Steve:	Thank you all for coming. It's good to see students here as well as members from the community. We have a really exciting event for you tonight on a very important topic and also one with a very strong Swarthmore component. This is our annual lecture in honor of Frank Pierson so it's not really a lecture. We're getting three for one. It's a debate. It's a lecture in honor of Frank Pierson who was a longstanding member of the economics department. Frank was also a student at Swarthmore. He graduated from Swarthmore in 1934 with highest honors and he also won the Ivy Award, which is given each year for the most outstanding male student in the graduating class. He was also captain of the soccer team so he was a well-rounded student. 
	After getting his PhD from Columbia University he taught at Swarthmore for a year, went to California, and then came back to Swarthmore and he taught here for nearly 40 years. He was chairman of the department for some 20 years until his retirement in 1979. Frank wrote a number of books about labor economics and also worked as a labor arbitrator. He wrote a famous book about business schools called The Education of the American Businessman. He was very involved in and interested in economic policy. Above all though, Frank Pierson was a teacher who cared deeply about his students. He taught his seminars at his house.
	I arrived at Swarthmore in 1981, a couple of years after he retired and Frank and his wife, Rita, they were really a team together and they were still working with Swarthmore students. In those days professors taught seminars in the house and really were very engaged with students, which I think is a tradition, which really continues with Swarthmore. Most of don't do it in the house, but we try to keep up the tradition of close contact with students that I think was really the epitome of Frank's teaching. So I got to know him a little bit and got a little bit of a sense of who he was. Just really a wonderful man and his wife, Rita, as well. Just very kind and gentle people, not at all pretentious despite his high accomplishments. Along with Clair Wilcox I think Frank Pierson, more than anybody else, was responsible for helping the Swarthmore Economics Department what it is today and has been over the last 50 years.
	I also want to recognize his two sons, Frank Jr. and John in the audience here. They frequently come for this lecture and it's really fantastic to have you [inaudible 00:02:50]. Whoops. So thank you very much for coming for this. All right, just let me now turn to our panelists. I'm not going to do full justice to their accomplishments. All three of them are very distinguished, but you want to hear them talk rather than me. But let me just say a few things. 
	First of all, the man closest to me is Mike Meeropole. He graduated from Swarthmore in 1964 and we really owe this debate to him. It was really his idea. He came to us and said, "I know these two guys, they come from different viewpoints. They're both pretty reasonable people though and could probably have a civil debate without getting into too much of a fistfight or anything like that." So he proposed this and really organized it. We're very indebted to him. He's also a distinguished economist. He's Professor Emeritus at Western New England University and currently visiting professor of Economics and Interdisciplinary Studies at the John Jay College of Criminal Justice. 
	He's the author of Surrender: How the Clinton Administration Completed the Reagan Revolution. He's going to be the mediator, but I get the sense he's got some opinions of his own on these topics. But in Swarthmore tradition he will be a fair mediator. In addition to his writing on economics he has co-authored with his brother Robert, We are Your Sons: The Legacy of Ethel and Julius Rosenberg and has edited The Rosenberg Letters: A Complete Prison Correspondence of Julius and Ethel Rosenberg. So yes, he is the son of Julius and Ethel Rosenberg in addition to being a well-known economist. 
	Let me turn to our two panelists. First of all, on the left we have Dean Baker, not too far left though.
Gene Steuerle:	He's in the middle right now.
Dean Baker:	I'm in the middle.
Mike Meeropole:	Our left.
Steve:	On my left. He also graduated from Swarthmore College in 1981. He was history major not an econ major. You could do that back then I guess. Nowadays you have to like his co-debator, who's a math major, but obviously more about him in a moment. Dean Baker is a very distinguished economist and policy analyst and public intellectual. He's company-director of Center for Economic Policy Research in Washington DC, a think tank. He was formerly chief economist with Economic Policy at Institute. It's a very well-known democratic, somewhat left think tank. He's also been an advisor to the Joint Economic Committee of the US Congress, the OECD, and number other things that I won't go into.
	He's a leading critic of austerity policies. His latest book, he's got great titles for his books and you definitely should buy them. His latest book is called, The End of Loser Capitalism: Making Markets Progressive. He's written numerous articles and other books. I'll just mention a couple of his other books, Social Security: The Phony Crisis and Plunder and Blunder: The Rise and Fall of the Bubble Economy. In addition to his academic style writings he's a frequent contributor to the media, TV, radio, and so on and he writes a blog called Beat the Press.
	Let me now turn, last but not least, to Eugene Steuerle. He's the only one on our panel who did not go to Swarthmore. However, he has ties to Swarthmore, I think very significant ties. His daughter went to Swarthmore and is now in our math department, Lynne Schofield, one of my favorite younger people on our faculty. In addition, Gene has been an honor's examiner for us so he's sort of an honorary member of Swarthmore. Gene is very distinguished as well. He's currently the Richard B. Fischer chair and institute fellow at The Urban Institute, another think tank and has had numerous high level policy positions and others including Deputy Assistant Secretary of the Treasury for Tax Analysis in the Reagan administration and he's also been president of the National Tax Association. His latest book is Dead Men Ruling, which he's going to talk about. He's also written numerous articles and books. A couple of those are Tax Policy and Entitlements: Reforming Social Security for the 20th Century and Contemporary US Tax Policy. Not to be outdone he also writes a blog entitled The Government We Deserve. 
	Without further ado I'm going to turn the floor over to Mike who's going to explain how the debate's going to work and is going to be the mediator. Thank you very much.
Mike Meeropole:	It is an unbelievable pleasure to be here. Can't wait to walk and show Annie The Crumb [inaudible 00:08:07] tomorrow morning. Participating in the Frank Pierson event reminds me how much I owe Frank Pierson. I took his seminar in my second semester of my senior year and he's probably one of the major reasons I went on to take a career in economics. Now, I promise this is going to be a short introduction, but I think it would be useful, especially if I look around the audience and see that there may be some non-economists in the room. Since we're talking about deficits, debts, and entitlements, what do they mean? Deficit, it's the difference in a given year between the government spends and takes in. It's a flow concept. Think of a faucet running water into the sink. 
	The national debt however is all deficits that have been accumulated since the beginning of time minus all surpluses. Think of it as the level of water in the sink, a stock concept. Now, the only way to reduce the national debt is to pull the plug on the sink and let some water out of sink, running a surplus. The way to reduce the burden of the national debt, and this is a little bit complicated, is to make sure the GDP grows faster than the national debt or the same thing, the national debt grows slower than the GDP. The mathematicians among you will notice that I just said the same thing twice. 
	Now what about entitlements. They're government payments to individual, such as Social Security pensions or to vendors supplying services to individual, such as Medicare or Medicaid, or subsidies to individuals to buy products, like food stamps They are entitlements because the government doesn't directly appropriate the money, but sets the rules of who is entitled and then the money gets spent automatically. 40% of the US government budget, give or take, is Medicare, Medicaid, and Social Security. When people speak of entitlement reform they almost always refer to ways to slow the growth of one of these or all three of them.
	Other entitlements, food stamps, the Earned Income Tax Credit, TANF, the old AFDC program, are much smaller parts of the federal budget. Now, in a strictly intellectual sense the debate over entitlements and the concern about deficit spending, in the long run or the short run, could conceivable be considered two separate topics. You could be concerned about the burden of rising entitlement spending or government spending in general, even if budget deficits were zero. Similarly, you could support big increases in entitlement spending or government spending in general even if you were in favor of a balanced budget. You would just have to be in favor of raising taxes to cover the rise in spending.
	I'll give you an example of that first argument. The conservative economist Milton Freedman once famously said, "I would rather have a federal government expenditure of $400 billion with a $100 billion deficit then a federal government expenditure of $700 billion completely balanced." In other words, his problem was the size of government, not how it was financed
	Meanwhile, the concept that there is a balanced budget multiplier, which I learned in Frank Pierson's seminar, is that there is net stimulus to aggregate demand if you raise taxes and government purchases the exact same amount. Among various entitlement programs, Medicare, food stamps, and Medicaid, do involve direct government purchases. Even transfer payments financed by taxes rather than borrowing could create a net stimulus if the consumption responses of the recipients were to exceed the reduction in spending by the taxpayers. Nevertheless, in the real world where politics and economics meet and intertwine the problem of deficit spending is bound up with the issue of how big a portion of economic activity should be controlled by the government and that issue is bound up at the federal level with problem of entitlements. 
	I've asked the two speakers tonight to address these issues and I've posed to them five questions, they've seen them in advance, which they may or may not choose to answer in the relatively short time we have allotted to them. I personally wish they could talk a lot more than we're going to let them talk. Every in this room can have as much of them as they want because of the internet. All you have to do is Google Beat the Press and up comes Dean Baker's blog. If you Google The Government We Deserve, up comes Gene Steuerle's blog.
