tv Politics and Public Policy Today CSPAN March 29, 2016 1:47pm-7:01pm EDT
a look at the history of political parties. tonight at 9:10rks the culture in congress before the civil war. and then it's the story of blanch kay bruce, the first elected black senator to serve a full term. he represented mississippi fr. later committee on taxation established in 1926. tonight, on c-span, the supreme court cases that shaped our history come to life with the c-span series "lard mark ca -- landmark cases." real life stories and constitutional dramas behind some of the most significant decisions in u.s. history. >> john marshal said this is different. the constitution is a political document. it sets up the political structures. but it's also a law. and if it's a law, we have the courts to tell what it means, and that's finding on the other
branches. >> which set set apart was it's the ultimate antiprecedent case, exactly what you don't want to do. >> who should make those decisions about those debates. in lochner versus supreme court said it should look at the cases. scott v. sandford tonight at 10:00 eastern on c-span and c-span.org. puerto rico is $72 billion in debt with a $30 billion shortfall in its pension fund. two portrican government agencies have defaulted on their debt. recently hosted discussion on the crisis and what the island's unique status as a u.s. commonwealth means for resolving the problem. this is two hours and 45 minutes. >> good morning and welcome to
washington college of law. we also would like to welcome you joining us virtually in puerto rico and locally via the webcast. i'm diana sawyer and am the coordinator program here at washington college of law. thank you for joining us today for this discussion of puerto rico's public debt and political status co-sponsored by the program on long government and the inter-american university school of law. our panelists will discuss the three major options for puerto rico's political status and the impact they think each option would have on puerto rico's public debt. as most of you know, tomorrow the supreme court will hear arguments in two cases involving puerto rico. puerto rico versus sanchez valla and puerto rico versus franklin tax free trust. the panel will also discuss the impact of these decisions on puerto rico. we are fortunate to have with us today a panel of legal scholars and politicians to discuss these important issues.
we are also very pleased to have two alumni of washington college of law on the panel. i'm pleased to introduce here today. osvaldo is an alumni of american university washington college of law. he received a dual llm in law and government and an mpa from american university in 2013. he received his jd from interamerican university of puerto rico's school of law. he is the executive director of the joint committee for the penal code and criminal laws reform and legal adviser to the judiciary committee for puerto rico's house of representatives. >> good morning, fellow students, professors, guests, and to all whom are watching online. as an alum of the program of law
and government of american university's washington college of law and interamerican university of puerto rico, i am honored to be standing here before all of you to discuss a topic that is of great importance for my fellow puerto ricans. puerto rico's debt and political status. in light of the political and legal and economic impact that puerto rico will endure when the supreme court of the united states decides the cases. i personally want to express my gratitude to the program of law and government of american university's washington college of law for being available to ponder on the ideas. thank you for making an idea of an alum a possibility. thank you for making this academic forum a reality. i also want to thank the interamerican university of puerto rico school of law for co-sponsoring this event and michael for promoting the event in puerto rico. in the statement of purpose that
all aspiring students have to write in their admissions process, i wrote many words that resonate with the same meaning today. i wrote, i believe that if a country faces diverse problematic situations, the only way to solve such issues is by the citizens voicing out their opinions. as all kinds of opinions soar through the country, more people learn about the problems and solutions start to rise during the discussion. this is what this forum is about. we are gathered here today among politicians, legal scholars, citizens and the future legal minds of america and people of the press to join the discussion about puerto rico's financial situation and the longstanding debate of puerto rico's political status with the desire to contribute solutions that bring prosperity to the millions of american citizens who live in puerto rico. the panelists who will provide their knowledge in this
discussion are professor charles venator-santiago. professor venator holds a ph.d in political science from the university of massachusetts. he is an associate professor of the university of connecticut where he holds a joint appointment in the department of political science and institute for latino and caribbean american studies. professor venator will provide us today with an historical overview about puerto rico. neil weare is the founder of we the people project. he is a civil rights attorney committed to achieving equal rights for our americans living in u.s. territories. raised in the u.s. territory of guam, mr. weare worked for their nonvoting delegate prior to attending law school. he is an associate at tryster, ross, chatler llc, a firm specializing in political law for non-profit organizations. dr. charles pasquera holds a
bachelors degree in civil engineering from the university of puerto rico and a ph.d in structural engineering from cornell university. dr. pasquera is a former secretary of the department of transportation in puerto rico, a former candidate for governor of puerto rico, and he is currently one of the candidates from the new progressive party aspiring to become the resident commissioner of puerto rico. dr. pasquera will provide his opinion with puerto rico's political status and polit debt from the statehood perspective. representative luis vega ramos. representative luis vega ramos holds a bachelors degree in political science and a doctorate from the university of puerto rico. he has been serving as an at-large representative in puerto rico's house of representatives since 2006. he is an accomplished legal scholar and one of the leading voices of change among the popular democratic party, as well as the free association movement. today representative vega ramos will contribute to the discussion from the free association's perspective.
professor carlos gorrin peralta. professor gorrin, a doctor from the university of puerto rico and an llm from harvard university. professor gorrin is one of the leading constitutionists in puerto rico, an accomplished legal scholar who's published books in puerto rico, spain, the united states and puerto rico. he is also an active member of the puerto rico independence party. today he will provide to this discussion his legal knowledge from the independence perspective. serving as respondent to this panel is professor juis enrique. romero, who holds a degree in labor relations from the university of puerto rico, a jurist doctorate degree from the puerto rico school of law and llm from american university's washington college of law. he is currently serving as adviser of the senate of puerto rico and is an associate professor of the interamerican university of puerto rico school of law.
the discussion will commence with the historical overview provided by professor charles venator-santiago. professor venator, please come to the atrium. you have ten minutes for your position. >> thank you. thank you for having me. i am going to squeeze 115, 117, 118 years of history or more in 10 minutes, so please bear with me. okay. so, i think it's important to clarify where i'm coming from with this history. there are two prevailing interpretations about the status of puerto rico. one says that -- and this is the position adopted by most legal scholars -- that a set of academics began to write and publish articles in the harvard, yale and columbia university law reviews, and the supreme court essentially picked up these arguments and created a doctrine of territory corporation which has essentially has governed the relationship between puerto rico and the united states since 1901. i subscribe to a different interpretation which has a
similar outcome but is a little bit more complicated, which suggests that the u.s. military, the war department, essentially crafted a territorial status in the 1890s, and the act normalized the territorial status and the supreme court merely affirmed that logic and gave it a constitutional seal of approval in the insular cases. i want to clarify that, because the story i want to tell you is anchored a little bit more in thinking about this relationship between puerto rico and the united states as a strategic relationship and not merely as an academic sort of debate that essentially was internalized by the courts. okay. notwithstanding these two different interpretations, it's clear that since 1898 the united states' theory of territorial expansionism has essentially created or used an anomalous discriminatory contradictory, at times double standard, constitutional laws and policies to govern the island and its inhabitants. my contention is that before
1898, the united states essentially developed two traditions of territorial expansionism. and these are based on readings of jurisprudence, legislation, and essentially, the legislative histories of every territorial debate that occurred between 1789 and the present. and these are a colonialist position and an imperialist position. the colonialist tradition was premised on the annexation of territories for the purposes of creating a union. the idea is once colonized, settled by white citizens or members of the united states, it would eventually be organized and transform into a state. what made it into a state on the same footing as the original 13. the constitutional source of power was the territories clause. at the time, or at least until 1898, it is possible to argue that the citizenship clause, after it was enacted, was applicable in the territories and birth in a territory was tantamount to birth in the united states. for rights purposes, the bill of
rights applied to territories in like manner or in the same way that it applied to states, and there's plenty of jurisprudence to affirm this logic. the imperialist tradition, which includes the occupation of native americans, was premised on the strategy of economic and military purposes. territories were selectively occupied, sometimes indefinitely, sometimes treated as foreign in a domestic sense. the constitutional clauses that were used were anything but the territories clause, including the commander in chief clause, the treaties clause, the commerce clause and a whole range of other constitutional clauses, but no occupied territory was governed under the territories clause or the government's power, constitutional source of power, did not emanate from the territories clause. citizenship of birth in an occupied territory was tantamount to birth outside of the united states, and unless congress enacted specific legislation, the children of citizens born outside of the united states could only acquire a blood right citizenship by statute. in terms of rights, territories are located outside of the
united states for the purposes of the extension of the bill of rights. so, in the 1890s or late 1880s, the united states military begins to develop a new theory of generally known as nablism, which is inspired or grew out of the work of alfred t. mayhem. and the idea was to annex territories to create military bases throughout the world. so, islands or new territories could be annexed throughout the world to create a sort of buffer zone that would enable the united states to join the club of global empires and establish a sort of protective buffer zone that could prevent other empires from attacking the united states. this was done for military and strategic purposes. the challenge was how to occupy territories permanently without being bound by the constitutional precedents established by the colonialists or the imperialist tradition. so, the military drafted or began to conceptualize a new territorial policy, which essentially becomes the doctrine
of territorial incorporation. in the case of puerto rico or in the case of the united states in the war of 1898, this is happening at the heels of an electoral and partisan realignment that takes place in the late 1890s, particularly in 1896, where northern industrialist republicans seized control of the republican party and seized control of congress. and what we see is a realignment of ideologies that begins to take control of the congress and the presidency. the judge described this sort of group or cabala of new imperialists as large policy expansionists. we later describe them as part of the third-view type of expansionism. but the idea is that there is a progressive group of republicans that seize control of the republican party's machinery and begin to use their power to engage in a new type of expansionism. link to a new type of territorial law and policy.
okay. so, as we know, puerto rico is seated or annexed after or amidst or as a result of the spanish/american war of 1898 under the terms of the treaty of paris. the united states installs a two-year military dictatorship, or to use clinton rossiter's terms, a constitutional dictatorship where military governors govern a territory after the secession of hostilities. in their design or they're there to essentially craft a particular type of territorial government that would not be bound to the precedents of the colonialist tradition and at the time would be flexible enough to be incorporated or to absorb into the united states in a way beneficial to the u.s. military. and the idea was again to acquire strategically located territories where the united states could have staging positions to essentially defend a new foreign policy. the military's key actor in the case of puerto rico would be
brigadier general george davis who essentially goes into the islands and crafts a local policy, selects what laws, policies and institutions would remain, and makes recommendations to congress who then normalizes his policies under the terms of the foraker act of 1900. the foraker act of 1900, among many things it did, included five key policies. first, it imposed a 15% tariff on merchandise trafficked back and forth, or between the united states and puerto rico, effectively treating puerto rico as a foreign country for the purposes of the dingly act and in violence of the uniformity clause of the united states. but the idea, if you look at the legislative debates, was that puerto rico could be treated as a foreign country for constitutional purposes while remaining domestic for international purposes. and this is clear in the legislative debates of the period. in addition, it affirmed the military's judicial and public institutions. in other words, it grabbed the military governor's
recommendations and gave it or codified them into law through the foraker act. the bill did not contain a clear bill of rights. however, section 8 established that the rights that were granted by the military governors would become essentially the rights available to the citizens. in addition to that, it had meant that a new territorial nationality -- and again, there's some debates here where we can have later -- but the idea is that there is going to be a puerto rican citizen, a citizen that does not exist in constitutional terms. in constitutional terms, you're either naturalized or birthright citizen. at the time. some people talk about blood right citizenship but that's a statutory interpretation. the argument, however, is that under the terms of the foraker act, persons born in puerto rico would become puerto rican citizens barred from either acquiring u.s. citizenship or retaining their prior spanish citizenship. in addition to that, there was an imposition of a presidentially selected governor and executive council that was designed to manage the affairs of the island and would be in place for a while.
again, depending on who one reads and how one reads the sort of history, there are a series of supreme court cases that begins in 1900 -- if you follow jose gonzalez's argument -- and span to the present, depending on who you read, whether you read jerrell newman or you read other legal scholars. but the basic set of cases that would define the territorial status of puerto rico were first introduced in 1901, and in particular, in downs versus bedawa. and more specifically in a concurrent opinion in this particular case issued by justice edward d. white. now, white, if you read the decision carefully, white is clear that his interpretation is affirming the military's logic for the purposes of creating strategically located bases, and he actually states that in his opinion. the effect of his opinion, however, is to create what would later be known as a doctrine of territorial incorporation. and at least five elements come out of that sort of interpretation.
it rejected both the colonialist and imperialist territorial interpretations and selectively combined elements from both traditions. congress, as a constitutional creation, wielded and expanded power over puerto rico and other territories grounded in the territories clause. neither the treaty of paris nor the foraker act incorporate puerto rico, expressly incorporate or implicitly incorporated puerto rico, justice white would argue, and the island's inhabitants were entitled to fundamental rights. and this is important because the extension of fundamental rights, which were never defined and we're still trying to figure out what they mean -- we just had oral argument over the double jeopardy clause applies to puerto rico. i mean, after 1901. and we know the sixth and seventh amendment right to trial by jury still don't apply to puerto rico constitutionally. according to versok versus prr.
puerto rico. but the argument was that there were some fundamental rights that could be used to check the power of congress, and the united states selectively, could selectively treat puerto rico as a foreign location. when it was convenient, puerto rico could be treated as a foreign country for international purposes but domestic for other purposes. the majority of the court adopted this and it eventually becomes sort of engrained in u.s. jurisprudence. okay. time. let me give a couple more arguments that would be helpful. since 1900, congress has amended the foraker act on several occasions. the olmsted act of 1910 essentially gave local governors selected power, presidentially appointed governors guidance over the island. and then they introduced a limited bill of rights. the elected governor act of 1947 enabled puerto ricans to essentially elect or select puerto rican electorates to select a local governor.
then the 1950, '52 laws or debates essentially gave puerto ricans the power to draft a constitution to administer local affairs and seize control in some ways of the administration of the island's government. now, the problem is that the debates in that particular legal history affirm both the extension of an autonomous political status to the island while simultaneously affirming the unincorporated territorial status of the island. so, what we've seen historically is that congress, the courts, the president have both affirmed contradictory policies, affirmed different types of territorial autonomy while simultaneously claiming puerto rico is an unincorporated territory. this debate has not been clarified. since 1900, congress has debated more than 120 bills but has never chosen to enact legislation that would provide
puerto ricans with a binding opportunity to decide the status of the island. there have been at least, depending how we count them, four policitary debates in puerto rico enacted by the state, by the local legislature, but there has been no clear majority with exception of the 1967 sort of plebiscite where a majority of puerto ricans has decided on a particular status. there are some questions about the 2012 plebiscite, but we can talk about those questions because of puerto rican jurisprudence, it's not clear that the numbers match. anyway, let me stop there. i think i'm out of time but thank you. >> thank you, professor venator. mr. neil weare, would you please join the conversation and explain the constitutional overview?
>> thank you, professor venator. that was a tremendous introduction of some of the historical issues. i'd like to thank washington college of law for organizing this important conversation, particularly as we lead up to the oral arguments tomorrow. i've been asked to talk about the role of the courts and some of the recent supreme court cases that the supreme court is currently considering, as well as some of the cases that are in the pipeline and perhaps heading towards the supreme court. but first, i'd like to give a little bit more of an introduction about myself and where i'm coming from on these issues. as the introduction mentioned, i'm the president and founder of we the people project, a non-profit advocacy organization that works for equal rights and representation for the nearly 5 million americans living in nonstate areas. our focus is on advancing civil rights and political power for the residents of these areas through impact litigation and innovative consensus-oriented policies.
we actually do not take a position on political status, and our board includes both pro-statehood and pro-commonwealth supporters. so, diving into the cases here. it's not often, as professor venator has mentioned, that the supreme court actually has the opportunity to address some of the legal and constitutional issues facing puerto rico, and this term it's already taken up two cases. the first one, puerto rico versus sanchez valle, a case concerning the application of the double jeopardy clause in puerto rico. and puerto rico versus franklin california tax-free trust is a case about whether a recent puerto rico law allowing for the restructuring of a public utilities debt is preempted by federal bankruptcy law. more broadly, in sanchez-valle, the pro-commonwealth government seeks judicial recognition of puerto rico's 1952 constitution and corresponding federal law as fundamentally altering puerto rico's constitution political relationship with the united
states to create a new, compact-like relationship. in effect, for better or worse, this case may be an existential moment for the idea of ala and commonwealth. franklin versus california tax-free trust is also perhaps an existential moment, but with respect to puerto rico's financial and economic viability, rather than political status. the stakes could not be higher in this case, both in the courtroom, and also, across the street in congress where these discussions are currently taking place. i think it's important to recognize that that conversation is ongoing as these legal issues are discussed at the supreme court tomorrow. next, i'll talk about some cases in the pipeline, including a tula versus united states, a case i'm currently litigating along with ted olson in the supreme court. we filed our surpetition last month and we're seeking to reference the d.c. circuit decision that relied on an expansive interpretation that
hold that congress has the power to turn citizenship on and off in puerto rico and other similar cases. the case itself involves plaintiffs from american samoa. and the appeal involves an important and perhaps historical opportunity for the court to revisit the insular cases themselves. these insular cases were also front and center in a recent decision in puerto rico. condevidale versus puerto rico, where the district court relying on a expansive interpretation of the insular cases, how did the supreme court's recent decision that recognizing a fundamental right to marriage equality did not apply in puerto rico because it was an "unincorporated territory." and if i have time, i'll also talk about a new federal voting rights case that we filed late last year on behalf of plaintiffs in puerto rico, guam and the virgin islands, who would be able to vote for president in november if they lived in american samoa, the northern mariana islands or any foreign country but can't
because, instead, they live in one of these three u.s. territories. so, puerto rico versus sanchez-valle. the case is whether puerto rico and the united states are separate sovereigns for purpose of the double jeopardy clause. the background is that puerto rican prosecutors charged two criminal defendants with illegal sale of firearm to an undercover police officer. while the puerto rican prosecutions are pending, both were convicted by federal offenses arising out of the same conduct. the criminal defendants sought dismissal of the puerto rican prosecutions on double jeopardy grounds. the trial court dismissed the charges holding that the criminal laws of puerto rico emanate from the same power as the federal laws and thus are barred under principles of double jeopardy. the court of appeals in puerto rico reversed the decision holding that the criminal laws of puerto rico -- sorry -- holding that puerto rico's sovereign for purposes of double jeopardy by virtue of adopting its own constitution in 1952. of course, the puerto rican supreme court reversed that
decision holding that because the power to adopt a constitution was a power delegated by congress, the doctrine of dual sovereignty does not apply to puerto rico. puerto rico's pro-commonwealth government decided to appeal the decision viewing it as a rebuke to puerto rico's commonwealth status. and i think a lot of people thought this was a bold move to present these issues to the court, really for, in a way, a kind of final judgment on some of these issues. the supreme court granted and argument was held in the case in january. and if you look at the arguments that are presented in the case, you can see some of the political status overtones that were really front and center, particularly in the serpetition. the surpetition began by saying "this is the most important case on the constitutional relationship between puerto rico and the united states since the establishment of the common wealth in 1952." this is a big, bold statement, really putting these issues
squarely forward. and the court, you know, granting the case, is now looking at these issues, although i think if you had listened to or attended the oral argument, you can see a little bit of hesitancy maybe from the court, thinking that perhaps we've bitten off a little bit more than we can chew in taking on some of these broad issues. and with respect to that, the puerto rican position really did present two arguments. one was this kind of broad argument that, you know, the status fundamentally changed in 1952 and that post 1952, puerto rico was a dual sovereign for purposes of double jeopardy. there was also a narrow argument that they presented with regards to a series of supreme court cases recognizing kind of a quasi separate sovereignty for indian tribes that are subject to the plenary power of congress in a similar way that u.s.
territories are. and this final argument and this alternative argument presented by puerto rico really is the one i think that received the most attention from the court, particularly from justice breyer, who i think saw it as a way to rule narrowly in favor of puerto rico while still not wading into these kind of broader and existential questions of puerto rican political status. but i think with the exception of perhaps justice sotomayor, some of the other justices seemed skeptical of this view and seemed to embrace more the position of the united states and the defendants in the case, which is that 1952 just did not lead to any kind of fundamental alteration in puerto rico's political status, that the united states in its brief actually said, you know, explicitly that puerto rico remains a u.s. territory under the sovereignty of the united states and subject to the plenary authority of the united states. and the united states' brief in this case and the positions it had at oral argument were certainly the most forceful and
explicit rebuke of the idea of ala v commonwealth status that the federal government perhaps has ever made. and so, it was quite a development on that front from both sides. moving on to the franklin california tax-free trust, the bond case, the issue there is whether puerto rican law allowing restructuring of a public utility's debt is preempted by federal bankruptcy law. and federal preemption, as some of you may know, is kind of a nitty gritty area of the law, so i won't get too much into the details. but just to give you some background of the case. as most of you probably already know, puerto rico is currently facing a massive debt crisis with more than $70 billion in debt and an increasing inability to meet its debt obligations. one of the largest debtors in puerto rico is the puerto rican electric power authority, prepa, which holds approximately $9 billion in debt.
under federal law, puerto rico, unlike states, may not authorize its municipalities, including its utilities, to seek federal bankruptcy relief under chapter 9 of the u.s. bankruptcy code. responding to this kind of catch-22, the puerto rican legislature in june 2014 took measures to address its debt crisis itself by enacting the puerto rico debt enforcement and recovery act, also known just as the recovery act, which established a mechanism for prepa to restructure its debt obligations. on the same day this law was signed into law in puerto rico, a group of mutual funds challenged the law in federal court. a few weeks later, a group of hedge funds also filed a lawsuit, arguing that these laws were preempted under federal law. the federal district court granted summary judgment in support of the challengers and the 1st circuit affirmed the district court's ruling on the grounds that the recovery act was preempted under federal law, both under express preemption
under section 903.1, and also on the basis of conflict preemption, which is when a law frustrates the purpose of a federal statute. the judge filed a concurring opinion agreeing that the recovery act was preempted but also addressing kind of a broader issue of whether puerto rico's exclusion from chapter 9 of the bankruptcy act is constitutional. he is arguing that it was not. it doesn't change the outcome of the case but presents some of the other constitutional and policy issues that are kind of hiding under the surface. puerto rico petitioned the supreme court, which granted in december, and of course, the oral argument is tomorrow. the puerto rican government argues in the case that the recovery act fills a gap left within the federal bankruptcy law. so, it's not preempted either expressly or on the grounds under conflict or field preemption.
