America’s Fiscal Constitution: Its Triumph and Collapse
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America’s Fiscal Constitution: Its Triumph and Collapse


“America’s Fiscal Constitution: Its Triumph and Collapse”>Welcome to our lunchtime event. This is part of what our center has been trying to do which is to link issues of governance with issues that have importance to other parts of the school and the university. And so today it’s a great joy to be able to share the stage with Roberto Suro who’s with Tomas Rivera policy institute and our guest Bill White who you’ll hear about and hear a lot from through the course of the next 90 minutes or so. Just as point of information if you’ve been to the Jurrotion centre events before, you know we don’t really speeches. So we won’t have this as a conversation….oh, we will start having a conversation to start and then we will invite you to join that conversation for the second half of our time together. So as you’re listening hopefully you’ll get questions and have things you should want to bring up and I would encourage you to be ready so that when we turn it over, we have a continued, engaged conversation. So that I’m going to stop talking and I will hand the helm over to Roberto… It’s good to be here, good to have you with us.> Bill White, over the time I’ve known him has done an enormous variety of… Thanks… I think it was tough for somebody who’s had professional ADD and keeps changing jobs and Bill actually has changed you know, careers, jobs, locations as often or more. I met him when he was a trial lawyer and an energy investor went on to deputy secretary of energy in the Clinton’s first term – a time we remember now nostalgically. Went back to Texas with the mission of trying to salvage the Democratic Party when it was really at its nadir in Texas was the state chairman was mayor for the six years with term limits that are allowed to be mayor of Houston. During that time, many of you may recall Houston became the host for a quarter of million refugees from New Orleans after Katrina. Bill won the JFK profile of courage work for his leadership of the city during that period. Remained in politics, ran for governor of Texas in 2010, in between done a lot of work in the oil business and now he is the head of Lazard’s fair Houston office doing banking and deals and pipelines and all kind of stuff. He’s recently published a book called America’s Physical Constitution by Public Affairs Press. It’s…you’re with a group of friends last night many of them academic. So that’s 410 pages of text with 120 pages of notes, bibliography, appendices. So this is a fairly serious book and at the same time highly readable and very anecdotal about the history about federal governments dealing with budgets and debt. And we’re going to talk about that for a little while and then we are going to talk about some of the varied other things that Bill has done. So starting on the book, you posit the idea that there is a set of practices and beliefs that you call America’s fiscal tradition that are as ingrained in our political system as free markets and representative of democracy. I mean it goes back to the founding… What is that tradition? What are these practices that you are you are… so fundamental.>Yeah, I will be picking up. Thanks for being with me. It’s good to see everybody here. A lot of people don’t know that at the time the Bill of Rights was adopted that James Madison who helped draft and pass what we call the bill of rights was considering at the urging of his friend Thomas Jefferson another one who *inaudible* on federal debt… And his idea was simply that for purposes of intergenerational fairness, and that’s not just some 21st-century academic term that’s what they were talking. These two people back in the 18th century, were talking about intergenerational fairness. For that reason, they all considered constitutional limit on debt so that one generation of politics couldn’t mortgage teacher in order to look good, which was a risk. And they decided that instead of a constitutional amendment that might be too inflexible, to deal with emergencies that they would establish a set of principles, and the principles are pretty straightforward. The United States Federal Government should only borrow for extraordinary purposes that were well understood, and not just pace routine operating expenses. So, in the early days of republic, the United States barred for four purposes. The lead prevents state from leading a nation? Pretty obvious. They add territory like Louisiana purchase in order to connect territories, then after that some sort of animal canal. That would be an example. So wage wars, that was the third extraordinary purpose. And finally during severe economic downturns, also loss of revenues, provides a relief. And throughout most of our nation’s history and there are eight-plus years at least, those were the limits of the use after all that. And that was, fortunately, was returned by a political consensus that we want you to mortgage future that captures or retain independence. Now, in our report, there’s a little bit more elaboration to a various budget practices that we’re also part of this tradition that people adopted, but that’s the eggshell.>So, what went wrong? Where did this come from?>You know, I was… one reason that I wrote the book is so that I could both understand the interjecting question and explain it to other people. And something shifted in this nation in 2001, and the best visualisation is that it’s as though there was this link between a spinning policy and tax policy in United States. You can think about it as a change linker or rope. And they were… It became a little bit more fragile and a little bit more brittle, because of the budget practices that I mentioned and answered to the last and then elaborate more as we go budget planning, use of trust funds to fund comprehensive, explicit authorisation of debt *inaudible* composite, those kind of things. Those things clearly had, those who had wrote… and so, when you have this so-called, you know, conservative republican saying that, it was better to pay for spitting with death than taxes in 2001. Then tax policy and the spending policy. Ever since that it’s, you know, there’s been a separate tax and spending policy, which are by and large unrelated to each other. And in the past, your spending policy had to be related to tax policy. In fact I’m going to say, never in American History have people enjoyed paying taxes. Never. In the principle of a balanced budget force people to link the benefit gain from a government programme or war with the cost of that. And when you separate that link, you really, you deprive voters of an important piece of information about the real cost of government. Because all that does is to disguise that cause.