	Here are the questions in no particular order. Is deficit spending a problem particularly in the long run? If so, how is it a problem? If not, why not? Question two, is there a long run problem in a rising debt to GDP ratio? If so, how is it a problem? If not, why not? Three, what is the potential danger to the economy of a rising entitlement spending ratio to both the total government budget and/or GDP? If so, what is the danger? If not, why not? Four, what solutions would you propose to the deficit debt and entitlement problems if they exist at all? Finally, this is a tough one, how do we get journalists, politicians, and even too many economists to stop attempting to sell nonsensical snake oil to the American public? And with that I turn the mic over to Gene for the first 15 minutes.
Gene Steuerle:	Well, thanks Mike.
Mike Meeropole:	Hang on Gene. Let me grab my watch or I'll never be able to keep time.
Gene Steuerle:	Well, thank you Mike and thanks to Swarthmore and to the kind faculty for bringing us together. I'm an admirer of both Dean and Mike. I read their stuff often and it's actually quite good even though we may have some disagreement. Now, you might have been a bit misled about this debate, somewhat paraphrasing Yogi Berra, I think actually Dean and I agree on 90% of the things we'll talk about, it's only the other half that we disagree on. The United States has always been a nation of groundbreaking achievements spurred by a sense of mission and industry. It has been that way for a long, long time. Ever since even before it's founding. John Winthrop told his shipmates aboard the Arabella in 1630, "For we must consider that we shall be as a city on a hill, the eyes of the people are upon us."
	Over the next nearly four centuries the people of this nation basically created the modern world's first functioning democracy. They basically led millions to victory in two world wars, they expanded civil rights and opportunity, they removed most of the elderly from poverty, won the Cold War without a major war, and developed one of the richest nations known in history. In fact, the nation that helped generated $125,000 on average per household, that's an average, admittedly that doesn't deal with all the households and other needs, and government spending and tax subsidies that now add up to about $50,000 a household. Fast forward to today, a time of economic uncertainty and political disarray, a pervasive pessimism basically stalks the land replacing the can-do spirit that largely has dominated our history. 
	Even with the spending schedule to rise from about $50,000 a household, and I'm counting how tax subsidies in there, to roughly $60,000 within a decade. On challenge after challenge from educating our children, to rebuilding our highways, from reforming our government, to investing in our future, the nation's been enduring a bout of uncertainty and tentativeness. Some blame this can't-do spirit on large past and future deficits, some on the stupidity of our political actors, but those who focus mainly on deficits or on current politics, I believe miss the forest for the trees. I believe these are merely symptoms of a much broader disease and that disease is simply the growing effort over several decades of both political parties to try to control an uncertain future.
	My thesis is this, in recent decades both parties have conspired to create and expand a series of public programs that automatically grow so fast that they claim every dollar of additional revenue that the government generates each year. They have also conspired to lock in tax cuts that leave the government unable to pay its bills and the resulting squeeze deprives current and future generations of the leeway to choose their own destiny, their own priorities, allocate their own resources, and reach for their own stars. It also leads to debt crises, sequesters, and other silly fiscal shenanigans. 
	The forces of history, I believe, have put us at a major turning point, one requiring that we restore flexibility to voters and their government. Note I use the word flexibility, I didn't say anything about what size the government should have, I'm talking about having a government that's flexible enough to respond to current needs. Yet we cannot do so without removing the shackles that both political parties have placed on the public, on themselves, and particularly on those of you who are young. And what is required is nothing less than the freeing up of resources so that we can, again, make our own choices, the choices that Americans have made for over two centuries about how governments should allocate along with economic growth, the increased resources available to it.
	In practical terms, Democrats must agree to limit the automatic growth built into these automatic and mandatory spending programs, often called entitlements, and Republicans must agree to pay our bills as we go along as well as to rescind or at least limit the growth of the tax subsidies that are built into the tax code. I suggest that with such budgetary freedom we could restore to the nation the attention it needs to give to the agenda that I believe is forward working, particularly one of investment, one of investment in children, of opportunity, in mobility, of efficiency and fairness. Whether bigger or smaller government should be, as I shared, the economy would be a choice left to the future according to future needs and opportunities that we can not possibly know at the current time. So think of the 21st century as doing for youth and the young what the 20th did for the elderly. And think of it as focusing on opportunity and mobility and continued efforts to raise consumption levels in ever more years of retirement would no longer be the priority of the nation.
	To create this future I believe we must first restore fiscal freedom. [inaudible 00:19:32]. So I've talked about this modern disease as being one which is oriented around attempts to control the future. In the remainder of my talk I want to basically talk about three goals that are related to this. The first is how this disease explains a host of economic and political problems besetting it. The second two is that I want to prove to you that this fiscal situation is unique in all of our history. And the third I want to relate this disease to the so-called entitlement problem.
	So first let me turn to these four economic problems that I have listed. The first deadly economic problem is well known. It's been a complaint for some time that we have rising and unsustainable levels of debt. It's actually shown a bit in this graph that's commonly shown, which shows our debt having risen to its highest level other than in World War II. And most importantly if you look at the graph you'll see that we do not have a path downward as we did after World War II. Look at the slope downward here after World War II when we got out of this debt and now look at the path we're on now where we supposedly have a slight downturn then we go right back into an acceleration. What's the difference? Well, after World War II we didn't have mandatory spending. The troops came home, spending was going to go down, and we raised taxes so that we had built in massive surpluses into the future as long as we didn't offset those surpluses.
	The second major economic problem is that we have a weakened ability to combat recession and address new emergencies. The three of us here actually all believe in the viability of stimulus policy in the wake of a recession, but I differ from Dean in believing strongly that our unwillingness to deal with the long run budget problem hampers greatly to provide the stimulus we may need. And if you want truth just look at western Europe today where they're in the midst of a second recession and they have, for the most part, not been able to provide the stimulus that they need.
	The third deadly economic problem is that we are not investing in our future. Even if we reach sustainability, something that Mike talked about in his introductory comments, even if we were to reach sustainability by some automatic path there's no flexibility built into it. Imagine a business that today would sign a contract for how it would spend all economic growth or a household, the young people here who expect wage growth and you sign a contract today for how all of your spending would take place indefinitely into the future. That's where the government is today. There is absolutely no flexibility built into it and as a result we have a budget that increasingly emphasize consumption and de-emphasizes investment.
	And the fourth economic problem is closely related. It turns out that there's no flexibility built into the budget to deal with past problems. So if you look at something like welfare reform in the 1990s one thing that made it possible was that the existing welfare programs, many of them did not have automatic growth. So it was possible to gradually replace an earned income credit and put that in place and replace the old welfare programs. When automatic growth absorbs basically all the spending that's going to take place there's almost no flexibility built in.
	Now, how does this relate to these three political problems. Well, in the first place we take democracy away from citizens. When we try to foreordain how all future spending is going to take place we basically are trying to deny the future voters the ability to decide for themselves just what government should do. So this decline in fiscal democracy then relates closely to a second political dilemma, which is that the political parties, today, are locked in to what is sometimes called a prisoner's dilemma. By that I mean that if they lead in dealing with our deficit, our debt, they lose. If they try to get our fiscal situation into order they are likely not only to lose the next election, but they're also more likely to yield more control over the future to the other political party.
	And these two problems relate closely to a third one, which is basically you don't want to put politicians in a position where to do anything new, much less just to get the current budget situation in order, they've got to go to the public and tell them they're going to renege on past promises. That's the situation in which we have put them.
	Now I want to go to my second point, which is to prove to you that indeed our situation is different this time. Along with Tim Roper, a past graduate of Swarthmore, we developed what we call a Fiscal Democracy Index. This index does nothing more than measure over time the extent of the budget that is left to spend after you take into account the mandatory or the entitlement programs. And what you see here is that for 2009, for the first time ever in US history, every dollar of spending had been committed before Congress walked into the doorways of the Capital.
	So how does this differ from the past? Well, if you look a traditional budget for over 200 years what you'll see is that revenues grew with economy, spending didn't have automatic growth built into it, it was discretionary. It was either stable or declining over time. So in any particular year you're running a deficit if you ran a budget and you looked out five or ten years it would show under the law in the books that this time that you had master surpluses built into the future. Those who are older among, among the faculty remember we used to debate all sorts of things such as fiscal drag largely because we had to figure out how not to let that growth take place. So it's actually not hard to explain why politicians were able to agree so much in the past. They had money to give away, but it was in the form of tax cuts, or spending increases.
