tv Book TV After Words CSPAN August 11, 2012 10:00pm-11:00pm EDT
frustrated with what i heard in the media about the economy on both sides of the debate and felt that i wanted to try my hand at clarifying it. i felt like i needed to make my contribution as best i could. i felt like i needed to try something different and new and i had to try to do something that was important. >> host: you mentioned bain capital. there are a lot of interesting thoughts and ideas in this book. maybe you can tell me where these ideas come from. are these ideas that it developed over a long time from your career in finance and a bane and other places? who are your influences in how you think about the economy and what is in the book? >> guest: probably evolves from the base i had with the young kids that came out of the top schools and came to work for first bain consulting in an bain capital who wanted to argue economic politics and i kept saying when you get to be 40 or
45 and you become conservative. i think it evolve from that but also benefited greatly from a friendship i had with bruce greenwald who is a professor at columbia who i was able to make my arguments to and he would frequent say right on this but you're stepping on landmine here a landmine here are stepping on line band -- landmine bear. he help me sharpen up i understanding of economics, but that is really the sorts and part of the came from my experiences at vain consulting and bain capital. build bain taught us that almost all the value that is created by businesses is captured by the customer not by the investors and the investors only capture a very small piece which is very relative to cut -- the competitor and business in a race to deliver more and more value to the customer and that's the coetition keeps you honest honest if you will in delivering more and more value and you are capturing a small piece of that and i think that plays into the
economics that underlie the first half of the book. >> host: so tell me if this is a fair characterization but it felt like there were two real distinct pieces to this book. go one looking at the financial crisis and one that is this larger view that i think you're just referring to about how the broader economy works. let's start with the second one. i wonder, what makes an economy grow? what's the most important things? >> guest: i suppose that goes to investment for employees would be one, and education will be the second and particular on-the-job training has been my own experience and innovation being the third and the more that you have the faster the economy will grow in the higher the incomes will be. another way to think about it is, check what you have or that you think you have and your willingness to take risks to put
that equity and underlying the rest that grows the economy. when you are in say 2007 and you have a lot of equity and willing to consume a high share of your income and willing to make is -- risky investments rather than just responding to growth in the economy and those things drive the economy and after the crisis when real estate prices drop -- prices dropped 30% you probably have less equity than you realize the rain in and risk-taking and economic and contracts for just the amount of of equity you have any start saving instead of consuming and build your equity reserve and start dialing down economic activity to compensate for the less equity that you have and you feel less comfortable taking risks. i think at the macro level that is what makes the economy flow in the short-run and the long run i think it goes back to robert solow. the investments you make in the long run is driving the growth rate in the long run.
>> host: you referenced sort of this current situation wherein -- and you are focusing on the availability capital of the level of equity you have. where does the man fit into this picture cracks a lot of people focus on the debt overhang of the middle-class and middle class and sort of the lack of demand is the reason they are not investing and if you read the business press press and if you talk to business people i talk to, that is what i hear more than you know lack of a capacity to invest. >> guest: i believe that the demand is a symptom if not a cause and that the underlying cause of demand is the amount of equity that people have. so homeowners the middle class have almost all of their financial investment in their house and now that it's down 30% in value they suffered a higher loss of their equity. i think i doubt that their economic activity and in their
case chiefly consumption and they try to accumulate consumption as a way to increase their equity. and that causes demands to decline. so i think when you think about the problem this way, i think you say gee any money that i take from one person and give to another to increase that other person's demand would be offset a reduction from wherever the money came from, so the keynesian multiplier effect i think much more skeptical of that and it tends to be more for lack of a better word rational expectations camp that people will look at the total amount of risk being taken and they will make intuitive reduction as the government tries to increase and they will offset the decrease. >> host: one of the things you really emphasize his particularly in the longer-term discussion, is the importance of taking risks and the importance of the innovator risk,
investiture risk. why don't you talk about that little bit more? i thought that was very interesting, the role of particularly and the ability to take risk to make the economy grow. >> guest: the idea in the book that payoffs for risk-taking drive the amount of risk-taking that we get. and it's probably true that if we irease the tax rates we won't get a rapid contraction in the amount of risk-taking but that has a compounding effect that can grow quite large over time. the same with you stop investing, comets might like the economy would collapse. it would gradually slow down over time and so higher payoffs for risk-taking. in the united states the most talented people work longer hours while their counterparts in europe and japan work fewer hours and the rest of economy as people growing richer they had a reduction in the amount of work they had done. so that is one of the things that happened and keeping up with the joneses if you will.
