tv Barry Eichengreen on Hall of Mirrors CSPAN May 26, 2015 8:00pm-9:06pm EDT
scholarly contribution to that debate not least in the financial times where it was described highly readable. that concluded this is destined to change the way we think about the great depression. >> highly readable is probably not the strongest compliment an author can hope for but achievable for an economist. thank you to richard waters and the commonwealth club of california and thank you to the members of the audience on turning out on a lovely evening when there are other things to
do. you are probably thinking not another book on the financial crisis. there have been previous books on our financial crisis and we learned today there will be another book on the financial crisis appearing in october. i feel so-so that my book is not the first one on the financial crisis but it will not be the last. i feel look i should explain why i felt compared to write this book. i think with the passage of time it becomes possible to put our crisis in more of a historical perspective. when we were living through it i can remember living through the events of 2008 and feeling an overwhelming sense of panic about what was happening to the
financial system. what might happen to the economy, what might happen to us. we can view those events now with a bit more detachment i think, and begin to understand how our crises fits into broader history of financial crises. and secondally i think with the passage of time -- secondly -- it becomes okay to laugh and cry over the events we witnessed. so i do deploy my somewhat goal goolish sense of humor in beginning to decribe the book. why "hall of mirrors"? i wish i could claim i have that hall of mirrors in versi where
there was a death burden that was relieved at the london debt conference of 1953. a set of events that is relevant today as we discuss the possibilities of germany extending debt relief to another troubled economy; greece. by "hall of mirrors" i had in mind the reciprocal relationship between the great depression of 1929-1933 and our great recession of 2008-2009. the book is about how the experience of the great depression the lessons of the great depression as distilled by subsi subsiquent economist and
historns shaped our great depression and living through our own crisis and how the experience of the great recession will changing how we think and write and some of us teach about the great depression of the 1930's. it is about why recovery from the great recession hasn't been more complete. it is about why post-crisis financial reform hasn't been more successful and how we got into this mess in the first place. let me start with history. history is a lens through which we by which i mean the informed public and our elected and appointed officials, view current problems. and the power of historical experience, the logic of historical aanalogy -- analogy
is never more compelling during a crisis. crisis is a time when there is no time for careful analytical thinking and/or formal model building of the sort economist are inclined. crises is when there is no time of testing the fitness of an economic model against data. foreign policy specialist have long made this point pointing to the power of the munich analogy in shaping president truman's decision to intervene in korea. so i would argue the great recession and the great depression the two great financial crisis of the past century. there is absolutely no doubt that conventional wisdom about the earlier episode what are
referred to as the lessons of the great depression powerfully shaped the response to the crisis of 2008-2009. in particularly, the decisions of our policymakers were powerfully informed by received wisdom about the mistakes of their predecessors. in the 1930's when the earlier crisis hit the predecessors sucombed to temptation of cutting public spending with private spents was collapsing they failed to stabilize the mun money supply, failed to supply liquidity to the bang -- banks and the rules was the collapse
in the economy. this earlier crisis had reflected disasterous but entirely avoidable. policy failers became convention conventional wisdom courtesy of scholarship like the monetary history of the united states in which they had a short 110 page chapter about what they called the great contraction of the 1930's. policymakers like the chair of the president obama's council of economic advisory had read this book and were aware of its lessons and vowed to do better. if the failure of their predecessors are produced emergency liquidity then they
would flood emergency assistance the banks. if failure to stabilize the money supply caused issues they would cut the balance to zero. if efforts to balance bunchts worsened the slump they would apply for a stimulus. and unemployment in the united states as a result peaked at only 10 percent. so 10 percent is painfully high but it was significantly lower than the 25 percent unemployment rate reached in 1933. this time failed banks numbers only in the hundreds not in the thousands as they had in the
