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tv   Book TV After Words  CSPAN  August 19, 2012 12:00pm-1:00pm EDT

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>> up next on booktv, "after words", with michael ettinger, vice president of economic policy at the center for american progress. this week, edward conrad in his best-selling book, "unlimited consequences" why everything you have been told about the economy is wrong. the former bain capital partner talks about the commonly held belief of what caused the 2000 a recession are incorrect, and that tax policies policy is beneficial for the country as a whole. >> host: congratulations on the book. it is "unlimited consequences." it has gotten a lot of attention for your ideas and is quite provocative and interesting. what motivated you to write this book? >> guest: i felt i had something to say and maybe i was frustrated with what i've heard in the media about the economy on both sides of the debate. and i felt that i wanted to try my hand by clarifying it.
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and i felt that i needed to make my contribution as best as i could. i had done that i bain capital and felt like i needed to try something different and new and had to try to do something that was important. >> host: you mentioned bain capital. there are a lot of insights and ideas and thoughts in this book. can you tell me where these ideas come from -- these ideas, did they develop over a long time from your career in finance, who your influences and how you can put the economy in the book? >> it evolves from debates i had with the young kids that came out of the top schools and came to work for bain capital and bain capital consulting. they wanted to argue economics and politics. i kept telling them when you get to be 40 or 45 years old, you will become conservative. it evolved from that. it also evolved from a french if
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friendship i had with the gentleman from colombia. i was able to say, i am right here, you are right there, but you are stepping on a landmine here. that is really the source. i think that mr. bill bain taught us that it is captured by the customers, not by the investors. it is the advantage relative to competitive and this is in a the race to deliver more value to the customer, and that competition keeps you honest, and delivering more and more value than that you are only capturing a small portion of that. that plays into the economics that underlie the thinking. >> host: so this is a fair
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characterization, but it felt like there were two distinct pieces to this book. one was looking at the financial crisis. one is a larger view that you were referring to about how the broader economy worked. let's start with the second one. what makes an economy grow? what is the most important thing >> i suppose that goes to robert solow. an investment employee would be one, and education would be the second, and on-the-job training, and innovation, both of those being the third, the more you have those come in higher incomes will be. another way to think about it is how much equity you have or that you think you have. and your willingness to put that equity at risk to grow the economy and create jobs. in 2007, you are willing to
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consume a higher share of your income and willing to make risky investments in innovation. rather than capital, simply responding to growth in the economy. those things drive the economy, and after the crisis, when the real estate prices dropped 30%, you have a lot less equity than what we realize, you reign in risk-taking and economic activity contracts. you start saving instead of consuming. you build the equity reserves. you start dialing down economic activity to compensate for the less equity is that you have. you feel less comfortable taking risks. that is on a macro level what makes the economy ebb and flow in the short run. on the long run, i think it goes back to robert solow with the investments that you are making in the long run. drying the growth rate in the long run. >> host: you referenced the current situation we are in.
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you are focusing on the availability of capital and level of equity that you have, but where does the demand fit into this picture? what people focus on the debt overhang of the middle class. and the lack of demand is the reason they are not investing, if you read the business press and you kind of talk to business people that i talk to, that is what i fear more than lack of a capacity to invest. >> i believe that demand is a symptom and not a problem or a cost. the underlying cause of demand is the amount of equity that people have. so homeowners, particularly the middle class, they had almost all their financial investments in their house, and the house is down 30% in value. so they suffered even more. they dialed back there activity, and that they try to accumulate deferred consumption as a way to increase equity.
