Global Commons

This session was part of the Stephen C. Freidheim Symposium on Global Economics: Financial Turbulence and U.S. Power, which was made possible through the generous support of Stephen C. Freidheim.   SEBASTIAN MALLABY:  Welcome, everyone.  I think we can get started.  I'm Sebastian Mallaby.  I direct the Center for Geoeconomic Studies here at the council.  My role is, very briefly, to thank everyone for coming.  Welcome to the first of the Stephen C. Freidheim Symposium on Global Economics.   I want to say thank you particular to Steve, who's been not only generous with his support, but also a great collaborator in brainstorming and setting this up.  He is also quite patient, because we were going to do this back around November, December, and there were one or two speakers who said they would come and then the demands of going into the new administration caused them to reconsider.  It turns out that the only thing more all-consuming than having a top administration position appears to be sort of getting ready to have a top administration position.  (Laughter.)  So Steve was great through all of that.  Thank you very much. This symposium has three panels.  It sort of fits into the core idea of what the Center for Geoeconomic Studies is about, which is to bring together the geopolitics, the foreign policy on the one hand, and mix that international relations with international economics.  And so what you're going to see here today is three sessions, all of which take a look over the horizon about the effects of the financial crisis; this one on geopolitics, the next one on financial regulation and the third on sort of trend growth in the macroeconomy. So with that, I'll hand over to our first moderator, Richard Medley.  And thank you, everyone, for being here. RICHARD MEDLEY:  Thank you.  I want to introduce Joe Nye, who everyone knows, but, as you may not know, he's either going to be the ambassador to Japan, China or Yale.  (Laughter.) JOSEPH S. NYE, JR.:  (Laughs.)  Or not. MEDLEY:  But you will, right?  One of them. NYE:  No.  I said I think all these things are 50-50, at best.  The Yale one might be a little higher. MEDLEY:  I guess that's -- and Phil Zelikow, of course, who has the distinguishing characteristic of being so talented that Richard Haass asked him to be part of this symposium. So let's just start talking.  Basically, the question that we have before us is the geopolitical effect of the economic crisis.  And it does seem to me that the U.S., China -- U.S. and China, at least, have reacted very strongly and positively to this.  And -- but you've got all of Eastern Europe and Central Europe and, in fact, most of Western Europe who seem not to have.  Does that -- is that -- does that change where we're going to go, where we're going to be in terms of geopolitics?  As you said in our conversation, there is a G-2 kind of idea coming, which the Japanese know about.  They want to kind of insert themselves into that as part of the G-3.  Where do you think this leaves us? NYE:  Well, it -- let me take it short-run and long-run.  In the short run, meaning next year, two, three, there are going to be, I think, significant ramifications, geopolitical ramifications of the financial crisis.  For example, if Pakistan goes belly-up because of the economic effects, that's a huge geopolitical impact.  Let me leave that aside, because Phil's going to say a bit more about that, and focus more on the long run. To what extent has this crisis changed our views of what will be the relationship between the major powers in 10 to 20 years time?  And when it first broke, the conventional wisdom -- Steinbrueck, the German finance minister, said this is the end of American dominance.  Putin -- not Putin, Medvedev followed suit.  Even my friend Michael Ignatieff, who's going, we hope, to become prime minister of Canada, said now that American power has reached high noon, Canada should be adjusting its policies elsewhere.   I think all this is wrong-headed.  It's a big mistake to draw long-term conclusions from short run -- I mean, right now, you just project a linear projection of where we are, it looks bad.  In fact, even those short-run -- or those predictions that were made at the beginning of the crisis have already been falsified.  Decoupling -- remember decoupling? MEDLEY:  Yes. NYE:  Well, that got knocked on the head.  The crisis was supposed to be the crisis of the dollar.  Well, what happened to the dollar?  Up, not down. And then you say, yes, but China's doing well -- 6 percent growth this year -- America, not.  We're somewhere in the negatives -- 3 percent, let's say, negative.  But, you know, what's interesting is the decline of China's growth rate from 10 percent to 6 percent is greater than the decline of our growth rate.  And that means the time when China would catch up with the United States in overall economic size doesn't get closer; it gets further out.  I mean, Goldman Sachs's famous 2040 when they catch up, then they shortened it to 2027 -- well, you know what?  It's going back to 2040.   And so there's a lot of very foolish geopolitical extrapolation based on short-run situations, which, in fact, I think are not very well thought through.  We can talk about what Niall Ferguson called "Chimerica," whether that really is a G-2.  I think not.  I think it's a great mistake to think of this only as a G-2.  Three economies -- U.S., China, Japan -- out of four, with Europe treated as one, are over 2 percent stimulus and are sharing a pretty heavy load.  But it would be a huge mistake in (managing ?) the international (community ?) to leave out the Europeans. So I think that -- beware of geopoliticians bearing long-term gifts based on short-term trends. MEDLEY:  Let me just -- before we turn to Phil, one more question.  Japan seems to have really come to the fore in this, has really done a lot.  And, you know, after two decades of stagnation, they've really taken this, it seems to me, as a -- as a clarion call to become part of the world again and reenter.  I mean, do you feel that there's a possibility that Japan reemerges after all this talk of, you know, it disappearing from the world stage? NYE:  Well, I think Japan learned from its own "Lost Decade."  And the Japanese stimulus package is not only ample, but it's also different.  Instead of building more bridges to nowhere, which was the traditional style of the Japanese infrastructure for the sake of the Liberal Democratic Party's local constituencies, they're now putting a lot of the stimulus package into services or technology.  I mean, it's a different kind of stimulus package.  And 2 percent is a significant number. I think they are taking this role more seriously.  That's another reason why for us to treat and talk as though there's just a G-2 would be a mistake.  Remember, Japan is the second largest economy, not China.  People often take the trends of China and put it in second place.  Uh-uh.  Japan is still a much bigger factor, economically. MEDLEY:  So, in terms of -- how do you see the impact of the economic downturn in terms of the geopolitics, as Joe was saying, of Pakistan and the problems we're going to face in there? PHILIP D. ZELIKOW:  Well, let me come back to the Pakistan issue in a moment.  But first, I want to just urge the audience to regard this with a certain amount of humility.  But to make that banal point -- make it perhaps a little more concrete, let's imagine that instead of meeting here to discuss the long-term implications of the global economic crisis on May 12th, 2009, we are meeting here to discuss the long-term effects of the global financial crisis on May 12th, 1931 -- May 12th, 1931.   The financial crisis has now clearly been upon the United States for about a year and a half.  It's well recognized.  Reverberations are felt everywhere, though it's hit the Americans especially hard and the Germans.  But it's not being felt the same way everywhere.  There are a lot of arguments going on about whether the crisis will persist.  Many people think that green shoots are noticeable and that actually the worst part of the crisis may already be behind us, but there are people who dispute that.   For international implications, hard to say.  German politics is clearly rocked, but the civilian government of Chancellor Bruning in the Weimar Republic still seems to be holding together.  Widespread bank failures are not yet convulsing Europe.  In the Far East, there's turmoil in China, of course.  But Japan is still a firm part of the Western international political order, a full -- a full member of the Supreme Council of the league.   So you've looked back and you'd say, well, what do wise statesmen think about this?  Well, Winston Churchill, one of the most eloquent statesmen of the age, only six months earlier said that he thought the prospects for peace have never been better than for 50 years.   So you look out on the future and there are some dark clouds, to be sure, but, well you could -- you can imagine them, the way that council meeting would have gone in the wood-paneled suite they would have used on May 12th, 1931.   So there are two things I want you to take away from that story.  The first is, is just this little concrete reminder about humility.  Okay, you got that.  The second one, which I think is actually -- is a big idea, but like all big ideas is also very simple, is the really important decisions about the crisis are not the decisions surrounding the onset of the crisis; they're decisions you make after you're well into the crisis. We are accustomed to thinking about periods of world history by noting the points at which things began.  So there's huge literature about what caused the crash of 1929, or what caused the outbreak of war in August 1914 and so on.  My argument to you -- and I think it's sustained by the historiography, especially on the Depression -- is that the key things that created the lasting crisis of the '30s were not the crash itself.  The crash of '29 was not at all unique.  There had been a severe crisis right after World War I.  There have been other severe financial shocks later, even like 1987.  The decisions that actually turned the crisis, basically took it off the precipice to a much more dangerous stage, were actually made in 1931, 1932.  I think that's the view of Charles Kindleberger, Peter Temin, Ben Bernanke, when he was writing as a historian.   So in other words, it's not -- rather than focus on what got us into the crisis, because, well, lots of things, hard to predict, the things that will shape world history are the decisions we're making right now.  And it's not clear to me what those decisions will be.  If it was clear to me, why would I be sitting here?  I'd be in the south of France, perhaps. MEDLEY:  But so -- I mean, on that -- I mean, what do you think about the discussion?  Already, the central banks -- the ECB, the Fed, the Bank of Japan, Bank of England -- are discussing exit strategies already. ZELIKOW:  They're already looking ahead to when they pull out of the crisis.  And they might be right.  I'm -- again, you know, I'm not the -- all of you here read Nouriel Roubini on the one hand or the Obama administration on the other.  And you can decide -- you've probably already decided who it is you think you believe.  And you actually are probably smarter about this than I am. So my job is -- is to kind of think through what happens in either of these scenarios, and then what policies would you adopt that would be resilient enough to prepare for uncertainty.  But I'll -- what I'll call attention to are two big themes, let's put it this way, that are geopolitical.   The first is there will be a -- there will be some key issues that will arise over the next year or two that will either validate the credibility and continuing influence of the United States and its allies, basically shows the Americans and their friends can still more or less manage stuff, they can still more or less manage big stuff.  I think actually if things in Pakistan or Afghanistan look up a bit, you know, the heroic efforts -- looks like the glass is beginning to fill, rather than drain -- Iran, especially.  But I'm not sure what the test will be.  It might be that.  But something will, in -- I think in the next year, will basically show we're still managing stuff or we're not. The second big set of tests will be on the international political economy.  And the thing that I'm -- and what I'm especially focused on the international political economy is right now we're seeing an astonishing amount of continuing cohesiveness in basically the general premises we took into the crisis about the shape of the international political economy are still generally held among all the major economic powers.  And that's being tested now.  And I think the tests are going to become the more acute.  Where I see the tests as being most dire -- not in the United States; I'm -- there -- I'm especially concerned about Europe.  I actually think if Europe cracks, cracks in a big way, that will be important.   But I'm looking for signs of a big divergence.  The divergence could go in a couple of different ways.  And one reason it could be very significant is because -- I don't understand the Obama administration's fiscal policy yet.  I listen patiently to it and I nod my head and I want to believe, but then I -- my -- but then my -- the rest of my body starts working and I start using my head and I just can't get the numbers to add up, and -- but they've got a plan.  But suppose the -- suppose if -- kind of play out what happens if the fiscal policy turns out to founder in some significant ways.  There, the issues of divergence may be very, very important.  If it looks like the United States, the -- kind of this -- a big aircraft begins to drop back out of formation -- you see what I mean. MEDLEY:  Yeah.   NYE:  But -- MEDLEY:  Go ahead -- go, Joe. NYE:  Can I just comment on what Phil said, which I largely agree with?  I think it's extremely important not to think there's one future.  When I used to chair the National Intelligence Council, which does intelligence estimates for the president, I would say to the analysts, give your best scenarios with their best estimates on them, and then after you've done that, tell me what would make them all wrong.  And they'd say, oh, we've studied this for our lifetime.  You know, that's -- we don't need to do that. You have to do that, because it tests your assumptions.  And so if you asked what I was saying a few minutes ago, which is, will this lead to the long-term American decline that some people projected, and I said no, I owe you that test of my assumptions, which is why Phil's analogy to the '30s is right.  If the shape of the recovery is a "V" -- you know, the kinds of things that we've heard from macroeconomists that you'll have maybe 2 (percent) or 3 percent growth by the first quarter of next year and so forth -- or even if it's a "W," since, as Phil pointed out, we saw -- you had really four years from '29 to '33 of downturn, and then you had beginnings of recovery, but you had many "Ws" on the way -- ZELIKOW:  Along the way, yeah. NYE:  And if it's a "V" or a "W," then I would continue to hold the projection that I gave.  It's it's -- the shape is, in fact, a downward set -- a staircase downward or a long, long "L" like Japan in the '90s, then I think we ought to reanalyze this question of how American power will look at the end of it.   So I think Phil's warning is very appropriate, that -- state your assumptions.  My assumptions are this is probably a "V" or a "W" but not a lost decade, a la Japan.  But if it is, then I think the damage to American power will be considerably greater, though perhaps not as great as the pessimists say.  One of the things that people forget is when you're looking at some dimensions of power, it's relative.  The United States has been hurt, but, ironically, other parts of the world have been hurt even more.  And that means in relative power terms, you have to keep that as your base for projection. MEDLEY:  But I do think that -- but turning just for a moment from the economic side to the geopolitical side, there is -- I mean, the U.S. and the Obama administration -- and you're right.  I mean, I don't think the Obama administration could tell you accurately what their global fiscal policy is going to be three or four years from now, because they're running as fast as they can to keep up with this.  And as, you know, Bernanke has said many times, we'll worry about the next phase once we're through this phase, because you can't -- you know, you just can't let this thing collapse. On the geopolitical side, the force projection of the United States, I think, between Obama's -- to me -- you guys probably knew this; I didn't -- surprisingly positive attitude toward FTAs and, as you said, the world order has knitted -- has stayed knitted together in a way that we didn't see, at least in the beginnings of the Great Depression.  It's really stayed together.  And the fact that we've gone, you know, from Iraq to Afghanistan and obviously Pakistan, although, you know, maybe we can't talk about that, but the idea is that the force projection of American power is very strong, whether it's -- whether it's economic policy or military policy.  It seems to have actually almost increased in its ability to project force.  I don't know what -- you want to -- ZELIKOW:  Well, no, actually I'm not too downbeat at the moment.  I'm not too upbeat, either, but I can -- on the plus side, you could make a pretty good argument that says the Bush administration left the Obama administration with Iraq actually heading in a much better place so that they could -- NYE:  Absolutely. ZELIKOW:  -- basically afford to dial back and concentrate their attention on Afghanistan, Pakistan, without it looking like there was a catastrophic retreat of American power.  It doesn't feel like a big retreat.  It feels like there's retrenchment now that that actually after years of terrible trial and error, we actually -- but the result is that the American military, after trial and error, actually was able to prove its effectiveness in Iraq and now can somewhat pull back and let Iraqis pick up.  And so even if there are some big problems now, it may be, well, those are going to be Iraqi problems. But in other words, the credibility of American power was renewed.  They're going to hit -- the Afghanistan-Pakistan problems hard.  If it looks like their efforts there at least seem to be well-guided, their credibility holds together there.  So in other words, the hard power side still looks relatively credible and robust, while now reinvigorated, I think, by a much stronger soft power effort. Where did I ever get these words like "hard power" and "soft power" -- (laughter) -- these made-up words that press in my brain and I can't get them out? NYE:  Poisonous.  (Laughter.) ZELIKOW:  Someone has complained.   The -- but now you've got all that additional reinforcement.  So then you -- that actually would then strengthen the point Joe kind of led with, which is, you know, by no means is this a picture in which you count America out.  But that would be kind of an upbeat story.  And then the downbeat side of this would be, then, the hypothesis, which I think is right, not that the Obama administration has failed, but that a couple of really very large tests are coming that have not arrived yet, and that those tests -- I think there will be some cluster of things that will become the geopolitical test.   If you want to go back to my 1931 example, the great test of what people thought was then a new working collective security system was actually set to arrive in about a year, starting in September '31 and really reaching a crescendo in '32 with -- actually the Manchurian episode turns out to be very important as a precursor for all else that will follow, because of what it signaled to the world about how the world was really going to work.  And the same thing was happening on the economic side, so that by the time you get into 1933, most people in the world have kind of come to the conclusion -- one -- both militarily and economically, you know what?  It's every man for himself.  And if you want to secure resources, if you want to secure your future, you'd better secure it with your own might and main.  And that's a very different kind of world.  That's a very different kind of world than the one we live in today. I'm not suggesting that the past is prelude to today's future.  Things will unfold in some very different way, but it suggests some questions that one can use in looking ahead about the geopolitical tests that they'll face, which I think Iran and Pakistan are very high on that list, since this is -- this is being managed credibly and with some coherence or not.  And then on the international political economy side, there are a cluster of things in which I actually think and somewhat fear that American fiscal policy and political debates in Europe could -- and Chinese reticence could combine in very unfortunate ways.  And perhaps we can develop that subject a little bit. MEDLEY:  And let's follow up on that, Joe.  I mean, there is a really interesting development with China, Taiwan and Japan.  That triumvirate seems to be moving more toward cooperation than one would have predicted.  Again, as, you know -- as you said, Phil, it's hard to make, you know, 10-year predictions, because you always look like an idiot. But there -- certainly right now, China, Taiwan, Japan, there seems to be an opening there or no? NYE:  Well, we developed a strategy back in the '90s called the East Asian strategy, which basically said with the rise of China, is this necessarily going to lead to conflict between the two great powers, a la the rise of Kaiser's Germany in 1914.  And we said not necessarily.  What's interesting is Britain had actually been overtaken by Germany by 1900.  China is not going to overtake the United States, as I suggested, for another couple of decades.  So we've got a lot more room there. The strategy we designed at that time was reaffirm the U.S.-Japan security treaty so that if a three-party game, China can't play a Japan card against us, that essentially we have the balance of power, and within that framework, open the door to China by joining the WTO and integrate them into the international economy, which -- Bob Zoellick properly put it when he was deputy secretary of State, asked China to become a responsible stakeholder.  That strategy was not rejected by the Bush administration, and it so far seems to be continued by the Obama administration. And the main thing -- again, going back to my point when you say, "What could make it all wrong?" the main joker in that deck was Taiwan.  Under the previous president, Chen Shui-bian, there was an incipient independence movement, or the government was actually making incipient moves toward independence that drove Beijing crazy.  He's been replaced by Ma Ying-jeou, the current president, who has now launched a cross-straits dialogue.  And almost everybody I know who's been in Taiwan, in Beijing and so forth, says, "You know what?  This may be one of the rare problems which is getting better with time, rather than worse."  So the big joker in that deck which would have thrown our East Asian strategy off course seems to be, for now, at least, better.  But if it arose again, that could be a problem. The Japanese-Chinese relationship is one which is quite interesting.  When I was renegotiating the U.S.-Japan security treaty in the '90s, the thing that always interested me is that when you talk with your Japanese counterparts across the table or in front of cameras, all they had were good words about China.  Then you went to a bar late at night to see what they really wanted to say, and they were scared as hell about the rise of China.  And the important thing is that Japan will be our ally, because the rise of China is a concern.  But it's important to reassure the Japanese.  So we don't want negative China-Japan relations.  That would have a bad effect. I've always argued that what you want is a triangle of good relations between U.S., Japan and China to produce stability in East Asia, which is the basis on which markets can bring prosperity.  That has worked, and I think the important thing now is to keep that triangle stable in all three legs.  I think it looks better now then it did, say, a decade ago. ZELIKOW:  Joe's points are very good.  