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tv   After Words  CSPAN  November 25, 2016 8:00am-9:01am EST

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seems willing to go along with this and sort of have moved everything to the other end. host: before we got started here we were talking about the gettysburg address and abraham lincoln. what were you saying? >> i was wondering in this age of immediate even with wonderful glorious c-span whether we know how important it was. it would be very clear that only you would cover it and chances are that the networks and cable might say there's a dedication of a cemetery, but i can imagine that cynicism of someone standing up-- while he was talking the president came to gettysburg to try to distract attention from his disastrous military campaign out west and we would never hear it. we hear it from you guys, but then with this tsunami of all the information, would we know 1503 years later that this is the declaration of
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independence 2.0, that the first one says all men are created equal, but the guy he wrote it owns slaves and now he's doubling down saying we really do mean it and we will have a new birth of freedom and that's it, no one has replaced that to point out in 150 years since he delivered it. >> you can watch this and other programs online at book tv.org. >> c-span where history unfolds daily. .. in 1979 c-span was created and provided by your satellite provider. >> this weekend on after words edward conard.
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>> congratulations on your new book. the upside of inequality, controversial title, provocative title. [laughter] >> let's start off with some facts, wha a what happened to inequality over the past few decades? >> guest: let's increase in inequality than there appears to be. a lot of it occurred in the 1980s, early 1990s but i think the general feeling is the rich are getting richer. working wages have been slow to grow. stagnated. i think the book tries to speak directed to that issue and one of the most important is to try to dispose the success of the 1% is responsible for the slow growth of the middle and working class wages. wage growth. >> this trend started as you said, not recently, started back in 1970's but historically very high levels of inequality.
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do you agree with that? >> we can get into measuring nontaxable incomes or health care or pensions and social security which have a big impact, a bigger impact than people realized, smaller families, two-career families and things like that. lots of households that aren't working whether they retired or other reasons, but those things do affect it. do i think we pass through an era where innovation has been strong like it was back when we were inventing electricity and cars and industrializing the economy and i think some fortunes have been made as a result and perhaps we are not at that level but the nature of the investments have changed because you went from a capital intensive economy that required a lot of investors and savings so they had to share to an
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economy today where it says innovation-economic and we can go on a long list. and so they can scale without really having to share their value of their innovation. that's allowed them to get quite wealthy. >> we have moved to the facts and explanation of it. a lot of the book is on that. you talked about the reasons of rise of inequality and also the reasons for slow wage growth. let's talk about that. it's been a tough time for a lot of workers. >> i tell the stories and leads directly to the heart of the controversy of the book, i was a manufacturing engineer of ford motor company. i grew up in the midwest and we moved plants to méxico, for example, don't worry, entrepreneurs are coming,
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capital sitting on the sidelines, interest rates are zero, raise productivity back to where it is and you'll be back to where you were before but i think the workers look and they say, entrepreneurs have moved to california and outsourced to china and engineers that remain behind are designing products more mexican and off-shore workers and i'm waiting for entrepreneurs to put me back to work and so 40 million born adults, that's a lot of people looking for innovation and super vision and entrepreneurialism to put them back to work and without that, if you dilute resources, slow growth relative to the west of the economy. >> we are facing high inequality, slow wage growth, it seems like it's a natural thick to do is use the tax code to
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redistribute. that's not what you want to do. >> well, i certainly recognize that as a possibility and maybe useful in some places. if you're a 50-year-old worker who spent your whole life working in one endeavor and trained in that endeavor and you lose your job it'll be awfully hard to get a job so there's cost and we need to be thoughtful about that. and that talent is working inside of institutions like google, like silicon valley which greatly amplify their productivity. those institutions were built very slowly over time through successful risk taking.
