M: I guess because the room suddenly hushed, it’s time to start. Let me start by saying that it’s pleasure on behalf of New York University and the Stern School of Business to welcome you all to this inaugural event, an event that we hope runs through several of the issues that we think are important for the upcoming election. It’s our great honor to be partnered with a group of really important organizations, the Economist and the Council on Foreign Relations (CFR.org). We think these kinds of partnerships really add to what we want Stern to be delivering for the community. I’m going to start by introducing our moderator for the evening and turn the discussion over to him. Before I do so, let me address one key housekeeping issue. Please everybody turn off your cell phones and pagers. I was told that this is not only good housekeeping etiquette but actually we are the situation that airlines are in, that frequencies flying around actually could influence our recording. We are doing a podcast of this event, so we would hate to have that happen. Please, take a moment to do that. Robert McMahon is the deputy editor of CFR.org. He has covered foreign affairs since 1990 for the Associated Press, Radio Free Europe, Radio Liberty and now CFR.org. Mr. McMahon has expertise in international organizations and has written extensively on UN peacekeeping, human rights bodies, and post-conflict root-construction issues, as well as issues facing countries in transition from the former Soviet bloc. Let me just turn the floor over to him and he will introduce our esteemed panelists, and thank you all for coming. (Applause)
RM: Thank you everyone. It’s such a tremendous turnout for our subject tonight, which is trade and globalization, or as some are now saying it’s the global economy, stupid. It started as a sleeper issue. It is starting to nudge Iraq a little bit, according to some of the polls that are appearing now. The subject we are going to deal with tonight is really in a lot of ways ripped from the front pages of the newspapers. You have Chinese toys coated with date-rape drugs. You have a New York governor considering driver’s licenses to quite a few illegal immigrants. You have oil nearing $100 a barrel. All of these are creating great angst in the land and in some ways intersect and are causing some of the concern that is hanging over trade and trade issues. We are really seeing it already in the campaign at this stage, after several months of campaigning so far. Virtually every day the issue comes up. To help navigate the shoals of trade policy and perhaps provide some advice to the candidates, we have a really formidable panel here. I’m really looking forward to tonight’s discussion.
I’ll start on the far end with your own Tom Cooley, dean of NYU’s Stern School of Business, an acknowledged and nationally recognized figure in macro economic theory. Seated next to him is Amity Shlaes, Council on Foreign Relations, a senior fellow for economic history. Amity has a book, I should mention, in the eleventh printing already, The Forgotten Man, a New History of the Great Depression. She has written quite a lot in columns for Bloomberg and others on the issue of trade. Seated to my left is Matthew Bishop, American Business editor and New York bureau chief of the Economist, also quite prolific on the issues we are going to be talking about tonight. I will start off by talking about what I referenced, which is the sort of gloom in the land. I will turn to my trusty notes to pull out a few anecdotes. There is just quite a bit of gloom coming out in the public opinion surveys. Most recently the Wall Street Journal last month and NBC News released a poll showing six in 10 Republicans actually quite concerned about trade policies, Republicans saying they would create some sort of restrictions on imports into the United States . There has also been some gloom in the Pew surveys that are appearing almost weekly now, including a recent one that showed of 35 countries surveyed, the United States showed the biggest plummet in the sense of satisfaction, of people feeling satisfied with where their country was. A lot of that is considered to be reflective of where they see things economically.
I should also mention, by the way, that this debate tonight is not going to be about the merits of free trade. I think on the panel were we are going to have a great deal of agreement about free trade as a good for the United States . Just to bolster that, recent figures, the September trade figures for the United States , are $140 billion in trade. It is seen in some ways has helping to bolster the economy during this period of great gloom over the subprime mortgage crisis. But we will be discussing is how trade policy intersects with this campaign, why it’s become an electoral issues, especially among Democratic candidates, and perhaps how these candidates should be treating the issue, both in their primaries as well into the general election, to put it into context and to provide some sort of perspective on how trade policy can benefit the United States. I wanted to start off with Dean Cooley. With trade figures in a lot of ways, with the September figures being an example, so manifestly beneficial to the United States , why is it causing manifestly so much angst.
TC: That is the compelling question that one has to answer. An objective look at the data suggests that trade is really quite a good thing. Why is it more of an issue right now than it has been? Why is it always a popular political ploy to take the stance that we have to be very worried about the impact of trade on our economy? Why it is a bigger issue right now I think is because there is a lot of general anxiety about the economy, about the state of financial markets. Part of what we are seeing going on in the world is a threat to the financial system that originates in the US subprime mortgage market and is bringing down European banks and causing runs on banks in Britain and so on. We see that poison-tainted Chinese toys. We are seeing some of the dark side of globalization and trade in a very real way. Why is it politically popular to jump on this issue rather than stand up and talk about the incredible benefits for free trade? In thinking about that it’s the reverse side of why do we, as a country, find it very easy to put in place agricultural subsidies, which by any measure don’t benefit the US economy? It’s because the benefits are very concentrated in a very vocal political minority – I mean, the benefits of agricultural policies – and the costs are spread out over many people who don’t find the costs big enough to get excited about. Trade is a little bit like that. It’s very easy to concentrate, to focus on, who loses from trade. It’s very easy to see who are losing jobs because of trade, who lost jobs because of NAFTA, and very hard to pinpoint who all are the beneficiaries are and what all the benefits are.
RM: If I can ask Matthew, so no champions emerging to free trade at this point, no champions emerging to counter some of this gloom. I’m just talking about trade, not even the globalization issue, which is sometimes more opaque. This is true in election time but other times as well. We saw several years prior to this presidential cycle very narrow margins for the President’s trade promotion authority before it actually lapsed last summer but also very narrow margins for the Central American free trade agreement. It is hard to find champions.
