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tv   Book TV After Words  CSPAN  March 20, 2011 9:00pm-10:00pm EDT

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federal government pairs a lot of blame in this, by subsidizing new structures and spending on transportation infrastructure creating, you know, nonsensible investments like the people mover. now, the problem is that, you know, a city like detroit, a declining city already has an abundance of structure and infrastructure relative to people. the last thing you need were more structures in a place like detroit, and yet the politicians were there ready across the entire rust belt ready to build villages because it looks great, bus it's beautiful and shiny and all the sudden cleveland is the come back city, but that does nothing to address the real problems of the urban area or make sure the children in the cities have the skills they need to compete in the global economy and have something that's a birthright of everyone, the safety of the streets. . .
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a quinby economist dambisa moyo discusses how the west was lost 50 years of economic folly and the stark choices that lie ahead. the best-selling author of did a hour first walls economic decisions made by western governments have resulted in the scales of economic growth being attacked in favor of what she calls the emerging world. she talks with libertarian economist john mitchell.
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>> host: my name is dan mitchell with the cato institute to talk with, a best-selling author about her new book, how the west was lost. dambisa, welcome to the program. let's jump right in. you're basic premise, the west is being overtaken by the east. give the mashaal explanation of what it's all about. >> guest: it's interesting because this is a bit is our time almost obsessed with what is going on the stand what is going on with china and other places and of course incredibly fascinating. but my book is about errors that have been made here in the united states and europe. it has absolutely nothing to do with china, the education, all the structural problems like infrastructure, things like energy policy that don't have anything to do with china and are essential to get right to make sure the u.s. and european
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countries are on track. >> host: it's almost as if there's a couple of different books in one book. there is your story of the decline of the west, your story of the rise of the east and the lines are going to cross. >> guest: i think this is you can argue there's an absolute part for short talking about the west and its isolation and issues going out there and going in an amazing time and other european economies have done the unthinkable moving hundreds of millions of people out of poverty so this is going to naturally be able to question as well. >> host: let's talk about what is going wrong in the west. >> guest: first of all its important that in terms of the context of my work i talk about the unintended consequences, things that sound like a good intentions but actually yield bad outcomes and what i have done is to focus on the three key ingredients economists focus on as the drivers of economic growth and there is a capital
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that is basically money, labor that is the work force and then finally productivity, how efficiently you can do stuff, and william are doing here is to provide a catalog of the policies that have been instituted in the united states and across europe over the 50 years that have led to the erosion of the three ingredients that drive economic growth and simply to give you an example the idea of housing for all which has been a mainstay of american policy for republicans and democrats. it sounds like a great idea we want everybody to have shelter over their heads but in principle the manner in which it's been executed has been led clearly to a situation is of prime crisis, the idea of keeping interest rates historically low, the idea of having a policy of subsidies and guarantees that clearly induced behavior that led to the supreme crisis. >> host: when you talk about what was done wrong in america and other western nations as well, part of it is that we live
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for today, we go for the free lunch. the elaborate on that. >> host: i think what we are also facing right now in places like the united states is the competition over the sort of test between the current generation and the future generation. we have to decide whether there are going to be sacrifices which is what i'm arguing in the book, sacrifice is for people to face of the united states tomorrow can remain a preeminent economic power. clearly there were promises that were made, pensions is an example but is unsustainable and it is going to be impossible to fulfil the promises and so the question then becomes how much of a sacrifice are people willing to meet today in the united states to make sure that tomorrow we can have a reasonably educated population and the infrastructure and so on. >> host: what happens if we don't make the sacrifice because that is your warning in the book that because we are on this wrong path and because they're seems to be this short term
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consumption attitude what happens if we don't -- >> guest: . >> guest: at the public and the individual level in the country and across europe has been financed by debt and in terms of the unsustainable if it had been used to finance investment for example we wouldn't be sitting here because would be productive investments we might have seen come out of that but we have a very different situation. so what could happen? in many ways europe is a harbinger of the sort of things that could happen. you end up with raleigh it's unsustainable budgets and very often you lead to bailouts i was just in california and the serious concerns of infrastructure there but also fundamental on their budget deficits they have furloughs and those types of things can put a lot of stress on the economy and that is where you are hitting the if you don't follow the fiscal problems.