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it puts equity into the pockets of risk takers like i -- elon musk who is familiar with the technology in a way that's difficult for people on the outside to make investments successful amplify, magnify the productivity of american -- the most talented american workers. what you see is our employment growth has been twice as fast as france and germany. if you look at unicorn, billion dollar ipo's, over the last year we have created $250 of value. europe created $25 billion of value. it's a tip of the iceberg but some indication, the amount of innovation that our economy is producing relative to theirs and if they weren't sharing
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disproportionately their growth would be slower still. you look at test scores, for example. 50% of japan. we are doing it with a small group of people who are better trained, more highly motivated and having productivity amplified in the ways that the rest of the world haven't achieved. those countries were going faster and catching up and we pulled away from them quite dramatically. >> what's the evidence that the tax code would slow that down if we enacted more progressive policies, raised marginal tax rates, raised the estate tax rate, do you think steve jobs wouldn't created the iphone, do you think bill gates wouldn't
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have created microsoft and why? >> if you look at an individual base, bill gates did not expect to be a multimillionaire when he was outwriting system. they didn't need that money to note vait to do it. when you focus on a individual, you lose the bigger picture. this person might discover it instead of that person, but if you didn't have silicon valley and all the people working and the training that went into getting there, the risk-taking, i don't think you would have had bubbling effect that we have seen and you do see, for example, that since bill gates there's an enormous increase in the amount of entrepreneurial
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risk taking that's occurred in the united states as workers have chased after those -- those gains and i'd say, where do we see talented people taking large pools of talented people taking risks. surprise, surprise, we see it in silicon valley where the payoffs are much higher, do i think the difference of tax rate in california and kansas, that's small in comparison to all the other things which are amplifying the payoff for risk taking, but on the other hand, if i'm sitting in a coffee in greece trying to come up with the next idea, what chance do i have? if i'm working at google and i'm seeing all the ideas around me and i have a good idea and a network of friends who can do the marketing, do the engineering, do the programming, do the finance, of course, i'm going to be more prone to take that risk because i have a much higher probability of succeeding and i have a much better idea to begin with so i'm naturally going to be more incline and
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seems common sense to me. if we cut europe's tax rate, it doesn't have the institutional capabilities to grow fast in this economy. >> if you're saying not higher tax rates are driving things and why not? >> i think both synergies were created and bubbled from a much larger pool of risk-taking. we can tax and distribute more in the short run but we slow down the growth and in the long run look at the difference between the growth wait of the united states and europe, look at the difference between the income levels of the united states and japan. they get bigger and bigger and the difference is bigger and bigger and the ability for those countries to catch up now that they have fallen behind it's unlikely that they can catch up
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unless we have a major shift in technology or biology and the internet and we have a big advantage that maybe we can't sustain forever but c have a competitive advantage today. >> in the book you go through five different miss an let you explain why they are miss, one is incentives don't matter, no economist believes, but you really push them a lot. >> but to believe not just they matter some but a lot -- i agree with you on the way, but the skeptic here didn't, bill gates did what he wanted to do and he would have done it anyway so why not tax him a lot. how would you convince --
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>> i only look at the difference between the u.s. and france and germany >> we can also look between the difference between u.s. and japan. i don't think we will get definitive evidence.at's t what's the elasticity of raising taxes over the long run. all economists would say we don't know if the answer. there isn't enough data to define clearly. ultimately, you have to decide for yourself what you believe. i look at the difference between what happened between the u.s. and europe between -- a shocking difference i believe. if you look at north korea and south korea, look at russia versus europe, venezuela versus south america. you look at taiwan and hong kong versus china. nude chin china versus old chin. it's pretty clear. a huge difference. >> absolutely. it's probably not tax rates.
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speed and i think over time those differences compound to great institutional capabilities that have huge magnifying effects.hi that's what i think it's a mistake to look at bill gates and say what would happen to bill gates. it's not relevant. you have to say what would happen to silicon valley if it would've raised the taxes in the bickley, and would've slowed slowed the cumulation of risk-taking and the creation of institutional capabilities that i think a lot. show me the example of the tax rate is i am somebody is evolving those capabilities faster. >> what about the 1950s? >> you would find you would build networks of highways. built, television a great enormous mass market. we have people returning back from the war when you had a decade or two decades from the great depression where really no innovation had been implemented.
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we have fallen behind the national rate of growth. there were numerous reasons. there was a huge migration of agriculture into manufacturing. those things lined up in a way that magnified the game. >> despite the fact that were 90% at the top. >> nobody paid 90%. corporate taxes were lower than -- you know, i argue in the book that economics is very circumstantial even though we try to have the truths. i think if you go back to 1950's because the economy is capital intensive, what's our large corporation, proctors, low corporate tax rate at the time, not individual entrepreneurs.