and puerto rico presented the argument that the 1st circuit's position would deny puerto rico the benefits of chapter 9 while subjecting it to the burdens, putting it in a "no man's land." and to support its argument, puerto rico relies on some general doctrines in support. in response, the debtholders really just rely on some of the same arguments presented in the 1st circuit. that it's expressly preempted, that there's conflict preemption, and then also, making the argument that there's field preemption, that the federal government has actually taken over the field in this area. there's a little bit of a twist in the case that will be interesting to see tomorrow oral argument in that, of course, with justice scalia's passing, it's an eight-member court at the moment. but justice alito has also recused himself from the case, so it's a seven-justice court, which means that four votes can decide the case, which is the same number required for
tertiary, which puts it in a different place and it will be interesting to see how it plays out tomorrow. the reactions to the cases is that they both highlight some of the challenges puerto rico faces both in terms of its political status and its relationship with the united states in some different ways. and i think in a lot of ways both cases put puerto rico between a rock and a hard place. in sanchez-valle, the pro-statehood advocates hope for judicial recognition, but the idea of commonwealth status is a myth based on a fallacy. the cost for such a victory, though, is high. the ability of puerto rico to separately prosecute criminal defendants who have already been convicted under federal law. this could have broad, far-reaching impacts for puerto rico's own criminal justice system. on the other side, pro-commonwealth advocates have seemed to really go all in on this case on a moonshot before the court. and while a defeat could prove existential to the very idea of commonwealth, it may also provide commonwealth supporters
much-needed clarity that may serve an impetus for a new path forward. the bond case highlights some of the real-world costs of puerto rico's undemocratic relationship with the federal government. one of the central pieces of the 1st circuit's decision was that puerto rico should seek answers to its fiscal crisis from congress. of course, congress is the one who has helped contribute to this problem in the first place. and as we've seen, congress has not been very responsive to puerto rico's needs and issues here. if anything, you know, the reaction of congress has been to tighten the grip on puerto rico. i'll move along, since my time is running short, to talk briefly about tuo versus united states, a case that we have currently before the supreme court on petition. we're waiting for the u.s. government response. we've had seven amicus briefs filed in support of the case with a number of prominent scholars and academics, including professor venator, and
other citizenship scholar and other former governors, christina duffy-ponce and other constitutional law scholars, lulac, the puerto rican bar association of new york and many more. and among the amicus council are some high-profile attorneys, including paul clement, former solicitor general, paul wolfson and paul clement, altogether with this amicus council, they have over 150 arguments together before the supreme court. so, it shows some of the interest and the advocacy that's been put into having the court really address the issues of birthright citizenship presented in the case, and also, providing an opportunity for the court to reconsider its insular cases doctrine. the argument in the case, which has been brought on behalf of six individuals born in american samoa who are recognized under federal law as american nationals but not as u.s. citizens, essentially the same status puerto ricans had prior to the 1917 jones act. and the argument is simply that the constitution means what it
says in the citizenship clause, that people born on sovereign u.s. soil have a right to citizenship, and that's the argument we presented in court, and we're very hopeful that the court will take the case. then just very quickly, condevidal versus garcia. the district court really relied on some of the broad, expansive applications of the insular cases from the d.c. circuit, saying that the insular cases really kind of sweep so broadly as to bring in almost any constitutional question addressing puerto rico or these other areas without regard to really what the insular cases themselves actually have to say. and so, i think that's a decision that likely will be quickly reversed by the 1st circuit, but there may be an opportunity for some of these issues of the insular cases to be sussed out and hopefully for the 1st circuit to say good things about how the insular cases should be viewed narrowly.
thank you very much. >> thank you, mr. neil weare, for providing an overview of both cases pending before the supreme court and your analysis of the impact they will have on puerto rico. mr. pasquera, please come forward to express your opinion today on the issue from the statehood perspective. >> thank you very much, osvaldo, and good morning. it's an honor to be on your guest -- one of your guest speakers to present the statehood perspective in this forum. let me remind you that i am an engineer and that this is the first time that i share my views in front of so many lawyers and scholars. my presentation will focus on
the pragmatic views of the people who serve as puerto rico's secretary of transportation and public works and ran for electoral office. to put things in perspective, i briefly go over the united states and puerto rico political relationship. in 1898, the united states acquired puerto rico from spain as part of a treaty that ended the spanish/american war. since then, puerto rico has been a u.s. territory. in 1917, congress enacted a law confirming u.s. citizenship to puerto rico to all citizens born in puerto rico. the island is currently home to about 3.5 million people, roughly the same population as connecticut. over the course of the 20th century, the federal government granted the government of puerto rico increased authority over
local matters. in 1947, for example, a federal law was amended to provide for the territory's governor to be elected by the people, rather than appointed by the u.s. president. and in 1950, the federal government authorized the territory to draft a local constitution which took effect in 1952. all told, congress has now litigated to puerto rico about the same degree of authority over local matters that the states have under the u.s. constitution. nevertheless, these measures have not altered puerto rico's status. the island remains today what it was 118 years ago, a territory of the united states. up until 1948, the president of the united states appointed puerto rico's governor. with the exception of the last appointment, all of puerto rico's appointed governors were from the u.s. mainland. to address the political and fiscal issues that arise by allowing puerto rico to elect
its own governor, the president appointed a commission to draft a law for that purpose. there were six members of the committee, including luis munoz marin, our first elected governor. the members of the committee representing the secretary of the interior and the united states government raised the issue that the fiduciary responsibilities of the presidentially elected governor will not be attended because the elected puerto rican governor will be in charge mainly of insular affairs of the island. the committee recommended to the president the appointment of the general commissioner or presidential delegate and the naming of a two-member economic advisers committee to assist puerto rico in its economic development so long as its political status wasn't permanent.
of course, these recommendations were never implemented. why? for the same reason that many in puerto rico are objecting a fairly mandated fiscal control board today, it would be the most eminent demonstration of puerto rico's colonial status, something that was not decided by the puerto ricans, by both puerto rican and american politicians then and to a certain extent now. during these committee deliberations, the secretary of the interior, later a supreme court associate justice warned of the consequences of the united states failing its fiduciary responsibilities with puerto rico. he said, and i quote, "i think i am correct in saying that so long as there is united states sovereignty in puerto rico, the federal government will have a
very real interest in the sovereignty in the government of puerto rico, because insolvency leads to unrest, economic and social problems and difficulties in problems in forming relations." this statement applies with equal force today as it did three-quarters of a century ago. let's talk about the sanchez-valle case. that puerto rico's a territory whose full sovereignty is in the hands of congress is a view shared by the obama administration in the brief submitted by the solicitor general in support of the sanchez-valle position and in a position to the government of puerto rico's position. in this brief, the solicitor general confirms over and over again that puerto rico is a u.s. territory subject to the authority of congress and that puerto rico will remain a
territory unless and until it becomes a state or a sovereign nation. the solicitor general argues that puerto rico as a territory is not sovereign for purposes of double jeopardy to laws of the united states constitution. the solicitor general rejects the claim made by status quo leaders that the claim that the approval of the puerto rico constitution in 1952 changed puerto rico's constitutional status as a u.s. territory. the solicitor general rejects the claim made by the popular democratic leaders in puerto rico that the relationship between the united states and puerto rico is a compact or an agreement that the united states cannot unilaterally modify. the solicitor general rejects the claim made by the leaders that puerto rico has a special status and the solicitor general
rejects the claim made by political leaders that the label often used to describe the puerto rico government, commonwealth, has any relevance to puerto rico's status as a territory. now i will move to the fiscal crisis issue and i want to give some background on the puerto rico current condition. according to the united states census bureau, puerto rico resident population was approximately 3.5 million in 2014, a decline of 117,000 since 2010. a recent study concludes that the principle cause of decline is migration to the mainland. as a u.s. citizen, puerto ricans can move to new york or florida for the price of a plane ticket. once they take up residence in the mainland, they instantly
acquire the right to vote for the national leaders and the right to equal treatment under federal law. the very rights they were denied while living in puerto rico. in 2014, the median household income in puerto rico was $19,000, lower than the median household income in any u.s. state. mississippi had the lowest state median household income at $40,000. in 2014, the poverty rate in puerto rico was 46.2%, higher than the united states national rate and higher than the poverty rate of any u.s. state.
as a proud puerto rican, i hate the fact that throughout my life i have to accept that puerto rico's poorer than the poorest state and that it has less than half of the median income of mississippi, the poorest state. in spite of this, we strive to achieve the same standard of living as in the states, the same health care, the same education, the same roads and the same potable water and electricity system. to meet our goals, we also have to comply with standards and requirements set for the states without any territorial exemption. epa regulation fully apply to our portable water and wastewater systems, as well as to our waste disposal and electric generation facilities with the additional cost that it entails. but we need to do all this with fewer tools than any other state. we do not have the power that
comes with full representation in congress. the federal benefits are curtailed because we do not pay federal taxes. but the federal requirements and standards are the same. more importantly, our aspirations as proud people and american citizens are the same as those of any american citizen in the 50 states. to address the federal funding shortfall that comes with not being a state, puerto rico rely on its people's tax-exemption status to finance most of its infrastructure needs. let me use my experience as former secretary of transportation to explain why and how we use bonds proceeds to finance highways and public transit infrastructure. puerto rico as a territory is exempted from federal gas tax used to fund the highway bill. in spite of this, congress has traditionally earmarked funds
for rico's infrastructure at a significantly lower rate than if we were a state. to meet puerto rico transportation needs and to promote its economic development, puerto rico created in 1965 the highway and transportation authority, a public corporation authorized to use revenue bonds. due to the limited federal funding, historically most of the cost of the transportation infrastructure has been financed by bond proceeds since that period. as an example, one metro mass transit system was 75% financed with bonds and with 25% federal funds. another significant contributor to the financial crisis is the cost of the medicaid program in puerto rico. percentage is about 3% due to an arbitrary cap of $300 million.
and contribution of puerto rico. in the states, there is no cap as long as the state pays its share of the cost. as a state, puerto rico will have received approximately 1,700 million more each year with federal share of about 75%. to put this in perspective, mississippi had 73% of federal involvement and received $3.6 billion in federal funds. currently, one of the toughest challenges for puerto rico is how it will absorb the impact in 2017 of obamacare funds that have been available since 2011. the current budget of medicaid in puerto rico includes 1,159 million of this fund. this is the so-called puerto rico medicaid cliff of 2017.
for long our elected officials neglected the fact that there is no such thing as a free ride and you have to adjust your revenues and expenses in accordance with your financial obligations and economic realities. the eight years from 2001 to 2008 were a disaster for puerto rico as the governor insisted on maintaining the level of expenditures of the 1990s ignoring economic signs of an already deteriorating economy. the fiscal controlled measures of governor fortuna were instead were proven to be insufficient and face opposition. as candidate, the current governor knowing well that the xhis call and economic situation of puerto rico ran a campaign ignoring all signs of the distress in order to get
elected. once elected, during a period of denial, he even promised to reduce the sales tax. later as part of the global reaction to the greek financial meltdown and the increasing pressure of the credit ratings of puerto rico's finances, the administration of the governor went into panic mode. in the middle of the crisis, puerto rican leaders wasted six months trying to implement tax of 16% and a radical tax income reform that was rejected by stakeholders. not only 16% would have been by far the highest consumption tax in the united states but also puerto rico would have been the only place in the country with a value added tax. with all the implementation burden to the private sector in our nation's commercial
practices. at the same time, demonstrations incoherent in the crisis made promises and lack of transparency created bondholders, rating agencies, congressional leaders and investors. the net effect is that today puerto rico has lost its credibility. the access to financial markets has failed to make its case effectively in washington. perhaps most critical of all is the stagnant local economy approaching a catastrophic collapse if the status quo is allowed to persist. today, the harsh reality is that we have an accumulated debt of 71 billion equal to our gross national product. we have exhausted emergency funding measures that have depleted state-owned corporations. we also do not have the access to financial markets and perhaps
the most complicated of all challenges is the $46 billion in unfunded liabilities of the government pension funds. the government has announced that if the government -- the government has announced that if current conditions persist, it will not be able to pay debt service payment of 422 million due in may nor the $1.3 million payment due in july for debt obligation bonds. today, in puerto rico, we live in a very uncertain time. it is not clear whether there will be any congressional initiative to address the crisis. our economy is fall. and the prevailing uncertainty prevents any intervention. in the midst of all, this we are going through an election year in which all electoral positions are up for grabs in november. to make things worse, the national political scene is not
conducive to solution of national issues. let alone the crisis of 3.5 million. this franchise american citizen in an eastern tropical island in the caribbean. so where we go from here? first, congressional leaders must read the brief submitted to by the solicitor general to the supreme court. it will remind them of their sovereignty over puerto rico and the fact that puerto rico is neither a state nor an indian tribe. we are a territory. today, the same way we were after the u.s. purchased puerto rico from spain in 1898. sovereignty also entails fiduciary responsibility. it is a two-way street. besides puerto rico's weakening
economy, a long-term dependence of borrowing to finance infrastructure improvements happen in the wall street in front of regulators and the treasury department. congress and the executive branch failed in their oversight responsibility of puerto rico. in spite of all this, puerto rico cannot escape the responsibility and timely action to avoid the crisis. as a puerto rican, i detest the fact that we are not paying our debt. it took many years of hard work and fiscal prudence of previous leaders to earn our motto of -- [ speaking spanish ] now, in a matter of months, we have earned the motto of -- [ speaking spanish ] something which will take years to overcome. the only way out of this mess is for puerto rican leaders, the obama administration and members of congress to work together on a solution.
without fearing a bailout or the self-serving expectation of serious consequences in puerto rico. this is a case of each side assuming its share of responsibility. the worst scenario is inaction. and that will emerge. the already fragile private sector and the financial institutions in puerto rico will be severely tested with the cascading effects of a total collapse of the finances of the government of puerto rico. let's avoid this at all costs. congress should carefully evaluate implications of imposing a fiscal contributor or similar mechanism to address puerto rico's inability to properly manage its own finances and fiscal discipline. it should not be viewed as a reprimand but rather as a tool to assist puerto rico in these
turbulent times. at the end, congress will be co-owners of the problem and the necessary economic growth initiatives will follow. i support the obama administration proposal that includes debt restructuring mechanism with oversight, health care transformation and tax incentives to reward work and encourage economic growth. in addition, puerto rico needs a concerted effort with the federal government and private investor to make strategic infrastructure investment with local, federal and private capital to improve our competitiveness and continue sustained economic growth. the only long-term solution to address the crisis. while we address the crisis, it is also a good opportunity for the united states to recognize that it has the responsibility to provide a path for puerto
rico of self domination that will lead to either statehood or independence. puerto ricans are hard working people who have a talent and tenacity to compete against anyone in the world. we are not looking for a handout but rather a partner. the belief in -- and clearly sees that our best days are ahead of us. we have always been proud and through value our relationship with the united states. it is now the time for congress and the obama administration to honor this relationship and demonstrate that the united states is committed to 3.6 million u.s. citizens in puerto rico and wants to make this our special relationship even stronger. thank you very much.
>> thank y, mr. pasquera, for providing the statehood prospective. let's nowere the free association perspective. >> thank you very much, osvaldo. it's a pleasure to be here at the invitation of the washington college of law and the law school of the university of the inter-american university of puerto rico to discuss this most urgent and important issue not only for puerto rico but for the united states. the secretary of the treasury has described the current situation in puerto rico as a humanitarian crisis. he is correct. but it is also a moral and ethical crisis for the united states as it decides how it's going to deal with the financial, economic, sociological and political implications of what its three branches of government choose to do next.
in the course of the last year, the executive branch of the united states, congress and now the supreme court have entertained the situation in puerto rico. we have yet to have concrete action in dealing with the situation of puerto rico from any of those three branches. tomorrow will be an important day, but the fact remains that puerto rico still has a $69 billion debt which the governor of puerto rico announced last year, to be precise, june 29th of last year, that it cannot be paid as structured, and congress, the executive and the judicial branch of the united states have yet to provide any process for puerto rico to reasonably and justly restructure its debt honoring its commitments to the people of
puerto rico in perms of public services, in terms of fostering good, economic conditions, while at the same time honoring the reasonable expectations that our creators may have. what the court decides both cases before it will be an issue of the survival or not of the theory of deference. the truth is that for decades the supreme court of the united states has fashioned, has worked around trying to give enough space, enough room, enough deference to the political branches of the united states government to set policy for puerto rico and have as fewer restrictions as possible in their actions. professor ramos and mr. weare
discussed some of those. the fact of the matter is that the supreme court of the united states has created definitions and legal concepts to suit the united states' interests over puerto rico. puerto rico is an incorporated territory of the united states that belongs to but is not a part of the united states. that statement in itself is contrary to explicit text of the constitution. the constitution does not talk about incorporated or unincorporated territories. it doesn't talk about the land where certain citizens live belonging to but not being a part of the united states. that was a construct of the supreme court of the united states. and they issue their cases precisely to leave leverage for the federal government to set policy as they saw fit. what they did in 1950 to 1952 granting puerto ricans the right -- the authority to right its own constitution was very
important for puerto rico. actually my party, republican representative party, the party i represent on our local legislative assembly, was the party that promoted that change and reform within puerto rican politics. and it has been a fundamental and substantial achievement that permitted a nice coincidence that all three branches of the puerto rico political system, the government system, be in some way subject to the participation and the authority of the people of puerto rico. i say it's a nice coincidence because today within the panel and audience, we have members of the branches all appointed by authority of the people of puerto rico vested in the 1952 constitution. however, during the cold war, what the federal government, particularly the executive
branch, insisted and persisted in international forums and in any legal iu mandate that was filed within federal courts or supreme court, was to advocate for nonintervention or as less intervention as possible in defining the true specific and concrete nature of the relationship of the legal relationship between puerto rico and the united states. it was described at some point as a special relationship, unique relationship. it was described as it is in 600 as a relationship in the nature of the compact. but in the last 20 to 25 years, as the cold war ended, as congress repealed section 936 of the internal revenue code, changes were made in the view of
the political branches of the u.s. government. those changes have come to a head in the two cases we have before us. truth of the matter is, the world changed the 23rd -- for puerto ricans, the 23rd of december of last year. there, as was stated before, the department of justice of the united states filed a brief, which it was not required to file, it chose to file. the obama administration filed the bill in which it purported that puerto rico was under the sovereignty of the united states, that puerto rico remains an unincorporated territory under the plentiary powers, the plenar powers of the united states and such the government of puerto rico the governmental structure i represent as a member of the legislative
branch, the people here who represent the executive and judicial branch is but a mere extension of federal authority of the puerto rico under the territorial clause. i may or may not agree with that fact. but i have to live with the fact that that's what the united states department of justice states today. both for puerto rico and the united states. puerto rico has a $69 billion debt. it is structured in 17 different parts. we have the general debt, which are bonds protected by the puerto rico constitution. we have the sales tax debt, which is protected under several contractual agreements, and we have basically a municipal debt of our local municipalities, not of the general government, and of our public corporations. as the governor has said and as many of us have been arguing for the legislative assembly, even before the governor said it last june, as it was structured under present fiscal, economic and
legal circumstances, puerto rico cannot pay its debt. come may 1st, as mr. pasquera was describing, we have a $400 million payment. come next june -- july we have a $1.3, $1.4 billion payment. we cannot make either of them as structured. so either we will fall both puerto rico, our creditors, and in a way the federal government into litigation, of legal messes, of problems, or we try to fashion a short-term solution now and a full-term and a long-term solution for the future. here i am to argue for both.
we have to understand whatever the supreme court of puerto rico -- of the united states resolves in both of those cases that the views from the executive branch and congress of puerto rico and what they can or cannot do have changed probably irrevocably. in every hearing that the congress or senate or the house have held over puerto rico in the last six to eight months, they have asserted in very clear and blatant terms, the authorities to do whatever they please or whatever they think is correct under the plenary powers of the territory clause. so the issue for puerto rico moving forward is can we accept a future, can we fashion a future, can we even see a possible productive future under the plenary authority of congress by a territory clause? in the end, my argument is that we can't. in the end, my argument is we shouldn't.
but in the short run, what should we do? first of all, we must understand that the administration has chosen not to do specific executive actions that they can do to help puerto rico restructure its debt. we have, the governor has, people of puerto rico have been asking the u.s. secretary of treasury and president obama for interim financial alternatives. we have gotten kind words, gentle counsel and best of wishes from the treasury department and others in washington. that, at least for me, is not enough. the obama administration should set rules for puerto rico to have an interim financial solution that may permit us not to be unable to make the payments of may and july. we're not asking to give us free money. what we're asking is so et up
a process in which puerto rico and creditors can then sit down and renegotiate our debt structure, as we have been trained to do, particularly in the energy sector with some laws and some negotiations that we have had for the last year and a half. the administration should use the weight that it has in order to secure a process, a space for those negotiation to continue instead of having a situation where probably we won't be able or we shouldn't pay, and i think we shouldn't pay, the 1st of may. i would rather have that money used for police patrol in puerto rico to get gas. i would rather that money to be used for medicines in our public hospitals. i would rather for that money to
be used to pay for social workers to handle child abuse cases and such. and i think that's what the people of puerto rico expect. but, if and when we make that lack of payment, we will start a series of lawsuits. we'll have the general bond obligation holders go against the sales tax holders over who gets paid first. and you know the only one who will get paid first are the lawyers. i hope that there are some american lawyers that get paid, some washington college of law, that get paid in that scene airee. but what i really hope is that none of you get paid. that we can fashion some sort of negotiated agreement. since we are under the territorial clause according to the department of justice and to the congress, we will have to wait to see if the supreme court agrees. i don't want to predict the future, but i have an inclination they might agree.
