THE BROOKINGS
INSTITUTION
A BROOKINGS P2K NATIONAL
ISSUES FORUM
"KEEPING THE GOOD TIMES
ROLLING:
TECHNOLOGY AND THE GLOBAL
ECONOMY"
ALAN MURRAY, WASHINGTON
BUREAU CHIEF, WALL STREET JOURNAL
SENATOR ROBERT BENNETT,
R-UTAH
ROBERT SHAPIRO,
UNDERSECRETARY OF COMMERCE
JAMES K. GLASSMAN, RESIDENT
FELLOW, AMERICAN ENTERPRISE INSTITUTE
ROBERT LITAN, BROOKINGS
INSTITUTION
ALICE RIVLIN, BROOKINGS
INSTITUTION
Brookings
Institution
Washington,
D.C.
Tuesday, October 10,
2000
10:00
AM
Transcript by:
Federal News Service
Washington, D.C.
MR. MICHAEL ARMACOST: Good
morning, everybody. I'm Mike
Armacost. It's my privilege to
welcome you here this morning to the seventh in our series of programs on issues
which the staff at Brookings hopes will grab the attention of American voters
during this presidential election campaign.
This morning the focus is on economics, and how the candidates hope to
keep the good times rolling.
Everyone knows, of course, that we're experiencing extraordinary
prosperity in America. Barely, in
my lifetime at least, have the statistics been so impressive. Growth is robust, beyond the hopes of
most politicians, beyond the expectations, I might add, of our economists three,
four, five years ago. The current
low level of unemployment is one we haven't seen for more than 30 years. Inflation is extremely modest. Productivity gains haven't been seen
like this since the period immediately following the war. The stock market, if volatile, is very
buoyant, providing companies with money to invest, and providing investors money
to spend.
To be sure, the rate of household savings is very low, and our current
account deficits are very high.
Therefore, fortuitously foreign direct and portfolio investment in the
U.S. offsets the savings decline and provides us means of financing our
deficits. So these are really
pretty good times.
And there, in fact, is more.
The appearance of these budget surpluses allows the U.S. to pay off
public debts and to contemplate long-term means of lending solvency and
sustainability to our entitlement programs. And we've got the flexibility both in
monetary and fiscal policy to deal with speed bumps on the continuing road to
further prosperity.
So I think it's little wonder that the debate in the campaign to date has
focused less on the conditions in the economy than how to maintain the strong
non-inflationary growth while providing equitable access to the fruits of
growth. And it's little wonder as
well that in this debate the underlying philosophical differences between the
parties as to the role of government and managing prosperity should come to the
surface.
As in past programs in this series, we're delighted that each of the
parties has sent representatives to present the views of the respective
campaigns. In this case,
distinguished Senator Bob Bennett of Utah, and a very effective Undersecretary
of Commerce Bob Shapiro, undersecretary for economic
affairs.
In addition, we'll have commentary from two of our own scholars, Alice
Rivlin and Bob Litan, and from Jim Glassman from across the way at
AEI.
Two administrative notes. If
you check our web site shortly after this program is complete, if you want to
see it twice you can get a video presentation, along with the full transcript
and access to additional information on the issues. Our web site is at www.brookings.edu,
and I would alert you to the fact that the eighth and final national issues
forum in this Priorities 2000 series will take place a week from tomorrow on
October 18th. It will focus on
foreign policy questions and will feature our own Richard Haass, Lee Hamilton,
Jessica Mathews, Rick Burke among others.
Our program this morning will be moderated by Alan Murray. We're delighted to have him. He is, as you know, the Washington
bureau chief of the Wall Street Journal.
He's been with the Journal for nearly 20 years, and has been the
Washington bureau chief since 1993.
You will see him regularly on CNBC.
He's a regular also on the PBS program Washington Week in Review. He's co-author of an interesting book,
Showdown at Gucci Gulch: Lawmakers, Lobbyists, and the Unlikely
Triumph of Tax Reform. He has
won a number of awards, including an Overseas Press Club Award for his
writing on Asia, the Gerald Loeb Award, and John Hancock Award for his coverage
of the Federal Reserve. He's a
graduate of the University of North Carolina, and has a master's from the London
School of Economics. He lives here
in Bethesda. We're delighted to
have Alan Murray to introduce our speakers and to moderate the
program.
Alan.
MR. MURRAY: Thank you very
much, Michael Armacost. Thank you,
Brookings, for holding this.
I will play the role of the moderator today. I will be moderate. I come from the news side of the Wall
Street Journal. You know, it was
George Wallace who said, back in 1968, looking at the two major party
candidates, who said, there's not a dime's worth of difference between
them. Well, I figure this time
around we're talk about something like $4 trillion worth of difference. It's a very interesting election. Probably the most interesting election
in decades. Not because of the
natural charisma of the two candidates, but because, first of all, they are
running neck and neck. The polls
over the weekend half of them showed Bush ahead, half of them showed Gore
ahead. It's an interesting election
because the stakes are so high. I
think the odds are extremely high that whoever wins the presidency will take the
House of Representatives with them, and certainly whoever wins the presidency
will be able to take the Supreme Court with them.
But, most of all, it's an interesting election because the positions they
are taking on a wide range of issues are so different. You have a real choice in this election,
and we're fortunate today to have two people to present those positions on
economic affairs so clearly to us.
First of all, Senator Bob Bennett from Utah, who has been in the Senate
for the last eight years, has chaired the Senate's High Tech Task Force, and can
speak to a variety of the issues that are on the agenda today. I'm going to let Senator Bennett go
first, take no more than 15 minutes.
And then I'm going to turn the podium over to Robert Shapiro, who is the
undersecretary of commerce for economic affairs, has worked in this area for a
long time, and is equally versed and able to speak to the Clinton
administration's position, also for no more than 15
minutes.
Then after that, I'll introduce the other panelists, they'll come up
here, and we'll get a good discussion going.
So, Senator Bennett, the podium is yours.
SENATOR BENNETT: All
right. There's not a clock here,
which is always dangerous.
MR. MURRAY: I have a
watch.
SENATOR BENNETT: All
right. The most terrifying words
you hear in the Senate are when a member says, I yield myself such time as I may
consume. So, I will try to keep my
own watch going, my eye on it, and stay within the limit and not require you to
stand up and make signals and say, would you please be
quiet.
The topic today is keeping the good times rolling, and of course that
raises the question as to what causes the good times in the first instance. If you can know that, it makes a little
easier to keep them rolling. Now,
out on the campaign trail, of course, the Democrats tell us that the good times
are rolling entirely because Bill Clinton was elected president, and that the
good times began with the moment he raised his right hand and was sworn in as
president. And we had some of that
in the debate between the vice president and the governor with the vice
president saying it all started with us, and I proudly cast the vote that broke
the tie that started the good times to roll.
I think objective economists will all agree that we were, in fact, coming
out of the recession at the time the president was elected. The momentum of the recovery had already
set in. Unfortunately, the
perception of the recovery had not set in enough to help George Bush, Sr., in
the election, but the statistical analysis said that President Clinton's being
sworn in really didn't have that much to do with it.
We Republicans, of course, insist that the good times began when we took
control of the Congress in 1995.
And we point out that the increase in the price of the stock market, or
the value of the stock market, to which the vice president so glowingly referred
in the debate, actually began in '95, not in '93, and of course it was the
market's reaction to the fact that the Republicans were now in charge. Those who are skeptical of both parties'
claims will say that neither Mr. Clinton nor Mr. Gingrich had anything to do
with it and that it was entirely the result of Alan Greenspan's being at the
Fed, and that he is responsible for the good times rolling. This, I think, was kind of endorsed by
Senator McCain when he said, if I become president I will keep Alan Greenspan at
the Fed even if I have to stuff him and prop him up.
Now, my own view is that all of these events, while they had some impact,
were probably not responsible for the good times roll. I will concede that the increase in the
gasoline tax that was part of the package that President Clinton pushed through
in '93, and for which the vice president voted, probably is contributing to the
surplus. I voted against it. Looking back on it, I think probably
that was a benign enough increase in federal revenue that contributed to the
surplus, and probably did not produce the economic downturn that all of us were
predicting in the violent partisan debates at the time.
I do believe that the reaction of the stock market to the election of the
Republican Congress was more of a perception thing than a reality thing, but it
demonstrated that the markets thought, all right, we're now going to have some
freedom. We're now going to be able
to move up. I think the defeat of
the Clinton healthcare plan probably had more to do with the recovery of the
market than the Republican election.
As I visited with executives on Wall Street, particularly in the
healthcare area, they were all terrified at the way Mrs. Clinton was demonizing
prescription drugs and pharmaceutical companies, and they were afraid that it
was going to destroy their research effort and reduce them ultimately to generic
manufacturers. That there would be
no further breakthroughs in the biotech area. With the defeat of the Clinton health
plan, they all heaved a sigh of relief, their stock started to recovery, and
that was part of the leadership to increased market value.
But I think the real thing, and I'm a great admirer of Alan Greenspan's,
and I think that he handled monetary policy extremely well. But I think the real thing that is
causing the good times to roll has been the increase in productivity of American
workers across the spectrum. We
have seen increase in blue collar productivity that's fairly easy to measure
with the adding of robotics and technology into the factory. But we're now seeing an increase in
white collar productivity, seeing a return on our investment, if you will, as
the office has been taken over by technology, and that we are no longer having
to replace everything in the office so fast that we do not get a return on
investment. For a while there, you
would buy a new computer for your office, it would raise your costs. You would just start to amortize the
costs and the computer would be obsolete and you would throw it out and buy
another one. So you couldn't catch
up to return on that investment because you were constantly making new
investments.
Now, the transformation of the white collar world into a high tech world,
while not complete by any means, has caught up with the investment necessary to
increase productivity. So we, as a
nation, are increasing both blue collar and white collar productivity at a rate
that is unprecedented in history, and that is what is driving the good
times.
So, the question is, which campaign will see that kind of thing continue
and accelerate, and which campaign, if successful, would see it decelerate. Obviously, I think that the Bush
campaign would do the best job in keeping the good times rolling for a variety
of reasons. And let me go through
some of them.