MB: It is. I would first of all say that speaking from the position of The Economist, which was founded in 1843 in the campaign against protectionism and for free trade. This position we have really taken over since. You are getting a very committed free trader speaking. But it seems to me one reason that there is not a lot of votes in campaigning for more trade liberalizing is that we are still absorbing a lot of the liberalization that has already happened. Actually that is where most of the benefits to Americans already is happening. The area where you could have further trade liberalization is agriculture predominately. Really liberalization in that area would be a fantastic benefit largely to the poor people of the world, relative to Americans. So it would be more about an aid policy rather than a betterment for Americans policy, although there would be the happy benefit of cheaper food. But the real beneficiaries would be Africans predominately. There is not a lot of votes in standing up for Africans in the American presidential election, much as that is a matter for regret. The real beneficiaries are the customers of Wal-Mart and other shops who are already enjoying the benefits of the trade liberalization rounds of the last 30 or 40 years. So far in the campaign I hear no one actually proposing anything that would pass what I call the Wal-Mart test, which is it’s just going to raise the price of goods in Wal-Mart. I think when we come to that point, if we really are seeing anyone come up and say, I want to stop the sort of trade that is actually benefitting the customers of Wal-Mart, I think we really are at the point where this alarms me. It may well come to that because there are no limits to the ignorance of politicians in the short term, policies that they will embrace. But at the moment as an outsider looking at this debate, it seems to me there is no real upside in campaigning for free trade. There are a lot of people who don’t really understand economics and there are a lot of vested interest groups that have something or perceive there is something to lose, particularly the unions. So particularly the Democrat candidates have a lot to gain or perceive they have a lot to gain by pandering to those particular groups. Again, I’m still not sure, and some of my colleagues might disagree with this, whether any of the Democrat candidates in office would actually seek to undo meaningfully the kind of trade progress that we have made over the last few years. As I say, Edwards probably looks the most alarming in terms of what he is saying. Someone like Hillary I think is probably saying things that don’t really have a lot of substance to them in terms of trying to appeal to that constituency but not really giving very much in terms of concrete commitment.
RM: We are going in a minute to parse some of the comments that we are hearing on the campaign trail. I wanted to read a quote from a paper fairly recently done by the Carnegie Endowment’s Sandra Polaski touching on what she sees as one of the phenomenon. I wanted Amity to respond to it. She writes, “Globalization revealed and exacerbated rather than created the basic problems with the US system.” She’s talking about the social contract in a way. “However, the collapse of the domestic social bargain left US workers and households more vulnerable to the pressures from a globalized labor market than their counterparts in countries with stronger social safety nets, better health insurance, employee training and portable pensions.” How do you respond to that sort of read on how this is affecting the trade debate?
AS: It’s very important. Can you hear me? Overall it’s important to recognize how astounding is the anxiety about free trade is relative to the unemployment rate. When we had other discussions about free trade and protections in the US, in the early ’80 and the early ’90s, the unemployment rate was so much higher, 10 percent or close to it. To have this discussion at this level of unemployment is unusual for the United States because unemployment is usually the barometer by which you measure protectionist sentiment. The reason I think that we have this sentiment now is sort of referred pain, what doctors think of as referred pain, when you have problem in your back and it shows up in your foot. That is referred pain. We have the impression that the fear is about trade but it’s really about a couple of other things. One is the war, what Americans think about our level of openness, our position in the world, can we be confident, will the foreign world help us or her us, will it bite us given the duration of the war. That’s created the anxiety, which has led to expressions of concern about globalization and trade and not the other way. The second is the entitlement argument, just as you say, just as Polaski says. We are concerned about our social contract. Our younger generation guaranteed will not get the same benefits that our senior citizens enjoy currently. They know that they will confront higher taxes and there is a preoccupation with that relationship. What about me? I don’t have time to think about the international environment, and yet the international environment is the thing that will determine whether we will be able to afford pension for the younger generation, to any measure. It makes us have to be more competitive. Yes, it makes our entitlements too expensive but it also brings us prosperity. I think the concern about entitlements is being expressed as concern about trade. If we look away and just be protectionist, maybe we can guard this old social contract. That is the sub text in the protectionist rhetoric, and you will see it especially in Hillary Clinton when she uses the word safe. Safe, in Clintonese means, a safe social contract as well.
RM: That’s very interesting. That’s a good segue to get into what we are hearing on the campaign trail. A few example, the Peru free trade agreement past the House last week. This is not something that is going to cause massive repercussions or benefits for the United States as much as potentially for Peru , given the markets that are opening up there. However, it is right now a lightening rod. Hillary Clinton actually came out in favor of the Peru deal after mulling it over for a while. John Edwards came out before the vote took place and urged a vote against it. I want to read what Hillary Clinton’s campaign site said or released after the vote. She reiterated that she is opposed to the pending trade agreements with South Korea, Columbia and Panama for different reasons, discretely different reasons, but she says as President she would appoint a trade enforcement officer, double the enforcement staff at the office of the US trade representative, and systematically review every trade agreement to ensure it is delivering benefits to American workers, and also expanding the trade adjustment assistance program, which is actually due at the end of the year. I think it expires at the end of the year. I want to contrast that with the John Edwards campaign release. It is dismaying that Senator Clinton would side with corporations, their lobbyists and the Bush Administration in support of a flawed trade deal that expands the NAFTA model. He goes on in that same vein. Matthew, this approach first of all from Hillary Clinton. She has talked about a time out on trade deals. This is safe language perhaps in a primary but would one expect Hillary Clinton then as President to keep things cool on trade deals for a while?
MB: Are you asking me whether we should take Hillary at her word or not? That’s interesting. I couldn’t possibly say. The question with these bilateral deals, and there are a lot of economists that will say they are actually more harm than good because the terms on which they are agreed really don’t generate a lot of benefit and they really take the political steam out of any attempt to do a broader big-bang trade liberalization, which is what would really deliver the benefits. They typically have been popular as more of a tactic for rewarding good behavior by other countries. It seems to me that that is quite an attractive strategy for a President to do because there will be, there will continue to be a need to have allies around the world in some of the more difficult, so it’s a good way to hand out rewards. I would expect Hillary to find the worst case scenario, that she will find these kinds of deals very attractive. The really interesting question is whether once in office she would actually revert to the attitude to free trade that her husband took, which was remarkably positive. He got NAFTA through and he has been generally a good force on these issues. I think most people think she understands the economics of free trade and may find reason to embrace it more aggressively in office. While we are talking about Clintonese, she is using the word fair trade, which is obviously one of these phrases that can mean all things to all people. I think she means fair in a way that is more acceptable to economists who like free trade and other people mean fair in terms of fair trade is nothing where fair trade involves people outside of American being paid less for the work that Americans get paid, which is pretty unfair to anyone living in a poor country where standards of living are much lower and the only way you are going to get richer is to work for lower wages.
RM: I think Dean Cooley mentioned the Farm bill. Yes. We have potentially a farm bill vote coming up in the Senate before the Iowa caucuses. Will we see any of the senators vote against the current Farm bill you mentioned?
TC: I would be very surprised if you will see them vote against the current farm bill, even though I completely agree with Matthew that liberalization of agricultural trade is probably the one big area that will most benefit the rest of the world, the emerging market nations and poor countries. But it’s a third rail for presidential contenders, I think, to vote against it.