And, of course, if you think about the East Asian geopolitical environment, all the countries in East Asia are very conscious about how they're going to play their relations with China.  But put yourself in their position.  All of you would answer the question, "Do you want friendly relations with China?" of course, you would say yes.  If I would ask you, "Would you put yourself in China's hands?" all of you would say no.  You would say no not because you necessarily dislike China or hate China, but because you cannot possibly trust it, precisely because of the way its own government works.  Indeed, many people who are very close to the Chinese government in China don't trust how their government is going to work, because their government is deeply opaque and it's extremely complicated in lots of ways that those of you who follow China understand very well. So therefore, given a very large country ruled in such an opaque and mysterious way -- so pretty much all of its neighbors are going to want to have some powerful neighbor to be its -- some powerful country like us to be their friend.  And if we'll act in a more or less responsible way, our geopolitical position in East Asia could be very secure.  Then the problem is to make sure that that doesn't turn into some kind of arrangement where the Chinese think the world's trying to contain them and they're -- it's a zero-sum black-white game.  And in our different ways, both Joe and I have been trying to stress to people for more than 10 years that absolutely that doesn't need to be the case.  This can actually be a win-win situation in a world that accepts interdependence and common frameworks. MEDLEY:  And I think that's the thing that we can really agree on, is that there's a real -- with the Taiwan thing in particular, with China behaving the way it has with their responsibility on the currency and everything like that, there is a chance for a win-win there. One thing we haven't touched on -- and it's kind of always the -- you know, as Ross Perot used to say, the crazy aunt in the attic is Europe.  I mean, we're not as in tune with Europe, in an odd way, as we are with the Asian powers.  And I'd like to get your -- you know, your thoughts on that.  Where -- because there is real divergence in the way we're handling this, the way they think about markets versus the way we think about markets.  And -- ZELIKOW:  Let me jump on that and to -- make a really large fundamental point about the future of the international political economy.   The basic international political economy that we're revisiting today was forged in the late 1970s and early 1980s.  And I want to remind some of you who took economics of the famous Mundell-Fleming impossibility theorem.  The Mundell-Fleming impossibility theorem, for which Robert Mundell, a Canadian economist, won a Nobel Prize, stated that there are three desirable things you might want to have.  You might want to have capital mobility, free movement of capital.  You might want to have stable exchange rates.  And you might want to have national autonomy in controlling your monetary policy, basically national economic autonomy.  Those are three desirable things.  Mundell argued you can never have all three of those things.  You can only have two of those three things; pick which two you want.   The Bretton Woods system was liberal in many ways, on trade, especially.  It was not a liberal system for capital mobility.  Capital mobility was government-brokered and highly limited.  This began to erode in the 1960s, and it was a system beset by constant crises, the -- no need to go into details.  And therefore -- because what had happened is they resolved Mundell's theorem by saying, "We're going to sacrifice capital mobility to have stable exchange rates and national autonomy, because we're going to use national Keynesianism, and we want to have the freedom to do that."  And then that system broke down and collapsed in the early 1970s. What replaced it?  What replaced it was a new solution to the Mundell theorem in which you sacrifice national autonomy to a very large degree.  You get more stable exchange rates -- somewhat stable exchange rates and a high degree of capital mobility.  That -- there were big crises that tested the formulation of that, bracketed by -- from the British IMF crisis of 1976 to the Third World debt crisis and Mitterrand's famous u-turn of 1982.  Now, that is important.   The question is, today, are we going to revisit that solution to the Mundell theorem?  And the place where it is most likely to be revisited is not the United States, nor in East Asia, which relies on capital mobility.  It is in Europe.  It is in Europe where, actually, it was tested most severely in the late '70s and Mitterrand's France, and it is in Europe where it may be tested again.  Mitterrand made the u-turn in 1982 after he tried a national Keynesian approach.  He was broken, basically, by the Germans and the European monetary system, by the way, who had also disciplined the Americans during the Carter administration.  And finally the Americans gave in and appointed Paul Volcker in 1979 after they had bucked against Europe, for those of you who think the Americans always make the rules.  The Germans really had been the anchor throughout, partly because of their continuing coalitions that always had the Free Democrats as a critical partner playing a governing role in their economic policy. Now, the Germans are still actually the anchor in the way Europe has been approaching it and  -- (inaudible) -- hard-money policy Europe has generally been adopting lately.  That's being tested right now in Germany and in European politics.  Not only are there the East European problems, which have gotten some attention.  In some ways, I'm more worried about Southern Europe over the -- over the near term.  But look at what's happening in German politics, per se.  Oskar Lafontaine and others are now joining hands with some of the old former East German communists and they're making a square assault on the whole fundamental premises of the social market economy that has governed the German economy for the last generation.  They're going after the Mundell theorem. If Germany breaks, where does France go?  And indeed, France gave in before, because their European identity turned out to be more important than adopting their own independent economic path.   So if Europe cracks in some really important way, then really the whole way the world regards the solution to the Mundell theorem then goes open to question, and the whole structure of the international political economy comes back into play. MEDLEY:  I just want to say quickly, Joe -- and I want to turn it to one -- but the -- what you're alluding to is very important, because there is a fundamental concern in the markets that what are called derogatorily PIGS -- that Portugal, Italy, Greece and Spain will break off from Europe and that -- and that the ECB will not be able to save the southern region from breaking off because of debt and other issues.  Obviously, that would be -- that would just be a catastrophic development.  But short of that, there's still challenges that Europe faces versus the way they're handling things. NYE:  Yeah, I'm somewhat less Europe-pessimistic than Philip is.  I think he's right to warn on this.  The pendulum is going to swing from the market orientation to state orientation -- swinging in this country as well as in Europe.  The question is, how far does it swing?  I don't think the German system's going to break.  You get about 10 percent for this left coalition that Phil mentioned.  And I think also that what's interesting is we all predict increased protectionism with economic downturn.  What's interesting is not that there's been some, but how little there's been -- much less than predicted.  And the European framework, while there is protectionism within it and with -- both internally and externally, what's interesting is how limited it's been. So it's not nearly as bad as one -- I mean, you could make a case -- a scenario is still made.  I don't see that as the most likely scenario.  The -- one of my colleagues at Harvard has just done a projection arguing that Europe is going to come through this fine and that the Euro will be a reserve currency -- dominant reserve currency by 2020.  I don't agree with that, because I think they don't have a macroeconomic policy behind it.  But it's -- any case, I don't think you're going to see this swing going so far in Europe. I worry a little bit less about Southern Europe than I do about Eastern Europe.  Europe essentially brought the center of Europe into the Brussels framework, which was extraordinarily important.   It meant that instead of instability, you had stable democracies in the center of Europe -- lots of problems with all of them, but nonetheless a lot different from Europe in the 1930s, for example, in that region.  But go one tranche further east and look at Ukraine, look at Belarus, look at Moldova, look at the Caucasus and so forth; that's the area which is, I think, very problematic.  Ukraine down 20 percent GDP; lots of problems with internal cohesion; lots of problems with the Russians trying to get hold of the gas market.  That's an area where the EU had created an East Europe -- an Eastern Europe initiative, but it's now underfunded and under-attended-to, because of the problems inside the EU itself.  And they focused first on Poland and Hungary, rather than the further east. So if I were asking for a geopolitical crisis area, the fact that the Russians want to exert their post-imperial space again and that the Europeans aren't paying enough attention, that would be the geopolitical belt that I would worry about, not the Southern Europe belt. MEDLEY:  But again -- I mean, even there, in terms of the positive policy responses, as you said, that the lack of protection -- we were talking about the FTAs and things that -- really, lots of positive things have happened in this crisis.  One of them was when they couldn't, you know, focus the ECB and other resources on Eastern Europe, we brought in the IMF, which was, you know -- you know, a truly substantial commitment to kind of hold the border until we could get this -- NYE:  Right. MEDLEY:  Until we could get this together.  It's -- I just thing the policy responses have been phenomenal relative to history. NYE:  Yeah.  Much better than expected.  And -- MEDLEY:  And by the way, I have to say, the Bush administration, you know, started this a long -- you know, I may be a Democrat, but they did start this; they did get a lot of this right early on. NYE:  Bringing in the IMF -- reviving the IMF, what have they -- year or so ago at a meeting of Sebastian's center here, we were talking about what were we learning about the crisis, and one of the comments was the irrelevance of the IMF.  Well, guess what?  They're relevant again.  I think that's important, because if you rely just on the EU to solve these eastern problems, you got to globalize it.  You got to get in into a broader context. MEDLEY:  Exactly. ZELIKOW:  Right, because, I mean, all this -- all of this tends to renew confidence that global frameworks for managing  interdependence work. NYE:  Yes. ZELIKOW:  And the crisis becomes truly ominous at the point people think they don't work anymore and that world in which we could rely on interdependence in global frameworks is passing from the scene.  It's worth, then, taking Joe's comment on Ukraine, which he's been -- he's dead right about that.   I want to circle back to China again and to the role of China in all of this, as we think about the importance of global frameworks and the commitment to interdependence.  I'm not sure what China's going to do over the next five years.  It is -- I see -- I know where China wants to go over the next five months.  I think I see the short-term trajectory of the leadership.  You can just -- if you plot it out in a linear way, that sounds good.  And that if you talk to people who follow China -- how confident are you that the Chinese basically can just keep the tiller steady for the next several years to come? -- you begin to find some people who have some concerns. And I want to underscore that a little bit by telling another little historical story, because if you -- if you follow the economic historians of the Great Depression like Peter Temin, a lot of them actually draw the basic shot that caused the Great Depression actually back to World War I.  That's Temin's argument.  And what really happens then is the burden of being the great world creditor and spreader of money shifted from Britain to America.  Britain had held a lot of the gold and had dispensed it liberally because of its firm belief in free trade.  Britain was the world's major creditor.  During the war, really, in 1916 and 1917, this turn -- and Britain is bankrupted by the war and the decision to continue the war in 1916 that both Britain and Germany make in their different ways.  But one reason is Britain is bankrupt by the end of 1916 and going into 1917 and they know it, and now they rely on American loans. So basically, the burden of becoming the world's creditor shifts to the United States as the -- by the time the war ends.  And America, increasingly, has gathered the world's gold.  What America does right after the war is it passes a tariff that's much more important than Smoot-Hawley, that famous old tariff of 1930, which is the Fordney-McCumber tariff, in which they -- coming out of the war, they've got all of the world's gold.  Instead of adopting a policy of free trade and liberally dispensing the aggregate demand that all that gold represents, they build a huge set of trade walls.  And then -- that's what Washington does.  And Wall Street tries to help keep Europe afloat by lending dollars to Europe, which were then recycled to help keep things going in Europe. But what that meant, then, from the economist's point of view, is a terrific shock from essentially the displacement of Britain's role -- this hegemonic role in the world economy, America doesn't take Britain's place.  America basically builds a fortress America relying on its domestic economy, primarily, through these tariff walls and other things, but then hides that a little bit through the way Wall Street was dispensing credit, a credit line that then completely dried up when the crash came. Now -- think back, now the -- think about -- instead of thinking -- instead of Britain, think America, and instead of America, think China.  Think about the role that China now has in lubricating the dispersal of capital worldwide and in the way China manages its own economic demand as a way of keeping global economic demand up.  If China doesn't basically open the trading doors and allow its increases in demand and its economic growth to become an engine for global economic growth, China cannot take the -- cannot take the place that the United States is increasingly stepping back from, as it necessarily begins restraining its own domestic demand and trying to figure out how to repay the gigantic loans it is borrowing and will keep borrowing. So the responsibility on China to be the responsible stakeholder, to borrow that phrase, really becomes important.  In the little historical story I just told, the impact of these choices do not become apparent for eight to 10 years. NYE:  Could I just -- to add on Phil's nice historical comparison, one of the big differences, of course, is that China -- the renminbi is not about to replace the dollar as a reserve currency.  As Kindleberger shows, the problem in the 1930s was Britain was broke and the Americans didn't live up to their responsibilities.  China is not where -- yet in relation to the current world, where America was for the -- to the world economy and to Britain in the 1930s.  It's not that strong yet. The interesting question is the Chinese have been complaining about having to hold dollars, and they've made noises about going toward SDRs globally.  The government -- Zhou, the president of the Chinese central bank has made that.  That's understandable.  It puts a shot across our bow.  But a more illustrative statement was by somebody else in that framework, Luo Ping, who said, "You know, we just don't know what else to do with our money except to buy dollars and hold dollars."  He said, "We hate you guys, but there's nothing we can do about it."  The hating us not in a literal sense, but in the sense that that's the only store of value at this time. So I think the -- it's an interesting analogue, but the circumstance of China's not the circumstance of the U.S. in the '30s vis-a-vis Britain.  What is interesting is, will China change its growth model?  If they go back after this recession to pure export-led growth and accumulate these surpluses even further, that will put a lot of pressure on the system. Now, the Chinese will tell you -- the 6 percent growth they expect this year, it's all internal demand.  Well, partly that's because of the stimulus.  And the interesting question is, will they begin to alter their growth model toward greater consumer spending and internal demand when the government component diminishes after the stimulus?  There are some signs that this is happening.  You know, you see consumer demand arising in some of the interior provinces, not just the coastal areas.  But if the Chinese don't alter their growth model, then the pressures of these imbalances, as Martin Wolf likes to point out, could create another kind of problem. MEDLEY:  Okay, great. Let's go to our questions from the audience.  Just remember -- when you ask a question, remember to identify yourself and wait for the microphone. Stephen? QUESTIONER:  Steve Freidheim, Cyrus Capital.  I want to pick up on this question -- the issue of the debt.  You know, Joe, you mentioned in your comments that the U.S. power, in part, was assumed on growth coming out.  And I guess the corollary to that is the debt side.  I mean, there -- and the question is, is there are a debt level in which the size of the debt becomes a problem?  And as you look out, in terms of the various stimulus packages that are being put together by various geopolitical belts, as you call them, you know, where -- as we come out of this, which areas are going to be areas where the levels of debt are going to be advantages and where are the debt levels going to be disadvantages?  And how important does that figure into the balance of power coming out? NYE:  Well, clearly people's willingness to hold dollars will diminish at some point, when the -- you know, the number -- supply of dollars is too great.  It's interesting to remember that when people -- two years ago, many people predicting the current crisis based on our deficits -- twin deficits, which was going to lead to the hard landing of the dollar, that's not what caused the crisis.  It was totally different.  But it is conceivable that that could play out in the future.  We just -- if we just inflate our way out of the debt problem -- I mean, out of the fiscal problem by just spending without any upper limits, at some point, people are going to say, where else can I hold value, because I know my dollars are going to be devalued in the future?  And that could lead to a hard landing or something. But generally, people say, you know, you have to be over a hundred percent of debt-to-GDP ratio before you begin to get that worry.  But it's worth -- and we're nowhere near that yet, even with the projections of the -- that Phil was worried about, we're not there.  And it's worth remembering that economies like Japan have passed that limit in the past.  So it's not -- it's not an absolute number, but many people say that hundred percent is just a salient point at which worrying increases. So I think it -- I think it's crucial -- I mean, the assumptions that I would make are if you have real economic growth, it can allow you to grow your way out of this problem.  If you have what I described as not a "V" or "W" but this long, flat "L" for a decade, then you're not going to grow your way out of this, and that debt problem may get to ratios which lead to lack of confidence in the dollar.  I don't think we're there yet, but, I mean, it does go back to the point that Phil and I were making earlier that if you make those assumptions -- I mean, it depends on which of those assumptions you make, is the answer to your question. ZELIKOW:  Well, I'm still uneasy.  I'm uneasy on a couple of levels. I'm uneasy because I just don't see a plan for medium-term fiscal sustainability and I'm -- smarter people than I am say that if you don't have the medium-term fiscal sustainability squared away, then you're likely to have to pay higher interest rates to borrow the money, and that's going to then produce the very economic profile that Joe just warned about.  And what I hear back from that is a little bit of complacency, which basically says they have no place else to put their money. So yeah, we've seen a little -- the spreads have gone up some, but they're -- it's still not that bad.  One thing, though, that IMF economists have pointed out is that this can change on a dime.  So spreads can be pretty narrow and then people -- there's some point in which the market just comes to a conclusion.  They keep waiting to see and then they come to a -- this ain't going to happen or -- and some alternative ways of storing value emerge and things can happen. QUESTIONER:  What are they? ZELIKOW:  They find some other places to put their money, possibly even in their own economies, if their own economies are recovering, because we're borrowing at levels that we haven't seen since the Second World War.  But the big difference from the Second World War era is in the Second World War era we borrowed the money from ourselves.  Remember those war bond drives?  We're not borrowing the money from ourselves anymore.  Therefore, there -- when we borrow the money, there are opportunity costs to that.  That money is not doing other things.  And so the people who have that money have to -- basically, if they're foreigners, they're not going to invest it domestically because they'd rather buy T-bills with it. Well, if they're -- if the world economy is recovering -- and we want it to recovery -- is this actually a good outcome for the world economy?  I mean, maybe when you look, the numbers involved just aren't enough at the margin to really make that much of a difference in the recovery of the world economy, but I listen to some of the things Mallaby over there says about his estimates of macro global demand and where that demand comes from, and it just all leaves me rather uneasy. By the way, if I were the Chinese, I actually would be trying to create a reserve currency that's an alternative to both the dollar and the Euro, some kind of basket, some kind of invention.  I'd be working very hard at that. MEDLEY:  Max?  Back there. QUESTIONER:    I'm -- (name inaudible).  I was struck by how sanguine you both sounded on avoiding the dangers of protectionism, but when you look at how world trade has plummeted in the last year or so, when you look at what Bob Zoellick warned about at the recent G-20, that 17 of the nations involved there had taken protectionist measures, and the growing pressure on politicians to save jobs -- as we saw recently even within the European Union, where Sarkozy ordered French automakers, we'll give you subsidies, but only if you create those jobs in France -- I just wonder whether there is such a snowball of momentum building that politicians won't be able to avoid it.  And I don't see anything on the horizon that looks positive, such as a world trade agreement.  Doha looks dead.  So I wonder if you'd elaborate a bit more on why you feel relatively upbeat on the dangers of protectionism. NYE:  Well, I think what I meant to say was, yes, trade has declined drastically, but not because of protectionism.  The decline comes first, which may generate protectionism. The proposition I was going on is that, other things being equal, when you have a decline in economic activity in a democracy, you should expect a rise in protectionism.  I mean, squeaky wheels will demand grease.  There has been, in all the countries mentioned, a rise in protectionism.  There -- I mean, and some of it is open; some of it is covert.  I mean, there's essentially a covert protectionism in terms of bailouts of banks, in terms of, you know, informal encouragement to invest locally rather than internationally.   