Europe investors have begun to question
acid so I'm curious
in what way future pump priming
would-be with would be poses
as a solution to problems that the past pump priming
was not how can it be financed
notes I i don't buy the premise for school
a the look we had the
a stimulus bill which was about a hundred billion
up that's a very small part step none of the rest
was the result a deliberate efforts at economic stimulus
so where is this coming from I mean the the rest a bit is we
we have a large amount the up that that was
a lot of large about we ran deficits even during good news
which witchy for people like myself don't think it's a good idea I Y
because
because george bush wanted to give tax cuts to high-income individuals and he
wanted to
to have a couple upon funded worse that has nothing to do with pump priming
up and then we had a collapse of revenue
a that that took place after
2007 which is the result of a
severe downturn in financial crisis which reflects at least in part
a at least in part I'll I'll
financial deregulation sale affiliate understand that you need to
to actually have some some some oversight on the financial system and
and and all of that so the the notion
this is that people talk as if we we've got are
our current level of depth through Keynesian policies we get very little to
do with we got to our current level up that
through a combination of adult moralist lippert
I'll policy starving the beast
when the economy was wasn't didn't need it a budget deficit
coupled with mishandling up I'll financial policy that
that helped create this economic crisis up all that said
the notion that there's a that bad things happen but there's some red line
on debt that work somewhere close to
is just not borne out by by yes in the really poor piece of
that this this it look at look at who is in trouble right now in terms of debt
and it turns out to be only only countries that
that are no longer have their own currencies are a special problem
mean that the at this countries that still have their own currencies
monetary independence have repeatedly both in current events
historically been able to handle debt levels like we have at
is a fallacy that that partly propagated by up
a well-known book world of right spot in your book that's a very important this
that writer road outside hammering on camera
of have a wonderful book about history of crises
although there's some mistakes but then after the book that throughout this
very casual paper which was just a which was just some
rocker relations saying that its countries with high debt
to have high seem to have low growth with if you start to look at it looks
like it's actually the other way around countries that have lot low growth and
up with high debt
really is it's really just not up to standard there other United States that
debt GDP ratio at the end of world war two about a hundred and thirty percent
and it was followed by the high-spirited
economic growth that we had and we brought the DEP dau
a relatively quickly so a
this notion that that there is a any magic number which there's a problem
a is just Paul the counterfactual that way we you should ask questions could've
asked questions is
what would have happened teacher after he has a %uh that whatever
goes up for a layup tied what i was gonna say thats you think the quest
at what would have happened if
we hadn't a allow the deficit
to agrees that we are try to do the Herbert Hoover
I kinda policy old slash slash in
and and kaback expenditures as the tax revenue went down
we we did that experiment I and II a map is force that experiment on a number of
other countries
I and the EC be in Europe have been forcing that on Greece
and I week found two things about that one
I the country's going to depression and the other one is
a the deficit and
doesn't get down as much as anybody hopes they keep saying over surprised
I'm surprised that they're surprised
I because it was perfectly anticipated
that they would fail thank you for the opportunity
asking question answer my question is
slightly on a different topic but it relates to the kinds of
economic ideas that some US groups have been promoting
broad I'm international soon from Georgia and the summer I went back
and I went to an economics camp which surprisingly was funded by
T organization and they were promoting
libertarianism and written students and there has been
an emergency orthodox economists back home
which has led to deregulation most taxes but also increase
inequality so my question is
how do you discuss alternatives market fundamentalism
in post-soviet countries which are so sensitive to this to their
historical says I missed which the country was
Georgia well
I think part of the no it's not a surprise
that people in countries where there was
excessive government intervention like
comfort some I'll would react by going to the other extreme
so in that sense I'm not you know I'm not surprised but
I'll hopefully in and particularly
there's a risk they go from one orthodoxy
fundamentalism to another kind orthodox
fundamentalism and I hope
a that one of the things that i net is trying to do is to try to say
market fundamentalism doesn't work just like the kind of marxism
doesn't work you need to have a balanced role
couple other things that we've been talking about or some other rose the
government
him way we don't have to pick up
the move post but we don't have to accept just a recession
libertarian would say just let the market work in and there are people
who were upset that don't do anything just let
a.m. said: in you know just let the the ashes burning out a %uh
there was one op-ed in the New York Times said this from Chicago
you're just let the markets the have their way though all collapse in out of
the ashes