RM: But what about the self-interest argument? Amity, we were discussing earlier about your trip to Columbia . Columbia is hung up over the issue of labor rights and actually abuses and beatings and killings of labor activists. You were in Columbia . You met with some labor officials. In terms of the self-interest, let’s just call it naked self-interest, having a trade deal where the US can create some positive influence on a part of the world where it’s been considered neglectful is a good thing, aside from the monetary aspects. Could you talk a little bit?
AS: I would argue that it is in the United States self-interest in the most piggish way to be for a trade agreement with Columbia . I went to Medellin to look at the progress that they had there in terms of making the city safer and met with the mayor, Mr. Fajardo. As some in the audience probably know, the old Pablo Escobar cliche is so far gone and the average murder rate in Medellin now is similar to that of Baltimore .
RM: As bad as that. (Laughs)
AS: One reason that Columbians have done this is because we asked them to. First, the Clinton administration and then the Bush administration. We asked them to and we said in return, if you clean up your country and make a beautiful place, which is what this area is, where Medellin is, have real trade and not just drug trade, then we will give you rewards and trade with you. President Uribe feels that he has done his part, indeed, multiple times, and the city feels that it has done its part and the country feels it has done its part. Yet you have in the US Congress objections to signing a bilateral trade agreement with Columbia on the basis that there are still too many murders, specifically murders of union leaders. Everone deplores murders of union leaders or of anyone else, for that matter, but what was striking to us when I was on this trip was actually to meet with union leaders and many of them, not all but many, in Columbia are for the free trade agreement. They got into this ridiculous discussion where they were saying, yes, our leaders are murdered but not at a rate that is exceptional. That is a very, very sad argument to have to hear but it does reflect their sentiment. If they want it, we should want it. Why in geopolitical terms? We want it because Hugo Chaves is, as one senator said, Castro with oil. Into the Castro vacuum will step someone probably he, and we must counter that by at least offering these countries an alternative. I was writing quite a bit about this and you know all the names of the television shows about Medellin and so on. The next in line is heartbreak hemisphere, for that hemisphere, for the United States . So forgetting the economics it’s in our political/social interests to sign such agreements.
RM: On that same vein, Dean Cooley, getting to the Republicans, I went through Foreign Affairs magazine, which had six submissions by three leading candidates, three designated leading candidates from each party. Kind of picking through them, the most I saw, the most emphasis on trade – and these are long pieces, 8,000, 10,000 word pieces and more – the most mention I saw of trade and mostly it was either passing or it was not mentioned at all was John McCain talking along those same lines. It was two paragraphs. He mentioned the need for free trade agreements in Asia and also following through on CAFTA and the deals with Peru , Panama and Columbia . He was very much tied into security issues as well as good neighbor issues with everything else. So with the Doha round sidelined right now – that is the one that most economists say is really would mean something to Americans, in some estimates up to $500 billion – but with that sidelined, FTAs don’t really mean much at the end of the day to Americans in terms of their economic welfare or the sucking sound of jobs leaving the country.
TC: No. I think that is right. I think they don’t see the benefits. It is kind of surprising that it is not just surprising that the politicians haven’t stood up more forcefully for free trade. McCain, who advocates free trade, Giuliani, Fred Thompson – you would at least expect them to stand up. But it’s also really surprising that American corporate leaders have not stood up more for free trade. There was an article in Wall Street Journal by the CEO of Coke wondering why more corporate leaders haven’t stood up for the benefits of free trade. I think it’s a great tragedy that the Doha round is sidelined because I think these larger free trade agreements do have an important security component to them. I think to the extent that we promote a system in which trade and globalization are ever more inevitable that that does a lot to protect us against religious wars and other things that would interfere with that process. As Matthew said, when the prices start to go up at Wal-Mart because we are having trade wars with China or we are trying to dictate their monetary policy, then you will get some backlash, but probably not until then.
RM: So let’s try to create a little bit of a roadmap for the campaigns, especially for those who are emerging in the upper tiers as we get through caucuses and primaries and Super Tuesday, or whatever February 5th is. I think it’s a Tuesday. Try to create some sort of guidance to how you then make a trade policy palatable. Do you still pander? Do you call it fair trade but still you pursue a pro-Doha approach? Matthew Bishop, what would you do as a chief trade advisor to a front-running candidate?
MB: I suppose there isn’t much of a case for talking about trade in this campaign other than what is happening at the moment, which is to cast aspersions on it without really threatening to undo what is in place.
RM: Beyond the campaign, though, in terms of the policy that they going to pursue.
MB: I think what we want, what America and the world needs, is an American president who is willing to stand up and make the case for free trade and who is willing to take on the farmers and say this is an insane system that is only hurting us and millions of poor people around the world, and to engage with the Europeans. We also at the same time need to Europeans to find some capacity to come up with leadership of that quality. I think if Europe and American start showing a lead on that, then India and China and Brazil and other countries that have not cooperated with the Doha agreement because they feel that they would have to bear too much of the cost, that they will respond to the leadership being shown by America and Europe. As I speak, I’m finding it hard to believe that is going to happen. I think one of the tragedies in the world at the moment is that we don’t have political leaders in the rich world who are really willing to lead on issues like trade and on climate change and other issues of that kind, where we seem to want to appear very selfish and narrow, but actually in ways that hurt ourselves. I’m quite pessimistic about the chances of further trade reform for some time. My worry is that because of the dynamics of the campaign that you will start to see people on the lift in particular ganging up and trying to find ways to get Hillary further and further to the left and therefore appear to be flip flopping and therefore vulnerable, that they will up the ante on the anti-trade rhetoric. Hillary probably her campaign in trying to do the old Clinton play book of it’s the economy, stupid, so the more it feels like the economy is going down the tubes, even though the world economy is growing at five percent, has been for the past five years. The unemployment rate is 4.5 percent, incomes up better than ever, all those factors. If you can persuade the Americans that there is a recession, then it’s foreigners’ fault, I guess you may have a better change of winning against whoever the Republicans come up with as a candidate.
RM: As I mentioned earlier, Hillary Clinton and John McCain are both talking about expanding this package known as trade adjustment assistance. It’s actually fairly little known, but it’s suppose to respond to the impact of trade, the adverse impact, by providing retraining and in some cases education for people obviously displaced by trade. Amity, some of this links to education as well. Trade is not happening in a vacuum. Do you think together all these things as part of some grand bargain to make trade more palatable, as you emerge as a leading candidate for your party and you are trying to set up a policy for the country?