1930's. disfinancial was wide spread but complete collapse of financial markets as occurred in the 1930's when fdr shutdown the financial system for two weeks. that complete collapse was successfully averted. and watt was true of the united states was true elsewhere. so i write every unhappy country is unhappy in their own way and there were varying degrees of unhappiness starting in 2008. a few companies not withstanding to the contrary that unhappiness did not rise to 1930 levels because policy was better. the human pain and suffering and unemployment were all less. that is the happy narrative
which unfortunately i would argue is a bit too happy. a bit too easy. for one thing it is hard to square with our collective failure to anticipate the risks. this is a point that queen elizabeth the ii famously put to assem assembled economist in 2008. why didn't you see it coming she asked the economist in her audience. a few of them later wrote her a letter claiming they and some of their colleagues had seen it coming. but i think if you read what those people have been writing before the facts they have been warning of a different crisis than the one we in fact suffered. a dollar crash or something like that. or they had been issuing the kind of vague, non-specific warnings that economist are
prone to issuing. even specialist on financial crisis didn't sound a lot of warning. i am supposed to be a specialist on financial crisis and on the history of financial crisis and i didn't exactly see it coming suggest adopting a somewhat less critical posture to officials in the 1920's for their failure to see it coming. introspection of sorts also prompted me to write this book suggests our failure reflects what doctors call the subconscious tendency to think the future will resemble the past and encourages peer pressure to confirm. if you criticized alan greenspan as one economist did at the
federal reserves checks and hold conference in 2005 and that reflects the power of a dominant ideaology. policies of financial liberation that flowed from that. it reflects the revolving door between wall street and washington, d.c. in shaping the policy debate. ultimately though i would argue that the roots of our failure to see it coming lay in the same progressive narrative of the great depression that i described to you before. recall that narrative, entirely correctable correctable flaws of collective decision making was possible for the inability of the con contemporary to the failure
coming and respond adequately. modern day policymakers learned from that experience. scientific central banking informed by a rigorous framework we call inflation targeting prevented the development of serious imbalances. advances in super division and regulation prevented financial excess. deposit insurance was put in place in the united states and in other countries in response to the bank panics and runs by retail depositors that caused wave after wave of bank failures in the 1930's. conventional wisdom about the great depression that it was caused by avoidable policy failures was conducive to the belief those failures could be and indeed had been corrected, and it followed from the belief that no compriable crisis was
possible now. all of which we now appreciate was dreadfully wrong. part of the problem is we we economic and financial historians is what i mean by we had always done a better job of explaining the course of the great depression and how that slump became as deep and long as it did. how the depression became great than we had at explaining the onset. part of the problem is econ'omist are not good at understanding the business cycle turning. we had not written the history of the 1920's carefully enough was part of the problem. i will give you three or four
observations about the 1920's and if you want to substitute the decades following the 2008 failure do so. we failed to highlight how in the 1920's rapid financial innovation combined with inadequate policies. we failed to explain how in the 1920's capital flows to one half of europe from the other half of europe for setting it up for a fall. we failed to explain how in the 1920's the naive believe that advances in scientific central banking rendered crisis a thing of the past and that was conducive to additional risk taking. so they called it the new era in the 1920's we called it the great moderation in the decade leading up to 2008.
we credited inflation targeting and modern central banking. they credited the creation of the fed in 1914. different specifics same general point. i think recent experience suggests the need to write this earlier history more carefully had we done so earlier we might have seen more clearly how the same factors were at work in the early 21st century. the faithful decision to let lea man brothers fail in 2008 what i would argue was the single biggest mistake of the 2008 crisis suggests looking at the 1920's different. they failed because the managers made bad debts. they were allowed to fail because the treasury and the feds have doubts about whether they poses to legal authority to rescue it.