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>> host: in the united states and other countries as well, greece is the future. >> guest: it's pretty evident. - what people perhaps don't appreciate although it is coming from a different background the fact of the matter is you have to increase income inequality and people will be frustrated they have to work longer than they had perhaps anticipated. the government is not going to be able to continue to finance all the programs it promised to and all of that leads to the unwinding and obviously leads to many more labor disputes and issues around the government ability to finance things like infrastructure, education, energy policy and that is where i think i'm afraid it would lead to. >> host: how much is demographic? is a result of the big baby boom in generation, retiring and a onetime spike in costs for an elderly population or is their something more permanent and systemic and troubled? >> guest: i think there's a lot of things demographically
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linked. clearly even the property boom, the pricing of and that is clearly supported by the baby boomers willing to pay for housing. and obviously looking ahead, issues are now pensions and health care are strongly linked to the issues of demographics. but i think there are more systematic systemic issues flowing through the u.s. economy. think about education. the fact the united states has gone from number one of college graduates to be number 12 in one generation is the essentially incredibly problematic for america's ability to compete over the long term. if you look at the oecd, the organization of economic cooperation and development studies we have a study called pisa, if you get americans in mathematics and science and reading the factually slid from the top one to three down to being in the 20's and the teams and high 20s. that's problematic especially
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for america's competitiveness. the fact the united states today has around 30 to 50 million people out of work in the manufacturing sector when we know they are not competitive globally on the cost basis again it's not something necessarily linked to the demographics it is the competitiveness. >> host: when you talk about pensions there's obviously many pieces to that. there is the federal government, social security program, there are underfunded pensions in the private sector and then of course we are seeing this with the debates in the u.s. states. should underfunding pension promises to the state and local government workers do you distinguish between those different types than the others? >> guest: i've written a lot about this. i think that they are all the sort of overarching umbrella of the tension is the promises that are unsustainable and the finance money options that was just not going to be able to pay. we have already seen in the private sector told industries that have basically hit
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bankruptcy because of the pension problem whether it is the airline sector, the fielder sector or office sector we have seen with the implications could be. at the state level california classic example they have furloughs' where people are forced to go to work because the government doesn't want -- the state doesn't want to approve additional liabilities. and clearly this feeds into the federal level. so why don't distinguish, and of course in terms of the numbers and what it looks like you can get with the overarching liabilities are, but the main thesis, the sort of threat of running through our promises that are not going to be able to be paid. >> host: we are talking about promises that are not able to be paid. at some point if you are california, when do you become greece in the sense when do investors decide we don't trust california anymore we aren't going to buy the bond, california can still issue debt at a reasonably low interest rate, but we are seeing greece has reached the point they want to get a bailout, portugal was
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teetering on the edge and demanding higher interest rates, when does that happen to california or illinois. >> guest: i think the one thing i'm constantly reminded is politics tends to bail out these types of situations and california isn't a stand alone in the sense that it's part of the united states of america. they have a common currency implications of the far more reaching than just california having itself and the federal government would not have missed that has a point. so, you know, whether or not california would get bailed out, i'm certain somebody will come to the rescue, but that sort of doesn't conclude your more underlining issue which is if the interest rates start to rise which we are already seeing between september and now, that in your interest rate has gone up by 100 basis points there's a lot of pressure on the debt and interest payments so those pressures tend to force not just
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states but also government where they are able to make payments and have to make trade-offs with public spending for its simple and i think we are seeing it now. the fact we talk about illinois and ohio, these pressures you are seeing from the public sector with teachers and in the york and other places across the united states those pressures will escalate if you cannot solve the interest rate problem and the fact you have to pay back money in the environment where interest rates are moving up. >> host: what you are seeing is that despite what we are seeing wisconsin between the government employees union and the state legislature and governor it's going to be repeated all across america. >> guest: i think it is reflective of a greater problem in the united states which every penny knows that many of the states and federal government is simply too much indented and held massive deficits and those
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together means something has to give. i think there's a lot of debate as we know about cutting spending. the writ be more happening on the tax side and it's problematic. the united states already in the corporate taxes of about 35%. this is higher than the oecd average which is 25% and in fact a friend of mine from denmark remarked to me recently how he found it quite surprising because in denmark as we know the income tax at the present level was higher. we have to become 60% tax breaks is that the corporate level for the corporate taxes to be lower in a place like scandinavium and denmark it's quite surprising. the united states really build on this idea of private sector innovation and incentives it is a symbol of how things have become but it's the fact the matter will be the tax rises plus budget cuts, spending cuts in order to get out of this aggression. >> host: it is amazing every
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single european state which we think of is the high tax hellhole has more than the u.s. by a significant margin, say the average more than ten percentage points. i want to go back to education. as you pointed out the u.s. used to be the top or near the top, and now we are coming down around 20. but we spent per pupil more than any country i think other than switzerland, so it is not a question of resources. we are not allocating resources very intelligently. was what is wrong with the education system? >> guest: this is a point about it's not about quantity of money or quantum but the quality of education being delivered. and i have to say having spent a lot of time reading about the but also listening to experts who focus of the ejection system it reminds me a lot of the aid sector industry especially to africa and two things in particular. one, people are being rewarded for poor performance.