AS: Some of the rhetoric, if you want to be pro-trade and you want to get it through, some of the rhetoric that you want to emit is not just trade rhetoric. We have these campaigns of fear. We need campaigns where they start to talk about opportunity and growth, and that is very hard to do when the dollar is plunging around the way it is and where we are losing one percent of GDP of growth because of the housing story. Jan and Feb, if you come to the winter and say now Spring is coming, and actually trade is about opportunity, you get to another part of the American dream than the fear centers. Second, you have to prepare for the next Dubia ports because with the dollar where it is, with other countries where they are, other countries will come along or their governments or their companies and want to buy something that is politically sensitive. Actually, McCain is the one who has been the best on that, as far as I know, because he is one who said it is really quite silly the whole Dubia ports controversy. Get ready before that happens so you aren’t caught just reacting. I suppose the third is to de-infantalize, is the phrase I would use in the debate. This is not about date rape. It is not about infant safety. Maybe it’s about responsibility of Mattel. Is Mattel not the maker of this toy? All right, maybe it’s about Mattel not managing its toys properly. As long as you talk about it in terms of keeping Americans safe, it’s a very silly conversation. It might win votes. Okay, let them. But it puts us on a level that doesn’t bode well for the future. Corporations are responsible for what they buy and sell. The Chinese government is responsible too but the corporations are the principal agents and that gets to what the dean was saying before. Where are they in this debate?
RM: Dean, on an up note, and we can wrap on an up note – by the way, we are going to open this up for questions, so get some ready pretty soon – among the data that is out there, the crisscrossing data on trade and how it is viewed in this country, the World Economic Forum comes out with its annual list of global competitiveness, and number one of 130-something countries is the United States. Things like innovation and labor flexibility and other things, it did not appear in too many newspapers amidst what else was going on in the last couple of weeks. But what does that say about the way the United States is reacting to globalization? Again, bringing it back to the campaign, how should these campaigns responsibly handle the issue?
TC: I guess to answer that and also refer back to Amity’s answer, one of the things that makes people anxious and unsettled is that even though prosperity is increasing, one of the consequences of trade and globalization that is also very well documented is that inequity is increasing. That an inevitable consequence of the fact that what is happening is that the rewards to human capital have increased. That is why inequality is increasing, both within countries and across countries. Jobs that don’t involve a lot of human capital are becoming commoditized. I think the positive message to take away, the positive proscriptive idea that candidates should be talking about, is the need to invest in education to make sure that we keep that competitive edge, to make sure that we are the generator of ideas and innovations that are going to propel us in the future. I also think that we probably haven’t done enough, we have spent annually I think only a little over a billion dollars on trade mitigation policies and clearly we could do more, but it’s very difficult actually to identify those people who need help who are the victims of increased trade liberalization or globalization. More important is to spend more money on building human capital more broadly for anyone who wants it. If I were a candidate, that is the positive message I would be carrying out there.
RM: A final wrap up question before we open it up for questions in the audience, and it gets back to the title of this. Are we seeing in the actions in Congress and what is coming out a little bit on the campaign trail, is this protectionism kind of creeping its way up? Or really it’s more of a concern that are manifest over all this variety of issues involving globalization? Matthew, is there protectionism? Is it a real thing?
MB: I think I have already said that I don’t think yet we are at that point of protectionism, further protectionism, in a real way being on the agenda. I think it’s much more as Amity said at the beginning of this kind of you do your back in and you’re getting a pain in your head or something. It’s not really where the problem is. If I look at globalization, when America is playing globalization better than any other country in the world, America is by far the biggest beneficiary. Its companies are the most innovative in the world. All the products that are coming out of Silicon Valley are being traded around the world. American companies are leading even the profit-making from manufacturing outsourcing in China , which is all affecting the value of our retirement pensions. They are leading the business process outsourcing in India . Yes, there are a couple of Indian companies that are good but Accenture and IBM are big players in India . I find very little evidence actually of American jobs being lost because of this outsourcing or globalization. In fact, as we know from trade, even domestic services in not very human capital-intensive jobs have become more valuable in a booming economy. So we have people paying $300 for a haircut apparently in America , which is not traditionally a high human capital job. That wouldn’t have happened five or 10 years ago. I think the service sector employees are also benefitting from this boom. Inflation is low. The bankers have got a bit carried away by things and have lent people who would never previously have had access to a mortgage money on terms that were probably too generous. So we are going to have a bit of pain readjusting to that. But frankly 10 years ago, a good percentage of the people who own houses now and who are going to keep their houses through this current crunch, would not have gotten access to mortgages and would not have had the ability to live in their own home. So America is doing fantastically well as an economy, brilliantly. Globalization has been fantastic for America . Look at the prices of things in Wal-Mart, as I mentioned earlier. So the problem has to be about something else. I think the something else is that you have this problem of education for a percentage of the population, which is really disastrous and persistent attempts to reform them have failed. There is a feeling that that part of the population is vulnerable. You don’t have universal healthcare, which is a good European or even if I were a good Canadian I would know is the answer to most of your worries or some of your healthcare worries. The pension system, retirement income, people really haven’t put away enough money for retirement income. Then you have this fact that we have all been woken up to on 9/11, which is there are a lot of people out there who want to wreck this wonderful thing we have going and maybe let off bombs in our cities and we don’t seem to have a terribly impressive job of responding to that threat so far. There are real problems and there is a real malaise in America but none of those problems, it seems to me, are in any way helped by wrecking the one thing that is working well, which is the globalization process. I think it is a very puzzling debate and I think we have unfortunately transferred our attention from the rather difficult practical problems we can do things about to this thing that is actually working well, that everyone is just getting a lot of protectionist rhetoric. But if you look at what they are really saying, they don’t really want to touch it because even the politicians in Washington understand I think when you force them to that this is actually working quite well and that their voters would not appreciate the price of things going up in Wal-Mart.
RM: Amity, do you agree it’s seasonal echos from the campaign trail and basically with Matthew at all?
AS: I am more concerned about more negative language later than Matthew is. I’m concerned specifically about the sense vis-a-vis entitlements because if you are going to focus on getting more and more entitlements, and start with Medicare Part D, the senior prescription drug program and build on that, and you will hear candidates wanting to talk about that either more funding by lifting the social security cap or some kind of expansion of programs or some kind of expensive rectification of the current fiscal imbalances, that will go along with protectionism illogically. But I do share Matthew’s sense that I too am impressed, like Matthew, with the US economy. If we had been in a situation following or during a war lasting so long with so much globalization in another period, at New York University the students of one ethnicity would be wearing a certain color cap and the students of another ethnicity would be wearing a different color cap and they would be having little fisticuffs in the streets and beating each other up. That is what our parents experienced at moments of social tension subsequent to WWII, subsequent to WWI, all the time in the United States history. It would be old immigrants versus the newer ones. You don’t see any of that. You look on the one hand the younger generation put it largely has the great advantage to be sloshing in capital relative to our forerunners in terms of borrowing for houses or starting businesses or finding jobs, that there is just so much more opportunity. On the other hand they face much tougher competition than we even did when you guys faced much tougher competition than we even did starting out for jobs because of globalization. Right here in New York at Stuyvesant High School there are people in this room probably who graduated from that high school, the math high school. There are 800 or so seats for each year and there are over, I believe, 27,000 candidates for those seats, many of whom were foreign born. Do you hear one word of racial hatred? You do not. Wow, what a very competitive, happy situation in a city that is handling this very well, in a country that is handing this very well indeed. So I feel quite optimistic but I do expect the rhetoric to get worse.