>So, you locate the break-in tradition very clearly. In 2001, very much associated with the presidency of your neighbour and friend from Texas, President Bush. Let me push back on that for seconds. So, there’s a counter argument that goes something like you know, you…the…the federal government hasn’t had three years in a row of surplus budget since the Great Depression. Just that the 1920’s was the last time we had three in a row. So for the last 80 years, there’s been a fund…a structural change of the nature of government. In terms of the National Security umbrella having, you know, we are no longer and isolation, this nation, we have a permanent military that is deployed internationally, in a way it was not true before 1940s. And the federal government has assumed responsibility for a whole series of social and domestic tasks which were not the case before that you can enumerate life from health care more recently to subsidised, jeopardized housing to transportation so that the federal funds…deficit has become a structural part of government. There’s been a change in the nature of government in the last 80 years. And that will locate, the breaking tradition at a much earlier time and make it not something political, but something structural.>Yeah… Well, I think that’s a reasonable hypothesis, I *inaudible* saw one of the test *inaudible* And what I found was that, during the 16 years of the Great Depression, in World War II, people were acutely aware of the extraordinary nature of the borrowing and the need to end it immediately after the depression was over and World War II was over. And to minimise the use of that, while those emergencies were going on, so for example, at the height of World War II, we are financing the same percentage of that entire effort and the rest of the government with taxes as we did the Federal Government in 2010, and of course in 2010 we were borrowing the same percentage of federal budget as we were at the very height of World War II which is the most massive undertaken any nation has ever occurred…has ever undertaken in a relation to our nations undertaken and its relationship towards GP. Immediately after wars, there was a bipartisan consensus that was so strong that it was part…you didn’t even have to articulate it, which is we’re going to go cold turkey and just balance the budget immediately and start paying down this debt from the last 16 years. And roughly, for the next 20 years. They weren’t able to pay down the debt, and by the way, surplus have never been a part of the American tra…fiscal tradition, it’s always been the aspiration about, sometimes, you know, they missed it, but at least that was the aspiration. For the next 20 years, that hardly moved in United States. And the parents of the Baby Boom generation, which were born between ’45 and ’65, staggered under high tax rates because they knew that they had to be able to balance the budget in order to fund this global security overall. Then you had the war in Vietnam and severe recession of some reform that sort a couch of much much of the debts until the 1980s and you get to the Reagan administration. Well, my hypothesis, Roberto, was, I perceive this, maybe this is where the link between spending and tax policies broke. But then, this is what I found. In 1981, I mean, it was like some conspiracy but most of the Democrats in congress and the Republicans in congress, congressional-funded office, and the consensus forecasters thought that the big Reagan in tax cuts and the increase in the defense spending would not result in the size of deficits. They actually thought that. Why did they think that? They thought it because inflation had been at a, you know, a record-level in the United States. You’re dealing with 1% rise in prices of market. And they assumed that that might slow down but not a whole lot cause almost nothing have been able to slow it down so far. And that would push people in the higher, higher, tax brackets. So, they’re being brought up the race down but the inflation would push people on higher higher. So it’s hard to say. I mean, you know, it was due to the economics, but especially in the benefit of *inaudible*, it was in the benefit of hindsight. At the time, it didn’t look… and what was the reaction to it? The reaction to it was, I mean, within the Reagan White House and certainly among leaders and congressmen of parties, “Oh, my God! Look at this debt. What are we going to do about this? This is terrible.” And Reagan, two years into his presidency, propose a stand-by tax to be imposed after they *inaudible* deficit. There was a large tax increase to reduce the deficit. So this is… in 1988, there was legislation enacted, that bipartisan in congress for other Reagan administration decree a prescription drug benefit under Medicare, that was paid for by the increase in the taxes paid by high income seniors and where there was a rebellion in the ranks of seniors against that tax. It was repealed and so were their benefits, nobody ever considered, “Hey, why don’t we do what they did in 2003? Let’s pass the benefit but not the taxes.” So, that’s why I said, in 2001, using the *inaudible*, you know, the break. And as you recall Mr. Perot came along in 1992, and when fellow leaders have not been able to do what they say they aspire to do, *inaudible* and said that he could do without breaking a sweat. And within 6-7 weeks he was in the lead in the presidential race in May, including the lead in California. So the American physical tradition was pretty strong.> Let me ask one last question about the book, so you offer a series of descriptions at the end of the book, instead of budgetary practices and larger fiscal policies, they’re mostly directed at keeping, preserving something like fiscal balance. The way I like in your prescription to pay something who’s morbidly obese, just be a federal government now and saying all right, what after you lose 200 pounds, this is how you can stay fit. Everybody agrees you got to lose 200 pounds. How do you get from here to the point where you can those practices in place? When you got to reduce the deficit by six… by you prescription, six, seven, eight, nine percent of GEP, get, you know, within striking distance of balance is it… How much do you raise taxes? What do you cut in spending? Or is there something else?