So, yes, there's been an increase in protectionism.  But compared to what would otherwise be predicted by the level of the economic decline, it's been much less than expected.  I mean, we are really not at a Smoot-Hawley moment.  If we get to my long "V" scenario -- my long "L" scenario, I would expect that to increase considerably.  So I'm not sanguine, but I'm just saying what's remarkable is that this dog hasn't barked louder so far. ZELIKOW:  Let me just stress again, though, the point is when people work through these projections, the people who work conflicts tend to concentrate on what's going on in regional conflict  and geopolitics.  The people who work economics tend to work economic projections.  And so the big point I want to underscore for you is the synergy between the two.   In other words, let's imagine that the economic crisis produces strains that cause actually political explosions in, say, Ukraine or Pakistan or both and that one or both of those situations and maybe Iran, too, goes south in some really important way over the next couple of years with possible violence involving -- violent crisis involving Russia and so on.  Now, that could have a whole causal chain in which economics are a background factor but aren't the primary driver.  But when that crisis plays out -- when those crises play out, those crises will then have a huge synergistic effect on the global economy, because those -- the political effects of those crises will than damage the operation of global frameworks of interdependence that are kind of taken as the background assumptions for the success of global economic recovery, the IMF as an effective debtor of last resort, the gradual assimilation of China into a role of greater global responsibility and so on. So that's the thing that I most worry about, is that the global economic situation stays very tippy; there's some serious elements of instability remaining in the scenario; there are then some particular local effects that are severe in a few countries, and that those problems then catch fire in ways that produce first-rate political crises that don't seem to be handled effectively, and then you get a really toxic combination that can move world history into a quite different place. MEDLEY:  Next question?  Right here in -- QUESTIONER:  (Name and affiliation inaudible.)  There seems to be no end of self-flagellation here in the United States at our profligacy and how we spent ourselves into this crisis and the rest of the world is quite happy to jump on that as well and point their fingers at the United States.  But as Joe pointed out before, the necessary condition for us to be the consumers of last resort was nobody else doing the consuming, and in particular, China. And towards -- then in -- it worries me a lot that as we move out of this phase of the crisis that the rest of the world doesn't take up the slack to try and demand and consume more, and we go right back into the kind of imbalance that created the conditions of excess credit and sort of dumb things in the Untied States.  So I guess the first question is, do you see that as a risk?  And the second question is, if China doesn't step up to the plate by further stimulating domestic demand, are there other strategies that the U.S. and the world can think about to try and avoid those imbalances by us consuming and nobody else doing the same? ZELIKOW : Well, another -- one other way in which you'll see signs of weakening interdependence is not just the rise of tariff barriers, but the rise of what others, including Sebastian, have talked about as "self insurance," where they basically just hoard money and then they do things to depress or artificially depress domestic demand so they can hoard more money.  And they're basically operating as predators in the world economy, getting what they can out of it so they can hoard more as insurance against potential reverses.  It's a different version of the old story of I'm going to myself acquire all the resources I need for solvency without really relying on an interdependent system.  This, too, though, will have large effects for the depression of overall global demand. And I don't really see right now a good answer to that problem.  I -- there is a -- just as there is a free market ideology that may have been at work that basically says that -- that criticizes some of the actions that accelerated -- that were -- that didn't pay attention to the asset price inflation while they concentrated so much on consumer price inflation, there is also a kind of -- there is also kind of ideology at work now in the revival of belief in Keynesian stimulus, which is also an ideology, and that this is an effective way of providing demand.  And it also actually -- the science underneath that ideology is not great, rests on a few historical episodes that are susceptible to multiple interpretations.  And if you then begin over-relying on that to solve the problem, then you may find it harder and harder to sustain debt, which then increasingly turns you -- because the world won't lend you the money to sustain it, and then you're back into -- you're back into the "every man for himself" paradigm in another way, and which -- nations then will need to enact capital controls and others things in order to hold on to their money. Joe? NYE:  Yeah.  Martin Wolf is -- has written several interesting columns in the FT basically making the point that you were stressing, properly.  And it is a worry.  If all you do is the U.S. uses fiscal policy to get back into growth and it's ahead of everybody else and we go back to the world as it was before this and we just accumulate the same imbalances and then, in addition to that, you have the increased fiscal deficits that we talked about earlier, which reduces confidence in the dollar, you can see an unhappy scenario.  That's the bad news, and Wolf is right to point it out. The good news is that the world's second largest economy is doing a major fiscal stimulus and trying to orient it more on the domestic side and that the -- leaving aside the Europeans for a minute -- the third largest economy, China, I think -- there's some signs that the Chinese may realize that their model -- that they can't go back to the old model.  They may know what I just said; they read Martin Wolf, too.  And they view -- (laughter) -- no, I mean, there are very sophisticated people in -- doing the banking and finance in China now. And what's interesting there is from the top political leadership in China, their major concern, what drives them, is the prospect of domestic instability.  The legitimacy of their political leadership rests on high rates of economic growth.  And if they realize that, sorry, if you go back to business as usual just before all this, guess what?  You're going to wind up with protectionism, with barriers against you and so forth.  And what's that going to do to your model of political stability at home?  Then you start thinking of other paths. So the argument would be that the Chinese won't go back just as they were, that they will do more, essentially, to increase domestic demand.  And they have programs now -- you know, subsidizing purchase of automobiles and other things and consumer durables and so forth to increase demand at home. MEDLEY:  Well, one particular thing they just did hasn't gotten a lot of attention.  They actually allowed for the first time farmers in the west to take their land, which is still communally held, actually -- still held by the state -- but to use their land as collateral for loans.  And this is a -- this is a huge potential breakthrough and gives you a sense the Chinese really are thinking about an internal stimulus model rather than a -- I mean, sorry, an internal demand model rather than purely a -- NYE:  Those are the good news parts of the story.  To be fair, balance is -- there's a bad news part of the story, which was, again, put forward by the central bank governor, Zhou.  He said, "Culturally, we are locked into high savings rates."  Particularly, if you look at the demographics -- (inaudible) -- all these children to support you, in the absence of a social security system, you better save.  And so there is a cultural barrier as well as -- I mean, the politics may say do what you're just saying.  The innate conservatism of the culture about savings may run the other way. ZELIKOW:  There's another -- there are two other danger signs I want to call attention to.  One is -- on the Chinese is when I was in government I was, like Joe, very impressed with the Chinese you would encounter especially on economic issues.  I mean, they're the new Mandarins, and they're terrific.  (Laughter.) NYE:  That's a good phrase, Phil. ZELIKOW:  So, then you assess how much do we lean on the future of -- those folks, they're definitely going to be in charge.  That is really the -- that's the face of China I can rely on seeing for the rest of my professional life.  I expect to ask, you know, other people who know China better, how much would you bet on that premise?  Because other Chinese that you might encounter in other settings have a very different strategic culture and outlook on the world.  So that's just -- that's just kind of an asterisk.  Mostly it's just a measurement of my own ignorance and unease. The second thing, though, I want to call attention to, which we haven't mentioned at all so far today, is India.  One of the important ingredients of optimism about the general trajectory of the world economy was not just China but also the fact that beginning especially in the early '90s, India had joined in the full globalization of the world economy, and was increasingly participating in it with a lot of activity and energy that you can especially see in the Indian private sector. And so one other interesting set of questions is, what does the trajectory look like for India?  And does that trajectory stay constant or does it change as India essentially, which -- there is a very strong strain in India's political culture that likes insularity.  I won't elaborate on it.  Those of you who know India know it -- understand this well.  And you can easily see that happening again.  If that happens again, that's another, again, potential drag on predictions for the general strength of the global economy and where that's going and another potential large source of instability in East Asia. MEDLEY:  Another question, right there in the center.  Can we get a microphone? QUESTIONER:  Matt Nimetz.  The goal is to get world demand up again to sustain the growth that we used to have.  But the way we're going about it is very much setting up the stage for what got us into trouble, that is, doing it through increasing debt.  And even the Chinese idea of letting peasants mortgage their land to consume is basically a subprime mortgage program for China.  And what we're doing in this country is encouraging people and banks to lend extensively to people, to get credit cards' rates down, to have the government driving that.  So aren't we -- aren't we getting ourselves into the exact same position where we were five, ten years ago, of increasing debt in -- both by governments and by consumers?  And we have no real solution to sustained growth outside of very, very risky policies which inevitably will be -- lead to great volatility in the future.  And so is there any sustained way of achieving growth? NYE:  I think -- I mean, what we're betting on, greatly oversimplified, is that the real economy will bail out the financial system.  If the financial system is so broken that the real economy can't bail it out in time, you could either get a "W," in my earlier terms, or you can get this fall to the low "L."  So there is a -- I mean, there is a serious problem that you identified, Matt. On the other hand, as you look at sources of real growth, you have to look at the sources of productivity.  There are parts -- I mean, if you look at Silicon Valley, as you look at biotechnology around Cambridge, I mean, there still is -- I have a son in each of those two markets, so I may be biased on this.  But, I mean, they're in the capital sector of those two markets.  But their view is that there's a lot of capital about ready; there are a lot of good ideas there.  So if all we're doing is building bridges to nowhere and throwing government money in things, yeah, then we're in the dilemma you say.  If you think that the entrepreneurial nature of our culture is not changed and the opportunities are there and that can lead to increase in productivity, that's the source of real growth.  And I think the danger is that we don't let the government pendulum swing so far that it nips that in the bud. But I -- I mean, it's -- so we're using government if you want to have the real economy rescue the financial economy.  And that depends upon the government in doing that, using just the fiscal stimulus but not over-regulating in such a way that you nip that source of real long-term growth.  That's a very simplified version of the -- of a picture of the economy.  But I think there -- it's at least a -- it's at least a consistent story, if not the only story. ZELIKOW:  Yeah, because I think we all sense somehow that the growth model has to represent more -- has to represent something more than just "I can find ways to spend money."  But we just know in our guts that somehow sustainable growth has something in it that has to do with productivity or industriousness or the ability to qualitatively change the economy so that people are doing new things that then create new areas of specialization, new markets, development of new products and so forth. And so then you have to ask yourself, what is it about the global economy that's been so extraordinarily successful over the last half century in raising the material well-being, life expectancy, any number of measurements of human well-being in such an extraordinary way?  And it is this -- the creation of a global industrious revolution, not industrial revolution, of the globalizing of that, the enormous specialization that can be created through the creation of these global networks, the opening of new markets for products, the variegation of many, many kinds of demands and the like. And you do have a sense that for this to continue you need to be able to sustain these broad frameworks of interdependence that I've described and that somehow just simply persuading governments to spend more money or borrow more money just isn't an answer, like the example -- you're worried about the Chinese farmers borrowing money.  It's, you know -- and then you -- the first thing that came to my mind was, yeah, I remember when American farmers were borrowing a lot of money and there's been some times when that didn't work out so well for the farmer, or at least they thought so.  And then again, then my second thought was, I tried -- I remembered my image of Chinese banks.  Now, this may be dated.  I used to have a bad impression of the way Chinese banks made their decisions.  But it may be much better now. MEDLEY:  Another question?  Right in the -- oh, yes, sir. QUESTIONER:  Hello.  Zachary Karabell.  On Phil's point of there may be bad things that will still happen in the coming years that we're still at the beginning or that we could be at the early stage of an ongoing systemic issue, my question would be why, given the rhetoric and the sense, at least, from the past nine months that this is the worst since the Great Depression, that we're on the edge of precipice, that the financial system is largely, if not completely, dysfunctional, why it is that we have seen almost no political instability or even murmurings that would lead you think to think that that's in the next six to 12 months?  And while the point is taken that all of this can change on a dime, it does bear asking, is there some disconnect between the sense either in New York or in the media or for those implicated within the financial system of this being catastrophic that is at odds with what is actually being evidenced in the real world? ZELIKOW:  Yes.  And this is precisely the point I was trying to drive home, is it's this -- my May -- my homely May 1931 example.  In May 1931, it wasn't the end of the world, and it didn't have to be.  In other words, I don't regard everything that happened after May 1931 as deterministically set by what came before, and they just didn't see it, poor schmoes.  No.  In fact, there had been really severe shocks right after World War I of comparable scale.  There was -- they could have pulled out of it, and then this would have seemed like just one more severe panic and so on that people then got over.  The key decisions that drove it off the precipice weren't in '29; they were the decisions in '31 to '33.  In other words, the analogue is they're not the decisions that happen in '07; they're decisions we're going to be making now and in the next year or two that will determine whether or not this flattens out and pulls out or else we make some bad economic and financial choices that then probably combine with responses on some political fronts that are maybe only distantly connected that then combine to create a whole qualitative step change in the crisis.  We're not there yet and we don't have to get there and I hope we won't get there. MEDLEY:  Joe, do you want a final word? NYE:  No.  I mean, I think Zach has actually written on this.  What it -- MEDLEY:  What hasn't he written on? NYE:  Well, he's written on everything and intelligently, so it's a -- but the -- I think the thing, again, you ought to say is the usual expectation when you have this degree of negative growth is a lot of political turmoil.  It's like the comment we made earlier about protectionism.  You would say, given this degree of decline, expect a lot of protectionism.  There has been protectionism.  There's been some political instability, you know, in some of the Baltic states, the Czech Republic and several -- but, you know, compared to what you would expect, much less than predicted.   And that does raise an interesting point, which is always look for anomalies, things that aren't the way that predictions go.  And there are two anomalies:  Protectionism hasn't been as bad as it first looked and the political instability hasn't been as great as it first looks.  And that makes one think that -- be careful about your 1930s analogies.  I mean, Phil's right to remind us of this.  But just as it's a mistake to think that there's no relevance to the '30s, it's also a mistake to think that we're going to repeat ourselves, as Phil's and my friend Ernie May (sp) likes to quote Mark Twain about history doesn't repeat itself; at best, it  rhymes.  Well, we're right now in a rhyme and we're not quite clear how it's rhyming. MEDLEY:  Okay.  Thank you.  We always have a rule of getting out on time.  It's 10:45 now.  Thank you very much.  (Applause.) NYE:  Thank you. (C) COPYRIGHT 2009, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE. NW; 5TH FLOOR; WASHINGTON, DC - 20005, USA.  ALL RIGHTS RESERVED.  ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT.  NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL CARINA NYBERG AT 202-347-1400. THIS IS A RUSH TRANSCRIPT. This session was part of the Stephen C. Freidheim Symposium on Global Economics: Financial Turbulence and U.S. Power, which was made possible through the generous support of Stephen C. Freidheim.   SEBASTIAN MALLABY:  Welcome, everyone.  I think we can get started.  I'm Sebastian Mallaby.  I direct the Center for Geoeconomic Studies here at the council.  My role is, very briefly, to thank everyone for coming.  Welcome to the first of the Stephen C. Freidheim Symposium on Global Economics.   I want to say thank you particular to Steve, who's been not only generous with his support, but also a great collaborator in brainstorming and setting this up.  He is also quite patient, because we were going to do this back around November, December, and there were one or two speakers who said they would come and then the demands of going into the new administration caused them to reconsider.  It turns out that the only thing more all-consuming than having a top administration position appears to be sort of getting ready to have a top administration position.  (Laughter.)  So Steve was great through all of that.  Thank you very much. This symposium has three panels.  It sort of fits into the core idea of what the Center for Geoeconomic Studies is about, which is to bring together the geopolitics, the foreign policy on the one hand, and mix that international relations with international economics.  And so what you're going to see here today is three sessions, all of which take a look over the horizon about the effects of the financial crisis; this one on geopolitics, the next one on financial regulation and the third on sort of trend growth in the macroeconomy. So with that, I'll hand over to our first moderator, Richard Medley.  And thank you, everyone, for being here. RICHARD MEDLEY:  Thank you.  I want to introduce Joe Nye, who everyone knows, but, as you may not know, he's either going to be the ambassador to Japan, China or Yale.  (Laughter.) JOSEPH S. NYE, JR.:  (Laughs.)  Or not. MEDLEY:  But you will, right?  One of them. NYE:  No.  I said I think all these things are 50-50, at best.  The Yale one might be a little higher. MEDLEY:  I guess that's -- and Phil Zelikow, of course, who has the distinguishing characteristic of being so talented that Richard Haass asked him to be part of this symposium. So let's just start talking.  Basically, the question that we have before us is the geopolitical effect of the economic crisis.  And it does seem to me that the U.S., China -- U.S. and China, at least, have reacted very strongly and positively to this.  And -- but you've got all of Eastern Europe and Central Europe and, in fact, most of Western Europe who seem not to have.  Does that -- is that -- does that change where we're going to go, where we're going to be in terms of geopolitics?  As you said in our conversation, there is a G-2 kind of idea coming, which the Japanese know about.  They want to kind of insert themselves into that as part of the G-3.  Where do you think this leaves us? NYE:  Well, it -- let me take it short-run and long-run.  In the short run, meaning next year, two, three, there are going to be, I think, significant ramifications, geopolitical ramifications of the financial crisis.  For example, if Pakistan goes belly-up because of the economic effects, that's a huge geopolitical impact.  Let me leave that aside, because Phil's going to say a bit more about that, and focus more on the long run. To what extent has this crisis changed our views of what will be the relationship between the major powers in 10 to 20 years time?  And when it first broke, the conventional wisdom -- Steinbrueck, the German finance minister, said this is the end of American dominance.  Putin -- not Putin, Medvedev followed suit.  Even my friend Michael Ignatieff, who's going, we hope, to become prime minister of Canada, said now that American power has reached high noon, Canada should be adjusting its policies elsewhere.   I think all this is wrong-headed.  It's a big mistake to draw long-term conclusions from short run -- I mean, right now, you just project a linear projection of where we are, it looks bad.  In fact, even those short-run -- or those predictions that were made at the beginning of the crisis have already been falsified.  Decoupling -- remember decoupling? MEDLEY:  Yes. NYE:  Well, that got knocked on the head.  The crisis was supposed to be the crisis of the dollar.  Well, what happened to the dollar?  Up, not down. And then you say, yes, but China's doing well -- 6 percent growth this year -- America, not.  We're somewhere in the negatives -- 3 percent, let's say, negative.  But, you know, what's interesting is the decline of China's growth rate from 10 percent to 6 percent is greater than the decline of our growth rate.  And that means the time when China would catch up with the United States in overall economic size doesn't get closer; it gets further out.  I mean, Goldman Sachs's famous 2040 when they catch up, then they shortened it to 2027 -- well, you know what?  It's going back to 2040.   And so there's a lot of very foolish geopolitical extrapolation based on short-run situations, which, in fact, I think are not very well thought through.  We can talk about what Niall Ferguson called "Chimerica," whether that really is a G-2.  I think not.  