if they do, then there's some unforeseen consequence that puerto rico and the united states may face. there is a case from 2007, an opinion rendered by judge thomas. you can look at it up at 549 u.s. 483 which concludes that the territorial debt of guam is a federal concern. if puerto rico is an extension of the federal government -- and if the federal government is an extension of puerto rico and there's already an opinion that suggests that territorial debt could be an issue, if the supreme court decides that puerto rico has no sovereignty for double jeopardy or any purposes but it's a mere extension of the federal government, in the end, the government of puerto rico, then some bondholder might decide what many trial lawyers advise their clients. when you have several people to sue, make sure you sue the one
with the deepest pocket. i'm telling you the one with the deepest pocket here will be the federal government if there's some legal, sound theory to sue them. that's an implication of 23rd of december position by the federal government that may come to be interesting to see where it ends. where do we move forward? so i may run up my remarks. first of all, if congress doesn't act in a way that is reasonable, we puerto ricans -- or the judicial process doesn't act in a way that's reasonable or the executive branch doesn't act in a way that's reasonable, the puerto ricans have to do it by ourselves. we will oppose or i will oppose any attempt to impose a federal fiscal control board in puerto rico. it is offensive and morally wrong and materially and practically wrong because that would mean that the interest of quality of living of everyday puerto ricans will be put in jeopardy so that people who paid 50 cents on the dollar on their
investment get paid first. that should be opposed. some people in washington are suggesting if they enact such legislation, it be consented by the puerto rico legislative assembly. if that's the case, tre will be at least one vote in opposition, but i suspect there will be many others. what we need from washington is not fiscal control. it's the willingness to sit down and discuss a problem that is shared by all of us. so that's something that probably will be fought against in the upcoming weeks, if that's the scenario congress chooses to take. in terms of short term, reasonable the president and governor of my party, proposed that if there's no congressional action that is satisfactory for the people of puerto rico, we should consider the possibility of legislating a moratorium to
stop paying puerto rican public debt and try to force negotiations with our creditors. if nothing else happens, i believe that this is the only serious course of action that puerto rico has, and i suspect this proposal in order to move through puerto rican institutions, who try to seek the restructuring that either the administration has failed to help us achieve or congress has failed to help us achieve. but in the end, my friends, as we try to fashion a good deal -- and this is a good deal for everybody, it will prevent unnecessary litigation. it will prevent fights amongst creditors and they will fight before -- amongst themselves while they get to us. but it will also help the only thing that will make sure that puerto rico and the government
of puerto rico complies with all its obligations. the only way puerto rico is going to comply with all its obligations, to our citizens, to our government and employees, to our pension holders, and, yes, to our creditors is through promoting economic development in puerto rico. apply a very popular jargon, very popular refrain in puerto rican, they should -- [ speaking in foreign language ] >> they should let some wiggle room with room on the wing of the chicken so a couple of minutes or a couple of hours they can eat from the checken breast. that's what puerto ricans are asking. we're not asking for a hand me down. we're not asking for sympathy. we're not asking for somebody to come and solve our problems. what we're asking for is a common sense solution that permits puerto rico to redevelop
its economy, to maybe hold on some payments in the short run. agree with our bondholders how we should invest those, quote/unquote, savings in order to promote our economic infrastructure and our economic job creation. and then once the economy is strong again, there will be money for everything, including paying our creditors. that's what in the short term we should do. but, finally, we have to face the bull in the china shop. as long as puerto rico remains under the plenary powers of the territory clause, puerto rico will be unable to construct and fashion a self-sufficient future. in order for the united states to meet its ethical obligations over puerto rico, and in order to fashion something that is good for them, good for creditors and good for puerto rico, the united states congress
and the executive have to face the fact that it has yet offered and it needs to offer puerto rico all nonterritorial options that it's willing to negotiate with us. if that's independence only, it's independence only. if that's independence and statehood, then it's independence and statehood. if that's independence sovereign commonwealth, then that's what it is. but they need to step up to the plate and recognize that there are only three options outside the territory clause that need to work, that having these situations in which they can set some rules today, change them tomorrow, have some people go from puerto rico to the mainland and have this instability that we've had for the last 15 and 20 years, it's no longer -- it's totally untenable. it's no longer tenable. so, what congress needs to do and what the next administration needs to fashion if this administration didn't do it,
although they promised they would, is to offer puerto rico nonterritorial alternatives. and those of us who have not been advocates of statehood or have not been add vvocates of independence, my party must recognize, his vision for the future of commonwealth has to be noncollial and nonterritorial. the only way the aspirations of government, of being partners with the united states and of being actors with full right in the world economic community for puerto rico is to have a real come pablgt outside the territorial clause, which recognizes a sovereignty of the people of puerto rico to rule themselves, to govern themselves with a measure of justice, but at the same time in the exercise of that measure of justice in governing ourselves, we also
exercise the right to ally and make a mutually beneficial association outside the planery powers and plenary decisions of the united states of america. so my proposal right now is let's fashion a short-term partnership to solve the issue. help us meet the may 1st deadline with a meaningful proposal both for congress or the executive, or puerto rico will have to walk the walk and talk the talk by itself. and we'll have to fashion its own short-term solutions to the crisis, making sure that the quality of living and the essential services of puerto rico are not destroyed by this situation, and making sure that we put first the people who need those services and that public money to survive, not those who paid 50 cents on the dollar to try to make a monumental earning. i'm all for them earning their money back. i'm all for them making a
profit, but it has to be a fair one and it cannot be by breaking the back of the people of puerto rico. thank you very much. [ applause ]. thank you, representative. let's get the independence perspective now. >> good morning, ladies and gentlemen. thank you for the invitation to be part of the panel this year, to share some ideas regarding the relationship between the united states and puerto rico, which seems to be approaching from everything that's been said, a critical moment that will require an historical turning point. some of you in the audience might be unfamiliar with the historical background, the legal
framework, which characterizes the relationship between the united states and the territories. it is a well-kept secret. territories are simply absent from the canon of study in american law schools. let me begin for your benefit with some rhetorical questions. how would you feel, those of you who don't live in puerto rico and already feel this, about living in a place in which you're able to vote for a governor, local legislator, mayor, but couldn't vote for a president who might send your sons off to war or for any voting member of the congress despite the fact that the laws approved by that congress apply in the place you live? and where there is a federal court with judges designated by a president you may not elect and confirmed by a senate in which you don't have even nominal participation? absolutely nothing to say. that seems to me to contradict
the fundamental principle of the declaration of independence of this country, that governments are instituted among men arriving their just powers from the consent of the governed. that's what we here in puerto rico, the oldest, largest, most populated territory since our country was invaded 118 years ago during the spanish/american war. for more than half of its constitutional history, the united states has maintained the colony in puerto rico, a latin american foundation, in which is a subversion of the founding values of the american public. someone might think, well, maybe that's not so bad. after all, didn't puerto ricans agree to the present arrangement? and haven't they reaped the benefits of being u.s. citizens and part of the u.s. economy, which includes millions in federal transfers without having to pay federal taxes? well, you should know that in
the 2012, the puerto rican electorate repudiated the present relationship with the united states. to complicate matters for several years now, at least a decade, puerto rico has fallen into a recession or depression of major proportions. the current relation was once touted as the best of two worlds. but now it seems to be the worst of all worlds. after a couple decades of economic growth, one half of our population is under the poverty level and dependent on government aid. wealth distribution, income distribution have widened. the per capita income as has been said has been for seven decades one-third of the u.s. per capita income and one-half of that of the poorest state. close to one-half of our youth never graduate from high school. our crime rate is soaring. drug abuse is rampant. our school system is shameful. government corruption is enthroned.
official unemployment hoffers around 12% to 14%. our government obligations have been degraded to junk. the government is bankrupt and has announced, of course, it cannot pay the public debt. taxes have soared. during the past decade, puerto rico has had a negative economic growth. the very lowest in the hemisphere and one of the lowest in the world. how did this come about? we'll have to go back in time to be able to see the future. back, way back in 1787, when the constitution of the united states was drafted, the founders included a brief clause granting congress total authority over the land to the west of the original states. and all the way to the mississippi. it was the northwest territory. and it says, congress shall have the power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the united states.
it was a property clause which granted the federal government title over the land with the possibility of disposing it as congress exercised its other power to admit new states. over the 19th century, as you all know, the u.s. extended its territory dramatically. beginning with the louisiana purchase of 1803 from france and the acquisition of florida from spain in 1819. in 1828, the supreme court reinterpreted the territory clause. not only did it grant congress property rights over the territories, the clause granted sovereignty to govern the inhabitants and everything within its borders. that was the scheme for the territory of expansion all the way to the pacific and beyond. oregon territory 1846, half of mexico in 1848. alaska in 1847. hawaii between 1893 and 1898. all the acquisitions followed
the same pattern. the new territories were to be eventually admitted as one or more states and their inhabitants were to enjoy the same rights as citizens of the several states. they would be temporarily governed by congress where they had no representation until statehood. admission to statehood could be justified with three criteria. sufficient population, adoption of the core values embodied in the american form of government, and sufficient resources to support its government and contribute to the national treasury. in 1898, the united states acquired three new territories, which were markedly different, and for reasons that were also ifferent from those that motivated previous annexations. professor has spoken of those. spanish/american war, theodore
roosevelt's splendid little war, serveds the political objective of reunification as a nation after the civil war. it also served economic objectives, sources of cheap raw materials, places for investment of surplus capital, controlled export markets. there were also geopolitical and strategic objectives to compete with japan and asia, and in the caribbean to set the stage for an interoceanic canal, which was already on the agenda. after a very quick war, that snatched the last holdings of its former empire, spain ceded sovereignties over guam and puerto rico. the motivations for these acquisitions resulted in an instrument of annexation that was also different. the treaty of paris states impit
tersely the political conditions and the rights. inhabitants were to be determined by congress. there wouldn't be equal rights for the population. there wouldn't be any promise for future admission of new states. a debate started, which has already been mentioned, of what to do with the new possessions. and some articles in the harvard law review said some advances so-called anti-empire cal acquisitions. the united states could not possess new pop laces -- the new possessions were populated by inferior races incapable of true civilized government. they couldn't be part of the american people and had to be relinquished as soon as possible. on the imperialistic side of the debates it was argued that the united states could acquire new
lands through military conquests and govern them through a territory clause with no constitutional limits. a third view emerged from the clash of the first two, the u.s. can acquire and rule new territories, but a new territory is not part of the united states unless that is the will of the congress. this theory was elevated to the rank of constitutional doctrine of the supreme court. since then the new unincorporated territories belonged to but are not part of the united states and can be ruled by congress with minimal limitations. the constitution does not necessarily apply and congress may determine if it applies in a nonincorporated territory, only those that secure fundamental rights must apply. congress, of course, may also decide that a federal law will apply or not in the territory. for example, laws requiring that shipping between points in the united states must be in ships in u.s. ships. have been applied to puerto rico.
as a result, all our imports are considerably more expensive than if we could import them from the u.s. in other ships. on the other hand, supplemental security income does not apply in puerto rico, to ease the burden of the poor, which is close to half of the population. nor does obama care apply in parts, but of course, puerto rico municipalities and public corporations may not have access to bankruptcy proceedings under federal law because congress decided to exclude puerto rico from the application of that aspect of the bankruptcy laws. in 1950, as has been said, congress approved public law 600 authorized people of puerto rico to adopt the constitution for its local government. once drafted by a convention and ratified by the people of puerto rico, it had to be approved by the president and by the congress, which eliminated any economic, social and cultural rights, and modified other provisions. legislative history shows that
the purpose of congress was to obtain consent of the people to the existing territorial regime in order to respond to international pressure of the united nations, which required annual reports on steps taken to decolonized under the ooun charter. in fact, in 1983 a general as m assembly resolution exempted compliance to report annually. after that the governments of puerto rico and united states tried to advance the idea that the constitutional relation had change and puerto rico had ceased to be a materiality of the united states. but that was a house of cards. that has been blown away in the past decade. three reports issued by a white house task force on puerto rico status have indicated that the statements made before the u.n. in 1953 had no legal import. that puerto rico is an
unincorporated territory and that congress maintained such plenary powers, that it may repeal any territories and can give pu cede puerto rico to another nation. more recently, the united states presented a brief in a case pending before the supreme court, and the assistant solicitor general argued oth otherally the same thing, puerto rico is a territory, unincorporated territory, it lacks sovereignty and a defendant previously processed by the ferl federal government invoked double jeopardy if processed subsequently in the courts of puerto rico. if this arises in an indian court, double jeopardy does not apply. the congress, of course, shares that same opinion. the current fiscal crisis regarding the public debt has prompted several pieces of legislation. a measure to exclude puerto rico from the laws is simply out of the question.
another bill which proposes including puerto rico in the bankruptcy laws to allow municipalities and public corporations to restructure their debts in reorganization proceedings also seems out of the question. the idea most probably will be adopted in some form or another is a fiscal control board who supervises the approval and even the implementation of the commonwealth annual budget. there goes the final vestage of sovereignty mirage. all these proposed measures are premised on the continued exercise, plenary powers under the territory clause. none of them propose doing away with puerto rico's physical recession, which is precisely the territory regime which maintains the country in a straitjacket withoutaccess to financial instruments available both to states and to sovereign nations. this brings us to the present, the oral argument that is to be held tomorrow in the case in
which the federal courts have decided that congress preempted the law, aimed at filling the gap created by the exclusion of puerto rico from the possibility of bankruptcy proceedings by municipalities and public corporations. all parties to the case argue from the same fundamental premise the exclusion of the territory from the obligation of a federal statute as an exercise of plenary powers under the territory clause. regardless of the final result, the problem will not have been resolved. because the roots of the problem are structural. this territorial state maintains puerto rico in an unsustainable position, dependence on the political processes of the government, govern the executive and federal courts, from which the people of puerto rico have been excluded. should puerto rico have the authority to renegotiate its public debt? of course, but it shouldn't do
it from the position of political suborder nation and economic dependence imposed by the regime, any decision of the supreme court or any legislation passed by congress under precedent either allowing bankruptcy proceedings under federal law or under the colonial under a fiscally controlled board might be a temporary aid to stabilize the patient, but it is no cure for the disease which continues to fester. any serious attempt to solve the deep problems has to address a colonial nature of a territorial relationship. while everything that has been said today has been going on over the course of the past half century, a growing consensus has emerged regarding the right to self-determination of people, the u.n. charter recognizes the right, universal declaration of human rights and other
resolutions of the general assembly, think it's a norm of international customary law. the two most important and comprehensive human rights have recognized the right of self determining of all people and the affirmative obligation of the states' parties to promote the reorganization of the right. the international court of justice recognized the right as a binding legal norm. the united states is bound by the right of self-determination. it is party to the u.n. charter. it is subject to customary international law. according to the decisions of the supreme court. it signed and ratd fied the international governance and civil and political human rights. stlfr, the right to self-determination is part of a supreme law of the land of this country, according to the constitution. despite the oxymoronic declaration of the senate when it considered the effect of the provisions of the instrument they were approving they were self-executing. it has the force of law even in
the courts of united states make it effective because they cannot force congress to pass laws complying with its legal obligations. the united states still maintains several territories under the plenary powers of the territory clause even though the peoples of the territory have not been allowed to exercise their right to self-determination. and in the case of puerto rico, the people have rejected the territorial relation through a ballot. the constitutional law that evolved during the first half of the 20th century is now in conflict with the international obligation, which the united states assumed during the second half of the 20th century. the time has come for a contradiction to be resolved. what has to be done? well, first, congress should dispose of the territories as the territory clause itself contemplates. secondly, it should adopt legislation to comply with
international obligation, not moral or ethical obligation, its international legal obligation to fa sill take the process of self-determination of all the territories. that process ought to include other measures, of course. both legislative and executive to pave the way for true self-determination. a political prisoner who served more time in jail than nelson mandela for a similar offense. thirdly, the congress must make clear the substantive alternatives, which are nonterritorial and noncolonial, compatible with the interests of the united states. i mean, the united states also has the right to self determination. needless to say, the options cannot include the territory regime. which is the cause of the problem and has already been repudiated. one of the options, of course, could be the admission of future ric -- puerto rico as a state. congress must decide if it is willing to make that option available under the terms and
conditions employed in the past for the admission of 37 states, it should state clearly whether it is willing to admit a latin american nation into the union. another option could be a treaty of free associations similar to those already existing to regulate relations between the united states and several island communities of the pacific too small to be viable independent nations. the third option, of course, is the recognition of full independence, such as in the philippines. and the establishment of a new relation based on a treaty of friendship and cooperation between the two nations. puerto rico would be free to pursue its economic development unhindered by federal limitations. it would be free to establish productive relations with other nations, including the united states, which of course would benefit much more from a pros posterior yous and free puerto rico than from a bankrupt colony, as it is in the present
time, through a careful, mutually convenient and very viable economic from dependence to self-sufficiency. the recent experience of several latin american nations which have prospered illustrate which puerto rico could achieve as an independent nation. a dramatic example is panama. after it resolved its colonial problem regarding the canal zone with rates of growth between 7% and 11%, which is extremely dramatic. in closing, let me recall the words of justice harlan in his dissent in the case of downs versus bidwell of 1901. one of the first cases. and i quote, the idea that this country may acquire territories anywhere upon the earth by conquest or treaty and hold them as mere colonies or provinces is
holy inconsistent with the spirit and genius as well as with the words of the constitution. it has been said, i add, that colonialism denigrates the colonized but it also demeans the colonizer. the time has come to turn the page of history, to build a future of respect and dignity. i thank you for your kind attention. [ applause ]. >> thank you, professor, for your words. i now ask professor romero to respond to what has been said here in the panel today. professor romero, you may ask questions of the panel as well as provide us with your comments.
>> good afternoon to everyone. thanks for the invitation, in particular to the wco, and also thanks to the university of puerto rico for co-sponsoring this initiative. i think i have three questions that i would like to put forward. the first one is for mr mr. pasquera. i think maybe we can have this question put forward and then we can ask them after i finish my part. but i would like to put forward this question first. it is not the actual crisis in puerto rico, the best reason for congress to refuse any negotiation leading to puerto ri rico's annexation, as you said, puerto rico's household income and per capita income are dramatically lower than those in
mississippi. so puerto rico will be the poorest state in the union and the most dependent on federal economic assistance. the second question is for honorable ramos. how will free association arrangement between puerto rico and the united states be viable and acceptable for the united states since in the past the united states has entered in arrangements similar to that but with other countries which overall population added to one or the other does not seem a fourth part of the population of puerto rico? and the their questioned is for professor, is not independence contrary to the new global tendencies of nation states to engage in new and comprehensive international agreements through which more and more integration is made in terms of economy, defense, security, and actually delegation of authority to centralized entities is not
independence as old-fashioned as colonialism is under the new development on international law? so, just for interrupt remarks, i think several facts and conclusions of law have been established. puerto rico was acquired by the end of the spanish/cuban/american war through a signing of the treaty of paris back in 19 -- or 1898. second, that since then and up to this date, u.s. congress has exercised plenary powers over puerto rico under article 4, section 3, clause 2 of the constitution, which is the territorial clause. and fourth -- or third, i must say, that the so-called commonwealth of puerto rico is politically subordinated to the united states sovereignty. and the doctrine of nonincorporation or territorial nonincorporation was developed
by several articles published by the harvard law review and the yale law review and the doctrine discussed in those articles were the building blocks that later the supreme court of the united states used in the so-called insular cases to constitutionalize the actual relationship between united states and puerto rico. i think those are, like, stipulations that can be underlined, according to what panelists said before. but i would like to return to the treaty of paris, and particularly make some remarks in regards to it. puerto rico belongs to but is not part of the united states. and that's the tool that was gave by the supreme court in order to deal politically with territories acquired.