TC: That is New York .
AS: But it’s also the rest of the country.
TC: Lou Dobbs just moved up to a hotter time slot on the television. Who is listening to Lou Dobbs railing about immigrants. Somebody is.
TC: So Dean, to wrap this up, heading into the voting booths, not that you are going to tell people who to vote for but the issues they should keep foremost, you actually laid it out very neatly just prior to this. But again, we’re not there yet, according to Matthew, in terms of this protectionist really taking hold. It’s a lot of we should call it street theater on the campaign trail perhaps and so forth. But what are the fundamental issues then that people need to take a hold of?
TC: I think the candidates, I think I agree, are not likely to make trade a big deal, an important part of their campaign platforms. I think other things, the war, healthcare, retirement security, those are going to be front-and-center issues. Then the security of the country, the war against terrorism, will be a big issues. Unless we have a significant financial meltdown, in which case all bets are off, and a significant reversal in the US economy, I don’t think it will one of the headline issues in any of the platforms. But it will be lurking, for sure.
RM: We are going to open it up now to all of you. I hope you have some questions ready. I should state from the outset that we have a very good turnover by the Economist here. Editor-in-Chief John Micklethwait is seated in the front row and I’m also advised to add that an avid follower of the Economist CFR podcast, a listener has come all the way from Maryland for this event tonight. I’m sure where that person is. You can stand up. (Applause) Our panel here has been quite complimentary. They have raised a lot of important issues that haven’t really clashed to my ear. Maybe you can bring that our a little bit in some of your questions. But let’s start with some questions. Somebody actually has a red fan over there. It’s an excellent idea to get your attention.
Q: Can you hear me. I would like to ask the panel – first of all, thank all of you for hosting this – if they could describe in very simple terms why the Chinese currency is allegedly so high and how do they manage to do that?
RM: Who feels comfortable with the Chinese currency?
MB: I’m not sure exactly what you want.
RM: Why the Chinese currency is so high.
AS: I’ll answer that, the first answer to that. I wondered that myself. In some sense a currency is also a common stock of a country and China ’s growth rate is high year in, year out. So that’s the most simplistic answer, aside from the Chinese monetary authority does. The second question, which has to do with why you are asking your question, is will it stay high after the Olympics? Or is now the moment of great shorting upon us? This is something we may have different views on. Some of us feel like China looks very good but there is also a lot problematical there in terms of future social unrest, middle-class democracy, that may eventually be reflected in the value of its currency.
MB: I think the point, though, at the moment is that Chinese currency is low compared to what it would be worth if it were floating freely under most scenarios because it is pegged to the dollar. So even though the fact that the dollar has been plummeting, the Chinese currency hasn’t in any sense significantly moved against the dollar. The thrust of American government policy and Congress’ wish at the moment is to raise the Chinese currency to where it would be in a freely floating market, at which point the price of everything in large parts of America, consumer goods, would rise very sharply, which clearly the government and Congress think would be very popular with the American people. Go figure.
RM: I think that is right. It’s low relative to what you would expect given the trade imbalances, and I think it is in everybody’s interest that whatever adjustment takes place that it be a gradual one. There are a lot of hidden problems with the Chinese economy, a lot of banks that are in face insolvent and where they have not brought their things onto their balance sheets and not been allowed to fail. I think there is not as much transparency as we would like, so it’s hard to say what the underlying value of the currency would be.
AS: This is why the question is so appealing. It’s a mystery currency. We have assumptions about it.
Q: Hank Paulson keeps jawboning for a strong Chinese currency and what would a new Secretary of the Treasury do or a new President?
TC: My take is that he is jawboning but he would not like to see them make any big adjustment because for precisely the reason that Matthew alluded to earlier, that a big adjustment is going to change the prices at Wal-Mart. His job is to go and jawbone but he also wants them to hold on to the dollars and to make the adjustments more gradually.
MB: My guess is that one of the reasons Paulson was appointed Treasury Secretary was that he used to go to China dozens of times over his period as chief executive of Goldman Sachs. He had a tremendous credibility with the Chinese leadership. He had the credibility to say to them, I’m going to say one thing in public but just don’t take it seriously in private. That reinforces my sense that a lot of rhetoric is a game by the politicians and is not really fundamentally about what they really want to see happen. Maybe I’m just being hopefully optimistic.
AS: If you want to excuse it, you would say, well, they are doing that because they would rather do that than have new protectionist laws. It’s the less evil argument.
Q: Speaking of business leaders taking a stand, the CEO I think of GM wrote an opinion in the Wall Street Journal calling for a national healthcare system in the US . I was wondering whether you guys could speak your opinion on whether American companies really are at a disadvantage because there is no healthcare system in the US compared to other industrial countries.
RM: US healthcare system is the question.
MB: Whatever healthcare system America has, someone has to pay for it. The question we really are facing is, who pays for it and can it be done in a way that is more efficient and effective than it is at the moment – i.e., can it reach more people, provide more security and do it for less cost? I think there is a whole other debate around that, which are entirely domestic debates, and how America decides to fix its healthcare system. It needs to be addressed in this campaign in a very thorough way. The issue of who should pay for it, clearly there are a number of American companies that are burdened by their healthcare costs because they are carrying very, very high healthcare costs compared to international competitors who have much less. However, again, you are talking about mainly it’s the GMs and the Detroit companies which essentially agreed to become like Sweden in the 1960s, the corporate equivalent of Sweden, and do a deal where they believe that they could continue to dominate the American economy forever and they had this vast force of retirees coming up and they felt they needed to provide them with these gold-plated benefits. Then Toyota arrived and started producing cars much more cheaply and didn’t have the healthcare costs. So GM and others have become very uncompetitive. I think those are very much industry specific problems. I personally think you have a much more competitive economy when businessmen can focus on running their business and not on running a welfare state, and so it is better if we can get all that welfare stuff out of the corporate sector. I would include retirement savings as well, and do it through other means. Fundamentally, the competitiveness of the American economy is not affected by the healthcare system because whatever healthcare system you have has to be paid for by the economy.