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that causes demand to decline. i think that when you think about the problem this way, you say any money that i take from one person to give to another increase that other person's demand will be offset by reductions from wherever the money came from. so the keynesian multiplier effect -- i think you are much more skeptical of that. you tend to be more in the lack of an expectations game. people look at the risks being taken and make some intuitive decisions and offset with a decrease. >> host: one of the things that you really emphasize, particularly in the longer-term discussion, is the importance of taking risks. and the importance of innovator risk and investor risk. whenever you talk about that, i thought i was her interesting. talk about that a little bit more, the role of risk and the willingness and ability to take
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risks to make the economy grow. >> guest: and make the argument in the book that payoffs for risk-taking and drive the amount of risk taking that we get. it is probably true that if we increase 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 larger over time. if you stop investing this year, it is not like the economy would collapse. it would gradually slow down over time. higher payoffs for risk-taking. one is the increase the bar for success. the united states the most talented people work longer hours. their counterparts in europe or japan work fewer hours. in the rest of the economy, as people have grown richer, they have had a reduction in the amount of work that they have done. that is one of the things that happens. keeping up with the joneses, if you will. that work effort and risk-taking effort that it represents greek companies like google and facebook and countless other
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innovations that we have enjoyed in the united states, more than in europe and japan. that creates valuable, on-the-job training for our most talented workers. again, you get the training and it increases your probability of success. you have a network of engineers and business people who are familiar in what will be successful. they are all located in silicon valley. it magnifies the payoff and increases the probability for risk-taking. that excess puts equity into the hands of people who are willing to underwrite the risk that produces innovation. those three things compound and gradually build over time. we end up with an economy that grows faster, has higher median wages, faster growing employment in europe and japan have enjoyed over the last two decades. >> host: you know, it seemed like in the book you talk about different kinds of people who take risks. one of the groups i guess is the
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innovators. the people who start these businesses. i know you talk about the people leaving secure employment to go start their new thing. the big thing. and you focus on increasing the payoff for that, basically. it is kind of analog is to lowering taxes. for lowering taxes on the payoff. one thing i thought it was interesting is that so many people don't know about that position. i used to be involved in technology. through my father. at times, we would be us revise and we would discuss it. what was interesting to me is that some of it is they just have a cool idea and they want to export and it won't be something different and it is
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exciting. they are definitely looking at the possibility of life-changing wealth. you know, that is definitely an attraction. but i must say in my experience, if it is a life-changing wealth, 10% more, 10% less, that isn't a big difference to them. do you think in that situation there is a difference in the range of possible tax levels and are they a big factor? >> guest: i think we all know when mark zuckerberg took risks, i'm sure he never expected to be as wealthy as he was. we know that he was willing to take the risk for a lower payoff. it is what you are describing. it is certainly hard to argue with that. but i think thomas edison said that success is 1% inspiration and 99% perspiration. i think businesses are inching towards us. if you look at someone like google or facebook, that finds the team that you really need to make facebook successful when other things didn't succeed, i think it takes a lot of money
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and you have to have a lot of people away from a lot of googles and other companies to be successful. they say we can't afford to give equity to guys who were sitting in my dorm room that are really going to create value that needs to be. going forward. you can see at yahoo!. how much those desiccated investors decided that they needed to pay to lure a leader away from that one person, because one person could do it all. but because that represents a certain alignment with the shareholders about what is going to create values for that person for the company generally. and the team that she can assemble around her, to be able to do it. some board of directors decided at yahoo, for example, that was the price to get the person who could really bring the entire team together that could make the company successful. i'm not trying to argue whether it was a wise decision or not he wants decision.
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every day, shareholders and investors and the board of directors look at the economics you are describing and come to the conclusion, even when we are not talking about entrepreneurial risk-taking in advance of the outcome. these are the kinds of things that they need to do to make companies successful. i do think that the argument is a little bit like, we lower the incentives a little bit, and we will have a big impact. in the short run, i don't think it will have a big impact. the long-run, there will be a much -- you look at the u.s. versus europe and japan. i saw a statistic the other day. twenty-six of california -- california predicted, 26 of the largest companies in the world were created by us. you're only has one going back to the 1970s. if the payoffs don't matter, why are they able to produce the kind of innovation and growth in employment in the middle-class median wages that the u.s. economy has produced?
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>> often people say we have entrepreneurialism in our blood. but we did not grow our economy faster than us. not until 1992 when commercialization began. if anything, our productivity is growing slowly. our productivity move from about 1.2% of 22%. 1.5% on 10-point i moved from 1.5 to two, i just don't think that god bless america was entrepreneurial blood. i think that we learned it the old fashion way. we work hard, we take more risks, you make more investments if you count the salaries of speakers and innovators, which is part of what they do. i think we have earned it. >> host: of policy differences that he pointed to between europe, japan, and the united states, certainly predates 1990.