since the last photograph of article 9 of the treaty of paris provided, when puerto rico was acquired by the united states, that the civil rights and political status of inhabitants of a territories hereby ceded to the united states shall be determined by congress. and it was the impreciseness of that provision in the treaty of paris that lacked of any framework in order for the development of the new relationship between the united states and the territories ceded by spain. and that lack of framework provoked the debate that eventually led to the articles that -- articles which eventually always, as i said, provided the building blocks for the doctrine of nonincorporation. but in light of all that, it has been clear also that the territorial nature in the legal,
political and political relationship of the puerto rico and the united states has been reiterated, not only by the supreme court of the united states, but by the president's task force on puerto rico's status and bit solicitor general by the brief filed on december 23, 2015, before the supreme court of the united states in the skas of puerto rico versus sanchez. in fact, it seems that puerto rico is still subject to the plenary powers of the congress. congress may indefinitely exercise total control over puerto rico. and in the words of professor venator-santiago, the regime, it's illegal under the international law and a violation of human rights. but before this, what is the duty of the academy and scholars? i think that it is an academic duty and scholar's duty to condemn colonialism. when i started my studies here
at cco, i found out the insular casings are not part of any constitutional law course. during my second semester i decided to write a paper in which the historical background of the territory clause were the main topic. i was back then enrolled in a very interesting course titled, the constitution in times of crisis. the drafting of the paper was required for final grade in that course. the meeting with my professors back then was very interesting with the topic and research. he told me the insular case were simply absent of the discussion of political law in academic level at law schools in the united states. i must admit that i was very surprised by that assertion. i was astonished by that conversation since i wasn't able to understand why, although the
doctrine sell in the cases derived likely from the academy of interdevelopment of united states constitutional law, then why the same were not part of the subject in american law schools? in that context we believe that as long as the academy and scholars ignore the insular cases, both become silent aco m accomplices of puerto rico's suborder nation to the united states. the absence of puerto rico's constitutional relationship with the united states in any course of constitutional law, at this day in age, represents an act of intellectual regression to the people of puerto rico that is probably worst than the inspection of noncorporation dom trin. one can loefl various and different theories in order to justify or explain why academy scholars back in 1899 delved in order to constitutionalize the colonial rule over puerto rico. one can, for instance, recognize
that a century ago it was perfectly under the law of nations for any power, for any nation state, for any empire, to acquire through conquest a materiality and the people living in it. however, a century has passed and customary international law has evolved. customary norms against acquisition of territories by conquests has finally crystalized. for instance, in the international convention of the rights of duties of states signed in 1933, it is clearly prohibited under article 11, the recognition of any right of any nation state over territories acquired through any coercive measure. since 1933, acquisition of territories has been crystalized as a customary international norm that it's against that kind of acquisition. however, on the other hand, i
cannot elaborate any cases of insular cases in the supreme court of the united states. we might well explain the phenomenon by asserting the constitutional relationship between puerto rico and the united states has not been an important issue for the united states since 1952. and, apparently, by a rebound of nonimportance for the academy as well. but in light of all of this, what is the duty of the academy and scholars again? i think the academy and the scholars has an obligation to change its paradigms towards puerto rico. in light of the economic crisis that puerto rico is currently passing, through the scholars and the academy may also change the paradigms towards us. it is not unusual to participate in discussions in which scholars stand to establish that the people of puerto rico is perfectly happy with the ongoing status and economic reality.
it's not unusual, also, to hear from educated people that the people of puerto rico has consented to the actual relationship with the united states or in the alternative, that we have done nothing to overcome our colonial status. in the first place, it has been clear from the elocutions from the colleagues that preceded me that the root and the main cause of the economic crisis in puerto rico is probably the colonial rule to which the island has been submitted for the last 118 years. therefore, it must be clear for the academy and the scholars that puerto ricans are not happy colonials. secondly, in november 2012 the people of puerto rico expressed their will in an electoral process in which a majority of the voters repudiated the actual territorial relationship with the united states. thirdly, through an initiative made by the human rights clinic of the inter-american school of
law and its director, professor edward martinez, on april 4, 2016, the inter-american commission on human rights will hold a hearing under the title public debt, fiscal policy and poverty in puerto rico. for me, the intervention of a supervisory body, such as the inter-american commission, demonstrates that our political status and current fiscal crisis are both issues of human rights. in light of that, the academy and scholars shall change their paradigms in order to accept the case of puerto rico is much more than a simple political matter of domestic concern for puerto ricans. the case of puerto rico is a case of gross violation of human rights. thank you. [ applause ] >> thank you, professor romero.
mr. pasquera, will you answer the question that was asked? >> yes. while it's true that when you compare puerto rico to a state, we don't fare too well. the fact is that if you compare puerto rico to any country in the caribbean, central america or latin america, we fare very well. i prefer that we compare ourselves to the united states because that should be our goal. second, puerto ricans, the vast majority, they share our u.s. citizenship. and also when puerto ricans look for better health care, they come to the states. when they're looking for better quality of life, they come to the states. and i believe that by removing ourselves the impediments of the current status, the power that
two senators and five congressmen would provide to puerto rico and our very nature of our ourselves will be exact lit same what happened with alaska and hawaii. puerto rico will converge to the average -- to the united states in terms of economic performance. and i believe that puerto rico in the long run will be better served as being equal among equals with no precondition, exactly the same rights and same obligations as any other state. and what i -- i also agree with corrine peralta and carlos ivan, that the united states should provide puerto rico the mechanism for to us make a final decision and accept the outcome. and give us the option to -- to go through a process that is binding, that is approved by
congress, and let us make a final decision between nonterritorial options. i believe that that happens, puerto ricans will support statehood with a significant majority. >> thank you, mr. pasquera. we'll have mr. ramos answer mr. romero's question. >> yes. thank you very much. i was posed a question as to the ability or acceptability of nonterritorial conflict between association of puerto rico and the united states. as in many things in politics and as my history of deference from the supreme court toward the political branches would suggest, it is but a question of political will. there is no political, constitutional, statutory or any other impediment for the united
states to enter into a compact of association outside the territorial clause powers with pu puerto rico. it is only a question of political will. it is only a question as to whether the united states and puerto rico think it is the better option for both parties interested. so it's a political argument. it's an economic argument. it has legal components. for example, mr. pasquera brought the issue of u.s. citizenship, which sometimes is a bull in a china shop. puerto ricans are u.s. born -- are u.s. citizens by birth, more accurately since 1941, more precisely since 1952, which the current version of the immigration and naturalization act was approved, and specifically says that all persons born in puerto rico are u.s. citizens by birth. and what does that mean with
constitutional law, whether they're running for president or not, it's a whole different scenario, but what it means is that congress has the authority to even deal with a citizenship issue. and if you read it through, other supreme court opinions, more importantly kawakita, resident of the united states, 1947 case, it is others of the supreme court of the united states. there is no legal impediment. there is no constitutional impediment. there is no judicial impediment to maintain and to move from it being a law of the united states. the issue of u.s. citizenship will be in a concrete part of the exact of nonterritorial association between puerto rico and the united states. so, it becomes a question of what's better for the united states and what's better for us. do we want a situation in which hundreds of thousands, sometimes even millions of people would want to move from puerto rico to the united states because they are scared of what the united states may or may not impose on
puerto rico? do we want the situation where the federal will have to continuously bail out puerto rico? it may impose fiscal controls, it may impose tough rules, but ultimately it would have to spend federal taxpayers' money in order to secure some quality of living situation for puerto rico. some for valid economic reasons, there is a general accounting of his report from a couple years back that states the dangers of statehood both for puerto rico and the united states both in terms of fiscal and economic issues. but those are not the only arguments that are thrown the possibility of statehood from the mainland. sadly, there are some issues and oppressive comments that are the basis for the resistance of many in the united states. so the promise is this, there isn't -- there hasn't been a will as of yet from the
political system to offer statehood to puerto rico. there isn't, there hasn't been, a will for the people of puerto rico to exercise its natural right for independence. rico to exercise its natural right for independence. there is and there has been territorial status has been had by the majority of puerto ricans and accepted as the current state of affair by the federal government. if all other alternatives are acceptable for either for the any of the reasons i've stated for the united states and puerto rico to fashion a relationship is a middle ground alternative, but that middle ground alternative has to start from the starting point that puerto rico should have recognized as sof rentee and a non-territorial relationship with the united
states and yes, for practical reasons, that relationship should include the current guarantee of u.s. citizenship for puerto ricans or if no more reaof an, a practical reason. half of the puerto rican nation resides in the united states. we are 7 million strong. for the first time it's almost 4 million outside of puerto rico. it's close to 3 million in puerto rico. if for any other reason, just for practical reasons, the united states if it fashions a solution, if it doesn't want to got statehood route, if puerto ricans don't create the conditions to assert its right for independence then the middle ground option we will have to deal with the issue of being a territory and since 1952, it will be more accurate in terms of the current legal situation, and i believe that when it's posed in those term it's a
better deal for them, and it's a better deal for us, and i will go the route of the political process to try to get that. just let me very briefly address some issue about tomorrow's case which i was -- i was -- i wanted to mention, but i forgot. tomorrow's case is -- as to the right of puerto rico or the go around in puerto rico to legislate a local bankruptcy procedure because federal bankruptcy procedures, because in 1994 congress took out puerto rico from that law. >> i think the discussion goes through and all of the way up to the supreme court or something that really baffles me and it's -- and i think it's a major precedent and constitutional
law. basically, this case is about the -- in my opinion, the new theory of preemption by omission. the u.s. federal system -- the u.s. court system, the u.s. statutes take over the reserve for the staters on in this case for the territory, expressly and by putting something in place of the possibility of a local statute or commonwealth and territory statute. what this situation brings is that puerto rico wants federal bankruptcy law and by being taken out of a federal bankruptcy law. the space for bankruptcy law in puerto rico remains preemptive even though there's nothing to preempt it with. to me that's totally contrary to the general and basic principles of u.s. constitutional theory and for me it's a new and interesting novelty, pardon the repetition, of preemption by omission. >> thank you, representative bejaramos. would you please answer
professor romero's question? >> the question was isn't the current tendency in the international community in which countries in the arena refuse of the authority in order to come into arrangement of a regional nature. in other words, why independence in the age of interdependence has been talked about in those terms. well, the premise of the question is precisely that sovereign nations fit together at negotiation tables who agree on the terms for economic and in the case of europe, even political arrangements that are of mutual interest and benefit to those sitting around the table. however, puerto rico cannot sit at those tables because puerto rico lacks sovereignty as the
united states is admitting quite clearly in the last few years. all we can do is come here to washington with an extended hand to seek measures, legislative or executive that we consider that are beneficial to puerto rico. that government would make decisions on those petitions, depending as it should be on the benefit of the people which that government represents which is the united states and puerto rico has been absolutely excluded from those decisions. there is no interdependence between puerto rico and the united states. there is only subordination, and that simply has to end. the current legislative and judicial processes are what i'm
talking about. the court of appeals and the court that will be heard tomorrow in the supreme court is, quite frankly, and i think cynically suggested that puerto rico should go to congress and seek legislation to repeal the 1984 repeal of the inclusion of puerto rico in the bankruptcy laws. no, professor romero, in order to enter the new world reality and puerto rico will solve its colonial problem to acquire sovereignty and not pay in its current state. >> thank you, professor guerin. we will now open the panelists to the questions of the public.
if anyone walks to the microphone and state your name and to whom the question is being directed. thank you. >> good afternoon. thank you all. my name is maximiliano trujillo. i have the extreme privilege actually to be an alum of both the washington college of law and the inter-american school of law. i'm very happy to see friends here. this panel covered a wide range of issues so i'll try to address something for everybody, but i'm going to start with mr. benator's comments about the military history and then talk about the executive. during and after the spanish-american war in congress is very interesting for people that have extra time and want to
read the congressional record and the debate of whether the united states was a republic or an empire was crystal during that debate, and it wasn't just the military. people in congress opposed that concept, but some debates that include human rights, sometimes you win. sometimes you lose. and we know how that debate ended. that links a little bit with how the history in the united states in terms of puerto rico and cuba interlinked and continues to be interlinked. i wanted to address a little bit. i have a question for mr. ware. your case regarding american samoa i find it interesting and i wonder if you see an impact on this case regarded with the legislation of the jones act in 1917 and the follow-up legislations that representative bejarano has regarding the citizenship of puerto rico and any impact with the supreme court and rusk. i think that would be an
interesting angle of how the supreme court may impact those decisions with that case that you currently have. in terms of the constitutional, the constitutional case that is trending on the supreme court that had oral arguments. i would be very intrigued to hear from the professors. there was an interesting debate between justice kagan and justice breyer and justice sotomayor with solicitor general at different stages of that case and they seem very particular and justice breyer seemed -- by the change of the position, and i wonder if that would be interpreted as a political issue because since the executive had
a position and congress had a position and now he seems to have a different position, do you think that a supreme court will use that as an excuse to say well, this is a political question and we're not going to address it because the political will seems to be shifting in the u.s. congress? i think finally, i want to address a concern that both congress, representative bejarano and peralta raised i think from a very thoughtful level, and i wanted to bring it down to the island. you mentioned self-determination, and in this debate it seems to be missing the will of the people in puerto rico in this process.
it's been mentioned as the responsibility of the congress or the united states or how the congress can act but i'm very curious that only because of one controversial site in 2012 that seems to answer the will of the people and i wonder if the entire panel feels that that was addressed completely there or the will of the self-determination of puerto rico still remains to be exercised. thank you all. >> representative bejarano, would you start with your answer?
>> i'll be very brief. i'll answer a little bit of the last comment. i don't get too stuck on the result of the 2012 site, important as they may be because i think that moving forward only garnered a little over 50% because the question was written in a very partisan fashion in the middle of a very partisan moment which was at a coincided with the general election in puerto rico in which debates exacerbate. had the question been are puerto ricans satisfied with the current authority of puerto rico in the current state of the u.s. constitution? i would think that the percentage for not being satisfied would have reached the 85% or 90%.
the problem was the way and the way in the moment the question was presented. to me, the most important part of that referendum was the second question in which clearly at least the -- at least half of my political party stated they were ready to have a relationship with the united states outside of the territorial clause, and i think that percentage is growing every day and i think that one of the greatest catch phrases that has been set in this forum was addressed by mr. weir in which he said there should be clarity for a new path forward. i think a nonterritorial association between puerto rico and the united states is the only clear path forward that permits us to put in one pot all of the different ingredients that both puerto rico and the united states wish would be a part of this, too. puerto rico would call it asotado and some people who want to be party of the party want in, and other alternatives make us choose between those ingredients. i think the possibility of a
non-territorial relationship with the united states is the only possibility of trying to have all of those important ingredients both for the united states and for puerto rico it remains a question of political will and at least there is a majority agreement in puerto rico, as well and there is one ingredient that cannot be part of the process moving forward and that's territorial alternative, and i warn, because this is important, non-territorial alternatives are abhorrent as middle-ground alternatives or whatever you want to call it, and territorial alternatives are equally abhorrent and equally rejected by the 2012 plebicide as weigh stations and stops on the way to statehood and it is equally understood that they have a current territorial status or the possibility of incorporated status as a weigh station towards statehood and both are territorial and both puts us
under the plenary powers of congress and the only difference is in the unincorporated territory puerto rico doesn't pay taxes on their own territory and puerto rico would pay federal taxes. >> would you like to answer? >> the last question which perhaps related to the previous one, is the issue of self-determination settled for puerto rico? of course not. we are still a colony of the united states. of course, it's not settled and the issue of self-determination is never settled anywhere because all peoples have a continuing right to self-determination, but there is also dramatic snapshot of what the people of puerto rico believed at that time. for the first time the
territorial relation defined as such a territorial relation was rejected by the people and that's an historical and political statement that cannot be forgotten. however, i'd like to point out a footnote. even if the result his been the other way around, that result would have been invalid under international law. no people may renounce to its right to self-determination. that means a right to self-determination is an inalienable right. that means it cannot be renounced. no people may agree to colonialism, to a colonial relationship. that is not a valid exercise of self-determination. in the collective level, that cannot be done. in the individual level, no
individual may consent to slavery which is also an inalienable protection that we all have always. so even if the result had been the other way around the issue wouldn't have been resolved here. as to the sanchez-valle thing, a political question, no, it is had political ramification and yet it is quite justicible. and controversy that has political ramifications and consequences and that doesn't
make it a political question. marbury versus madison had political ramifications and yet it was quite justiceable, right? so don't be confused with the political question. no, of course, it isn't. >> i would like to address your final part of your question. statehood wanted to place in 2012 recognized by the demonstration. i also believe that it is critical for congress to express itself. congress has decided not to address our issue and it would depend highly on how congress
expresses itself in terms of the option that he's willing to accept under which conditions? i think that this time of crisis is also a time of opportunity and while we address the fiscal crisis, i also believe that congress should take this opportunity to allow us to make a final decision that they're willing to accept and also have the demonstration to the justice department come up with definitions of the options that are available to us so that the referenda would finally be accepted by congress. i think puerto ricans at this time with so many changes and challenges, we should take this opportunity, this as a golden opportunity to finally resolve our problem. i believe that the final answer will depend on when congress makes that decision that is critical for us at this moment. >> thank you. professor vinator, i believe there was a question directly at you. >> i don't think there is a wave in congress or a wave in the united states where there is a goal to pursue imperialist, military positions and it's clear in the senate debates in
the treaty of pairs and in congress. it was initially a bill proposed by sereno payne and it was later modified. what i think is important is the military introduces something that gerard newman would describe as functionalism which is to say a new territorial policy whatever it won locally without being past precedents or contemporary precedents. the military, later, congress and the government could create them by vertically and horizontally. that explains in some ways how they can be contradictory policies between the mariana islands and the citizens in puerto rico or guam and the fiscal policies in puerto rico it also explains how there could be uniformed policies for puerto rico. legislatively, they have treated puerto rico as a sit. it's been a hodgepodge of debates and that's my reading of those debates grounded in a particular logic that emerges. again, this is as you point out, this is a debate that emerges in the military and the industrial republicans said to take over
the republican party and sort of make a major electoral realignment in 1896. so, yes, this is a part of a fever, if you will, that occurs at the time. and it's broader than the military. but the functionalist policy which gerard newman has described is the logic of strategic acquisition or an ex- -- annexation of a territory, having individual policies that are inconsistent and incoherent and also among constitutional debates. >> thank you. mr. ware, i believe there was also a comment directed at the case that you are currently attending. would you like to address the comment? >> i'll just address it quickly. i think you've hit one of the disturbing consequences of the d.c. circuit's decision
by holding that american samoa and other unincorporated territories are not part of the united states for purposes of the citizenship clause has the potential to bring these areas into other of the court's doctrine. you mentioned afrim versus rusk and i think the more disturbing case is rogers versus belai. it recognizes that for people not born in the united states congress can take their citizenship away unilaterally without their consent which is something that the court, in other context, in the afrim case and others, have said it cannot do for those born in the united states. just to touch quickly on some of the comments with respect to territorial status. i think one of the things to think about and this is the approach that we've been putting forward is as this conversation about political status and self-determination continues, residents of puerto rico and these other areas should immediately have political rights and political representation in order to have political power in the very political process that they must
navigate. there's historical precedence with this with d.c., the 23rd amendment and providing the right to vote, residents of d.c. for president. there was an amendment that passed congress and failed in the house to provide representation in congress for them. some of these other strategies for providing political representation and power as a civil rights issue while leaving open the decision of political status and self-determination. i think it is something else that should be considered particularly when polls have been taken in puerto rico where you have 95% of puerto ricans
who if given the option would like to vote for president given their other connections and it's certainly something that they've earned and so long as they are under the american flag they should have these fundamental rights even if ultimately they decide to go a different direction and no longer be part of the united states or to become a state. >> thank you. professor gorin has asked to respond to your comments. you may react. >> i'll try to be as brief as
possible so you can ask a question. giving the right to vote to the inhabitants of the territories sounds very nice. it's like mother's day and apple pie. nobody can be in disagreement with enfranchising people when can't vote, of course, but may i suggest that in argentina, only argentineans can vote. in france, only french men and french women can vote. in the united states only americans should vote. the problem is that the inhabitants of the nonincorporated territories are not part of the united states. granting vote would incorporate them into the politic of the united states and that might have consequences in terms of the constitutional doctrine of incorporation. so that would have to be very carefully grasped because it would be very oblique way of
incorporating puerto rico into the united states with the slight problem that a civil war was fought when people tried to go away from the union. in fact, professor christina ponce of columbia university has written that the theory of territorial nonincorporation wasn't really motivated to rule the territories in perpetuity, but quite the contrary. 30-some years after the civil war to create the constitutional construct that would allow congress to do away with one or some of these new territories because there were not part of the united states and could be disposed of without being a new state. so that would have to be considered in your proposal because as we say in puerto rico -- [ speaking spanish ] statehood cannot go in through the kitchen, through the back door, and that might be a way of bringing statehood in through the kitchen door. >> thank you, professor gorin and thank you for your question and we have one final question. >> hello, my name is -- i'm a g.w. law student, and i'm also a legal research assistant for b.w.'s public health school and several of you mentioned health care regarding puerto rico and i would like to address my
question in that area. there was mention of the health care issue regarding the medicaid cliff and how puerto rico's -- the effects of obama care on puerto rico and the disparities between puerto rico and the united states. that's actually my law note that hopefully gets submitted friday. and there's logical concern that in july of 2017 the fiscal cliff will leave one million uninsured on the island taking a toll on every sector of the health care industry and spilling over into the states that end up hosting the massive migration. that being said, i would like to point out that of the $72 billion debt, 25 billion is directly linked to health care cost, medicaid especially and that's 34% of the entire debt. though parody is being sought at a federal level what fiscal, legislative legal precautions can be taken at the local level to ameliorate local spending and it's a disproportionately high
health care spending, if any? given the status connotation of this form, i would like to make certain points given certain comments you guys made. for example, dr. baquera you made a statement that puerto ricans go to the united states to get better health care. puerto rico exceeds quality expectations health care than most of the united states. obviously if you have cancer you go to m.d. anderson and those are specialized hospitals and the general u.s. population has not received better health care than the puerto rican population. with the -- in regards to how obamacare applies to puerto rico, there is a question to them not paying federal taxes and how that negates the pocket -- possibility of an individual mandate, because there can't be a penalty if
there are no federal taxes and there can't be subsidy to federal taxes if there are no federal taxes. however, professor godin, i was wondering if independence while it is a possibility, what type of transition or health care measures will be taken on the island because the island is heavily dependent on federal funding and federal spending? so the alternative would be -- my guess would probably be like a universal health care system. however, given universal health care examples in latin america or in the caribbean, those have not been very successful and those that have been successful have been in europe and europe does have an interdependence of nations. how would puerto rico independence all of a sudden benefit health care on the island or not induce a massive migration anywhere that will be received similar to the immigration crises that are happening all over the u.s. and
europe, et cetera, et cetera. i would like to pose this question to all three of you. given that status would be be realized in the next ten years and federal status would be over in july 2017, there has to be an immediacy and an immediate solution or a proposal alternative to fixing the status will fix the problem because by the time the status is fixed, puerto ricans will no longer live in puerto rico. >> i think we should start with the medicare issue. first of all, medicare, as you know, is paid by deductions from our social security payments. medicaid is a different story. medicaid is a state program that is subsidized by the federal government with monies that are paid with, by the states from
federal contributions of their citizens. so in essence, the basic answer to your question is if we want to have food parity, we should become a state. that's a simple answer. however, if congress doesn't want to provide us a clear path to self-determination in the short term, i also see that health is a different issue and that it's a human right issue so my personal opinion is that as long as we are citizens of the united states in something as important as health, especially for people who don't have the resources, it should be not -- your health benefits should not be based where you live, but they should follow your
citizenship. so i believe that we have a case to use these economic crisis as a means to request from congress a full participation in puerto rico's health medicaid program. there are two things. first, they limit to $311 million, the contribution and the annual contribution and second, they limit the percentage that puerto rico can claim as part of the medicaid expenses and we are now at 57% and that's very close to the richest states. so puerto rico should be putting ourselves in the direction of claiming what we deserve while we should get if we were a state which is closer to 75% or a little bit more and also we
should request the elimination of the cap. in what basis? i think it's a really part of of a bailout. otherwise, puerto rico would have to pay after 2017 close to $100 million that we don't have, and that would create a crisis in puerto rico even worse than the one we have today, so i think that again, i will repeat the easiest answer is to become a state because that's where the money is coming from, from the state -- from income tax contribution, but if we look at from the perspective of where we are today, we should unite and fight for that as a means of human rights and the decency and also as part of the fiscal crisis solution. >> thank you. professor godin, would you like to respond? >> if i recall your concern correctly, how would puerto rico deal with the health bill, which is heavily dependent, use that
word as well, on federal transfer. well, nothing will happen all of a sudden. not only in health, but in anything else. independence will require, as has been proposed since 1989 with the first legislation presented before congress and negotiated with the committees will require careful transition from a dependent economy who is a self-sufficient economy. economic and otherwise. there must be a transition. what to do with the post office? what to do with so many things that will have to be addressed because there have been 118 years of creating a very complex teacher that depends on federal funds and of course, we cannot
accept the premise -- none of us should accept the premise that sovereignty should be put on hold because there is sort of a health sword of damocles hanging over our heads. that would not be he ethical, that would not be moral. that would not be legal on the international law and exercise of self determination. of course, it would be a very hard problem as many others and we shouldn't be that much concerned with the problems during the transition period to independence, i think as your concern was very well expressed and our concern should be in 2017 and it is -- when i grew up, i grew up with the idea that if it weren't for the u.s., we would -- [ speaking spanish ] we would die of hunger and now
it seems we are dying of hunger on the colony. so that much be a much more, a much greater concern that the colony is creating the health debacle which you are advancing for your question. >> thank you. representative bejaramos, would you like to comment? >> let me use your question to dispell a notion that bugs me a lot. this continuous talk of bailing us out, bailing us out. a bailout. this is not about a hand-me-down. puerto rico has been subject to the u.s. shipping laws for, what, 70 years and that puts a burden on our economy. puerto rico is subject to diskrim narey treatment in the law and the medicare and which we pay for as citizens living on the mainland. puerto ricans accepted, quote, unquote, bombardment for 60-some
years. this is not a bailout out of mercy or happiness or kindness of spirit. puerto rico accepted not to have the power or subjected itself to not have the power to conduct federal and foreign economic relationships with other countries and be subjected to the will of congress on many issues including tax breaks like 936 which they gave one day and took it another without us having the ability to stop it. by the way, that change in 1996 was made because somebody in puerto rico had the great idea of suggesting people here in washington, well, you can take section 936 benefits if you
extend what was then called clinton care. because before we had obamacare somebody proposed clinton care. what they did was they took away section 936 and we are still waiting on clinton care. we -- everybody is still waiting on clinton care. hillary clinton care during the first clinton -- during the clinton administration. and that's not having the clinton reform in implementing the local clinton reform version of with without having the federal one and that's part of the debt that we're discussing tomorrow. i'm paying a big part of that created what i think is a reprehensible concept which someone coined which was the constitutional debt. but those, i'm sure, will be
addressed at other moments, on other occasions. what i point out with this is in terms of health care, as i state in my position where we pay equality as the states we should get the same things and one of the problems that we're subject to an authority that we cannot and they put requisites on puerto rico which are not made for puerto rico. they are made for the 50 states, with which is one of the wealthiest countries in the world. for example, we get one of the things and i'm a big proponent for the public health reform that we have, not a public option or close to a public option as possible which is that the state directly pays as a single payer to the doctors or
the pharmacies and the hospitals and what have you instead of using intermediaries of the health organizations and others. we cannot do that because of the federal law we are being told we don't comply yet with the federal standards of the internet and information age components. we have to hold on on that not because we don't want to do it and not because it wouldn't be cheaper for puerto rico, but because we're being imposed standards as a society that is more developed than puerto rico. those are the types of issues that on a current basis affect people of puerto rico. that's why we need to fashion a middle ground solution, but that middle ground solution cannot be materially, practically or morally subject to a territory clause of the united states because if we do that then puerto rico would never have the certainty in its debt structure and its economy and the size of its government and in the way of
federal laws apply or federal programs apply or don't apply in order to make a long-term plan. you cannot make a long-term plan when you have somebody else outside your scope of authority changing the rules as they go. i mean, you cannot play eight innings, two outs and two strikes and then look back at the umpire and say what the hell? let's play two more innings. no, you have to have clear rules for the baseball game to go and move, and that's the problem that puerto rico has in order to fashion a clear future. we don't have the authority under the relationship with the united states to clearly agree on rules that have to be respected by both parties. and that's what being outside the territorial clause means and that's why it's so important for puerto rico. >> thank you, representative bejaramos. professor, you had final comments on the issue.