First, the tax policy. I
remember when I was a new senator and newly on the joint economic committee, I
went to my first hearing to hear Laura Tyson talk about tax policy. And she said something that sent chills
through my businessman entrepreneurial soul. She said, among modern industrialized
nations, particularly Europe, we are seriously under-taxed. And while she didn't say it
specifically, her testimony then went on to imply, we in the Clinton
administration are going to fix that.
My own experience was that the years of greed, the decade of greed, as
the Democrats chose to call the Reagan years, were, in fact, the years in which
we laid the foundation for the increase in productivity to which I have
referred. And that the tax policy
was a very significant part of that.
If I can very quickly, in my own life, we started our business in 1984
when the marginal tax rate under an S Corporation was 28 percent. We grew that business from four
full-time employees to over 4,000, at a market cap at one point that was close
to a billion dollars. Think of the
amount of taxes paid into the government in terms of building the surplus out of
that kind of growth and success if our top marginal tax rate had been 39
percent, as Clinton has raised it to, we would not have survived. The difference between a marginal tax
rate of 28 percent and 39 percent was the difference between survival and
extinction for that company. And we
are now paying ‑‑ I say, we, I have nothing to do with the company
anymore. We are now paying millions
and millions of dollars in both federal and state taxes, either directly or
through the taxes paid to our employees, or the profits and taxes paid by our
suppliers, and so on, all of the economic effect of that company. And we would not have been able to do
it. We did it with internally
generated cash. The difference
between 28 percent and 39 percent.
There was 11 percent of the money that we generated that we were able to
keep in the company and grow the company.
And the Gore proposals on taxes would move us away from that particular
view.
They can demonize the people who pay big tax bills all they wish, and
Gore does that extremely well, but the fact is that the top 1 percent in America
is mobile, and fluent, and constantly changing. There was a time when I was in the top 1
percent. I'm not there
anymore. I'm now a politician. But, frankly, the speed with which I
moved into that, and then moved back out is a demonstration of the fluidity of
the American economy. And if we
ever have the mind-set that the vice president has displayed, that that is
static and, therefore, must be punished with punitive tax policy, we are going
to see the good times stop rolling.
Next item that I think people don't think about in terms of the economy,
but that is coming to bite us right now, and this has to do with energy costs,
and energy prices. Energy has
nothing to do with policy, it's all set on the world market. We're at the mercy of OPEC. So, if we just take the oil out of the
strategic oil reserve, why, we can solve that. That's at least the mantra that is
coming out of the Democratic campaign.
It is not true. We can have
the ports filled with ships from OPEC with oil ready to be refined, and we still
would have higher energy prices this winter than we did last. Reason, because the regulatory policy of
the Clinton administration which would become exacerbated under Vice President
Gore, given his proclivities with respect to the environment, have lowered
America's refining capability.
So oil coming out of the ground in Saudi Arabia is of no value to the
people in New England who are looking at huge increases in their home heating
oil costs because they can't burn Saudi crude. They burn home heating oil that must be
refined from Saudi crude. And the
refinery capacity in this country has been pushed down and reduced steadily
under the environmental views of the Clinton administration. I see it in my own state where I see
refineries driven out of business, and they say to me, Senator, we simply cannot
meet the environmental requirements that are laid on us in the name of pure and
clean air. In fact, the air in Salt
Lake Valley is cleaner than it has been for a long, long time, but that doesn't
matter. The ideological
determination that anything relating to the energy industry is somehow bad
permeates this campaign. You see it
in the attempt on the part of the Gore people to demonize the governor and the
secretary because they had some connections "with big oil." Well, if you want heating oil in New
England this winter, you're going to have to call oil of some size or other, and
it's not going to come with presidential speeches, it's going to come with the
building of refineries.
The whole energy issue cuts across the technological world, because you
need energy for electric power, you need energy for all of the computers, and
here is a campaign that's talking about tearing down dams from which we get the
cleanest and most efficient form of energy, which is hydroelectric power. We saw it again in my own state. We have perhaps the world's largest
deposit of clean burning, low sulfur coal, none of which we will be able to
develop because the president has decided that he wanted to declare it a
national monument. I can
demonstrate how coal can be mined in a very environmentally sensitive way, but
nobody wants to listen to that. So
that's another aspect where the good times will not continue to
roll.
Finally, let me talk about globalization. One of the reasons they good times is
rolling is because we now have the world as our market. And for those who are terrified about
bringing down barriers around the world, they must recognize that the meanest,
toughest, most effective exporter in the world is the United States of
America. And the lowering of tariff
barriers is very, very important to the American economy. Well, we've had NAFTA, we've had GATT,
we've had PNTR, we didn't get fast track.
My time is pretty well gone, so I won't give you all of the who shot John
on that, but I just want to leave you with this one last thought with respect to
the attitude about globalization.
Both parties have their Luddites.
There is no question that those who want to stop globalization are not
restricted to either the Republicans or the Democrats. But I would leave you with this one last
visual image. Our leading Luddite,
that is the Republicans, was sufficiently uncomfortable in the party that he
left the party to seek the nomination of the Reform Party. The Democrats' leading
Luddite, should they win this election, will be the Speaker of the House of
Representatives. Thank you very
much.
MR. SHAPIRO: I was feeling
so friendly towards Bob until that last crack. Our leading Luddite left the party and
is also running on a different party on trade.
I want to thank Brookings. I
want to thank Mike Armacost. I want
to thank Bob Bennett, it's always a pleasure to discuss issues that really
matter to us and matter to the country.
National elections are fought over great issues, and they're fought over
their solutions. The candidate and
the party which correctly recognizes the essential questions and offers
solutions that embody the values of the American people and which can work
deserves to win the election, and usually does win the
election.
The basic question in economic policy in this election is, what should we
do about an economy when the American people are enjoying the best eight-year
run in American history. The
essential answer is, figure out what we've been doing right, and keep on doing
it. There are new conditions and
new challenges to be addressed, but we must keep on doing what's produced the
best growth in productivity, the lowest inflation, and the lowest unemployment,
the strongest income gains, and the greatest progress against poverty in two
generations.
One of those new conditions and challenges is that in the midst of this
prosperity market forces have widened inequality, and have made education and
healthcare more expensive. What do
we do about that? We cut taxes for
those grappling with those problems, the middle class and those struggling to
join it, and we make education and healthcare more
affordable.
The successful economic strategy of the last eight years has rested on
four essential pillars, fiscal responsibility, targeted use of resources
including spending and tax cuts, promoting technological advance and its spread,
and pursuing open trade. There is
no difference between our candidates with respect to one of these, that is open
trade.
The administration successfully completely approval of the NAFTA,
successfully completed negotiation and approval of the Uruguay round, the most
comprehensive trade agreement in American history, and successfully negotiated
and completed more than 300 bilateral trade agreements. Governor Bush does not criticize these
achievements, and has joined Vice President Gore in supporting continued efforts
to open foreign markets, and keep our own economy open. That leaves three pillars for difference
and debate.
First, I want to lay out the essential elements of Vice President Gore's
budget, and then contrast it with Governor Bush's plan. We start with a total projected surplus
over the next decade of $4.56 trillion.
First the vice president would save all of the surplus revenues from the
Social Security and Medicare contributions. Governor Bush does not save any of the
Medicare surplus, and while he says he would like to save the Social Security
surplus, we will see that his plans do not accommodate even
that.
So the vice president begins with saving $2.75 trillion from the original
$4.56 trillion. Sorry about all the
numbers, but it's hard to talk about the budget without using numbers. Then the vice president sets aside
another $300 billion in a surplus reserve fund in case the original projections
fall short. That comes to $3.05
trillion in debt reduction, or two-thirds of the entire surplus. That leaves $1.5 trillion for other
uses. Roughly $500 billion goes to
targeted tax cuts over ten years.
Roughly $750 billion goes to targeted public investments. Roughly $250 billion goes to debt
service associated with his tax and investment program. Let me repeat, two-thirds of the
projected surplus will be saved, that is fiscal responsibility of the kind that
has produced the best economy in generations.
Now, let me give you our analysis or my analysis of Governor Bush's
plans. Starts with the same budget
surplus projection, $4.56 trillion.
His income tax cut comes to $1.32 trillion. He has proposed other tax cuts which
come to $670 billion. So the total
tax cut comes to about $2 trillion.
In addition, he proposes another $600 billion in additional
spending. So that's $2.6 trillion
spent from the $4.56 trillion surplus.
Then there's the governor's Social Security proposal, that would reduce
revenues and the surplus by another $950 billion over ten years. Now, we're at $3.55 trillion in
commitments. Finally, the
additional debt services associated with these tax and spending plans comes to
another $800 billion. The total now
is $4.34 trillion. The governor's
plan would save $220 billion out of the $4.56 trillion surplus, which means that
whatever he would like to do, his program has no room to save even the Social
Security surplus, much less more.
There's nothing fuzzy about this math.
Al Gore believes that fiscal discipline is essential to maintaining our
prosperity. Once again, his program
will save $3.05 trillion, that's $220 billion on one side, $3.05 trillion on the
other. That's really what the
election and economic policy is about.
That's why the vice president's program will keep this economy going, and
I fear Governor Bush's plan will not.
Let's go very briefly over the two candidates specific tax and spending
proposals. Governor Bush's $2
billion tax program includes, of course, the across the board cuts that we know
will deliver the greatest dollar benefits to the wealthiest people in
America. Yes, the wealthiest people
pay the most taxes. That's what a
progressive tax system is all about.
We would like everyone to pay less taxes. The question is not whether you would
like people to pay less taxes, but what are your priorities, which is more
important large tax cuts for those who do not need them at a time when their
incomes and wealth have risen faster than at any time in the post-war era, or
fiscal responsibility for an economy and prosperity that everyone depends
on.
In addition, Governor Bush has pledged to fix the alternative minimum
tax, again for higher income people, not high but higher; provide a much larger
marriage penalty with most of the additional benefit, as compared to the vice
president's proposal on the marriage penalty, going to more affluent couples;
and the taxation of Social Security benefits, again, for relatively more
affluent seniors; raise the limits on pension contributions which, again, mainly
help higher income people; and repeal the telecom excise tax, which guarantees
access, telephone access, for lower income people. That adds up to $670 billion over ten
years on top of the $1.32 trillion for the across the board tax cut. The price tag for all of this is $2
trillion.