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more restaurants and that's just competing with each other and not driving growth. we happen to be fortunately intensive area at times when risk taking and talent are driving more and it's become much more entrepreneurial and large corporations have a difficult time innovating and such a lrnlg pool, too afraid to just try to do it all. we are trying to stop global warming. we need huge corporations and the whole thing can change to dynamic than the one we are living here today. it happens to be that today it's entrepreneurs out without capital that seem to be driving the growth. >> let's go back to second myth. largely unearned. why is that a myth? >> the argument that the 1% has gained success by negotiating
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with the cronies, that there's been a huge rise crony capitalism. you see tell-tale signs of crony capitalism. we see it in sports. it's surprised how much cheating on a misdemeanor level. there are certainly going to be a lot of cronyism, the question is whether it's riding enough to account for what we see in rising income inequality. we should have seen a slowdown in growth relative to other highways economy and acceleration in growth -- >> not as much as. >> but in the acceleration relative to the other one. it's hard -- if you're running in a marathon and you hit the hill, everybody is going to slow down. question is how are you doing relative than everybody else, a better gainl of what's
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happening. one thing you have seen is acceleration and other is turn over in status quo. if you look at cutting edge in technology, 15 largest techs in 2000, the only one held to market value is microsoft, the rest of them are down to 40% of the value they were in 2000, a whole new set of competitors at the level. you look at the forbes 400, it's like 75 to 80% of them are self-made workers, business owners, if you look at the difference between ceo pay and worker pay, you know, how much ceo pay risen relative to worker pay is largely driven by not -- not by a change in ceo pay, relative to worker pay but companies that pay all workers at all levels higher so that's an indication that it's a creation of new businesses that
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are more valuable, if you look at the dispersion of returns in manufacturing where the -- where the profitability is shifting towards technology, you see less dispersion among returns which indicates competitiveness and here in innovation you see why diversion which shows you disruption of the status quo. where is the evidence on the other side other than rising income inequality. the one place is riseing profitability. >> what about where a lot of the big money is being made in the finance industry? we didn't have occupied silicon
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valley or occupied hollywood, we had occupied wall street. >> yeah. >> who would you justify the big bucks being earned by hedge-fund managers. >> i will go less on hedge-fund managers because it's complicated. let's talk about finance in general because the 80/20 of it is, we will probably get to this later, the trade deficit floods the economy with risk of saving, we have very little use of savings in this economy. the savings would get unused. somebody had to innovate how we are going to put that money to work and fall to unemployment. nobody was working on that problem except for wall street and i don't want to be a big defender and they did a couple of things, they figured out how to securetized mortgages and different levels of risk, they created syndication where they could tell pools to entire
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world, they found a logical risk-taker which in hindsight turns out not to be gad but put the money to work and said, i don't know, if you've noticed but your house has risenning value and you could spend that money and you're never going to get that money again, you basically won the lottery and we can do that, we can facilitate that with a no money down, no risk to you because you could safe the money. everybody is rushing to get out of the banks. my point is only they did come up with innovation which in 24006-7 we thought it was a good idea and paid them a lot of money for innovation and a lot today, that innovation wasn't so great and we are not going to pay for you that anymore and their volumes are way down and
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they're earning a lot less as a result. for hedge funds maybe they're all trading with inside information. bain capital we would fire people at any hint of inside information. just people had information that we thought even was close to -- i think we had unique insights about what makes businesses successful. and we employ those not only in our leverage but our public investing business and we have made better returns than average as a result. and i think one of those insights is that if you have a lot of market share, you're going get a higher return on investment and the value of the future investment opportunities is more valuable than the market recognizes. and what you want to do is get those companies and invest a lot more money in opportunities because the managers are all underinvesting and you can pick
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that up and capture that value and that will have a big impact on the value of the company and we use that publicly and privately to great benefit. do i think other guys have inside trading, sure, but i think it's small and not large and hard to account for everything that we have seen on inside trade. >> third myth in your book, investment opportunities in short supply. >> stagnation argument. i would say i look and i say, silicon valley is on fire, if you -- you don't need a lot of capital because there's a difference of do we need risk averse savings of the kind that comes as a result of the trade deficit. i don't think that economy has much need for it. i don't look at that and say there's shortage of investment opportunity but shortage of investment opportunities that needs that kind of savings,