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it's quite clear if american education funds are going down and you have these lasting first out policy is getting rid of teachers and regardless of the performance because they came in last to me there seems to be some dislocation. the other thing is that we are as a society essentially being held hostage by the vested interest. the trade unions, the teachers' unions specifically. it's rather problematic that we are sacrificing our children's education and education performance and their ability to compete internationally and therefore the ability for america to compete in the interest of teachers' unions. there is nothing inherently wrong with that but something particularly sort of wrong with an idea that we as a society can see that education funds are going down but we are not penalizing people for the lack of delivery. >> host: is the problem structural so? we talked about how the u.s. has higher corporate tax rates which surprises people but also in
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europe you find a lot more school choice in sweden school choice system nationwide the netherlands has a substantial squash receive in germany has a lot of school choice. we only have a few tiny little programs in the cities and states. is that the solution we need a competitive model that puts the parents in charge over teachers? >> guest: you absolutely need parents more involved and the question is what can we do to make the government -- dinsmoor involved in ensuring that it doesn't happen. i am not too sure about whether it boils down to this idea of more or less choice because if you look at the education performance across europe, the too are seeing the backslide certainly on the oecd standards relative to the rest of the world. if it really were about twice the new wouldn't have expected them to be with the united states sliding down. i think one of the things i talked about in my work that possibly could be something worth thinking about is the conditional transfers.
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very simply put, very popular in mexico and brazil and also being rolled out of the pilot program by mayor bloomberg is the idea of paying people to do the right thing so your child goes to school 98% of the time but attendance you get $100. you get your target immunized for a particular disease you get $100. there's the discussion now when you're not about whether or not people should start getting paid for their children's to study mathematics or science, things the united states and european countries need to continue to remain competitive. obviously this is not what we expect of the societies. do we need to start paying people to do the right thing? but given where the societies are everything to me seems to be on the table and it is quite fascinating the idea of the conditional transfers as and won a plausible solution to the problem we are seeing now >> host: could some of the problem with their we are talking about education or these other areas simply be the fact
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one once the country's become rich they become lazy? >> guest: i hope not i can describe that, singapore last year with the fastest growing economy on the planet it had about 15% growth in gdp growth. that is mind-boggling for the country that is really close to the western standards in fact about western standards in the per capita income basis we should expect to see the levels of economic growth for the rates of economic growth if we believe what you just said so isn't that at all. the reason i wrote my book is i really believe that a lot of americans don't really understand what the problems are in the economy and to see a lot of them on television and the press about the deficits and massive debts but it's not a practical initiative people understand this is a fight for the soul of america and not only america but the world. 9 billion people on the planet in 2015. we absolutely need to get it right. we need america to help solve
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some of the big problems of not resources and the lack of water and land and issues are now the energy that the united states is great at solving these problems. we are not going to be room able to rely on the u.s. if we don't cut education. >> host: you mentioned singapore began an example of a rich country growing rapidly. what are they doing the right to the u.s. is doing wrong and let's broaden that a little flat. you talk about how the west was lost but presumably not all of the nations are the same. some are probably doing okay and some are going in the wrong direction at a faster rate. what are the differences between the u.s., between europe, inside europe, why are those countries different than singapore or hong kong that seem to still have this vibrancy and rapid growth. >> guest: first of all nobody really knows how as economists we don't have a sort of solution for all countries for sure. and it's quite fascinating to look a bit different approach
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between britain and united states addressing the initial crisis. britain adopted a very few the purchase was resolving the issues of its deficits and its debt. they've adopted a different approach and it's become quite fiscally waxed as we know with the qe1 and qe2 and there's this discussion of the interest rates rising across europe and britain is a different policy stances and obviously we don't really know how that plans out. but i think boeing to the conduct the framework and i am not by any means saying this is the sort of complete picture, but again, looking at capital and productivity, you can see why these emerging economies are actually in a good place. they have a lot of money and they saved our jubilee too much in terms of labor that his great labor dynamics and in terms of quantity and large numbers of people but also in terms of quality they are working
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incredibly hard in investing in education to get out of the scale of western standards of education particularly mathematics which do matter and in terms of productivity and places like china managed to have the highest levels of manage because the port technology. but they are able to do that and very important ways and these three things together are the foundations of the engines of growth we are seeing their and they are a great political and different and far as well for the government takes a much larger leave. i think it is interesting to see the government actually does control the corporate environment and many of the countries don't have the democracy and the manner in which the united states is the space process. i feel that democracy is something we should aspire to but it's clear it's not a prerequisite for the atomic filament and in some instances piper public position of having elections all the time might
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reward policymakers focusing on short-term things come policies as opposed to dealing with the bigger structural problems we know can undermine the economic growth. >> host: that is one of the things in your book that rubbed me the wrong way. it was almost like this tom friedman argument that the chinese have it better because they don't have to worry about the messy business of democracy. the government can just decide something and implement it the next day we're as especially in america the separation of power it takes a long time for something to happen. but obviously, even though democracy is in perfect i guess what winston churchill said least worst of all the option. >> guest: nobody is saying get rid of democracy. i do we are in the space process need to think about how we can reword, incentivize and penalize as necessary. policymakers who don't focus on the long-term structural issues. devotee knows whether you are