Now, let's look at the vice president's tax program. His guideposts are to conserve budget
dollars and boost national savings.
Therefore, he believes tax relief should be concentrated on the people
who need it to take care of their families. It should be targeted to promote
specific national goals and address specific social needs, healthcare,
education, saving and the environment.
This is a big difference between the candidates. Governor bush has said repeatedly that
the vice president wants to pick and choose, that he wants government to pick
and choose who gets tax relief, and that Governor Bush does not. The vice president wants to target tax
relief to those parts of the American population which need it and are
consistent with the basic values of the American people. That is a very different
approach.
The vice president's tax proposals would support efforts to save for
retirement by middle class and low income people. It would provide marriage penalty relief
for the middle class. And through
EITC reforms for low income families.
It would provide a tax credit for families purchasing health insurance,
credits for businesses to reduce pollution, expand the credit for middle class
families who pay college tuition, and provide new tax benefits for families
burdened with long-term or child care expenses. The price tags to address these social
needs is $500 billion. That
compares to the $2 trillion in tax cuts from Governor
Bush.
Finally, let's look briefly at the two candidates' spending
programs. Again, they reveal how
these candidates understand the challenges facing the country, and their
priorities. Governor Bush has
proposed $200 billion for a prescription drug plan, which we and many healthcare
experts believe will not work very well.
He's called for spending $132 billion for other healthcare efforts; $42
billion for defense; these numbers all come from the Bush campaign
incidentally. Plus, and this does
not come from the Bush campaign, anywhere from $100 to $200 billion for his
missile defense plan, which he has committed to, and that estimate is the
experts' estimate of the kind of commitment he's made. That comes to about $600 billion in
additional spending, with very little additional for education, and nothing more
for Medicare, training, or cleaning up the environment.
The vice president has different priorities. There's $255 billion for Medicare,
including prescription drugs for seniors.
There's another $120 billion for other healthcare needs. There's $100 billion in additional
spending for national defense, more than twice what Governor Bush has proposed
apart from his missile defense plan.
There's $115 billion in additional investments in education and training,
and $120 billion in new investment in the environment and energy. This is a responsible plan to meet the
central needs of the country while maintaining the real fiscal responsibility on
which the prosperity of the American people depend.
Do I have any more time?
Good, okay. Finally, I want
to look inside one of the areas of tax and spending changes, and that's the area
of technology and innovation. It's
appropriate because innovation in all its aspects is the single most important
factor which determines a nation's growth rate, accounting for an estimated 40
percent of the growth that the American economy achieved in the 20th
Century. We live in an era of great
technological advanced centered in information technologies created by
scientists, entrepreneurs and workers, and actively supported by the
extraordinary economic environment fostered by the administration's
policies.
We have seen seven consecutive years of double-digit growth in business
investment and plant and equipment.
That's a new record. And
some three-quarters of that increase has gone to IT. More important, the income of average
families have grown now for five consecutive years. That's another record for the American
people. For the last seven years,
real average incomes have risen 12 percent, that is incomes adjusted for
inflation. This is after falling 4
percent in the Bush years, and rising by less than 1 percent a year in the
Reagan years.
I hardly need to cite, I believe, Al Gore's record of foresight and
leadership in the area of technology.
Fighting for the Telecommunications Act of 1996 to promote investment in
competition, launching the public-private effort that is connecting every
classroom to the Internet, and training every teacher to use IT effectively;
helping to convince other governments to adopt a market-led approach to global
e-commerce; calling for a new global information infrastructure, which is a
network of networks to transmit information at the speed of light to every
community in the world.
In the next four years, he will improve and expand the R&D tax
credit, making it partially refundable and permanent. He will finish the job of connecting
every classroom and library to the Internet, and increasing training for
teachers and students; support the development of digital libraries; expand
worker training programs. He will
ensure that cyber space is a permanent duty free zone, and that other countries
do not discriminate against electronic commerce. His research agenda includes a new level
of investment in basic R&D, and in science and technology; a doubling of
federal support for biomedical and IT research; expanded support for
technologies that can help us develop cleaner sources of energy, improve energy
efficiency, and protect the environment.
He is committed to bringing innovation to government, and will provide
virtually every government service online by the year 2003. He will enact and electronic bill of
rights for privacy to protect Americans online, I know a matter that Senator
Bennett is very committed to and concerned about as well. The will provide the spectrum for third
generation wireless services. And
he is committed to bringing every household in the country online by 2005,
making the Internet as universal as the telephone.
He can do this because for many years he has understood the revolution in
information technologies and its implication for American life in a way that no
other public figure has. He can do
this because his budget and tax program can vastly expand national saving, which
will keep interest rates low and business investment
strong.
Governor Bush has a plan for technology, too, even if in my view it is a
little thin in this key area for a strong economy. He, too, supports the R&D tax
credit. He, too, wants to keep
cyber space duty free. And he, too,
wants to increase support for biomedical research. But his tax and budget plan will expand
consumption through tax cuts instead of saving and private investment. He has no program to bring the Internet
to every classroom and every family in America. I respect Governor Bush's motives and
intentions, but his plan does not tell us that he truly understands how America
has created these extraordinary good times, or how to keep them going. It is all about priorities and
prosperity. On all counts, our
country cannot afford Governor Bush's plans. Our country needs Al Gore's
leadership.
Thank you.
MR. MURRAY: Senator, why
don't I get you to come up here on the stage, if you two could sit right here,
and let me introduce our other panelists today. We have Alice Rivlin, who you all know
is a senior fellow here at the Brookings Institute, former budget director,
former director of the Congressional Budget Office. She has seen it from all
sides.
Bob Litan, who is the director of economic policy studies here at the
Brookings Institute.
And Jim Glassman, who is a quasi-resident fellow at the American
Enterprise Institute, and is the host of something called
TechCentralStation.com, which for those of you who have high speed connections
to the Internet, is a really cool new program.
And let me, while everyone is getting their mikes on, let me take the
moderator's prerogative here, and ask our speakers each a question, and
Undersecretary Shapiro, if I can, I'll start with you.
You've talked about the importance of fiscal discipline, and Vice
President Gore's role in that.
You've talked about the importance of technology, and the vice
president's role in that. And
you've talked about markets. All of
these things being part of what's created this remarkable economy that we
have. But now, if I understand the
Bush position correctly, what he seems to be saying, perhaps not as eloquently
as we sometimes might like, but what he seems to be saying is, let's extend
market forces into three big areas that have remained largely immune from that,
Medicare, Social Security, reform those two programs, and education, bring a
voucher-like program to education.
And the vice president is saying, no, stop, let's put up the wall and
defend the status quo around those three programs. How can you take that position and claim
to be the champion of the new economy?
MR. SHAPIRO: Well, I don't
think that Al Gore has said that he wants the status quo in any of these
areas. In Social Security, he wants
to promote additional private saving and investment through Social Security
Plus, that is through new incentives for people to save on their own without
endangering the basic benefit of Social Security. He's called for a revolution in
education. What he does not want is
to shift public funds out of the public school system and into the private
school system. And with respect to
Medicare, he is very reluctant to let market forces in a sector in which there
are enormous market distortions potentially affect the access to healthcare for
seniors, particularly on low incomes.
Look, in all of these areas, we support some market dynamics. All of these areas are also areas of
market failure. They're recognized
by economists as areas of inherent market failure that require government, some
public commitment in order to ensure that people have the basic security and
education that they need. We have
public school systems precisely because there would be a market failure in
education, and tens of millions of children would not get educated if we had a
privatized, a totally private educational system, which we had for hundreds of
years, and that's exactly what happened.
That's also true for retirement security. We know that without a system like
Social Security, many people will be myopic. Many people will not be sufficiently
disciplined, or not have the funds, simply not have the resources to save, and
will find themselves in abject poverty when they're
elderly.
MR. MURRAY: Senator Bennett,
let's stick with this subject for a minute. Particularly Social Security, because I
know that's an area you've thought a lot about. Now, Governor Bush has said he wants to
reform Social Security. He wants to
create private accounts. He has not
yet made it clear to us how he intends to pay the high cost of moving the system
from an unfunded system, which it now is, where we pay payroll taxes to support
the benefits of retirees, to a funded system. He says, higher returns in the market
could pay part of that, most people don't think it could pay nearly all of
it. So how are we going to pay the
rest? Are we going to raise the
retirement age? Are we going to cut
cost of living adjustments? Or are
we just going to pile on debt and get back to the situation that we had in the
1980s?
SENATOR BENNETT: I will get
to that, but let me make a first comment.
All of the items that have been discussed that have been described as
being difficult or problems are government monopolies. Don't we know something about
monopolies? They're inefficient,
they're very expensive, and they do a lousy job of providing services. And, if I may make this comment about
the education system, I come from the private sector. These are real numbers. The average per student expenditure
around the country now is about $7,000.
It's less than that in Utah.
It's more than that here in the District of Columbia, it's $10,000 plus
in the District of Columbia.
Millions of children that are failing and are being damaged by their
exposure to the public schools under this expenditure. If someone comes along and says, I will
educate that child for you for $5000, why is it taking money out of the public
schools to say, I'm going to get a $5000 better result than spending $7000 on my
present bad result. Where I come
from you're making two grand. And
that's the way the real world works.
But, that's not the way bureaucrats view budgets.
All right. Now, Social
Security, you say how is Governor Bush going to pay the transition costs, and
I'll tell you, I don't know. And I
don't think he does either. But, I
will tell you this, the longer we put of facing the transition, the higher the
transition cost is going to be. The
longer we wait to face the demographic pressures that are building on us, saying
well, we can't explain exactly how we're going to pay the transition costs, so
let's not try, let's just leave the thing the way it is, let's go out and fight
another election on the slogan of save Social Security.
And then wake up and say, you know, if we'd only had the guts and the
leadership back in the '90s ‑‑ and frankly the Social Security thing
is too late, we are beyond the time we should have been dealing with this, if
we'd only had the guts back in that time to face this issue, and work our way
through it, then we'd have a solution now.
But, if we just continue to say, let's fund the present system on the
grounds that we can't dot every I and cross every T in the transition plan,
we're going to have real problems when my children and grandchildren come up for
Social Security. I don't have any
problem. I'm going to be just
fine.