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there's a different. not only is there shortage of investment opportunities that need that saving but surplus because of trade deficits and germany drives the interest rate down to zero, but there's a whole set of phenomena there. i would only say if you look at silicon valley is on fire. when i talk to ceo's they're scared to death of getting disruption and talent they need to fight all the disruption and find alternative investments that will keep businesses profitable in the long run and the third thing if you look at i think tangible investment hiring smart people to think about the engineering future, you see nothing but rise right through the recession, you know slowing down but through the recession, you don't see evidence of a big falloff in investment. >> productivity growth will start? >> i think it can get complicated for a lot of reasons but one of the reasons is i do
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think that today you have -- it's like a lottery. you will either scale up and get rich without very little need of investors or you're going fail. it's the only way they are going to get rich. we are now putting a lot of talent in risky bets, it's very possible. say it in the book that we may be overinvesting there and as a result there's a whole source of productivity gains when is super vision but to the extent the talented people aren't super supervising and overplayed the lottery and investments won't turn out so great, but to the extent they are not doing this, that low-skilled immigration, super vise all of this too unless it's contributing proportionately to the
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constrained resource which i say is talent and risk-taking, what you ought to see a slow down in productivity. you're willingness to take risk and profitly trained talent. slow down in productivity because people are fearful and i think when you change all the regulations that were changed in banking and health care, when -- people were taking risks in banking like there were no tomorrow. today they would be scared to death to take the risk. that may be a good thick or a bad thing but certainly slow down innovation and productivity when you add on regulations because people take a fee and i'm not going to jail. they're not doing that today. >> okay, your fourth myth, progress hallows out the middle class. the middle class is struggling
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according to middle people. >> i heard and i showed you in the book what is the income distribution for full-time white workers, black workers and hispanic workers, what you see there's no real change in distribution except way out in the end of the tail of .1% and upward shift in the median as people have risen. 11 point out of the middle class because they are using absolute numbers, distribution as it shifts below. but 7 of those 11 points came from income moving up, four of those points came from income moving down. you look at the 4 points, three of those points came from influx of low-skilled hispanic immigrants. what happened to everybody else? 7 points up and 7 points down. not such a bad trade-off when seven of the eight points are upward movement.
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>> myth number five, mobility has declined. >> i think -- >> why is that wrong? >> if you look at mobility in the u.s., first we know that study which looked pretty comprehensively i think sort of the landmark study of this at this point in time shows in decline in mobility for the united states. ting most interesting thing i find in the book if you look at comparisons which allegedly has the best mobility and equally distributed income it's virtually identical for the u.s. except for bottom 20%, if you peel the onion, blacks look different from escandinavia and if you look at african american mobility, you find in mobility across all races an demographics, single motherhood is a killer on mobility. high school dropouts is a killer on mobility. u.s. population which a portion is african american they track
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identically to single motherhood, the effects of single motherhood and high school dropouts. if you look at the other income levels, they -- the mobilities look similar to the rest of society. >> okay. >> there's noneconomic reason why we might see mobility slowing down at that rate. >> okay, i want to move from the facts as you see them to what policy might do about the situation we face. one of the books that influence my thinking of income inequality race between education and technology. technology tends to increase inequality and education tends to -- the other side of the lenler and so their conclusion that we need to push forward on educational and try to increase years of schooling for a typical american and the main thing to rise inequality.
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why is that? >> yes, one thing i would say about the book, a great book, by the way, influenced my thinking too. it doesn't segregate the 14% from the .1% and when you do that you see the growth is in the .1% successful, risk-takers at the highest life. you look at the effects of education more broadly eliminating that, it isn't quite as dramatic as the book makes it out to be. that's where most of the inequality that we have seen have c eventually you can slice that, just get to the success and that appears. what i look at in the book was codified off the shelf technology that would make education more successful? people said the test scores are higher in europe. i looked at all the comparisons. if you look at white americans versus europeans, they score
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virtual identical. if you look at the first generation immigrants, the u.s. discourse better. if you look at low socioeconomic families, the u.s. scores the same or better than europe. so you go there is some evidence that europe has some secret sauce that we failed to implement. another place people look at his massachusetts. people score highly from the first time there tested and thee don't improved relative to thehe rest of the country over the course but you would expect the opposite which is exactly theth same in the beginning and they go through 12 years of school and to get better and better. higher and higher scores. if you look at charter schools is one area we found that tutoring intensive no excuses charter schools do up here to work independent of just what's selection bias which would be the parents that want that for the children are going to fight hard to get the children,