will come a new economy a I'll
you know in meanwhile there's been a lot of suffering and say that's the H rap
brown
you like and I'll yep you know you're a gen-y
burn baby burn nurses yeah it
and many the thing to say
it's a little bit narrower but now been
for now almost five years into this crisis and
up different I economic ideas have
people have made predictions not us so much
what the number for GDP per how things will work
there were predictions that was a widespread belief two-and-a-half years
ago that
their austerity programs would actually expanding top
became the government other way well we all have pretty clear evidence that
thats doesn't work that way up we have
don't the different different economic doctrines have
in a lot of ways been subjected to a test events and
what's has survived is a what what
what has worked as is at economic you a view of how these things work that
that does support a case for government intervention so
that's that it's not just let's have sees abstract principles and throw them
out
you have to look at what has actually worked in practice and its it's not the
libertarian
market fundamental issue and there's one aspect that
picked up appointed mention with a bit earlier
I'll want the standard doctrines
I'll you like that the libertarian is
a a more flexible wages
no unions economy is going to perform
better and the countries in which they have stronger unions and
better job protection have done better and responding
to the crisis United States which which
a is quote the best a country drizzle
labour market flexibility hasn't done
that well so it's another experiment what's really interesting
from the point of view I'll have economics economic theory a
is this crisis has been wonderful are
we've got a lotta a experiments and
and we will be able to make test a lot different apostasy
and a a its X shedding a lot
a fight at a lot of different issues at a great cost a lot of people in like
these countries
yep
this is a question restful tubal you
what is your view on the standard decision theory
of subject is expected utility in academic
economics is it does it describe reality
is it given especially considering your experiences
in international economics and at
asymmetric integration and really operating hours
while I
art it the
why do you cry Paul with what up
well we head a lot of economics is built around the notion
this idealized home looking objects that rational
man Scott's utility as a
really a clear a clear ordering a preferences
and which sometimes even expresses a mathematical function and makes rational
decisions given all of that
%uh which obviously is not scription a literal description if anybody I this
the question its its it's a metaphor that's helpful for organizing your thing
out about how decisions are made and
a I think the way it to to do it is to always
always always think about it the subjunctive
if that were the case the people were like that then they would do this which
can offer you some guidance about how they act up anyone
anyone who an economist who believes that that the
the that that the expected utility model a decision making under uncertainty
is a literal description %uh how people make decisions
up probably should find another profession but it's a a
but its but it but it nonetheless is very useful
yes I'm let me say their two parts a question wanna miss
a there's no
water research over the last thirty years
that show that people's behavior
making decisions under uncertainty is not well described
by model that calling you
a major that that there are sickening
significant deviations from the of behavior from the prediction
that model on the other hand I'll
there when we think about
the I'll a
those you issue 00
weird probability distributions come from
are the objective or the subjective how you
where you where the that the view that
we ought to think of them as relatively subjective that they reflect our
experience that the way we
see the world base their experience I think that has a lot of persuasion
that to the extent that we use those probabilities
and would be able according to them then
the subject to probably approach of that which does make
more question over here
hi
thanks for coming as the bell discussed earlier
the United States was evil you get there
Great Depression by government spending were too
and on manufacturing in a large since by
currently we are ready at war and the manufacturing landscape United States is
drastically different
was seven years ago and in light of those
two points where would you direct this government spent
I up
possession how I concluded
and this depression Allen book the
let me start the the good news is that there are
some there are some natural recuperative
forces already at work so if you look a
with the very few houses in this country for for
for for six years so we actually there is no longer excess housing stock
probl we were anywhere close employment
with we would actually however housing shortage and you can see housing is
starting to come back
household debt is down
but still high by historical lows but not as much so a lot of reasons to think
that the economy
is somewhat on the mend I actually if you look at the last year
it's been a significant improvement labor markets so
some so that the point is that the hill that needs to be clyde is not as steep
as it was
on you don't have to have a world war two level stimulus
to get us back to a much much better economic situation and this kind of
stimulus you
do what a lot that can be achieved just by reversing this austerity
that we have in fact carried out so Joe and I both
at this time we went down six hundred thousand government jobs
as the state and local when we should be up by normal
growth we should be up more than a million sore right there you can