	Now look forward to the type of budget that we have today. Today spending grows automatically faster than revenues. So no matter what you do here you've got a situation where even if you sort of try to get the deficit under control here you basically have these massive deficits built into current law with little flexibility for the future. How about economic growth? Well economic growth, yeah it will make revenues grow faster, but it turns out, and I'm not going to explain the details here, it turns out that the way we designed these automatic spending programs, these programs particularly in health and retirement, they grow faster when the economy grows faster too so you never really get out of this fix.
	So how does all this relate to the entitlement budget. Well, as Mike already mentioned, Social Security, Medicare, and Medicaid had been on a path for three quarters of century where they're absorbing ever larger shares of the economy. When they're small, relative to the past, it's not a big deal, but as they get up here larger and larger into the future they keep absorbing the growth in the economy leaving, again, very little flexibility to do other things.
	Now, I want to be clear that this situation is unique, and it's new, and it's something that we haven't faced in the past. Just to give you some example of how this growth plays out. I'll give you a couple of slides here. This is the years of retirement. Back when Social Security first started paying benefits in 1940 we promised a couple about 18 years of retirement. Today we promise them about 27 years, going up towards 30 or more. In fact, if you compare retirement ages of people today with 1940, when the system first paid benefits, the average person retires for 11 years more than they did in the past. Adding enormously not just to the cost of these systems, but reducing the revenue based on which we live.
	Here's just an example of the lifetime benefits in the Social Security and Medicare system. Today, I'm not asking you to look at all of this, if you look today the average benefit for a couple is about a million dollars. That is about 20 years per person, about 27, 28 years per couple of benefits adds up to about a million dollars in real value. For those of you who are in your early forties, it's going up to about one and third million dollars. For those of you who are students today it's scheduled to grow to about one and three quarters million dollars. That's where government is growing and that's where our money is going.
	As a result, we get the type of budget we have today. This is a budget that President Obama submitted and this is a budget that's close to current law. This is a budget that's not far from the budget that Congressman Ryan opposed. This says that the next 10 years, if you look at what would happened we would spend about $1.2 trillion more. Where does that money come from? It's economic growth. Economic growth is what has always given us the possibility of future ability to spend more, cut taxes, whatever you wanted to do. So if the economy grows over 10 years by 20, 25, 30% we would have another $1.2 trillion to spend. And where does it go? Social Security, Medicare, and Medicaid, including children, hit about $800 billion. Interest on the debt hit about $400 million. Everything else essentially goes into a tailspin particularly as a shared economy. Even this number children, it looks like it's growing a little bit, is quite negative if I take out healthcare.
	In summary, our fiscal situation today is unique. If you want a budget for a declining nation the defend the status quo. If you believe that with must engage in a 21st century agenda for our nation, one focused on investment, children, mobility and opportunity, then you must help restore fiscal freedom and put a limit on the extraordinary promises made by Republicans and Democrats alike. Put simply, our job it to enable the future and not to control it. Thank you.
Steve:	[inaudible 00:29:30]. Is there anything else that you had on tap that you ...
Mike Meeropole:	Yeah, no I did, I believe [inaudible 00:29:45].
Dean Baker:	Okay, thank you Mike and Gene. Yeah, got it, okay. It's a great honor to be here, be back at Swarthmore. I always feel I really got my education here and everything I took subsequently was really kind of secondary. I know everyone's going to say I never learned anything. In terms, Steve was talking about seminars. I remember my seminars and they were very serious, very close experiences with the professor. I was a philosophy minor in addition to being a history major and I remember, he's recently retired, I don't see him here my eyesight's not that good, Richie Schuldenfrei was a professor I remember very well from my days at Swarthmore. I remember he was very involved, very intent and he would take the students very seriously. I'll never forget, I'm sure many times, he said, "Baker, that's the stupidest thing I ever heard anyone say." After that I'd feel prepared to be in Washington.
	I'm going to take a little different tack than Gene. I'll disagree with him somewhat. Mostly I think I'll place my emphasis in different location. Basically what I want to point out or what I want to argue is I think our crisis is of a different nature. It's very much in the present that we're suffering from a very severe shortfall in demand, which is leading to enormous waste, enormous unemployment, lasting effects. We have people who are unemployed for long periods of time, many who will never work again, and also we have, in Washington there's a whole industry of running around saying we're concerned about children, this and that, and I am too. But children of unemployed people tend not to do really well. We have a lot of research that shows that. As it stands now we have a lot of people who are going to be unemployed for long into the future meaning that their kids are going to grow up with unemployed parents. That's not a good story. So I'd argue there that the basic problem here is we have, if anything, too small deficits. That's the current story.
	In terms of the longer term picture, again, I understand what Gene said and I think there's a lot of validity to it, but I guess I put my emphasis a little bit differently. Basically what I'm going to argue is that the big issues over the longer term are distribution, which both is an important issue if and of itself, but also has a lot of impact on that tax story that we see and I'll try to explain that quickly. Secondly, healthcare costs. That we have healthcare costs that are out of control. This came out actually in the slides Gene just showed you. If you looked at the start of Social Security and Medicare you saw that going forward people are actually going to pay more in in Social Security taxes than they get back in benefits. The real story there is healthcare, Medicare, we're paying much more in Medicare benefits than what people pay in taxes. I think that really is a crucial story that we have to talk about.
	Okay, well just to give you the basic picture on the downturn. In Washington, of course I don't blame the Obama administration for trying to give good news and the unemployment rate is somewhat good news in the sense it was peaked at 10% fall of 2009 and we're now down at 7.2 or 7.3, I'm forgetting the latest number. So that's progress, we're about halfway back to where we should be. But if you look at the employment to population ratio, the percentage of people who have jobs, we've barely made any progress at all. We hit a low 58.2% in 2010. We're at 58.6%. We've made almost no progress. Now a little bit of that's the aging of the workforce. We have more people who are in there, the baby boomers are in their late 50s, 60s, years where they work less. That explains very little of that. This is prime age workers, people 25 to 54 that don't have jobs, many of whom have dropped out of the labor force. So we've made very little progress there.
	Okay, second way to look at this, how much we're losing in terms of economic output. This is 2005 dollars. Very simply story here, I just took the projections, the Congressional Budget Office projections from 2007 and compared them to both what we've actually seen actual through 2013 and then their most recent projections and we've already lost roughly $5 trillion in output. Thus, to date, that comes to, just doing the arithmetic, that's about $50,000 per household real money. And we're still losing about a trillion dollars a year. What's very discouraging is there's no one who's got a story that that's going to be reversed anytime soon. If you look at projections from the Congressional Budget Office, private forecasters, or take the optimistic stories, you know the Obama administration or whatever Republican you want, no one has a story where we're about to see more rapid growth anytime soon.
	So what's my story here? Well, my story here is the government has to fill the gap. It's a fairly simple picture. The downturn, people like to talk about financial crisis, I like to talk about the housing bubble. Both because bubbles are simple, financial crises can be complex, but also because it's true. The basic story is a very, very simple one. We had a housing bubble driving the economy till it burst in 2007 and when it burst there was nothing to replace it. It was driving the economy two ways. One, we had construction at near record levels. Everyone but Alan Greenspan seemed to notice it. We've lost about four percentage points of GPD because we went from record high to record low. So guess what? Record high construction led to enormous overbuilding, we had record vacancy rates. Again, Alan Greenspan wasn't able to see that. I'm sorry I'm picking on him because he's been in the news lately with this new book. But it was easy to see and we lost on the order of four percentage points of GPD and demand. That's about $650 billion in today's economy because of the fall in construction, residential construction.
	On top of that, housing wealth effect, that's not really news, I say that to people, other economists are looking at me like where did I get that. I'm not sure where I first learned it but it certainly seemed like an old concept when I was in grad school. People spend on the order of five to seven cents for every dollar in housing wealth. My estimates are we had about $8 trillion in housing bubble wealth. You do the five to seven cents that translates between $400 and $560 billion a year in lost demand. You sum that together we lost over $1 trillion in annual demand. We have nothing to replace that. It's great, in Washington the Republicans are saying, "We love the private sector." That's fine, I like the private sector too, but no one's going to invest because Mitt Romney or some other politician loves them. They invest when they see demand and they're not seeing it.
	So we're left with a story where we're not going to see more investment. We're not going to see more consumption. People talk about consumers aren't happy. Well sure, they have good reason to be unhappy, but the reason they're not spending is they lost $8 trillion in wealth. It's the same reason homeless people don't spend. They don't have the money. It's not complicated. So we have this huge gap in demand and the only way to fill it, in the short term at least, is with the government budget deficit. That's where the deficit came from. We didn't go on a spending spree in 2008, 2009. We didn't go and a tax cutting orgy. We had countercyclical spending and we had the stimulus, about $300 billion a year. I wish it were four times the size.