that work effort in the risk-taking data represent creates companies like google and facebook and countless other companies and innovations that we have enjoyed in the united states more than in europe and japan and that creates valuable on-the-job training for our most talented workers could. so again you get that training and it increases your probability for success and you have a network of engineers and business people who are familiar with what will be successful. the internet for example. silicon valley has -- magnifies the payoff and increases the probability for risk-taking in the third is that success but according hands of people who are willing to underwrite the risk that produces innovation in those three things compound and gradually build over time and we end up with an economy that grows fastercome has, has higher median wages, has faster growing employment than europe and japan have enjoyed over the last two decades. >> host: you know, it seems
like in the book you talk about different kinds of people who take risks and one of the groups i guess is what i call the innovators are the people who start the business is. i know you have talked about the people who take the risk of leaving secure employment, leaping google to start anew big thing. you focus on increasing the payoff for that basically and kind of your argument for lowering taxes not that i'm mischaracterizing here but for lowering the taxes on kind of that payoff. and you know i think one thing that i thought about that but i thought was interesting is i used to be involved in technology and i know a group of people including my father who made a choice like this. and you know, sometimes they have asked me for advice and we have discussed it. what i thought was interesting to me was some of it is they
just have an idea and they want to explore it into something different and exciting but some of it is definitely, they are looking at this possibility of life-changing wealth. that is definitely an attraction but i must say at least in my experience, if it's life-changing, bits more or 10% less, that isn't a big difference to them but do you think in that situation, sort of the difference in the range of possible tax levels is a big factor? >> guest: i think we all know before the fact one mark zuckerberg took a risk i am sure he never expected to be as wealthy as he was so we know he was willing to take the risk for much lower pay off. i think that is what you're describing and certainly it's hard to argue with that. i think it was thomas edison that said success is 1% inspiration and 99% perspiration. this is a team sport so if you look at something like google or
facebook attracting the team, the size of the team that you need to make facebook successful when myspace didn't succeed in many other things didn't succeed takes i think a lot of money and you have to lower a lot of people away from a lot of googles and other companies in order to really be successful and you see what happens on facebook. they say we can afford to give equity two guys were sitting in my dorm room that aren't going to create the value that needs to be created going forward. you can see how much those sophisticated investors decided they needed to pay to lower a leader away from google not only because of that one person as if one person could do it all but because that represents a sort of alignment with the shareholders about what is going to create value for that person and the company in general and the team you can assemble around her to be able to do it. so some board of directors decided at yahoo! for example but that was the place to get the person that could really
bring the entire team together that could make that company successful and i'm not trying to argue whether it was a wise decision are not a wise decision but i think everyday shareholders and investors and board of directors look at the very economics you are describing in to come to the conclusion even when they were not talking about entrepreneurial risk-taking in advance of the outcome that these are the kinds of things they need to do to make companies successful. so i do think the argument is like if we lower the incentive a little bit it will have a big impact in the short-run. i don't think it will have a big impact but in the long run they do compound as i described. you look at the u.s. versus europe and japan. i saw statistics the other day, california was rating 26% of the largest companies in the world. europe has created one during that timeframe going back to the 1970s. if the payoffs don't matter why
isn't europe and japan able to do the kind of innovation, the kind of growth and employment and in the kind of middle-class median wages the middle-class economy has produced? often people say it we have entrepreneurialism but we didn't grow our economy as fast as their economy until 1992 when commercialization of the internet and if anything our economy was growing slower. our productivity grew from 1.2% up to 2%. 1.5% of those two points are coming from innovation. they move from one to one and a half. god last america with entrepreneurial blood. they earned it the old-fashioned way. we worked hard and make more investments if you count the salaries of innovators which are manufacturing and accounting doesn't count as investment but others who have made those calculations and we are investing significantly more. i think we have earned it.
