tv Book Discussion on Lost Decades CSPAN December 26, 2015 10:32am-11:02am EST
stiles talks about general custer. at ten darcy olson talks about the restrictions on using medical treatments deemed experimental or not available for terminally illdiseases. and tonight at 11, win symptom groom pro-- winston groom on "the generals." that all happens tonight on c-span2's booktv. >> host: professor menzie chinn, your book, "lost decades: the making of america's debt crisis and the long recovery." how big is the u.s. debt, and who owns it x what do we mean by "own"? >> guest: well, the u.s. debt is, like, $14 trillion, and it's member in terms of publicly-held debt about 70% of gdp. so that's giving you some perspective. that tells you it's an
unprecedented amount at least in postwar history. now, who is it owed to, i'd say most of it is owed to other americans. so in some sense you can think about it as we're borrowing from ourselves. a sizable chunk is owed to foreigners of which if you wanted, you know, a list of main candidates it'd be the chinese and various oil exporters. >> host: what -- how do you quantify debt? what is considered u.s. debt? >> guest: well, or that's a complicated question. i mean, there's -- most of the numbers you hear are debt that's owed by the u.s. government, so that's actually the number i threw out. but there's a lot of other debt including debt by households to banks, corporations to other corporations and to financial institutions. and so, you know, if i were to add up all that debt, it would be sort of double counting. and, in fact, most of the time as economists we talk about the net debt. so what's our net debt to the rest of the world in terms of
all private individuals and the government. and that works out to something like at the moment 25% of gdp. now, that's a lot, but probably many and of itself it's not as problematic as certain times the question is not net debt, netting out what the corporations owe each other. but the fact that sometimes certain corporations and certain households get into trouble, and they're unable to pay their debt, and they become insolvent. that ripples through the economy, and you can't just say, oh, there's a dollar of debt here, but it's owed to another person over here, and that sort of washes out. it's those times that lead to crises when institutions and households have counted on having assets, they've loaned money to somebody, and they can't get it back. and corporations or firms have borrowed money, and they can't pay it back. and that results in a real debt crisis. >> host: let's talk about public debt. when you talk about the 14 trillion s that correct, of
public debt, does that include future social security, medicare payments, things like that? >> guest: no, it doesn't. it includes just the outstanding amount of treasuries hard out there. and in general -- that are out there. and in general, what i'm going to do is sort of net out what's owed between accounts within the u.s. and the federal government. so it's what's the debt that's outstanding that's being held by the public. >> host: professor chinn, what is a treasury? >> guest: a treasury is a security or liability of the federal government that's directly issued by the u.s. treasury. so borrowed by the federal government. >> host: do you own treasuries? do i own treasuries? >> guest: we -- no. be we're investing in a pension fund, anything like that, we're indirectly owning treasury. it's likely that they'll hold a certain amount of government treasuries. i don't, i think, have anything. typically we don't unless, you know, you have it in some ira that's invested in some other
fund. maybe, you know, a savings bond would be the closest thing that a lot of us would have seen. >> host: the university of wisconsin, does it hold treasuries? >> guest: that's a good question, i actually don't know. probably. not the university itself, but the sort of retirement system that its employees are invested in. >> host: all right. we say that the chinese are buying our debt. >> guest: uh-huh. >> host: what does that mean? how does that operate? >> guest: well, the way to think about it is the chinese, for a long time, were exporting a lot, lot more than they were importing. and they would as a country earn proceeds. and most of it was was in the form of dollars, okay? so they exported a lot of stuff to the rest of the world, most of the goods are invoiced in dollars, so they'd get receipts in dollars. the question is, if they're earning a lot more on exports than they're spending on goods, then they're going to have a pile of foreign exchange accumulating.