	Okay, we need something to fill the demand. That's just arithmetic, it's national income accounting. There's no two ways around that. To my view budget deficits are good both for the short term and this helps the long term story. I'll come back to Gene's long term story in a second. This helps the long term story in the sense that when we have people, we have these high rates of unemployment we have kids growing up with parents not able to work, not able to afford to raise their kids properly, that's a long term story. These kids will suffer. That will be enduring. We have a lot of research that shows that.
	Okay, the next point, and Gene referred to this, I think it's a very, very important issue, where do we hit the limits? Where do hit the wall debt to GDP ratio suddenly you can't borrow? We can point to Europe, but the point about Europe is that Europe has a central bank. Those countries don't control their own central bank. So if we look to Italy, Greece, they're like Ohio. Ohio doesn't have a central bank. Big difference is the United States does. This graph is showing interest rates on 10 year treasury bonds by debt to GDP ratios and if these were all one color, if I had more time I'd have them be all one color and go, "See? Higher debt to GDP ratio you have higher interest rates." I don't have a lot of time so you can just look at the blue ones, the nine Euro countries. If you can see a relationship between debt to GDP ratios and interest rate there you've got much better eyesight than I do. There doesn't seem to be one.
	This doesn't mean you can run deficits forever of infinite size. I'm sure there are limits. The point is we're nowhere close to them. That when you look way out there that's Japan, debt to GDP ratio about 230%. It's interest rate, it's 10 interest rate on 10 year treasury bonds about six or seven tenths of a percent. In fact, they just deliberately raised their deficit to stimulate their economy. It seems to be working. Their economy grew very rapidly in the first three quarters of 2013. So they don't seem to be restrained that way. And the US is like Japan, we do have our own central bank, the Fed. I would argue we could spend a lot more money. We aren't up against any constraints anytime soon. 
	Okay, longer term story this gets us to the healthcare picture. This is primary budget surpluses with alternative healthcare assumptions. Primary budget surplus, for people aren't economists, this just means you pull out interest. The reason why it's convenient to pull out interest, I'm not trying to hide anything, that tells us the long term story. If we have a primary budget surplus that means, under fairly general circumstances, those of you are economists you know the story, but under fairly general circumstances that's mean the debt to GDP ratio is stable or declining. We could do that forever. Whereas if we have a primary budget deficit, well that could be a problem.
	The baseline here that I show has a primary budget deficit as you get out 2037, '39. It's about one and a half percentage points of GDP. That does grow and we can see that might be a problem. Should we get really upset about that? Well, two points I'd make. One is we actually were able to have some substantial deficit reduction in the Clinton years without, last I looked President Clinton got reelected by a fairly comfortable margin. So I'm not convinced that if we did actually end up with this situation, we saw the CBO baseline, that would necessarily be a disaster. I don't want to see that happen for reasons I'll go into in a second, but that doesn't strike me as the worst story in the world. I think that as much problem, and Gene's right, plenty of gridlock, plenty of problems. I do think that a soluble problem.
	The other point that I'd make though is, again, look at the other. Look at what the baseline looks if we had Canadian healthcare costs or UK healthcare costs. Very simple story here. I just said, "Suppose we paid the same amount per person for our healthcare as people do in Canada, as people do in the UK." And I could've picked any other country. I could've picked France, Germany. The basic story is our healthcare costs are more than twice as much per person as the OECD average. If we paid anything close to the OECD average for healthcare we wouldn't be looking at long term budget deficits, we would be looking at long term budget surpluses.
	So what's the big problem here? Well, the big problem is healthcare. It's obviously a problem for the budget, but it's also a problem for the private sector. It's not that somehow the government pays a huge amount for healthcare and in the private sector we get by paying very little. In fact, if we compare public healthcare programs, Medicare in particular, the costs are actually much lower than comparable private sector. The per person cost of Medicare has increased considerably less rapidly over the last four decades than for private health insurance. Which, again, this gets back to are we seeing a greater share of the budget go to entitlements? Well, yes and that doesn't bother me because the government actually does these things and provides retirement income through Social Security and healthcare for our retirees much more efficiently than the private sector. Why wouldn't we want the government to do that then? As an economist that seems what you would want.
	Okay, getting back to healthcare costs. Why do we pay so much? It's not we're getting better healthcare. We just pay too much. Our doctors get paid more than twice as much as the average other countries. Same for medical equipment, prescription drugs, you go down the list. That's what we have to focus on. It's amazing to me we have these big trade deals being negotiated, the TransPacific Partnership and the US trade agreement, healthcare's not on the table. Why aren't we talking about bringing in doctors? We bring in nurses. We say there's a shortage of nurses. Well, there's not a huge discrepancy between what we pay our nurses and what Germany and other countries do. There is with our doctors. That's not on the agenda. Why? Because doctors are real powerful and nurses aren't. Same with drug companies. Our drug companies are at the table. They're talking about making drugs more expensive not less.
	So we have incredibly big problems here, don't really have anything directly to do with the deficit, indirectly of course they do because we pay for this through Medicare and Medicaid, the Obamacare programs. We will pay for that, but we'll also pay for that through the private sector. So we really have to talk about fixing our healthcare system. Unfortunately that's not much on the agenda.
	Okay, a couple quick points on Social Security. Gene raised the issue of raising the retirement age. We can go back and forth on this. I'm not necessarily saying it's a bad thing in all circumstances. It's important to realize that for a lot people working later in life isn't easy. This is an analysis we did. These aren't our definition of difficult working conditions. These are from the Labor Department. As you see, people with less education often do work with difficult working conditions, either physically demanding job or difficult working conditions being that they're working outside all day. It's fine. I hope I'm working into my seventies, that's great. A lot of people have rewarding work, but a lot of people that's not an easy story to tell.
	Okay, a couple points in terms of the limits. Can we tax people more? Obviously I know no politician is going to be really happy to rush out there and say, "I want to raise your taxes." I understand that. Walter Mondale didn't do very well with that in 1984. But nonetheless, can you raise taxes? And what I thought was really striking, I discovered because I had a former professor from Michigan whose now the Chief Information Officer at Google and he told me about the new Google polls. I thought, well here's an interesting test. We raised Social Security taxes by two percentage points at the start of this years, weak economy, raised it two percentage points all at once. I'd never propose doing that. If I wanted to raise the tax I'd do it over a long period of time. Well, it turns out that less than a third of the people even know their taxes were increased. So suppose we propose we're going raise their tax by one tenth of percentage point each year for the next two decades. Would they notice that? Is that not doable? I sort of think we could do that.
	The last point, if you think I'm going to gouge people without them knowing. No, not quite. This gets back to the point about inequality. This is straight from the Social Security Trustees report. What's the average annual wage today? This is 2012 dollars for what it's projected to be in 2040. If the typical worker, and we haven't seen this, all the gains from growth have gone to the top. If the typical worker got their share of growth they'd be looking at wages that are about 60% higher in 2040 than they are today. Suppose we tax that back by three percentage points.
	We have these groups that are funded by Pete Peterson and the Wall Street group, "What about the kids?" Sorry, I don't feel sorry for you. Okay? I learned that at Swarthmore, it's your after tax wage that matters. If we get relatively equal distribution of the gains from growth there's no story we could tell you where the after tax wage won't be a lot higher 20, 30, 40 years out than it is today. So the focus, to my view, has to be on equality, getting healthcare costs down, if we do that we don't really have serious budget problems, either today or in the long term future. Thank you.
Mike Meeropole:	Before we open the floor to questions Gene and Dean are going to have five minutes to talk about anything they want to. Gene first.
Gene Steuerle:	Well, Dean and I some ways gave very different talks. I would say most of Dean's talk was about what we need to do in the short run and most of my talk was about what I thought we needed to do in the long run. And there were a number of areas where actually I think we're in pretty much agreement, particularly the rising cost of healthcare and our need to do something about it. However, I would emphasize that our ability, and I said this is my talk, but I'll reemphasize it, our ability to deal with the short run is affected by the fact that we leave this long run out of balance. So if we have a long run budget that's out of balance and we try to just simply add stimulus in the short run making the long run even more out of balance. 
	Even if you don't be the economics of the threat of this debt level reaching levels that it's never been at before you have to understand that the politics are that at some point the politicians just don't believe it's going to work. So either way our ability to deal with stimulus, to provide the stimulus Dean wants is going to require us to deal with the long run. To be truthful about it it's the politics of the long run that leads many of those people who favor stimulus to say they're not willing to make that compromise. They don't want to compromise on issues like cutting back on Medicare growth, particularly if it means something that might be a little more like Medicare Advantage or vouchers. I'm not saying that's the right way to go, but they don't want to do it that way. As Dean mentioned, they don't want to deal with the retirement age and they don't want to deal with the rising growth in retirement. So their willingness to deal with the long run, politically often constrains their ability to provide the stimulus in the short run.