I think it's a great mistake to think of this only as a G-2.  Three economies -- U.S., China, Japan -- out of four, with Europe treated as one, are over 2 percent stimulus and are sharing a pretty heavy load.  But it would be a huge mistake in (managing ?) the international (community ?) to leave out the Europeans. So I think that -- beware of geopoliticians bearing long-term gifts based on short-term trends. MEDLEY:  Let me just -- before we turn to Phil, one more question.  Japan seems to have really come to the fore in this, has really done a lot.  And, you know, after two decades of stagnation, they've really taken this, it seems to me, as a -- as a clarion call to become part of the world again and reenter.  I mean, do you feel that there's a possibility that Japan reemerges after all this talk of, you know, it disappearing from the world stage? NYE:  Well, I think Japan learned from its own "Lost Decade."  And the Japanese stimulus package is not only ample, but it's also different.  Instead of building more bridges to nowhere, which was the traditional style of the Japanese infrastructure for the sake of the Liberal Democratic Party's local constituencies, they're now putting a lot of the stimulus package into services or technology.  I mean, it's a different kind of stimulus package.  And 2 percent is a significant number. I think they are taking this role more seriously.  That's another reason why for us to treat and talk as though there's just a G-2 would be a mistake.  Remember, Japan is the second largest economy, not China.  People often take the trends of China and put it in second place.  Uh-uh.  Japan is still a much bigger factor, economically. MEDLEY:  So, in terms of -- how do you see the impact of the economic downturn in terms of the geopolitics, as Joe was saying, of Pakistan and the problems we're going to face in there? PHILIP D. ZELIKOW:  Well, let me come back to the Pakistan issue in a moment.  But first, I want to just urge the audience to regard this with a certain amount of humility.  But to make that banal point -- make it perhaps a little more concrete, let's imagine that instead of meeting here to discuss the long-term implications of the global economic crisis on May 12th, 2009, we are meeting here to discuss the long-term effects of the global financial crisis on May 12th, 1931 -- May 12th, 1931.   The financial crisis has now clearly been upon the United States for about a year and a half.  It's well recognized.  Reverberations are felt everywhere, though it's hit the Americans especially hard and the Germans.  But it's not being felt the same way everywhere.  There are a lot of arguments going on about whether the crisis will persist.  Many people think that green shoots are noticeable and that actually the worst part of the crisis may already be behind us, but there are people who dispute that.   For international implications, hard to say.  German politics is clearly rocked, but the civilian government of Chancellor Bruning in the Weimar Republic still seems to be holding together.  Widespread bank failures are not yet convulsing Europe.  In the Far East, there's turmoil in China, of course.  But Japan is still a firm part of the Western international political order, a full -- a full member of the Supreme Council of the league.   So you've looked back and you'd say, well, what do wise statesmen think about this?  Well, Winston Churchill, one of the most eloquent statesmen of the age, only six months earlier said that he thought the prospects for peace have never been better than for 50 years.   So you look out on the future and there are some dark clouds, to be sure, but, well you could -- you can imagine them, the way that council meeting would have gone in the wood-paneled suite they would have used on May 12th, 1931.   So there are two things I want you to take away from that story.  The first is, is just this little concrete reminder about humility.  Okay, you got that.  The second one, which I think is actually -- is a big idea, but like all big ideas is also very simple, is the really important decisions about the crisis are not the decisions surrounding the onset of the crisis; they're decisions you make after you're well into the crisis. We are accustomed to thinking about periods of world history by noting the points at which things began.  So there's huge literature about what caused the crash of 1929, or what caused the outbreak of war in August 1914 and so on.  My argument to you -- and I think it's sustained by the historiography, especially on the Depression -- is that the key things that created the lasting crisis of the '30s were not the crash itself.  The crash of '29 was not at all unique.  There had been a severe crisis right after World War I.  There have been other severe financial shocks later, even like 1987.  The decisions that actually turned the crisis, basically took it off the precipice to a much more dangerous stage, were actually made in 1931, 1932.  I think that's the view of Charles Kindleberger, Peter Temin, Ben Bernanke, when he was writing as a historian.   So in other words, it's not -- rather than focus on what got us into the crisis, because, well, lots of things, hard to predict, the things that will shape world history are the decisions we're making right now.  And it's not clear to me what those decisions will be.  If it was clear to me, why would I be sitting here?  I'd be in the south of France, perhaps. MEDLEY:  But so -- I mean, on that -- I mean, what do you think about the discussion?  Already, the central banks -- the ECB, the Fed, the Bank of Japan, Bank of England -- are discussing exit strategies already. ZELIKOW:  They're already looking ahead to when they pull out of the crisis.  And they might be right.  I'm -- again, you know, I'm not the -- all of you here read Nouriel Roubini on the one hand or the Obama administration on the other.  And you can decide -- you've probably already decided who it is you think you believe.  And you actually are probably smarter about this than I am. So my job is -- is to kind of think through what happens in either of these scenarios, and then what policies would you adopt that would be resilient enough to prepare for uncertainty.  But I'll -- what I'll call attention to are two big themes, let's put it this way, that are geopolitical.   The first is there will be a -- there will be some key issues that will arise over the next year or two that will either validate the credibility and continuing influence of the United States and its allies, basically shows the Americans and their friends can still more or less manage stuff, they can still more or less manage big stuff.  I think actually if things in Pakistan or Afghanistan look up a bit, you know, the heroic efforts -- looks like the glass is beginning to fill, rather than drain -- Iran, especially.  But I'm not sure what the test will be.  It might be that.  But something will, in -- I think in the next year, will basically show we're still managing stuff or we're not. The second big set of tests will be on the international political economy.  And the thing that I'm -- and what I'm especially focused on the international political economy is right now we're seeing an astonishing amount of continuing cohesiveness in basically the general premises we took into the crisis about the shape of the international political economy are still generally held among all the major economic powers.  And that's being tested now.  And I think the tests are going to become the more acute.  Where I see the tests as being most dire -- not in the United States; I'm -- there -- I'm especially concerned about Europe.  I actually think if Europe cracks, cracks in a big way, that will be important.   But I'm looking for signs of a big divergence.  The divergence could go in a couple of different ways.  And one reason it could be very significant is because -- I don't understand the Obama administration's fiscal policy yet.  I listen patiently to it and I nod my head and I want to believe, but then I -- my -- but then my -- the rest of my body starts working and I start using my head and I just can't get the numbers to add up, and -- but they've got a plan.  But suppose the -- suppose if -- kind of play out what happens if the fiscal policy turns out to founder in some significant ways.  There, the issues of divergence may be very, very important.  If it looks like the United States, the -- kind of this -- a big aircraft begins to drop back out of formation -- you see what I mean. MEDLEY:  Yeah.   NYE:  But -- MEDLEY:  Go ahead -- go, Joe. NYE:  Can I just comment on what Phil said, which I largely agree with?  I think it's extremely important not to think there's one future.  When I used to chair the National Intelligence Council, which does intelligence estimates for the president, I would say to the analysts, give your best scenarios with their best estimates on them, and then after you've done that, tell me what would make them all wrong.  And they'd say, oh, we've studied this for our lifetime.  You know, that's -- we don't need to do that. You have to do that, because it tests your assumptions.  And so if you asked what I was saying a few minutes ago, which is, will this lead to the long-term American decline that some people projected, and I said no, I owe you that test of my assumptions, which is why Phil's analogy to the '30s is right.  If the shape of the recovery is a "V" -- you know, the kinds of things that we've heard from macroeconomists that you'll have maybe 2 (percent) or 3 percent growth by the first quarter of next year and so forth -- or even if it's a "W," since, as Phil pointed out, we saw -- you had really four years from '29 to '33 of downturn, and then you had beginnings of recovery, but you had many "Ws" on the way -- ZELIKOW:  Along the way, yeah. NYE:  And if it's a "V" or a "W," then I would continue to hold the projection that I gave.  It's it's -- the shape is, in fact, a downward set -- a staircase downward or a long, long "L" like Japan in the '90s, then I think we ought to reanalyze this question of how American power will look at the end of it.   So I think Phil's warning is very appropriate, that -- state your assumptions.  My assumptions are this is probably a "V" or a "W" but not a lost decade, a la Japan.  But if it is, then I think the damage to American power will be considerably greater, though perhaps not as great as the pessimists say.  One of the things that people forget is when you're looking at some dimensions of power, it's relative.  The United States has been hurt, but, ironically, other parts of the world have been hurt even more.  And that means in relative power terms, you have to keep that as your base for projection. MEDLEY:  But I do think that -- but turning just for a moment from the economic side to the geopolitical side, there is -- I mean, the U.S. and the Obama administration -- and you're right.  I mean, I don't think the Obama administration could tell you accurately what their global fiscal policy is going to be three or four years from now, because they're running as fast as they can to keep up with this.  And as, you know, Bernanke has said many times, we'll worry about the next phase once we're through this phase, because you can't -- you know, you just can't let this thing collapse. On the geopolitical side, the force projection of the United States, I think, between Obama's -- to me -- you guys probably knew this; I didn't -- surprisingly positive attitude toward FTAs and, as you said, the world order has knitted -- has stayed knitted together in a way that we didn't see, at least in the beginnings of the Great Depression.  It's really stayed together.  And the fact that we've gone, you know, from Iraq to Afghanistan and obviously Pakistan, although, you know, maybe we can't talk about that, but the idea is that the force projection of American power is very strong, whether it's -- whether it's economic policy or military policy.  It seems to have actually almost increased in its ability to project force.  I don't know what -- you want to -- ZELIKOW:  Well, no, actually I'm not too downbeat at the moment.  I'm not too upbeat, either, but I can -- on the plus side, you could make a pretty good argument that says the Bush administration left the Obama administration with Iraq actually heading in a much better place so that they could -- NYE:  Absolutely. ZELIKOW:  -- basically afford to dial back and concentrate their attention on Afghanistan, Pakistan, without it looking like there was a catastrophic retreat of American power.  It doesn't feel like a big retreat.  It feels like there's retrenchment now that that actually after years of terrible trial and error, we actually -- but the result is that the American military, after trial and error, actually was able to prove its effectiveness in Iraq and now can somewhat pull back and let Iraqis pick up.  And so even if there are some big problems now, it may be, well, those are going to be Iraqi problems. But in other words, the credibility of American power was renewed.  They're going to hit -- the Afghanistan-Pakistan problems hard.  If it looks like their efforts there at least seem to be well-guided, their credibility holds together there.  So in other words, the hard power side still looks relatively credible and robust, while now reinvigorated, I think, by a much stronger soft power effort. Where did I ever get these words like "hard power" and "soft power" -- (laughter) -- these made-up words that press in my brain and I can't get them out? NYE:  Poisonous.  (Laughter.) ZELIKOW:  Someone has complained.   The -- but now you've got all that additional reinforcement.  So then you -- that actually would then strengthen the point Joe kind of led with, which is, you know, by no means is this a picture in which you count America out.  But that would be kind of an upbeat story.  And then the downbeat side of this would be, then, the hypothesis, which I think is right, not that the Obama administration has failed, but that a couple of really very large tests are coming that have not arrived yet, and that those tests -- I think there will be some cluster of things that will become the geopolitical test.   If you want to go back to my 1931 example, the great test of what people thought was then a new working collective security system was actually set to arrive in about a year, starting in September '31 and really reaching a crescendo in '32 with -- actually the Manchurian episode turns out to be very important as a precursor for all else that will follow, because of what it signaled to the world about how the world was really going to work.  And the same thing was happening on the economic side, so that by the time you get into 1933, most people in the world have kind of come to the conclusion -- one -- both militarily and economically, you know what?  It's every man for himself.  And if you want to secure resources, if you want to secure your future, you'd better secure it with your own might and main.  And that's a very different kind of world.  That's a very different kind of world than the one we live in today. I'm not suggesting that the past is prelude to today's future.  Things will unfold in some very different way, but it suggests some questions that one can use in looking ahead about the geopolitical tests that they'll face, which I think Iran and Pakistan are very high on that list, since this is -- this is being managed credibly and with some coherence or not.  And then on the international political economy side, there are a cluster of things in which I actually think and somewhat fear that American fiscal policy and political debates in Europe could -- and Chinese reticence could combine in very unfortunate ways.  And perhaps we can develop that subject a little bit. MEDLEY:  And let's follow up on that, Joe.  I mean, there is a really interesting development with China, Taiwan and Japan.  That triumvirate seems to be moving more toward cooperation than one would have predicted.  Again, as, you know -- as you said, Phil, it's hard to make, you know, 10-year predictions, because you always look like an idiot. But there -- certainly right now, China, Taiwan, Japan, there seems to be an opening there or no? NYE:  Well, we developed a strategy back in the '90s called the East Asian strategy, which basically said with the rise of China, is this necessarily going to lead to conflict between the two great powers, a la the rise of Kaiser's Germany in 1914.  And we said not necessarily.  What's interesting is Britain had actually been overtaken by Germany by 1900.  China is not going to overtake the United States, as I suggested, for another couple of decades.  So we've got a lot more room there. The strategy we designed at that time was reaffirm the U.S.-Japan security treaty so that if a three-party game, China can't play a Japan card against us, that essentially we have the balance of power, and within that framework, open the door to China by joining the WTO and integrate them into the international economy, which -- Bob Zoellick properly put it when he was deputy secretary of State, asked China to become a responsible stakeholder.  That strategy was not rejected by the Bush administration, and it so far seems to be continued by the Obama administration. And the main thing -- again, going back to my point when you say, "What could make it all wrong?" the main joker in that deck was Taiwan.  Under the previous president, Chen Shui-bian, there was an incipient independence movement, or the government was actually making incipient moves toward independence that drove Beijing crazy.  He's been replaced by Ma Ying-jeou, the current president, who has now launched a cross-straits dialogue.  And almost everybody I know who's been in Taiwan, in Beijing and so forth, says, "You know what?  This may be one of the rare problems which is getting better with time, rather than worse."  So the big joker in that deck which would have thrown our East Asian strategy off course seems to be, for now, at least, better.  But if it arose again, that could be a problem. The Japanese-Chinese relationship is one which is quite interesting.  When I was renegotiating the U.S.-Japan security treaty in the '90s, the thing that always interested me is that when you talk with your Japanese counterparts across the table or in front of cameras, all they had were good words about China.  Then you went to a bar late at night to see what they really wanted to say, and they were scared as hell about the rise of China.  And the important thing is that Japan will be our ally, because the rise of China is a concern.  But it's important to reassure the Japanese.  So we don't want negative China-Japan relations.  That would have a bad effect. I've always argued that what you want is a triangle of good relations between U.S., Japan and China to produce stability in East Asia, which is the basis on which markets can bring prosperity.  That has worked, and I think the important thing now is to keep that triangle stable in all three legs.  I think it looks better now then it did, say, a decade ago. ZELIKOW:  Joe's points are very good.  And, of course, if you think about the East Asian geopolitical environment, all the countries in East Asia are very conscious about how they're going to play their relations with China.  But put yourself in their position.  All of you would answer the question, "Do you want friendly relations with China?" of course, you would say yes.  If I would ask you, "Would you put yourself in China's hands?" all of you would say no.  You would say no not because you necessarily dislike China or hate China, but because you cannot possibly trust it, precisely because of the way its own government works.  Indeed, many people who are very close to the Chinese government in China don't trust how their government is going to work, because their government is deeply opaque and it's extremely complicated in lots of ways that those of you who follow China understand very well. So therefore, given a very large country ruled in such an opaque and mysterious way -- so pretty much all of its neighbors are going to want to have some powerful neighbor to be its -- some powerful country like us to be their friend.  And if we'll act in a more or less responsible way, our geopolitical position in East Asia could be very secure.  Then the problem is to make sure that that doesn't turn into some kind of arrangement where the Chinese think the world's trying to contain them and they're -- it's a zero-sum black-white game.  And in our different ways, both Joe and I have been trying to stress to people for more than 10 years that absolutely that doesn't need to be the case.  This can actually be a win-win situation in a world that accepts interdependence and common frameworks. MEDLEY:  And I think that's the thing that we can really agree on, is that there's a real -- with the Taiwan thing in particular, with China behaving the way it has with their responsibility on the currency and everything like that, there is a chance for a win-win there. One thing we haven't touched on -- and it's kind of always the -- you know, as Ross Perot used to say, the crazy aunt in the attic is Europe.  I mean, we're not as in tune with Europe, in an odd way, as we are with the Asian powers.  And I'd like to get your -- you know, your thoughts on that.  Where -- because there is real divergence in the way we're handling this, the way they think about markets versus the way we think about markets.  And -- ZELIKOW:  Let me jump on that and to -- make a really large fundamental point about the future of the international political economy.   The basic international political economy that we're revisiting today was forged in the late 1970s and early 1980s.  And I want to remind some of you who took economics of the famous Mundell-Fleming impossibility theorem.  The Mundell-Fleming impossibility theorem, for which Robert Mundell, a Canadian economist, won a Nobel Prize, stated that there are three desirable things you might want to have.  You might want to have capital mobility, free movement of capital.  You might want to have stable exchange rates.  And you might want to have national autonomy in controlling your monetary policy, basically national economic autonomy.  Those are three desirable things.  Mundell argued you can never have all three of those things.  You can only have two of those three things; pick which two you want.   The Bretton Woods system was liberal in many ways, on trade, especially.  It was not a liberal system for capital mobility.  Capital mobility was government-brokered and highly limited.  This began to erode in the 1960s, and it was a system beset by constant crises, the -- no need to go into details.  And therefore -- because what had happened is they resolved Mundell's theorem by saying, "We're going to sacrifice capital mobility to have stable exchange rates and national autonomy, because we're going to use national Keynesianism, and we want to have the freedom to do that."  And then that system broke down and collapsed in the early 1970s. What replaced it?  What replaced it was a new solution to the Mundell theorem in which you sacrifice national autonomy to a very large degree.  You get more stable exchange rates -- somewhat stable exchange rates and a high degree of capital mobility.  That -- there were big crises that tested the formulation of that, bracketed by -- from the British IMF crisis of 1976 to the Third World debt crisis and Mitterrand's famous u-turn of 1982.  Now, that is important.   The question is, today, are we going to revisit that solution to the Mundell theorem?  And the place where it is most likely to be revisited is not the United States, nor in East Asia, which relies on capital mobility.  It is in Europe.  It is in Europe where, actually, it was tested most severely in the late '70s and Mitterrand's France, and it is in Europe where it may be tested again.  Mitterrand made the u-turn in 1982 after he tried a national Keynesian approach.  He was broken, basically, by the Germans and the European monetary system, by the way, who had also disciplined the Americans during the Carter administration.  And finally the Americans gave in and appointed Paul Volcker in 1979 after they had bucked against Europe, for those of you who think the Americans always make the rules.  