MR.MURRAY: I think you can
see there is more than a dime's worth of difference between what these two men
are saying. And Undersecretary
Shapiro is chomping at the bit here to respond. But, I'm going to keep a little tension
here for a minute. I'm going to
give our three panelists each a chance to comment on what they've heard so far,
starting with Alice Rivlin.
MS. RIVLIN: Well, I'd like
to comment, and then pose a couple of questions to both of the very able
panelists. I certainly agree with
Senator Bennett, and I suspect Rob Shapiro does too, that much of
what ‑‑ and he said this, much of what is driving our good economy is
the acceleration in productivity, and much of that has come from good use of new
technology. But, policies have
something to do with it. And
bringing the deficit down and turning it into a surplus certainly was the right
policy, and has put downward pressure on interest rates. And going forward, it would seem to me,
if we're going to keep the good thing going, we ought to continue a very
responsible fiscal policy.
And I am worried, by both candidates actually, but particularly by
Governor Bush, that the surpluses which look so wonderful as you run out the
economy on not terribly optimistic assumptions, but they assume that you're
going to have continued growth over a whole decade, that especially if we don't
think about some of the things like how we would fill the transition hole in
Social Security, we may find ourselves with too great spending and not enough
taxes coming in, and especially in the short run. My former friends at the Federal Reserve
have been raising interest rates to keep the economy on a sustainable growth
track. They haven't had to do as
much of that as they might otherwise have done, because the federal budget has
been so restrictive, and has been helping.
Now, what happens if we have a big tax cut in the near term, putting a
lot more spending power into people's hands, and we don't think ahead about how
we're going to do something like filling the transition hole in Social
Security. We find ourselves with a
very loose fiscal policy, and pushed into tighter and tighter monetary policy
just to keep things from going off the track.
SEN. BENNETT: Do you want
to ‑‑ or is it my turn?
MR. MURRAY: He's dying to,
but I think she asked you the question, and then we'll give him an opportunity
to respond.
SEN. BENNETT: Well, I don't
want my previous answer to be so flip as to suggest that the Bush campaign is
not looking at the whole question of the transition costs. I'm just going back to my own experience,
which says that ‑‑ no offense anybody, this is not personal to any of
you, but people in government who think that money comes from the budget make
serious policy mistakes. The
economy is tremendously fluid, the economy is tremendously flexible, there are
all kinds of unintended consequences, I gave you my own example of where I think
the 28 percent marginal rate is largely responsible for a great deal of the
growth that we're having now, because businesses founded during that time are
now sending enormous surpluses.
And the surpluses, frankly, have not come because of fiscal
discipline. I'm an appropriator,
come up and listen to the things that go on in the Appropriations Committee,
there isn't anything approaching fiscal discipline going on on the Hill right
now. The surpluses are coming
because of unusually, unprecedented high tax returns. And one of the sources of those tax
revenues has, frankly, been ‑‑ back to the question of being able to
forecast this, that capital gains realizations are substantially higher than
projected at the time the capital gains tax cut was, frankly, forced upon
President Clinton as part of the balanced budget agreement between the
Republican House and Senate.
I am one who has always said, you cut the capital gains tax rate, you
increase the capital gains tax realizations. I'm a business man who says sometimes
you cut the prices of your product and you increase the sale, you increase your
market, and you increase profits.
That's what's happening to the economy. And it's got to continue to happen,
we've got to continue to have a tax policy that says the economy continues to
grow and tax revenues come in even if tax rates go down. And then we will have enough money to
deal with the transition problem.
MR. MURRAY: Let me just get
you to follow up on that.
I'm going to get to you, Rob, I promise you. I'll give you plenty of
time.
I don't think you've quite answered the question here, don't the voters
have a right to know if they have to make the evaluation on the economic effects
of the Bush policies, don't they have a right to know whether you're going to
finance this transition with massive borrowing, or finance it by raising the
retirement age to 73 or 74?
SEN. BENNETT: Of course they
do if, in fact you are dealing with a sum zero game of the kind you describe,
where the budget is static and it comes from this source or this source, and it
goes this way or that way. If you
are dealing with a dynamic economy that has to keep growing and then the
projections are that the surpluses will be much higher, then you say we want to
go with the guy who is going to keep the economy growing more
rapidly.
I asked Alan Greenspan at one of our hearings, are these projections
right? And he said no. He said they're either much too low, or
they're much too high. He said, I
can draw you a scenario that says the surplus will disappear within a year or
two, or I can draw you a scenario that says the surplus will be two or three
times as big as you're projecting.
And the answer to that is what policy will cause the economy to grow the
most rapidly. And I think based on
history the Bush policies are the ones that will say the economy will grow the
most rapidly, and we will have the money.
I think that I'm not answering your question directly, because I think
the question is framed in the Washington mentality, and not in the reality of
the economy as a whole.
MR. MURRAY: Go ahead,
Rob.
MR. SHAPIRO:
Undersecretaries don't have as much practice talking, I guess, as
senators. Look, the fact is Social
Security is the single most successful social policy of the 20th Century in
America. It has reduced poverty
among elderly people from 35 percent to less than 10 percent. In fact, by some measures to less than 5
percent. The notion of taking $1
trillion in the first 10 years, and $3 trillion in the first 20 years out of the
revenue stream that supports the benefits that maintain America's senior
population in basic dignity, without providing any notion of how you're going to
pay for that, how you're going to maintain benefits when you take $1 trillion in
resources out of it in 10 years, and $3 trillion in 20 years, is deeply, deeply
troubling to me, and it ought to be troubling to every senior in the country,
and everyone approaching retirement age.
Let me tell you what Marty Feldstein, who is Governor Bush's senior
advisor on Social Security says about how you would, in fact, make this
transition. He says, well, one
alternative is to borrow $3 trillion.
He says that part of what will be entailed is that the guaranteed Social
Security benefit will be cut, hopefully offset by returns from private
accounts. The dimensions of that
cut, according to Feldstein, would average 34 percent cut in benefits, and would
go as high as 45 percent. Our
projections say 54 percent, but it doesn't matter.
The fact is, Governor Bush has not owned up to this other essential
element of his Social Security plan which is a cut in the guaranteed benefit of
at least a third, and up to 45 percent, according to his own senior Social
Security advisor. Marty Feldstein
also says that growth will accelerate because of this is plan, and it will
double corporate tax revenues and all of that will go into Social Security,
something I don't think my friend Bob Bennett will like. He's going to double corporate tax
revenues ‑‑
SEN. BENNETT:
Absolutely.
MR. SHAPIRO: Well, you said
the corporate tax had to come down.
SEN. BENNETT: I just the
said capital gains tax revenues have gone through the roof, and I think that's
wonderful, because we cut the rate.
MR. SHAPIRO: Let me tell you
one other interesting provision that Feldstein figured out. He said, in order to make this plan work
at a 2 percent diversion, a 2 percent diversion you would have to reclaim the
assets in the private accounts when the person dies. He says, in order to allow people to
pass on those assets it would not be 2 percentage points, it would be 2.8
percentage points, increasing the drain on revenue, and endangering the Social
Security system.
MR. MURRAY: And let's just
be clear here, none of the things that Undersecretary Shapiro just said are
things that Governor Bush has said he will do. He hasn't told us how he would do
this.
MR. SHAPIRO: That's the
problem.
MR. MURRAY: At the risk of
angering the home team here, let me go to Jim Glassman next, and then come back
to you.
MR. RIVLIN: The home team is
very docile.
MR. MURRAY: Jim, go
ahead.
MR. GLASSMAN: So I don't
have to talk about Social Security transition right?
MR. MURRAY:
No.
MR. GLASSMAN: Good. You don't know this, but before we came
up here there was a pact, Alan Murray said no economist jokes. But I'm breaking the pact. And this is actually not a joke, it's
something that Ronald Reagan said.
Economists are people who see something work in practice and wonder if it
would work in theory. And so what
is working in practice, we all agree, is the U.S. economy. The question is why. Rob says, let's keep on doing it,
whatever it is we're doing. What
are we doing? Well, essentially I
think there has been a, if you'll pardon the expression, a supply side
revolution, and I don't mean that in the caricatured sense, since it began
about 20 years ago.
Part of it has been free trade, part of it has been public policies like
cutting marginal tax rates, the deregulation of transportation and to some
extent telecommunications. Part of
it has been technology. And that's
what I want to concentrate on right now.
And the effect of all of those has been to increase supply. So that when we had 3.9 percent
unemployment, and demand goes up, supply goes up as well, and we don't have
outrageous inflation, and having the Fed to crack down. That's what I think the dynamic is
that's going on.
But, a key part of it is technology, which increases productivity. Now, Rob says we need to keep on doing
what we're doing. Unfortunately,
we're not doing what we're doing in technology, which is why I just want to
focus quickly, and I want to get the response of the undersecretary and the
senator. Starting around March
something happened, I think that a great part of it was the realization by
investors, and by people in Silicon Valley, that indeed there was a very good
chance that this ill advised antitrust suit against Microsoft, which Milton
Friedman calls, this incredible episode, which I think is actually the best
characterization of it, may be successful.
And Microsoft, really at that point the gem of the American economy, the
largest corporation in the world in market cap would be, amazingly enough,
broken up into two.
Since then we've seen the market capital of Microsoft drop by $300
billion, about 20 million Americans own Microsoft, a significant decline in
their wealth. But, far more
important than that, the NASDAQ is now down by about one-third. Now, it's not just Microsoft. What it is, in my opinion anyway, and
this is what I want to hear from the two speakers, is a growing realization in
the capital markets that politicians who had generally laid off of high
technology, high technology was kind of an enterprise zone, in Jack Kemp's
words, suddenly had discovered it.
And they were going to get their piece of it, well intended in many
cases.
And they had lots of reasons, privacy, let's do something about privacy,
let's do something about antitrust, let's do something about the digital
divide. Rob at one point said that
Bush has no plan to bring the Internet to every family in America. You know who has a plan to do that? Intel, Microsoft, Novell, Sun, Oracle,
this is a great plan. It's a
terrific plan, it's called free market capitalism. And it actually works, and at this point
50 percent of Americans within a few years have access to the Internet,
amazingly enough.
Anyway, we are seeing over and over government intervention in an area
that was essentially a free market.
So I would like to know from both of you what your candidates are going
to do about this kind of intervention.