>> host: the differences he point..2 between europe and japan and the united states predate 1990 so why do you think is starting then? >> guest: i do believe in part we were able to capitalize on the internet and that unleashed the level of innovation. they were not in a position to capitalize. in the book i argue that roe v. wade changed the equilibrium in politics. it made pro-investors aligned with the religious right stronger politically and the reagan administration lowered marginal tax rates and reduced regulation, opened up trade borders. those things ultimately lead to higher payoffs for successful risk-taking and that compounded it.
certainly i believe that starting a company in the u.s., you see it in google facebook ebay and amazon, cisco, why have no companies been created in europe and japan? you just don't see it. >> one thing that you mentioned earlier that is pretty prominent in the book is we call it on-the-job training but i think of it as a cluster. you get a cluster of businesses that build on momentum so those companies have a lot of common in terms of the industry and that cluster was forming in california in particular during that time and you make the point that it fed on itself. part of it is getting at the root of plighted that form? we have seen other clusters historically and united states.
you have we have the research triangle in north carolina and that sort of thing. do you have any thoughts on what created that cluster that sort of got those companies going? >> i think in part its early success. microsoft for example, intel. certainly can scratch your head and wonder why clusters didn't occur in europe and japan of this type but then i also think people in america were really driven to i'm going to go get get a software degree or an mba and i'm going to go out to silicon valley and get a java one of these companies to walk away from my job and create something new and innovative because the window of opportunity has opened and i believe the internet -- the one thing that is left out is what does the structure of unrealized opportunity look like? i think the internet opened up a unique set of opportunities that were much more entrepreneurial
and innovative and really took a lot of talent and thinking thinking if you will that produced to capitalize on what opportunities we have available to us. in europe and japan in part they just weren't motivated to say i'm going to take the risk and when you look at it our people were walking away from companies like intel and microsoft. what were the europeans and japanese walking away from? the japanese have lifetime employment and especially the young at high unemployed rates. they want even walking away from anything that. i'm going to start my status there and many competitors. they went into the united states because i think they just brought the opportunities to the
ground that were more fertile and a chance for success was higher. >> host: it does help that we have some of the best universities in the world, and particularly in the research area and a lot of the algorithms and ended up underpinning that came from government research grants. way of the department of defense which always wants us to be at the cutting-edge of all of technology. we had the internet was a way for governments to communicate with each other. i think clearly that was one of the big reason silicon valley got started in and had sort of had this critical mass and created a fertile ground in the on-the-job training and the interactions that helped us. >> host: i am skeptical of it and i'm skeptical of it for two reasons. when you think about the internet, think about all the commercialization that has occurred since 1992 or three when they came up with -- almost all of that is done by
enterprise. a lot of it was done by the government. and so the second is, i don't know about you but when i think back on what i learned in school, learning occurs on the job. very little of what you take away from school says that is really the thing that may made me successful aside from proving you are capable student and things like that which is an important credential to earn. when you look at the u.s. university versus the european or japanese university you don't see big differences in what it or graduate student is doing in those universities. i think you see small differences. they don't seem large enough to account for the big difference is versus europe and japan so i would see it as small, not large. also if you look at the risk of innovation it does not come from
r&d and science-based, physical science-based breakthroughs. most of it has come through commercialization of the internet which is not as scientific and research based is what we typically think of as occurring in universities. >> host: my graduate degrees in electrical engineering and that what i'm doing so i get your point. [laughter] i think they're a member of the three laws of thermodynamics. i take your point that actually my point is sort of the undergraduate and we can argue about how important it is but more commonly take your point about the commercialization and the browsers and all that which is definitely private. okay sure barring. a critical element it was a the critical mass out there to guys
who founded google work guys getting their ph.d. at stanford felt and they developed an algorithm. and just the fact that you did have people working on systems engineering and the undergraduate but more the government finance, research, networking capability capabilities and all of that. there is a story that the critical mass was built up out there and if you want an explanation for why it happened. >> guest: one thing i will tell you is this, and leading up to 2000 we got to the peak of the internet, people who had worked their whole lives to get a job were walking out the door with a kooky as internet ideas, trying to get rich and you couldn't --