>Well, I think some of the percent *inaudible* numbers in GEP. But here, imagine this, imagine this. And this could be a Democratic president, It could be a Republican president giving the State of the Union address. Probably be the most powerful for a Democratic president. So, and they would use different words to describe the same thing. But let me tell you, what a Democratic president would say. A democratic… let me just say, how a Republican announce speaker how that house speaker has son. A democratic President would say, “Hey, you know, we have 75 million baby boomers that are becoming eligible for Medicare. It is that, we used to have a warehouse our older Americans and port houses. We’ve got a dramatic increase in the male life expectancy, since Medicare was implemented any life expectancy across the border particularly for males. This has been a good thing aside from benefits for seniors but *inaudible* protected family against *inaudible*. But we must pay for this with taxes. Because we’re getting older and it’s wrong to sell the next generation. They’ll have a…we’ll have a 3.000 people over 85 in 2030 as we head into 2010. So, why give that group… the bill for today’s medical bills? So, let’s do this. As president, “Congress, you figure what the level of Medicare services is and what level of taxes should be put aside and taken out of the budget, and put in a dedicated fund to pay for it. And I will Vito and find anything that uses a dime of debt to pay for Medicare.” Now you can say, “Congress, you fight it out. We can have…”, you know, we can say, “We’re going to take joint replacements off of Medicare.”, something like that, you can reduce services. Or you can fund our current level of services, but you got to tax people to do it. So, we know there’s cost. And I think this will sustain Medicare. I think the American people would understand what he’s talking about. I do. And the conservative would say, “You know, we’ve been saying all along there would be a time… of course the president wants to do it all with taxes. We think it ought to be… you know, you can do it with reforms in the system without rated taxes. “Okay, let’s see what you can do. Let’s see…show how you’re gonna do that.” And I think they’d get weak in the knees because they can’t cut Medicare by 40% which would take them very down to the level of payroll taxes. They can’t do that and they pretty much say they won’t do that. *inaudible* I think that would put it… That would take about 2% of GDP out of that debt and do more than anything else.>So that’s actually interesting because I’m not convinced… because I think they have, some of them had that kind of a conversation about taxes and needing to use taxes to pay for services. The thing I’m worried about, and I’m curious is, actually I’m going to say two things and I want to ask you about the second. One is, your observation about the dealing thing of fiscal decisions, tax policy, from the services that are received. That’s been gone under 15 years. I think it’s still fairly strong among American public and I think that part of that message is got to be something to the effect of you… when you see road ‘X’, you pay for the tax line. When you saw the lights on that was paid and part of the challenge, I think, would be to re-establish the contract that you’ve been talking about conceptually before we can do it operationally. Which leads to the next question, so… you’ve been to Washington. You came to Washington from the brighter sector, for the most part. What kind of leadership do you think is needed, you know that people complain about leadership all the time. And what you saw in Washington, your experiences, and what made the most effective leaders? What kind of communication? What kind of moulds did you have to have in order to be persuasive on these things?>Well, it depends on a lot of… Let me just make quick response to your initial comment. That one I said, I was talking about the all things that we hear right now about taxes… “They just want to raise taxes” and… and the Democrats saying, “They just want to cut spending for problems of sustaining people.” Now I’m saying that, if you have the President set aside, I’m going to impose spending a dime more on Medicare than the taxes that the elected representatives of the American people are willing to impose this *inaudible*. You’d pick up some people who would not call themselves a liberal. You would. Period. And you might even have a cutback in Medicare benefits until the next election. Nothing… Seriously, you would. You could.>You might. Yeah, you might. I mean, at ERP, I’m guessing it would be a pretty actively and vigorously getting that budget for you to call in.>Yeah, well, you don’t know, yeah, I mean, that well…that mean that they may not get it through congress but what I’m saying is…how do I say it…I think It could be more likely raised at in, and the…whether it got through congress or not that president, be it Democrat or Republican, would reposition himself in the way that presidents have usually done of being a symbol of authority for common sense. They don’t use that very *inaudible* but *inaudible* but in answer to the question about the leadership. It depends on where our local government will be working at, you’re working hard and so, there’s very, you know, skills that require what we lack too much of, and government uses this an excuse, remember this is something you’re working on, is let me *inaudible* a bit. One of the reasons that Americans are so skeptical of the effectiveness of government is that you have many people in senior positions that never in their life effectively managed or controlled possession. And so, you know…you know, my strength, as a mayor, was that I don’t have to manage larger requisitions. And so, You know, I did a lot of controversial things, but I would really like to buy an average 88% of the vote. And one of the reasons is that people are shocked there’s somebody who’s actually managing, sitting there. I mean, they could actually see change with their eyes while it’s happening in front of them. And so, that sort of.. and we refer it as a management. And we did far-reaching public comply pension reforms before. The issue with all the national registry. And I explained to the people that we are all pay people more at work *inaudible*. And people got that. And so I would say for those who are interested in students of public policy or public affairs or public council man, I say, make sure you have a specialised skill or knowledge or something, whether it be finance, accounting, and your housing, know the economics of housing. That is, go work for a home builder and an apartment builder for a while. Or doing a real quick study and have people… Surround yourself who do, and who have been there and done that. And…then finally, the average turnover on a presidential apointee like you was in the 1990…from the 1990s on back, 30 years apart. I’m not current on this. There was 2.5 years. Well, if you have a turnover every 2.5 years, you’re not going to be able to manage very effectively in an organisation, but that’s what we have in the federal government.