>> in my other life i've done work in public health. it's spent seven times more than any other industrialized country. so maybe it's time that we actually rethought health care and we have the flexibility and not being bound by federal law to rethink welfare in puerto rico and that, i think, can only happen through nonterritorial alternative whether it's independent or something else and there are other models like the cuban model with more funding which could potentially open up some doors for reflection or rethinking. you're right. there are better outcomes in puerto rico than on the mainland. >> thank you. on behalf of washington college of law and to american university school of law and myself, i want to thank the speakers for being available to discuss puerto rico's public debt and political status. thank you, wcl for providing us with this amazing venue here at the nation's capital. thank you c-span and all other media outlets covering this event that puerto rico needs a change.
thank you all who are present here today and to those watching online for demonstrating your interest in the solutions for puerto rico. from today's forum we can conclude as all three representatives agree that puerto rico is at fault for their debt and for the lack of responsible administration, whether the united states federal government is also responsible. responsible for their lack of oversight, responsible for little settling the political issue, the political status issue and responsible for expressly excluding puerto rico of chapter 9 and the possibility of restructuring their debt. the federal government has left puerto rico in the middle of the ocean with no life vest. it is time to launch a rescue
mission. also speakers agree that the rescue mission is not a handout. it is a petition to restructure our debt and promote economic development. there exists differences on how to restructure our debt. some welcome a fiscal control board while others do not. puerto ricans need to ask themselves if they welcome a board of appointed and not elected officials to decide where puerto rico's taxpayer's money is put. i elect by my vote. those vested with the power and responsibility where taxpayers' money is spent. any option that is short of that is anti-democratic and looks more like a dictatorship than any other thing. i invite every puerto rican to answer these questions for themselves and voice their opinions loudly. finally, all panelists agree that in order for puerto rico to move forward the political status issue has to be resolved. it was suggested in this forum that congress needs to promote
legislation, and led by congress as the result of non-territorial options available, free of statehood, association and independence. however this has never happened in congress and we need to do more than just wait and see. may this forum serve as a petition for congress to act now. thank you all for attending. [ applause ] >> thank you to all speakers and thank you to all watching online. we have lunch available outside and if you want to get lunch and come back in and discuss these topics further and i would like to thank american university and thank you for all of your work and organizing our speakers. thank you all for being here. [ applause ] beginning at 8:00 eastern, history and look at political parties. tonight at 10:00, culture in congress before the civil war. then it's the story of blanche
kay bruce. representing mississippi from 1875 to 1881. and later, history of the joint committee on taxation, established in 1926. tonight on c-span, the supreme court cases that shaped our history come to life with the c-span series "landmark cases: historic supreme court decisions." our 12-part series explores real-life series and constitutional dramas behind some of the most significant decisions in american history. >> john marshall in marbury versus madison said this is different. the constitution is a political document. but it's also a law. and if it's a law we have the courts to tell what it means and that's binding on the other branches. >> what set scott v. sandford apart, it's exactly what you don't want to do. >> who should make the decisions about those debates and lochner
versus new york, the supreme court said it should make the decisions about those debates. >> tonight, we'll look at the case that denied black citizenship under the constitution and invalidated the missouri compromise. scott v. sandford tonight at 10:00 eastern on c-span and c-span.org. the brookings institution recently held a discussion on monetary policy and the economy. economists from the reagan, bush, and clinton administrations talked about what would happen if the economy were to go into recession. >> good afternoon.
today we're going to ask a question that only seems less scary today than it did six weeks ago when the market is down, which is are we ready for the next recession? i'll kick it off, a little bit of background, about five minutes of the then one segment on fiscal policy, which i'll introduce later, one segment on monetary policy. then my colleague is going to come up here and moderate a panel amongst all the participants, at which time we'll invite you to give your questions. i'm warn everybody this is very much on the record. there's two cameras there. one is ours. it's being webcast. and the other one belongs to c-span. so, the question is, are we ready for the next recession? in case you're wondering, we have recessions from time to time. the only point on this slide is to remind you that they come at irregular intervals.
i'm not a believer that you can say that recessions -- that expansions die of old age. but it is a fact that we've been -- it's been a long time since the u.s. has had a recession. may not feel that way to a lot of people. but the recession ended in 2009. we've had a long stretch. you can see, we've had some quarters of lousy growth and some periods of slow growth. the question really we're asking today is what if? what if we had the misfortune to be hit by a recession again? is the fiscal authorities, congress, taxes and spending, equipped to do what it did the last time? is the fed equipped to do what it has done in the past to fight a recession? and particularly interested in what happens if it happens some time soon. this is the reality we face. the size of our federal
authority. if you look, we haven't been this high since the end of world war ii. debt came down rather sharply. current policy line, debt to gdp ratio is headed higher and higher. my colleague and his co-author have drawn another line there that shows you what if interest rates stay really low for a long time? you can see it rises substantially less rapidly, but is still pretty big. we have had big deficits during the period of the great recession. you can see there how deep it was in 2009. you can see the deficit has come down as the economy has improved, as congress raised taxes. you can see that the deficit is
not getting bigger in the near term but starts to get bigger in the end of the decade. for a nation that has humungous federal debt and is raising deficits 3% gdp for the foreseeable future, the rest of the world is still lend willing to lend us money. nominal yield is not adjusted for inflation, currently below 2%. you can see how unusual that is. now, one of the things about fiscal policy in our country is that it automatically adjusts to recessions. and some of our apanelists will talk about this. i don't want to belabor it. based on cbo data, dark blue shows you the extent to which automatic stabilizers, things that did not require congress to do anything, kicked in during the great recession and how much of the deficit was due to them. it's important to note that these automatic stabilizers do not include the big american
recovery act. so these are things that took place without any act from congress. and these slides are all online. we just gave a little list of the things that congress did. in addition to those automatic stabilizers, this chart, you can seattle tarp cost $600 billion of the t.a.r.p. was actually committed, the ultimate cost was only about $40 billion. congress did quite a few things during the great recession. given that debt level we have today and given the political environment, would we be willing to do that again? would congress be willing to do it again? i personally would be happy to do it again. if we had another recession, could we do it again? the question of monetary policy. once upon a time we believed you don't need too much fiscal policy because the fed could cut interest rates. the point of this chart is
pretty simple. the interest rates are at zero. you look careful at the bottom, they've managed to get it to a quarter percentage point. we used to think that interest rates couldn't go below zero. in the rest of the world, we're learning maybe they can go a little bit below zero. we'll talk about that. this is a graph of the countries abroad that have negative interest rates. in switzerland, three-quarters of a percentage point. if a bank puts money on reserve at the swiss national bank, it has to pay the swiss national bank money. the other thing the fed did was, qe, buying a lot of assets. when ben bernanke took over at the fed, they have less than $1 trillion in assets. today they have $4.5 trillion in assets. one of the questions we'll ask is, so what's wrong with $5.5 or $6.5 or $7.5 trillion?
. again, this comes in a really unusual context. the context here is that interest rates around the world are very low. this is a really nice chart taken from -- actually by some bank of england economists, and it shows you what interest rates are around the world, adjusted for inflation, on ten-year government bonds. in other words what we're seeing now is unusual. rates are low. it reflects a long period of rates being low. the point here is that we have reason to believe that interest rates may be lower than normal for a long time. the trend begins well beyond the great recession. in that context, will the fed be stuck near zero for a long time? and how much will that limit their capacity? could the fed do more? could congress do more? and what would that more be?
so, to kick us off, we have three speakers, each of whom have different cut on fiscal policy. did we decide who is going first? wendy edelberg is going first, from the congressional budget office. i think i'm supposed to say she's speaking for herself and not the cbo or something like that. no, she's speaking for cbo. great. and second? jared bernstein, ways in which we may want to expand the fiscal stabilizers and third is phil swagel, university of maryland, formerly of the bush treasury, who will talk about how he sees things. each of them will speak for seven to ten minutes. wendy, it's all yours.
hi. i'm wendy edelberg from the congressional budget office. let me give you a quick summary of what i'll say. i'll briefly walk you through cbo's budget and economic projections and highlight some of the significant consequences we see from our projections of high-end rising federal debt. and how the economic projections influence our budgetary projections and the interplay of
those two. finally, i'll talk about automatic stabilizers. role of automatic stabilizers and fiscal policy during times of economic weakness. all right. i'll skip that one. this might look familiar. david just showed it. so, under current law, revenues are projected to stay roughly constant as a share of gdp over the next decade. but with the aging of the population and rising health care costs, cbo projects a substantial boost of federal spending on social security and the government's major health care programs. so, alongside rising federal interest payments, deficits are expected to increase from their current level of 2.9%, a touch higher from the average of 2.8% over the past 50 years to 4.9% in 2026.
projected to raise federal debt held by the public to 80% to 2026 almost twice the average of the past five decades. some of the consequences of high-end rising debt. focus of the discussion today is that increased borrowing would restrict policy makers ability to respond to economic challenges, whether that's through economic downturn or the result of a financial crisis. that would make them have -- in addition, more straightforward direct affect, increase borrowing would increase interest that the federal government would have to pay, making it all that much harder to stabilize debt. harder to quantify is that we think that high and rising levels of federal debt increase the likelihood of a fiscal crisis. now, such a crisis would
certainly prevent policy makers with significant challenges and lead to significant impacts on the country. in our view, there's no particular tipping point at which we think a fiscal crisis would occur. to ensure a high level of federal debt -- higher level of federal debt and steeper trajectory of federal debt worsen those risks. so, in addition, looking at that second bullet point -- sorry, the first bullet point, cbo estimates sustained higher deficits lead to lower gdp, lower economic output by crowding out national saving, which means it crowds out private investment.
>> so our projections overtime are there despite the fact that we're improving economic conditions over the next several years. after 2019 cbo does does not tempt to predict the timing or magnitude of economic fluctuatio fluctuations. it should be interpreted as the average of likely outcomes. in other words, those averages reflect cbos projection that any cyclical strength or weakness after the last couple years would be offset or balanced by weakness or strength, such that gdp is projected to grow on average with potential in the latter part of the decade. we endeavor to set our forecast in the center of the distribution of possible outcomes. with that in mind, what that means is we see upside and downside to our forecast. for example, gdp growth in our forecast might be too pessimistic over the next five years. for example, firms might respond
to increases in overall demand by doing more robust hiring than cbo projects and that would lead to faster increases in household income and consumer spending than we project. on the other hand, there are downside risks. our forecast might be too optimistic over the next five years. for example, increased tightness in labor markets may not lead to as fast of an increase in wages as we project and that would, just as the flip side, lead to less consumer spending and household spending over the next five years. international conditions could be worse than we anticipate. there could be more of a slowing in china than we project and that would have spillovers on the u.s. economy. of course as we were suggesting today, the possibility exists that the economy might enter recession in the next several years. the current economic expansion is over six years old which is slightly longer than the average expansion in 1945. expansions lasting at least six
years with a really low level of employment have tended to fall into recession within two years. however, length of economic expansions vary grate eatly. although the longest expansion has been ten years, we see no statistical evidence that the length of recovery or expansion is a prediction of an economy going into recession. nonetheless, it's of course a risk. in the latter part of the projects, cbo projects that gdp will be one half percent below the level of potential and that's because we estimate that output has been that much below potential. so that projected gap, you can barely see daylight between these two lines at the end of our projection. that gap has budgetary implications. so just as in the past, any cyclical strength or weakness that we project has budgetary implications through the automatic stabilizers.