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republican, space, independent everybody knows there's a pension problem. massive concerns about health care. serious issues accounted for stricter, they are not going to be surprised if the debt and deficit story but the question is how can we get around the table and get everybody to say they are going to sacrifice is are going to have to be made and unfortunately the policy makers haven't done a good job not just in the united states but europe as well haven't done a good job of explaining to people with the sacrifices might look like and what the errors in the policy have been over the last several decades. >> host:. there's the time horizon to the next election in the two or four years. >> guest: a very rational. but look around south america. they have a space process he's in some countries and it means when you are elected as president, you have a longer term. so in mexico for the sample you get a six year term as long term but it gives you a little more bandwidth to think about the structural problems without constantly having elections. i find it baffling that you just had elections in the united
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states a few months ago in midterms in november and here we already the discourse on television and the united states is set up the next elections. where does the policy maker of the scope or the band width to focus on the structural problem? everybody acknowledges they, are there. they talk about energy efficiency without basically trying to maintain what is their big thing which is the same power. >> host: i don't think this was actually something that you address in the book or maybe i just forgot it, is there any evidence that longer term is actually result in better policymaking? i get the feeling if you are a poor country you are hungry and therefore less likely to engage in the short term debt over consumption that we see in some western countries, but this sort of goes back to my point maybe once you get rich you get lazy and it doesn't matter if you grow 1% a year because you are already in good shape. >> guest: perhaps that argument has some credibility,
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some a lot of people in the united states are still hungry. i think the responsibilities of the government or clear. the role of the government is to provide a good regulatory environment without being strangled and the government is to provide public goods and things we all benefit but no one person wants to pay for with a road infrastructure. but it's also important for the government, most crucially to provide it was the environment that incentivizes people to do the right thing. i don't think environment where the government becomes a major arbiter of capital and labor is a good environment. the united states still continues to be the leader of innovation the more you put a stranglehold on the people in silicon valley involved in the technology that isn't a good thing so when it is at 35%, given where the u.s. is right now it is troubling because i
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worry because i think to myself how are we going to solve these big problems around the world if americans may be overtime loss incentivized or innovative when we need them to be right on board in those areas. >> host: if you are saying we want to invent a vice people to do the right thing is that an indictment of this state because if you have the high tax welfare state your punishing the people who produce and create well on the tax rate and you are rewarding people for becoming dependent on the government and what i think of greece sometimes i think a simple parable that if you have to many people writing in the wagon and not enough people pulling the wagon guess what happens? the whole thing grind to a halt which in some sense is a good description of what is happening. >> guest: and i talk about this in the book for sure. look, the manner where the chips fall where not how big the state should be in the role of the state really is a personal, and by that i mean a national decision.
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there are countries like scandinavian countries that have been very successful at having some form of a social safety net but at the same time encourage the private sector involvement. we've been able to talk about already they've got much lower corporate tax rates and the way they've done this they are going to provide you with the public goods but you're going to be more of the income level and that seems to work well for scandinavia. germany has a very well-defined and very designed more welfare state with a w than in the united states and at the same time you have to figure out how to have the tax rate that works to help support public goods but one that isn't so onerous where people in the global environment say ghosh climate paying more than 35 business to be to present and then the health care costs and all this i might as well take my business elsewhere so it is a fine balance. my personal discussion in the book is that i do think that the
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united states does run the risk of ending up in the situation where there's too many people in the wagon as you say and i have to say it's not that there's too many people in the wagon the there's a lot of people in the wagon who don't want to be in the wagon. they would rather be out of the wagon and the policy environment is and incentivizing them to do with the want to do. and that is problematic -- >> host: i sometimes think of the welfare state being like paper people get stuck and become dependent and even though they want to climb the ladder the policies aren't very friendly. let me ask you about the differences between the welfare states because you mentioned scandinavian countries do it better, and that certainly seems to be the case if you look at the pensions for instance in sweden, the age at which you can retire is actually tied to the average life expectancy. so, you may very well be on the case 20 years from now you can't access benefits until you get to be over 70 whereas we read the stories about agrees, different
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provisions that have political power have retirement ages of 50 or 55. so i need good libertarian. this is a philosophical principle, but if you are going to have the big government, it certainly seems that sweden is much more of a model of how to do it than greece or italy. >> guest: and i would say look there is something to be set for the fact that in this round, the last round of the financial crisis sweden has done better. they had their own financial crisis in the 90's so they don't get off the hook that easily. but there is i think ultimately the government has a role for sure but i think it can get a bit carried away and i will give you another extend from the book, i don't believe that is the responsibility of the government to pick and choose which asset class is individuals put their money in so let's talk about the spirit is to many different asset classes, commodities, bonds, stocks, property.