>It’s actually less than that now.>Yep.>Somewhere between 18 and 24 months today. I’m…hearing you talk about management, it’s music to my ears, cause that’s what we do. But I’m curious as to if you had to give advice on the 3 things, the 2 or 3 things, as an executive or a leader, you needed to do the manage effectively. What would you say those are when you start thinking about this? What’s your approach?>You need to understand the skill and the confidence of the people who were signcast and somehow, Taylor asks if those skills were competences and if there are stuff leftover that can’t get done when they do that, fire somebody, replace him with somebody else or hire somebody. You need to clearly define the task that needs to be done, by how it is to be done, but what needs to be done and why. Good management often consists of empowering people which requires you to explain, very exclusively, why. As… something should be done, and giving people the flexibility. And then on top the third pillar, is accountability. And there’s no regular accountability to empirical accountability, so that required they can be done within a flower organisation, where you can have accountability for other people. And if I was there, one of the thing is, when you’re going to pick people from these slots, do it based on their competences and the bill that you work with a team and try to find the very best person you can, not just the person who is most convenient. Those…what I just articulated, you can find in private sector management courses, but if you want to see somebody who did…are good example of how it applies to public leadership? There’s a small book called “Winston Churchill’s Wartime Leadership” by Martin Gilbert. And the guy was eccentric and he was, you know, not everybody’s cup of tea. But there are a couple of years there. In 1940, especially the 1940 and 1942, folks. *inaudible* were the man who was hitting on all cylinders. Clear delegations, recruiting good people, holding people accountable, and it was wonderful to be old.> You want to tell us over again? I want to write it down.> See, if we use… I should say it was my book. But it was Martin Gilbert, so it’s about 120 pages. It’s called “Winston Churchill’s Wartime Leadership.” And in addition to the four things that I mentioned, he adds that, a good leader clearly and repeatedly articulates the common goal. But, why I didn’t lead with that, is people think that leadership consists of giving a speech are clearly articulating a direction. That’s a nonsense. That’s just one of the elements of leadership. Clearly defining the tasks, and to be able to clearly define the tasks, this is a big flaw in government. Warren Churchill was able to clearly define the tasks, Jack Welch was able to clearly define the tasks at GE, Steve Job was able to clearly define the task at Apple… He knew what he was doing. And Churchill had just spent 40 years of his adult life in government. So he knew, basically, the business of government. That’s what he was able to do – clearly define the task.>So, I want to now go to one of your biggest management successes, as long as you’ve gotten…you received national acclaim *inaudible* which was, Katrina, and the response. So, tell us about how that went down. Did President Bush call you and say, “We’re sending a bunch of people to Houston, figure something out”? I mean, because it was a crisis mode. Tell us a little bit about the evolution to your taking on that important task.>Well, I don’t know what to say. There’s a little bit of narrative within my own community and within New Orleans about, you know, opening the doors to over 200,000. Here’s what really happened. Which is, in a sense, that’s a metaphor but what happened and it has to do with some of the things that we were talking about, a little earlier, *inaudible*. He has a… As you recall, the Hurricane hit, Katrina hit on Sunday night, and the mandatory evacuation order haven’t come out…didn’t come out until Saturday. Now, most of the people had evacuated by the time of the hurricane. And they evacuated by getting in their cars and driving to the biggest city near. So, motels rooms, relatives, churches, et cetera were full. There were some people who didn’t get out, particularly those people who relied on mass transit. And then, you know, the President was saying everything wasn’t okay. But on Monday…that Monday morning and so were the network, by the way. And on that Monday morning, I talked to the guys at the old companies and facilities they said that they *inaudible* And thus because of that, because of that risk, I prepositioned fire-fighters outside of New Orleans for rescue because I knew that that was a possibility. And then, we got the next 24 hours, 36 hours, you know, I tried to get the best people I could find, organisers say this is going to change our city, if the luggage were breached. Then it’s going to be *inaudible* electrical power system in New Orleans is going to be un-happen-able, we’re going to have a couple of hundred thousand people coming, and so there’s to prepare for. And to do that, who would you call? I mean, I called the bishops of all the consecration, the head of many churches, synagogues, mosques, temples, the head of the CEO of Walmart asked for it’s logistic teams, the CEOs of the pharmacies, so we can have pharmacies set up where people got out of buses and searched because many wouldn’t leave it out the prescriptions so we had to do paying for the due, and etc. So, you got 25 heads of those corporations, and say, we may need several hundreds of people from your corporations. And then for the…the great thing was the faith community because you can say, “Yeah, we need about 80,000 volunteers and several tens of thousands are gonna have to be skilled.” So like, trucking, warehouse management, find them in their car of garrison, now is the time for you whenever, whatever your faith or tradition, to live your faith. And then that’s it.