but the brothers failed because the policymakers were anxious to make a statement. they had bailed out another big investment bank, bear sterns, six months earlier. they had come in for a firestorm of criticism over that and they wanted to show they were tough and not everybody would be rescued. i think as a result of our having lived through that observed that experience, we or future historians will look at the great depression of the 1930's differently. we will be reminded that the banking crisis of the 1930's reflected not simply the fact that simple banks and governments didn't understand their responsibilities of lend lenders of last resort but they also wanted to make a statement and protect themselves against
the political criticism for which they were subjected as a result of earlier bailouts. so the great banking crisis of early 1933 that forced fdr to close down to the entire u.s. financial system started in michigan it started and spread to the rest of the country it started with the decision of the outgoing hoover administration, and the agency responsible, the reconstruction finance corporation, not to bail out the guardian group of beeping banks. that was henry ford's bank. that was the family ford bank. but everybody knew where the money came from. and the decision not to bail out the guardian group was informed by the rfc's action six months earlier to bail out another
important bank; central republic trust. a big bank in chicago. it was the family bank of charles straws. it was called the dawes bank. charles straws was former u.s. vice president and former president one week removed when the bailout occurred of the reconstruction corporation. so you can imagine the congressional criticism to which the rfc and the administration were subjected over that decision and they vowed in response to play tough when another big politically connected bank came to the brink in early 1933. there was also the failure to anticipate how disruptive the collapse of leeman brothers
would be as well. this runs on the bank of retail depositors that we see every christmas when we watch it's a wonderful life. lehman didn't have deposits so they thought it could not cause such problems. this view informed by the decisions of the great depression had a variety of other implications. it is why new capital standards were set for financial institutions focus on commercial banks, deposit insurance focused on commercial banks and regulations focused on
commercial banks that led to the ignoring of the other bank until it was too late. that focus led to the neglect of lehman's derivative position. it ignored the fact that wholesale creditors and other financial institutions could run on the bank and the result of which became what i described a couple minutes ago the single most serious mistake of the financial crisis. the failure of the uncontrolled lehman brothers. it was in september of 2008 that policymakers realized they had a situation on their hands and we really were on the verge of another great depression. so the leaders of the advances industrial countries issued a
joint statement that no important financial institution would be allowed to fail. aig was bailed out and congress passed the tarp and one after another central banks flooded financial markets with liquidity and governments put in place multibillion stimulus plans. they did successfully avoid another great depression. but the results of those policies have been less than entirely successful. as you well know economic recovery in the united states has been lethargic. a couple quarters of rapid growth in the middle of last year not withstanding the u.s. economy has expanded at only half the rate typical of the
recovery of the business cycle. the same is true of the country in which i am living in this year. the united kingdom and europe did worse experiencing a double dip and now a seemingly endless crisis. i would argue this is no misttry. starting in 2010 the u.s. and the uk and continental europe took a right turn spending under the obama stimulus peeked and then headed downward. congress and obama agreed to $1.2 million in spending cuts. and 2013 was expiration of the bush tax cuts and the end of the
social security contribution holiday. so we can have a discussion and we should have a discussion about the distributional consequences of some of these measures like letting the bush tax cuts for the wealthy expire but i think there is no question that in combination these measures took a big bite out of spending out of demand and out of economic growth. in europe that turn was more dramatic. i would not dispute that there were some countries like greece where spending was out of control and a dose of austerity was required. but the dosage to which grief has been subjected is unprecedented unemployed in history. greece has cut taxes by what
approaches 20% of the gdp. so 20% of the greek economy has been vaporized in the course of less than four years and it is not a surprise that greece is now experiencing a slump as deep and long as the united states experienced in the 1930s. others follow suit and even the uk which is afforded by their own currency and central bank something the greeks and other europeans no longer con fpfes. even the uk cut spending by 5% of the gpd. central banks were anxious to end their extraordinary paul agencys as quickly as possible. in 2010 the european central