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but with the government has done is to keep interest rates low and view the government over the last several decades, the interest rates low, subsidies and guarantees that have induced people to take their money into housing class. something inherently problematic of that and this idea of having these systems and develop the commesso systems as somebody that comes from africa i can see how dilapidated or damaging for the continent a billion people many people in africa want to work and want to be part of the global interconnected global society and they don't have that privilege because of this culture of undermining and underwriting the government providing money and providing a situation where if you had a bloated welfare state. my preference as i would prefer to live in a place like sweden than a place like greece and i think it is not surprising we are seeing all of the rockets in the place like greece and not seeing them across northern
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europe. >> host: but compare say hong kong and singapore to either greece or sweden. hong kong and singapore by the global standards of the industrialized nations have small government less than 20% of gdp whereas you have about 40% of the gdp in america when you add the state and local government and then of course in sweden well over 50% consumed by the government. >> guest: again i talk about this in the book but let's take the case of singapore. this is again the discussions and decisions that a society has to make a letter to flee. there are things that go on in singapore that americans might recoil at and say we don't want to have that and i will give you an example i site in the book. the singapore government has a dating agency where it actually helps educated, college-educated people get together so in the hope of producing -- >> host: >> guest: it is the singapore government version of if you think about it, many
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people view that is infringing on principal rights. but the government says we are not putting a gun to anybody's head but what we are saying ispg create an environment where ouro educated populations meet eachpo other and produce children whopg are more likely to go to schoolg pgd so on.pgpgpgpgpopgpg how big should the government bg that is a good examplepg of howg they mpgight have a smallpopo government ipgn terms of thepgpg fiscal but in terms of something in the social policy a lot of people would recoil lit and say that it's completely unacceptable. >> host: i think police have been meeting goals for millennium and somehow i don't think that singapore government needs to be involved but let me go back to europe. europe and this is like the twilight zone aspect of this coming year and is being much more conservative fiscally in terms of not going with the keynesian spending packages, some of the countries like germany didn't do a they are not
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going with the keynesian policy and artificially low interest rates where is in the u.s. it's like with completely switched but we're the ones with the big so-called stimulus and the europeans are the ones being more frugal. what's happened? >> guest: well, you know what, this is the big question and i'd think that we have to see who wins next year. my personal preference is if you can't afford it, cut back your expenditures. especially if you have issues around revenue, raising revenue. people look around the united states and i have seen papers that are due around 45% of americans don't even pay federal taxes already so this is an unsustainable situation of the interest rates start to rise and pressure of inflation where the oil is right now those types of pressures are going to mean something has to give, and the less prepared the policy makers meet the united states in terms of having to, you know, tighten the belt, the more vulnerable
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the country is going to be as the outcome in greece. i will take britain as an example the had a really bad quarter. the last year in 2010 people who believe in the keynesian economics said ghosh it is exactly what we expected given the serious problems on the horizon and the had the pressures before the prices have gone up. and the government has decided that they don't believe, they don't take that decline in the gdp was an aberration, and they are absolutely going gangbuster focusing on this idea that we do need to tighten our belt and it's unsustainable to have these massive bloated governments and productivity declines which have seen very significantly in britain. i have my id is i think it is unsustainable to have the debts and deficits and the only way the work is if somebody is willing to lend to you it the united states as you know has
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relied heavily on china as a lender. we will have an impact and there might be others on the tensions in america for the government debt or whatever. there is something wrong with living beyond your means and i think the united states particularly because they were using the money they brought for the consumption and not indefinite to talk about have to come to terms with that. >> host: as bad as the u.s. fiscal forecast is it is based on the lower interest rates. and if the interest rates go back to the traditional level especially if you start getting the inflation interest rate premium for inflation in the interest rate the fiscal numbers just go to hell in a handbasket. >> guest: everybody knows that. you can't expect interest rates to go with 100 basis points in the 1% without something happening to give new numbers, and the thing is i said earlier
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my books are an appeal to rational thinking. people understand these types of concepts and clearly when they look at their own household incomes they understand what it means when one member of the family or with members of the family independence and the family are out of work and the unemployment and the increases and inflation would that might mean in the price increases might mean for their consumption the understand what the interest rate increases mean for their debt burdens, so it is essentially the same thing. and the valverde ability of the united states is in that she's borrowed per say, the vulnerability is first of all can she pay the interest back but second of all weld people continue to lend to the united states? and at this point, they've gotten away with it but we have to wait and see what happens. >> host: if you are china and this is the story people tell me and sometimes i believe it and sometimes i don't, if you are china and of a giant portfolio of u.s. government securities why would you want to pull the
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rug out of the united states because you hurt yourself? it is the joke if you owe the bank thousand dollars is your problem and if you go $1 million it is the bank's problem. >> guest: china is lending her and to other countries, as we know lending quite significantly around the world. nothing says the chinese government says to the united states we are not going to give you, you know, short-term money anymore. we are willing to give longer-term money but we want to take on a bigger role in providing infrastructure in the united states. at some point these symbiotic relationships we lend you money and to give something in return. in the united states, you get access to consumers. they have these four of devotees if one person decides i will take a hit on the chain. they couldn't decide the portfolios and they move more towards the euro and the moving into the technologies and moving money out, they are running about a billion dollars a day just in interest.