let me go back there. automatic stabilizers are provisions in law that decrease government revenues or increase government expenditures when the economy goes into recession and vice-versa with the economy expands. stabilizers tend to reduce the depth of a recession and tend to dampen expansion. stabilizers affect aggregate demand. households who pay less in taxes or receive more in transfers, those changes flow through to different changes in aggregate demand which affect the economy. so this chart which is very similar to the one david showed you but with more history shows what has happened to automatic stabilizers. the contribution of automatic stabilizers to the budget history and projection. if current law didn't change,
automatic stabilizers going forward would be much smaller than they've been over the past seven years. for example, for this fiscal year, at estimated that automatic stabilizers will add $89 billion to the deficit, about half a percent of potential. by comparison from 2019 to 2015, automatic stabilizers add about one and a half percent of potential to deficits. in later years automatic stabilizers are projected to continue to shrink, although they're influenced by that projection of an output gap. this table gives the numbers on how automatic stabilizers have responded to recessions in the past. in the recent recession which was obviously severe, after four quarters, automatic stabilizers added the equivalent of one and a half percent of potential to the deficit. and then after 8 quarters, 2.1%. we've seen smaller increases in the deficit from automatic
stabilizers so let's say about 1% after 8 quarters over the three previous recessions. but again as david said, he stole a lot of my thunder, even after accounting for the role of automatic stabilizers, deficits are still cyclical. for example, automatic stabilizers account for not much but not all but much of the increase in deficit since 2008. indeed in recessions, deficits are typically decreased through automatic stabilizers and fiscal policy. we estimate that active fiscal policy that lowers revenues or increases transfers also boosts aggregate demand and gdp. in the past, active fiscal policy has provided a short run stimulus for at least a month two-thirds of the time that the economy was in recession in any particular year. in nearly every case that stimulus involved a reduction in revenues and in fact half the time most of that was a
reduction in revenues. active fiscal policy has often had the reverse effect during economic expansions, damping growth during boom times about half the time. so automatic stabilizers and changes in fiscal policy have different implications for budget projections. automatic stabilizers are budget neutral but i should note that fiscal policies underlying the automatic stabilizers generally do have budget implications, which is to say that the policies underlying automatic stabilizers may affect revenues and spending even when the economy is operating at potential. i suspect we'll talk more about that later. but for active fiscal policy, reducing deficit without imposing fiscal restraint in future years would reduce an income in the longer run relative to what would have occurred with no changes in
fiscal policy. the estimates that the benefits of fiscal stimulus are temporary but the costs are permanent in absence of any offsetting changes to fiscal policy in the future. i should say some researchers come to a different conclusion and they estimate that maintaining policies that boost overall demand in the short term have positive long run economic effects because basically the crowding out of -- that those increases in deficits create is more than offset by increases in potential that result from the stimulus, the initial stimulus, which is to say the increase in demand raises the economy's long-term potential by enough to offset the negative effects of crowding out. how significant that is is really unclear and figuring out how to net out any positive effects on potential with the negative effects from crowding out is really complicated and so cbo doesn't incorporate this effect but certainly we continue
to look at it. that's all i have. i know i'm over time. thanks very much. [ applause ] . . so i just want to start out by thanking david and the hutchins center for hosting this event today and thanking our panelists and all of you for a really important topic. i want to thank my co-author, the paper that we just released, jared bernstein, thank you very much. i want to thank jared bernstein and our colleagues at the center on budget and policy priorities. you gave us invaluable feedback as we develop the ideas that are contained within our paper. when i think about the question that motivates this event, are we ready for the next recession,
i really think there are two answers to this question, a short answer and a long answer. the short answer is no, we're not. but the long answer, i think, is really what motivated us to write this paper and i think motivates a lot of the people who are also speaking here today, and it's still no, but it's we can be if we take the right lessons from our historical experience and start to prepare for it now. with that idea in mind, jared and i and our paper tried to outline two sets of broader recommendations that we think can really enhance our preparedness for the next recession before it hits. those two broad recommendations are, first, we want to strengthen the automatic stabilizers that david mentioned and wendy talked about, and the second is that even outside the automatic stabilizers, we think that there is architecture that we can either leverage or build in other programs such that when the next recession rolls around,
if congress is going to take counter cyclical action, we can maximize the effectiveness of that, action. i'm going to talk about those two broad policy areas and i'll give an example so you can get a flavor of what our recommendations are. first i'm going to talk about the strengthening of the automatic stabilizers. wendy gave a great overview of what automatic stabilizers are. again, they're programs that expand when the economy is weak and contract when the economy is on its way to recovery. in our paper we discussed three automatic stabilizers -- unemployment insurance, snap which was formerly called food stamps, and medicaid. just to give you a sense of what an automatic stabilizer looks like, if you consider something like unemployment insurance, why does it expand when the economy is weak and contract when the economy is on its way to recovery, when we're heading into a recession and people lose their jobs, more people qualify
for unemployment insurance compensation, so therefore government spending on that compensation increases, putting money in people's pockets and that's the cause of the increased consumer demand that wendy is talking about. when the economy is on its way to recovery and people are getting jobs again, fewer of them qualify for unemployment insurance compensation and therefore government spending will then decline. so that's what we're talking about here when we're talking about automatic stabilizers. now, the three programs that we discussed in the paper particularly suited in our view for additional counter cyclical stimulus as automatic stabilizers because there's already an efficient administrative infrastructure in place which you can leverage for more counter cyclical funds. what i'm going to talk about is something called f map. what f map is, it stands for federal medical assistance percentages and it is the share of medicaid funding that the
federal government covers for states. so this ranges from 50% in some of the wealthier states like massachusetts for example to a much higher percentage in states that are like, for example, mississippi at 75%. during the last recession and during the recession in 2001, the federal government boosted the f map, meaning it paid a higher share of state medicaid costs. this was a really effective form of counter cyclical stimulus during those recessions because it's a form of state fiscal relief. you might know that states have balanced operating budget requirements so during recessions when the revenues are falling there's a lot of pressure on states to either cut services or raise revenues to make sure they meet those requirements. and what boosting the f map does or boosting the share of medicaid spending that the
federal government covers, it lets states use what used to be their share to cover other aspects of their budget shortfall. so it's really effective if that respect to make sure that whatever cuts the states have to take during recession are not as severe as they might otherwise have to. what we recommend in the paper, because this has been done during the last two recessions and was effective, we think it's something that should be a part of permanent law that this should happen automatically during future recessions. we want to make this an automatic stabilizer when a recession hits. the other reason that's really valuable is it helps with the timing if you make it into an automatic stabilizer you can be more sure that it's not going to end too sooner begin too late. now, the devil is in the details. how you make sure that it's going to trigger on automatically and trigger off
when the economy is on its way to recovery is somewhat difficult. what we do in the paper is offer two potential sets of triggers which are economic indicators that can say at this point the economy is doing poorly so we're going to turn this on. then at this point the need for the fiscal relief is no longer necessary and we're going to try turning it off. the thing i want to emphasize is these triggers are inherently arbitrary to a large extent so it's hard to design a perfect one and we're not whetted to the two that we propose in the paper. we wanted to give options but if people can come up with a better one, we're all for that. the main thing is it should be something that triggers on and off automatically rather than relying on congress in the future. the other thing i'll note about the options we propose in the paper, we look at how they would have worked during previous recessions and they look good to us but again they're somewhat r
arbitrary. so that's the first set of our recommendations. in snap we also have proposals that we believe would enhance their counter cyclical properties. the other thing i want to talk about is what we can do outside of automatic stabilizers. so the other thing that we think is true is that there is the possibility to either leverage existing architecture or build new architecture in certain programs such that when the next recession rolls around, if congress wants to act, whatever actions they take can be more effective. we talk about this in the paper in the context of both direct and subsidized job creation and housing assistance. the one that i'm going to talk about is direct or subsidized job creation. what we propose in the paper is the creation of an employment fund. and what the employment fund would consist of is two components. one would be subsidized jobs program, a flexible funding
stream so that states could fund subsidized jobs programs. this is modelled after a program called the tanif emergency fun that was unacted during the last recession. the last that we propose was proposed last year which is a set of fully funded national service jobs. they recommended about 500,000. this employment fund would leverage both those fully funded national service jobs and a flexible funding stream for state subsidized employment programs on an ongoing basis. so this would be during normal economic times. the reason that we proposed this is because these programs are difficult to ramp up from scratch immediately and so even though the emergency fund subsidized jobs program was effective during the last recession, we think it would have been more effective if it had had an infrastructure to
build on already and could have gotten off the ground sooner. our belief is especially if we have this ongoing structure in place during normal economic times, when the next recession rolls around, congress can do much more efficient stimulus through some subsidized job creation and some direct job creation. to bring it full circle again, i think we're all kind of in this place right now where if we were asked if we're ready for the next recession right now the answer would be no, but the long answer we do think is really possible and if we do strengthen our automatic stabilizers and build some architecture in other programs like we recommend in the paper we really think that we will be ready for it when it gets here. so thank you very much. [ applause ]
>> thanks very much. i'll also talk about policies for the next recession. it will be my focus. i just want to start by applauding ben and jared. i've taken a quick glance at their paper, so on first glance some of it i agree with, some of it i'll disagree with but it's really important and i'm glad they're doing it. what's the right thing to do and how to prepare and the point that ben made at the end here about there's a good program having the infrastructure set up so it can ramp up, that seems really important. i'm also going to focus a bit on an important detail which is the trigger off. i kind of had the sense that sometimes the trigger on is a little easier, we're going to spend money and the trigger off is not as easy. i look at some of the programs that are temporary that don't end up being temporary. so the next recession, obviously the focus on the policies is
driven by unhappiness over the current recovery. there's an obligatory joke here about recovery summer. we all know the repeated false statements that the current recovery is not super satisfactory. it's implicit in the current campaign which i gather is going on. implicit in the response that we've seen is maybe we need more and maybe we need different. the way to start that is by saying why was the recovery weak. one of the difficult things about this recession is that there are many factors behind it. it wasn't just one thing to fix and i have listed some of them. the financial sector was impaired and obviously policy, some of that i was involved in in my time at the treasury, helped to stashlize the financial sector but then there were policy choices that kept the financial sector impaired
and will continue to keep it impaired in some ways. much of that has improved but not entirely if you look at the survey of consumer finances and other data sources. it's lynchinked to inequality a the other 80% of the households are not looking as good and maybe they still feel the overhang. implicit in many of these discussions is that the fiscal stimulus was not big enough and i'm going to talk about maybe it was big enough but not good enough, the quality was low. i'm going to talk about the fiscal quality. i think it's impossible to avoid the rahm emanuel point that don't let the crises go to waste. it went counter to what would
have been best for our economy. obviously i understand from a political point of view wanting to jam through things when there are 60 votes available to jam it through, but i suspect it went in the wrong direction. i'm sorry, i'm skipping a bullet. here i mean the recovery is held back by policy choices, the sense in which we're laying on disruptive change in the middle of recession. so without going into was aca a good thing or a bad thing and i can go into all the arguments there, dodd frank, the regulatory surge, the rule of law and various situations, it's a lot of stress on the economy. it's a lot of disruptive change. it seems like layering that on to a recovery is inevitably going to impair the recovery and then skipping back to my fourth bullet, it seems many people would say that the political system was disruptive to the recovery. of course we know today
financial markets and maybe tv audiences know to kind of tune out the political show. we're not going to default on the debt and things like that. back in 2011 maybe people didn't quite get that. so i do understand the idea that there's been political disruptions and that's interrupted the recovery. it's kind of tough to say, okay, let's fix the political system. it's not a great policy recommendation. on the other hand, there are times when things worked and that's -- to me i look at things that work. student loans for example, president obama and congress worked very well together. the medicare doc fix. what i call the obama/bush tax cuts were extended in full and then mostly made permanent. so there are times when the political system has not held back growth. and then lastly, i think there's still an open question about is the recovery weak or do we have a diminished growth trajectory
and i'm going to return to that at the very end when i talk about my conclusions. let me talk briefly about the fiscal response, and this is a little bit of a catalog of what we've done in addressing the last recession and then i'll use that to think forward, think about the next one. i start from the premise that it's helpful but not the end of the discussion to address the proximate cause of the recession but of course it's not always possible to do that and i think my first bullet is exactly that. the housing sector in 2007, 2008 was an important source of the financial crises and the great recession. when i was at the treasury the administration made the choice to do some on housing but really to focus on the broad economy to say the housing market has to adjust and will adjust and policy is going to address the broad economy. there's a fiscal stimulus in early 2008 that was, quote, only
$150 billion which seemed like a whole lot at the time. there's a lot of evidence i would say suggesting that that was pretty effective. but we didn't wash away the problems in housing and those continue to weigh on the economy. there's the banks and the broader financial sector response in 2008, 2009. my point there is that the response was politically difficult but actually very effective and very cost effective. so of course it was a large amount of money but the net cost turned out to be relatively small and depending how you count it plus or minus and then the stress tests that were put in by treasury secretary geithner and the fed were incredibly effective and cost effective and i would say continue to be cost effective. those two things together went directly to the part of the source of the problem driving the economy down. then there are other things.
the targeted fiscal support, infrastructure and other spending that i think is envogue now and i'll talk about next and the monetary policy which will be on the next panel. there are broad agreement among americans that infrastructure spending should be part of the next fiscal response and americans want that to be in the form of a wall. i'm not sure that is the highest quality infrastructure spending but i think there is that agreement. so president obama can take credit for that consensus in our society. i think it is important actually in a discussion of infrastructure which should be part of the response to the next recession to think about the quality of fiscal stimulus. my joke is that if you talk to administration staffers about my three bullets, they turn into teenagers and their eyes start rolling. anybody with teenagers knows that phenomenon. and they understand that the administration position on high speed rail and the green pork
and keystone is just preposterous. don't even bother. that's part of the problem, it's hard to have a discussion about infrastructure until we agree not to burn taxpayer resources. a few weeks ago there was another proposal to have a gas tax and take the revenue and just burn it. i know that because the first words i saw were high speed rail and that's a sin nom for burning taxpayer resources. the northeast corridor is probably not turning taxpayer resources but also not high speed rail. to me that's the real key is having high quality fiscal stimulus. roemer and roemer did a paper analyzing the sanders plan and they downplayed the impact of fiscal -- of infrastructure spending for long-term growth but they still see some benefit for it in the medium term. so that's still there. when you think about policies and fiscal room, i'm going to
skip ahead a little bit in the interest of time. my answer is, yes, i think there is fiscal room to do a new stimulus spending so if there's a recession soon i think we could do it. before that i think it would be useful to prepare for the next downturn. the things i have in mind there are exactly the kind of work that jared and ben are doing, is to say what works and do more of the good and less of the bad and especially i focus on less of the bad. think about what didn't work and let's do less of it. then have a growth agenda to say there are things we can do to improve our growth trajectory and i think that's really the agenda for the next president, whoever that should be. i'll stop there. [ applause ]
>> thank you all for trying so hard to stick to the time, even though phillip made you skip over two-thirds of your slides. i want to pick up though on one thing you said at the end and ask wendy and ben about this. so there is a view out there that we don't have the fiscal space. that is that debt is so high that if we had a recession soon, that we wouldn't be able to raise -- to borrow money to fund, whether they were automatic stabilizers or discretionary fiscal policy. wendy, how do we even think about that? do we know, and what are the arguments on one side or the other? >> i think this gets back a little bit to our interpretation of the literature which is there's no particular trigger. so we know that lower debt is better than higher debt and we
know that a flatter trajectory of debt is better than a sleeper trajectory of deep. so we can make those qualitative statements but it's hard to know when investors would -- might lose confidence. one thing i will say is it should be true that investors should care not just about levels but about trajectories. so a fiscal response to economic weakness that credibly only temporarily raises deficits and debt and comes coupled with some sort of long-term response or maybe even actually gets layered on top of a longer term fiscal agenda that stabilizes debt to gdp should have very different implications than implementing policies that make debt to gdp steeper than it is under current law. >> right. so i think many economists would say it would be ideal if we had short term stimulus and long term debt reduction but so far
none have been elected to congress. >> but we can continue to say it. >> do you worry at all about having too much debt? >> i think our perspective is we like to think of ourselves as cyclical structural hawks. so definitely agree that all else equal we want declining debt to gdp ratio, but our view is that all else isn't equal and especially that's the case during recessions. so we think that when you're thinking about the automatic stabilizers and the types of recommendations we're making in the paper, we really need to weigh what are the benefits of doing these things against the potential drawbacks of higher debt to gdp. we really think that the benefits far outweigh the potential drawbacks. louise came out with a paper where they examined the long term fiscal space and i think agreed that automatic stabilizers are in place where
we should definitely be bolstering what we currently do. >> phil, is it your point that you're cool with bigger automatic stabilizers but you're not cool with discretionary fiscal policy because it hasn't been well designed? >> it's a mix. i'm cool, i guess is the word you used -- >> be sure to tell your teenagers. >> exactly. >> don't tell them i'm older than you are. >> exactly. i look at the discretionary fiscal policy of the last two recessions and it actually worked reasonably well. i look at the 2008 fiscal stimulus. i accidently almost implied something good about ara so i take that back. >> i was noticing that. i was a little worried here. >> there is literature suggesting it was effective in some ways. it probably wasn't as effective as it could have been. the 2008 stimulus, it was remarkable how quickly it was
agreed upon and how quickly it got into the economy which presents a contrast with the 2009 stimulus. i'm not against discretionary fiscal policy. we want congress to own that. we want congress to be responsive. at the same time, i do agree with them, the authors of the paper, that there's a role for better stabilization. >> is your point about 2008, the george bush stimulus and the barack obama stimulus that it's okay if it's tax cuts but it's not okay if it's spending? >> no. it was a mix. there were some tax cuts that went in wage packets and the bush one was more heavily on the tax side. the spending part, i think there is a role for spending. actually, i was thinking about what you said about the long term and to me that's exactly it, that spending on preschool for example, there's lots of evidence that that would be a really important thing, and you want to get it right, whereas spending on increasing social
security benefits for high earners which is part of senator sanders' plan, to me it's hard to explain why you want to do that. >> one thing i don't understand is you said it seemed like a nice thing to say, it's easier to trigger it on than trigger it off but i thought there was a critique of what fiscal policy had been in the last five years that was just the opposite, that the obama stimulus passed pretty quickly. some of it got out quickly, some of it didn't, but it triggered off too soon. >> what i was talking about and it's a little bit in the paper and one of my disagreements with the paper is unemployment insurance. there's a debate about ending and extending ui. there's a debate about what people call a north carolina question. set that aside whether ending extended ui was the right thing or not, the administration said the world will end if we don't extend ui. we didn't extend it and the world didn't end and the recovery proceeded.
i think there's a lot of questions about some of these automatic stabilizers. >> but wait. isn't the evidence in the last couple of years that we turn them off and that some people think that was a mistake? we had the sequester, the aara stuff ran down, things expired. i thought this was a case study in you can have temporary fiscal stimulus. it was temporary. maybe too temporary. >> i would look at what is the automatic part. to me that's the question. that's why ui is the example, how do we have something that's preprogrammed and automatic and how do we have it actually end. the sequester and anything like that, there's obviously lots of discussion about the political dynamics relating to the pattern of spending. we clearly didn't have the optimal pattern, but i don't think that says, oh, therefore we should have more spending or less spending. if you could take out the political drama and say what
spending should we have had, to me that's an important discussion but it doesn't seem indicative of -- >> ben, when you think about the automatic stabilizer part, how do you think about the trigger off part? why is that important, and what confidence do you have that the politicians will let it trigger off? >> we try to be clear in the paper that our conversation about the triggers on and off are abstract in a way from a discussion of what's benefit adequacy during normal times because i think that's a separate conversation. but we definitely do think if you're talking about programs that are supposed to be counter cyclical stimulus, they should have the on and off trigger. i tend to agree much more with you that during this past recession we saw things trigger off too soon. i think if we want to talk about, for example, unemployment insurance compensation which was discretionary stimulus that congress passed, did end at the end of 2013 and we would contend
that there's still remaining slack in the labor market and it could have gone on longer. the proposal that we have in the paper actually for enhancing the automatic stabilization capability of unemployment insurance system is to incorporate new tiers where additional unemployment benefits would trigger on which would ob vee yat some of the need for congress to do the discretionary stimulus on an ad hoc basis. to some extent i think our proposal would solve some of the concern that phil is worried about because it would have an automatic way of triggering on and off when it hits these tiers. >> i haven't had a chance to read the paper entirely. to me it will be interesting to see do you treat this literature seriously, what's optimal duration. there is an argument by respectable researchers back and forth. i was thinking, do you remember during the gigantic snowstorm,
the d.c. school system opened some of the schools and had school meals. to me that seems like really high quality spending and that's the kind of thing -- in other words, i'm trying to say i'm not against all spending. >> wendy, i want to ask you to -- go ahead and respond. >> one thing i do want to say, so i showed this graph of what deficits with automatic stabilizers and deficits without automatic stabilizers looked like between 2008 and 2015. you can see that deficits without automatic stabilizers shrunk a lot more quickly than deficits with automatic stabilizers. the automatic stabilizer portion of fiscal policy was continuing to do more to stimulate the economy than active fiscal policy. i shouldn't have said more. i don't mean those in rank order. >> even when they cut back on discretionary fiscal policy -- >> automatic stabilizers were continuing on. >> right. some of this has to do with how much do you want to ask congress
to tie their hands and how much do you trust you to do the right thing. one final question. a lot of the discussion we've had here could have been said when interest rates were at 4% or 7% but now interest rates are bumping along at zero and there's reason to believe they will be close to zero for some time. how does that change our thinking about the role that fiscal stimulus pays in the recession, the automatic kind and the discretionary kind? >> to the extend that policy makers are constrained in their ability to respond to economic challeng challenges, that's going to make the cost of those challenges deeper both for the economy and well-being. that's true on the monetary policy side and the fiscal policy side. so yes, the fact that interest rates even on projections, even
though we project they'll come up notably from their current low levels, we project that interest rates even in the long term will be lower than they have been -- they will be lower in the projection than they have been in recent decades. so to the degree that that suggests that monetary policy might be more constrained in the future, yeah, now you have not just one problem but two. >> why don't you step down and we'll start with rich or john? rich, okay. now we're going to turn to monetary policy and the two speakers are rich clare da who is a veteran of the bush treasury, currently at columbia and pimco and he'll be followed by john foust which is a recent veteran of the better nenk ki
fed. >> thank you very much. it's a real treat to be here. it's my first visit to the hutchins center, although you've got a great web presence and i follow what you do here actively. the assignment is to talk about are we ready for the next recession from the point of view of monetary policy. i'll begin by saying i don't think the next recession is imminent but it's certainly worth thinking through the options. in particular, the discussion regarding monetary policies especially interesting these days. what i'm going to do is talk about where we are now vis-a-vis monetary policy and talk about how that impacts either contraints or provides insight into what we might see in the next down turn. traditionally monetary policy was about raising or lowering interest rates and we got comfortable with that model. and since the crises when we hit
the zero lower bound in december of 2008 in the u.s., the fed had to pursue out of necessity different measures and the primary unconventional or new measures the fed pursued were various forms of quantitative easing and more and more sophisticated and precise forms of forward guidance. so to start off with some historical data, quantitative easing we're all familiar is purchasing large quantities of government bonds. unfortunately, i think the term quantitative easing has been a bit misleading. what's important about qe is not the size so much but what the fed has been buying. it's been buying a lot of mortgage backed securities and a lot of long duration and long maturity treasuries. i'm in the camp that believes that although there's some academic debate, i think the programs as implemented by the fed have worked because they have taken interest rate risk out of the market and have taken the risk embedded in mortgage
securities in the market. i think that perspective is important because if you try to look at quantitative easing through the traditional milten freed mv equals py lens, it's confusing. there have been more or less offsetting reductions in the multiplier. we know there are access reserves in the banking system. so the impact is by changing asset prices in a way to be supportive of the economy. i'll come back in a moment as to the attractiveness and the feasibility of doing more qe in the next down turn. here's a snapshot that i had an assistant put together. this is essentially the maturity profile of the fed's balance sheet under a scenario where at some point they passively let the portfolio run off. you can pick your favorite date until the date on the horizontal
axis, the fed is recommitted to investing those as the proceeds mature. mortgages are tricky because they normally last 30 years. most people pay off in about seven years so you have to make assumptions about the maturity or payoff on mortgages. but the impact here, the message of this slide is simply that because of the size and the scope of the qe program, it's going to take some time, even in the absence of the next recession for the fed's balance sheet to normalize. importantly as i'm sure john will remind us, the normal size for the fed balance sheet is a lot larger than it was in 2007 because of the growth and the demand for currency, which if anything has been growing more rapidly. even if the fed gets back to a normal balance sheet, it's going to be bigger than it was in 2007 or '08. another key fact of life that the yellen fed has been
reminding us of is this notion that the liftoff for fed rates -- and again david's chart showed you with a microscope you can see that 25 basis point increase in december but there is a liftoff path and i'll come back to that in a moment. one reason why we have a very gradual liftoff path as communicated by chair yellen and others is this notion that the equilibrium or the neutral real interest rate in the economy is lower than before the crises. now, the neutral interest rate is an important input to monetary policy. it's also unobserved and time bearing which means it's a really hard thing to nail down. the best guess that we have is that neutral policy rates in the u.s. and around the world are a lot lower than they used to be which means that the ultimate fed destination in the cycle is lower. the corollary is that even when you get to that destination, rates are going to be a lot lower than they were before the crises which means that any
adverse shock is more likely to put you into a situation where the central bank will have to use unconventional tools. the rule of thumb in the famous john taylor rule was to aim for a policy rate of 2% inflation plus john's assumption of a 2% neutral rate, so you have rates of around 4% and on average from 1994 until 2007 that was the average funds rate in that period. in a new neutral world, because the destination is lower, you're more likely to need to use unconventional policies. another striking thing that's worth following is the evolution in the way financial markets think about the destination for fed policy. so what i've plotted here is the evolving view about short-term interest rates in the u.s. at a particular point in the future, december 2018. this contract has been traded in the futures markets for a long time. what's striking about this -- and again you have to make
corrections for things like liquidity and term premium, but this gives you a first cut at evolving market views where the ultimate designation is for fed policy. what's striking is if you go back to the dark days of '08 and '09, folks thought the fed was going to get rates up more or less to where they had before the crises, roughly 2% inflation plus 2% real and you see those expectations have been trailing down substantially to the point that there's a pretty big golf between the fed's exercise and market pricing. part of this is of course simply the fact that market pricing has to factor in not only the most likely scenario for the economy but the tail risk of not getting to neutral and it's slightly different from the dots. but the reality is that the markets have certainly are very much in this view of a gradual liftoff. a little bit on economic theory. you probably remember from a
macro that you took in college that there's a rule of thumb that relates real interest rates to growth rates. if you look at the underlying math, there's a lot of slippage there. the key point is that even if you're in a world where the only thing that drives real rates is growth, modern macro models say it's really the global growth rate, not any one country's growth rate because we have an integrated capital market. even if we haven't changed our view of the u.s. growth outlook, if global rates grow, that needs to be regarded. another reason why we're more likely to see the fed using unconventional tools in the next down turn. this is a chart which i keep putting in because it attracts a lot of attention. i typed into google chart illustrating the complexity of middle east geo politics and this is the first thing that popped up and i love it. i had occasion to have a conversation with daniel yurgen
about a year ago and i showed him this chart and said what do you make of this and he said looks about right. of course he knows a lot more than i do. so the key point here is not to get into our views of appliances or conflicts in the middle east but merely to say that even though so far we haven't seen any huge repercussions, there is a lot more risk in the world potentially. ken rogueoff had a nice piece making what is a very basic but fundamentally important point which is that even a small increase in investor sentiment about extreme outcomes can lead to very big repricing of safe sovereign bonds in a world where there's a desire to hold those assets as an insurance premium against adverse outcomes. just to give you an example of this, what i plot is the total realized return to someone who on january 1st, 2008 had bought a 30-year treasury bond, don't
do anything fancy, lever it up or do options. you buy the bonds and go to sleep. at the end of the year your total return would have been up about 40%. so sovereign bonds have a handful of countries, think germany, think the u.s., do provide that premium. so in addition to the other factors, slower growth and neutral and the like, there is this desire for these assets. of course, given that many other central banks in the world have gone to negative rates, there's yet another reason and this gets to the fiscal discussion about the profile for u.s. rates. i've given various examples here of forward guidance. there was recent conference in new york discussing forward guidances as a tool and it's important to remember that a lot of our textbook models, forward guidance shouldn't have any impact but in the real world it tends to for a couple reasons. one is that it gives us some insights into the central bank's reaction function, and number
two, depending upon how you formulate the guidance in particular, the calendar date based guidance which began under greenspan can have a very powerful effect on market expectation. forward guidance is one of those things that in theory shouldn't work but in practice if it's appropriately communicated i think can work. just a couple more slides to finish up. obviously we know that we've gone through a severe crises and a sluggish recovery but it's also true and these are cbo estimates of potential output. another factor that makes the fed's life either interesting or complicated depending upon your choice of adjectives is the fact that because of i'oil prices an recovery, we're getting below the fed's target. this creates interesting problem for the fed if there's perhaps more inflation down the road than currently expected.