it was hard to get people to stay at their place of employment. i knew some professors at harvard who described it as everybody has a business plan. it's an incubator for internet ideas and those valuations had enormous impact on what i saw. talented people and their willingness to take crazy risks and you see that as well in the state lottery. whenever there's a big jackpot in the state lottery it doesn't increase the expected value if you will but everybody is out there buying a lottery ticket. i also see it in education. who were the students who are working the hardest? the honor students were small amount of work can lead to a big differentiation in their success and the credentials they have. what i found at harvard business school the guys in the middle went i worked harder and i'm still middle son going off to play tennis and the guys that were at risk of failing they were working hard and they said
if i worked harder it can have an impact on whether i stay. whenever the payoff scott large relative to the amount of work i only subserve observed a very big difference in the amount of work that people are willing to do in the risk they are willing to take, crazy risk. >> host: the business school population particularly got it. >> guest: it could be when it comes to his team sports a lot of businesses are motivated to get rich and their carrying a lot of the water in the and the team that really make those companies successful down in the trenches. i think we have to admit to guys in a dorm room cracked the code and it all fades -- falls into place in eureka it's facebook. you don't see the winklevoss twins laying on the side of the road not having achieved success. it's debatable how original the idea of facebook's and nevertheless it's the one that prevails for more than just a guy in a dorm room who is doing
it for the pure passion of it. >> host: fair point. going back to europe for a second, and japan, you look at this 20-year period, there were other things going on. japan was dealing with the asian debt crisis so in terms of kind of the aggregate growth differential. [inaudible] and doing a much better job of it but keep going. now i understand what you are saying but i mean so i just think in terms of the aggregate growth numbers it seems like it's a a more complicated story that we had more incentives, lower taxes and less regulation. >> guest: lee since 1990 increase the total hours of work about 12%.
europe, northern europe, southern europe i always try to pick germany and france as the neutral territory in between. i think france is essentially flat during that period. down for 5% in japan and japan is way down like 10 to 15% and total hours worked and it's not from a lack of people if you will. we have 25 to 30, 35% more hours per working age adult than they do and it's not that oh gee they wanted to go out and take vacation. you can take vacation ever you want to. i think they are using restriction on the number of hours worked and spread the work over more people. if it was just a matter vacation, if in 2007 when employment -- unemployment was zero they still had high unemployment of their young people. you would think the one place where you would want low
unemployment would be on people entering into your economy that will take over the next 50 years. you have to look and say something bad was going on here. if you had your druthers he wouldn't have picked out. >> host: japan, actually there i would point at something cultural which his women not working in japan. i think i would.to culture in that case so i somewhat share your skepticism on culture but in japan is a fair argument. you know and i do think also though that we can take vacations here but they have laws. they have made conscious societal choices that as they have become a wealthier economy is that part of the return on that success is they are not going to work as hard. >> guest: as you point out they have laws. it's not voluntary vacation even though they are glad to take it. they are spreading a lot less
hours over more people to get the people employed with the hours that they have. you can always take a lesser career here and more vacation at lower pay if you choose. 25% higher in the median wage or 30% higher on the median wage so we were able to grow and get more hours than more employment even with higher wages and if you go back and i don't have statistics for 1990 but if you drop back to 1980, we created 40 million jobs. half of those jobs were at the highest end of the wage scale and which only 25% of the jobs in the 1980s were the highest end of the wage scale. it's not like we had a nation of hamburger flippers. we bought 20 million -- brought to 20 million immigrants into our economy and they were influencing over the last 25 or 30 years. we employ their children and employ tens of millions of people offshore. it's hard to make the case that the u.s. economy hasn't done more for the middle class and
working poor than any other high wage economy. even if you look at wages or income per employee perhaps we could have restricted the amount of employees who came into our economy as a way to push up the wage rate per employee but what we did was we grew the total amount of hours in income and increase the amount of employment relative to europe and japan and we we can debate whether japan -- i go back to germany and france, the two most comparable comparisons and they are very different economies and have different outcomes as well. >> host: so, we will take a break right now. >> host: so, obviously you
attach a lot of importance to investors taking risks. you think is an important part of drawing talent into important new industries and i wanted -- could you paint a little bit more of a picture of how that works? andy talk about how tax rates matter a lot. whether wealthier people are willing to take these kinds of risks to make these kinds of investments. so are we talking about wealthy lawyers, doctors and accountants or lobbyists or what? can you sort of walk me through what are the choices they are making that matter for the economy and how where their tax levels affecting those decisions? >> guest: is a very competent a question because i think most of the production is being done by business of butcher doctors and lawyers are buying the