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why do you see the virgin started on to . >> guest: well, i do believe that in part, i think that we were able to capitalize on the internet. and that really unleashed a level of innovation. they were not in a position to capitalize. in the book that i argue that roe versus wade, change versus equilibrium in politics -- it made a pro-investors, who are aligned and strong politically, that the reagan administration lowered tax rates, reduced regulations, opened up the trade borders. those things lead to higher payouts. that compounded over the course of 25 years. to create the differences that we see today. >> host: part of it is the circumstances and perhaps luck as well.
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>> guest: but certainly, i believe that starting a company in the u.s., why have no companies been created in europe and japan along that of google and facebook? you just don't see it. >> one thing you mentioned earlier in the book, you call it on-the-job training. but i look at it as a cluster. you have a cluster of businesses that builds up momentum. so those companies have a lot in common in terms of the industry that they are in. you know, that cluster was forming in california, in particular, during that time. not. you make the point that it fed on itself. part of this is getting at the root of why to that form. and we have seen other clusters in the united states as well. you have the research trial in north carolina, boston, that sort of thing. you have any thoughts on what created that cluster?
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you know, they got those companies going? >> i think in part, it is early success. microsoft, for example, intel, you could certainly scratch your head and wonder why clusters didn't occur in europe and japan of this type. but i also think the people in america really were driven to say i'm going to go get a software degree or an mba, i'm going to work for these companies and create something new and innovative. the one thing you left out of the equation of economics is what is the structure on investment opportunities. 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. the produced what opportunities
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we have available to us. why it did not occur in europe and japan, in part, we just were not motivated to say we're going to take the risk. our people were walking away from companies like intel and microsoft. what were the japanese walking away from. the japanese, it could be a little scary for them to walk away, but the younger europeans have very high unemployment rate. and they are pretty poor growth prospects for their career. still, people didn't go to europe and say, i'm going to start my startup there. look, the pool is rich and there are many competitors chasing after the talent in the pool. they went into the united states. they just bought the opportunities for a suppressed life. >> host: one of the reasons the ground was more portal up there, it does help that we have some of the best universities in the world. particularly in the research
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area and a lot of algorithms that ended up underpinning this came from actually government research grants, department of defense, which was wants us to be very cutting edge of all this technology that we have. >> the internet was originally for the government to communicate with each other. it is clearly that basis, it is one of the big reasons that silicon valley got started we sort of had this critical mass and all of the interactions that happen. >> as possible, but i'm skeptical of it. >> guest: when you think about the internet, think about all the commercialization of it that has occurred since 1992 or 1993, when they came up with the browser. almost all of that has been done by private owners. very little was done by the government.
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>> i don't know about you, but when i think that's what i learned in school, we are learning on the job. it is highly specialized. you really learn by doing over the course of your career very little of what you're taking away from school. that is the thing that really made me successful, aside from the fact that you are a capable student and things like that, which i think is an important credential earned. when you look at the u.s. university diversity, the european and japanese universities, you don't see big differences in an undergraduate student. i think you see small differences. they are accounting for the big successes in the u.s. versus europe and japan. i will see it as small amounts. also, if you look at where the innovation has come from. it has not come from science-based -- physical science-based breakthroughs. most of it has commercialization of the internet, which is not as
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scientific and research raised is what we typically think of in a college and university. >> host: my undergraduate degrees in electrical engineering, and look at what i am doing. [laughter] i take your point. my point is sort of the undergraduate. >> guest: i take your point about the commercialization and the browsers and all of that. it was definitely private. occasional borrowings from more basic research. but my point was that it seems like a critical mass of people out there. the guys who founded google who are guys who were doing a phd. at places like stanford, developing an algorithm -- they are training. >> and that is the catcher's.