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that is being deployed in different asset classes so you are right in the short term may be the do feel that america has got the upper hand but over the long term there is nothing that says china can't get high year returns on elsewhere than taking a big hit on the united states getting it right. >> host: what do you think about the assertion china is artificially keeping the value of its currency flow for the trade purposes? >> guest: i think that is a sort of a fait accompli. i think most people with knowledge that tradition of the ty exchange rate has been artificially manipulated but there are few things happening in china which suggest they get it. they are not blind to issues. the focus on the domestic demand which is a big move away from this idea of the whole groups doherty into one that is trade dependent. last year in 2010 of just china, india and brazil at 10% domestic
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demand increases very significant focus on that. the other thing they've done is in october of last year 2010 the chinese government put out the five-year plan every five years which lays out with the government is planning to do. the government is very focused now on the social programs in china trying to encourage people domestically to invest more in the consumer goods and away from the underwriting health care and things like that and so again idea that there's much more focus on people starting to spend. i think also if you think where china is today, she's got some serious problems. it's not a sort of closed up story that china is going to win. we don't know on a per capita income basis if she can come close to the u.s. level. she has a lot of structural problems around resource allocations and a billion people are indigent and were so she has a lot of issues, but i think
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that to with defender that china about the artificial manipulation of the exchange rates in other words protectionism i think it is kind of farcical because the united states and european countries are among the biggest leaders and protectionist countries where agriculture is concerned and again as an african, i find it quite interesting. if i'm in china and i hear americans wagging their fingers at the chinese you need to let your exchange rate moves will america doesn't play fair with respect to agriculture or the europeans with the culture policy. and there is something about the fact use a one thing and do something completely different. i believe in the free trade and i think it is a great way to raise people's living standards and many africans have lost their jobs and families live lives have been decimated because of the protection programs in the u.s. and europe over the many decades. but the fact of the matter is america and europe are part and parcel of the protection game
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and it doesn't undermine your ability to, you know, to force other countries to be less protected if you are doing the same thing. >> host: it's hard to throw rocks when you -- >> guest: exactly. >> host: let me go back to the u.s. and europe. a couple of years ago, you were sort of suggesting china was beginning to move out of the dollar into the hero. a couple of years ago i was very high on the bureau because it seemed like the european central bank was more prudent. the had one mandate price stability verses the fed also to try to manipulate short-term economic conditions but the european central bank basically has sacrificed a lot of its independence and it's doing the bidding of the european politicians by doing that or bailouts by biting portuguese government debt and banished government debt. it's like a body that fannie and freddie debt. what is your take where that is going to lead? >> guest: the hedge fund friend of mine put it best and said -- i said when you are
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treating the markets, how do you -- what kind of key driver is in your decision making? he said whenever i have to deal with policy makers, i always say to myself what is it -- don't focus on what they should do, focus on what they are going to do, and by that i mean politics range. suggest, perhaps it's economists might look and say i don't want you to be keynesian, it's wrong for you to intervene and to do certain things in the market to artificially make them look more attractive than they are, we talk about housing market keeping interest rates low, guarantees and all of that. but the fact of the matter of what they are actually going to do, and i would completely concur with my friend, i think that he's right it is always going to be the case be allowed are going to happen. it is a political exercise that is we to important as an economic exercise perhaps not as important for a lot of skeptics
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even before the euro came into being, but now that we are in it and general mcchrystal, para three c's kaput to the point we should focus on where we are and not where we'd like to be in the financial crisis all of your sort of price stability goals may actually not be sort of stock. you might have to lose another bit and do other things and it's a classic example of that and people ask me all the time do i think that they are going to break apart? if i were an economist i would say there are lots of reasons as an economist why it should break up because they are not on the same path, but as somebody that looks at the politics and economics, i would say it is unlikely it's going to pick up because the always supercede. >> host: there seems to be a secular religion in europe that his european centralization that it's part of that and the sacrifice everything. all of the peripheral countries to keep the euro alive.