and you could keep it in currency, but, you know, currency gets you zero interest in practical. so what they do is typically it's held in the form of treasuries. so when you say or you hear somebody say that the chinese hold lots of treasuries or they have big dollar reserves, essentially they're saying that they're holding, you know, dollar assets mostly in the form of treasuries because treasuries are in some ways the safest asset in the world, you know? we haven't defaulted for a long stretch of time on treasury, the u.s. government. and they're easy to get in and out of; that is, they're highly liquid. so in some sense it's the ideal form in which to save them. and that's why the chinese and many oil exporters like saudi arabia and kuwait wouldn't have their foreign exchange reserves -- would have their foreign exchange reserves in the form of treasury. >> host: as an economist, is that a bad thing for the u.s. >> >> guest: i don't think it's necessarily a bad thing that china holds them. i think it would be a bad thing if we kept on having the rest of
the world accumulate treasuries at a rapid pace, because it means the u.s. government is accumulating debt at a rapid pace. now, those processes that were underway for a good chunk of time in the 2000s and even back into 1990s, they're slowing down. so one of the big, earth-shaking things that you don't hear about very much right now is that china's actually running down its pile of foreign exchange reserves. that is a sharp, sharp, sharp break with what has happened over the past 15 years. and so we are getting in some sense what we wanted, that the u.s. government is, you know, as a share of gdp and as a share of world gdp accumulating debt at a less rapid pace, but it's also the case where the rest of the world isn't buying as many treasuries as it used to. and that, over time, has ramifications for the interest rates we pay. if they're buying less of our treasuries, then relative to anything else the price of treasuries will be lower, and that's the same as higher interest rates, okay?
so there are many offsetting effects going on at the same time, but that's the tendency. if emerging market countries are, including china and oil exporters, tend to accumulate fewer treasuries, then that's going to put upward pressure on interest rates. and that, too, has been a change over the past eight years where interest rates have been unnaturally low. >> host: well, the title of your book is "lost decades." what happened in 2008, and how has that rippled? >> guest: well, that's a great question, and i think the key idea that my co-author and i wanted to put forward is that through all this welter of acronyms like cdss and cdos and mortgage-backed securities, all these terms flying around, there's basically one, single, underlying story that has been repeated over and over throughout history.
and that is for whatever reasons government either encourage or on their own push through increased borrowing. sometimes it's in the belief that the times are different and we can manage that increased borrowing in an efficient way and a safe way, so alan greenspan sometime in the mid 2000s said, well, we're all borrowing much more, but we're, in essence, a lot smarter than we used to be. we have computer, we have computers to manage risk. we have new theories about how to deal with risk. we have new derivatives that can help us manage risk. and so the idea that we could just borrow more is not as scary as it used to be. and i think our view is that's a very dangerous idea. and it's a particularly dangerous idea because we get into trouble exactly when we borrowed a lot and the environment changes, and a lot of the borrowing that looked like it was going to be repaid easily isn't. and that's, essentially, 2008.
it's the household borrowed up to the hilt because they thought housing prices would keep on going up, so it makes sense to borrow. the banks loaned -- and they also borrowed -- football -- financial institutions borrowed x they were able to evade regulations because the regulations were outdated with respect to how much you had to hold and reserve as capital. so you had a combination of financial deregulation, that's sort of direct government interventions. you had the government itself embarking on a spending spree after the 2001 tax cuts. we cut taxes again in 2003. that encouraged more borrowing. and we had financial innovation. and all these three things led to an increase in borrowing by all sectors of the economy, and it all worked fantastically to give us this period of prosperity until, of course, it didn't work. that is, people said, oh, let's reassess whether housing prices will keep on going up.