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>> host: just the fact he did have people working on systems engineering, it's not the undergraduate, but more the double finance dod research, you know, networking capabilities and all that. it is sort of unprovable. but there is a story that the critical mass has received themselves, if you want an explanation for why it happened here and so little happened there. >> guest: one thing i can tell you is this. leading up to 2001 we got to the peak of the internet valuation. people who have worked their whole lives to get a job at bain capital -- we are walking out the door with the kooky as internet ideas, trying to get rich. it was hard to get people to stay at their place of employment. i knew some to describe it as
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everybody has a business plan. it is an incubator for internet ideas. those valuations had an enormous impact on what i saw. talented people and their willingness to take crazy risks. and you see that as well as state lottery. whenever they increase the probability of expected value -- which is the highest payoff. it has everybody out there buying lottery tickets. and i also want to see it in education. who are the students who are working the hardest. small amounts of working needs a big differentiation. in their success. and the credentials that they are. what i found is that harvard business school, the guys in the middle, i'm going off to play tennis. the guys at the bottom who are at risk of failing, they were working hard. saying, if i does work just work a little harder, i could have a big impact on whether i say it will go. whenever the payouts that large, i have always taken a difference
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in the amount of work people are willing to do, leaving up to 2000. >> host: the business school population, particularly making a calculation. >> guest: when it comes to a team sport, i think you'd find a lot of businesses who are motivated to get rich and carrying a lot of the water that makes those companies successful in the trenches. i think we have the smith two guys in a dorm room. it all just falls into place and you end up with facebook in a week. you don't see all laying on the side of the road, not having achieved success. it is debatable how original the idea of facebook is. nevertheless, it is the one that prevails. for more than just a guy who has an idea for your passionate. >> host: that's a fair point. going back to europe for a
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second. and also, japan. you know, i look at this -- there were other things going on. japan and europe were going through the debt crisis. in terms of aggregate growth differential -- >> we did a much better job of it recently, but keep going. [laughter] >> now i understand what you're saying. in terms of the aggregate growth numbers, it seems that it's more complicated story than we had more incentives and lower taxes and less regulation. >> guest: we knew since 1990, we need to increase the total hours of work, about 12%. europe and france -- left always wants to take the north over or
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big german in between. i think france is essentially flat. germany is down for 5%. japan is way down, like 10 to 15%. in the total hours worked. it is not due to a lack of people. we have 25 to 30, 35% more hours per working age adult. then they do. it's not that they want to take vacation. you can take vacation if you want to. i think they are using the description on the number of hours worked. look, if it was a matter of vacations, you wouldn't see in 2071 u.s. unemployment was essentially zero, they still had very high unemployment of their young people. one place that you would want low unemployment is the young people entering your economy. they take over over the next 50 years. you have to say something bad was going on there.
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if you would've had your brothers, i don't think he would've picked that. >> host: i will point out something about women not working. in japan. i share your skepticism of overly broad associations versus on culture. but in japan, it is a fair argument. i do think that we can take vacations here, the bad laws, they have talked about the choices. as they have become part of the economy, part of the return on that success is that they are not going to work as hard. >> guest: i would interpret it differently. as you point out, they have lost. it is not voluntary vacations come even though i am sure that they are glad to take it. they are spreading a lot more hours of a lot less people. and you can always take a lesser courier here and more vacation and lower pay if you choose.
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i pay 25% higher on the median medium wage. 30% higher on the media and -- media range. i have the statistics for 1980, on a base of 100 million employees, we created 40 million jobs. capitalist jobs were at the highest, and only 25% of the jobs were at the highest of the wage scale. we didn't have -- people talk about outsourcing. there was in sourcing of the last 25 or 30 years. we created jobs and family and employed the children and tens of millions of people offshore. trying to make the case i wish in a high wage economy. even if we look at it per
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employee, per perhaps we could have restricted the amount of employees they came into our economy is a way to push up the wage rate. but what we did is to the total amount of dollars in income and increase the amount of employment, relative to europe and japan. i was going to debate whether japan was -- germany and france really are the two most comparable comparisons. they are very different in the economy that had different outcomes as well. >> host: we will take a break right now. >> after the break, "after words" is available on itunes as a podcast. select which podcast you'd like to download and listen to "after words" while you travel. >> host: so you obviously attach a lot of importance to investors taking risks. you know, you say it is an
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important part of drawing talent into the important industries. did you paint a little bit more of a picture of how that works? and you talk about how the tax rates that matter a lot, the weather, the 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 and lobbyists? >> can you walk me through what are the choices they are making that matter for the economy, and how are the tax levels affecting those decisions? >> it is a very complicated question. i think most of the productive investments are being done by business, which are doctors and lawyers are buying the equity of those companies. in some ways, it is happening indirectly. the question is what the tolerance is for risk. are they willing to let those companies make long-term investments in the future?