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applied to a lot of schools to get past lottery like any parent who's trying to send their kid to a private school. they were not just apply to one. the student population is over pursued by conscientious parents to work harder. but people at work hard to sort that out. it's delivers tutoring intensive charter schools do have an effect. the book calls for an expansion of the to meet the demand of parents. i think if you look at some of the work, it suggests if we could find the bottom 5% of teachers, incompetent teachers can not that we're trying to blame teachers for success or failure of the american schoolan system, i think most our hard-working time to do the best job but we are not able to fire the bottom 5%. one of the things i call for a in the book is a constitutional amendment banning teacher tenure. tenure . all we need to do is spend more
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money and implement that and somehow our education system is going to get a lot better. on the high end, there's lots of things we can be doing. there's lots of students who are not studying subjects that really employ -- that are going to employee fellow man. there's a surplus of talent but properly talent that takes europeial risk that takes less fortunate fellow man into jobs that are more productive and higher paying that they're interested in doing other things in solving that problem. that problem is satisfying relative to competitors. there's a painful job that yes, it pays highly but also gets you out of bed at 6:00 a.m. in the morning because you've taken on responsibilities and those responsibilities lay on your shoulders which is not to say that -- that the working man isn't working hard to put food
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on the table and to make ends meet, you find a lot of talented people that really haven't accepted the moral responsibility. if you look at talented students, they don't graduate from college as successfully as the rich kids do. there maybe reasons for that. maybe there's reasons we can't solve. i think we can be a lot more thoughtful about how to get the kids in the best possible schools and improve schools because they are far more likely to feel moral obligation to help community than a lot of other kids. i'm skeptical that we are going to have dramatic change in a reasonable time period and we are pumping into some big problems like a lot of retiring baby boomers and we need fast growth to solve that problem.
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>> some economists most noteically jim argued for preschool specially for underprivileged kids. president obama has argued for that as well. you say you're skeptical of that . >> i looked at all the research. i think you don't see very many examples where it's truly been successful and it's not so simple that we just get the kid to preschool and do whatever we want and somehow that's going to have a dramatic effect. what you find in studies they do show affects but the effects fall off in fourth, it does have an affect on civic responsibility. i worry about the hawthorne effect. you're far more likely to feel special but if i do to everybody, you may not feel so sprr anymore.
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i said, we should continue to run a lot of excerpts in preschool because we all believe that the brain is highly placid the younger you are. we don't really know much about it yet other than to know that there's probably a real opportunity. i don't think we know how to take advantage of that opportunity. i don't think the large scale excerpts have not proven successful. >> the literature is mixed. there's no definitive evidence on the impact of taxes, some growth. some believe that lowering tax rates are good. >> i would say that the evidence on taxes is more ambiguous because no one can really hold -- >> exactly.
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>> i think there's very few really definitive successes in the day care area. there's a lot of propaganda in academics and literature. you have to sort that out and get to the guy that is are really, really rolling up their sleeves. how do you feel about the
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proposal? >> on the proposal i sadly there are two constraints to growth. one is our willingness and capacity to take risk. the other is properly trained taliban to sight of the same coin because i may be willing to take the risk if i have supervision and how to implement it but i don't i don't take the risk. i think it's difficult to accumulate equity that's willing to take risk versus people putting their money and the bank in saying i will fund as long as you're willing to underwrite. equity is precious. it comes from a lottery like process, competitive advantages, competition can want it back down to zero. when it arrives we should treat it with the preciousness that it deserves as opposed to taking it for granted. i think it's about proposal to tax it, redistribute it and consume it when we are luckyt enough to get in the firsti thi place. i it's a lot of odd rita kempley
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would agree, on economics in the book where somehow we generate high returns on investments despite the fact nobody needs of the investment anymore because we are not growing and we don't have any need for investment. i think even poke fun, brad delong -- brad klug men. i think larry summers called it a misreading of the literature and i would say if you look at the evidence he puts forward t about the 1% i think even states the evidence in the book and that most of the evidence points to the fact 70% of the wealth of the top .1% has come from self-made business founders, not from public company ceos negotiating with their cronies. kaplan studies at the university of chicago shows ceo pay has and outstripped private company ceo pay for the people sitting on the board of private companies own the business.