finally, a little bit on options for the fed. i put a question mark here as a time for price level target. just a quick distinction, for a central bank pursuing a price level targeting, when they fall below the inflation target of 2%, they seek to overshoot to average inflation at 2%. chair yellen recently indicated that she herself is not embracing a former mike woodford style target but she's indicated that she would like the 2% inflation target to be symmetric and we have been undershooting. let me conclude with a couple of observations about what i think would be in the fed tool kit. luckily it's a lot easier to do with confidence because chair yellen was asked this question last week by a bloomberg reporter in particular in the context of whether or not we would see negative policy rates out of the fed in the next
downturn. essentially as i read her answer, she indicated that the fed options would include various forms of forward guidance, maturity extension which is essentially a version of quantitative easing without ballooning the balance sheet and then she certainly seemed to indicate that negative rates perhaps because of the experience of other countries are not at the top of their list. i would also point out another factor that central banks have at their disposal which the fed did not use in the last down turn but would be deployed is an explicit program that would essentially try to cap the yield on government bonds substantially through intervention. you might think the fed did everything and the kitchen sink but in the last crises it didn't peg the yield on the ceiling.
i think i'll stop there and look forward to john's comments. thank you very much. [ applause ] >> thanks. it's a pleasure to be here to talk about this somewhat ominous question. rich is much more prepared and more quickly prepared than i am and sent his slides a long time ago so i actually had an opportunity to make my talk dovetail with his a little bit. i think in the few ways we can think about this question, is the fed ready for recession. now we've directed at the fed and not we. there's a lot of ways to think about that, is the fed prepared to do what it can. would the fed's response be powerful and effective. we've got yes, yes and at best modestly so is the answers.
i think that's kind of what the answer was about fiscal policy as well. i want to embellish that. first, let me say one of the reasons why i think it would be modestly so is that when i was -- i spent a few years as special advisor to the reserve board and was there when the aforementioned fiscal cliff happened. there was a lot of discussion about when the recession might come and the chair that was bernanke at the time was asked would you be able to respond if there was a recession and he said no. the tools in place at that time probably weren't enough to completely offset the event. the question is what do we think, things could be better now or worse now. a few years have gone past. i think the answer is probably the economy is healthier so it would certainly be less scary.
but as far as the tools are concerned, it's about the same or perhaps even they're weaker. so let me go through that. we can go through various kinds of tools. the ones that chair yellen was asked about in the press conference, i'm going to divide them into things the fed tried, things the fed didn't try, and things folks talk about that probably aren't legal. the last is various forms of helicopter drops which gets talked about a lot. let me talk about things that were tried. forward guidance, you tell folks what's going to happen. there's a misconception about oftentimes the distinction isn't drawn. i'm going to call one prescriptive. the idea is that the current fomc dictates that they're going to follow a policy that they're
not going to want to follow. this goes in the not tried discussion. no central bank in the world has tried this. they did forward guidance but it's what i might call information only forward guidance. an example would be the famous thresholds that the fed announced. they said we're going to keep interest rates at zero as long as -- at least as long as the unemployment rate is above 6.5%. that's a paraphrase of a longer statement. there's an underappreciated fact here that information only forward guidance is going to add accomodation only at times when the public misunderstands what the fed's intentions are. when the public understands how accommodative the fed intends to be, telling folks what you're going to do doesn't do anything. as we saw in rich's picture, interest rates declined fairly steadily and still remained high
relative to today, even in 2012 and 2013. there was still room for the fed to say, no, you don't get it yet. we intend to be really accommodative. it's not clear that that room is still there. in fact, anybody who's checked recently will realize that market measures of expected policy suggest that the market or the markets derived expectations are actually the fed would be more accommodative than it claims it's going to be. if you did forward guidance right now where you follow what the fed is saying, it would actually represent a tightening. so forward guidance still works. forward guidance is just clarity about what you're going to do. clarity is a great thing. the fed should do that. but it's not going to have the oomph that it did when we were brand new at all this and folks just didn't get it and so the fed would announce something and people would go, oh, i see,
they're really serious about this. that had an oomph. next time around there won't be as much of that unless the market has really changed its opinion. next is large scale asset purchases, what people call qe. the fed calls it large scale asset purchases for the reason that rich pointed out, that qe is kind of a misnomer or misleading. so the idea is that you go out and buy a bunch of long term bonds. you've increased the demand that pushes up their price which is the same as driving down their yield. you drive down the yield on long-term securities and hopefully then that stimulates the economy. you can ask, is there still capacity to do that. there's various ways you could look at the capacity question. you could say if there's still a quantity of stuff to buy, there's only so many mortgage backed securities out there, only so many government securities out there.
so there are limits there but there's still plenty of capacity in that sense. but in another sense, it's not clear that the capacity is quite as large and it's this same point about interest rates that we've been talking about. qe 2, the famous qe 2 program was adopted at the end of 2010. rates were around 3.5. then a sequence of programs including the maturity extension program and qe 3 and some people call it qe infinity, those were adopted in rapid succession and pushed rates down to about 1.5 where they stayed until the fed said it was time to start normalizing things. so there was nearly 200 basis points of easing in long-term rates, but we're starting out now in a different -- we're starting in a different form.
there's not so much room to lower long-term rates as there was back in 2012 or 2010 which qe 2 was adopted. it still may be useful that's a much more ambiguous question. most folks think going from 2 1/2 to 3 1/2 is a good thing. going from 50 basis points to minus 50, not as much room. arguably a bit less potential than before. you could still provide support for the economy. there's that forward guidance and that's where you promise to deliver an inflationary boom in the future when interest rates are no longer zero. few years down the road, once you get the power to do so, i will put in place an inflationary boom. and the idea is that households and businesses anticipating future good times, spend more
today because that's what economists say you do. you spend more time today. why didn't anybody use it? every academic paper says that the right thing. no central bank tried it anywhere in the world. it requires the private sector to overextend itself today. having faith the party would do it in the future. the ecb, fed, bank of england all said they have lots of reasons to be dubious about this. for the fed, one key reason to be dubious about it is that the current f1c can't dictate future policy. would he could have a chair turnover soon. we could have a chair turnover with an administration turnover. we could think about promising to deliver a party two years from now but rand paul is chair that moment.
the point is, there's no legal way and perhaps no credible way to promise that several years in the future this boom will happen. now if things get bad enough, sure. so close to this, price level targeting, nominal gdp targeting and raising the inflation. so raising the inflationary boom at the moment, if it's not credible, it's not credible. these might be fine on average and in the long-term and in the fullness of time maybe the right thing. but would it have the immediate benefit today that we're looking for? perhaps. but no more likely than the prescriptive forward guidance to do so. i don't want to say more about that. it is a long discussion and i will say about what rich did on the table chair yellen said not going to be done.
finally, there's helicopter drops. peter crat said you can issue currency, distribute it to people. the question is when it's opportune to do that. turns out central banks have mandates. most couldn't legally give away cash, it turns out. so it's got to go some other way. maybe stealth helicopters drops. so various ways that could happen, i suppose. but my main point about helicopter drops is that for the fed, as the feds mandate is really narrow and much more precise than many central banks, so you have to check with the lawyers first before you think that some kind of helicopter drop is going to work. there is the clear intent of the fed operating at market prices and avoiding any implicit or
explicit ways in the banking system. so these things looking like helicopter drops, and the feds mandate, and maybe folks can understand it and maybe they can't. so fed is not out of ammunition. you might try some of the stuff that hasn't been tried yet. but there's a reason it hasn't been tried yet. folks didn't think it would be as good as what they were doing. [ applause ] >> i think we should go right to the panel. we're a little behind. take a seat. louise will sit at the end. you can sit here. i want to mention that on june 6th, here at at the hitch inson
center, we will focus on what we learned from the european experience. we have a number of people from european central banks that have been doing this and it is no longer theoretical. i also want to call your attention to ben bernanke who wrote a blog that posted last week where he took a few slightly different than the one that yellen took. he suggested that negative interest rates might be worth trying before the fed tries another round of qe and he has at length in a blog post wrote with our research assistant peter olson explained that. so here is the deal, louise. you have the conversation. if i don't feel like you asked the right question when we get to the q & a, i'll ask it. >> oh, great, thanks. we have both fiscal people and
monitored people. before the great recession the conventional wisdom is that we shouldn't use policy for help with cyclical problems. we should use monitory policy. now we probably should use a combination and that fiscal policy is more important. is that because we learned something about how effective fiscal policy is or is that because of the zero lower boundary? and anybody answer. >> why don't you start? >> okay. we will see if my voice still works. >> thank you, everybody. great to have such a great crowd and everybody hung around. thank you. it's a compelling topic. >> i think it is because of the zero lower balance. i don't think it is that complicated. i always thought ben bernanke made sense. when he went to congress regularly during the initial part of what i -- of what the quite weak recovery was quite
jobless back in 2010, 2011 and constantly saying we are doing all we can. we need a fiscal help from congress and in fact when you're at the zero lower balance, the fiscal multiplier is larger and more potent. i think that makes it why we're in the world we're in. >> ben reiterated in the blog post is what we need now is a mix because of the monetary tools are so weak. >> i agree. i think we have also earned it. it can be effective. so 2008, saying the bush/pelosi finish. >> so it doesn't have the lag or we think we need it more. so if we think interest rate are low and we are more likely to be hit by the lower zero balance,
and there is no reason for raising inflation target, but now we look at it where we are in an era where we think the problem of hitting the lower zero balance is more than before. is it time to hit the inflation target or not? is that something that should be on the table looking forward? >> it definitely should be. 2% was chosen explicitly to balance the risks of high inflation that's costly. but low inflation has you hit the low balance too often. we learned we are more likely to hit it than we thought and we learned that it is trickier to get out of than we thought. both of those say you should at least redo that computation. the same one you did, update it, and see if it still says 2%. i think that's undeniable. >> just off of john's, what i thought was a great presentation, suppose they said 3. i thought the implication is no
longer taking that seriously. >> can you hit that on average over time and over the next 50 years if that's our policy could you achieve it, yes. right now, would that help, would people immediately expect three and would that provide stimulus to get us out of where we're at? that what we're dubious about. >> rich, do you agree? >> yeah. i think it is a practical matter. i think it is unlikely, it is a formal elevation of inflation target to 3 or elevated to 4, but i think over next 3 to 5 years, central banks being more receptive to some version of averaging inflation, probably not all the way it a price level target but could i see a central banker saying for the last five years inflation is 1.7 so we're not unhappy for the next 5 years, 2.3. i think we can see that. >> the arguments that inflation is getting out of control is wi
inauspicious time to do radical policy. and it wasn't like the administration and congress, but democratic controlled congress got along super well in '06, '07, but the 2008 stimulus is easier because both sides had incentive to get something done. congress said look, we're not insisting on our tax stimulus and president bush said i'm not
insisting on permanent tax cuts, let's just get it done. it is a sense that it can lead it moments of cooperation. >> one definition of republican -- >> we had that discussion in 2002, 2003 -- >> it would be motivation that have been underscored was that to the extent that you can do more on the automatic 5, we take away from the discretionary lag that is a legitimate concern right now. >> there is money left on the table and going through the states and there is an example but the medicaid expansion and federal money on the table not taken off. >> i think there is some of that but if you go down the list of
multipliers, and by this i mean which is most effective in terms of getting bang for the buck. state fiscal scores very high. this isn't just the kind of -- this comes from not just the modelling work but the type that zandio and blinder did and there is work about how state fiscal relief played and i would suggest that it was very effective in large part because of the balance budget requirements that's been noted. to the extent of money left on the table, and that doesn't strike me as -- that doesn't dissuade me from our conversation. >> there are some arguments that states used plan to boost their rainy-day fund. but the hard thing to know is what the counter is. like money tangible. so in the rainy day funds they were very worried about their fiscal outlook. it is quite possible they could have done that anyway. >> some people worry about the
next fiscal session. that we create some by being more aggressive on lowering the debt and maybe by raising interest rates faster than we other wise might because we have space and -- >> i never understood that argument. and in order to give myself more room to cut, i want to increase the odds of the next recession. now but in fairness to those making that case, if you are in a world where you think you might epd up at 4 or 5% on the fund rate then why not get there. but i think the important part that yellen said conveyed through recent communication is they are rationalizing lift off not by saying we want to be behind the curve, what they are saying is that is what the economy can take. that enforces the view that raising rates rapidly it a high level to cut them is not a winning -- >> i couldn't agree more. >> if i could make a quick
comment on fiscal space -- >> i think there are three opinions. the first one is that gdp is too high. we shouldn't do anything. those folks i think are very out of tune with the kinds of evidence that we have talked about today. and i think that a lot of sentiment and that fits into the other two camps. the next camp says we don't yes 75% of gdp. and and we /* /- we and the third is more like we're not going to get that plan.we and t we're not going to get that plan. we should just do it and not worry about fiscal space. and most politicians not above the tea party variety probably fit in to the second bend. >> go ahead. >> i just have one more thought on the interest rate part.
and thing a ue the argument tha someone would make on the rate faster would be and i'm hoping that maybe during the q & a we will speak on this also, from the audience. and you know, someone can say, you know, the economy is not very elastic. we have pushed forward all of the activity and we raise rates, fed rate at 1%. and that is not like all of the projects are not to be done and oh, if your argument there is it is the wealth fact, that the market will get clobbered, is that the kind of growth we want to rely on? basically rely on for people having assets and anyway, i think that's the argument. i don't know if it is a powerful one but maybe rich and john, am i mischaracterizing what someone might say in opposition? >> yeah. that's exactly what mike would say. i'm kidding. yeah. [ laughter ] >> that argument is made.
it is still not clear under that argument that there is some future stabilization benefit out of beelg at one so that you can, i'd like to be at one so i can good back, and you know, it is hard it make that work. >> and i had -- it is important to make the point that folks in my generation came up at a time when we talk about z fed and the interest rate and the entire curve of interest rates. and those days are long, long gone. i have a slide that said that what happens in beijing is important for ten-year treasuries is what happens in washington. i believe there was a time when i would have argued that the funding yield curve is the feds got that under control and now even that is very much in place. even though the fed is the most important central bank in the world, it does not set the entire path of interest rates. and the further argument you go,
for housing and capital spending, and ironically the fed has more control over interest rates than those responsible in the '70s. you bring down inflation, you bring down rates. now banks are good what the they do and that inflation premium is small and there is much less lee way to move around rates than perhaps a lot of people believe. and so for those of you who think rates are low if that is a global development and exist for 5 or 10 years that is a different view on fiscal sustainability than reverting back to 2006. and we don't think that's a trigger and we know what is higher and what makes it lower. >> and the relationship opportunity and how much physical space and you know what that parameters are. and i think we have to have learned that there is more
fiscal space than we thought. and not just the high level but also, well what trajectory of the law was and impossible to know what markets expect themselves but it's hard to think of plausible scenarios that marcus had in mind but also lead it declining gdp over the next 10 years, next 25 years. so i think we have learned that markets are less sensitive than we would have thought. but we still think the relationships will normalize over the next ten years. as aggregate demands improves over the next ten years we will see increase in interest rates but that are consistent with the levels of deficits and debt that we project.
i don't think the relationship is broken. >> how much uncertainty in the relationship, i agree with everything said, but you know, over the period since 1990, japan's gdp ratio is now at three times the level of ours. and at the same time, the cost has fallen and they are now barring at not 160 basis points but at 10 basis points. minus 10 basis points. so i agree, we don't know what trigger is but sometimes when you say that, you might be leaving the implication that is truly with those in the neighborhood. we're not even sure we're in the neighborhood. >> and just to clarify, and i'm not sure we know there is a trigger, so -- >> what neighborhood? >> and it comes back to the point that i said this before but it is important to think about the level of the gdp and think about what the trajectory
is. and so if investors credibly thought that the gdp would rise off into infinite over some finite time period, you know, then all bets are off. so clearly what investors and people lending from the federal government, clearly their expectationes from the debt to gdp over a long period of time has it matter. >> they think we will adjust but don't know how. so they say we won't cut this tax or raise spending or not cut spending and not gooding it raise taxes, that should make investors more nervous. >> so before i turn down, i want it ask a couple questions on max stabilizers. have we also learned from the recession that they h may have much deep are longer lasting impacts than we thought. and i want to ask about your work sharing ideas and how did those relate it each other. how important could that be as a
response? >> you know, i think that i can't speak so much that we've learned that automatic stabilizers made some kind of a long-term difference. and with the following very significant exception, there's been a growing and really i think rich and important literature on the benefits of the safety net to long-term outcomes in the lives of kids and their families. so if you look at the family, and good back to the beginning of food stamps where it was unfolding throughout the country and you look at family, kids of families that have to be kids of families and track them over their lifetime and dot same thing for medicaid, eitc, even quality head start programs, you can find long-term differences in positive outcomes earnings, health care, employment. that suggest that these programs are much more than just consumption. they are a form of investment. you couple that with some of the
work i associate wd with the economist and show the damage of virtually long-term unemployment and you get a feel for how important the kind of ui interventions. and third, and this one is huge in my view, and i think that i would be interested in wendy's view on this. this idea that wendy alluded to the idea that when the economy is oppressed for long periods of time, so long-term unemployment, staying highly elevated for a long time, not just a problem in the prison but diminishes the supply growth factors of the economy both in terms of labor force participation and in terms of capital deepening. you can see if you look closely that in fact the potential came down significantly and some economists, and i'm one of them, believe that this is a -- is a very serious consequence of
inadequate response to the downturn. and as long turn economic negative results. >> and so, the question, and whether or not history and the thing that we are short turn downturn and long-term potential and with the extra cycle. >> and that there a third possibility that there is a history and i think that tip macro economics and the whole point that we are cyclicly adjusting things like gdp is taking things out the cycle which is to say that we're
actually trying to look at these structural factors that are driving the economy because we don't think the cycle is affecting the structural factors. so it is really complicated to tease all of those things apart. and what we certainly have seen in the last cycle is that capital was hit, their investment is hit hard enough, that their long life effect of the capital deepening, long effects of the kinds of investment that we saw. and i think we have actually -- see, it has been surprising lately that history has been -- that history has been less of a factor than we would have expected. and one place to look is the unemployment rate. and what is happening in the labor market and with the cost of employment and other factors would have longer term scarring effect on the unemployment rate. and we since have revised that
away given what we have seen and with long-term unemployment coming down. so history is complicated. and but just because jarod mentioned the revisions that was made to projections to potential since before the recession since 2007 and i think you would show on your side, and one thing that i will say is that we actually don't attribute most of the revisions. so i don't know if you can sum it up, the picture that rich showed of poi ten shl gdp in 2007 looking like this and potential gdp in our projection looking like that and we actually don't attribute most of that revision to the recession and history. we actually attribute most of that revision to implausibly optimistic projections for labor and for hours grossed particularly and prerecession
and we were just -- just in retrospect, they were fast. >> and one quick thought and i agree with what they said that in some ways the long lived nature of this event of '06, '07, '08, and this every dollar burned on is a dollar for the future. to me, that is -- >> and to debate on some of the aspects and the -- >> and to think -- >> crazy train. >> and to me, and it -- >> yeah, and what is frustrating to me, you can see the
frustration when it is up there is reproposing money on high speed rail and crazy train to nowhere. >> and i think that some of them were a lot more effective than that. by the way, not to get into it now in the interest of time, work of michael green wauld is very instructive on this point. time for questions. tell us who you are and where you are from. and this gentleman here. might take two or three questions, then bring it to the panel. >> thank you so much. on the fiscal side, maybe wendy specifically, looks to me like we have an incredibly high elasticity of tax revenues
income in this expansion. if you look at the charts people are putting up, huge swings in budget deficits, relative to what's been quite stable gdp growth. i wonder if you felt the automatic stabilizers were actually a little bit bigger than you know, the little rectangles that you are suggesting. more to the point when we get to the next downturn, what is the chance we catapult from 3 percent e to gdp deficit to double-digits. so that's the fiscal question. and the monetary side, very simple and very complicated. why is there so much focus on the front end of monetary policy. and the funds rate. and no function on the transmissi transmission mechanism. this is the problem in what feds are doing, just tapping it hasn't moved the wheels. so the transmission we should be focused on, not the fed.