equity of those companies so in some ways it's happening in direct to. it. the question is what is their tolerance for risk? are they willing to let those long-term investments for the future or are they risk of wars and day rather have a steady stream of income because they want to consume that income in the short-run versus say not consuming it for quite a while? and so the question becomes how how to their demands get translated onto the managers of companies? if you are paying dividends is going to make your stock go down or if you withhold the cash and hold onto it will it make your stock go up? i think we see in the microsoft of the world than google, what we need to do is hold a lot of cash for what we are really doing in some ways is we are incenting not partners to get that cash approval by creating the next instagram or whatever experiment will lead to something that we will value and
we will use our money which is really the shareholders money to buy what emerges as successful or begins to emerge a successful. so the linkages are not linked directly from the shareholder to the venture capital. it occurs indirectly through a series of links, but i think managers, are they responsive to shareholders? there are much more options than their happen there have been in europe and japan. it is changing over time which incense the management team to take the steps that are necessary to increase the value of the shares. they are putting a lot more bonuses in place in the u.s. because my experience is that managers are risk-averse. their value of their careers very high and if they take the legitimate risk and it fails they often lose their job and they never get back into the game at the level they are at.
that rarely ever happens so they tend to be risk-averse. they think more about their career and want to minimize the amount of press they are taking because they don't want to fit their career in jeopardy. real estate shareholders and boards of directors incentive system pushes them to take the risk and i think the question of what to the shareholders value? the linkages are admittedly in direct and secondly what occurs is what risks are they willing to underwrite and how do they get you out of the marketplace? i/o is i think his investments as being moderate finance. you have the funding part and then the risk underwriting part which is a lot like insurance certificate if you will. a risk-averse investment will say i'm willing to fund the investment divided view of equity holder cover my losses if they lose money in say a credit default swap. with that syndicate value, the
price they put on various risk, think motivates investors and entrepreneurs and managers to say the payoffs are here and the payoffs are there. i'm trying to create something and not trying to program -- in germany they are trying to program cnc machines. they are working to create the next instagram that they can sell to facebook for the billion dollars of stock. >> host: i guess, let me focus in on this a little bit. what i didn't hear from you is how does your marginal tax rate affect that doctor or lawyer. i get the indirect connection but how does the potential tax liability from the investment affect how they been affect the behavior managers?
>> guest: a compound slowly over time so i think to say how does it affect tomorrow, it almost has no effect at all. but nevertheless it does have an effect and you see that affect compounding over time so to say you saw it in real estate, the value of real estate is going up so i'm going to buy second-home and i'm going to start taking the real estate risk as an investor which will you do it an it affect his underwrite real estate risk as an investor. that drives builders to want to build more and investment companies to want to build more houses and things like that. and the internet evaluation went up in 2000, the people responded to those valuations but -- >> host: i understand that where did texas commend? >> guest: if texas double we would think there would be less
risk-taking. there would be a shift from investment to assumption. consumption. if it's not $1.50 to $1.25 you would say people are going to invest in you might say we increase the task rate so that will get the tax out of consumer so the investor says for this risk i have to have $1.50 an night to price the product at $1.75 so i'm passing the high taxes onto the customer. the custom might say what would we buy at $1.75? i think we see that is i think what drove the difference between the european -- an example of this is the labor redeployment cost. leave redeployed or labor from a manufacturing economy to the service economy very quickly and all to me ended up with more employment and higher median
wages. europe was in effect tax on labor redeployment because they said society does in the worker does so we will charge the company for that cost. it redeploys the labor. they said hey we have to move from manufacturing to the next innovation and so we transformed our economy and they were slowly transformed. we see germany having a little bit of success at the moment. i think the growth prospects actually look pretty poor because they want able to make a transition because of this act on labor redeployment. i believe it has an effect. >> host: i want to come back to labor labor were to deployment and i thought that was an interesting part of the book. your premise is that people are making a decision between -- even high income people who you
know are certainly high income people consume but you are saying that they are making big choices about investment versus consumption based on taxes. i sort of imagine, at some point you have a certain level of wealth and it seems to me that kind of buy what they want and then they invest the rest but you are saying you think actually that they buy more if tax rates were higher. >> do you think that would have an important impact? over time. >> guest: yes, yeah but i would say that compounds gradually over time and to the point where, think what is lost in this equation is how do you really get rich as an investor? you satisfy customers. customers are what make you rich.