oh, those securities that we issued, well, i don't think they're worth quite as much as we thought or the regulators thought. and the whole system starts unraveling in reverse. >> host: the political response to 2008, ben bernanke, henry paulson, sheila bair, presidents bush and obama. did they get it right? >> guest: i think once crisis unfolded definitely ben bernanke and the federal reserve acting correctly, and -- acted correctly, and that's no small measure due to the part that bernanke's doctoral thesis had to do with the great depression and the fact that, you know, he worked out a new interpretation of why the great depression was to severe. and that was because of the collapse of the banking sector. and view was slightly, actually, a big departure from the dominant view that was associated with milton friedman which had talked about the
monetary influences. bernanke talked about the credit influences, that you really have to rescue the financial system to make sure that lending continues. and so i give him a lot of credit for saving things. the bush administration did push through a small stimulus package in 2008, and that probably helped a bit. but really in terms of fiscal policy t.a.r.p., which was the bank bailout, was incredibly important because it reassured people in the financial sector -- along with the federal reserve actions -- reassured people that the banking system was going to continue. okay? essentially, t.a.r.p. was a recapitalization of the banking system. the banks b had been holding lots of assets that suddenly were less valuable than they originally thought. if that happens sufficiently, then the banks are insolvent, and they either shut down or continue as zombie banks as they did in japan for a while. and so you need some money to
come in to provide funds to make those banks solvent. and that's what the u.s. government did. if it hadn't, then i would think that, you know, the financial system would have ground to a halt eventually. it would not immediately, but it would have stopped lending. and you can't run a -- you can't run an economy, actually, without a financial system that's working. >> professor chinn, are recessions and economic downturns natural occurrences? >> guest: i think they're natural occurrences because you're always going to have a confluence of events that strike economies that are going to push them down or up. and so cycles are going to occur. you don't want to think of them as sort of mechanical, so at the moment you hear about people saying this recovery is unnaturally long, it's longer than the average, and so it must by definition come to an end. my view would be at some time, you know, either the federal reserve acts in a way that tips the economy into recession or some shock strikes that forces
the fed's hands or some combination of shocks from overseas just induces the economy to tip into a negative growth pattern. and so the big question now, i guess there are two big questions. one is, you know, what will the federal reserve do. will it be able to manage to just slow the economy down? that's their objective, never to throw the economy into recession. the other question is if the federal reserve is not the thing that precipitates the recession, is it the combination of world events? and that would be a new event. most of the time i think we think about the united states as moving along on its own path and not being driven by external influences. if this is a new case where china and china's slowdown precipitates a greater slowdown in the east asian region which then is transmitted to the u.s., that would be a new configuration to the world's economy.
>> host: was the legislative response in the last, since 2008, has it been effective? some of the new restrictions, some of the new laws that have been be put in place, are they important for stabilization of the economy? >> guest: so i think that there are manyfold aspects of the legislative response. and, you know, the first one, the first big one was the aara, the american recovery and reinvestment act, which was implemented in 2009. and that was a big countercyclical move. as the economy was going down, there was upward movement from that stimulus. and i'd say that was one of the most important things to push the economy in the right direction. otherwise we could have been mired in a much longer recession. that was early on, and most of the effects of that have petered out. but i think that mitigated a lot of the pain and suffering that could have occurred. now, the other innovations or
legislation that was passed, i think, have more long-lasting implications, and that includes the dodd-frank legislation regarding banking regulation. and so that's really important over the longer term insofar as it really, it reduces the incentives for banks to overleverage; that is, to borrow up in large amounts, only putting in a little bit of their own shareholders' money and borrow up using sort of a short-term financial market instruments. those are the two things that sort of got the financial institution this trouble before. and i think with the implementation of dodd-frank and international regulations on banking under the rubricking of basel iii, you've actually made the banking system a lot more stable. there still remain some holes in the regulation of the