>So, in terms of trade of work, what was the thing that surprised you the most?>This is not… Well guys, I’ll tell you a story about one of the most memorable things. This is something I had not thought about that dawned on me. When we were about four weeks into it… When I was a mayor… You know, I used to teach in my church before I became mayor. But boy, did I… I mean I got my share of churches when I was a mayor. And usually, at least once sometimes too, Sunday morning, and most of them were, they were not my Churches in my neighbourhood, and, after all, you know, people in the Church. But, there is this older African-American woman who just gone to the service of our church and she came up after me and she says, “You know, a couple of years ago I had a little problem with my heart, but I’m so glad that I stayed alive to… you know… the last two years… this has been unbelievable. I’m so glad to have stayed lived to Katrina.” And I said,”Why is that?” I mean, you know, she said, “Well, look. I know that…that what Dr. King did in the civil rights act and all that. But I never thought that in my lifetime or my children’s lifetime, I would be…see people change attitudes. You can… It’s easy to change the law but you can’t change an attitude.” And when I said, I mean there were ten… there were tens of thousands of people who were living in private homes from a much *inaudible* African Americans letting their homes of different faiths and different backgrounds. People, you know, were taking great joy in the fact that they were getting all sorts of refuge. And she says, “You know, the people on the TV are saying that it’s all about…you know… the depiction of blacks. But here, in these senses, it’s about helping people. And I never thought I would live to see that day.” And that is the… It really changed our community because it changed the perception of our ethnic relations within the community when that happened. I mean, there’s… You can talk all you can to remind people about believing in this or that. But when somebody says, ‘”Hey, I have a spare bedroom in my house, and I see these images on TVs that feature looners. Man, I’m going to take somebody in. Most people are law-abiding, I mean, there are more victims in New Orleans than there are perpetrators. And I’m going to take somebody, put them in a bedroom in my house until they can find an apartment. And feed him.” Hey, that’s action.>It’s a very inspiring work that was done in Katrina. And actually, the work still continues today, and a lot of people… who moved to Houston are still there. And I’m calling that home. While staying on Houston, it is a centre of oil production and energy. The United States is going through a pretty dramatic change in terms of it’s production of energy. What are your thoughts on that? Do you feel like…first, do you feel that we are seeing a fundamental change in energy policy and production for the country? And do you think we are approaching this with the appropriate balance from an environmental perspective? Lots of concerns here in California, lots of *inaudible* under this city that people are starting to extract…There’s a lot of concerns being raised about do we have the same *inaudible* place to make sure people are protected as we move forward?>First, I’d say that I’m sort of… This is one individual, a little bit disappointed that the signs of climate changes has been so politicized. We have… In the last presidential campaign, a major party nominee… You know, their ride of concern… It was a laughing line at one of the conventions where a Republican went around and talked about, you know, people being worried about rising ocean levels. Well, you know, if the ocean levels are going to rise, it’s a pretty good thing to be worried about, if you ask me. And so, I think it’s legitimate concern. And there’s three things that the United States need to do is that…One is use less fuel for the air *inaudible*. The second is use less energy for *inaudible* occupied and the third is the substitute natural gas for *inaudible* for coal. If you do those three things, you’ll reduce your carbon emission. If you don’t, you won’t. That’s as simple as that. The natural gas production has contributed and It is largely responsible for the fact that the United States has now reduced *inaudible* gas emissions to a level below the level that were scheduled that Waxman-Markey set for 2020, using the same measures of the Waxman-Markey Bill data. So that has been good. Next point is, do we need to do more to reduce carbon emission? Yes. I’ve been finding 3 strategies do it. And then finally, some of the dangers of…of breaking of the keystone pipeline have been exaggerated by people who have another agenda. And…I mean, I’m on… I’m an environmentalist, I sued refineries and petrochemical firms in Houston, which dramatically reduced emissions. The city of Houston grew faster than LA when I was mayor and we cut the energy consumption of city by 7% when I was the mayor. And we were the… We were far larger purchaser of renewable energy in the city of Houston when I was mayor than LA or San Francisco or any other big cities or state or federal agencies in the United States. But you know, I was like, it’s a whole lot safer to have transportable pipeline *inaudible* *inaudible* That is a fact.>Do you have any concerns? We should definitely give some…>You want to have good strict regulations of *inaudible* and those, by large, exhibits… In the viral hearts of the industry…I know this. The industry…anything that you would do to allow… It is in no one’s interest that somehow water move through concrete and steel into a well, nobody’s interest that that happen. And that’s not how all wells are built. I mean, you can’t have stuff going up through several thousand feet of rock into water. It is physically impossible to do, you know. Actually so you have to have a well that was very *inaudible*> We are going to open it up in a minute. So I hope you guys are forming your questions. I wanted to ask sort of a future-looking question. So, 2016, the spouse of your former boss in Washington has announced… Do you have thoughts on should she will she and… What do you think her prospects would be?