I'm talking about taxing the Internet, rolling back the
Telecommunications Act of 1996, holding up mergers like AOL/Time-Warner, that I
think are very beneficial. This
kind of political intervention, there are hundreds of bills now in Congress to
get involved in the Internet. What
are you going to do about it?
MR. MURRAY: A very
provocative point. Undersecretary
Shapiro, why don't you start.
MR. SHAPIRO: Well, the vice
president is committed to a bill of rights on privacy, with respect to
electronic information. There
are ‑‑ we all believe in markets, but the vice president believes in
the American market economy. So
does, I think, everyone in this room.
There are certain values, national social values, that the public looks
to government to help defend and acquit, because markets don't always acquit
those values. Those aren't the
values that the market responds to.
Privacy is one example, and we guarantee privacy in many areas of
people's lives. We will on the
Internet, as well, I hope. Apart
from that your concern about ‑‑ I don't think there should be a
concern about special taxation of the Internet. No one has ‑‑ everyone has
committed to not imposing special taxes on the Internet. The main issue here with respect to the
spread of technology, and I agree, Intel, and Sun, and Microsoft, and many other
great corporations have plans to wire as many families in America as possible to
the Internet, and the greatest force is the falling price of
computers.
There will be pockets which are not connected, and which it is the proper
role of government, we believe, to help connect those pockets just as we ensure
that everyone has access to a telephone.
But, the most important thing is to maintain the economic environment for
business investment, and for economic growth. And that depends fundamentally upon
continued fiscal responsibility and saving most of the
surplus.
MR. MURRAY: Let's talk a
little bit about Microsoft, I'm baffled by the fact that neither of these
candidates will say anything about this case. And they say, we can't -‑ it's a
case in the antitrust division, we can't talk about it. That's BS. I mean, Teddy Roosevelt ran a whole
campaign based on talking about the antitrust laws. Both of these guys could talk about it
if they wanted to. What do you
think, as the Undersecretary for Economic Affairs of the Commerce Department,
what do you think about the Microsoft case, is that a remedy that is good for
the American economy or bad for the American economy?
MR. SHAPIRO: As an official
of the administration, I have no views other than the official views of the
administration.
MR. MURRAY: Which is to not
have a view.
MR. SHAPIRO: No, the
administration has a very clear view.
MR. MURRAY: All right. So you're supporting the Justice
Department?
MR. SHAPIRO: The Justice
Department is part of the administration, and the administration has a very
clear view. And beyond that I can't
speak.
MR. MURRAY:
Senator?
SEN. BENNETT: Obviously I've
not discussed this with the governor.
So I will tell you what I think.
I am unburdened with a legal education. If you were to ‑‑ I view this
through the prism of what is good for the customer. And I have yet to be convinced that the
Microsoft suit brought by the government is good for the customer. I have a hard time believing that the
customer is going to be better off if, indeed, the efficiencies that have been
created by a common operating system are destroyed.
And also, I have a hard time understanding why the customer is damaged
when Microsoft gives its product away.
Usually a monopoly operates its monopoly power by charging monopoly
prices. In a highly competitive
situation you charge marginal cost in order to establish market share, and
marginal cost for the Internet browser for Microsoft is zero. So they're charging marginal cost by
giving it away. I think that's a
legitimate market kind of function.
There may be an antitrust thing here that I don't understand, and which
if I had gone to law school would be clear to me. But, because I am a business man who
thinks in terms of taking care of your customers, I have a hard time
understanding why the customer would be benefited by the jihad that has been
launched by the Reno Justice Department with respect to Microsoft. With that having been said I must say in
the interest of full disclosure that my senior colleague from the State of Utah
holds exactly the opposite position.
MR. GLASSMAN: Senator, I
think the real question is not the position you hold, and I agree with the
position you hold, but the position that Governor Bush holds. Governor Bush has not really talked
about this issue, and it's a very important issue. And let me also add
that ‑‑
MR. MURRAY: This was going
to be brief.
MR. GLASSMAN: Okay. All right. But, let me just say that I think
perhaps Vice President Gore's attitude toward this kind of intervention in
technology in the broader sense is evidenced also by his attacks on large
pharmaceutical companies, which you could argue are, in fact, the most
successful high technology companies in America. So two questions, really, in general
what do you think the governor's attitude is towards political interventions in
high technology. And second, what
about the Microsoft case?
SEN. BENNETT: Well, I can
answer the first one, I'm sure, very authoritatively. Governor Bush believes in free markets,
he believes in allowing the market to operate as much as possible. Look at his tax plan, we can go back to
the comment that the undersecretary said.
He said, the tax plan will target specific national goals. Governor Bush does not believe in using
taxes to target specific national goals.
He believes in using taxes to fund the government.
And so you want to raise taxes in a way that's most efficient to fund the
government, not to say, well, we will reward a woman who goes to work with a tax
break, but we will not reward the same woman if she decides to stay home. So that's why our tax plan is very
simple and across the board. I
think that illustrative of how he would view the picking and choosing of large
corporations.
MR. MURRAY: All right. This is a perfect segue to Bob
Litan. And I'm not going to put you
on the spot by asking whether you went to law school. And I'm not going to put you on the spot
by pointing out that you were a high ranking official in the Clinton Justice
Department when all this Microsoft got going. I'm just going to let you talk about
whatever you want to talk about.
MR. LITAN: Am I being set up
to be Jim's foil on Microsoft? Just
two words on Microsoft, or two paragraphs, and then I want to go back to the
fuzzy numbers. On Microsoft, it is
a basic principle of antitrust law, having been established by judges from the
old economy to the new economy, and the judge in this case was appointed by
Ronald Reagan, let's remember that, what Microsoft was found to have engaged in
was an abuse of its current monopoly power. No question that it acquired its
monopoly fair and square, but it engaged in a variety of exclusive practices
aimed at Netscape, AOL and others, that basically cemented its position
unlawfully in the market.
It is my prediction that regardless of what the Supreme Court, or the
Court of Appeals does, Judge Jackson's findings of fact will not be
overturned. There will be arguments
about what the remedy should be, but the fact that Microsoft violated the law in
my opinion, and in Judge Jackson's opinion, not just Attorney General Reno's
opinion, or Joel Klein's opinion, that is crystal clear.
A minor quibble on the stock market that Jim pointed out, it's true that
the NASDAQ did fall around the time of the initial determination of a break up
of Microsoft. Microsoft also had
disappointing earnings at that time.
So it's hard to know exactly what was the cause. But I can tell you the most recent
event, and that is when the Supreme Court refused to take the Microsoft case on
immediate appeal, which was widely claimed by every observer in the field as
good news for Microsoft.
In fact, one of my colleagues at GW basically said that the break up is
dead now, because it's got to wind its way through the courts. Universally good news, did the Microsoft
stock go up at that time? The
Microsoft stock continued sinking.
So I would argue that forces larger at work are driving the NASDAQ down,
mainly the realization that a lot of these tech stocks have been overpriced for
some time.
Now, let me get to some more fuzzy numbers, not just the numbers on the
stock market. I just want to make a
very simple point, and that is that first we have a remarkable level of detail
from both candidates in this campaign.
I would say, the most detail in my lifetime of any two presidential
candidates. In part that's because
they've got a surplus to work with, and they can argue how they're spending the
money. But, to their credit, we
have an incredible set of detailed plans of what each of these candidates would
do, which is to, I think, the political system's credit.
Having said that, though, I predict that there will be a realization
after the election that things have got to not maybe proceed according to the
plans. You know, when President
Clinton ran on his putting people first program, he said he was going to spend
all these billions of dollars on X, Y, and Z, and so forth. And then essentially Alan Greenspan sat
him down for a Dutch uncle talk and said, look, you can't do all this without
sending the bond market into a tizzy.
And the plans were scaled back.
I predict something similar is going to happen, whether Bush or Gore is
elected, for the following reasons.
Number one, the surpluses that CBO are now projecting could be, I
underscore the word could, could be way overstated. Overstated because for one reason, as
President Clinton said last night, and it was quoted in the Washington Post
today, the fact is that discretionary spending is projected under the CBO plans
to only rise with inflation, when in fact we know it is likely to rise with
population growth as well. And also
what Senator Bennett said, Congress is busy spending money right now, and
inflating the baseline. So we're
not going to have, for that reason alone, those surpluses.
In addition, those forecasts do not take account of obligations of the
federal pension plans. And we at
Brookings have done some analysis here, it's on our web site, which suggests
that when you take account of all these factors the so-called $2 trillion in the
non-Social Security surplus maybe lower than $1 trillion. So neither candidate may have that money
to spend.
On the other hand, there is good news. The good news is that the CBO for the
last five years has way underestimated the volume of revenues. And they've underestimated it not just
because of capital gains realizations, which have been low, but also they
projected, like every economist I know including myself, they've projected
economic growth rates that have turned out to be much lower than, in fact, have
materialized. We've had 4 percent
growth for the last five years.
Nobody predicted that. We
thought it would be maybe 3 percent, or 2/1-2, and now it's four. So it very well could be that over the
next four or five years that we get remarkable continued growth, and we get more
revenues. And so there's an
enormous amount of uncertainty about those CBO
projections.
And what I'm going to say is that after the election, that uncertainty
will be factored into the next set of CBO projections, and I have a feeling that
Alan Greenspan will have another talk with the vice president or Governor Bush,
and basically tell him, look, there's an enormous amount of uncertainty out
there, and before you go ahead and commit trillions of dollars to all these
long-run plans, wouldn't it be wise to be a lot more incrementalist in your
views, and sort of take one thing at a time. And so I think we're going to get scaled
down versions of both of these plans.
These plans are instructive, because they indicate what priorities the
candidates have, for where they'd spend the money if they have it. But, I think the reality will be
substantially different come November the 8th.
MR. MURRAY: Senator
Bennett?
SEN. BENNETT: That's said
better than what I was saying earlier about my conversation with Greenspan. And I think that's accurate. But, we come back to Greenspan's
hierarchy. He said his preference
would be save it, pay down the debt, but he said, if you can't restrain
yourselves, and what's happening on the Hill right now indicates that we can't,
he said, I'd prefer that it be given back in a tax cut. The worst thing you could do is spend
it. And in my view, what the vice
president has said is he wants to commit to a whole series of spending programs
and what the governor has said is he wants to commit to giving it back. That's a quick summary of the difference
between the two in the situation you've described.