bank said they were done and started phasing out more. the ecd actually raised interest rates twice in 2011 when europe was still in the throws of the crisis. if you want a simple explanation for why europe experienced a double-dip is another leg down in 2011-2012 i don't think you have to look any further. what lessons, historical or otherwise, informed this extraordinary turn of events? for central banks as always deeply engrained fear of inflation and that fear was nowhere deeper in germany giving the memories of two hyperinflation after world war one was one. and then given when the spunk
like structure of the european central bank and the determination of the then french president to demonstrate he was teutonic an inflation fighter as any german. what is harder to understandi think is the united states experience. the feds were not willing to do an open ended commitment to end this until q-e2. the united states didn't experience hyperinflation in the 1920's or any time in history but this didn't prevent commentators from warning this was right around the corner and the lessons of the 1930's when the economy is near great
depression rates and interest near 0 the central bank can expand their balance sheet without igniting inflation. those lessons were lost from view the more hysterical the commentary and the loudly the feds accused currency dropping and the more people feared for independence and shrinking the feds balance sheet to normal levels before anything resembled a normer economy. in the case of budgetary policy the case for continued stimulus was weakened by the failure to deliver everything promised rather politicians are prone the overpromising or the economy was contracting more rapidly in late 2008 and early 2009 and we knew at the time on the bases of the data available to us there was
the failure to distinguish how bad conditions were and how much worse they would be without the policy. the failure for medium term consol consolidation. the failure for fiscal consolidation in countries that needed it like greece and countries with more space like germany. the range of factors came together and the one thing they had in common was failure. failures like these have multiple causes. the dominance of politics and ideas over what i would regard as sensible economics. there was the inability of economist to make the case for better policies. if you will there was the tendency of economist to forget as many lessons of the 1930's as they remembered.
but at the end of day the biggest factor is premature decision to abandon policies that would have done more to support the economy and recovery when the economy needed support was the simple fact we had succeeded in preventing the worse. we had aborted another great depression. policymakers could declare the emergency over. they would heed the call of the instinct to return to normal policy so the irony is the success in preventing a 1930's like economic collapse led to their failure to support a more vigorous recovery. i would make the same argument for financial reform. the regime discreted and the banking lobby was disenfranchised and we got
far reaching financial reform in that way. we separated safe public banking from risky banking. we got federal deposit insurance and the security and exchange commission. for the first time in the united states we had a federal agency to oversee the operation of stock and bond markets. say what you will about the dodd frank protection act but it is weak compared to the 1930s and the same is true in europe. why did things turn out differently? because we aborted the complete and utter collapse of the financial systems. the big banks are around and got bigger. the prevailing regime wasn't
discredited to the same extent. the banking lobby was allowed to regroup and push back against further reaching reform. i am not arguing we should have allowed to banks to collapse. i am not argugeing we should have allowed the economy as a result to collapse. i am not arguing it would have been better to let unemployment rise to 25 percent like it did in the 1930's. but i am arguing there are other unintended consequences we should be aware of when we think about those actions today. finally, i should say a few words before concluding about the situation in europe which is in the headlines now every day. i say in the book, the decision to create the euro in 1999 was
perhaps the greatest policy blunder of the 21st century. in that case, unlike the 2008 crisis some of us like to think echo the queen we did see it coming. i could side chapter and verse but in the interest of time i won't. i would observe this decision to go ahead with the euro is another example of the misuses of history. in this case of the ability of policymakers with an agenda to cherry pick their historical a analogy and argue as policymakers did. that even hitler in world war ii had had in caused by the competitive currency of the
1930s and not by the ridged system that proceeded them in the 1920's. the implication being the risk was competitive currency devalue rather than a new system like the euro system. john k kennedy when responding to the cuban missile crisis considered a range of historical analysis from pearl harbor the berlin blockaide and tested them for to fitness for the situation at hand. and he had historians in his financial cabinet much like obama did and harry truman relied on the analogy of munich