	I should also mention if we talk about the short run and we look at what has happened in the last few years one could argue, and Dean may even agree with this is part, but one could argue it could've been much more structurally designed to actually provide stimulus. The Social Security tax increase he was talking about came about because we had a Social Security tax cut that broadly went to all of us. People like Dean, Mike, and I got the most out of it. It's supposed to concentrating more on lower income people where demand would be higher and, in fact, it would provide more of a stimulus.
	I've been an advocate for a long time of expanding wage subsidies to cover a forgotten group. This is a group of basically single people or young and middle age people who marry into a family that's got children. They're basically left out of the welfare structure unless they happen to go to prison and get a bunch of prison guards. You have to sort of get into the welfare structure by having and raising children and we're leaving out a large portion of that population that would've provided much more of a stimulus.
	On top of which things like unemployment comp and I'm all in favor of increasing unemployment compensation in a recession. That does not increase the demand for labor. The Congressional Budget Office says that the way that we designed Obamacare it's going to lead a lot more people to retire even earlier because now they have health insurance. They projected a decline of several hundred thousand people in the employment. So a lot of what we're doing structurally has not been pro-employment even if we want to provide more stimulus, which I want to do, but I want to do only if we can actually try to deal with this long run issue.
	I'd also be very careful about saying we can provide as much stimulus as we want because interest rates are low reminds me of these nations abroad that have become very dependent upon oil revenues. When oil prices shot up and there's like this free money that they can so they can do whatever they want. All these nations have run into problems later. These low interest rates come about largely because we have developing nations who decide the way that they can enhance their growth is going a lot of US debt so that it provides them sort of a base on which they can grow. And because the Federal Reserve is buying up mortgages out the wazoo. Those are not things that are necessarily going to continue into the future. The fact that are our interest rates are low is mainly because our government bills, bonds, and notes are sort of the best looking horse in the shoe factory. It's not necessarily a good sign. You don't want to be dependent on low interest rates.
	Healthcare as I say, we mainly agree. I will say that the Congressional Budget Office says that half of our long run budget problem is not healthcare it's the demographics that I keep referring to. It's the fact that not just do we have people retiring more and more years, but in point of fact with the baby boomers retiring basically this shift in demographics is hitting us like spades and we're having a lot of older people drop out of the workforce.
	Finally, with respect to these retirement issues. Basically if we retire people for 25 to 30 years and try to finance this for 30 or 40 years of work it just doesn't work. It particularly doesn't work when we have fewer children coming along and having to pay the higher and higher tax rates to support that system. In his last remark Dean makes reference to the fact well, after tax income for you, the young, will go so you're going to be okay. Don't worry about it. What he didn't mention is that in this calculation you're expected to pay higher and higher proportions of your income, admittedly if we have economic growth, a higher income, but you're supposed to pay higher and higher proportions of your income to finance our needs from the past and not necessarily the needs of yourselves or your children in the future.
Mike Meeropole:	Okay, Dean.
Dean Baker:	Okay, a few things. Again, I would emphasize, I think in the case for the long run story the evidence does seem to be that we have a lot more freedom than is generally perceived by politicians in Washington. What they think is a real issue, but I think our job has to be to educate the politicians in Washington. Yeah, I'm sort of hoping that we can teach them all Japanese because the experience in Japan. It's still early, but they have a government that came in late last year, was very energetic about saying, "Okay, we're going to deliberately increase the deficit to boost the economy." They also committed themselves to having very expansionary monetary policy deliberately to try to raise the inflation rate. They want to have higher inflation there in order to lower interest rates to provide a further boost to the economy. Again, thus far, still early, we have three quarters of data, it mostly looks pretty good. It's not conclusive, but it seems to be going in the right direction.
	My story here would be that we have the ability, we're not constrained in the sense that anything bad will happen to the economy. We hear stories about financial markets will panic. We've been hearing that for five years, they haven't panicked. The other point that I and others have made, let's say they do panic the Fed can buy up long term bonds. Let's take, we have the case that Gene was talking about, which I actually would argue would be good, and I'll explain that in a second. Developing countries say, "Okay, we don't want your bonds anymore." Okay, so the implication is our interest rates would rise. The Fed could buy up those bonds. Now, many of you are probably going to go, "Oh, wait that's going to give us huge inflation." Well, wait a second, inflation does not come out of the air, inflation comes from an overheated economy. We have a long way to go from an economy that's about six percentage points over a trillion dollars below capacity in an overheated economy.
	This gets back to why I say it would be a good story if we had China and other developing countries stop buying up our bonds what that would mean is that the dollar would fall against their currencies. What does that do? It instantly makes our goods much more competitive. And in fact, that's the major imbalance in the world economy. We have a large trade deficit, that would flip over, we would have a trade surplus if the dollar were to fall substantially against other currencies. Our exports would be cheaper for people living in the developing world, people living in China, wherever it might be. Their imports would be more expensive for people living in the United States. That would quickly move us toward balanced trade, quickly get us back towards full employment. To my view, that's exactly what we want. I don't see the problem with it. So rather than that being a threat I look at that as a promise if we can get them to do that.
	I should point out, by the way, it was not always the case that they bought up large amounts of US government debt. This is a relatively new phenomena, you can date it to a very specific event, the East Asian financial crisis in 1997. I would date this to the, I would say, bungled management of the East Asian financial crisis by Greenspan, Larry Summers, and Robert Rubin that imposed such hard conditions on the countries of East Asia that both those countries, and really everyone else in the developing world who could, began to buy up massive amounts of dollars as reserves to avoid ever being in that situation themselves. You can see that very clearly in the data. There's a sharp break, they suddenly needed large amounts of dollars. I think that was a horrible thing for the United States. That's when our trade deficit exploded. We were only able to get back to full employment with first the stock bubble in the late '90s, 2000 and then the housing bubble in the last decade. If that was reversed, if they began to sell off the dollars I think our response should be, "Thank you very much, that's exactly what we need."
	The last point, again, getting on healthcare, I think Gene and I are largely in agreement here. We do have to get healthcare costs under control. I do think we have to be creative in doing that. And again, I think the focus has to be the private sector because it's not the government pays more for healthcare than the private sector. It's quite the opposite, we generally pay less. I worry in trade agreements where we should be looking to try to lower costs it might actually raise costs that one of the results of specifically the TransPacific Partnership might be to restrict our ability to pay less for drugs through things like what we do with the VA system where we have a formulary where we say, "Here's what we're going to pay for drug prices." That sort of pricing system may be prohibited. I can't say for sure because it's a secret agreement, but it may be prohibited from that, which would mean we'd likely be paying much more for our drugs, both in the public and private sector. I'll stop with that.
Mike Meeropole:	Okay. I am not going to take advantage of my role to ask the first question. So go for it.
Speaker 5:	Okay, this is just a quick question about the example you used about Japan. I've heard some people say that Japan could have higher debt to GDP ratios because their population saves a lot of money whereas our population has very low savings rates and similarly with their monetary policy. I've heard other people say they can afford to have inflation because they previously had deflation and so they can afford to go more in the other direction whereas we're closer to [inaudible 00:56:16]. So I'm just curious what your thoughts are on that.
Dean Baker:	Well, to some extent our savings, I'd say actually to a large extent, our savings our endogenous in the sense that if we were to have a lower trade deficit because the dollar had fallen we would have more savings. It's just definitional, national savings is the inverse of the trade deficit. So if we had a smaller trade deficit we would have more savings. So I think we would get the savings. In terms of the inflation rate Japan's had near zero, sometimes negative deflation that means you have more room, you can go up.
	Now, our inflation rate, the year over year inflation was, I think, 1.5%. I'm not terribly troubled by an inflation rate 2.5%, 3, 3.5%. We've had good growth, many countries have had good growth with moderate inflation rates. Certainly we don't want double digit inflation, but there's no real precedent for a country just going from very low rates of inflation to very high rates of inflation without some precipitating event, a political event that leads you to a collapse of the country. Certainly if we had a big jump in oil price, but that would be independent of what we're doing in terms of trying to have inflation. So I don't see much basis for the fear of inflation. Again, that seems to come from the idea that by having a lot of money out there you inevitably get inflation. We've been testing that for five years, it seems to have been pretty decisively refuted.
Mike Meeropole:	Gene, you-
Gene Steuerle:	Just a quick footnote, I'm of the view that Japan's problems are to a large extent demographic. It's got a population declining labor force. By the way the labor force declines about twice as fast as your population because it hits you sooner as the old get older just demographically. And they haven't been willing to deal with that issue as well as a lot of other structure issues. Just another minor footnote, Dean mentions the extent to which developing nations have tried to absorb more and more of our debt or buy up our bills, bonds, and notes. Japan was actually leading the way and a number of these countries thought they would follow its example. I'm not saying it doesn't work for a while, I'm just saying long run we cannot and should not depend upon that type of example.