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you are not negotiating with your cronies. the to growth rates have been very, very similar which is an indication that public companyno boards are not increasingly doing their job less and less effectively. if anything we see faster turnover in ceo pay. i mean 10 years have gotten shorter overtime. >> you're skeptical about education, skeptical about a wealth tax. what would you do? >> one of the things i saved thr status quo is this for a reason, so trying to disrupt it -- spent another question i have speeded we are in a much better world than we're willing to admit. if we stay at this level, we've got problems to solve but we are still a lot better than we were. >> so make america grateful again. >> i like that. one of the things i say andy properly trained talent is a blindingly stupid we should
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recruit more. i say this 100 full-time workers, the top 5% are 5 million workers, 7 billion people in the world. half of those we don't know who they are. half are too young, too old. half are never going to move. the top 5% are potentially move to the united states. people should fear our immigration strategy at that level because we should be tried to capture the talent, bring it and put it into our institutionf which would magnify their productivity and the success of their mistaken more than -- way more than their home countries. that's what's driving growth and we could double it by bringingng in another 5 million. i i don't know if there's synergistic effects, maybe we are fishing of the full the kitchen less but that i think is our best shot for growth. >> a lot of economist would agree with that. there's no economist i know that argues against talented immigration. >> another proposal i make in
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the book, if you look at the tax numbers. ss pays in taxes about what they get back in government services. in the year that they pay. so they're not contributing anything to their retirement really, and they're not helping the old people today, they're not helping the poor today, that's all being done by the top 20% when you really look. but i say, good, so why don't we do the following: zero the middle class tax rate and charge them the full costs of -- >> host: how does that work? i use the roads, i use national defense. how do you charge me for that? >> guest: well, some of that's local, i'm really talking about federal. >> guest: well, national defense, say. >> guest: what i do in my calculation is say proportionately the amount of income -- >> host: it's an income tax. >> guest: it is because you can't -- i'm giving it more as a con sell check up -- conceptual thing. you can give vouchers, lots of stuff that you can do, but it's
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complicated. but ultimately, i think, if you did have a person say i'm not paying any taxes, but if i want to buy government services, i think two things would be happening. why do they cost so much? i could get it over here in the private sector for half the price, and i'm not so eager to have services that i have to pay for as opposed to free services. so it would put downward pressure on government spending. if the government spends the money, they consume those resources. if the private sector spends, i think the private sector's a more effective way to spend resources, and it would shift to the private sector. >> host: now, why don't we talk about another one of your ideas which is trade and the trade deficit. this is where i think you're probably in disagreement with most economists. so why don't you explain your view of why we should be so worried about the trade deficit. >> guest: well, i believe that it floods the united states -- ultimately, you have germany, china, previously japan, mexico probably for corporate savings but slightly different, but let's just look at germany.
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they have enormous savings level in china. we guy goods for them, they end up with dollars. they loan us back the money. and the money's very risk averse. they buy t-bills. that pushes our risk averse saves in the banking sl. banking system. i said there's not great investment opportunities for risk averse savings. it doesn't come back as equity, and it's not as though just because it bought t-bills, the guys who are risk averse don't just start taking risks because somebody bought their t-bills. they say, bank, you find an equity person to put up collateral, and i'm willing to fund the investment, but i'm not willing to take risks, and i'm perfectly happy to stuff my mattress with corn rather than put it into the system. so the money sits there unused. i look at trade, and i see we're 13% exports, 16.5% imports. if we say the first dollar of
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trade, creating a lot of value from that. last dollar of trade ought to be break even. i don't know where, but if it's occurred when you get 13-16.5, the way to break even, you're probably awfully, awfully close to break even. but what happens at that level when we cross that point is we start giving up jobs unless we take the risk of putting risk averse savings to work. but my argument is that we are capacity constrained by our willingness to take risk, and the evidence is that that the interest rate zero and the savings are sitting in the bank unused. >> host: okay. let's imagine china wasn't buying t-billses, suppose they were buying u.s. equities. would you have a different view of the trade deficit? >> guest: potentially, yes. it's not just buying public equities. they really have to roll up their sleeves -- >> host: well, that supports the venture guys who are eventually going to go public. >> guest: i agree. although there's a big equity premium between the risk-free rate today and stock market rate
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even though the pe ratios are high. the margins are at recession levels, one over the pe ratio minus the taxable rate of getting to recess levels, and the liquidity premiums are high as well. liquidity meaning if i put it in the stock market, i could get it out tomorrow. if i actually build a factory, i won't get it back for 50 years. you have to get people to both take the equity and thely quiddity risks. -- liquidity risks. it would be a lot better than the t-bills because then our risk-averse savers when you think about ricardo caballero, probably off on a taj gent here -- tangent here, we would have safe assets for the people and these people put in the bank. it's unused. i'm trying to sell, larry summers tried to sell the samefo problem with this idea for infrastructure. we would agree infrastructureee spending is probably better than just redistribute in terms of future growth of what he doesn't
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tell you is unless it increases government spending then it's not borrowing the money that sitting on the sidelines and putting it to use. folks have to increase infrastructure and government spending. government spending is at 36%, projected at state and local, projected to grow as baby boomers retire. that's up 45%. the debt is a 75% of gdp. is projected to go to 140. those are low because they soon will drive spending to their which were not going to do. so the imbalance is even greater. do i think spending more money through the government rather than the private sector is going to help us more in the long run? it's hard to believe but if someone said would you rather spend a dollar our infrastructure than some entitlement program for richfo guys like me, i would rather spend it on infrastructure. i want to increase government spending? no.