did not. he had one analogy and pushed it for all it was worth. so too, did the architects of the euro. as a result of which european policymakers are still living with the consequences. let me stop there. i am happy to hear reactions. [applause] >> thanks to the professor of economics of political science at the university of california, berkeley and also of the new book "hall of mirrors: the great depression, the great recession, and the uses and misuses of history" history". now it is time for today's audience question period. we have a number of questions piling up. so let's begin. so professor, it seems
sometimes these days we are in a constant cycle of financial crisis. the ones you describe in your book are 80 years apart and the historic from the stock market crash to the 1994 bon market collapse to the '98 currency crisis in asia. it seems the cycles are speeding up the voltility is getting greater and the magnitude of the crisis is getting great skwrer and the impact of the financial institutions on the world is getting stronger. for most listeners there is a sense something is wrong and out of control. looking ahead; what confidence can we have we will break out of the cycle of crisis? >> the very last sentence of the book is something to the effect
i am paraphrasing myself, but the way we handled the greatest financeal crisis in 80 years suggest we will experience another financial -- financial -- crisis in less than 80 years. part of that is the same conclusion that i emphasis before that success has been the mother of failure. as a result of the success in prevent another great depression we failed to address the real and especially the financial problems that gave rise that crisis in the first place. policymakers are running as fast as they can. stanley fischer the number two at the board of governors of the feds gave a speech last week about how we did thing do is strengthen the banks but the problems with shadow banking system are still out there.
the derivative markets are still out there but the problem we have is referred to as the bloodhounds and gray ppgray grayhound problems. they are on the trail but the gray hounds run fast. >> someone asked a question and warren buffet described derivatives as mass financial discussion and they were said to be the great risk increasers and getting safer. from what you are saying it sounds like we can have no confidence things are getting better before the last crisis. nothing has been done to reduce the inherent systemic risk. >> i canthink there are three big risks we need focus on. number one the banks which are
modestly better capitalized than before the crisis but they don't have enough of their own skin in the game to behave prudently and don't have enough capital to function as an adequate buffer to shocks to the balance sheet so the banking problem is still out there and i am not confidant with the things we have done strengthen capital riermequirements and require banks to write living wills to describe how they would wind up if they got in trouble makes a difference. number two, the derivative problem you allude to, richard is still out there. we have moved the clearing of transactions and derivatives on to clearing houses. we have assigned a few big banks as being responsible for clearing transactions and derivatives. i think that folks the risk in a few places rather than
eliminating it we should force derivative derivatives on the electronic exchanges and they can be cleared in the real time and the domino affect you get when one par par participating people go over. some people say some derivatives are too exotic complex or opaque to be moved on and that sounds like a good idea for regulating. and third there is the rating agency problem. we still use the ratings issued by these commercial companies moody and stitch in financial regulation. the rating agencies are still subject to conflicts of interest where they advise issueerrs so
they can get a aaa rating and if that is not conflict of interest i don't know what is. regulations requires the ceo's of the rating agencies to attest they are avoiding these conflicts of interest. i think that is an example of the weak thing that is dodd frank. the rating agencies should be disconnected from the regulatory process entirely and we have not been able to do that. >> has the financial sector grown too big? does it have too much influence on the really economy? one of our audience members asks how much greater the financial sector became as a proportion of gdp in the latest crisis verses the 1920's? is that a sign finance is too big? >> there is a lot of answers saying yes. there have been a series of economic studies in recent years
coming from the bank for international settlements coming from academics which do suggest that financial inflations not only reaches the point of declining returns but that in addition it can reach the point of negative returns so part of the issue is how big the financial system is. part is how politically influence it is and part is what kind of financial system do we want. we want a system that provides services to households and individuals that provides finance for entrepreneurs that funds start ups and that funds existing small and medium size entper entper entperprises and need debate on how to structure that. >> this crisis was proceeding by