Speaker 6:	Yeah. How are you doing? I just have [inaudible 00:58:29]. It seems to me that there's a little bit of an elephant in the room. We had Bush II come in the office push through his tax cuts right and then we had 9/11 and then we had the wars in Iraq and Afghanistan and I think have cost now, my reading is $1.2 trillion [inaudible 00:58:50] putting out figures of long term costs four to six trillion. [inaudible 00:58:57] bank bailouts have cost, you guys know more than I do, I've heard anything up to $16 trillion and there's all kinds of stuff with money going to Deutsche Bank, etc. Now we've Bernanke flooding banks with $85 billion a month. I guess hasn't this played a big role in creating these deficits? Because these wars were basically off budget if I'm not mistaken. We haven't raised taxes to cover these long terms [inaudible 00:59:29]. Those are [inaudible 00:59:31]. So I wonder if you could-
Mike Meeropole:	Well, let me just say a lot them are medical costs in the Bilmes-Stiglitz numbers. Gene, I don't know [crosstalk 00:59:40] if you want to.
Gene Steuerle:	No, no, I think you're right. I'm my book I actually ranked by president by who presided over the biggest increases of domestic spending. Actually in our history it turns out the top five were all Republicans for reasons ... and George W. Bush actually presides over the biggest shift from surplus to deficit or increase in deficit. Even on a structurally adjusted bases, even on not taking into account recessions or the great recession in any president in our history because we had tax cuts, we had an entitlement increase, we actually had a domestic spending increase, we had war time spending, so out the wazoo. Again, my talk, talk about pushing too far to try to control the future, I blame Republicans as much as Democrats because the Republicans weren't willing to pay their bills either.
	There's actually a very interesting history if you want to go back into this. There was a guy by the name of Jude Wanniski who wrote for the Wall Street Journal editorial page. Wannisky wrote an article, interestingly enough in the mid '70s, that in some ways was a predecessor to what actually happened. The article was called The Two Santa Theory. And under the Two Santa Theory Jude argued that Democrats have got to be Santa Claus all these years. They've got enact mainly spending increases, but tax cuts and we Republicans, this is his argument, basically have to come along and be deficit hawks and as a result we never win elections. You remember I mentioned this so-called prisoner's dilemma, if you lead you lose. Wannisky argued that as a result we should be Santa Claus too. In some extent we should enact tax cuts we don't pay for either. So both parties have gone to this extent to they both want to operate on what I call the giveaway side for the budget. Giveaway side of the budget are tax cuts and spending increases.
	I say in the past, when the budget was largely discretionary and you had the revenues growing and discretionary spending not, you still had a budget in the future that had a surplus. We don't have that anymore. So when both parties now try to give away money, which is my main concern about a lot of the things that Dean, actually a number of programs we both, together, favor. But my concern is when you're in a world where the politicians have gone so far on the giveaway side of the budget and that's how they think they can operate. And those giveaways are so large that the debt is growing ever faster relative to GDP, you're in a real box. You're giving some examples from the Bush era, but we could go back even further, how far we've gone down this path, which, again, I was trying to show through this fiscal democracy index how the future is committed both by large spending increases built in and by tax cuts that weren't paid for.
Dean Baker:	Okay, I guess I'll be the defender of George W. Bush here. I'm not going to defend the wars, which I think were a disaster morally, politically, economically. That's not a way to stimulate an economy and even if it were a stimulus you don't kill people to stimulate the economy. The tax cuts, if you want to stimulate the economy you don't give Bill Gates more money. But I will say that we did need deficits in those years. It's sort of striking to me now it's, I think, generally accepted that the Fed can't do much. I'd love to see the Fed do everything it can. I think it's done a lot in terms of trying to boost the economy. Bernanke has, I think Janet Yellen might try to do a little more, but I think they have been aggressive in trying to boost the economy. Limits to what they can do. They can try and be creative, there's some other things I won't get into. Perhaps they can do a little more. In any case, they've been aggressive.
	But if you go back to 2002, 2004 we were also, I would say, pretty much against the zero lower bound. The federal funds rate for that period was 1%. You might recall the European Central Bank had its federal funds rate, or its equivalent, it's overnight money rate at 1% for much of the crisis. They recently lowered it further. But I don't know anyone who really thinks if they were to follow the Fed make it zero it would have all that much impact. My point in saying this is Fed monetary policy was pretty much out of ammunition during that downturn, 2002, 2004. I always thought it was a great contrast.
	I was at the American Economic Association convention. I was listening to Alan Greenspan talk and he was patting himself on the back, "Oh, we did the right thing with the stock bubble, we just let it run its course and then we could pick up the pieces afterwards." Then I went down to the basement to hear Ben Bernanke who was on the Fed, but not then chair, so it was a much smaller room and he was explaining why they still had a 1% interest rate even though it's been in place for a year and a half and it's now three years into the recovery. He's say the labor market's still very weak. I think Bernanke was absolutely right, which means Greenspan was completely wrong. It wasn't easy to pick up the pieces.
	This gets back to the point about the trade deficit in trade at anything point. The trade deficit was about four percentage point to GDP. The only way you could make that up was with a large government deficit. Wasn't my way to do it. I would rather see us spend on, say, children's education, childcare, infrastructure, there's a long list of things we could've done, should've done, that would've been productive for the economy, productive for society. We didn't do that. That would've provided the stimulus to the economy in ways that moved us forward rather than getting us in these expenses and commitments and obviously not productive to get people killed or wounded. I'm not upset about the deficit I'm upset about the reasons we ran them.
Gene Steuerle:	So Dean, let me put you on the spot a little bit here. So when I was in the treasury '70s and '80s, especially in the '70s it seemed like there was never a time when people arguing for stimulus said we were in a recession, going into a recession, coming out of a recession or had too low growth and therefore we needed more stimulus. So we go into the George W. Bush era, as I say, where we had enormous stimulus if you go from surplus to deficit. It's wasn't just the tax cuts, it was everything. He didn't deal with the long run. We go into the Obama era, admittedly we need stimulus to deal with The Great Recession. He doesn't deal with the long run. When do we get around to dealing with this long run? Why do people who constantly argue for stimulus, which I tend to agree, I believe in countercyclical policy, when do we get around to dealing with the long run so we don't have this crazy graph with debt projected under current law, not under new stimulus or anything else, to rise at this rate even faster than the economy?
Dean Baker:	Gene, I'd be very happy if we dealt with long run tomorrow. I just don't see one related to the other. It's sort of like if the building here were on fire and you go, "Well, of course we want to put it out, but first we have to deal with the long term deficit." I mean, it seems to me the building's on fire let's put the fire out, but by all means, the long term deficit's healthcare. We have these trade agreement we're negotiating today. Why don't we have people talking about how we can reduce what we pay doctors in the United States getting it more in line with what doctors get paid in Canada, in west Europe? That's not even on the agenda. So I'd be totally happy. Have those conversations go on now. That would have an enormous effect on the long term, just doctors, but if we did it with drugs, if we did it with all the other components of healthcare we wouldn't have this long term problem. That could go on and side by side, but I don't see anything about that that prevents us from having stimulus.
Mike Meeropole:	Okay, questions? Yes, sir.
Speaker 7:	So you talked about cutting doctors' salaries and so you would get those situations like they do in Canada where you have to wait months and months to get surgery and there's a reason we have the best medical care in the world. So just how would you keep that going and cut doctors' salaries?
Dean Baker:	Well, actually I wouldn't be cutting doctors' salaries, I'd be letting the market cut doctors' salaries. It would be bringing in more doctors. And actually there have been some good analyses down, average wait times in Canada are the same as the US so some things it's more, some things it's less, but the idea that people have to wait in Canada for procedures, in general that's simply not true.
Gene Steuerle:	I'm sorry, are you finished?
Dean Baker:	Yeah.
Gene Steuerle:	My view is that healthcare is so out of control that with have both parties who basically constantly refuse to engage in compromises unless they can control healthcare their way. So the Democrats say, "Yeah, we're willing to control health costs, but only if you do it are way." And Republicans say, "We're willing to cut health costs, but only if you do it our way." My sense is that healthcare suffers from, basically, an original sin. The original sin is that when you and I go to the doctor we bargain over whatever everybody else will pay. At the margin we pay zero for what we might want and the doctors and the suppliers often basically have a profit motive to sell us whatever they can. I'm not saying they all engage in that, but that original sin is what we have to deal with.
	And there's two ways to deal with it. One, you can sort of engage in a type of system where whatever policy you put in place, Medicare, Medicaid, Obamacare, tax subsidies, you put a limit on it. You just put it in a budget and if it starts to exceed that budget you cut back on the benefits. That's not perfect healthcare policy. It's going to restrict what some people get, but you could do that. The other route is you can put the system into more things like voucher or premium support, or Medicare Advantage, where you get a sum of money, you buy a health policy, and now you have to partially engage in the question of how you control cost. But as long as we can engage in this myth that we can provide everybody everything at whatever doctors and other providers want to provide we're going to be in this box.