The Germans really had been the anchor throughout, partly because of their continuing coalitions that always had the Free Democrats as a critical partner playing a governing role in their economic policy. Now, the Germans are still actually the anchor in the way Europe has been approaching it and  -- (inaudible) -- hard-money policy Europe has generally been adopting lately.  That's being tested right now in Germany and in European politics.  Not only are there the East European problems, which have gotten some attention.  In some ways, I'm more worried about Southern Europe over the -- over the near term.  But look at what's happening in German politics, per se.  Oskar Lafontaine and others are now joining hands with some of the old former East German communists and they're making a square assault on the whole fundamental premises of the social market economy that has governed the German economy for the last generation.  They're going after the Mundell theorem. If Germany breaks, where does France go?  And indeed, France gave in before, because their European identity turned out to be more important than adopting their own independent economic path.   So if Europe cracks in some really important way, then really the whole way the world regards the solution to the Mundell theorem then goes open to question, and the whole structure of the international political economy comes back into play. MEDLEY:  I just want to say quickly, Joe -- and I want to turn it to one -- but the -- what you're alluding to is very important, because there is a fundamental concern in the markets that what are called derogatorily PIGS -- that Portugal, Italy, Greece and Spain will break off from Europe and that -- and that the ECB will not be able to save the southern region from breaking off because of debt and other issues.  Obviously, that would be -- that would just be a catastrophic development.  But short of that, there's still challenges that Europe faces versus the way they're handling things. NYE:  Yeah, I'm somewhat less Europe-pessimistic than Philip is.  I think he's right to warn on this.  The pendulum is going to swing from the market orientation to state orientation -- swinging in this country as well as in Europe.  The question is, how far does it swing?  I don't think the German system's going to break.  You get about 10 percent for this left coalition that Phil mentioned.  And I think also that what's interesting is we all predict increased protectionism with economic downturn.  What's interesting is not that there's been some, but how little there's been -- much less than predicted.  And the European framework, while there is protectionism within it and with -- both internally and externally, what's interesting is how limited it's been. So it's not nearly as bad as one -- I mean, you could make a case -- a scenario is still made.  I don't see that as the most likely scenario.  The -- one of my colleagues at Harvard has just done a projection arguing that Europe is going to come through this fine and that the Euro will be a reserve currency -- dominant reserve currency by 2020.  I don't agree with that, because I think they don't have a macroeconomic policy behind it.  But it's -- any case, I don't think you're going to see this swing going so far in Europe. I worry a little bit less about Southern Europe than I do about Eastern Europe.  Europe essentially brought the center of Europe into the Brussels framework, which was extraordinarily important.   It meant that instead of instability, you had stable democracies in the center of Europe -- lots of problems with all of them, but nonetheless a lot different from Europe in the 1930s, for example, in that region.  But go one tranche further east and look at Ukraine, look at Belarus, look at Moldova, look at the Caucasus and so forth; that's the area which is, I think, very problematic.  Ukraine down 20 percent GDP; lots of problems with internal cohesion; lots of problems with the Russians trying to get hold of the gas market.  That's an area where the EU had created an East Europe -- an Eastern Europe initiative, but it's now underfunded and under-attended-to, because of the problems inside the EU itself.  And they focused first on Poland and Hungary, rather than the further east. So if I were asking for a geopolitical crisis area, the fact that the Russians want to exert their post-imperial space again and that the Europeans aren't paying enough attention, that would be the geopolitical belt that I would worry about, not the Southern Europe belt. MEDLEY:  But again -- I mean, even there, in terms of the positive policy responses, as you said, that the lack of protection -- we were talking about the FTAs and things that -- really, lots of positive things have happened in this crisis.  One of them was when they couldn't, you know, focus the ECB and other resources on Eastern Europe, we brought in the IMF, which was, you know -- you know, a truly substantial commitment to kind of hold the border until we could get this -- NYE:  Right. MEDLEY:  Until we could get this together.  It's -- I just thing the policy responses have been phenomenal relative to history. NYE:  Yeah.  Much better than expected.  And -- MEDLEY:  And by the way, I have to say, the Bush administration, you know, started this a long -- you know, I may be a Democrat, but they did start this; they did get a lot of this right early on. NYE:  Bringing in the IMF -- reviving the IMF, what have they -- year or so ago at a meeting of Sebastian's center here, we were talking about what were we learning about the crisis, and one of the comments was the irrelevance of the IMF.  Well, guess what?  They're relevant again.  I think that's important, because if you rely just on the EU to solve these eastern problems, you got to globalize it.  You got to get in into a broader context. MEDLEY:  Exactly. ZELIKOW:  Right, because, I mean, all this -- all of this tends to renew confidence that global frameworks for managing  interdependence work. NYE:  Yes. ZELIKOW:  And the crisis becomes truly ominous at the point people think they don't work anymore and that world in which we could rely on interdependence in global frameworks is passing from the scene.  It's worth, then, taking Joe's comment on Ukraine, which he's been -- he's dead right about that.   I want to circle back to China again and to the role of China in all of this, as we think about the importance of global frameworks and the commitment to interdependence.  I'm not sure what China's going to do over the next five years.  It is -- I see -- I know where China wants to go over the next five months.  I think I see the short-term trajectory of the leadership.  You can just -- if you plot it out in a linear way, that sounds good.  And that if you talk to people who follow China -- how confident are you that the Chinese basically can just keep the tiller steady for the next several years to come? -- you begin to find some people who have some concerns. And I want to underscore that a little bit by telling another little historical story, because if you -- if you follow the economic historians of the Great Depression like Peter Temin, a lot of them actually draw the basic shot that caused the Great Depression actually back to World War I.  That's Temin's argument.  And what really happens then is the burden of being the great world creditor and spreader of money shifted from Britain to America.  Britain had held a lot of the gold and had dispensed it liberally because of its firm belief in free trade.  Britain was the world's major creditor.  During the war, really, in 1916 and 1917, this turn -- and Britain is bankrupted by the war and the decision to continue the war in 1916 that both Britain and Germany make in their different ways.  But one reason is Britain is bankrupt by the end of 1916 and going into 1917 and they know it, and now they rely on American loans. So basically, the burden of becoming the world's creditor shifts to the United States as the -- by the time the war ends.  And America, increasingly, has gathered the world's gold.  What America does right after the war is it passes a tariff that's much more important than Smoot-Hawley, that famous old tariff of 1930, which is the Fordney-McCumber tariff, in which they -- coming out of the war, they've got all of the world's gold.  Instead of adopting a policy of free trade and liberally dispensing the aggregate demand that all that gold represents, they build a huge set of trade walls.  And then -- that's what Washington does.  And Wall Street tries to help keep Europe afloat by lending dollars to Europe, which were then recycled to help keep things going in Europe. But what that meant, then, from the economist's point of view, is a terrific shock from essentially the displacement of Britain's role -- this hegemonic role in the world economy, America doesn't take Britain's place.  America basically builds a fortress America relying on its domestic economy, primarily, through these tariff walls and other things, but then hides that a little bit through the way Wall Street was dispensing credit, a credit line that then completely dried up when the crash came. Now -- think back, now the -- think about -- instead of thinking -- instead of Britain, think America, and instead of America, think China.  Think about the role that China now has in lubricating the dispersal of capital worldwide and in the way China manages its own economic demand as a way of keeping global economic demand up.  If China doesn't basically open the trading doors and allow its increases in demand and its economic growth to become an engine for global economic growth, China cannot take the -- cannot take the place that the United States is increasingly stepping back from, as it necessarily begins restraining its own domestic demand and trying to figure out how to repay the gigantic loans it is borrowing and will keep borrowing. So the responsibility on China to be the responsible stakeholder, to borrow that phrase, really becomes important.  In the little historical story I just told, the impact of these choices do not become apparent for eight to 10 years. NYE:  Could I just -- to add on Phil's nice historical comparison, one of the big differences, of course, is that China -- the renminbi is not about to replace the dollar as a reserve currency.  As Kindleberger shows, the problem in the 1930s was Britain was broke and the Americans didn't live up to their responsibilities.  China is not where -- yet in relation to the current world, where America was for the -- to the world economy and to Britain in the 1930s.  It's not that strong yet. The interesting question is the Chinese have been complaining about having to hold dollars, and they've made noises about going toward SDRs globally.  The government -- Zhou, the president of the Chinese central bank has made that.  That's understandable.  It puts a shot across our bow.  But a more illustrative statement was by somebody else in that framework, Luo Ping, who said, "You know, we just don't know what else to do with our money except to buy dollars and hold dollars."  He said, "We hate you guys, but there's nothing we can do about it."  The hating us not in a literal sense, but in the sense that that's the only store of value at this time. So I think the -- it's an interesting analogue, but the circumstance of China's not the circumstance of the U.S. in the '30s vis-a-vis Britain.  What is interesting is, will China change its growth model?  If they go back after this recession to pure export-led growth and accumulate these surpluses even further, that will put a lot of pressure on the system. Now, the Chinese will tell you -- the 6 percent growth they expect this year, it's all internal demand.  Well, partly that's because of the stimulus.  And the interesting question is, will they begin to alter their growth model toward greater consumer spending and internal demand when the government component diminishes after the stimulus?  There are some signs that this is happening.  You know, you see consumer demand arising in some of the interior provinces, not just the coastal areas.  But if the Chinese don't alter their growth model, then the pressures of these imbalances, as Martin Wolf likes to point out, could create another kind of problem. MEDLEY:  Okay, great. Let's go to our questions from the audience.  Just remember -- when you ask a question, remember to identify yourself and wait for the microphone. Stephen? QUESTIONER:  Steve Freidheim, Cyrus Capital.  I want to pick up on this question -- the issue of the debt.  You know, Joe, you mentioned in your comments that the U.S. power, in part, was assumed on growth coming out.  And I guess the corollary to that is the debt side.  I mean, there -- and the question is, is there are a debt level in which the size of the debt becomes a problem?  And as you look out, in terms of the various stimulus packages that are being put together by various geopolitical belts, as you call them, you know, where -- as we come out of this, which areas are going to be areas where the levels of debt are going to be advantages and where are the debt levels going to be disadvantages?  And how important does that figure into the balance of power coming out? NYE:  Well, clearly people's willingness to hold dollars will diminish at some point, when the -- you know, the number -- supply of dollars is too great.  It's interesting to remember that when people -- two years ago, many people predicting the current crisis based on our deficits -- twin deficits, which was going to lead to the hard landing of the dollar, that's not what caused the crisis.  It was totally different.  But it is conceivable that that could play out in the future.  We just -- if we just inflate our way out of the debt problem -- I mean, out of the fiscal problem by just spending without any upper limits, at some point, people are going to say, where else can I hold value, because I know my dollars are going to be devalued in the future?  And that could lead to a hard landing or something. But generally, people say, you know, you have to be over a hundred percent of debt-to-GDP ratio before you begin to get that worry.  But it's worth -- and we're nowhere near that yet, even with the projections of the -- that Phil was worried about, we're not there.  And it's worth remembering that economies like Japan have passed that limit in the past.  So it's not -- it's not an absolute number, but many people say that hundred percent is just a salient point at which worrying increases. So I think it -- I think it's crucial -- I mean, the assumptions that I would make are if you have real economic growth, it can allow you to grow your way out of this problem.  If you have what I described as not a "V" or "W" but this long, flat "L" for a decade, then you're not going to grow your way out of this, and that debt problem may get to ratios which lead to lack of confidence in the dollar.  I don't think we're there yet, but, I mean, it does go back to the point that Phil and I were making earlier that if you make those assumptions -- I mean, it depends on which of those assumptions you make, is the answer to your question. ZELIKOW:  Well, I'm still uneasy.  I'm uneasy on a couple of levels. I'm uneasy because I just don't see a plan for medium-term fiscal sustainability and I'm -- smarter people than I am say that if you don't have the medium-term fiscal sustainability squared away, then you're likely to have to pay higher interest rates to borrow the money, and that's going to then produce the very economic profile that Joe just warned about.  And what I hear back from that is a little bit of complacency, which basically says they have no place else to put their money. So yeah, we've seen a little -- the spreads have gone up some, but they're -- it's still not that bad.  One thing, though, that IMF economists have pointed out is that this can change on a dime.  So spreads can be pretty narrow and then people -- there's some point in which the market just comes to a conclusion.  They keep waiting to see and then they come to a -- this ain't going to happen or -- and some alternative ways of storing value emerge and things can happen. QUESTIONER:  What are they? ZELIKOW:  They find some other places to put their money, possibly even in their own economies, if their own economies are recovering, because we're borrowing at levels that we haven't seen since the Second World War.  But the big difference from the Second World War era is in the Second World War era we borrowed the money from ourselves.  Remember those war bond drives?  We're not borrowing the money from ourselves anymore.  Therefore, there -- when we borrow the money, there are opportunity costs to that.  That money is not doing other things.  And so the people who have that money have to -- basically, if they're foreigners, they're not going to invest it domestically because they'd rather buy T-bills with it. Well, if they're -- if the world economy is recovering -- and we want it to recovery -- is this actually a good outcome for the world economy?  I mean, maybe when you look, the numbers involved just aren't enough at the margin to really make that much of a difference in the recovery of the world economy, but I listen to some of the things Mallaby over there says about his estimates of macro global demand and where that demand comes from, and it just all leaves me rather uneasy. By the way, if I were the Chinese, I actually would be trying to create a reserve currency that's an alternative to both the dollar and the Euro, some kind of basket, some kind of invention.  I'd be working very hard at that. MEDLEY:  Max?  Back there. QUESTIONER:    I'm -- (name inaudible).  I was struck by how sanguine you both sounded on avoiding the dangers of protectionism, but when you look at how world trade has plummeted in the last year or so, when you look at what Bob Zoellick warned about at the recent G-20, that 17 of the nations involved there had taken protectionist measures, and the growing pressure on politicians to save jobs -- as we saw recently even within the European Union, where Sarkozy ordered French automakers, we'll give you subsidies, but only if you create those jobs in France -- I just wonder whether there is such a snowball of momentum building that politicians won't be able to avoid it.  And I don't see anything on the horizon that looks positive, such as a world trade agreement.  Doha looks dead.  So I wonder if you'd elaborate a bit more on why you feel relatively upbeat on the dangers of protectionism. NYE:  Well, I think what I meant to say was, yes, trade has declined drastically, but not because of protectionism.  The decline comes first, which may generate protectionism. The proposition I was going on is that, other things being equal, when you have a decline in economic activity in a democracy, you should expect a rise in protectionism.  I mean, squeaky wheels will demand grease.  There has been, in all the countries mentioned, a rise in protectionism.  There -- I mean, and some of it is open; some of it is covert.  I mean, there's essentially a covert protectionism in terms of bailouts of banks, in terms of, you know, informal encouragement to invest locally rather than internationally.   So, yes, there's been an increase in protectionism.  But compared to what would otherwise be predicted by the level of the economic decline, it's been much less than expected.  I mean, we are really not at a Smoot-Hawley moment.  If we get to my long "V" scenario -- my long "L" scenario, I would expect that to increase considerably.  So I'm not sanguine, but I'm just saying what's remarkable is that this dog hasn't barked louder so far. ZELIKOW:  Let me just stress again, though, the point is when people work through these projections, the people who work conflicts tend to concentrate on what's going on in regional conflict  and geopolitics.  The people who work economics tend to work economic projections.  And so the big point I want to underscore for you is the synergy between the two.   In other words, let's imagine that the economic crisis produces strains that cause actually political explosions in, say, Ukraine or Pakistan or both and that one or both of those situations and maybe Iran, too, goes south in some really important way over the next couple of years with possible violence involving -- violent crisis involving Russia and so on.  Now, that could have a whole causal chain in which economics are a background factor but aren't the primary driver.  But when that crisis plays out -- when those crises play out, those crises will then have a huge synergistic effect on the global economy, because those -- the political effects of those crises will than damage the operation of global frameworks of interdependence that are kind of taken as the background assumptions for the success of global economic recovery, the IMF as an effective debtor of last resort, the gradual assimilation of China into a role of greater global responsibility and so on. So that's the thing that I most worry about, is that the global economic situation stays very tippy; there's some serious elements of instability remaining in the scenario; there are then some particular local effects that are severe in a few countries, and that those problems then catch fire in ways that produce first-rate political crises that don't seem to be handled effectively, and then you get a really toxic combination that can move world history into a quite different place. MEDLEY:  Next question?  Right here in -- QUESTIONER:  (Name and affiliation inaudible.)  There seems to be no end of self-flagellation here in the United States at our profligacy and how we spent ourselves into this crisis and the rest of the world is quite happy to jump on that as well and point their fingers at the United States.  But as Joe pointed out before, the necessary condition for us to be the consumers of last resort was nobody else doing the consuming, and in particular, China. And towards -- then in -- it worries me a lot that as we move out of this phase of the crisis that the rest of the world doesn't take up the slack to try and demand and consume more, and we go right back into the kind of imbalance that created the conditions of excess credit and sort of dumb things in the Untied States.  So I guess the first question is, do you see that as a risk?  And the second question is, if China doesn't step up to the plate by further stimulating domestic demand, are there other strategies that the U.S. and the world can think about to try and avoid those imbalances by us consuming and nobody else doing the same? ZELIKOW : Well, another -- one other way in which you'll see signs of weakening interdependence is not just the rise of tariff barriers, but the rise of what others, including Sebastian, have talked about as "self insurance," where they basically just hoard money and then they do things to depress or artificially depress domestic demand so they can hoard more money.  And they're basically operating as predators in the world economy, getting what they can out of it so they can hoard more as insurance against potential reverses.  It's a different version of the old story of I'm going to myself acquire all the resources I need for solvency without really relying on an interdependent system.  This, too, though, will have large effects for the depression of overall global demand. And I don't really see right now a good answer to that problem.  I -- there is a -- just as there is a free market ideology that may have been at work that basically says that -- that criticizes some of the actions that accelerated -- that were -- that didn't pay attention to the asset price inflation while they concentrated so much on consumer price inflation, there is also a kind of -- there is also kind of ideology at work now in the revival of belief in Keynesian stimulus, which is also an ideology, and that this is an effective way of providing demand.  And it also actually -- the science underneath that ideology is not great, rests on a few historical episodes that are susceptible to multiple interpretations.  And if you then begin over-relying on that to solve the problem, then you may find it harder and harder to sustain debt, which then increasingly turns you -- because the world won't lend you the money to sustain it, and then you're back into -- you're back into the "every man for himself" paradigm in another way, and which -- nations then will need to enact capital controls and others things in order to hold on to their money. Joe? NYE:  Yeah.  