RM: Is the example of the Detroit auto sector, is that exaggerated?
MB: I think it’s a special case. I think you have a number of companies as I said felt they were going to be here forever during the ’60s and they negotiated these insane, almost Swedish or German style, consensus deals with the unions that gave so much power to the unions that when they suddenly discovered those contracts were completely inappropriate in the competitive environment that they were in, they couldn’t do anything about it. So they let the liabilities pile up and pile up until it became impossible to ignore them, which is what we have seen in the last three or four years. Now the government will end up probably bearing a significant cost of that and many of the workers won’t get the benefits that they were hoping for.
Q: There are a few other issues that come under the rubric of fair trade, whatever that means, and one of them is this whole issue of the value-added tax, countries that have it, which is basically Europe , South America and China . They reimburse it at the border when their countries export, but we don’t reimburse any corporate tax to our exporters. But when our companies import into a foreign country, then they are hit with a VAT. That really makes it effectively a tariff, a duty that we are paying and there is no adjustment. Maybe this is one of these things that fits under it’s got to be fair but nobody has commented on it. Another one would be intellectual property where China right now appears to be leading the world in taking our intellectual property and as a few of the people said, even the quotes from the candidates, is build up our technology so we have intellectual property. But it’s just being taken from us. It’s not very helpful and it definitely doesn’t fit within the context of fair trade. Could you comment on some of these other issues that are affecting trade other than just the tariff level?
RM: Does someone want to take the value added?
AS: Sure. A value-added tax is very attractive. You see it in these fair tax proposal of Huckabee. But when you introduce a large value-added tax, you have the problem that people don’t pay the tax, to put it simply, the civic problem, because when you are confronted with a very high value-added tax, you just go and buy something on the black market, even if he has a prebate structure, I believe, where lower earners are exempt. So they’re not subject to this tax. It has some steam in part because of the international trade concern that you raise, the tax competitive.
Q: (Inaudible) the taxes are international(?)?
AS: Right. But that is one reason for the energy behind the fair tax argument and the VAT arguments. I personally wish that we could address that through a form of the income tax. You see lawmakers trying to do it but not doing it successfully. Chairman Rangel is grappling with it. Chairman Archer was obsessed with it when he was chairman years ago but he didn’t get very far. One of your concerns will be, how do get this through the American political process. You find certain companies, the companies that are disadvantaged by this arrangement, lobbying very heavily. But this is an instance where an interest group is not succeeding.
TC: Maybe I’ll comment on the intellectual property piece of it. There is a very strong push as part of the last – I guess it came out of the Doha Round – for universal intellectual property protection standards. There has been a movement to impose these across countries. I think that a lot that effort is actually misguided. Most empirical studies that have looked at how effective patent systems or copyright systems are in protecting innovation and stimulating new innovation say that it has almost no impact. Companies patent things a lot more but they don’t view patents as protecting their intellectual property. The main strategies that companies use to protect intellectual property are very different. That is not to say that software programs and CDs and DVDs aren’t ripped off by the billions in China and elsewhere and sold on the black market, but there is a real question of what if anything stronger intellectual property protection rules would do about that. I think there is some evidence that the Chinese are interested in trying to enforce existing laws but there is no much evidence that we need more.
Q: It’s not really the rules, it’s they’re not being enforced.
Q: We have the rules but we don’t enforce them.
RM: That is an issue that in the Republican part of the campaign you have heard from Mitt Romney and a little bit from Rudy Giuliani about a system of rules and adhering to WTO standards and so forth. But it has really come up that often yet in the campaign. I would like to go to the next question.
Q: Hi. Do you think the US government should intervene to reevaluate the dollar or just stay and watch?
RM: The question is to intervene?
Q: To reevaluate the dollar.
RM: Amity, I know you want to talk about the dollar, but you go first.
MB: I generally think that it’s very hard for governments nowadays really to do very much about their currency valuation other than set sensible domestic economic policies. I clearly think the US government should pursue sensible domestic economic policies. Since we moved to floating exchange rates, that is the only thing that really makes a big difference. We have short-term risks at the moment to the dollar that if this financial crisis continues to deepen, the FED will cut rates further and further. That will cause the dollar to fall further. At that point you may even get international equity investors deciding that they don’t want to put their money into American anymore, so you have a withdrawal of funds. It goes to Europe , it goes elsewhere. So you could see the dollar falling a lot through market forces. But honestly I don’t see any policy available to the government really to do very much about it or anything very significant about it. They can buy lots of dollars in the marketplace or whatever for a bit, but apart from very short periods of time where you can restore confidence, it doesn’t really make very much difference. I think once or twice when Larry Summers was Treasury Secretary and Rubin was Treasury Secretary they tried it, and it bought them a day or two. But really nowadays it’s all about getting your domestic economic policy right.
RM: Amity, do you want to weigh in?
AS: I was just going to say that vis-a-vis the dollar, there is a sense of impatience at such instability, not just that the dollar is low or high, but that it is unstable. In the old days when we had these conversations, we would talk about those who had more outrageous proposals for international monetary arrangements as if they were crackpots, free bankers, private bankers. But given all the ructions(?) in the dollar in recent years, all of a sudden those arguments begin to make a lot of sense. Our colleague at the Council on Foreign Relations, Ben Steil, wrote a wonderful paper about a digitized private money, basically a virtual digitized private gold-based money, I believe, that would have seemed a little bit weird a few years ago and now begins to make more sense. Markets will select a stable currency and it is bad for the dollar to be so unpredictable and bad for the US , therefore, as a result.
TC: I think the only policy that they have at hand is that the FED could raise interest rates. It could raise the federal funds rate. That would cause a huge uproar for other reasons. So I don’t think that is a solution. Now, on the last point, I think that it is actually encouraging to see the euro getting stronger, as long as it does so at a modest pace. I think we will continue to see some growing strength of the euro. I don’t think the dollar will disappear as a reserve currency. It is the one currency that still ultimately is safe in some sense. It has some risk attached to it and is based by a single government, not a loose coalition of governments.
Q: Do you think the US could use globalization and free trade as a way to spread Western ideals as soft power?
MB: I do actually. For example, if America were to get rid of its farm subsidies, that would be a fantastic benefit to many millions of poor people around the world. That would be a very good gesture for America to make. I think there are all sorts of areas where America , by talking in a protectionist way, betrays an insularity that misses the point. The rest of the world is having this extraordinary boom at the moment and American is now having benefitted from it for all these years, if it were to become seriously protectionist, would be the party pooper. They would be the people who wreck it for the rest of the world. I think it may be in keeping with recent American policy but would be deeply counterproductive. Whereas doing something really impressive and actually self-interested anyway on farm policy would be a fantastically positive leadership act by whoever the next American president is.