international financial system, and i'd say that it's -- you know, one of the things is we fixed problems in the sectors where we've seen the problems. it's likely that the next problem we see is someplace that we didn't expect it or we didn't apply regulations. i mean, one way or thinking about 2008 is it wasn't the mainline banks that were the big problem. we'd regulated them in the 1930s in response to the problems of the great depression. but then we encountered a whole set of problems in the shadow financial system because individuals and firms and banks and other financial institutions had worked their way around those regularringlations or, you know -- regulations or, you know, they had innovated their way around the regulations. can and so we put in a whole set of regular rations now. i think it's made the system safer for a period of time, more robust, more stable. but people are always going to be looking around for a way of
evading the regulations so that they can get a higher rate of return. and at the same time, impose the risks upon the greater financial system. and that's the hazard that regulators keep on having to try to keep up with those who are trying to evade the regulations. >> host: is that the message you want people who read "the lost decades" to take away? >> guest: the lesson -- that's exactly one of them. it's that you can't just say we've had this one big crisis, we've fixed things, now move on. history's replete with these examples were individuals, households, firms, banks, whatever all want to leverage up. because that's a way of making higher return than you would otherwise. and they want to leverage up, borrow a lot. and there's a tendency because it induces at least in the short term a period of buoyant growth and returns. there's always incentive to say, well, there's no trouble, there's no problem at this
point. if i'm a politician, it's going to land in somebody else's lap in the future. if i'm a household, you might say i'll get out just before everything crashes. or there's a tendency to say times are different now. we're just smarter or we're more nimble than we used to be. the old rules don't apply. and i think our main point is the old rules to a large extent do still apply. if you try to borrow a lot, leverage up a lot, then inevitably some correction will come around, and a lot of pain is going to be inflicted upon a lot of -- and many times innocent bystanders. >> host: what are you teaching here at the university of wisconsin, and what do you want your students after a semester with you to leave with? >> guest: so i teach mostly cracking proeconomics -- macroeconomics to both undergraduates in the economics department and i teach sort of an international macro course to
masters-level students in the school of public affairs. and the one thing that i want them to know is keep alert, to read about what's going on in the world and incorporate what you've learned in class to analyzing why is it that, you know, things are the way they are? why is it that certain individuals in certain positions of management in financial firms say what they say versus what people in policy positions would say versus what journalists would say? in particular, to use their minds to analyze and dissect what's being tated and argued -- being stated and argued rather than taking for granted, you know, somebody says and because they look authoritative believe it. i want them to question, question everything and to use their minds to analyze what's going around, going on around them. >> host: all right.
macroeconomics. why can a small country like greece affect our giant economy here in the u.s.? >> guest: so that's an interesting question. it is, let me give you an analog. there was an interesting statement about the construction market or construction in the u.s. leading up to 2008. people would say, well, construction of housing only accounts for a small portion of gdp. how can it affect the rest of the economy? and i think what we've learned over the past eight, nine years is interconnections matter, and in particular in the case of housing, it wasn't just the actual act of building housing, but it was the fact that people owned assets that were involved in housing or houses and that assets were derived or derivatives had their value on the basis of housing prices. in the case of greece, lots of
private individuals had assets that were issued by the greek government or issued by greece, private individuals. and so those holdings lose value as you think that they're less able to pay. and so there's a big ramification for people's portfolios, their perceptions of net wealth. that's one instance. i'd say in the case of greece there was another set of concerns, one of which is that the euro was built on the concept that no government could default, that every government was going to be embarked upon a path of sustainable finances, okay? so the very pact that a country -- very fact that a country within the euro area would get into trouble and then would have to be bailed out which is against, you know, that's written out of the charter for the eurozone.