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let me go to china and hit you with some of the things i think i would disagree with. and you mention some of these in the book. the u.s. per-capita income seems there's a big gap and maybe 2007 you have a figure above of how many decades way in the future it would take for trying to catch up with us in terms of living standards and that assumes that china doesn't have a bubble of any kind, that china doesn't have any economic mismanagement. there's a lot of concerns about china's financial system being transparent and shaky. so yes, has improved dramatically. hundreds of millions of people lifted out of poverty, but are they really a threat in any sense? is it bad if your neighbors become rich? >> guest: you will remember in my introductory remarks i said
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my book is not called how china was lost but how the u.s. is lost because there is the secession will get with china is doing and we should commend them. 30 or 43 years ago there are number two the largest country in the gdp basis after the united states. it's number 99 on a per capita income. it's a serious issue our education and helps all of the stuff we talked about already. in the short term. they have the issues around the property level and i mentioned a moment ago how they are going to actually bounceback from the financial crisis and obviously linked to the united states vary considerably in exporting goods and so on and so forth. again as i said a moment ago the structural problems the rollout of infrastructure how do you with a billion people out of poverty, no country is on that
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savitt isn't going to be a straight line for china and of course it is also overlie and that is the whole idea of the political environment. i think that it isn't unforeseeable that at some point at some level there might be more pressure for them to have more political instability or demand from the middle class. but i think if you put all of this aside, is china going to keep going? i would say yes. looking at the capitol and productivity is in their favor. are they going to grow faster than the united states? i agree it absolutely will because again, these factors are in favor of china, and against the united states but that's natural because the united states is more -- >> host: the convergence. >> guest: of course. the question is whether china can converge to the american levels of per capita income. we don't know because we've got resource constraints. already we are consuming
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85 million barrels of oil a day on the planet and the fact of the matter is the oil we are consuming today is largely discovered the 1950's and 1960's. there are concerns about the land, they have 1.3 billion people to feed. issues are not water. just look at the numbers coming out in the middle east in terms of not working as well as we would hope and concerns about water, issues of energy but also around minerals. so can china really converged? we don't know. and that is where again the united states and european countries have to get it right. we have to focus on these issues otherwise we know what happens when the constraints are alive and well. they tend to end up in conflict. >> host: in other words you are not saying that the west is staying lost because of china, but because of the home grown mistakes and china is an example of the country and also you have a lot of discussion of india and countries that are not engaged in the overconsumption
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short-term political -- >> guest: that is exactly right. 50 years of economic folly and the start twice is a hit because america does have stark choices to make and it needs to focus on the choice is so it can remain the preeminent economy. just as an analogy somebody said to me it is sort of like the green bay packers. you're number one, you win the super bowl. but in order to stay there, focus on your own team dynamics and make sure it is the best it can be. if you focus on the bye snapping at your heels you can get so overly focused on what you're doing and you get relegated. you lose the super bowl and that is a message for the united states. the problem we have right now, the budget and all of that, obviously plays a role in tangentially that is in the core issue with respect to infrastructure. it's about what america is doing wrong. it will remain competitive. if we don't solve those problems
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it doesn't matter china might do relatively that things are wrong things that is on the right track and the united states is brought in on the wrong track. >> host: these two guys are out camping and if they're comes over and one guy starts putting on his sneakers and the other guy says you can't run out there. he says i only have to not run you. [laughter] >> guest: exactly, yeah. >> host: what about i assure you heard the theory china will get old before it gets rich. in other words like we have the demographic problems in the u.s. with our social security system medicare and medicaid, especially against the one child policy, they are going to have a giant version of the baby boom generation retiring and not nearly as many workers coming along to replace it. they don't have the kind of western-style social welfare state, but you find out in your book they might be moving in that direction. >> guest: if you compare china
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and india india stenographic is much more favorable in the midterm i think the chinese government has made a very deliberate choice to focus on the one child policy because they were concerned about how we are going to move a billion people if we have the population growth continue it would be bigger than the billion people we would have to take care of or certainly provide for in in the economic sense so your right this is one of the things they've focused on. as i always say when it comes to china's governor if we are talking about the doherty thought about it the are already thinking about it, they are not imposing the one child policy because they hate children. it's clearly because they are trying to get as many people on the economic ladder as possible in the shortest amount of time and that unfortunately means the largest population they do have issues about keeping the population stable. could it hurt them in the long run.