Martin Wolf is -- has written several interesting columns in the FT basically making the point that you were stressing, properly.  And it is a worry.  If all you do is the U.S. uses fiscal policy to get back into growth and it's ahead of everybody else and we go back to the world as it was before this and we just accumulate the same imbalances and then, in addition to that, you have the increased fiscal deficits that we talked about earlier, which reduces confidence in the dollar, you can see an unhappy scenario.  That's the bad news, and Wolf is right to point it out. The good news is that the world's second largest economy is doing a major fiscal stimulus and trying to orient it more on the domestic side and that the -- leaving aside the Europeans for a minute -- the third largest economy, China, I think -- there's some signs that the Chinese may realize that their model -- that they can't go back to the old model.  They may know what I just said; they read Martin Wolf, too.  And they view -- (laughter) -- no, I mean, there are very sophisticated people in -- doing the banking and finance in China now. And what's interesting there is from the top political leadership in China, their major concern, what drives them, is the prospect of domestic instability.  The legitimacy of their political leadership rests on high rates of economic growth.  And if they realize that, sorry, if you go back to business as usual just before all this, guess what?  You're going to wind up with protectionism, with barriers against you and so forth.  And what's that going to do to your model of political stability at home?  Then you start thinking of other paths. So the argument would be that the Chinese won't go back just as they were, that they will do more, essentially, to increase domestic demand.  And they have programs now -- you know, subsidizing purchase of automobiles and other things and consumer durables and so forth to increase demand at home. MEDLEY:  Well, one particular thing they just did hasn't gotten a lot of attention.  They actually allowed for the first time farmers in the west to take their land, which is still communally held, actually -- still held by the state -- but to use their land as collateral for loans.  And this is a -- this is a huge potential breakthrough and gives you a sense the Chinese really are thinking about an internal stimulus model rather than a -- I mean, sorry, an internal demand model rather than purely a -- NYE:  Those are the good news parts of the story.  To be fair, balance is -- there's a bad news part of the story, which was, again, put forward by the central bank governor, Zhou.  He said, "Culturally, we are locked into high savings rates."  Particularly, if you look at the demographics -- (inaudible) -- all these children to support you, in the absence of a social security system, you better save.  And so there is a cultural barrier as well as -- I mean, the politics may say do what you're just saying.  The innate conservatism of the culture about savings may run the other way. ZELIKOW:  There's another -- there are two other danger signs I want to call attention to.  One is -- on the Chinese is when I was in government I was, like Joe, very impressed with the Chinese you would encounter especially on economic issues.  I mean, they're the new Mandarins, and they're terrific.  (Laughter.) NYE:  That's a good phrase, Phil. ZELIKOW:  So, then you assess how much do we lean on the future of -- those folks, they're definitely going to be in charge.  That is really the -- that's the face of China I can rely on seeing for the rest of my professional life.  I expect to ask, you know, other people who know China better, how much would you bet on that premise?  Because other Chinese that you might encounter in other settings have a very different strategic culture and outlook on the world.  So that's just -- that's just kind of an asterisk.  Mostly it's just a measurement of my own ignorance and unease. The second thing, though, I want to call attention to, which we haven't mentioned at all so far today, is India.  One of the important ingredients of optimism about the general trajectory of the world economy was not just China but also the fact that beginning especially in the early '90s, India had joined in the full globalization of the world economy, and was increasingly participating in it with a lot of activity and energy that you can especially see in the Indian private sector. And so one other interesting set of questions is, what does the trajectory look like for India?  And does that trajectory stay constant or does it change as India essentially, which -- there is a very strong strain in India's political culture that likes insularity.  I won't elaborate on it.  Those of you who know India know it -- understand this well.  And you can easily see that happening again.  If that happens again, that's another, again, potential drag on predictions for the general strength of the global economy and where that's going and another potential large source of instability in East Asia. MEDLEY:  Another question, right there in the center.  Can we get a microphone? QUESTIONER:  Matt Nimetz.  The goal is to get world demand up again to sustain the growth that we used to have.  But the way we're going about it is very much setting up the stage for what got us into trouble, that is, doing it through increasing debt.  And even the Chinese idea of letting peasants mortgage their land to consume is basically a subprime mortgage program for China.  And what we're doing in this country is encouraging people and banks to lend extensively to people, to get credit cards' rates down, to have the government driving that.  So aren't we -- aren't we getting ourselves into the exact same position where we were five, ten years ago, of increasing debt in -- both by governments and by consumers?  And we have no real solution to sustained growth outside of very, very risky policies which inevitably will be -- lead to great volatility in the future.  And so is there any sustained way of achieving growth? NYE:  I think -- I mean, what we're betting on, greatly oversimplified, is that the real economy will bail out the financial system.  If the financial system is so broken that the real economy can't bail it out in time, you could either get a "W," in my earlier terms, or you can get this fall to the low "L."  So there is a -- I mean, there is a serious problem that you identified, Matt. On the other hand, as you look at sources of real growth, you have to look at the sources of productivity.  There are parts -- I mean, if you look at Silicon Valley, as you look at biotechnology around Cambridge, I mean, there still is -- I have a son in each of those two markets, so I may be biased on this.  But, I mean, they're in the capital sector of those two markets.  But their view is that there's a lot of capital about ready; there are a lot of good ideas there.  So if all we're doing is building bridges to nowhere and throwing government money in things, yeah, then we're in the dilemma you say.  If you think that the entrepreneurial nature of our culture is not changed and the opportunities are there and that can lead to increase in productivity, that's the source of real growth.  And I think the danger is that we don't let the government pendulum swing so far that it nips that in the bud. But I -- I mean, it's -- so we're using government if you want to have the real economy rescue the financial economy.  And that depends upon the government in doing that, using just the fiscal stimulus but not over-regulating in such a way that you nip that source of real long-term growth.  That's a very simplified version of the -- of a picture of the economy.  But I think there -- it's at least a -- it's at least a consistent story, if not the only story. ZELIKOW:  Yeah, because I think we all sense somehow that the growth model has to represent more -- has to represent something more than just "I can find ways to spend money."  But we just know in our guts that somehow sustainable growth has something in it that has to do with productivity or industriousness or the ability to qualitatively change the economy so that people are doing new things that then create new areas of specialization, new markets, development of new products and so forth. And so then you have to ask yourself, what is it about the global economy that's been so extraordinarily successful over the last half century in raising the material well-being, life expectancy, any number of measurements of human well-being in such an extraordinary way?  And it is this -- the creation of a global industrious revolution, not industrial revolution, of the globalizing of that, the enormous specialization that can be created through the creation of these global networks, the opening of new markets for products, the variegation of many, many kinds of demands and the like. And you do have a sense that for this to continue you need to be able to sustain these broad frameworks of interdependence that I've described and that somehow just simply persuading governments to spend more money or borrow more money just isn't an answer, like the example -- you're worried about the Chinese farmers borrowing money.  It's, you know -- and then you -- the first thing that came to my mind was, yeah, I remember when American farmers were borrowing a lot of money and there's been some times when that didn't work out so well for the farmer, or at least they thought so.  And then again, then my second thought was, I tried -- I remembered my image of Chinese banks.  Now, this may be dated.  I used to have a bad impression of the way Chinese banks made their decisions.  But it may be much better now. MEDLEY:  Another question?  Right in the -- oh, yes, sir. QUESTIONER:  Hello.  Zachary Karabell.  On Phil's point of there may be bad things that will still happen in the coming years that we're still at the beginning or that we could be at the early stage of an ongoing systemic issue, my question would be why, given the rhetoric and the sense, at least, from the past nine months that this is the worst since the Great Depression, that we're on the edge of precipice, that the financial system is largely, if not completely, dysfunctional, why it is that we have seen almost no political instability or even murmurings that would lead you think to think that that's in the next six to 12 months?  And while the point is taken that all of this can change on a dime, it does bear asking, is there some disconnect between the sense either in New York or in the media or for those implicated within the financial system of this being catastrophic that is at odds with what is actually being evidenced in the real world? ZELIKOW:  Yes.  And this is precisely the point I was trying to drive home, is it's this -- my May -- my homely May 1931 example.  In May 1931, it wasn't the end of the world, and it didn't have to be.  In other words, I don't regard everything that happened after May 1931 as deterministically set by what came before, and they just didn't see it, poor schmoes.  No.  In fact, there had been really severe shocks right after World War I of comparable scale.  There was -- they could have pulled out of it, and then this would have seemed like just one more severe panic and so on that people then got over.  The key decisions that drove it off the precipice weren't in '29; they were the decisions in '31 to '33.  In other words, the analogue is they're not the decisions that happen in '07; they're decisions we're going to be making now and in the next year or two that will determine whether or not this flattens out and pulls out or else we make some bad economic and financial choices that then probably combine with responses on some political fronts that are maybe only distantly connected that then combine to create a whole qualitative step change in the crisis.  We're not there yet and we don't have to get there and I hope we won't get there. MEDLEY:  Joe, do you want a final word? NYE:  No.  I mean, I think Zach has actually written on this.  What it -- MEDLEY:  What hasn't he written on? NYE:  Well, he's written on everything and intelligently, so it's a -- but the -- I think the thing, again, you ought to say is the usual expectation when you have this degree of negative growth is a lot of political turmoil.  It's like the comment we made earlier about protectionism.  You would say, given this degree of decline, expect a lot of protectionism.  There has been protectionism.  There's been some political instability, you know, in some of the Baltic states, the Czech Republic and several -- but, you know, compared to what you would expect, much less than predicted.   And that does raise an interesting point, which is always look for anomalies, things that aren't the way that predictions go.  And there are two anomalies:  Protectionism hasn't been as bad as it first looked and the political instability hasn't been as great as it first looks.  And that makes one think that -- be careful about your 1930s analogies.  I mean, Phil's right to remind us of this.  But just as it's a mistake to think that there's no relevance to the '30s, it's also a mistake to think that we're going to repeat ourselves, as Phil's and my friend Ernie May (sp) likes to quote Mark Twain about history doesn't repeat itself; at best, it  rhymes.  Well, we're right now in a rhyme and we're not quite clear how it's rhyming. MEDLEY:  Okay.  Thank you.  We always have a rule of getting out on time.  It's 10:45 now.  Thank you very much.  (Applause.) NYE:  Thank you. (C) COPYRIGHT 2009, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE. NW; 5TH FLOOR; WASHINGTON, DC - 20005, USA.  ALL RIGHTS RESERVED.  ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT.  NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL CARINA NYBERG AT 202-347-1400. THIS IS A RUSH TRANSCRIPT.

Watch Laurie A. Garrett, senior fellow for global health at the Council on Foreign Relations, explain the origins of H1N1, the threat it poses, and the actions that should be taken to minimize the pandemic threat of diseases such as the swine flu. Stewart M. Patrick, senior fellow and director of the program on International Institutions and Global Governance at the Council on Foreign Relations, makes concluding remarks. This session was part of the CFR conference: The United States and the Future of Global Governance, which was made possible through the generous support of the Robina Foundation.    

Watch experts debate global institutional reform, including changes to the UN Security Council and international financial intstitutions, and the role the United States should be playing. This session was part of the CFR conference: The United States and the Future of Global Governance, which was made possible through the generous support of the Robina Foundation.

What stake does the United States have in the global nonproliferation regime as it currently exists? What are the risks and rewards of bilateral arrangements with countries such as India? How can loopholes in the NPT be closed? Should the United States ratify the Comprehensive Test Ban Treaty? What are the lessons of voluntary initiatives, such as the Proliferation Security Initiative, for a coalition approach to nonproliferation?

Watch experts discuss how the United States should be addressing climate change and the need for global cooperation on the issue. This session was part of the CFR conference: The United States and the Future of Global Governance, which was made possible through the generous support of the Robina Foundation.

Watch experts discuss how international financial institutions can work together to mitigate the financial crisis, as well as reforms that could make these organizations more effective. This session was part of the CFR conference: The United States and the Future of Global Governance, which was made possible through the generous support of the Robina Foundation.

JAMES TRAUB: (In progress) -- is Laurie Garrett. And now my microphone is on. Welcome to the third session. Let me put my spectacles on so I can read this -- MS. : (Off mike.) TRAUB: The sixth session -- this is a misprint -- the sixth session of the CFR conference on the United States and the future of global governance. This session is entitled "H1N1: The Global Response to the Swine Influenza." Of course, you all know by now, turn off -- don't put on mute or vibrate or anything like that -- turn off all together your cell phones. And this meeting is on-the-record. One thing I probably should explain in advance is that I've noticed in the previous sessions I've been sitting in on that the moderator has been at least as knowledgeable as the person he or she is interviewing. This will be different. (Scattered laughter.) Laurie, fortunately, is supremely knowledgeable about the subject, I have agreed to be thrown in to the breech. So please excuse my ignorance in advance but at least that way I can be a kind of tribune for the ignorance of which ever ones of you don't have deep knowledge of the subject. Now Laurie Garrett, as perhaps you all know, is -- has been a fellow here at the Council since 2004. Before that, for many, many years Laurie was a journalist and she won every award that it is possible for a journalist to win, which, I guess, is why she finally stopped because she had already achieved everything. She has written several best-selling books, I'll just mention two. "The Coming Plague: Newly Emerging Diseases in a World Out of Balance"; and "Betrayal of Trust: The Collapse of Global Public Health." Most recently Laurie authored this really compelling cover story in Newsweek. So it is still, I believe, on the stands and it is available to one and all. So, let me begin, Laurie, by asking you a dumb question, which is that as of today there have been a little over 2,300 cases of swine flu resulting in 48 fatalities. LAURIE GARRETT: Identified cases. TRAUB: Identified cases, resulting in 48 identified fatalities. So you might think, well, why are we having a meeting on it here at the Council on Foreign Relations? That doesn't sound like a pandemic. But it is a pandemic. So could you explain that to us? GARRETT: This is a new organism. It emerged in a manner that had not previously been seen or chronicled. It definitely was a pig virus here in North America, in the United States, that through means not yet fully elucidated made its way to Mexico and emerged in human populations in Mexico. After having caused -- depending on what the ultimate genetic sequencing tells us, five or six isolated infections in the United States before that never really went human to human. So individuals acquired it from a pig, from exposure to pigs, but did not pass it on until it gets to Mexico. The timetable is very fast and the response was very fast. And the reason we're worried about this is because this particular one, because it had long been believed that pigs serve as genetic mixing vessels -- that's the term that's used -- for recombination of flu viruses, allowing viruses to swap and exchange genetic information that they've gathered from infecting birds, from infecting humans, from infecting pigs and other species. And thereby, the virus becomes potentially more dangerous and can take on the capacity to truly cause something like the 1918 influenza which killed 100 million people. So we want to really keep close tabs on any newly emerging flu strains that seem to have unusual characteristics. TRAUB: Could you just briefly explain -- you call it -- it's called a triple re-assorted virus. Could you just briefly explain what that means? GARRETT: This particular H1N1 flu, as it's called, for hemagglutinin type one and neuraminidase type one flu, has within it genetic information that it has gathered over the years, not just suddenly but over the years, from wild birds, so flu strains that were in wild birds, from pigs, mostly North American pig populations, domestic pigs, and from pigs in the Eurasian region, so a type of flu genetic information that had been circulating in pigs and -- as far east as Thailand and Vietnam, and then human H1N1 components. And so it had three different species' contribution and at least four different geographic areas of circulation of flu contributed. And the virus itself, when it reproduces, falls apart. That's what flu does; it really falls apart as a virus. It doesn't have real strong chromosomes as we do. And when it does this sort of falling apart it picks up, not only in making copies of itself, not only the appropriate RNA genetic material, but also whatever else is in the environment it has fallen apart in. So if it falls apart in a pig cell it picks up some pig genetic information. If it falls apart in a chicken cell we get some chicken and in a human cell some human. And this virus shows evidence of all of that, the ultimate gamish -- (sp). So -- TRAUB: There you have it. So the underlying causal phenomena of a virus like that, does this have to do with far greater human mobility such that these viruses are moving around much faster than before? Does it have to do with the way pigs are farmed, in massive densely clustered areas as opposed to the way they were before, or what? GARRETT: Well this particular H1N1 seems to have taken advantage of growing in environments of industrial pig operations in the United States. The hallmark of industrial pig operations is that you have hundreds of pigs packed right next to one another. It's a little bit like saying if I light a match at the edge of a very diverse forest, I may or may not start a fire or it might burn one tree and then it hits a really green tree and the fire sputters out. But if I light a match at the edge of a forest that is entirely uniform, all the trees are the same amount of dryness, they're the same type of tree. And if it's going to catch one it's likely to go burning all the way through. And when you have -- we've known for years with agriculture that when you farm in these giant farming operations where you have several thousand acres of the same type of corn, pests take advantage of that kind of environment and they easily acquire resistance to pesticides and they easily acquire resistance to anything else you throw their way and they go right through. TRAUB: Now don't we -- GARRETT: They're doing the same thing now with animals. TRAUB: -- but now don't we respond to that by jamming pigs full of antibiotics? GARRETT: Antibiotics have nothing to do with viruses, number one. And number two, yes -- TRAUB: I said I was ignorant. GARRETT: -- yes, we jam them full of antibiotics and we do that as growth promoters, not because they're sick and not to prevent sickness but because, for reasons never fully figured out but probably related to -- commensal species of beneficial bacteria in their guts not clear, if you medicate regularly livestock with antibiotics they will be about 4 (percent) to 5 percent bigger at time of slaughter than if you don't medicate them. So all across the United States in the livestock industry, whether it's aquaculture or chickens or pigs, we use antibiotics quite liberally and I think quite unwisely. And we know that it does indeed promote resistance, it does indeed promote the emergence of strains of salmonella and staphylococcus and so on that are drug resistant. And they do indeed transmit to people. And it has helped to render many of our antibiotics useless. TRAUB: So -- so long as we engage in this kind of mass farming we're going to be dealing with these kinds of outbreaks, the one is directly causing the other. GARRETT: But there's another piece to this puzzle. You could've had an -- and we have had for at least 20 years the occasional case of flu transmitted to some kid who's working on a pig farm, but that's the end of it. But another event happened here and we don't know exactly what it was that made this turn in to a rapid human-to-human transmitter and we need to figure that out because knowing that answer is important for future potential outbreaks, especially one way more lethal than this H1N1 strain. The other -- the piece of it that our federal officials have, I think wisely not said out loud that I will say out loud -- and they've not said out loud for fairly obvious political reasons -- is that if you look at the sort of chronology of the outbreaks leading up to the big one in Mexico, this does seem to be a relationship to migrant farm labor. And obviously certain people in this country have made it part of their political