>> i'll let you handle that. >> i don't think that we have been particularly surprised by revenues and taxable income. the way i square that with the point that you're making about gdp growth is i'm it has moved more than gdp growth but because the question came to me so fast i didn't have time to verify that. >> i think that's the right question. on the longer end with the transmission mechanism, where it should be, and that's why we are buying -- why central banks around the world are buying
longer term securities. there's a lot of study done on the basic channels. wealth channel, how that is affected by problems where households were mentioned. has the exchange rate channel changed. has extra sensitive spending, and so the focus should be there and i think the focus has been there. >> i think both of our monetary presence have introduced the really important point in their presentations. rich focus on this in particular which is the international dimension. i cannot overemphasize how important that is. ben bernanke has actually since mid 2000s has been stressing through savings discussion, the critical importance there in. to the point where you're even seeing a monetary policy being challenged by these dynamic such
that countries lower rates expect their currency to go down and it goes up. that happened in japan recently, to the tune of 8%. it wasn't trivial. when the fed turned a bit dubbish in their meeting about a week ago, the dollar deappreciated sharply. and so, those sensitivities, are much, in my view, much more important than -- there is nothing unimportant or much more important now. >> right there? >> no. >> i'm going to call next -- >> i wanted to ask you early warning prevention big data question, cpo has been saying for years, decades, that models are not going good at turning points so we are 3/4 into recession before things happen. but today seeming more
optimistically about big data with early warning that detect downward cascade that could start in several places and then move much faster with tools. >> go ahead. >> thank you. this got me thinking in a lot of different directions. some papers i read imply that there is a lot more than just negative interest rates. and the interest rate is not just a number and a correlation and if you insert money or change of policy, that can give the equivalent of a negative interest rate already. and line hart said it isn't
different. but in a way it is because the variables have changed and keep changing. what goes on and the stock market goes up, that's good. but the s&p 500 has more than the '90s and unemployment is 5% but the labor participation is lower than it's ever been. and i like that diagram of all of the lines interconnected. some of the papers have each of those lines but they have not just a number on those lines, but each one of those lines was a complicated nonlinear partial differential equation. >> let us concentrate on that and move along. >> with the real numbers going on down here. >> peter?
app article in the journal you were quoted, and there is a little bit of a between you and -- >> yeah. >> -- and there is more -- >> well, probably close to the bottom of my list. but 182 countries in the world and given the level of specificity of my answer, i am confident and i will say for my own blog piece going in, as i said in the article, different flavors of the helicopter money and in quoting disguised the helicopter money. and the friedman case as you announce on january 3rd and the government will issue a huge
amount of debt and with the simple bank and essentially you promise to never raise taxes and then the issue is how much inflation do you get. we may not see that. but we may see a close cousin of that, which is essentially you run the big fiscal program, state it on qe then say you know what we just read john cochran's article. so basically we're never going to solve this debt. we will roll it over forever. i don't think that's implausible at all. i don't think that's the u.s. source. let me be clear. >> on the big data question, and in terms of turning point, but for automatic stabilizing triggers, are there some triggers that are faster and earlier than maybe the unemployment rate or is that something that -- >> that is an interesting question. i must say, and i won't waste your time by trying to answer your questions, i just don't know enough about it. but i do think that there is
probably some -- now how they talk about these ideas using all of the input that google gets, and one constraint that ben and i have and we have a lot of input and everybody said it has to be something simple that congress can sort of understand and deal with and that leaves you with what they will generate, not big data. >> and mike do you want it take on the question of raising interest rates? >> and the conventional wisdom is pretty -- unlike other types of conventional wisdom you won't question it. if i might, a couple of quick observations about what we have been talking about and i guess i'm impressed by my profound ignorance. even greater than i thought before we went through the financial crisis.
one thick that wasn't mentioned and i suspect it wasn't a practical issue in terms of thinking about what we might do is we embarked in varying way answers different countries on macro credential regulation and i don't see that there's a great enthusiasm for thinking about that as counter cyclical tool. as opposed to something that just creates an ongoing greater resiliency. but one could envision in some countries at least, maybe more difficult in the u.s. where we don't have a lot of different tools but doing something on that front. and but going back to the question of interest rates, and what we might do, the fed itself has already shown a concern about the possible effects of persistently low interest rates. so it raises a question about whether they would want to quickly move to still lower interest rates.
and the questions of creating financial asset bubbles or other types of bubbles real mall investment to use a term you don't hear from the fed very much and i don't think they are very concerned about it, but in some circles, especially republican circles, it is a very big deal. with mediation, that's one of the concerns with negative interest rates we've heard. but you might not even have to go to negative to be concerned about that. that might site a wall street journal article with long-term care insurance and raising premiums there. that raises another question of how do consumers respond to lower interest rates. one could envision that there are some consumers who are not so impressed by how it is cheaper to borrow and they could
buy another car. but how their retirement savings are effected and feeling a need, sort of target saving, approach here. so that you might not get the consumption response you're expecting. and there's also the -- i guess that sort of covers the main ones you hear. but a lot of arguments you hear for why it would not be a good thing to go to lower interest rates. >> yes. >> thank you. alex frank from john hopkins. quick question on the fiscal and monetary side and impact of regulatory policy in terms of our preparedness. i'm curious it hear from both the monetary side of the house
in terms of the fed's ability and compass it to deal with things with the impact that we've seen from the regulatory policy. >> i'll make a quick comment, and i think someone made a good point about some of the -- some of the large changes in health care policy and financial regulations. that collided with a recovery still finding its legs. and only thing i would say is that political timetable that necessarily track with the cyclical one the way you would like it to but we thought we had to and i was with the obama administration and we thought we had an opening to do an historical health care reform and i think we did it and ultimately that would be a history will show that that is a very positive policy change. >> questions?
while you're doing that, also to me the regulatory issue, is ungrossed and i call it a regulatory surge and we have that effect on growth, right? i don't know if it is ten basis points or 100 or 150 basis points but had some impact. and it would be a useful thing to do to do a better cost benefit analysis. and figure out how to undo, the right, or the wrong regulations in some sense. >> i think on the monetary side or financial system side, it's pretty clear that regulations have a certain burden as far as what they've done for resilience, and it is i think the key contributions to resilience has been financial institutions now have a lot more
capital. and that's not particularly all the complicated data for regulations and the like. i think unambiguously, they have a lot of capital, and that makes the system more resilient. the system is much more resilient and the thing as you point out is the capital. we will spend a long time revising and sorting out the regulations which are beneficial, which need further revision. >> last two questions here and there. >> i just wanted to get back to the fiscal space in creating an argument isn't part of the argument for automatic stabilizesers that you can build into the design and they will turn off and you can compensate. but how much fiscal ability do we have to we won't go off the default. and frankly, 2013 was horrible.
they spend a lot of time between 2011 and 2013 preparing and you saw hair cuts on short term treasury bills. >> yeah. that's a great point. i remember a goldman sachs puts out the great charts of fiscal impulse and 2013 was a huge negative. 1 1/2 points of gdp. one fiscal impulse went from negative to neutral and you saw things pick up quickly. we -- so i'll -- yes, i've been clearly articulated that the turning on and turning off is what is most important for us and we think we have come up with ideas that would make them more timely. i would steer people towards a paper what i think is very important. brookings paper. and it goes in a different direction to some of the things wendy said. this is an criticize at all. i think sometimes research get out ahead of cbo and if it
becomes true cbo adoptes it later. you won't change their view from a comment or two. in the brookings paper a little while ago, showing when there is even a small degree of history and we have evidence there is in one of our paper that the degree was larger than that that they argued that counter cyclical stimulus pays for itself. i probably won't go that far because i'm uncomfortable talking about free lunches but a very low-cost lunch and you could ein europe in cases where austerity was bitten off big time but in fact there debt situation worsened because they hurt their growth so much. >> to me, the schizophrenia onnion this issue is shown by this administration. and on the other handing with celebrating the fis kl adjustment. i understand that also. they can't decide which side to be on, so they are on both. >> can you say a little bit
about, as mentioned, if you take like an infrastructure program, costing $100 million, and let's say we say it will have a rate of return of, you think right now that the rate of return is 10%. and it is the same in the private sector rate of return. and justify it saying it is increasing gdp every year by $10 million. the but the revenue that federal government will get from that increase in gdp of $10 million is about 2.5 to $3 million. that's not very much revenue. and if you think that the increase in borrowing that government did in order to finance an infrastructure if that's how they financed it, first of all, that means they have to finance $100 million but keep in mind even if you increased interest rates our our debt load is so high that that
very small increase in the federal borrowing rates also has a negative effect on the deficit with which is very easy to swap the increase in revenues that you get from the increase in gdp from infrastructure. >> quick last question. >> yeah. given the interconnectedness from country to country, several that have spoken agreed to that point, how in advance is it that central banks or others think how they will coordinate their response in the case of new recession. or their competitive advantages that countries can obtain by waiting to see what others do and therefore it is not advantageous to coordinate a response. >> i can just do that. and in practice when people, or at least economist, try to quantify and calibrate, they are typically found to be pretty
small. i think a lot of what we observe in practice, sometimes we call policies, and countries hit by common shots and it is in our interest to do the same thing. and was that coordination or to a common -- it is a harder problem when you get into the details than what may have first appeared to sort that out. >> so the hutchins center is to improve the quality of fiscal and monetary policy which requires things like jared and ben's paper of thinking about how fiscal policy could be different and improving public understanding which requires the cooperation of people like these who spend time explaining things to us and answering questions and making power point slides. one, thank you to everybody for participating and coming. two, the slides and all that speakers presented are on our
congress and the political system, beginning at 8:00 eastern, a look at the history of political parties. tonight at 9:10, the culture in congress before the civil war. and then the story of blanch k. bruce, first elected senator to serve a full term. he represented mississippi from 1875 to 1881. and later, the history of the joint committee on taxation, which was established in 1926. ♪ ♪ i am a history buff. i do enjoy seeing the fabric of
our country and how things, just how they work and how they're made. >> i love american history tv. >> american artifacts, fantastic show. >> i had no idea. >> and with american history tv, it gives that you perspective. >> on the c-span fan. tonight at 8:00 eastern on c-span, a conversation on student loan debt. among those we'll hear from, a in, times columnist who talks about the practical implications of defaulting on a student loan. when we have 7 million, 8 million people in default, what does that mean? a blat on their credit record. what does that mean? many landlords do credit checks
before they rent. so they are shut out of the housing market. if they want to buy a car to get to work because they are living in neighborhood that's not where the jobs are, they need to drive to work. they're shut out of getting a reasonably priced loan for their car and they have to get an 18, 20, 25% interest rate loan which further presses on their finances. many employers now check credit records. so they are going to miss out on job opportunities. and then of course add to that psychological stress of somebody calling your cell phone or your home phone and calling your relatives on a daily base tois harass you about your debt. that a lot of suffering. that's what the crisis is. we have people who went to school to improve themselves at you're encouragement, especially during recession. we provide a lot of subsidies. told people the right thing to do. job mark set week. improve yourself in school. as a result, they are suffering.
it is a man-made crisis. that's what i think of as the student debt crisis. >> and you can watch this entire discussion on student loan debt tonight on c-span starting at 8 ob okay eastern. then at 10:00 eastern, landmark case series. tonight scott versus sand ford in the 1857 decision a court ruled a black man either free or slave was not a u.s. citizen and should not sue in federal court a black man either free or slave was not a u.s. citizen and should not sue in federal court. >> i am a history buff. i enjoy seeing how things work and are made. >> american artifacts. a fantastic show. >> i had no idea. >> and with american history tv, it gives you that perspective. >> i'm a c-span fan.
the f-35 fighter jet program is billions of dollars overbudged and plagued with technical problems. the air force general in charge of the program recently testified before congress saying the military is working to reduce cost and increase production of the jet. congressman michael turner of ohio chaired the hearing at the armed services subcommittee on tactical, air and land forces. >> the subcommittee will come to order. to receive testimony concerning the f-35 joint strike fighter. i want to welcome our panel of distinguished witnesses, dr. michael gilmore. dr. michael j. sullivan. the honorable shawn stackly. assistant secretary of the navy for research development and acquisition and lieutenant f 35 officer. because we were held up for
votes i will enter my segment for the record if there is no objection and we will also enter ms. sanchez's statement in for the record and we will proceed right to the statement of our witnesses. which i believe we'll start with dr. gilmore, correct? dr. gilmore. >> thank you, mr. chairman, members of the committee. i'll focus on readiness for operational test and evaluation. my estimate is the program won't be ready to begin until mid calendar year 2018 at the earliest. that's about a one-year delay compared to what the current program is carrying. about six months relative to threshold gates. the reason is for the following. most complex mission testing remains as those verification of fixes to significant problems. some of those fixes having been identified and some not. mission system stability including radar, still a problem, inadequate infusion of censor information from sensors on the same aircraft as well as
among different aircraft. shortfalls in electronic warfare. electronic attack. distribute the app i tour system. and others that are classified. stealth aircraft are not invisible to achieve success we are relying on the $400 billion investment in f-35 to provide and they must work in some reasonable sense of that word. and we must make systems work up to and after, in my view. government hasn't changed this approach from schedule driven software releases which overlayed old problems on top of new problems to capability based approach. now the problem is addressing the deficiencies with software preceding to the next software. that should help work through and solve problems with mission systems. other reasons they are likely to
be delayed is to include weapons testing, certifications, that has bb done in the past. must triple in order to get all of the events done. there's been talk of cutting the number of events by 2/3. if that curse that would shift the work and make essentially late work and require fixes. the program is exploring ways to up the rate of testing including using ranges at eggland and decisions and action need to be taken soon. there is also the full certification throughout the full flight envelope. february 2018 for f-35 c. and we are looking at rolling starts to operational tests. that may not be practical and will certainly problematic we we tried it on f '22. there is still problems with the information system critical to
operations of combat operations of the aircraft. there are work around still required. 3.0, full capability version required would not be released until the first quarter of 2018. there are also the need for con currency driven extensive modifications for early aircraft when it was thought that otie would begin in 2013. current unmitigated meaning you know, no measures taken to correct the problem. mods extending into third quarter calendar year 2013. multipronged approach including later production aircraft for operational use and taking hardware from recently driven aircraft and the correction line to move the completion of modifications into 2018 and decision needs down on that. also inadequacies that is used to generate the mission data files which are essential to the success and combat and certainly success in operational testing of the aircraft.
the programs stick to schedule for validated but in my view, very possibly inadequate file for operational testing with third quarter of 2017. but that date assumes the u.s. programming lab receives fully capable version of block 3-f, which by next month, which the current plans won't happen until the summer at the soonest. for all these reasons, i suspect that we won't be ready for operational testing until mid calendar year 2018. thank you. >> mr. sullivan? >> good morning, mr. chairman. members of the subcommittee. a pleasure to be here to discuss a program and f-35 program today. i have a written statement i'll submit for the record. i will summarize five major point in my oral remarks. first the department is now planning to add new capability known as block 4 to the f 35
beyond its baseline capability. and is planning to manage that effort as part of the existing program. rather than establishing a separate business case and baseline for this new work. this has significant implications as far as congress is rolling oversight. this modernization effort is like a new program with estimated cost of about $3 billion over the next six years. that price tag alone would qualify it as major defense acquisition program in its own right and it should be managed as such. so that it is subject to the same statutory and regulatory reporting as any other program its size. f-22 provides precedent for this. it began its modernization effort as part of the existing baseline program and eventually established a separate business case in developed into a major acquisition program withity own
milestone b in order to better track progress and cost changes. second, although the program has been managing costs very well since the nunn-mccurdy breach back then, it causes affordability challenges. as the program begins procuring more aircraft each year, the department is expected to spend about $14 billion per year over the next decade and will average about $13 billion per year over the next 22 years until all planned purchases are complete in 2038. these annual funding challenges will compound as the program begins to stack its funding needs against other large acquisitions, such as the bomber program, the tanker program that is ongoing, the ohio class
submarine replacement, the new carrier and many other large programs. it's important to note that this is just the remaining acquisition costs for the f-35. as we all know, the cost to operate and maintain the f-35 across its entire life cycle is estimated now at about $1 trillion. which is added to that overall price tag. my third point is software development and developmental flight testing of the f-35 are nearing completion but the program facing challenges in getting all of its development activity completed on time. i think dr. gilmore covered that pretty well. it is through with 80% of its developmental flight test and has completed the first three blocks of software and is working to close out testing of the final block of software, block 3-f. program officials have stated
modernization program. we'll see production growth in delivering 45 aircraft in 2015, delivering over 100 aircraft in 2018 and up to 145 aircraft by 2020. additionally, in the next four years, we will continue to stand up 17 new operating bases all over the world. we're also accelerating the creation of our heavy maintenance and repair capability and supply chain throughout the northern american regions. however, the program is not without risks and challenges as this comes with any program of this size and complexity. i'm confident that the current risks and issues that we face can be resolved and we'll be able to overcome future problems and deliver the full capability that we've committed to. i've often said the mark of a good program is not that it has no problems but rather that it i am implements the solutions and keeps the program on track. i believe we've been doing that
for a couple of years now. last year we began u.s. air force and partner pilot training at luke air force base where a blend of u.s. and partner f-35 instructor pilots are helping train u.s. and other partner pilots. the air force is now receiving f-35as in utah and first squadron to be operational this year. united states marine corps successfully flying and training and dropping and shooting live weapons with its f-35bs. in addition, we have successfully delivered 45 airplanes last year, including the first aircraft that was produced in italy and assembled in their factory in camry. from a production perspective, we've delivered 132 aircraft to our test operational and training sites. on a cost front, the price of purchasing an f-35 continues to
decline continually lot over lot. i expect the cost of an f-35 with an engine and fee to decrease from about 1$108 millin this year to about $85 million in 2019. as i said before, the program is changing, growing and accelerating but it's not without issues, risks and challenges. so let me highlight a few of those areas. on the technical front, we have a number of risks. at the top of my list are both software and maintenance system known as alice. on the software front, we've seen stability issues recently with our block 3 software and we're currently in the process of fixing and flight testing those fixes. we've also experienced issues with the development of our next version of alice known as 2.02 and i'll be prepared to discuss these issues with you as well as other risks and issues such as aircraft modifications and reprogram labs. i'm also prepared to discuss
iot&e and marine corps deployments. in summary, the program is moving forward, sometimes slower than i'd like but moving forward nonetheless. we're near the completion of flight test in 2017. we're ramping up production, standing up new bases and continuing to drive costs out of the program. i intend to continue leading this program with integrity, discipline, transparency and accountability. it's my intention to complete this program within the resources and the time i've been giving and holding my team and myself accountable for the outcomes of this program. thank you again for the opportunity to discuss the program. i look forward to your questions. >> thank you. mr. stackly? >>. >> thank you for the opportunity to testify before you today. i will provide brief opening remarks and submit a formal statement for the record. one year ago, we discussed with
the subcommittee the challenges facing the program at that time and our plans to address those challenges. in the course of this past year, cost, schedule and technical performance, development production and sustainment. known technical issues are being driven to closure and the aircraft's capabilities in terms of flight envelope and weapons delivery are being steadily expanded and support each service requirements for initial operating capability or ioc. as noted, production of f-35 aircraft and engines has improved from lot to lot in terms of unit cost, scheduled performance, improved quality, reduced rework and concurrency related costs. these positive trends are being sustained while also methodically increasing our rate of production. today it's flight testing which is being paced by the incremental release of war
fighting capability, soft war blocks commonly referred to as block 2 b, 3 i and 3 f. this was the capability required to support ioc in 2015. the completion of block 3-i testing has been delayed due to software issues. in the next week, we will have the final build of block 3-i capability all in support of the air force's ioc schedule later this year. completion of the final block, block 3-f includes the more complex functionality of the baselines including referred to as center fusion. further coding has been impacted by resource demands, software engineers and lab facilities associated with completion of earlier software builds. these factors add up to the program's estimate of four-month schedulei