they say hey you are really the guy who is satisfying my needs. so you want -- would you want counted people to be doing? i would say at least five times more value is and probably 20 times. i used five times in the book because it's highly defensible but i argued let's not kid ourselves is probably 20 times more valuable. look at the price of google. so what do you want? >> want talented people to be driven out of their minds trying to keep up with other talented people who have taken the risk and gotten successful. what you see in 2000 is i had a friend that made a whole bunch of money with a crazy internet start up and i can't bear the idea that i am taking a lot of money and there is a guy out there that paid more money. i have to quit and take the risk to try to get even more. i think investors in the same
way are driven to take more risk in underwrite the kind of risk risks that produces those breakthroughs. they are looking for a cure for cancer as opposed to saying i'm going to buy aaa bonds that will pay me a modest income from that investment but i'm not taking anywhere near the risk because if i succeed the government will take 50% or 75% of it away so why should i? it's a matter of fact getting passed on to the customer and it raises prices and the in the customer says i don't want to buy it. >> host: said you think lower tax rates have been affect on the risk profile of an investment portfolio or its consumption versus investment? >> guest: i think it does two things. i think it motivates talented people to take more risk and allows you to accumulate equity faster and as you accumulate more equity more equity per employee or perceive the equities going up because we
know how much equity the half and people will start taking more risk across the board. as consumers get richer they will spend more fair and calm and poured less of it in a savings account which can be withdrawn overnight and it's difficult to underwrite business with that. as investors get retrieve it because they made wise investments are created google and facebook through risk-taking they are far more willing to underwrite venture capital and thinks like that. when it comes to the recession and their asset values go down 30% which would be via quick land of increasing taxes by the same amount, a big one-time shot though, what happens? people say i have a lot less equity and therefore a need to dial down my risk-taking and get less economic activity. when people look higher -- toward the future there'll they recognize they have less wealth. the issue of course is
government spending. you will have the taxes where they divide the money in the short-run or not that is where people of our to the future and determine how much equity they have to underwrite the risk they want to take her guy by think right now people look forward to the future and they see they have a a lot less that they had in 2007 and is the economic outcome of it. it looks a lot like europe. >> host: first of all no one is talking about 50 or 70% tax rate, just want to be clear on that, even me. do you think that the wealthier people take more risks than middle income folks? >> guest: i believe i show in the book data from the consumer survey which shows the assets which are owned by various in the income distribution. of course we all know that the rich guy has more of the assets relative to income and i think
it's in the range of five to 5.5 times in more of those assets or business assets which create jobs as opposed to housing assets which are largely just your own. consumption or savings, overnight checking deposit which is very difficult to create long-term investment if you get into a financial crisis, it's difficult to put those risk-averse savings to work if you don't have an happen equity investor who is willing to underwrite the risk that goes along with putting those risk-averse savings to work. so i do think small business owners, large business owners who are really underwriting the risks that create jobs create the innovation that gross income. >> host: maybe i am using the word risk in a less technical way. it strikes me that i mean the actual risk, risk faced by high income individuals seems pretty
small. any given investment might not do well. on the other hand it portfolio is unlikely -- is likely to do well in recent history. i think we have seen that in the fact that the rich have gotten a lot richer and the low to middle income people have overtime are seeing good returns. where something has become kind of endemic and pasting a lot of risk. job loss risk so i think you are saying something different when you're talking about rewarding risk. >> guest: i think it's the risk that produces innovation. it's the risk that produces this 20-1 payoff for consumers over investors but i don't think anyone would argue that there is a middle-class person who is at risk of losing their job or having health care. do they face enormous risk waxy as they do. is that the risk that employs other people and gross economy
and increases the income of two of the people and the satisfaction of customers? unfortunately no i don't think it is in the do think, remember we went from the 1950's when large companies are capitalizing on mass markets, general motors, to a service economy which shifted toward smaller local plumbers, doctors, lawyers, you name it, too much more of an innovation-based economy where in the created very large breakthrough his that have really propelled our economy. those are the risks that drive the economy. >> host: to connect back in terms of middle class to the notion redeployment of labor. >> guest: i remember what i was going to say. the whole aconda me has grueling riskier and riskier and riskier
than one that is exploiting the mass market and that risk has been pushed not only to investors which it has in part but it's also been pushed to the employee. you don't have to find -- defined-benefit contributions any more. people have iras and things like that so they're much more prone to being laid off in a recession than they were in the past. there is much more risk underline the entire through software through all say wouldn't it be nice to go back to the 1950's although a slow down in the 1970s and have an economy that was less risky or we could push it all often equity investors and not have it have any impact and all the employees can enjoy a more stable working environment. ..