deregulation and the eagle act is the thing most people think of. you detail many steps to this in your book. it is really people i think this looked like political in fluence, it looks like wall street influencing policy in a detrimental way. one of the audience members asked if this is political corruption and it will just happen again. how do we stop financial interest influencing policy in that way? >> i am not sure that we can stop financial interest from influencing policy. all we can do is have discussions like this one. there are members of congress who are much more sensitive to this issue starting with senator warren and one could run a longer list. so part of the answer is
electing representatives for who aware of the problem. >> so we all need to be aware and keep this subject in public discussion. you make the point the fact we recovered from the immediate crisis when there was less pressure for reregulation of the financial system. imagine you are able to wave magic wand and restructure the financial system in a way that made it less likely we would face catastrophic crisis in the future. what would you do? would you break up the big banks? would you limit their functions? what are the most drastic things that could be done? >> i would focus on more capitals to the banks, dealing with the derivatives by moving them to an agency and dealing with the rating agency problem. i don't want to be entirely negative about the prospects for
financial reform. in fact at the same time the new congress is crying to roll back some of the provisions of dodd frank there are forces pushing in the other direction and in particularly we have had this drum beat of financial scandals. and we have had interest rate rating scandal in london. we have had the foreign exchange market rigging scandal. we had the money laundering scandal. we had the banks of evasion in iran and north korea scandals. so i thing it keeps the regulation of ereform alives and reminds us this isn't the reaction of a few bad apples but
it is a systemmatic problem in culture that needs to be addressed by regulation. >> well we should not spend all of our time talking about the financial sector here. we should talk about the real world if you would like and what the consequences are through the crisis. just one last question that keeps coming up and indeed came up again from the audience today which is the bail out. the fact that you know you said, i think it is beginning we can cry but also laugh a little looking back at these crisis now. i think there is a lot of anger as well. and some of the anger is around the bailouts of banks that were not deserving and we have a question here. let's say bailing out lehman was right. nonetheless it creates terrible
incentives in the system and will it lead to worse problems in the future and encourage risk? >> i think the time to install new smoke detectors in the home is not during the midst of the fire. so there is a problem that bailouts can encourage risk taking and that is why the argument for strengthening regulations is stronger and another reason why it has to be stronger in the wake of this kind of crises. but i don't think that was a point we could afford to make in the midst of the event. >> well, you are listening to the commonwealth club of california radio program and our guest is political science and economist discussing lessons
learned from the great depression of the 1930's and the great recession of 2008. let's talk about some of the repre reprecussion of the financial crisis in the world we are still living with. one is the massive liquidity and the cash pumped into the system to fend off the worse effects. we are still living with that. a question from audience members is how does this enormous amount of liquidity end? does it end with a bubble? a soft landing where we escape without another crisis? what do you think? >> so i am worried about the next crisis. i am worried about asia with its
highly indebted corporations many of whose debts are in dollars. a dollar that is becoming more expensive for them at the moment. i am worried about europe which could be the trigger for financial turbulence as well. i am worried about the shadow banking system the derivative market, that is the unknown. we don't know what the problem is there. but i think we can be confidant that there is one. and then there is the unknowns in what you describe is a very large and complicated and very opaque financial system. >> plenty of things to worry about. what about the liquidity itself? we are in san francisco in the midst of another tech boom. there is a lot of cash pumping back into the system and people are starting to ask is this what
we have seen before? another stock boom. another real estate bubble. how does that end? >> there is a lot of cash and liquidity in the system that is showing up in extraordinary high bond prices and stock prices. the amount of leverage in the system at the same time is somewhat less so that is the good news. most of us have to put down something approaching 20 percent now in order to buy one of those if we did wish to by an ex ex expensive property. you cannot get a ninja loan without a down payment like you could before the system. so the fact there is less
leverage may be good news. how does it end? smoothly or with a bang? obvious obviously no body knows and both scenario are possible. i hope what we will see is that central banks move gradually so there are no big surprises that could destabealize the system. and i hope central banks have the traditional responsibility for price stability and one for financial stability. if they are going to try to hit two targets they need two instruments. you cannot hit two birds with one bullet unless you are lucky.