agenda to try and shut down the border of Mexico. And we've seen them try to use this flu issue to say, yeah, we should've shut that border to Mexico. So our federal officials have been very reluctant to say out loud that there does appear, it's not a coincidence, it was Imperial County, California, an agricultural county, Guadalupe County in Texas, all of these agricultural counties with very large migrant labor forces. And of course, migrant labor is the backbone of servicing our pork industry, our chicken industry and so on. TRAUB: So it's just as truckers, for example, are a key transmission belt for AIDS, migrant workers are a transmission belt for these kinds of outbreaks. GARRETT: At least in this case that does appear to be the case. TRAUB: Yeah. So let's talk a little bit about the response to it. Is the fact that there have been so far a very small number of deaths, is that simply because it is not a terribly lethal strain or does that say something about a relatively effective global response? GARRETT: I think it's several things. I mean, one, we know the genetic analysis of this strain shows us that, thankfully, it does not have the key genes that we know the 1918 flu virus had that made it just super killer. TRAUB: That's just good luck. It happens not to have that. GARRETT: That's fantastic luck. And, thankfully, that is the case. The second thing is that we didn't know early on -- when it looked like we had a big, very lethal problem in Mexico, I was saying over and over again we don't know the denominator. You can't say this is very lethal, you say perhaps 100 deaths, if you don't know is it 100 out of 10,000 infected, 100 out of 1 million infected? You have no denominator to judge. We still don't know because we don't have rapid diagnostics where we can just go out and have people lick a stick and it changes color and you say, ah, that's an H1N1 person. You were infected. You didn't know it. You felt fine. Maybe you had a headache, whatever. We don't have mass screening technology like that. We need it. We should have it. There certainly have been fantastic developments come out of laboratories in academia that could take us there but it's just never gotten off the ground industrially. TRAUB: So, in other words, the countries where a lot of these things are originating, which obviously have poor public health systems, they're the ones who would have to have it. GARRETT: Well, and Mexico was dependent on our country, the CDC, to develop a basic diagnostic that could be done, not rapidly but in a laboratory setting that would discriminate this particular flu from all other flus that are in circulation in the world right now. And that slowed them down because they were waiting for the CDC and then they had to be able to replicate it and be able to do it on a large scale. So early on, where there was a great deal of concern since we didn't know the denominator the two things that were very worrying was it looked like a lot of dead and a lot of sick. We now know many of those weren't actually H1N1 flu. And secondly, they were young people. And that continues to be a big worry. That continues to be a big mystery and worry piece in this whole situation is that, both in the United States and especially in Mexico, the majority of identified infections, hospitalizations and deaths have all been people under 35 years of age. And the reason we're worried about that is twofold; one, that's rare with flu. Typically flu is causing serious illness and death in children under 2 years of age and in adults over 70, 75 years of age. TRAUB: If they have either compromised or immature immune systems. GARRETT: Exactly. But in this case we're looking at the healthiest age group, with the most robust immune systems, and they're the ones the sickest. And this is very worrying because that was indeed seen with the 1918 flu and it was seen with SARS, to some degree, that a lot of the spread was going on in otherwise extremely healthy people. TRAUB: So now to get back to the question of the response. I mean, at least one thing I've read said, well, if you look at the quality of the global response now as opposed to SARS, which was in 2003, it actually has been far more coordinated and far more effective and we should at least feel some sense of relief about that. Is that a fair conclusion? If so, what is it that we have learned since then that has now been put into practice? GARRETT: Well actually, I didn't finish your prior question answer, which leads directly to this -- TRAUB: Oh, okay. All right. GARRETT: -- which was the third thing that could explain why this appears to be a less dangerous flu than we initially thought, is that we should all stand up and scream gracias Mexico because the Mexican people and the Mexican government have sacrificed on a level that I'm not sure as Americans we would be prepared to do in the exact same circumstances. They shut down their schools. They shut down businesses, restaurants, churches, sporting events. They basically paralyzed their own economy. They've suffered billions of dollars in financial losses still being tallied up, and thereby really brought transmission to a halt. What we want to do now -- and Dick Garwin is here, he had done from a couple of years back -- two years ago, was it? The masks -- asked the question, do we really know what kind of masks work when you're dealing with a pandemic and can you reuse them and do you really need these big fancy N95 ones, or what about those dime store masks? One of the things that's going to be very interesting to study with Mexico is how effective were those masks that the army mass distributed all over Mexico City and in every other major city in the country. If they had any benefit, I assume it was, what I saw with SARS and masks in China -- where people used just about anything as a mask, nothing that should have worked as far as actually blocking a virus -- is that they alarm the person coming towards you. And when -- TRAUB: So keep your distance. GARRETT: Yes. And, in fact, I've already taken a bunch of photographs of a rush-hour Mexico City subway and done comparative analysis and just my totally crude analysis shows a great deal more spacing and you see a lot of people side-glancing. They're looking to see where's the other guy when they have the masks on. And if you take the same subway stations and look at the photograph, everybody's just jammed right in. It looks like New York. And you can't help but wonder how we would respond here under the exact same circumstance. TRAUB: Yeah. But not only that, I mean, in addition, the consequence of the self-sacrifice, as you said, is a loss of, estimated now, at 0.3 (percent) to 0.5 percent of GDP. Politically it may turn out to be a catastrophe for the president, not clear yet. And so if you're trying to design a response that you would be able to repeat in future, colossal self-sacrifice followed by economic and political harm is not the way you'd go about it. So what's the -- is there an answer to that? That is, what ought -- and, of course, the backlash against Mexican tourists, travelers and so on. So what can one do in order to encourage as opposed to discourage the kind of behavior which you've just described? GARRETT: Well, I think it's a really important question because much of the world will look and say what did Mexico get for all of this? They sacrificed an immense amount. And you're absolutely right, you're already seeing a backlash inside Mexico against Calderon. The left in Mexico is charging all of this was a giant conspiratorial cover-up and they were trying to create a diversion to keep the people of Mexico from noticing the narco-trafficker problem, as if that were possible. And there've already been protest demonstrations in Mexico against Calderon, specifically around influenza. So there's going to be a big price. If I'm the rest of the world and countries that are likely to pay a price with emerging diseases I will ask, am I prepared to do, you know, what Mexico did and what reward does Mexico get? If you look at China, you know, China chose to do the exact opposite in 2003 with SARS. They covered it up. For six months they lied while it circulated inside China and then spread outward. So when this happens how does China respond? Well, they quarantine an entire planeload of people based on one suspect case and hold -- and they're all Mexican, or travelling from Mexico. They issue masks. You have a sense of alarm. And you had a repeat that signaled memory to Hong Kong 2003, the Hotel Metropole, where a single individual from Guangjiao, who had been exposed to SARS, knew there was something new and dangerous that was being covered up, fled to Hong Kong to try to get away from it and was, in fact, infected, stayed on the ninth floor of the Hotel Metropole and through means still not yet fully elucidated biologically, somehow transmitted to 12 strangers on that floor, two of whom flew to Toronto, took SARS. One flew to Hanoi, took SARS. Two went to Singapore, took SARS. To Beijing, took SARS. TRAUB: It's like an epidemiological nightmare. GARRETT: Exactly. So how does China respond this time? There's one suspect case in a hotel in Hong Kong. They quarantined the whole darn hotel immediately and only two days ago allowed the Mexicans to fly back to Mexico where they're greeted wearing masks by an unmasked first lady who shakes all their hands. (Scattered laughter.) TRAUB: So -- okay, so we've now described a -- essentially a kind of sovereign reaction to this global threat. And so then, I guess, the global governance question about this is given that this actually winds up quite intensely implicating sovereign issues and that for centuries people have been quarantining, blockading, and so forth -- it's the immediate reaction to this kind of threat -- what ought we be doing to overcome that otherwise not terribly surprising but quite dangerous reaction? How can this be better coordinated than it is being now? Or can it be? GARRETT: Well, first thing we have to do is really see this as a case study and analyze it in great detail so that we really understand which countries did which actions, what worked, what didn't work. Did Mexico over-respond or did they, in fact, stop the transmission and limit the ability of the virus to better adapt to our species? Did they buy the world some time by taking such drastic actions? I think, just by way of example, most people in the field would agree now that in 1997 when the H5N1 bird flu jumped from mainland China to Hong Kong and caused, I believe it was, six human infections, Hong Kong responded by slaughtering every single chicken in Hong Kong, a phenomenal and expensive, both politically and financially expensive action. And I think most people in the field would say Hong Kong bought us all a bunch of time. They bought the world time with that virus. It stopped a certain cycle, boom, and, in fact, the virus kind of retreated from visibility until 2005. It was slightly circulating. You hear of the occasional outbreak but it's not until 2005 that we get this explosive situation in birds and in humans all across Asia with that virus. So we want real detailed analysis, a case analysis. I also think part of that is going to be really looking at WHO carefully. What have they done right and wrong? I think WHO was very slow to issue a -- there is no rationale -- they finally said it only on Monday this week, there is no rationale for travel restrictions. They should have said that well before this time. And they certainly should've come down hard on China for overreacting by quarantining all these people. It sends a very bad signal to the rest of the world. If you're open and honest that you have an epidemic your nationals travelling all over the world are going to be quarantined and isolated and all of that. And again, it would dissuade the kind of transparency that we absolutely need as a global community to protect all of us from disease. The other thing that I know is going to be assessed because it's already all over buzzing in the internet world of public health, global health people. Coming out in 2005 the World Health Assembly, which is the legislative body of WHO -- WHO is kind of unique among all UN agencies in that it actually has like a congress with every country having one vote. So Vanuatu and China have equal vote. Not proportional representation. TRAUB: Must be a tremendously effective body. GARRETT: It actually is remarkable how well it works given 194 bickering nations. But this is an example where it didn't work. In 2005 the World Health Assembly said, alright, we're going to take pandemics seriously. We've learned from SARS and from bird flu. We better get our act together. So let's set up a pandemic threat system. And we'll set criteria for telling the whole world we're at pandemic level one, pandemic level two and the biggest one is pandemic six. The problem -- and so we're now officially at pandemic level five with this H1N1 -- the problem is the system they could all politically agree to, the criteria for bumping up from one to another has nothing to do with the severity or danger of the microbe. It's just about geographic spread. So a totally benign microorganism that is newly recognized, theoretically, could result in a pandemic six threat from WHO, which has absolutely no relevance to whether or not any of you in this room are potentially in danger when exposed to it. And so here we are in this awkward situation where based on the criteria set out for this pandemic threat system, we actually should now be at pandemic six, the highest possible level, because what it says is do you have sustained transmission in two geographic regions of the world. Well, we have sustained transmission in Spain and we have sustained transmission in North America. So we should be at pandemic six. But what we have seen is as they bumped it to five the stock market went berserk, the sale of everything to do with travel -- oil, airlines, hotels -- everything tanked and the only reason the whole market didn't look like it went down was that that was offset by a spike in all the pharmaceutical and biotech stocks. So it balanced it out. So there's prices to be paid with these systems and we really need to figure this out and make it better, relevant to real problems. TRAUB: But even what you've just said described, I mean, this morning for example, the problem we were talking about was nonproliferation. Now -- in some ways a kind of metaphorically at least similar threat. What you've just been describing is a so far not terribly well put together system of monitoring and surveillance. But that doesn't even go to issues of enforcement, for example. And so if we're now -- if we now believe that we're in a world where drug resistant diseases and pandemics of this sort, for various reasons, may become more frequent or perhaps even more lethal and perhaps even more difficult to deal with then doesn't -- does that also say that the whole institutional structure we have right not only is not effective enough at what it does, in the way that you've just described, but perhaps also not at all comprehensive enough in regard to the threat that it's meant to deal with? GARRETT: Oh absolutely. Let me put it to you this way; the virus -- what will now happen, what's going to be the next stages just with this H1N1 and how does this governance structure, if we can even be generous enough to call it a structure, respond? Alright, so if this goes according to normal flu patterns the virus will now head to the Southern Hemisphere and circulate in their winter through humans, pigs, birds, wherever it finds a welcome home and infect cells that it's capable of infecting in those targeted animals -- we're an animal in this equation. And then if it does not just simply die out because somehow in the Southern Hemisphere it fails to find adequate places to reproduce and spread, transmit, which I cannot quite imagine, it will return here in the fall. And we will some time in September or October start to see the evidence that H1N1A is in North America, possibly in Europe, widely circulating in the Northern Hemisphere. So here's the decision point. You're Margaret Chan, Director General of WHO in Geneva, you're Bruce Gellin, who happens to be in charge of all vaccine decisions for our government sitting inside HHS. You have a brand new HHS secretary, she doesn't even know who Margaret Chan is, okay, she just walked in the door. So, you're Bruce Gellin and you have to decide and Margaret Chan and her team have to decide what are we all going to do about vaccines for next fall? So here's your options. Number one, you can say abandon all prior decisions, focus on this virus. Make all vaccine production machinery geared to the H1N1 and let's make sure was have as much as we can possibly make, which turns out to only be 400 million doses for a planet of 6-and-a-half billion humans because we make them on chicken eggs and they're hard to make and you have to have sterile conditions, very hygienic conditions or you easily get contamination and we've certainly had contamination events in the past with flu virus production, vaccine production. Alright, so first problem is you can only make 400 million doses. And between now and September you really can't make multiple vaccines, you've got to make a decision. So if you decide you're doing H1N1 then -- and seasonal flu comes around and it's a nasty regular seasonal flu -- you risk 36,000 American's dying, as typically -- or 36,000 people dying of seasonal flu because you didn't have a vaccine for them. Option two; this H1N1 doesn't look as lethal as we thought it was. We're going to gamble that it won't undergo any re-assortment event or mutational event that's advantageous to the virus and proves to be more dangerous to humans. As it travels around the Southern Hemisphere this next few months -- TRAUB: You should add, by the way, that there already is a variant, as I understand from your article, which is resistant to the principle that occasional -- (Cross talk.) GARRETT: Right, if we -- if it had a recombination event with the circulating other H1N1 strain that's drug resistant, resists Tamiflu treatment, then we would end up with this potential pandemic strain also being drug resistant. So you could make that gamble or you could say, look, I don't think that's a dangerous one. I think it's going to peter out so let's focus on the seasonal vaccine. Or, you could say, can we figure out a way really fast to mix them and make a vaccine that's got some of the seasonal component and this new one and get it out, rush it out the door and encourage everybody to get vaccinated. But now here's the kicker. So you've got 400 million doses and the rest of the world says, hey, what about us? What's with you guys? You get vaccinated and the rest of us are screwed? Here comes the pandemic, you've got a few months to get your act together and there's nothing for us? Why should we cooperate? And that's precisely what Indonesia has said. So Indonesia happens to be the center now of all the troublesome circulation of the bird flu virus and most of the human cases and even some cases of human-to-human transmission but in very, fortunately, intimate settings of the virus. And they have refused to share any of their bird flu samples with WHO or any other entity since 2006. TRAUB: For which you said the expression is viral sovereignty. GARRETT: They've declared viral sovereignty. TRAUB: Really it's kind of a, kind of appalling -- it's sort of a last most baroque efflorescence of this idea of sovereignty in its -- I guess its feverish form. GARRETT: And in and -- yeah -- so -- and their rationale is, if we share it you'll make vaccine against it but we'll never get that vaccine, it'll go for your people. And then you'll come to us and say, you have to give us a bunch of money and then maybe we'll let you have vaccine for your own people made from something that circulated in your country. It's a horrible situation with Indonesia. They're even trying to close down NAMRU-2, which is a big medical research lab run by our navy that's been in Jakarta since the 70s on the grounds that it's a biological warfare center and that they may have even made this flu just to try and hook poor countries on buying medical products from the wealthy west. TRAUB: So -- but you haven't even -- in a way, what you've been describing is not so much an architecture in the sense that we've been describing an architecture for climate change, nonproliferation. It's obviously quite a scanty architecture in compared to -- compared to sovereign national decisions. But just so that we can get a clearer idea what the structure is -- we had just spoken right before we got on about this idea of an H1, which you were very much involved with creating, which involved the eight major -- GARRETT: The H8. TRAUB: -- I'm sorry, the eight major health organizations. So just quickly so we have a sense of what it is we're talking about beyond WHO, and we're talking about the structure, what is that and maybe kind of quickly before we open this to others, what ought it be? GARRETT: Well, one problem that we see with the whole global health architecture is that there are too many players and they're not coordinated. And just in the last eight years we've seen a whole bunch of new giant players, multibillion dollar, well-funded ones like the global fund to fight AIDS, Tuberculosis and Malaria, or GAVI, which is the vaccine initiative. And then you have a whole bunch of UN agencies that have overlapping jurisdiction. UNICEF does child vaccination. WHO is supposed to be the main one. But then you also have the world banks funding global health programs and setting agendas and it goes on and on and on. So the secretary-general, Ban Ki-moon, signaled that he really saw one of the big issues on his agenda trying to bring some coherence to this mess, trying to get all these different pieces coordinated and talking to each other. And here at the Council we were directly involved in that effort on behalf of the secretary-general's office. And what has evolved is this thing called the H8, the Health Eight, and it's the eight key international agencies -- WHO, UNICEF, UNFPA, Global Fund, GAVI, World Bank -- help me Kim -- Gates Foundation and UNICEF, or UNESCO. Who did I leave out? TRAUB: Okay, you got at least seven anyway. GARRETT: The point is it's totally informal. It has no actual power but its sort of the second tier of management right under the directors are supposed to be in constant communication. The main thing it has done that's positive is that we no longer have UN agencies putting out opposing and different policy statements on key health issues. At least, you know, they've thrashed it out before it goes public and they sort of are on the same page. But in terms of as an apparatus that makes decisions about financing and moving priorities and so on, it's not that sophisticated. TRAUB: So compared to the other subjects we're talking about, it sounds like public health is actually, I suppose, a kind of under-institutionalized sphere, which actually, given the kinds of dangers we're talking about needs more fully articulated, better coordinated, maybe more enforcement equipped institutions than exist now. Is that your sense? GARRETT: Well I would agree with that. I would go a step further and say, look, one of the things we know -- and here's back to why were we worried about this flu -- we know that viruses are very dangerous to our species when they jump from another species, when they first make that leap. SARS had been a bat virus. It makes it into civets and then to humans and it hasn't toned down. It's a very virulent organism at that time. And we believe in 1918 the same thing happened. The virus had just jumped basically from birds into people and was quite virulent at that moment in its biological history. So if we're really serious about protecting humanity we need to better integrate the sort of veterinary side, the animal and wildlife side, of our surveillance, our investigation, our monitoring and our response with the public health side. But what we've seen is that these two communities have a really hard time being on the same page. In 1999, when we had a mystery virus emerge here in New York City and we had eight encephalitis cases in the same hospital in Queens, that sent an alarm button to our public health people. But when the head pathologist at the Bronx Zoo was saying, but I've got exotic