RM: There are some policymakers who think that in the case of Pakistan, for example, even going beyond soft power, there were some proposals after 9/11 to ease textile trade with Pakistan, where they have a huge comparative advantage, and it didn’t go anywhere in Congress. There are some proposals now for special economic zones that the US could support there, but in all this talk about trying to prop up or do something different in Pakistan policy, trade somehow just doesn’t seem to gain any currency in Congress. It just again shows what our panelists are taking about, the difficulty in that issue.
Q: The panelists had mentioned earlier the trade adjustment programs that are instated here. I was wondering what kind of programs should be instated specifically to help people mitigate the losses of jobs from trade and if they have been effective in the past. If you could, shed some light on that.
AS: It’s probably a lesser evil in terms of economics because it helps individual people but it is a finite cost. If you have an individual population that textile makers in some place would be competing with Pakistan or still on and on and that crowd is suffering, needs new schooling, needs help, it’s not actually costly in terms of the enormous benefit that the new trade opening gives us. When you see a candidate talking about just that, it’s a little unfortunately because he is neglecting the greater good of the widening trade. When trade adjustment comes in tandem with freer trade policy, it’s not so bad and it’s humane. We do have populations who will never recover. They are individual loses from any negative situation who need help from time to time. I personally like to see more of it vis-a-vis education and less of it vis-a-vis simple payment.
RM: So taking textile workers and reeducating them in another skill.
AS: Right. In another skill or the children of textile workers.
TC: Building broader based skills, that the key to job mobility.
AS: If you bought off the entire farm population of the United States, and there is a program for that, it would be worth it if you grandfathered the farms and said the children don’t get this – There have been programs addressing it – it would be worth it in terms of the benefit we would get globally with no US farm protection.
RM: Matthew, do you want to add anything? No?
Q: We had talked about, and in the last question we touched on it, investing in human capital and how investing in education will help Americans compete. But I know people with master degrees in computer science who have lost their jobs, to being off-shored to India and other countries. I also know people who have MBAs and lost their jobs in real estate underwriting to offshore companies in India . My question is, what level of education is really required for American workers to remain competitive, skilled American workers, when skilled workers in other countries are making one quarter of the amount?
TC: I think we can all identify individual cases of people who have been hurt by free trade. That is the issue of being able to identify concrete loses and not identify the vast numbers of people who benefit from trade. There is no question that opening up world markets is going to cause dislocations. But if you look at what has happened to employment growth in the US, over the same period in which trade has increased so dramatically, the strongest growth in wages and employment have been in services and in exactly the sectors that you walked about. Yes, some jobs will flow abroad. But this is an unbelievably robust and active economy. The number of jobs that get changed every year in the US would stagger you. The total job flows in the US is huge.
MB: That is the important point. I think most of the jobs that get lost, get wiped out in America , are wiped out by domestic competition by innovation, technologically, within America , and those that are caused by jobs literally moving overseas are a very small fraction of the overall total job losses. I think that comes back to the point about trade adjustment programs. Should we also be introducing technology adjustment programs for people whose jobs are being lost because someone has come up with a better software program or something of that kind. I agree with the arguments that were made earlier about them being humane, but I think actually let’s be realistic. What you want is an open, dynamic economy where fantastic amounts of innovation are going on and that creates a lot of jobs. That is more likely to happen in an economy where people are being educated to a very high standard so that they have the most possible human capital. That is certainly the lesson that the Indians and Chinese have learned, and which is why they may provide even greater opportunities if we also raise our game here, to leave the whole world economy vastly better off than it is at the moment.
RM: There is an interesting case study emerging from the stampede of reporters going to Iowa right now, where a town – I think it’s Newton , IA – where Maytag has closed up its doors, shut them up. Something like 1.2 thousand jobs where there, good manufacturing jobs, but in fact the town saw it coming and started to respond to this by setting up this flurry of small business activity there. It’s not clear yet how it’s shaking out but it is, as I say, a case study for how an iconic American product is being replaced in a place like Iowa .
Q: Why has India remained so far behind the curve as far as trade liberalization policies go, and what specific issues can a new administration in ’08 address in order to further this cause?
RM: Specifically on India .
BM: India has gone from being very much a classic command economy 30 years ago, where the government really regulated everything in vast detail and foreigners were not welcome to operate there at all. It is a bureaucratic process but increasingly you are able to get in and do business in India . It could obviously go a lot further. I think the more we engage in constructive trade liberalization negotiations, then the more it will open up. But I think India has lagged because it is coming from such a bad place in the first place. Compared to what it was five years ago or let along 10 or 20 years ago, it’s moving very strongly in the right direction.
AS: Just recall that a lot of the growth in India does not emanate from the government, that is it the bypassed technology, those specific areas which the government never thought of regulating because they didn’t exist, cell phones and so on. That is where the growth in India still continues. For the government to do progressive open trade policy would be uncharacteristic, even this government. The state even now with Sing and so on is still behind where the dynamic part of the economy is. They also have the pressures of the communist party. That is a multi-party government in India , including parties that are not so free trade.
MB: One of the striking things that is happening in India at the moment is that it is opening up a fantastically large domestic retail sector, and you are seeing firms like Wal-Mart now, admitted in a joint venture with Indian companies, starting to open up all over India , which clearly will benefit American shareholders in Wal-Mart. I think things are going in the right direction.
RM: But as Amity’s colleague Jagdish Bhagwati points out, Indians have a hard time granting concessions on farm issues while the US is propping up with such extensive subsidies in its farm sector. It’s a non-starter right now in the Doha Round and they are really eager to get past this because they know there are great riches in the service sector part of it.
Q: Have Americans become more adverse to competing and more risk adverse? Or is this just some sort of cyclical period we are going through?
TC: I missed the first part of the question.
RM: What was the first part of the question?
Q: Are Americans more risk adverse and more fearful of competing in the world economy? Or is this just some sort of cyclical, up and down in the tides, or different this time?
RM: Who would like to take that?