if they are worried about the frothyness in asset markets they need to use regulation and what experts call macroprudential policy. >> this is a balancing act that will be large this year. we have seen the pressure to raise interest rates and it will gather as the year goes on and doing that without triggering some financial accident will become a very crucial issues for our policymakers. >> that is the balancing act. we had a good lesson in how it should not be done in 2013. we had the so-called taper tantrum when the chairman ber
bernaki suggested the paper market and that caused turmoil in the emerging markets in particular because the fed had not adequately communicated in advance what its intentions were. no body in the private or public sector was prepared. i think policymakers learned from that and tried to communicate more clearly what they intended to do. that is what the talk about the other big word patience was a month ago when the fed removed the word patient from its statement. they are trying to communicate what they will do and how they will do it far in advance which will give markets and financial institutions and people time to prepare. >> well let's turn to the economy at large now.
you talked about not having enough public spending to foster the earlier stage. at some point we are far enough past the crisis to say this is no longer the aftermath. this is the new normal and the world we are living in. it is a world where people feel worried about and some of the questions from our audience pick up on the this new normal that the slow growth the lack of job creation, and a sense that technology and automation are replacing jobs and that people feel insecure. so should we now -- can we now but the great recession behind us and should we be thinking about this as some kind of different and difficult period than the one that came before? ...
decades. all of those things come education for infrastructure, basic research are important determinants to how fast the economy can grow and we could do more in terms of addressing those needs. we have ended on a very good job at creating good jobs people demand if they are going to stay in the labor market so we have seen an extraordinary decline in the labor force participation rate in the united states. not only did young people stay out of the labor market but older people dropped out of it in the great recession that a bunch of people in the 25 to 55-year-old category dropped out of the labor market as well. i interpret dot as labor market polarization that we haven't been able to create good jobs
for those people who don't particularly want to be hamburger flippers so they've dropped out of the labor market and their successors will drop back in only if we are able to create a good jobs that education and training etc. equipped people. >> so with the right investment in these areas you are confident that it is possible. this isn't some structural change that is simply going to devour the u.s. click >> i don't think it's globalization. i think there are plenty of needs that can still only be satisfied by real live human beings who will be well compensated and have interesting jobs if we equip them with the skills they will need.
one additional thing i will say is that we created this problem in the u.s. economy not only as a result of the financial crisis but over a considerable period of time. if we created this over the course of a couple decades, we will not be able to solve it in only a couple of years. >> the other side of the coin is that great income inequality that has become apparent in the last few years and begins we've had a few questions on that from the audience. what parallels to you see between the economic inequality we have today and that of the pre- depression era in what you see as the future implication of this that we are currently living with? >> we have the gilded age at the end of the 19th century and we have growing inequality about
which many were worried as well and then with the economic historians refer to as the great competition in the third quarter of the 20th century. we were able to create those good jobs the united states being the technological leader in the world will come and we had a more progressive tax policy as well. so i have colleagues that are the expert on the subject. i am not the scholar per se but as i read their work technology and globalization has created the need coletta to the equality in the united states but so has the tax policy and a more progressive tax system with higher marginal tax rates on high income earners could grow a
considerable distance towards addressing these without at the same time stifling economic growth. >> unfortunately we have reached the point in a program now where there is only time for one last question so i'm going to combine two questions. there is a lot of interest so i'm going to ask you to rate some policymakers for us and tell us what you think and these are questions of the audience. so they've prevented a crisis by saying he will do whatever it takes to save a euro. what do you think of him? >> we have no grading place. i would give him an a-.
>> and ben bernanke he was like your students in student in the depression, great economic historians. so in the future how will people look back on him and how he did in the recession click >> i think that he deserves at least a b+ to his response to the crisis but i would remind you that he was also on the federal reserve board and therefore an important regulator before the crisis so you can draw your own conclusions about that. >> i would give him a failing grade for the regulatory efforts before the crisis and much better sense. >> are thanks to the professor of economics and political science at the university of california berkeley and also the