>Well, you know, I’m not going to do… I’m not that. There is probably better handicappers than me. One thing I do know is that almost all productions about presidential election 2 years out or the last 30 years ago have all… you know And…>You want to add you to the list. I want you to be the exception.>And… Yeah. And I would say that there is a consensus of a lot of people within her party that she would be a very formidable candidate and moreover, I would say that one of her weaknesses… there is a secrecy of politics and when president Obama, then, senator Obama ran… he would always say, It’s time for the United States to turn the page. And by that, he meant that I’m not going to tell you how *inaudible* mine, but I can’t talk to a speech writers or pollsters. And by that he meant, you know, we’re not that nasty politics and we don’t need any more Bushes or Clintons. Okay. He didn’t have to say it in a mean, hard way, but he meant… that it’s time for this country to turn the page. I think… I think… static leadership is something that people want and….I think more experienced candidates will have a little leg out. It’s a democratic, and I think from the republican side, I think that, keep an eye on the…the Republicans will nominate an outsider or someone who positions themselves as an outsider. Somebody like Rand Paul. Whoever isn’t able to get that populist backlash… Yeah, and the Republican.>Thank you, Mayor. Are you an advocate for a balanced *inaudible*>No, and I sort of thought about it… But the reason is that… One thing I’ve backtested… What would have happened in American history? How would these things have turned out? And I have a little bit of that in the book. I cut out, but mostly it was a…most formulations of *inaudible* amendment have sort of an out for emergencies and the way they do it is requiring a super majority vote. But when you think about it, when you think about it, requiring a super majority vote may actually increase the deficit. If you have a one group of people who won’t vote for a budget without any deficit, unless there’s a lower resignation, and another who won’t do it unless there’s a higher spending. Then you may end up with a bigger deficit. Frankly, I find that anything like the Southern block, the *inaudible* They would use other things as bargaining chips to get what…what they wanted. So, merely saying, we’re going to make it so you’ve got to have a super majority of votes in order to do it in emergencies, would get a minority extraordinarily powerful. I would much rather have good congressional procedures and processes, because you are going to have to have those anyway. You can’t have a constitutional member.. I mean, it’s not the sales or *inaudible*.>So, in-debt is ultimately a moral question with these inter-generational obligations. How do you grapple with other moral questions, with regards to spending on things like foreign aid? I know that’s an easy target often for people saying, “Foreign aid? Yeah, we’re doing hospitable acts but do you remember the problems here at home?” I find those questions to be similar although… since they happen right now… It’s a question about inter-generational dealing with heres and nows, how do you grapple moral questions like that?>Yes. And…and you know, and more questions of what if they cut this or what if they cut that, you know? So, the way I look at it is…the people who are appointed the leaders should have the burden of explaining to the American public why something is worthwhile. If you do that, it strengthens our constituency. If you don’t do that, it won’t be strong. And if the people don’t want to do it, and you can’t get the consensus to pay the taxes, that are already a majority… vote on how to *inaudible* the taxes. They shouldn’t do it. And you can say, “Well, you’re my adversary, with the outcome.” Well, we do live in a democracy, after all. And one person’s opinion shouldn’t trouble somebody else. What people hear is the use of debt… that I say… Well listen. If we have to pay a tax for that, people would never agree to do that. But I highly doubt many would notice. That to me, is not good governance. And I’ll tell you what. In the 1940s and the 1950s… 15 years under World War II, we had enormous continual national value about international assistance to allies and Germany was *inaudible* It was *inaudible* it was a constant battle because *inaudible* World War II, Americans say if you are *inaudible* But, public leaders have to go out and explain to people why this was in our interest. That’s going to be a little process.>One of the things that I think is interesting with your *inaudible* process of basically sanction through because I think that lead to more of this…deficit watching. Those period of time inside *inaudible* were often periods of economic expansion. So, why is it that…was it just serendipity that this economic periods of expansion were tied to people wanting to cut the debt or was it more that it is politically viable and they seized the opportunity like you said.>This is a very broad statement. But I am un-persuaded by the economic evidence that, you know, that 0, 1 , 2 , 3, 4% GDP, or surplus of 1, 2 % of GDP. *inaudible* it’s a really long term, determinant of economic growth period in the story. And “inaudible” tend to exaggerate the significance of that because of horse. That’s why we can’t get the truth. I mean… Here’s what determine economic growth. Growth in working age population. Growth in working times, the person into those seeking work, times, employment. The tough times, you know, the person which is unemployed. And then… Plus, the growth in that year, plus, the growth of productivity in *inaudible*. When you have a growing workforce that has grown productivity, you should have a growing economy. And…and the important lesson for today is, that because of the, you know, it’s even more of a problem in Europe and in Japan. It’s much more of a problem. But if you have a flat no growth in the working age population seeking work, if you have that… Then if you are increasing debt, those people are going to have a harder and harder *inaudible* of solving those debt. That’s what happens in the Mediterranean realm right now. That should be a warning to us. It also should be…a signal…these things are related. A heavily-indebted nation should want to grow and it’s not…don’t have any good and ageing population on the go. So it is economically rational for us to have an immigration policy that increases the size of the workforce of our country. This is a matter of man. It’s obvious.