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my argument is whether the government spends on the private sector spends a. either way it consumes the resources, properly trained talent and a willingness to take risk. that's the real crowding out. it's not a crowding out of savings which is traditionally economist think about it. the interest rate is you and the savings are sitting unused. >> host: let's talk about yourau background a little bit. early in your life you're at bain capital. tell us what bain capital is a now that experience influence your view of how the economy works trying to go back to steps, which i was an engineer who spent time in the decision sciences which is quantitative economics. i spent a lot of time on thehe shop floor and then worked at a consulting to a lot of large businesses, and daschleit businesses before went to bain capital. bain capital had is that which i described which was if you had a competitive advantage the easiest one to buy is you are
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the largest competitor in your space. it opens up future investment opportunities which are moreif valuable than it would be if you aren't close to the closet capital come if you're in the thick of competition and can barely eat out what it more -- more than what it cost of our money. those are undervalued by the market. they aren't underinvested in. if you buy them and invest in them that can create enormous amount of value. what held us back from going to infinity? the amount of talent we couldamo hire. we would train and teach them.n first thing, go to the competitor, yet paid more money. the cost of training these talented guys is very, very expensive because we get very few of them out of the back into the process. it's hard to get them to stay and continue to create value on our behalf. they go i can just create that value on my own behalf. i started to bump into the very things, and the other thing i saw with ceos.
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you have to pay ceos a lot of money, take the risk. they take a lot less risk than you wanted to take asset investor because a good got disrupting the status quo is a very risky thing to do. the organization turns against me at the height of -- i have a hard time surviving. going to do that is to minimize risk in my career as opposed to what an investor wants me to do, which is take a lot more risk in trying to improve the future, make those investments thatal might fail, those are all things that put their career indy jeopardy.pa if you pay them enough when they will take those risks.fo what we've done is the under the the management team and then tho management team, underperformance was stability in a long time, they are the market leader. they have a huge string of investment opportunities and their underinvested.ri that doesn't work. that doesn't make any sense. >> host: i want to ask you about one arcane tax issue which
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isn't in the news a lot. carried interest. can you for the listener definey what carried interest is, what that means an intelligent view of whether it is a loophole as a lot of people suggested and whether it should be fixed? >> guest: i don't think it is a loophole, is the edge. people can disagree. carried interest is wherevestin investing $100, and some investors putting it up and then they come to us, a general partner and say, we will give you 5% or 20% or whatever the case may be, and that's your compensation for having managed the investment. >> host: it's competition for your time and -- compensation. so why is it not tax like other? >> guest: you will only earn a, bear with me, you only earn it is the investment increases in value. you are 95% of the 100. you're getting 5% of everything above the 100.
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the average is going to be closl to zero for many, many investments because you haven't created much value. i think the tax as an investor you get the carried interest. tax laws of very simple.oing t it says somebody is going to pay this tactic i don't care who pays it, so if it was an investor who would've captured the capital gains and they wouldn't pay 20%, bear with him for second, if they get 5% you, then you will pay on the 5% of the reason why in corporations where corporate managers don't get the capital gains treatment on the options is because of double taxation. the company takes an ordinary income deduction. they say that's fine but if you're taking and/or net income deduction, somebody else is going to pay the 50% tax, 35% federal tax, that deduction reduce my tax revenue by. they simply looked through itatd
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and say what would my tax evern, have been, and i'm going toin tc collective. in the case of usually capital gains. d what we could do is say, and we do this all the time, which is just itself to our are a, cell door family trust the whatever. we have to get evaluation of what we think the options are d worth. they use a traditional way to show the model and they say that you is the value.now, w >> host: you say there are getting too much in the weeds. >> guest: that a nickel. almost the money from a bank account didn't come from the options they gave you. it came to the valley that was created, the capital gains great not only for me but for investing.me, but >> host: it looks like you are being compensated for your time and your paying lower tax rate than ordinary -- that's in some the other. >> guest: there's a piece of the witches that and i agree with you. that's the valley of the option.