create a lot of
a you can create directly
million half 1.6 million 1.7 million jobs
I had that including indirect effects probably two-and-a-half million or more
just by basically restoring normal levels of funding
for schools for road construction for road repair
for for the functions of government that we already have
we not we don't need to find exotic projects we don't need to find a
something that we unprecedented spend on just be turning to where we
the under normal operation gets us probably with unemployment rate well
below seven percent
so it's not hard yet but to give I'm coming to say I i think to get back to
relief full employment a we will need to do
more than that I mean if you if you look back
sick appears in the where we were 2007 where we are
likely to be up we won't have
real estate anything like we had before because we were
irrationally exuberant we won't have
consumption I'll like we had
a 40 savings rate you know whether it's pouring it
56 XO going to be well
where we were I'll and we are going to continue to have
the problem with the trade deficit almost surely a mess
things change very dramatically so up
the good news is that we have lots of things that we need to invest it
a education infrastructure retrofitting the economy for global warming
you know that their locks ok needs that we have
so in my mind a particularly since we can borrow now with negative real
interest rates
I there there is a we don't need to do anything exotic
and there is really let me make another important when there's a
this law a you
that it was war spending that got us out
we're spending is that any different from other kind is going to accept
in one way you don't have anything left over wing after you drop those
bombs I whereas if you actually bill grow
you have something leftover so
I I even if you don't do a perfectly
X wilford and expected that we're spending so
so the fact is that all this cum spending would actually
put us in a better state then the kinda spending that we had to do in world war
two
okay I E running short on time here
my staff today
back to me said you have to great
original thinkers and Nobel laureates on stage with you
Rob give them the wheel
the last question for the Institute in New
new economic thinking what new economic thinking
do you think we should pursue develop enhance
questions for each one
while II
your part problems i think im you really want to ask a question
younger guy but there is this prop up a
having been in it so long you have your own set way of thinking
but look where
I think we need we need a lot more
a lot more a lot more evidence-based this
their a worse the we're seeing a renaissance certain areas I'm interested
Rex seeing a lot of
really good empirical work on things like if it's a fiscal policy which was
much neglected
a and neglect the party because it wasn't did seem to be a live issue but
also because the
at this sir crippling orthodoxy up
believing that everything must be derived from
rational behavior of individuals and if you can't you can't drive it that way
that must not exist
and if we if we adopt have a looser jointed
more open-minded way up up
approaching how the economy works that I think we
we open the door I don't think we're ready for a lot all
grand theories at this point I think we have the opportunity
have a lot of of people looking at how things actually work
what actually happens recess what actually happened recovery what happens
when when when spending is is increased or cut
I for getting a lot of natural experiment setup
that that times are good for generating interesting data
and that's that's where I would go I'm sure there's a lot more stuff economic
history
history yes at weather was great like Ashley
two things one was with Mark Thomas because if you block
said that after attending a conference he said that new economic thinking
seems to consist in large part of the reading old books with the I
which is true and what does a lot of there was a lot of forgetting the others
yet we've learned that history
history is a really powerful tool that that in some ways it's
is we've been
there was a lot a lot a pic lot of empirical work in economics was
a being dictated by where the day they were easy
easy to get them cleaned and which means modern times
but it turns out that a lotta the interesting events
mean going further back at further afield also battle with special thing
cry international were better about this but the
its uptick in this country there's a tendency to have
to to do it now research as if america is the only country
at the fact that there's a lot of experience is out there
economics principles to tend to stay the same
across time across space stuff forever not everywhere but
you can learn a lot if we have paid more attention
with a be paid more attention to Japan
its experiences the nineties we wouldn't be doing such a bad job here right now
or well I don't know where to begin I well
and should we have only a limited amount of time it will take a couple hours
to to really talk about what are to begin over to a new economic thinking
I'll
the point where I agree very strongly with Paul is that
there needs to be a more openness in the way
the that I'll economics is approached
I'll I'm not sure up
where whether the rule really relevant
focus ought to be on a pier X you know a lot of the problem is the
you read the with brought to be rings seeing the world
led them to a look at the world through
the wrong appear collapse so a
I'll there or you know for 25 years 30 years
there has been a lot of empirical work
in economics driven
under you with the view that markets are rational everybody's rational rational
expectations
so they have this very strong lands and anything that was outside that lens