>I’m going to jump in. *inaudible* Then why do places grow? Because I do think that you got to the productivity for workers which is extremely important. The reason why I think the economists are concerned in terms of government debt is because you become more productive when you find ways to produce some things, to do business and produce, that requires investment. And if you have to pay your debt, then you can’t use that money to invest. There’s a link between your ability to invest… I just talked to someone yesterday how we as a country have.. To a large extent, withdrawn from doing basic research, which drives things like, the Internet, the microwave, you know, all these things that we now use are action and products of it. If the government is focused on other things, it can’t facilitate those, and that’s an important piece. I agree with that immigration thing. I think that we… Everybody should for two reasons. One part of immigration discussion is one that we talk about too much in life, which is, what is going on at the border. The other one is what happens to all those skills that immigrants have, that now no longer have places to be except for the fact that they’re there. And we’re training our own *inaudible* in a way that I think it doesn’t serve us in a long term.>*inaudible* cleaned administration in the 1980s they hadn’t served us but there was still a huge government debt and as soon as the successor came along we quickly put it past that and got rid of the surplus and I think is that possibly the problem is that Americans aren’t accustomed to having *inaudible* of surplus who paid off the Clinton. But the surplus is supposed to pay off the debt.>Yeah, I mean, now really, to tell you the truth…there’s nothing like…the lesson you can derive from history is that you don’t know how people are going to react to the surplus and people generally don’t like it, you know. And if you’re going to use surplus to pay off debt, *inaudible* urge somebody *inaudible*, Hey, listen. We need to run surpluses now because when people’s memory of the war and the cost of that war are fresh, we get hit with, “Hey, we’ve got to finish the job. You have your father, your son and your grandfather killed in a battle to preserve this country. We’ve got to preserve this country’s policy too. We’ve got to finish the job that…” I’m paying down to that. But, in general, people don’t like surpluses. They’re going to want to find a way to spend it or *inaudible*. >Good day, gentleman. I have heard Dr. Bostic speak on several occasions… At the size of the concept of imbalance. My question is there are two national imbalances in my mind right now. There’s a national debt that’s endemic and there’s the greater income disparity that’s also a problem. How do you reconcile those two *inaudible* Are there information in here? I hope that’s not too broad of a question. No, it’s not a broad question, it’s a great question. And the answer I would give you is no. That there’s no connection. And the reason I say that, I *inaudible* say that so *inaudible* Is that…well, look here, can I take, like, in 2007, you vote Democrats, and Democrats were even more worried about the deficit than the Republicans. And today, it’s the opposite. And why? Can you guess? They will identify with George W. Bush, and of course, Democrats will identify with Barrack Obama. Does that change whether they does bad or good? No. So how is… I’ve been thinking, if anything if anything significant government borrowed year-to-year to pay for only one operating expenses, I think contributes to income disparity. And, what it does is that it absorbs savings and watch while things happen is that people who can make money from investments are doing better and better. And when you look at what’s happened to ASA. Beijing, did this for one reason, 2007 to now, and you’ve seen such a widening disparity in income, because people who have money, they think they can borrow money at low interest rates and then invest it, get it spread, then that’s great. You’re in great shape. If you don’t have money to invest, you’re in poor shape. But by large, the two are not related. Well, one of the argument you might say is that we have to invest in infrastructure and education. The closing opportunity. Yeah. I agree. This isn’t almost *inaudible* I said *inaudible* If you’re going to do it every year…if you’re going to do it every year, why borrow? And take money that can be used in the future if you want. With interest.>Look at the…the *inaudible*now on sale out at the balcony. is…is worth the price solely for the tables and the *inaudible* seats and incredible apple-to-apple comparisons of federal spending in the economy which are…which are pulliing back over 200 years of *inaudible* One of the very compelling illustrations you have is looking at *inaudible* where spending start from 2000 when the economy was at its peak of the last… rate cycle and the budget rate in surplus. And…you can see the widening gap of spending and revenues. In the early 2000s, it starts to narrow, between 2005 and 2006. When after the recession of 2001, when business cycle was peaking up. And you see that *inaudible*, but then comes crashing up in 2007 as did all of human life and the world as we know it. And… And I know seven years later, that it is not going back any time soon. So, my question is, how much of this phenomenon really… How much of it is cyclical? I mean, how much would you, I mean, we’re talking about an extreme situation, in part, because the machine work as it has in the past. That in a down cycle, the gap between the spending and the revenue increase. It’s a purely cyclical effect, right? Not political, not structural. It happens every other time since 1793, all right? We “inaudible” a very bizarre circumstance now where we’re seven years out, into a business cycle, that people are now saying, “Well, you have another year to run.” You know, and for most people, they never saw this…understand which outside you’re talking about. In the federal government didn’t see enough something… so what … how much of the effect is cyclical and what happens if in fact predictions are running that we got two years to run before there is another major correction?>Well, great question and… Let me suggest that the comments by… You know, and I like economics. I read economic articles written by economists, now I’m going to say something that I …>Go ahead.>But there is something where… If you… You look from the top down. You don’t look from the bottom up. First of all, the recession, the downturn that happened in 2001 was not that severe. They were not that severe. Since the 19th since about World War I, there has been this…this…there’s been a, with a positive… except for 1954 or 1949, there has been a lag between recovery of national income and job growth. And it just got worse and worse with the specialization in the economy. It’s related to your issue. Yeah, *inaudible*, labor, birth, prosperity. *inaudible* And today, now here’s a direct answer question. 