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where are they risk-averse and would rather invest in debt instead of equity. they were really get a steady stream of income. if they consume them in the short run versus not consuming it for quite a while. ..
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amundsen and nickerson nervous series of bomb but i think manages what you see, how they respond to shareholders. a lot of paper performance -- pay for performance. changing over time which in since the management team to take steps that are necessary to increase the value of the shares putting a lot more bonuses in place and the u.s. my experience in business is that managers are risk averse. if the ticket was a risk they often lose their job and you never get back into the game at the level they're at. so that tends to be risk averse. they think more about their career. they want to minimize the career. it really takes shareholders and
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boards of directors and incentive systems to push them to take risk. it's a question of whether the shareholder's value. what of it pushing for. the linkages are admittedly indirect. what risks they're willing to underwrite and have a good value in the marketplace. >> what risk who is willing to underwrite. >> any investor. the investment fee, modern finance committee have the funding part and then you have the risk underwriting part which looks like an insurance syndicate, if you will. the risk averse investor would say, i'm willing to fund the investment provided you equity holder cover losses from his money. credit defaults want. and so that, what that some ticket values, the price that they put on various risks, i think motivates investors and entrepreneurs and managers to set the pay officer here. the past aren't there. and trying to create something, not program machines.
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in germany they're trying to program machines. our programmers are trying to program machines here. remarking to create the next histogram that they consult the facebook for a billion dollars of stock or three-quarters of billion as the case may be. >> i guess let me focus in on this low bed. what i did not hear from you is how this -- your marginal tax rate affect that investor. i get the indirect connection. how does the original tax liability affect how they affect the behavior of managers. tsa how does it affect them tomorrow. but the time from so short that almost does not affect all. nevertheless it does have an effect and we see that affect compound the overtime pier he
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people seesawed in real estate. by a second home. fix up real-estate. and going to start taking a realistic risk as investments. you're really doing is underwriting realistic risk. that is why builders want to build more and investment companies want to build more houses and things like that. and at valuations went up in 2000. people are motivated. the respond to those valuations. but its indirect. it's not quite incorrect. >> but with the taxes did in? >> so we offer taxes. we think to be less risk taking. we see a shift from consumption, from investment to consumption. rihanna you can capture a dollar value by dollar of consumption. the question is whether you can get a dollar 50 in value by deferring consumption and making the investments. if it's not a dollar 50 it's a
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dollar 25. people are going to invest less. you may say to increase the tax rate. that would get passed down to the consumer. if the investor says, well, i have to have a dollar 50, therefore have to price the product of a dollar 75. i'm passing a high taxes on to the customer. the customer might say, not willing to buy dollars 75. and knocked in by the next new thing. all stick with the old thing. i think we see that is what drove the difference between the european -- an example of this is labor redeployment. in the u.s. labor redeployment cost as low. we've redeploy our labour from the manufacturing economy to the service economy very quickly and ultimately ended up with more employment and higher median wages. europe was, in fact, attacks on lee redeployment because they said, look, companies don't suffer the cost of redeploying labor. society does. we're going to charge the company for that cost. redeploy the labor.
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we have to move from manufacturing to the next innovation. many to quickly move to reach transform our economy. we see germany has a little bit of success at the moment, but would you bet on the u.s. economy? the prospects actually worked pretty poorly. >> an interesting part of the book. your premises the people and making a decision between -- even high income people, certainly high-income people consume. you're saying that they're making big choices about investment verses consumption based on taxes.
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a sort of imagined -- depends on how richard talking about, but at some point you have a certain amount of wealth, it seems to me. people buy what they want. and they invest the rest. is saying that you think actually they buy more if tax rates or higher. that would have an important impact. >> over time. yes. yes. but i would say it compounds gradually over time. and so the point where i think what is less in this equation is how you really gingrich as investor. you're the guy who's really satisfying money, not that guy over there is not getting rich. and so what you really want to talented people, you want them, and i would say at least five times more value is created for the customer and investor.