drives up the growth rate of the economy. it creates jobs. actually in a way you do. to some extent the redeployment of labor risk. you think the risk that is sort of imposed on people they might lose their job. you see it has having economic value. but i do think we did in europe. i think they tried to solve that problem by pushing into businesses. what they got is was less employment. than we have enjoyed in the
united states. i think it's going to get worse not better. because when you look at the structure of the economy, they're twenty years, thirty years behind the transition that our economy has made. they have not made that transition successfully. i know, we're suffering and frustrated and angry, let's watch the movie june fold. >> host: it bellings the question about manufacturing. where does manufacturing fit into your vision of a u.s. economy? >> guest: i think that in the long run you can't make $20 for what you can buy for a $1. you can use the 19 to hire a doctor, a teacher, you will grow uncompetitive if you don't take advantage of the dollar in the labor. if labor is free how much should you buy? it's a a dollar. that the world we have to do with it.
we have transition from jobs that can be good to manufactured overseas and floated on a boat to a local service economy driven by innovation. and we have made that transition. we have hire medium wage and fast growth in europe who has been reluctant because of the high labor redeployment cost to invest in making the necessary transition. it's not as though the u.s. economy can outsource everything. we would no income to buy anything. it there will be a u.s. economy but won't be increasingly a local service economy. i think there's one other misunderstanding prior to 2000, 85% of the manufacturing job were domestic productivity gains not offshoring. it's about 67% come from productivity gains. i think a bit like agricultural. 25% of gdp it fell to 10.
the power to growth in manufacturing and the productivity in manufacturing powered the growth in the service economy. >> host, you know, stay on manufacturing for a second. one thing, i think the one dollar versus $19 i'm not sure -- that is one type of manufacturing, and a in many workers u.s. workers are more productive. i think the reason we have a robust decline manufacturing sectors there are a lot of areas where u.s. workers are way more productive. the difference in pay is justify offset. >> guest: absolutely. >> host: the other thing you mentioned earlier was you mentioned intel. well, one of the reasons why i think that we have been successful in the high-tech sector and the internet we have in fact, we have both manufacturing and software in the service side of that
industry here so that -- even apple which we think is making everything in china. a lot of the high end ship manufacturing is done here. samsung, intel, there's a lot of analysis being done about the importance of having innovation close to the manufacturing floor simply because, you know, there's a feedback flop all of that. it seems like manufacturing, if even you're focuses on innovation economy, it seems like manufacturing has to be -- should be parking lot of the picture. >> host: i'm more conservative call than most. highly capital intensive. it's a unique in that way. relative to other manufacturing. age lot what's been pushed off to china is plastic manufacturing that is very commodity. you can put it on a ship and --
very little profit in it. making that distinction. and the capital we deploy instead of put into that. >> guest: i'm not sure germany is making plastic >> host: i agree. i don't think they can committee in that area as well. they are may being tools they are shipping to china. i find germany worrisome in the future. >> guest: let me get back to redeployment of labor. what , i mean, we have accepted for better for worse greater involvetivity in the economy. what does it mean in terms of people's live. they lost their job they have a mortgage, kids, a set of responsibility and, you know, their skills may not match in the volatile economy they need. you're sort of embracing the
volatility of the economy. what do you offer that person. >> guest: it's a tough question. in the great u.s. direction process people are going to suffer. we know this. unfortunately, though, i think that when you adopt the european approach which is to say, people are suffering somebody needs to pay for that. the person who should pay for that is business because they created the suffering. and there's certain lodge tick to did. the business says all i have to do is serve the customer. so i have to push my cost to the customer fire if the customer won't pay the price. -- i'm more competitive and willing to price below you. you have to close your borders to be able to implement that policy. you close yourself off from lower cost play boar and ways to redeploy your capital.