2014, national income is at an all time high. We are borrowing 30 cents out of every dollar in the federal… That’s the federal budget apart from things fully funded by trust funds. Okay? So why does this cyclical effect… Now, here’s from the bottoms up. The bottoms up is in the next five or six years, interest rates, according to CBO, the interest expense of federal government is projected more than double. You know, eight or nine years, it is triple, almost triple. Within seven or eight years, a total interest expense on federal debt will be equal to the total revenues from the personal income tax in 2010. Medicare, the number of all the Americans on Medicare is going up at very rapid range. And even if we keep, as we have in the last couple of years, the increase in per capita spending on Medicare at an all-time low rate. They are almost all-time low rate. The absolute spending on Medicare is going to grow faster than the economy as a whole. So, you have both interest expense. So, Roberto, one way to say the problem is now, we have two huge categories of federal expense that are going much faster than national income, while we have, basically, the Democratic Party and dollars and cents… not rhetorical about, you know, all computed tax rates and all that, but… on the dollars and cents stuff, the Democratic Party has accomplished what President Obama set forth on 2008 as his tax agenda. And we still had this discrepancy of reference. So if you have Republicans saying no taxes, the democrats say we’ve already accomplished our tax agenda. And we have two used categories of spending going on faster than national income. You’re going to have a real big gap, that’s where we are now. That’s my two-bit. This is not a cyclical phenomenon. It is… it’s something.>So, just to recap the great news here. That means, if all of a sudden we have a big uptake, we bring the unemployment down by 5%, and you add another couple of points to GDP growth . You don’t solve a problem but on the other hand, you get an downside roll at this point it just…it just balloons. I mean, it goes…out of sight.>And the…the message shouldn’t be the shell, you know, your stocks in buying gold, and… It shouldn’t be that, you know, the world is going to collapse, I mean, we’re still on the dollar. It’s still, you know, terrible currency, except for the Malaysian tip and the other ones. And so, you know…but it is to say that the number one consequence. One consequence will be, the practical consequences you’ll see is there’s gonna be this recurrent debate about the funding of a global security empire. Does the American public, especially after Iraq and Afghanistan are more isolationists than the elite internationalists, elites… any apart. There are more isolationists than I am, I would say that. The American public, in terms of what they’re willing to do right now abroad. But we have an international security on patrol that is more *inaudible* and *inaudible* to consensus. So there’s going to be pressure on pinning down budget. The other thing that’s going to occur is… In the next national security or economic *inaudible* downturns are, we will have your policy letters to exercise without greatly increasing the cost. Because what’s interest starts compounding… I mean, it’s been compounding since 2006. But at a certain rate, compound interest accelerates overtime, that’s why cancer are nuclear pistols, and there is a certain point where it gets ahead of you, you cannot keep up.>How do you see the future of implementing like actually solar and wind, in the expansion of natural gas?>You know, when prices and come then. So, with the tax first… I mean, you know, there is…look, I’m for it. I’m for it. I’m not against it. Somebody says that when you, you know, we don’t give renewable tax right and you get tax *inaudible*, and that’s nonsense.The New York *inaudible* is not telling the truth. We subsidize *inaudible* We ought to. And, but wind is really ’cause for good. The problem with wind is it’s… it doesn’t blow, you know, more than 17 hours an average in a lot of places. And where it does…there is transmission constraints and if you build that over the cost …that…it brings it up a little and it’s still going pretty strong. I mean, people don’t use electricity based on how the wind’s blowing in North Dakota for our taxes so, yeah, we have to supplement with some other things. But we’re…its picking up speed and now it’s working on all except…. Solar, is more economical than *inaudible*. And so, but there are limits and still high-cost-competitive to others…to some other things that still requires some necessities but I think you’re going to see more and more retail solars. Each of these solar I think is probably… As a progressive person, I believe in sustainable, affordable, secured energy supply. And some who are in the environmental movement, do not put the same value on affordability as I do. And maybe it’s just where I grew up, but people struggling to get by, if you increase your utility bills, or if you try to disguise some of the cost through subsidies. And you’re the one who hasn’t got money, so you subsidize something, then that means you are paying for people who have less money for basic research or higher education or something else. And people who says this is all win-win, they won’t ever… I mean, a subsidy has to be paid by somebody. It’s not the government.>Sorry you hadn’t had any help with that. Thank you so much. I heard much about you, I really enjoyed your conversation. I actually had, there was…there was a lot that was very interesting, I have four particular ways, all concerned with the Leonard EE. The first is on energy and this idea that, we are going through a transformation. It’s interesting that in California you don’t hear people talk this much about the probability of disaster for some of these new technologies, and I thought this was interesting there. The second point which is in your book, you said, and you talked about here, which is really interesting is this notion that the equivalents, or the non equivalents of paying for services with debt versus taxes. And you know that, that was hard for a lot of…an economic theory which says, you invest in that with your debt, it doesn’t matter. Here, you’re saying the public sector, it does and it should. We need to think how we make that happen more. A third is an explicit link between cost and services. It’s what is the public sector and when do we get from it, and that conversation has changed significantly. And then on the management, which I think is the huge thing right here. There were actually two…its is, one is, leadership is about explaining the what and the why, the why is perhaps more important. But also, the notion that you need expertise, that allows you to evaluate the task to be done. And then, when you have the skills and your staff to do them. That’s management. That’s talent. And doing that well can help move us forward. You showed us a lot today and it’s been really exciting. We do have a book-signing, so they will be here for a little while if you want to pick up the book. Roberto, do you have any last words you wanted to say?>No, just thank you very much for the visit. It’s been a pleasure.>Thank you.>So please join me.

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