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probably 20 times. agreed that it was five times. i use five times in the book because i think it's highly defensible. it's probably 20 times more valuable. the price of google versus the productivity change. talented people will be german out of their minds trying to keep up with other talented people who have taken the risk and got successful. what you see is that i have a friend that made a whole bunch of money with some crazy internet startup, and i can't bear the idea that i am working ahead, a lot of money and there's a guy out there that made more money. i have to quit and take the risk and try to get even more. and so i think investors are the same way, driven to a take more risk and underwrite the kind of risk that produces those breakthroughs, looking for the cure for cancer as opposed to by aaa bonds that will pay me and
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modest income. i'm not taking anywhere near the risk because if i succeed the government will take 50% or 75%. why should i? is just a matter of that getting passed on to the customer and raising prices. >> to you think that lower tax rates have an affect on the risk profile of an investment portfolio? or that it is consumption versus investment? >> at think it does two things. i think it motivates talented people to take more risk and allows you to accumulate equity faster. as you accumulate more equity, more equity per employee or perceive that the equity is going up because we know how much equity behalf. we have a perception of it. people will start taking more risk across the board. as consumers get richer they will spend more of their income and toward less of it in our savings accounts which can be
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withdrawn overnight and is very difficult to underwrite business as investors get richer they're far more willing to underwrite venture capital. when you come to the recession and the asset value goes down 30% which is the equivalent of increasing taxes by the san mao a big one time shot. i have less equity therefore needs of downtown by risk-taking. they should dial back their risk-taking. adopting these taxes. the issue is government spending . we spend money. you have to have the taxes with is the short run and not. that is when people look toward in the future to determine how much equity they really have to underwrite the risk they want to take. right now people look for in see
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that they have a lot less than they thought they had in 2007, and this is the economic outcome. it looks a lot like europe. >> first of all, no one is talking about 50 or 70%. >> even me. >> to you think that wealthier people take more risk than middle income? >> you can see that. i believe i show in that dated from the consumer survey which shows the assets which are owned by various income distributions. of course we all know that the rich guys have more of the assets relative to income. in the range from five to five and a half times, and more of those assets are business assets which create jobs as opposed to housing assets which are largely just your own consumption or savings overnight, checking
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deposits which are very difficult to create long-term investments. get into the financial crisis which is one of the issues that underlies it, but it's difficult to put those risk averse savings to work if you don't have an equity investor who is willing to underwrite the risk that goes along with putting those discovers savings to work. i do think business investment, small-business owners, large business owners who are really underwriting the risk that create jobs and the innovation that clothes and come. >> maybe i'm using the word risk analyst technical way. it strikes me that the actual risk, risk faced by high income individuals seems pretty small to me. in a given investment might not do well. a portfolio is unlikely to do well in recent history given --
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i don't even think we have seen that in the fact that the rich have gotten a lot richer than low income people. there have been good returns. something has become kind of endemic to being middle-class. actually facing a lot of risk. i think is saying something different. >> it is the risk that produces innovation. it is the risk that produces the 20-to-1 pay off for consumers over investors. so i don't think anyone would argue that there is a middle-class person risk of losing your job or having health care. they face enormous risk. yes. is that the risk that employers of the people? kong the economy that increases the income of the people that increases the satisfaction of customers? unfortunately no. i do think that -- remember, we went from the 1950's when large companies were capitalizing on mass markets, general motors,
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procter and gamble to a service economy which shifted much more toward smaller, local, plumbers, doctors, lawyers, you name it to much more of an innovation based economy were innovators create a very large predators that have really really propelled our economy. those are the risks that drive the economy. the whole economy has grown riskier and riskier and the foundation. riskier than one that is exploiting the mass market. that risk has been pushed not only to investors which has in part but also been pushed to employees. we don't have to find -- defined benefit contribution anymore.