let the chinese deploy to the widgets and i'll deploy to facebook. we've had a significant increase in employment since 1980s. 40 million jobs have been created in the united states. on a base of 100 million. a 40% increase. europe an japan are less than half. in the end, who has the net software? i believe that europes have suffered far more despite the fact that many inividuals in the u.s. have offered for this. i don't deny it. but they have suffered far more. and the people who are were suffering in europe are their children. they are eating their children for the benefit of older workers. what they get is stability from the older workers. they get no jobs for the younger workers. companies don't do i'll start my company in europe. i'll avoid europe. i'll employ workers outside of europe because the cost of reemploying workers is high
relative to the rest of the world. you can do it but i think the cost is higher not lower even though there is a sthawferg goes along with. >> host: i don't want to get into a debate over numbers. i think japan is different. they don't expect essentially -- they have declining population. comparing job growth numbers in the united states to japan. you know. >> guest: numbers. >> host, you know, i also, you know, i think that the -- again, i think the european situation and looking at germany and the countries that they're different ways to measure economic success without getting into well being and those things. >> guest: looking at 25-year-olds. that's the easiest way. you want to be 25 in germany, france, or the u.s.? >> host: i don't speak german though. i'm not 25. people always talk to me in
german because of my name. what should someone making over $10 million should get taxed? what percentage of their income should we be schedule of them in tbral income tax. >> guest: i don't know the answer to that. we're taxing about 16%. we're spending at 24%. we need 50% at ever tax level. we can pretended -- we're at 35% to 39 is going to put everything in order. we need bigger increases that that. we should stop pretending we're going get an economic rebound. we haven't seen it yet. what's more valuable to the middle class? a dollar increase on a rich person's making $10 million a year in that case, probably saving more than 40% of their income. i use 40% in the book because that's a guy at couple hundred thousand dollars. would he rather have the income
redistributed to him or the value of investment. by my calculation he'd rather have the investment. >> host: we have four minutes left. i have three things. one is, i just want to -- i want to quick response to this. which i'm going point out that, you know, the point time where you note that the deviation is where bill clinton raised taxes. if you look over time, you see the marginal tax rate, we had higher growth rates and marginal tax in the country than with out in. give mae brief response. >> guest: i think the nasdaq went from -- increase in the payoffs for successful risk taking and the amount of equity the people had overwhelmed any marginal tax increase. one is a positive. one is negative. it's overwhelmed. go back to the '50 when you have high marginal tax rates. two years two decades of world
war ii, the great depression. the g.i. bill, the television and other things matter more. >> a lot more. >> host: okay. wrong one. i want to read you one sentence from -- two sentences from your book and ask you what you meant. when all is said and done you're either for investment for solution. the real world offers no middle ground. >> guest: it's republicans v democrats. do you put your faith in private enterprise or do you believe that the government can invest that tax redistribute it and invest that money more successfully on behalf of the middle class. there is no middle ground. those are the two philosophies. there is no guy in the middle. if you need the next sentence, you have to make a comprise with the religious right if you're on
the investment camp in order to gate majority. and so -- there's no middle ground. >> host: i would respectfully say the way you articulate is a bit of caricature of what i think. i want to -- i think maybe my favorite quote from the bock. it starts out frz a quote from the stanford economist douglas. stanford economist concludes as an economists one cannot review the literature on taxization and savings without being humbled be the difficult of learning useful about anything useful about the em per call questions. unfortunately the same is true with economics and must use the evidence to evaluate the beliefs, and divide economic and
see what set seems most plausible. thank you because i think you have done an effort. you have your point of view. the enterprise you describe in the passage in the book is what we're kind of all trying to get to. >> guest: i agree. >> host: thank you. >> caller: thank you for having me. that was afterwords booktv signature program. the authors of latest non-fiction books are interviewed. it airs every weekend on booktv at 10:00 p.m. on saturday. 12 and 9 p.m. on sunday and 12 a.m. on monday. you can tornado watch -- watch it online. click on booktv and click on the upper right side of the pa