	My sense is that this healthcare policy, this unwillingness to deal with that, this health policy has dominated budget policy so much that that's why it's out of control you have to put health in a budget. Everything other program of government, no matter how inefficient, or most other programs have a budget limit. Healthcare doesn't and as long as it's an open-ended budget we're never going to solve it. We're never going to solve it unless both parties are willing to say, "Okay, you win the election you can put in your premium support policies." "You with the election you can put in your price controls." But we can't just leave it open ended until we reach some sort of unanimous agreement on what some future health policy is going to be because we're never going to reach it.
Mike Meeropole:	Let me now, I'm going to take off my objective hat. It seems to me that what you just described, Gene, in terms of the debate between the Democrats and Republicans is the Republicans want to control government healthcare spending and the Democrats want to increase taxpayer funding for government healthcare spending, but the obvious solution is to control healthcare spending totally because if you cap Medicare you still would not be solving the problem of people who are working and are paying premiums to deal with private insurance. Their costs are going to skyrocket anyways. As I've said to you in emails many times, if we abolish Medicare tomorrow, 20 years from now workers would still be overwhelmed with premiums because we haven't controlled medical cost inflation. The only way to do it is a global budget and that means something like what every other advanced country in the world has. And there we don't seem to have the political will either on the Democrat or the Republican side, but it's not taxes or spending controls it's a whole reform, and institutional reform.
Gene Steuerle:	See, my problem is I don't think you or I or Dean or anyone knows how to fully engage in a global budget. It sounds good in practice like, "Oh, we have a global budget. We control all health cost." You don't know what the future's going to be, I don't know what the future's going to be, you need some market out there to have other people making decisions of what could be provided. But let's say I'm wrong. Let's say I'm wrong, I don't want to be held hostage to your desire for controlling health costs only if you get global healthcare under control. If you're going to have a Medicare policy or Medicaid policy or a tax subsidy, it needs to be operating in a budget.
	Housing policy, housing vouchers are a lousy policy. We exclude two thirds of the people from getting them who are eligible, but it operates within a budget. Almost every government program operates in a budget. Healthcare can't operate without a budget while we wait for some agreement, whether it's on global healthcare or not. So I don't agree with you that global healthcare is the right answer, but even if it were I think we need to operate within budget for what we have now.
Dean Baker:	If I could just make a couple quick points here. The US doesn't differ from Canada and west Europe in terms of getting more care. Our big difference is we pay more for it. So it's not we have more doctors per person. There's other countries that have more doctors per person than we do. We just pay our doctors a lot more. And that's true down the line. 
	The other point I just say is that we're really going the wrong way on this. I'm mentioning the trade agreements because that should be a way to reduce costs. It's going the other way. We're likely to increase patent protection prescription drugs. We might ban ways in which we could reduce drug prices. And again, just thinking as an economist it's kind of amazing to me, I love having arguments with trade economists, because I go, "Okay. What would happen if we had a 5000% tariff on something?" Invariably they look at you like you're nuts. That would be a crazy policy.
	Well, basically that's what patent protection on prescription drugs are because you can go down to a chain drug store and buy all sorts of prescription drugs for five, six, seven dollars a prescription. Then you have brand drugs that might sell for four, five, six hundred dollars a prescription. As a group they're not chemically different. The reason why those brand drugs sell for more is because the government arrests you if you compete with them. That's protectionism. It has all the bad effects that are in the textbook when we talk about having a 20% tariff on this suit. Except instead of talking about 20% we're talking about 5000%. That is horrible, horrible policy. It gives you bad healthcare outcomes. It makes it very expensive. It encourages exactly the sort of thing Gene was talking about because drug companies make enormous amount of money when they can sell you the prescription for $500 that costs them $5 to get into the store. So that is clearly in the wrong direction and unfortunately politicians in both parties don't seem interested in talking about that at all.
Mike Meeropole:	Okay. Yes, sir. 
Dean Baker:	Would you be in-
Mike Meeropole:	Louder please.
Speaker 8:	Oh. Would be in support of reimporting drugs from Canada [inaudible 01:13:14] practical?
Dean Baker:	It's my view the whole system and way in which we finance pharmaceutical research is wrongheaded. I'd rather see us basically pay for the research up front, have all drugs sold as generics, but whatever you can do to bring down drug prices, make people more aware, for people to understand. I always like to say to people, "Drugs are cheap." And people think I'm nuts, maybe I man. But the point is they're cheap to produce. The research can be expensive, but at the point we're buying the drug we already paid for the research so the marginal cost is very, very cheap. So anything that could both lower the marginal cost and increase awareness of the fact that drugs don't have to be expensive I think is a great thing. So for that reason I'm all for reimportation from Canada.
Mike Meeropole:	I don't want to put anybody on the spot, but I know the chair of the department is a woman. I haven't seen a woman's hand up yet. Ooh. [crosstalk 01:14:09]. Oh well.
Gene Steuerle:	All right, so let me jump into reimportation. I think that's an extremely difficult issue. What makes healthcare in the United States difficult is we are sort of the leading technological nation. So one of our major exports, our health goods and services, it's where we lead technologically. It's easier for Canada to say we can have a national system of, say, Medicare for all and copy the United States. Say, look at what we did with the United States, take a rough guess at what they want to provide, try to charge a lower price. They can even bargain with drug companies to say, "Hey, it costs you $50 on average to make this drug, but it only costs you $5 to make the next pill. We'll pay you $10 for the next pill."
	It's a lot harder when you're the technological leader. Canada can copy the United States. I don't think United States can copy Canada because, in fact, this is our leading exports, one of our leading industries. I don't like the way it's operated. I agree with Dean on a lot of the things I would do, but I don't know that reimportation really solves the problem. Reimportation also creates a dilemma that a lot of the drugs we provide to very low income nations at very low cost could also be reimported and a lot of the drug companies would have an incentive not to do that at all. So I think you're raising a really tough, but interesting issue. You should write a thesis on it.
Mike Meeropole:	In the back, loud please.
Speaker 9:	What policy reforms exactly to Social Security, Medicare, Medicaid would you encourage in order to promote [inaudible 01:15:36] in the long run?
Gene Steuerle:	The way Social Security and Medicare and Medicaid are designed, if you remember my graph on taxes and benefits, and I didn't go through all the dilemmas. Basically over the years we keep on enacting these benefit increases in these programs. Now some of them are automatic because of just the growth, but a lot of cases we just enacted a benefit increase, a benefit increase. Each one of those provided a windfall to the older generation. So if I'm the first generation of Social Security, it was practically all windfall. I hardly paid any taxes. And even someone who might be, say, in their forties what happens is we would raise tax rates for people in their forties for, say, 20 years of their life, we'd raise the same tax rates of the young for 40 years of their life. That's why the benefit to tax ratio keeps going down and the rates of return in Social Security have now gone negative. That's also related to demographics. If the birthrate would fall to zero, for instance, and everybody would be over 65 the elderly are going to have to start to bear some of the cost of this support. The birthrate didn't fall to zero, but it fell a third of the way there from where it was. It used to be three babies per adult, now it's about two babies per adult.
	I think generational equity and Social Security reform basically requires us controlling the cost of the system. I would limit the growth in spending, particularly the growth in spending for higher income recipients. I would push very hard, harder than any political party would on the retirement age. Again, I just have really questions whether a society of the future, with so many fewer younger people is one that's not going to become more dependent on older workers working. I think we've got to structure of retirement in the system that's basically built off a 19th century industrial model of when people need to retire. So I would decrease the retirement age, I would cut the growth in benefits, particularly lifetime benefits for higher income recipients. I would actually increase taxes. I would increase the wage base for Social Security and do some other things to try get that system under control.
	For healthcare, healthcare costs I basically I would put the system more into a budget. Again, with us fighting over the years and the decades because there's Have any pure solution for exactly what we're going to provide and at what cost. And if Democrats or Republicans want to increase health costs they should vote for it on a discretionary basis. We shouldn't just keep providing more and more. I would limit that growth. I think that would vastly improve generational equity and stop this constant tendency to put more and more burdens on the young.
	I should mention by the way it goes beyond Social Security and Medicare. We're doing a study on state pension plans now that show that for new young people entering as teachers, the state pension plans, their pension benefits from their employer are going to be negative, zero or negative in many cases. That is their employee contributions are supposed to be in excess of the benefits they get so that they can support taxpayers who never paid for these pension benefits and pension beneficiaries who are counting on them. I think we are just pushing too many costs on the young.