so that sort of forced the reassessment of what is possible. and if you think about it, it's not just greece, it's that greece signals what could happen to the other periphery countries, so portugal, italy, ireland and spain. you know, those other countries also had problems with their finances, and it's not just greece going out, but the signal that greece gives about whether those countries could also face a similar problem, have to be bailed out and what that means for the sustainability of the single european currency. >> host: and you're watching booktv on c-span2, and we've been talking with university of wisconsin professor menzie chinn. he's the co-author of this book, "lost decades: the making of america's debt crisis and long recovery." thank you, professor. >> guest: thank you. >> kate anderson bower, her new book is "the residents inside
the private part of the white house." how many people live in the white house? >> it's about a hundred people, and when president obama first met them, his eyes kind of bugged out. he was shocked to see all of these people who clean and kind of, you know, clean the state floor and clean the second and third floors of the white house and make it really function. >> how does one apply for a job at the white house? >> well, you don't really apply. it's not advertised, you know? most of these people are related. one of the people i interviewed in the book has nine members of his family who worked at the white house over the years because it's built on trust and discretion. a few people, you know, are privy to national security secrets and the private relationship between the president and the first lady, and so they have to be trustworthy, and it's usually people who are related or know be each other. >> so with that said, how did you get access to them? >> it was just shoe leather
reporting. i went out and found a couple of people who were really helpful, and they put me in touch with a couple of other people, and it was kind of built on trust. and it took about two years of going and interviewing these people at their homes and getting them to know that i was really just trying to find out what their work was and what they did. a lot of them had never been interviewed before, so they were pretty candid. >> can you give us an example of what one of the people you talked to, what their work schedule looks like, i don't want to say what their take-home pay is, but how do they do for a living? >> yeah. the butlers in the private residence on the second and third floors, there are about six of them, and they're the ones that are the hardest to get to talk to, because they see everything. but they make, you know, between $40-$70,000 if you're, like, the head butler, you're making upwards close to six figures because you've probably been there a lock time. -- long time. they've groomed you to become the head butler. and they work incredibly long
hours. some of them will sleep overnight at the white house. if there's a state dinner, they'll come in at seven in the morning and be asked to stay until, you know, two a.m. after they've finished serving and clean up after the state dinner. they get overtime for that, but they're incredibly dedicated to their job. >> a lot of people are surprised at how big the white house is. it's six floorses, how many rooms? >> 132 rooms. yeah, it's huge. the six floors i was surprised at, because i was a white house reporter, and you would just see the three floors. there are basement levels where it really is kind of a downton abbey thing. you know, there's a kitchen and the cafeteria in the basement and lockers where they all congregate on their off hours. so it's a much larger building than you would ever think. >> you said you talked to people who have been working generation by generation. how has the size of the staff changed over the years? >> you know, it really, it's
expanded, but it's always been pretty big, you know? it's gotten a little bit bigger with time, but i wouldn't say that it's been -- the six butlers on the second floor, for instance, is pretty, has been the standard. i started this book with the kennedys, so i can only speak to that, you know, that's when i started it. but that's -- and, of course, when they first came, when abigail adams came into the white house there was, you know, very few there. she was hanging laundry up in the east room. there were no stairs to the first floor. a lot of changes since then. but in recent history it's been, you know, several dozen people who are making this place run. >> jacqueline kennedy was one of the first to take the public on a tour of the white house on her christmas special. is that why you started there? >> i wanted to start, it was a modern era, and so i think the kennedyss are just such -- kennedys are just such a fascinating family, and i also wanted to find people who had actually worked with them. some of the folks i interviewed
started with the eisenhowers, they're in their 90s, and they started when they were, you know, teenagers. i found some people that far back, but i couldn't really go backing to truman, i couldn't go back too far. but the kennedys are great because you've got these, you've got a toddler and a baby in the white house when they first moved in, and you have this interaction between the staffers and these young kids and wanting to shield them and make their lives as normal as possible. and i thought it was really sweet. >> the white house is an operations center, a museum and a personal residence. how does that all work? >> not always an easy place to live. i mean, i think that's the one thread that i noticed throughout the book was the intense desire of these people to protect the first family because they understand that they're living in a museum n a place where -- in a place where they have to be wary of tourists walking up and down and seeing them, you know? rosalynn carter would put a gate up so that the tourists wouldn't
see her go to her east wing office every day. there's really no privacy. and i think especially when there are children in the white house, there's really a desire to keep it as private as possible. the obama girls have sleepovers in the solarium which is on the third floor, it's like a family room. .. >> one of the first question the unusually asked is why did you
accuse these three men from the second world war? the answer is that they embodied, i believe, supercharacteristics of courage, character -- >> sunday night at 8:00, a turning point in world history in 1932. >> there's a reason i chose the chamber of commerce as a subject for my. it is because a single organization sums up the story of how we got here to this place. >> this holiday weekend watch the tv on c-span2.