somehow they couldn't see and the shape told the impure X
into that will the that
that frame up there is even even today there's a professor at Harvard even
after the crisis has been writing a paper
a saying that a there's this notion
expansionary contraction I'll that
that somehow austerity actually weeks to economic growth
in a number of instances you know it well but that's that's well
while we've had a I guess is a triumph that
base nobody believes that anymore because they've actually looked at the
evidence and
it but that's stopping for keep our here writing papers along those lines but
it but yep we learn something there ya
but but I I guess what what it seems to me is is that what is really am
important is changing the the mic set with which we approach
the data and the way we see the world within
the different fuels have economic me seems to be very clear the field that is
done
miserably is macroeconomics and monetary economics
I'll and forward somewhat lesser extent but also financial economics
you know these were fields that macroeconomics
had the view you know that bob was don't exist
I that a markets are efficient
and it was really the central doctrine a very large fraction of the
macroeconomics
a profession they actually have models used by central banks
in which there were no banks United x3 pick you your
I how could a central bank I'll
actually talk about macroeconomics without banks well
a the d.a and
their predictions were very bad and their ability to respond to the crisis
onto her what should happen was not very good
and when it happened they would make statements like oh don't worry
the crisis is contained I'll when it was obviously wasn't
so in my mind as we look across the fields the
big failure was in macroeconomics
in finance with that said you know financial markets
had all these efficient properties and and
and you know a lot people actually believe those models
and that that was really the big mistake I'll
both in the public and the private sector and and and with enormous
consequences
yellow didn't read those old books or those old
the art thing is that you had a a few
a macroeconomics based on what was
widely accepted dollars before these super rational expectations thing
came in I S 11 you know that
I think then she does spectacularly well
in this crisis missus been axed the a
that they were I was that I think myself as well people did that but came in with
these
things that seem to cert to a lot of people at the notion that
big budget deficits would not drive up interest rates that
big increases in the in the monetary base would not be inflationary that
that this would in fact be a much slower recovery than normal because be up
against the zero lower bound
streets up as ulcers propositions which it turned out to be
borne out by a pet sits in a funny way this is that a period of trial for
macroeconomic theory
except its macroeconomic theory that a lot of the profession through in the
wastepaper basket even though it feels
it was still perfectly valid and then they refer back to
you mention about economic history the notion Paul
their up there were no bubbles
up are with three quite remarkable because anybody who
have read it I had a when my teachers was Charlie Kindel burger
with wrote this a what it's all about yep about
the Historia pat nixon hispanics
crash yet and that they've happened since the beginning of capitalism
and one of the things that was so interesting a in this book
is he describes in each battle
bubble CJ these booms that
the people in the boo knew that there have been previous
bubbles that broke but they thought they were
smarter than their parents I'll and that
they themselves were not in one of these bubbles and
that was exactly what happened in this case that a few other people
in the middle with the public yes of course back in the Middle Ages
up twenty years ago we had bubbles but
a we're so much smarter than our parents and our grandparents and
great-grandparents
so we would never ball for the kinds of things that they felt for but of course
we vote for things that were just
a little bit more complicated but in many ways very similar to the same kinds
of
I perhaps they come into for birdie made of all
all the way onto to more sophisticated things
Sol I'll take from this concluding question
notion we should try to inoculate people
position but they only see what they believe
we should try to bring to
believe HTC here it
if not I'll
a little bit humility here is is a is a very powerful thing
a and see hookers
a go to a actually but the pictures that
accepting that maybe maybe you don't have the truth
with with to capitol teams that made the that maybe the
this is beautiful models that you in teaching are not the only way
to see the world up we had this tremendous
doctrinaire it's about about backwards a
amazing without any wearing ribbons
with that without me with only at pickle trials to to justify it and
a your intellectual arrogance is is almost certainly hands on so it was
quite remarkable
is that up some above the advocates those
models that failed so badly have actually written
that this is the area even now the Triumph
up macroeconomics so what it shows is that
I'll some parts love economics are
immune to a
I reality and and they are
a religion nada that a science a
and hopefully iiNet will be able to
make a dent in in that kinda armor
yes that's what
its at at at those people will never admit
that they were wrong but it's that's the old library everything about
for for like me everything about help
was much like this that science progresses funeral funeral
but
well I think tonight
are from a funeral I think tonight you brought a lot of life
to this audience the questions a economics the challenge by net
grateful to you bowl next discussion
thanks all