Dean Baker:	I guess I don't see Social Security as being a problem with generational equity. I've looked at Gene's numbers. We have people my age and so many people younger than me that are going to get back less than what they paid into the system so I'm not sure that I should feel guilty about this, them getting back less than I paid in. Again, the point is we do care about after tax wages so people 20, 30, 40 years out from now are going to have higher after tax wages than us under any circumstances so ... I always thought we should have a box on the income tax that people think they're getting a bad deal on their Social Security they get to pick the generation they prefer. It could be their parents, their grandparents, their great grandparents, I don't care. They could pay their taxes and get their income. So if they that's unequal we can do that. I don't see the problem here.
	In terms of, it's kind of funny in Washington, you get debates where you have people arguing, sometimes the same people, points that are literally 180 degrees at odds with each other. So you have people running around Washington that are scared to death that none of us are going to have any jobs because robots are going to do all the work. Okay, think about that. We're concerned about a declining population, fewer workers, and robots will do all the work. One or those other can be true, they can't both be true, these are completely at odds. Basically, I don't think, we have productivity growth, I don't see a reason to think that's going to stop. I'm just not that worried.
	In terms of healthcare, again, we've talked about some of the things I don't ... we import nurses. It just amazes me. We bring in nurses because we say there's a shortage of nurses. Well, what's the evidence for that? Well, some nurses are working overtime. We'd like to pay them less. Why don't we do that with doctors? I don't really understand that. I'd love to see us import doctors. By the way people concerned about developing countries, we're smart enough to figure out we could pay developing countries two or three times what it costs them to educate their doctors for every one that comes here so they increase ... It's very simple, gains from trade. Everyone gains.
	Same story with drugs. Again, I'm less concerned about the issues Gene raised. A lot of our research money is totally wasted, copycat drugs. We probably have 17 calcium channel blockers, not a good use of money. In terms of developing countries, India's got a fantastic generic industry. If our drug companies don't want to sell them to developing countries, India's will so I just don't see that as an issue.
Gene Steuerle:	By the way, this is one of the areas where I say Dean and I disagree. I would accept some very modest tax increases to support things like Social Security and healthcare for the elderly. I am in favor of tax increases, but as I say, and I tried to make clear in my talk, I don't want those tax increases to keep going to support us, the elderly. I want to start taking those tax increases and investing them in children and the young and mobility and work subsidies for low wage workers. I think that's the direction we should be putting tax increases and not putting more and more tax increases into this ever-expanding set of programs for the elderly, which, by the way, also decreases the work supply because it keeps adding to the incentive to retire early.
Mike Meeropole:	Okay, I'm going to take one more question and then I'm going to give Gene and Dean a couple of minutes to say ... Oh okay, I'm going to take two more questions. You two ladies, one after another, whoever goes first. Ask the questions both of you and then we'll have them answer? Okay? Loud.
Speaker 10:	What do you think of immigration policy as a means to changing the [inaudible 01:21:54] in the United States, a means to [inaudible 01:21:57]?
Mike Meeropole:	Okay. Next?
Speaker 11:	And my question is [inaudible 01:22:02] about work subsidies, but why do you think work subsidies are the answer as opposed to raising the minimum wage?
Mike Meeropole:	Okay, guys you got two questions.
Gene Steuerle:	I'm sorry. What do we think about the minimum wage? Is that the question?
Mike Meeropole:	No, work subsidies. Why do you think work subsidies are a better solution to low wage labor than raising the minimum wage? Is that your question ma'am? Good.
Gene Steuerle:	Okay.
Mike Meeropole:	You can start.
Gene Steuerle:	Quickly, I'm all in favor of a liberal immigration policy. I chaired a technical panel for Social Security. Our conclusion was even with a very substantial increase in immigration it only did a modest amount to improve labor relative to offset, say, the decline of the birthrate so I'm in favor of liberal immigration policy. It has moderate effects, but not huge effects. 
	Why I tend to favor wage subsidies over minimum wage increases, well actually I'm not opposed to some minimum wage increases, but minimum wage increases do have, at least to certain points, negative employment effects and a lot of the benefits of minimum wage increases actually don't go to lower income families whereas wage subsidies can be targeted to low wage families, which is one reason why even a Republican sometimes favored an earned income credit increase, although they don't now, but it sometimes favored that over minimum wage increases-
Mike Meeropole:	Yeah, they created it.
Gene Steuerle:	-because it could be better targeted. Finally, just as a matter of equity I really worry about the people that we really leave out of that system, which, as I say, are a lot of single people or people who would marry into a family that have children. They're basically left out of this wage subsidy system altogether.
Dean Baker:	In terms of immigration policy I think I largely agree with Gene. I think we certainly need immigration reform. I think it's an outrage we have 11 million people here who are worried they can be deported at any moment so we need that. I'm in favor of more liberalized immigration. I don't think it makes much sense as fiscal policy. It affects a lot of things and fiscal policy is a relative small aspect in that.
	In terms of raising wages, one of the things that's striking to me, and I feel stupid for not having known this before, if you look the minimum wage ... people often talk about President Obama's raises. He wants to raise the minimum wage to $10 an hour, which is where it was adjusted for inflation back in 1968. So we're talking about getting back to where we were in '68. If you look from when we had passed the Fair Labor Standards Act in '38 till '68 minimum wage didn't keep pace with inflation, it kept pace with productivity growth. That was obviously a conscious decision.
	Now, look if I continue to do that from '68 to the present it'd be about $17 an hour today. And that's a conservative measure of productivity growth, I was careful about that. I don't think you could do that tomorrow, but the point, at least my takeaway from that is, we have the sort of economy that would support a minimum wage of $17 an hour. It wasn't just the minimum wage that's pushing wages up, we had an economy that could support that. Basically because of a very employment economy. The unemployment rate in '68 was something like 3.5%. So I'm for raising the minimum wage. I support work subsidies, but I think the heavy lifting has to be with the economy itself. We need a full employment economy, unfortunately we're very far from that today.
Mike Meeropole:	Okay, I am going to let Gene and Dean have a couple of minutes each if they want to do some summaries. Before I do let me thank Swarthmore College for arranging this. This has been everything I dreamed it's exactly what it was. Having these guys on the stage, I get to listen like crazy. I have all these notes. I can't wait to go back to my room and digest it and probably be sending them lots of emails about it over the next bunch of weeks. So I don't who wants to go first, but you've got a couple of minutes each.
Dean Baker:	Okay. We flipped a coin, I'm going first. Okay, so just a couple points to drive them home or whatever you want to say. Well, first off I do want to say this is great thrill to me having gone here and it influenced my life positively, negatively, however you want to put it, but had a very big impact and continues to. I tried to get my niece to go here and she decided to follow her parents and go to Reed College on the West Coast.
	But anyhow, I guess I would just say that I see the retirement programs, in many ways, as being kind of crown jewels of our welfare state. I think the fact that we have Social Security, far from perfect, and I agree with some of Gene's criticisms, but I think that's a really great thing. It's a real shame that the rest of our retirement system has largely collapsed. The fine benefit pensions are largely gone, most people save very little in 401k's, a lot of money is wasted through administrative expenses. We need to rebuild the rest of the retirement system. Social Security is really gem there.
	The real story, if we look at the long term deficit, the real story of these projections that Gene and I were showing you, these are healthcare and we have to fix the healthcare system. That really has to be front and center on the agenda. I don't think that has to wait. We can talk about that tomorrow. But, again, the point is that it's healthcare not Medicare. We don't solve the problem by fixing Medicare, we fix the problem by fixing healthcare.
Gene Steuerle:	So I guess I'd like to end by challenging you to think boldly about the future. We've had major fiscal crises before and few may remember, but the point of fact, our early development of our Constitution, our early government was largely led by a fiscal crisis. The troops, after the Revolutionary War, weren't paid. They were about to march on Philadelphia before George Washington come up and said he's grown old in the service of his country and asked them not to. You think tax revolts are something now, we had armed tax revolts in that day that had to be put down. This was largely a fiscal crisis that faced our government at the beginning that led to a Constitution, the development of new means to develop it.
	So in substance, what I'm arguing is that fiscal crises really represent opportunities. I think it's really an opportunity as we think about the 21st century government to think about where we can and what we can do. I envision and I invite you to envision with me, a reinvigorated government. One that really responds to the opportunities at hand, the new opportunities, the needs of the day, the needs of ... Let's not decide what tomorrow's government looks like mainly by constantly building upon programs built in the past, give them eternal growth rates and think that there's nothing new that we have to contribute. I envision a government that enables you, the generations of today and tomorrow to shape your own destiny and make the choices that I think are rightfully yours. Thank you.
Dean Baker:	[inaudible 01:28:35] it was a lot of fun.
Gene Steuerle:	Yes, [inaudible 01:28:37].