AS: Maybe there are a little bit downturn adverse. If you look at where was the unemployment high in the past, it was ’80-’82. I don’t have the chart. Then you see it basically trending down. That means if you are over a certain age you never experienced a lot of trouble. The stock market parallels that. We have seen up, up, up since the early ’80s. You have a generation of adults who have never seen anything bad happen and they are scared that they won’t be able to handle it when it does. They are also further and further distanced from the original Great Depression generation who did go through something terrible in the US economy. Those people don’t even talk to younger people anymore because they are beginning to be too old. That’s a big difference from the ’70s or the ’80 when we were much closer to WWII and the Great Depression. Is there fear about that? Yes. I think this sense of being spooked is what you see in the trade debate. But there is also a lot of confidence because we have this experience of growth dating all the way since WWII but especially ’80s, ’90s and now that we can continue on a growth trajectory.
TC: I think that is right, that we have only seen relatively mild recessions since the early ’80s. Both the ’90s and the most recent one were fairly brief and not as widespread pain. So I think that is probably a good explanation of why people are a bit spooked.
Q: Thank you. At arguably the dawn of the Asian century, with China and India poised to become the world powers and having huge amounts of consumption, I’m wondering about the environmental, the inherent tension between finite environmental resources and increasing numbers of consumers and how free trade can address or how it will have to address those concerns?
RM: The resource race.
MB: I think the environmental challenges are immense and they have to be addressed. The evidence on global warming, although not absolutely conclusive, is clearly worrying enough that anyone prudent would take serious action to make sure that it doesn’t warm up at the rate that is seems likely to by most consensus forecast. So the question is how do we put in place those changes? Can we find changes in policy that actually allow people to get richer and to come out of poverty? Or do we find ways that could take us back to the dark ages? Who bares the pain? Given that we have had 100 years or 200 years of growth to get to where we are now, should we force China and India and other places to miss out on that growth just because we happened to get there first and heat the planet up nicely and we don’t them to take it to the boil? My feeling is that any regime that comes in place needs to allow quite a lot of trade, all the Chinese and Indians and other poorer countries to get wealthier, and make sure that the pain, if there is to be pain, has to be broadly shared. But I think we still have time to put in place incentives to shift away from carbon-based business towards alternative sources of energy. Giving people the incentive to innovate by making it clear what the policy regime on climate change is going to be, we will actually benefit. Maybe countries like China and India , where they have an engineering capacity and a science base, actually will get ahead of us in terms of doing more innovative products that we then buy from them to upgrade our own products and so forth. The argument that you should stop free change because of climate change, if that is the argument you were making, would simply be saying, let’s keep ourselves poor a little bit longer, in the hope that maybe the planet won’t get there quite so fast. So it’s not really an answer. The answer has to come from addressing climate change head on.
TC: I think you do have to be weary in the political campaign, to get back to the issues that we have been talking about, be weary of politicians who say we’re all for more free trade as long as the appropriate environmental controls and labor market conditions are in place in those countries, that we are going to be the ones judging the adequacy of their controls. There is more than a little hypocrisy involved with senators from Michigan trying to dictate environmental policies of Mexico and China .
MB: Good point.
Q: Not too long ago a distinguished (Inaudible) gave an interesting, to say the least, evaluation of the Bush Administration.
MB: From the what?
Q: The Bush Administration, from an economic perspective. What are your evaluations of this current administration from an economic perspective?
MB: Who wants to take on the Bush Administration?
TC: This is forward looking, right, forward looking.
MB: They clearly left the next administration with a lot of economic problems to deal with, particularly in terms of the fiscal deficit and the current account deficit. I suppose the argument would be, some defense could be made of their spending on the grounds that after 9/11 there were a lot of things that any government would have start spending to protect the country and to shore itself up. But they clearly let things go on the fiscal side. The money that has been spent has not been spent on the sort of things that American’s long-term prosperity should have them spend on, like education, like sorting out the healthcare system and it has gone on things like farm subsidies. They haven’t been an administration that you would look back on as an economist with any fond memories. I guess they haven’t really addressed the fundamental tax reforms that they needed either. You can make some defense for cutting some of the high rate taxes that they cut, but it wasn’t part of a broad, really well-thought through structural reform package. Even that I think won’t count for much in the reckoning.
AS: Here is where Matthew and I diverge. The issue for the United States is relatively competitiveness: where do we sit in the world? One of the features of relative competitiveness is taxation. The Bush Administration cut taxes several times, including importantly a tax on dividends and reducing the capital tax. That was led by Glenn Hubbard, who is now up at our competitor at Columbia . I would argue, and there is evidence for it as well, that these changes, in addition to holding the line on the income tax and cutting it back somewhat, were important to where the US was in the past seven years, so that a much more severe downturn was avoided. Because if you had drawn the scenario that the US was attacked and it had the internet boom, what happens next? You would have said significant recession. We did not really have a very significant recession relative to what could have been in that period. If you look at the budget year on year, what is happening to the deficit, the deficit is narrowly. We aren’t where Germany is. Germany I think is in surplus this week, but we are narrowing it. What is of concern that the Bush Administration did not address, though it tried and came closer than the Democrats, are the longer-term obligations, such as Social Security and so on. There are big errors, two of them, by the Bush Administration. One was creating a new entitlement, Medicare Part D, and the other I would argue is this dollar policy. But there is also a lot of good stuff in terms of growth. It may not have been orchestrated always so consistently, but the impulse was an important impulse and it kept the US relatively competitive at an absolutely vulnerable time.
TC: Let me disagree with both of them in some part.
TC: I agree that they made some important tax reforms, and I think it was important lowering the capital gains tax, lowering tax rates when they did was both timely and important in moderating the recession that they inherited. So some of that was good. Other fundamental aspects of the tax system are still a mess. I mean, the alternative minimum tax has become a big problem. I for one do not worry about the money that was spent fighting Iraq . That is not the same as saying I’m happy about Iraq , but if you going to fight a war, the way to pay for it is by borrowing. That is a time-honored tradition invented by the British through many centuries of war. But where I have to say they really deeply disappointed me was in two of the things that Matthew mentioned. He didn’t mention the steel subsidies or tariffs but he did mention the farm policy. The farm policy I think was just a colossal failure of correct economic values for a Republican Administration. It really was one of the biggest handouts in history. I do think that point is an important one on a broader scale. It goes back to talking about things that are more importantly going to be front and center in the forthcoming campaign. It’s really going to be necessary for the US to step up and act like a global leader where agriculture subsidies are concerned. I think that we just had a century where economic prosperity improved so greatly in so many countries. In the next century, if it is going to be the Asian century, it better improve a lot for people in India and China . The one thing that we could do to signal our support of that is by dealing with these agricultural subsidies.
RM: I can’t think of a better way to wrap up actually. It’s less than eight weeks to the Iowa caucuses and the issue of farm subsidies. I want to thank our panelists and I thank all of you also. I didn’t hear any beeping sounds through the whole thing. Thank you very much. (Applause)
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