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people have ira and things like that. much more prone to being laid off in the recession and war in the past. much more risk underlying the entire economy. it has been pushed off to everybody. we all say, when the be nice to go back to the 1950's? that growth slowed down in the 1970's and have an economy that was less risky or we could push it all off on equity investors and not have it have any impact and all the employees could enjoy a more stable working environment or we could do that to the government, if you will. but they're is a certain amount of risk that you're willing to take. if you're willing to take it off the workers and push it on to the equity investors it will simply dial down the risk-taking to compensate. you will have a general contraction or slowing of the growth rate of the economy. kind of a zero sum game. >> most people's perspective is that the risks currently faced by middle-class people who might have their labor redeployed is much greater than the risk
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actually being felt -- faced by i earned income investors. >> hard to disagree with that, but i think in making a moral point as opposed to an economic point. unfortunately i don't think that risk drives up the growth rate of the economy to create jobs. though in a way you do because to some extent that risk is real opponent of labor risk. you think that that risk as sort of been imposed on people. they might lose their jobs. you see as an economic value. >> to absorb some of the risk. >> did it in europe. they tried to solve the problem by pushing in on to businesses. what they got was less employment, slower growth, lower median wages and we have enjoyed in the united states command at think it's going to get worse, not better. when you look at the structure of the economy, 20 years, 30 years behind the transition that our economy has already made and and they have not made that
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transition successfully. and now we are suffering and we are frustrated and angry, but i think we're going to see them suffer far more than we have. >> you know, this actually begs a question about manufacturing. >> inhe long run you can't make the $20 what you can buy for dollar. you can use that $19 to hire a doctor, nurse, a schoolteacher, a waitress, a truck driver. you will grow increasingly uncompetitive if you don't take good vantage of that dollar an hour labor. if labor is free, how much of it should you buy? all of it. it's a dollar. that is the world that we do live in. we do have to transition from jobs that can be from -- from cuts that can be manufactured overseas to a local service economy driven by innovation. we have made that transition,
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and we have a higher median wages and faster growth in europe has been very reluctant because of the high labor redeployment cost to invest in making the necessary transition, but it is not as though the u.s. economy could outsource everything. then we would have no income to buy anything. so there will always be a u.s. economy, but it will become increasingly the local service economy. also one of the misunderstanding which is prior to 200085% of the manufacturing jobs were from domestic productivity gains, not of shoring. since 2000 there has been an increase in trade deficit, about 67 percent that has come from productivity. i think of it a bit like agriculture. 25 percent of gdp in fell to ten. that power to growth in manufacturing and productivity gains in manufacturing powered the growth in the economy. >> you know, just penny factor
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in for a second. one thing, i think $1 versus $19 i'm not sure. that is one type of manufacturing. and in many areas u.s. workers are much more productive. so i think the reason you still have a pretty robust, albeit declined to manufacturing sector is there are a lot of areas where u.s. workers are we more productive. the difference in pay is offset. >> absolutely. we produce more and more goods and more and more have it. >> the other thing that you mentioned earlier was the income. one of the reasons why i think that we have been successful in the high-tech sectors and the internet is because in fact we have both manufacturing and software and sort of the service side of that industry here so that even apple which we think of as making everything in ina, a lot of the high-end chip manufacturing processing is done here.
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samsung in all of these companies. a lot has been written, a lot of announcements about actually the importance of having innovation close to the manufacturing simply because there is a feedback loop and of that. so when it seems like manufacturing, even if you're focusing on innovation economy, it seems like manufacturing still has to be or should be part of the picture. >> a more skeptical than most. at think if you really go to the application, highly, highly capital-intensive. unique in that way. i think a lot of what has been pushed off to china is rigid manufacturing. i really think -- >> but making that distinction. >> the capitol we deploy, we put it into a duel, facebook. >> and not sure germany is making plastic widgets.
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>> i would agree with you. i don't think they can compete in that area either. i think they are making was that it will ship to china. i think germany worries in the future. >> back to redeployment of labor. at think would you characterize as a moral question which is we have excepted better for worse greater volatility in the economy. what does that mean in terms of people's lives, in terms of the people who lost a job mortgage, kids, their responsibilities. their skills may not match what they need. you are sort of impression the volatility of the economy. >> it is obviously a very tough question. people are going to suffer.