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the government getting involved in the population dynamic and the chinese are very aware of the implications over the long term short term versus long-term what can we do to help people become more economically independent to have a better likelihood is there a trade-off with the fact people have more children is up for debate. >> host: licht der rauf into the aspect of the one child policy. apparently there's a big mismatch between the number of boys and girls in china and certain cohorts. a lot of the social science stuff that i read casual lisieux i am not going to pretend to be an expert on it is if you have lots of young men with nothing productive to do that is a recipe for social turmoil. >> guest: middle east classic example. >> host: china faced challenges? if you have i don't know, 20 million or 50 million, if you
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have a surplus of young men with no way to channel their energy in a productive way is that a recipe for bad things? >> guest: as i said the middle east is a classic sable of this you have a large proportion of young people, a lot of young men in particular disaffected unemployed, what you end up with what we are seeing now and i very much believe we are seeing in egypt in the country has really a reflection of an ability for government to deliver the living standards, too much poverty, to many people disaffected, and i think that wherever it is if you have a large population of people who are -- who do not feel they are able to capitalize or get involved in the economy, don't have the vested interest in the economy we will end up in the political instability. one concern which is why i wrote about africa and my last book, a billion people on the continent, 60% out of the 24 you've got to
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get it right and make sure that these young people have job opportunities and opportunities to the entrepreneur is, get the incentive right so they don't end up at 25, 35 disaffected and say what is going on? and it is particularly stark when you have a government that has been corrupt. and i think that is where you see the great attention. i would argue that wherever it is around the world without being able to deliver economic growth and reduce poverty you're going to have these types of issues. >> host: you're probably too young to remember but i'm sure you to read about it in the 80's devotee america was terrified of japan incorporated. i think the japanese had bought rockefeller center and the other high-profile the things and i feel that you mention some of that in your book. but japan incorporated disappeared. and now we are waiting for japan to be one of these debt dominoes because it is 200% of gdp in the
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are we overstating whetherpgpg people should be concerned0gpg o them?popgpgpopgpgpopgpopo >> guest: ipg would say i don'to know because if i knew i would be in haiti. already0g.pgpgpgpg0gpopo my sense is because japan haspoo given an example of what can0gpo happen -- by the way we all knog japan was a housing crisis thato
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they are planning a chess game sort of multiple moves ahead of the world. >> host: we only have about five minutes left, so let's try to focus on some solutions that are u.s. audience might be interested in. you mentioned the housing crisis, and when i think of the housing crisis, it makes me very pessimistic. i read your book and i thought she is a curmudgeon. but i like to think i am more of a curmudgeon because we basically had the government of the federal reserve with artificially low interest rates and we then have a government for the government created entities, fannie mae and freddie mac, talking depleting field so the liquidity is flowing into housing. we get a bowl decouple and their answer in washington is more government. you have a history of being in
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the financial market and you know that moral hazard is critical. you know the miss pricing and misallocation of risk is a misguided approach, but it seems when washington does something wrong the answer is always for washington to do something else wrong, and i don't know, my parents have told me two wrongs don't make a right but it seems the politicians specialize. >> guest: lots of things to that. first of all, if the government had done nothing around the financial crisis in the situation this country and the world would have faced would have been undoubtably much worse and i am not a big believer in the government and all that i've seen what it can do to the economy if you look around africa it can be incredibly damaging, but i.t. could we have to acknowledge the government needed to stepup. things have gotten out of control and its guinn to be incredibly damaging. that being said and coming back to mcchrystal's, and we have to start from where we are and not
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where we would like to be, the fact of the matter is we have a lot of foreclosures and issues in the economy still. believe that the issues are around long-term issues that need to be dealt with are still not being dealt with satisfactorily. there is a lot of talk of gdp to go towards science and technology issues around the 45 billion plus infrastructure. all of that is my spite the united states has to be much more aggressive in terms of addressing the fact that she is on this economic path. i also think a lot of americans don't really understand what the implications of what is going on our for america long-term. maybe they don't care. i think they care which is why i wrote this book, and i do think that the -- gerberding an effort that in the 80's and the structural adjustment period policymaker said listen it's going to stink, it's going to bo hard but this is something we have to do to be viable in the
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long term and is essential to explain that to americans. >> host: you're not a tax resident of the u.s. are you? >> guest: no, not a free poster you don't want to do that because as you are one in taxes are going up because we are not addressing these things. let me ask you we are now in the millo fiscal fight in washington and the last ten years the federal government budget has gone from 1.8 trillion of to 3.8 trillion more than doubled to ten years. now we are having a fiscal fight about that 3.8 trillion the house wants it cut 61 billion as a special-interest in washington that is ripping apart the social safety net. if the u.s. can't trim 61 billion from the $3.8 trillion budget the was doubled in just ten years, is there any hope we are going to get our long-term fiscal house in order? that's not even getting into the fact we misallocate and spend too much on consumption and transfer spending and as you point out there are issues about
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a capital spending that are sort of getting squeezed out. >> guest: i hope there is because if there isn't, then it's not just the u.s. that is in for a wild right is the whole world. we need the u.s. to get it right. i'm not very sanguine because when i read the papers and i see the house republicans talking about 61, democrats talking about six i'm like they are not even near each other -- >> host: not anywhere near the numbers that -- >> guest: exactly. and of course not even anywhere near where they should be. yes, it isn't a comfortable feeling but again, if eink the politics have a stranglehold. but remember the petitions respond to what the average individual's want and they should be responding and at the same time policy makers should be listening to what the average person understands to be the issue. people say listen we are willing to sacrifice and there is evidence of


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