MR. MURRAY: It's the genius
of Alan Greenspan that he can make a comment like that, that will be cited by
both sides as a complete defense of their position. But, Undersecretary Shapiro, go
ahead.
MR. SHAPIRO: Yes, I think
Bob Litan is right that whoever is elected, there will be modification of their
plans. There has to be, because
conditions change, not only economic conditions, but political conditions, as
well. Either candidate, if elected,
will be dealing with a very closely divided Congress, and will have to seek
consensus from both parties, from members of both parties. So their plans will certainly be
modified as President Clinton's were, as President Bush's were, as even on the
margins President Reagan's were, I suppose, less so.
However, the plans that they offer are very important in order to judge
the basic disposition, the basic values, the basic direction that they will take
the country, or take the government within the context of modifications that
reflect reality. And there is a
basic difference here. The vice
president, as Alan Greenspan has endorsed, would save nearly three-quarters of
the surplus, and use the rest for spending, a little more spending than Governor
Bush, and significantly less tax cuts.
The basic difference, the vice president has proposed $750 billion in
additional spending, the governor has proposed, if you include the missile
defense, about $600 billion in additional spending. They use it differently, and you can
make judgments about their priorities.
But, that's not the large difference, the chasm. The chasm is between a $2 trillion tax
cut, and a $500 billion tax cut, and taking $950 out of Social Security revenue
stream and putting it into private accounts, and not doing that. Those are the basic differences. And it is a difference between saving
and no saving.
MR. MURRAY: Let's open it up
a little bit here. If you folks
want to continue this numbers debate, we can do it, I guarantee you. If you want to go someplace else, we can
do that as well. So why don't we
take questions from the audience, starting right here. Please identify yourself before asking
your question, and you can address the whole panel, and even if you don't
address the whole panel, there's a danger that they will all
respond.
QUESTION: I'm Gil Bamford
with Toyota. And I came interested
in hearing more about what technology and energy, how the linkage is there. I think we have one outstanding example
of where technology and the government has worked together, I refer to a very
good article in the New Republic recently, that takes to task the administration
over the PNGV, which is the project for new generation vehicle. The article summarizes it and
essentially says, this is a failed policy.
I'd like everybody's comments as to how government and technology can
link up, and how does it work best.
MR. GLASSMAN: Can I respond
to that. This PNGV thing is really
a great example of the kind of involvements that government shouldn't have in
the market. So far $1.6 billion has
been given to the big 3 U.S. auto makers, well, I guess it's big 2 plus
Daimler-Chrysler now, to develop cars that get lower gas mileage. And what have they done? Just about nothing. They have not gone anywhere with
it. And this has actually been a
fairly common thread within the Clinton administration for the last eight
years. Part of it is giving out
money that has political effects.
But, I think the free markets tend to solve these problems a whole lot
better than shoveling money, especially at big corporations. And I think that's a
mistake.
Now, can I quickly respond to what Bob said, because he said something
about my stock market figures?
MR. MURRAY: If I said no,
would you stop?
MR. GLASSMAN: No, I
wouldn't. It's a very dicey thing
to try to say, the stock market went down because of this or because of
that. And I don't really intend to
be saying that. But, I am saying
that a new element has been added, and was added in the spring. And you know what, I think really the
damage has already been done.
You know, some people say, and I kind of agree with this, that the most
important thing that Ronald Reagan did symbolically, and maybe substantively,
that sort of started the ball rolling was the firing of the air traffic
controllers. By the same token that
sort of began this era, obviously not in substance, but it was a very important
thing that he did.
I think in a way that the suit against Microsoft could be sort of the end
of this parenthesis. And there
certainly is a kind of pressure, an overhang on the markets as a result of that.
Whatever happens specifically in the Microsoft suit, and I think it's going to
end up being overturned.
MR. MURRAY: Undersecretary
Shapiro, do you want to respond to the question, because I do think these sort
of programs are pet projects of the vice president, the car
program.
MR. SHAPIRO: Well, the vice
president has been committed for as long as he has been in public service, and
in a very deep way, to improving the environment. And you cannot improve the environment
without addressing the automobile.
And there are a whole series of approaches to that. One was the support for technological
development for next generation car.
More important and really the center of his approach to technology,
however, is a significant increase in support for basic research and
development, which is a traditional element of government action, again, because
it represents a market failure, and expansion and reform of the research and
experimentation tax credit, something that the governor also
supports.
That's the center of it. The
fact is, technological advance has come primarily from the private sector. It often builds on basic research, which
has been supported by the public sector.
And that's the basic approach that the vice president would
follow.
MR. GLASSMAN: I certainly
didn't mean to say ‑‑ I'm all in favor of basic research, because of
market failure. By the way, market
failure ‑‑ I don't think that education is a good example of market
failure. I think education in
America today is a good example of government failure. And we need more markets, not fewer
markets involved.
MR. MURRAY: But, you were
getting ready to say that there is a big difference between funding the kind of
research that, after all, gave us the Internet, and funding the car
program. Is the line all that clear
to you?
SEN. BENNETT: First, I have
to say this, I think I'm the only person in the room that owns an ULV, ultra
light vehicle. I get 70 miles to
the gallon. I tried to buy a
Toyota, but Honda was in the market first.
I'm sorry. I've got a Honda
Insight that gets 70 miles to the gallon.
And I didn't do it to make Al Gore happy. As a matter of fact, I paused about
buying this car when I thought that it might make Al Gore
happy.
Here's what happens with respect to basic research that demonstrates a
major difference between the governor and the vice president. Let me take the most obvious place where
it happens, and that is in medical research, biotech. I am one of the Republicans that made
the commitment, separate and apart from the vice president and the
administration, that we were going to double the budget of NIH over a five-year
period. And we're on track to do
that. We are spending more money in
basic research than the administration asked us to. Now, when you go out to Rockville and
the area around NIH, and look at what's happening this is what you
find.
You start out with the basic research that is done by the government,
pure research that nobody else can afford to do. As I say, we Republicans are doubling
that kind of effort. However, once
that basic research is done, it goes into the hands of the pharmaceutical
companies, and the biotech companies who turn the research into products. And that's an area where the government
does not belong. That's an area
where you say, okay, you guys understand the market, you understand what the
customers need, and you understand how to take the basic research and turn it
into a product that will work.
And that's where the governor would say, hands off these companies, let
them go, give them the research, and reap the benefits of the products. And that's where this administration,
and particularly if I may the first lady running to become a member of the body
in which I sit, demonizes these big companies, demonizes their research,
demonizes the profits they make, which they plow back into more research, and
the vice president has started to do it.
You notice that he's attacking big oil, and big pharmacies, and big HMOs,
in an effort to scare everybody that if somehow the government makes all of them
little oil, and little pharmaceutical companies, and little HMOs, things will
get better.
They won't get better. You
will not have the kind of scientific breakthroughs if you do not have the
accumulated capital that is represented in these companies that are being
demonized, and the same thing happens in auto companies. I don't know what Honda did to produce
the Insight, but I don't think they got any money from the U.S.
government.
MR. MURRAY: Let me just ask
if we have anybody here from big pharmaceuticals, big oil, any of the bigs, big
polluters?
Is there another question from out here?
QUESTION: Al Millikan,
Washington Independent Writers. Has
anyone given thought and speculation to what might actually happen if Ralph
Nader or Pat Buchanan would gain power?
It seems like Ralph Nader's presence in particular is affecting states in
the Northwest, which otherwise might not be so much in
doubt.
MR. MURRAY: Who would like
to grab that one?
MR. LITAN: I'm not giving
any thought to either one of them gaining power, because neither one of them
will.
MR. SHAPIRO: That's probably
the only thing we'll all agree on, in this panel.
MR. MURRAY: All right. Right here.
QUESTION: I'm Bob Hershey,
I'm a consulting engineer. One of
the issues that's been mentioned is technology and privacy, which brings to mind
the export controls on encryption, which had been in effect up until about a
year ago. And also, other export
that's being restricted, which could be an area for companies to make profits,
and get our technology in other countries.
And I wonder if people can address that.
SEN. BENNETT: I'm doing too
much talking, but I'm the one who pushed through the bill that changed that, so
if anybody is interested I'll give you the background on it. That's a paradigm that demonstrates the
speed with which the new economy is working. We had export controls on super
computers, because we said you could use a super computer to do a fire control
system, to do command control in the military, that it's a very important part
of national security. And
originally you had a two-year waiting period. And then the Clinton administration
changed it to six months. My
amendment, along with Harry Reid of Nevada, this was a bipartisan kind of thing,
changed that to 60 days, and we would have preferred 30.
And for people who said, yes, but you're allowing the Chinese or whatever
to get hold of these super computers, I pointed out on the floor that the level
that was prohibited under the six month thing was below the level that you could
obtain if you went to Toys 'R' Us and bought a Sony Playstation
2.
MR. SHAPIRO: This is
certainly a case where your opponents are found in both parties. This is not a very clear partisan
issue.
SEN. BENNETT: That's
right. But, I'm confident that the
Bush administration would go along with intelligent analysis of the export
controls, because the numbers are just overwhelmingly obvious here. The Clinton administration backed my
amendment. As I say, it was a joint
amendment with Harry Reid, the Democratic Whip. And the thing passed overwhelmingly,
finally.
Now, for those that get nervous about it, and say gee, you are now in the
thousands of MTOPS. I memorized it,
it stands for millions of theoretical operations per second, aren't you proud of
me that I can remember that. They
say, there are thousands of millions of operations per second that are in these
computers that you're exporting, and they could be used to do all these things,
and aren't we giving away our super computer capability, and yes, you could use
a Sony Playstation 2 to do all those kinds of things. There's more computing power on your
laptop than there is in the Shuttle.
But, the super computers in America's labs are something like 73 million
MTOPS. So we still have our edge,
and the controls still are there.
MR. SHAPIRO: This is not a
partisan issue, it's largely, in fact, a technical issue of weighing national
security and technical advance issues and criteria. And as Bob Bennett said, he was joined
by the administration. He has
joined the administration in other reforms in this area. So I don't see any particular
difference. I do want to make one
point, and that is with respect to Bob's comment about the development of new
products by private industry, and by the market.