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you are working and i say i will give an option on ibm stock. you look up the valu at the valr joe and music thank you, that's what i get paid. we get charged on capital gains on that. >> host: so that would be some reform just think what you really see is the options we're very clever about which wasn't bad, which ones we invested in and able to make those options worth a lot of money. we can make an argument at a doing a book that we should lower the corporate tax and raise the capital gains rate because part of the reason why the capital gains rate is low is because of the double taxation of corporate taxes which may bes doesn't apply, well doesn't but because we are corporations, and the profits will get tax. >> host: we had this discussion one month before the presidential election. a lot of politics in the air. especially a political place. when you look around at politicians either running for
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national office or in local offices or state senate offices are there certain politicians that are saying the right things and certain ones of saying wrong things? >> guest: let's go to the two presidential candidates.s. from my perspective i would have a difficult time, never be able to vote for hillary clinton because i believe increasing spending $200 billion a year over the next 10 years at a time when we are at 36% of gdp total spending. that just seems like a prescription for very low growth rate to me. marginal tax rate, 43% federal close states getting it up to 50%. i don't think that's wise economic policy. in the case of donald trump we would describe our head on behavior that's hard tod understand and try to weigh that against, do you want to take that risk versus what i hear as slower growth. i think you're getting outside of the realm of economics.
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hard for me to make that call publicly. i can make that call privately. i don't know how to use economics to make the gulf. >> host: what you think about we negotiate trade agreements country i think it's, i think i deficit our problem. i think you cannot make for $20 what you can buy for $2 think you'll be competitive in the long run. i think it's a big mistake. on his fiscal policy, it'sgo basically guns, grow theing to military, grow and how the tax cuts. cut the taxes. with dead at 75% of gdp -- can't support the. >> host: i read your book over the summer and i read right next to a book by bob. i came away thinking one big difference in the world view between you and bob frank was that he view the world as fairly meritocratic.
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to use outcomes as largely bases on luck. me, too.>> gue >>u say that success is largely earned.ul >> guest: i would've said i think 99% of my luck was be admitted i was bored and that i just got lucky from there. it's true i went to engineering school. i studied math.bu i went to business school. i was the student council president. i thought a lot about leadership. i went off to been consulting and learned a lot about business. i did train myself and to take risks. i'm not going to get rich at ford motor company, not going to get rich at being consulting. ultimately i lucked out. i told him i would work for free. get naked and currently lucky? of course. it doesn't matter at the individual level. there's a pool of people who are kind of lucky. somebody is going to get lucky. what you need is the poor people
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who are trying to get lucky, many of whom are not trying to get lucky and they still will get lucky. if you don't have that pool which europe doesn't have, japan doesn't have, you don't get the growth and institution capabilities which ultimately drive growth in the economy.ev what's happening at the individual level, it doesn't really matter. >> host: if you are lucky what should we do for the unlucky? >> guest: you need 99 unlucky people to get one lucky person. i don't think we can reward the unlucky because they think where that will lead is a whole bunch of art history majors who are not to get lucky and say i'm going to get rewarded anyway. you have to go you're a harvard student, you have a more obligation to put that out of work on behalf of your fellow man. you can do it through philanthropy but another way is through satisfying the demands of customers. they call them to cancel a a reason. the customers are demanding and it's hard to satisfy them, and it's painful to satisfy them.
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you want people to get the training, to be motivated, toe take the risk and ultimatelyth they will fail but we can't, how are going back and to teach her a good i'm sorry it didn't work over here, mark zuckerberg, you have the same idea and maybe you had a better team to implement it because somehow you the capability to pull it camemayb together, maybe was just ranted that you succeeded, he didn't. we're going to split it up and t divided between the two of you. it's nice in theory but it can't possibly work in practice thehe way that it is work in the united states. >> host: i can understand that. let me say i feel like i've been a very lucky, to have had this opportunity to talk to you the past hour. thank you very much and congratulations on what is a really terrific book. i don't agree with all of it but i found outsold all that provocative and worth reading. thank you so much. >> guest: thank you.
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