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unfortunately i think that when you adopt the european approach, people are suffering, somebody needs to pay, the person who should is business. they created the suffering. all i really do is serve my customer. if my customer will pay the cost them of going to be driven out of business. if you're going to do they have to close the borders down. i am more competitive. close the borders. lower-cost labor and waste and redeploy your capital. the effect of that over 20 years has been that we have had a significant increase in employment since the 1980's 40 million jobs had been created
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in the united states. the base of 100 million. a 40% increase. europe and japan no less than half. so in the end, who had been suffering? i believe the europeans have suffered far more of the the last 20 years despite the fact that many individuals have suffered for this. i don't deny it. the people who are really suffering of children. the ability for older workers committed no jobs for the hacker workers because companies don't go, all-star what company in europe. the cost of redeploying is high relative to the rest of the world. you can do it. >> the cost is higher, not lower, even though there is of a suffering. >> yes. i don't want to get into a debate over numbers.
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i really do think japan is different. they don't accept immigrants essentially. they have declining population. so job growth numbers, you know. and i also think that, again, the european situation, looking to germany in these countries combined, there are different ways to measure economic success without cutting into well-being in those things. >> as the easiest way. germany, france or the u.s. >> i don't speak german. so what should someone making over to $9 get paid? did taxed? what percentage of their income should we be asking of them in federal income tax? >> i don't know what the answer is.
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>> gdp. >> spending a 24 and need a 50 percent across-the-board increase it every tax level. we need much bigger increase than that, and i think we should stop pretending that were going to get an economic rebound. it has been for years and we have not seen it. the argument i try to make is what is more valuable to the middle-class? and dollar increase on average person who is making 10 million a year? in that case probably saving more. but i used 40% in the book. a couple of hundred thousand. would you rather have the income redistribute? >> i think by my calculation you would rather have the investment more valuable. >> we have four minutes left. i have three things i want to do one is, i want to the, you know,
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i want a quick response. of this point out, at the point in time where you note the deviation, actually where bill clinton raised taxes. and if you look over time, marginal tax rates, higher growth rates and higher marginal taxes in this country and not. so give me a brief response to that observation. >> i think the nasdaq went from 800 to 4,500. the increase in payoffs for successful risk-taking in the amount of equity that people had over bob any marginal tax increase. positive. it is overwhelming. go back to the 1950's. high marginal tax rates. twenty years, two decades of investments in world war ii and the great depression. you have a gi bill putting everybody through college. the whole mass markets together with television.
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>> a13g2 sentences from the book. in other for investment or you're against it. >> at his republicans versus democrats. you put your faith in private enterprise as a person who will invest capital or do you believe that the government can invest that tax, redistribute and invest that money more successfully on behalf of the middle-class? there is no middle ground. the next sentence says you have to make a compromise with the religious right if you are on the investment can't in order to get a majority. what i'm really referring to, there is no middle ground. >> i would respectfully say, i think the way you articulate the
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entire investment position is a bit of a caricature. i110 read my favorite quote from the book. it actually starts out as a quote from stanford economist, douglas berman. of read it. as an economist one cannot review the volumes luminous literature without being somewhat humbled by the enormous difficulty. unfortunately this saying is largely true of what all of economics. empirical evidence to evaluate the beliefs that divide economics and decide for ourselves which set of beliefs seems most plausible. i want to say thank you because i think you down an effort to do that in this book. you have your point of use. others will, but i think the enterprise you describe in that
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passage in the book is really sort of what we your of trying to get. >> i agree. yes. >> thank you. >> the key for having me. >> that was after words, book tv signature program of which alters are interviewed by journalists, public policy makers, legislators, and others familiar with the material. airing every weekend on book tv at 10:00 p.m. on saturday, 12 and 9:00 p.m. on sunday, and 12:00 a.m. on monday. you can also watch online. go to and click on afterwards in the book tv series and topics list on the upper right side of the page. >> coming up, from book tv coverage of the annual libertarian conference reinvest, economist george gilder talks about the new edition of his 1981 best-selling book wealth and poverty


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