That's absolutely correct.
The fundamental resource besides genius that they need is access to
capital, low interest rates. And
the fundamental foundation of low interest rates is fiscal responsibility,
saving most of that surplus. Again,
it returns to the basic divide between these candidates, and it's role in
whether or not we really are going to have prosperity over the next four
years.
MR. MURRAY: Just before we
leave the technology issue, what is fascinating about so many of these issues is
that they don't cut clearly across partisan lines. That's not to say they aren't hugely
controversial.
Privacy is a great example. Some of the advocates, the strongest
advocates of tough privacy legislation are on the Republican side, Senator
Shelby in the Senate, Congressman Barton in the House. You sort of have the libertarian right
and the liberal left joining force son many of these issues. We at the Wall Street Journal
interviewed Governor Bush and privacy was the one issue where he sounded like he
would be in favor of quite tough legislation to protect individual's
privacy.
Let me go to Bob Litan.
MR. LITAN: I just have a
quick technology point. It goes
back to Gil Bamford's question, and this is an area where actually I'm going to
agree with you, Jim, back on the PNG, the private car initiative. That was an instance where clearly the
private sector, led by Toyota and Honda, basically whipped the government. And both cars now get 70 to 90 miles per
gallon, and they're leading the way.
But, let me point out two things.
Number one, basic research is like drilling for oil. Not everything you do works out. This is
a case, this initiative, where I think they hit a dry hole. But, there are a lot of basic R&D,
including biomedical, where you don't succeed. But, you need to put the money there in
order to run the experiment. And I
believe this is correct, that if you exclude the enormous increase that we have
in biomedical and just look at the basic research that we have in the rest of
the federal budget, don't count military, look at your hard physics, chemistry
and so forth, you will find, based at least on the conversations that I have
with scientists, that our support in real dollars measured over the last 10 or
15 years is down, not up. And one
reason for that has been the budget deficit. So we haven't had the
money.
I think that one of the challenges for the next administration is to put
more money into basic R&D that is not necessarily health, because a lot of
these fancy benefits we see, of the Internet age were born in laboratories 15
years ago, the satellites, the Internet technology and so forth, that are all
now being commercialized. And I
worry that we have, essentially a bare shelf up there, going into the next five
years, and we need to restock it.
MR. MURRAY: Bob, do have any
idea about why that is? I mean,
you've had this extraordinary commitment to double the NIH budget, and then Vice
President Gore stood up at the contention and said he was going to double it yet
again. And you don't get anything
like that commitment to deal with electronic technology.
MR. RIVLIN: I think it's
because although NIH research is basic, it seems somehow related to health. And the NIH has been actually quite
explicit in relating it to health.
And everybody gets it. And
they don't quite get it with the physical, the chemistry and so
forth.
MR. MURRAY: And, Senator,
when they come up and say we want to do the same thing with the NSF, or whatever
mechanism is going to fund it, are you going to be there behind increasing that
funding, as well?
SEN. BENNETT: I remember my
fight with Dale Bumpers, whom I considered a very good friend, over the super
collider. And this administration
said, let's kill the super collider.
And it would have been an enormous commitment to very, very basic science
on the physics side, and I was voting for it in the midst of a $200 billion
deficit, for exactly the reason that, again, I'm a businessman who says, you
solve your deficit problem by growing the business. You don't solve your deficit problem by
putting on the green eye shade, you solve your deficit problem by growing the
business. Yes, there are areas
where you cut spending, and I've certainly voted to do
that.
But, again, that's been the history of George W. Bush and his whole
attitude, it's not been, let's just put the government in a box and figure all
the numbers, it's how can we do things that will make everything grow. And I think the super collider would
have been an enormously beneficial return.
And I'm sorry the Clinton administration helped kill
it.
MR. MURRAY: Alice Rivlin,
let me ask you about that point, because one of the extraordinary things about
this election is that we have a Democratic candidate who stands up there and the
first words out his mouth at the debate are, I'm going to cut the deficit, I'm
going to cut the debt, I'm going to eliminate the debt by the year 2012. We at the Wall Street Journal
interviewed him about economic policy and said, what are you going to do if we
have a recession, he said, I'm going to cut it even more. The recession seems to me the time we
should really make the tough choices.
So everything we were taught about Keynesian economics through many
Democratic administrations seems to have gone out the window. What has happened
here?
MR. RIVLIN: I don't know
about his answer on the recession, I might not have thought he thought that one
through. But, fortunately, we're
not in a recession. I think part of
the reason that we are not after nine years of growth is that we did look ahead,
and make sure that we had a very responsible fiscal policy. It was not obvious in 1992 that cutting
the deficit was good short-run policy.
The economy was beginning to come out of the recession, as Senator
Bennett said. But, there were a
great many, many of them Republicans, who said if you pass this Clinton budget
that cuts the deficit, you're going to throw the economy back into
recession. Fortunately, they didn't
win that vote, that very close vote.
And the good long-run fiscal policy did prevail.
But, right now there's no question, bringing down the debt is good
long-run policy, but it is also good short-run policy. It means that you do have a restraining
effect on the economy from the federal budget. And although we all hope the economy can
grow faster and faster, there is some limit. And right now it seems very unlikely to
me that you could have the economy growing much faster than it is growing
without starting inflation, which is exactly what the Federal Reserve is worried
about, and why a loose fiscal policy right now would be a
mistake.
MR. MURRAY: But now, if
Lawrence Lindsay, the governor's advisor on many of these fiscal affairs, were
here right now, what he would say in answer to your point is, well, look, we
don't get elected until November, we don't take office until January, it will
take the first year to get our tax program in place. The tax cut probably won't happen until
January of the year 2002. And who's
to say the economy is going to be doing so great then?
MR. RIVLIN: Well, if Lindsay
is projecting a recession for 2002, sobeit. I don't think that that's likely. And I think the way to ward that off is
not to have an irresponsible fiscal policy, either happening or
projected.
MR. MURRAY: Let me just ask,
and I don't want to dwell on ‑‑
SEN. BENNETT: Nobody is in
favor of an irresponsible fiscal policy, by definition.
MR. RIVLIN: By definition,
but you need to have the numbers add up.
And when the governor says he isn't worried about how the transition
costs on Social Security are going to be paid for --
SEN. BENNETT: I think he's
very worried about it.
MR. RIVLIN: -- and when the
numbers don't quite ‑‑ well, he hasn't told us. And when the numbers don't quite add up,
then I get worried.
MR. MURRAY: Okay. We have another question out here from
the audience.
QUESTION: This is for
Undersecretary Shapiro. I just
wanted to know if I understood you correctly to say that the administration is
opposed to repealing the telephone excise tax?
MR. SHAPIRO: Pardon
me?
MR. MURRAY: Is the
administration opposed to repealing the telephone excise tax? Was that your
point?
MR. SHAPIRO: It is not part
of the governor's ‑‑ it is part of the governor's plan, it's not part
of the vice president's plan. So
the vice president is opposed to repealing the excise tax.
QUESTION: So, the vice
president is opposed to repealing the excise tax?
MR. SHAPIRO: It's not part
of his plan, correct.
QUESTION: And did I also
understand you to say that it's your understanding that the money from the
excise tax goes to help poor people get telephone service?
MR. SHAPIRO: It is part
of ‑‑ it is my understanding, and if I'm wrong I'll be happy to be
corrected on it, but it's my understanding, it's not an area in which I'm an
expert, but that it is used as part of providing universal access. If that's not true, I'll stand
corrected.
QUESTION: If I could, just
for the record, correct you, that it goes into general revenue as do most excise
taxes. So, it's not helping poor
people get phone service. And, in
fact, it's helping them not get phone service by raising their
costs.
MR. GLASSMAN: This is the
Spanish Civil War ‑‑ Spanish-American War, even farther back than the
Spanish Civil War, the Spanish-American War tax, and it goes to general
revenues. It's that other tax,
which some people call the Gore tax, that goes to the
e-rate.
MR. SHAPIRO: Right, which
goes to provide the access.
MR. MURRAY: You're from the
big telecommunications companies, I'll bet.
Anybody else?
MS. RIVLIN: Can I try a
question?
MR. MURRAY: Yes. We'll get to you. Go ahead.
MS. RIVLIN: I wanted to
bring the conversation to something that nobody has really talked about very
much. We're all very excited about
this wonderful economy, and it is doing better than anybody expected. But there are a lot of people left out
by it and left behind by it, and places left behind by it, centers of cities and
rural poverty areas. But
particularly over the '70s and '80s, people at the low end of the income
distribution were falling behind.
Now, they haven't fallen further behind in the '90s because the very
tight labor markets have meant that wages have been going up all across the
board. But it's not a lot of
comfort if you're at the low end of the distribution to say, well, things aren't
getting worse for you. They did for
a while, but they're not getting worse anymore.
I would like to hear both representatives speak to the question of what
their candidate would do to make sure that the good times include more people,
and that so many are not left behind.
MR. MURRAY:
Undersecretary.
SENATOR BENNETT: Do you want
me to go first?
MR. MURRAY: Yes,
Senator.
SENATOR BENNETT: Well, the
point I made about the top 1 percent is also true about the bottom, that is, it
is fluid. You are not locked in the
American economy into one quintile or percentile, whatever, the way you are in a
more rigid kind of class economy, say, some of the economies in Europe. I've been in the top 1 percent. I've been in the bottom one percent,
too. And within a few years of each
other. The reason that someone has
a problem in this economy is not because of a government policy. The income gap is a skill gap. The people who are at the bottom are at
the bottom because they don't have the skills. The jobs are going begging for people
who have the skills. So the
challenge of closing that gap is the challenge of closing the skills which
brings us to education. And we come
now to the question of who has the better education record, and who has the
better education plan, and we could spend the rest of the debate time shouting
numbers back and forth at each other.
But I would obviously turn to the record in Texas of the governor and
what has happened under his stewardship of the education system in Texas,
particularly with those that are the bottom of the skill gap. And if you look at those at the bottom
of the skill gap in Texas, you can say that George W. Bush has been good for
them. And I think that's an
indication that a George W. Bush presidency would see efforts to close the skill
gap on the part of the people who are at the bottom economically, and if the
skill gap closes, the income gap will follow.
MR. MURRAY: Undersecretary
Shapiro.
MR. SHAPIRO: If there is a
skill gap, the skill gap exists not only with respect to children, and both
candidates have extensive commitments and extensive programs for affecting
access to education and the quality of public education in America with clear
differences. But in one area, there
is no comparability. The skill gap
exists in the current labor force as well.
We have to think about the current labor force as well as thinking about
children. Of course we have to
think about educating and training children. We also have to think about an
affirmative effort greater than the market currently provides to close the skill
gap among those who are already in the labor force. It exists today in the labor force. The market has been there. It's not been able to fully address
it. We know that there are certain
areas, certain groups. There are,
here I come back with the same concept, it is also recognized classically in
economics that there is a market failure in training. It's very easy to understand why, a firm
makes an investment in training a worker.
That makes it easier for that worker to leave and get another job
elsewhere. Consequently, firms have
a systematic disincentive to provide as much training as might be profitable for
the entire economy. We need, and
Vice President Gore has proposed a significantly expanded commitment to provide
access in the private sector, not public training programs, but in the private
sector, access to skill training across the labor force.
MR. MURRAY: But there is a
fundamental difference here. It's
all fine for you to tell us you're for education. There is a fundamental difference here
on the question of choice in education.
Does choice in education help people get off the bottom rung, or does it
make the bottom rung an even worse place to be?
MR. SHAPIRO: That's not the
divide. The divide is between
public school choice, and choice that also involves the private
system.
MR. MURRAY: But choice
doesn't mean much if it doesn't involve the private
sector.
MR. SHAPIRO: That's not
true. The charter school movement,
which has been a vital part of public school choice, has successes across the
country. It has been consistently
pushed by this administration and by the vice president. The fundamental issue is whether public
funds should go to support private schools as well as public schools, and on
this there is a fundamental difference.
MR. MURRAY:
Senator.
SENATOR BENNETT: Repeat
again, the numbers, the public schools make $2,000 every time they get rid of
somebody that would normally cost them $7,000. They get rid of them, get $5,000. I mean, it's the difference between
theory and reality, and let's look at reality. Who is driving the voucher movement in
the United States primarily in terms of experience? And the answer is a woman in Milwaukee
named Polly Williams, who is a liberal Democrat, member of the state
legislature, a woman of color, who says my children are being disadvantaged --
that's a polite word -- damaged by being held captive in the public school
system. And she made the fight for
allowing an alternative for her children, for black children in the inner city,
for disadvantaged children to get an opportunity to go someplace other than the
public schools. And there was an
enormous outcry. There was all of
the arguments that you have made that you're damaging public schools, et cetera,
et cetera, et cetera. You run for
school board in Milwaukee now, you run for any office, including mayor in
Milwaukee, you'd better be in favor of vouchers because the whole community has
embraced it. And the people who are
the strongest for it are the people in the minorities.
And you look here in the District of Columbia, the polls show that it is
the minority parents who are saying, we've got to get our kids something better
than they're getting in the public schools. And when you say, no, you don't want to
take money out of the public school system and do it for private schools, what
did we do with the GI Bill? With
the GI Bill, we said, the money follows the student. And we don't care if the student takes
his money and goes to Notre Dame and becomes a priest, or goes to Brigham Young
University and learns about the Book of Mormon, we don't care. The student makes the choice. We are funding students, and we'll let
the students take their money in the free market system. And we now look back on the GI Bill and
say, that's the most magnificent thing we did after the Second World
War.
Why can't we take the same position with respect to kids, which they're
doing in Texas, they're doing it in Arizona, they're doing it in a number of
states where they say, the money follows the kid, and they find that when the
kid has money, the kid has power, and can then affect the kind of education he
gets. When the money goes to the
school system, the kid has now power, and he has to put up with whatever happens
to him.
MR. SHAPIRO: This is as if
the voucher they're going to get is going to be enough to send your kid to St.
Alban's, that's not true. The fact
is that the vouchers ‑‑
SENATOR BENNETT: Go to
Milwaukee. They're not going to St.
Alban's.
MR. SHAPIRO: -- are not
sufficient to send a child to most private schools. There will be some parents who are able
to add to that and send their children to private schools, most will not. Our focus ought to be on improving the
public school system, and using all the resources that parents and homeowners
provide for the public school system in the public school
system.
MR. GLASSMAN: I just want to
address Alice's question more directly.
I mean, I think the education debate is ‑‑
MR. MURRAY: It's been a long
time. Remind us of the
question.
MR. GLASSMAN: Her question
was, we've had this prosperity, but are you concerned that it has not been
broad. And I think it actually has
been pretty broad. I mean, we just
saw figures that show that African Americans are the group that's had the
biggest increase in income. But, in
one area it has not been broad, and really it concerns me as the author of a
book about the stock market. It is
this, that lots and lots of Americans have zero wealth. They have not participated in this rise
in the value in the stock market.
They have no wealth at all.
They have no assets at all.
And one of the things that George W. Bush has done, I think a very poor
job of explaining, one of the many things, is how his Social Security plan not
only ‑‑ I don't care about this business about saving Social Security, I
think it's so complicated, the actuarial details I leave to other people. But he has this neat idea for getting
wealth in the hands of people who are poor, who can't afford it right now. He says, you know, take 2 percentage
points out of the payroll tax, and use that so you can have your own private
account that you own, that's your own wealth, that you can pass on to your kids,
or do whatever you want with it.
Now, I also, by the way, like Vice President Gore's idea. The only problem with his idea is,
essentially, it's tax subsidies where people who are really poor, or working
poor, so-called, are not going to be able to develop, not as much, not anywhere
near as much.
MR. SHAPIRO: That's
true. They get a positive subsidy,
in fact.
MR. GLASSMAN: That's
fine. They get a positive subsidy,
maybe I don't understand it. I
think both of these plans really do something to address a huge problem in
America, which is a lack of wealth.
And it would be great to see, whoever gets elected, is if one of these
two plans were actually enacted.
And especially young people in America, who don't have enough money to
put away into savings accounts, and investment accounts.
MR. MURRAY: A quick comment,
Bob Litan?
MR. LITAN: Yes. We're in a bipartisan mood here. Jim has said that there are two good
ideas. I want to go back to
education, and I want to suggest rather heretically that maybe we don't have to
make an either-or choice between these two plans. Namely,
choice ‑‑
MS. RIVLIN: Litan for
President?
MR. LITAN: Well, no, I'm not
running for anything. I'm just
suggesting maybe to Senator Bennett's colleagues, that you can have choice, and
I fully agree with the arguments you made, especially to people who are locked
in the middle of inner cities and have no choice. It's hard for us to deny them that
choice. I think, in fact, that
makes a good argument, it's immoral for us to deny them choice to improve
welfare for their kids.
On the other hand, Bob Shapiro is right that $2,000 is not enough to
effectively get them out. And so, I
think work ought to be done to see if we can craft more money to make those
choices viable. And, at the same
time, I think the vice president is right that, meanwhile, there is a concern
about those schools left behind. A
lot of them are in terrible condition, and they're here in D.C., just
dilapidated condition. And they
need to be improved. And so, I
think if we could just get off the philosophical divide, and just simply say,
let's help our kids, let them out if they have choice, but in the meantime let's
commit money to improve our public schools, I think there's a win/win
here.
MR. MURRAY: This is what
they're learning on the Hill right now, all partisan differences can be bridged
with enough money.
SENATOR BENNETT: Let me just
quickly, did you read Robert Reich in the Wall Street Journal on this
issue? I disagreed with Robert
Reich on virtually every issue while he was Secretary of Labor. And I read that piece in the Journal,
and I thought, here's a liberal who gets it. And that's the way out that you have
just described.
MR. MURRAY: A long, long
time ago, I promised this gentleman right here a question. If you can remember what your question
was.
QUESTION: I would like to
ask a question about trade deficit.
It is believed that current account deficit could be a significant threat
to the value of the dollar, and then to the economy. What are the positions of each
side? Thank
you.
MR. SHAPIRO: The trade
deficit is too large, very large and too large, is driven primarily by the
enormous prosperity of the American economy. That is, U.S. demand for goods,
everything we produce and goods that are being produced abroad, and the
depressed conditions for many years now improving slightly, somewhat, in our
major exporting partners.
Fundamental fact behind the trade deficit is that we are growing, we have
been growing much faster than our trading partners. And that's what drives the trade
deficit.
Having said that, the proper solution to it, there are two fundamental
parts, I think. One is to continue
to do what we can to promote prosperity abroad, and prosperity in our trading
partners. We do this through
international institutions. We have
done it at times through interest rate policy as well at the time of the Asian
financial crisis.
The second is to do everything we can to maintain U.S. national
saving. The problem with the trade
deficit is not the deficit itself.
It's the financing of the trade deficit, and all the funds that we have
to borrow from abroad. Part of the
funds which are available come from government saving. It brings us back to the fundamental
issue in economic policy between these two candidates. And the trade deficit is another very
important reason. And the threat to
U.S. prosperity that would come from a sharp fall in the value of the dollar,
and the Federal Reserve's likely response to that, we must maintain national
saving. We cannot do that if we
spend over $2 trillion on tax cuts and another trillion on privatization plans
for Social Security.
MR. MURRAY: Senator
Bennett.
SENATOR BENNETT: Well,
you're assuming that the privatization plan, and I don't like that description
of it because we're not privatizing Social Security, we're doing exactly what
Jim Glassman was talking about, privatizing Social Security would be abolishing
it and saying, here's your money, go do with it what you want. No. We're saying, here is a choice you can
make if you feel competent to make it to develop wealth for yourself. And you're assuming that that wealth is
not part of savings when you're making your calculations. Of course that's increasing
savings. I don't have a savings
account, but I've got a lot of stocks and bonds.
MR. MURRAY: And the $2
trillion tax cut?
SENATOR BENNETT: And the $2
trillion tax cuts means if I want to still go out and buy some more stocks and
thereby increase my wealth in that situation, I can do it, instead of having the
government make the decision for me.
MR. MURRAY: Well, thank you
very much, both our presenters, it's all very clear now. And thanks to our distinguished
panelists, and thanks to all of you for coming here today and sitting through
this.
[END OF EVENT.]