birds dying by the bucketful. I've got a huge problem here. Birds all over the zoo from all over the world are dying of something and they're showing seizures and responses that are indicative of encephalitis. I think it may be the same virus. The attitude of the public health people was, shut up. Who cares about dead birds at the zoo? And meanwhile, you had veterinarians out on Long Island saying, we've seen horses that are dying and they're having encephalitis. And again, the public health response is, what has that got to do with us? Well, we learned too late from west Nile that we should've been paying attention to a virus that HAD emerged newly to North America from Africa, never been, as far as we know, on our continent before, and then had found many happy homes. It had found that -- you know, the majority of our bird population, songbirds to crows, were happy homes, that humans were happy homes, horses were happy homes and it's now spread all over North America. We need to better integrate things like our food and agriculture organization, OIE, which is the animal health organization and all of these things in a much better, smoother orchestrated governance. And frankly, what the -- as he was leaving, Ban Ki-moon did was to designate one person, one individual to coordinate everything and to run back and forth on behalf of the secretary general following bird flu between this agency, that agency, this minister of Agriculture, this minister of Health. I mean, the guy's super human but come on, one guy? TRAUB: So there is no one such one. Ought there not be one person or no? GARRETT: There should be -- one person can't do it. You need a group, a team. I mean, this poor guy never sleeps and he lives on airplanes. TRAUB: So is this the kind of situation, though, in which there ought to be one, in effect, master institution? Or should WHO be a more powerful, more coordinating institution? Or is it rather a matter that we need to have more effective forms of coordination between the bodies that already exist, these eight bodies that you've described. GARRETT: Well, it's complicated. We came out of World War II and set up these institutions that are the United Nations, that are WHO and so on in the late 1940s and early 50s. And we set them up to interact with their counterpart at the country level. So food and agricultural organization talks to ministers of agriculture and deals with the ministries. And WHO deals with the ministries of health and so on and so forth. Well we've partitioned all our national governments in a similarly irrational way from the point of view of biology. I mean, a microorganism doesn't know, oh, I'm being handled by the ministry of agriculture. (Scattered laughter.) I better not infect people. And yet this is -- the problem is bigger than asking is there a global governance umbrella that will bring it all together because we haven't even brought it together inside the United States government. And you get down to cities and states. New York City has had enough brutal experiences with everything from multi drug-resistant TB to West Nile to 9/11 and anthrax that we're better -- we're more likely to have the various pieces of health and veterinary and the environment speaking to each other. But we still have bumps in the road here. You leave New York and you see -- you know, the public health person doesn't even know who the lead veterinarian person is in their region. TRAUB: One last question and then I'll throw it open to questions. President Obama just released his global health plan a couple of days ago. And it was criticized by AIDS activists on the grounds that it scanted AIDS, but others were quite pleased because it talked about infectious diseases and indeed, possibly you'll tell us, was to some extent inflected by the swine flu outbreak. So, from your sense is -- did that represent some important kind of progress? Did it include an understanding of the sort of issues you've talked about or no? GARRETT: Well, the problem right now that we're in with the Obama administration and global health and frankly all foreign assistance efforts, development writ large, is that none of the key positions have been filled in the government. There's nobody running USAID. We're pretty far down the path and we still don't have anybody running it. We just got a name for PEPFAR, the President's Emergency Fund for AIDS Relief. And, you know, we can go across all the tiers of it and there's empty offices and empty seats at the table. So when the president gives an announcement like this, we don't really know how it's going to play out and what it really means. What we do know is he's committed to a six-year, as opposed to congressionally voted authorized five-year PEPFAR II, Emergency Plan for AIDS Relief Type II, if you will. And that program will eat up around 70 percent of all global health spending from the United States of America for the next six years every single year. So HIV gets 70 percent. Now with the other 30 percent we need to see how the various agency appointments are going to drill down and break that apart. But all this is happening against a much bigger background, which is in the House -- of the House Foreign Operations Committee (sic), Congressman Berman is the chair, he's introduced a bill to completely revisit the whole foreign assistance act and rethink what in the world are we doing here because it's a train wreck right now -- it's so confusing it's mindboggling. And John Kerry is running the Foreign Affairs Committee (sic) in the Senate and he's signaled that he's interested in the same effort to try and really fundamentally rethink all of this. And meanwhile, we have a real struggle going on between the State Department, the NSC and the White House over where's the relative power of USAID and who does it answer to? PEPFAR -- does the secretary of State control all of this? And all that's a long way of saying we don't have the backdrop yet of the Obama administration's own approach to these problems, much less an international global scale view of how you're going to organize this. TRAUB: Okay. Well thank you. Let's throw this open to questions. So, Dr. Garwin. QUESTIONER: Dick Garwin, IBM Fellow Emeritus. The workshop we had three years ago looked at some pandemic flu and what could be done with non-pharmaceutical means, so no vaccine, no Tamiflu and so on. And any epidemic propagates by reproduction factor, typically two or three. What Mexico did was to reduce that suddenly, maybe to 0.3 or whatever and then the epidemic dies out. Now the question is what's going to happen now? Even though it's the end of the flu season the virus has difficulty living in wet weather and so on -- in humid weather. As people go back to their usual interactions is it likely that the epidemic will resume in Mexico? And, of course, Mexico can then take moderate measures and kill that again but it's not clear that that's compatible with a functioning society. GARRETT: Well the good news about influenza is that it is a seasonal virus. It doesn't particularly like hot weather. It dehydrates quickly on surfaces if the air temperature is above 90 degrees. And it can't tolerate exposure to ultraviolet light. So in the summer the lights -- the daylight is longer than in the winter so you're more likely to get exposure to UV light on any surface. That reduces the transmission from things like a doorknob that somebody just sneezed on their hands and then turned the doorknob, thank you very much, and now you come over and all of that sort of thing. But what worries me, Dick, is now the virus, if it does follow normal patterns, heading to the Southern Hemisphere, what happens when it hits South Africa, HIV prevalence 25 percent? What happens when it hits Botswana, when it hits Swaziland? When it hits all these places where we have vast pools of individuals who are immunosurpressed and they are in that same age group. See this whole thing of circulating flu and the relationship to HIV, we didn't have to be as worried about it with a normal flu because it's really whacking out people over 70 years old. But now we're seeing a flu that's circulated in under 35-year-old adults, that's you prime HIV populations and we don't know what happens. We do know, and I've pressed our National Institute of Allergies and Infectious Disease director, Tony Fauci, on this quite directly and he concedes that we do have a body of evidence that people who are HIV positive, if they are exposed to influenza and get a whopping case they're more likely to die regardless of age than people who are not HIV positive. And the second piece we know is that people who are on treatment for HIV, so they've -- they may be in Africa but they're some of the lucky minority that have actually been able to obtain anti-retroviral drug treatment, that one of the side effects of that treatment is it makes you more prone to cardiovascular disease in some cases. And so we see that if you are on such drugs and you get exposed to HIV you are statistically more likely to suffer a cardiovascular event, a heart attack, than your peer matched non-HIV positive individual. So the worry I have, and Peter Navario who is also with the Global Health Program here at the Council and has been working in South Africa quite a bit -- we're both very concerned about what's going to happen with this virus as it circulates in Southern Africa. TRAUB: Anyone else? QUESTIONER: Irene Meister, Council member. You mentioned that the work had started on the vaccine but hasn't been decided yet what kind it will be. How much cooperation is there between the different countries working on it? Now, U.S., we know, we hear it on the various radio and television sources. But how much will it be really coordinated and offered to each other to help and to build because one country cannot just produce, in this case, enough to serve the world. GARRETT: Well no country -- all countries combined that make flu vaccine can't make more than 400 million doses combined, that's the combined total. And the United States is the major manufacturer so the bulk of those, around 300 million, are in the US of A and we will preferentially give them to our own people, as will the other countries that make vaccine. This is why, actually, the determination of what vaccine to make each year is a fairly well-oiled machine. It's one of the few things where the governance has been in place for a long time, it's a procedure where from all over the world leaders gather in WHO in Geneva, sift through all available data on what's been circulating most recently in the world and decide which vaccines should be made. And it's literally that WHO controls the seed stock for the vaccines and gives to the pharmaceutical industry and says this is what looks like the priority. Now, on top of that, in rare cases such as 1976 when we had the swine flu scare here in the United States, a country may decide to do extraordinary efforts to make a targeted special vaccine. And that is what is now being debated here in the United States. QUESTIONER: So they're in cooperation but then in that case why we didn't make more? GARRETT: She asked why can't we just make more so 6 billion people can be vaccinated? The problem is you make them on chicken eggs. It's very tedious. It's handmade vaccine. Just think of it that way. And it takes a long time. And we only have so many chicken eggs in the world. And you only have so many that are hygienically sterile in hygienically sterile facilities, handled by people completely suited up so they don't contaminate them because if there's bacteria in there and now you make vaccine you will potentially pass bacterial contamination. Some countries had to give up making flu vaccine because they never could manage to make safe stock. So there is a tremendous amount of research and exciting stuff going on all of a sudden and just since the bird flu scare beginning in 2005 on innovative new ways to make flu vaccine involving technologies that could result in six billion doses in a year. But all of that is still in the pipeline, the R&D pipeline and none of them have yet gone to large scale clinical trials. So there certainly won't be available anytime in the near future. And this is another reason why we were distressed about the foot dragging by the Obama administration on sending Peggy Hamburg's ratification over to Congress. And Congress' foot dragging on bringing her nomination before -- because she was nominated to run the FDA; she's the former health commissioner here in New York City, much admired. And, you know, the FDA is a shambles. It's an agency that's really been allowed to fall to pieces. The Bush administration had a very unusual perspective on what that agency was supposed to do. And it desperately needs to be brought up to speed to be able to rapidly assess that scene safety and it cannot do that right now. We need new leadership and we need the scientists brought back in. Actually, if you don't mind, while I'm mentioning scientists, one of the most exciting things we've seen with this outbreak of H1N1 is how fast the science has happened and how internationally cooperative it has been. It gives me goose bumps because I just, you know, having been in epidemic after epidemic after epidemic over my career I've never seen anything move this fast. Within eight days we had online published the genetic sequence of this virus, comparative analysis of how this one was related and unrelated to other known circulating flu viruses. We knew its susceptibility and non-susceptibility to all the available drugs for treatment. And we had electron microscope scanning and transmission microscope pictures of it. And it's been totally public. There's nobody hoarding information, as often happened in the past in the scientific community and fantastically transparent and fast, very exciting. TRAUB: Sir. QUESTIONER: As long as there are scientists who are working so hard on this and both on the vaccine but also on, I suppose, how the virus works, it seems to me there will be bad people exposed and that bioterrorism is a threat. Would you comment? You did a little bit. Would you comment further on that? TRAUB: Could you, by the way, also -- I forgot to ask you, would you just add your name and affiliation? QUESTIONER: My name is Gordon Aamoth from the Robina Foundation, Minneapolis. TRAUB: Thank you. GARRETT: When the Clinton administration was in that was the first time we had a real serious reassessment post Cold War of the probability of any given microbe being used as a bioterrorism agent. And a list was promulgated of about 26 key microbes that were thought to potentially -- and toxins -- thought to potentially be used as biological terrorism weapons. Influenza was not originally on the list because it is so hard to make vaccine that it was though, man, this would be like thermonuclear war. You would just infect the entire planet, including your own people, and it would obliterate them. And we really hadn't thought, in those days of discussion about bioterrorism, that there was any entity out there so crazy that they would want to obliterate everybody including their own. After 9/11 we started rethinking that premise but I don't think that anyone has demonstrated, despite Dick Cheney's insistence to the contrary, that Al Qaeda has, you know, biohazard level four laboratories in Torra Bora that are equipped to produce new novel organisms for mass distribution. Influenza, the bird flu, was indeed put on the CDC's list of potential bioterrorism organisms. I don't really know why that was done. I don't fully understand that because I don't see that there's any, again, any unique way that you could discretely mass produce a vaccine, given how tedious it is and difficult it is to make flu vaccine, in order to protect your own and then release the organism. I would say of the list of potential bioterrorist organisms at this time, flu would rank very low if not -- I'm not even sure I would see it as on any immediate timetable on anybody's list. One of the often discussed possibilities was the use of flu basically to kill livestock. So you would introduce a contaminated animal into a rival country's livestock. The problem is that containment is just not a reality, especially if you're going to birds, chickens or what have you. And it's just very hard to understand how any scientist capable of making such an agent would be stupid enough to believe that it could be contained within a nation or a geographic zone discretely. TRAUB: We have time for one last question. Sir, and please, again, state your name and affiliation. QUESTIONER: Herbert Levin. Since I live next door I come to a lot of events and I would say that you have -- the socks are the most interesting I've seen on any event here. TRAUB: Glad I've had some kind of contribution to the event. QUESTIONER: What about the pigs? We were told early on don't bother the pigs, they're fine, and go eat your pork chops. And then we got some other things. And, of course, in Egypt and Jordan they killed the pigs because they don't eat them, only the Christians do. So tell us about the pigs, please. GARRETT: Well there's no doubt that this virus has been circulating in North American pigs for a long time in one form or another. It has evolved literally in the pig populations. I just have to say as a side -- when I used to give talks about bird flu inevitably somebody in the audience would ask me what's the probability that this virus is going to become a human to human transmitter in the next, and then they'd say year, five years, whatever. And I would say, well, if you're the president of the United States, this is when George Bush was president, and you're asking me that question I would have to say, Mr. President, I can't answer it for you because you don't believe in evolution. And, you know, it's funny but it's true. You have to understand we're looking at an evolutionary process and it has been evolving in pigs. So the insane messages from certain governments have to do with that somehow eating pig meat that's been cooked is dangerous. That is not true. This virus will fall apart when exposed to heat, no problem. And there's absolutely no evidence that anybody ever got flu from eating, you know, pork sausage. And frankly, because we all know that trichinosis is a problem with pig meat we cook pork considerably before eating it. However, we do have a problem with the pig population and the circulation and the permissive environment for evolution of these viruses, of influenza. And we need to seriously look at how we raise pigs, how we monitor them, how we survey it. This comes to another global governance question because the same has been true with the chickens since the beginning of the bird flu situation and we've never really come up with a good answer. We've gone in and slaughtered hundreds of thousands of chickens in a given area and it stopped transmission for some period of time but the next year the virus is back again. Do you just keep slaughtering those chickens? Well, of course, what happens is if it's an area where the farmer is poor and the farm community is poor they will start hiding their sicker animals and not turning them in and not notifying government, even if family members get sick. And we now see that to be the case with bird flu in Egypt very definitely which turns this whole Egyptian slaughter of 300,000 pigs on its head because they've never slaughtered the chickens in Egypt. And they do have bird flu and they don't have swine flu. So that's a clear case of using --(inaudible)-- for political purposes. But we need to figure out how to survey the pig populations and all the sort of industrial scale livestock operations all over the world, without it being perceived by the industry as a direct attack on their livelihood. The pork industry is in a defensive posture right now in this country. They're very PR conscious. They're not eager to have outside investigators sniffing around testing their pigs. We have to figure out a way that the industry continues to feel that they can turn their profits and they don't hide infections and they do allow inspections and we have some barriers put up between these various populations of birds, pigs, and humans that can be hosts for this virus influenza. TRAUB: Alright. Well, thank you very much, Laurie. That was incredibly educational and I really thank you very much. I know that Stewart Patrick, who has organized this entire extravaganza, wanted to say some last words so, Stewart. (Applause) STEWART PATRICK: First of all, I don't know if this is on but you can probably hear me anyway. I want to say how great it was to have you here, Dr. --(inaudible). I know that there are a lot of other temptations on a sunny Friday afternoon. Jim Traub, in addition to being a fabulous journalist and an excellent moderator is quickly becoming one of the go-to guys on global governance. I spent a couple of days in Paris with him on this very subject last week. And Laurie Garrett, I can't say enough for what a wonderful colleague she is and how she's helped put the global public health agenda on, not just the Council's agenda, but on the world agenda. So it's absolutely fabulous to be able to collaborate together. We've obviously had an incredibly rich discussion over the last day and a half or so. And, you know, the five different issue areas that we talked about are very different and the challenges are quite different. You know, for the nonproliferation treaty regime we're talking about how to update and close loopholes in a regime which -- in which country's itself -- excuse me -- a prohibition regime which has a lot of contradictions within itself and how to update that to the threats that we find. In the second session on climate change, we're basically talking about they're dealing with externalities that are created by globalization and these consequences are obviously very unevenly distributed where the burden of adjustment is going to be different depending on what part of the world you live in. For international finance it was how do we end up managing global interdependence in a way that preserves our prosperity, not just dealing with the crisis as we find it but actually dealing with and updating some of the structures that we have to reflect major changes in the global distribution of power. For international law the challenge is how do we update our rules and norms to deal with new threats and also to bring perpetrators of mass atrocities to injustice? And then today, obviously, or in the most recently in this last session, we heard about how -- what are the challenges to try to grapple with global public health emergencies and what's the balance between domestic and international? I won't attempt in this stage to go through the entire list of lessons that have emerged from these five sessions -- six sessions actually if you include the one last night -- but just will try to telegraph just a few things that seem to be emerging as a result as broad themes. One of the things we heard today, well all the sessions, was that U.S. leadership is critical. It's not always going to be sufficient but whether or not one accepts that we live in an age of non-polarity it's often going to be necessary. Another thing that we heard was that solution sets are going to require major players that we haven't in the past incorporated. Regardless, for instance, if you look across the issue areas whether you're talking about disease, whether or not you're talking about climate, whether you're talking the global economy, trying to bring the bricks in, particularly China and as well an India is going to be huge. And then a third one, and I'll leave it at this, I have many more but it's getting late, is that international problems are too complicated to rely on single formats. To some degree we still live in a UN centered world but, as we've discovered, many of the challenges that we face require some nimbleness and some issue specific groupings. And one of the major challenges is how we marry what is on the one hand this desire for flexibility and multi multilateralism or variable geometry, if you will, with the necessity for also bolstering the universal organizations that have the standing and capacity and the international legitimacy that we're going to need over the long haul. And that's going to be one of the ongoing themes, among many others, that we're going to be focusing on. At this stage the time has come simply to say thank you and I just do want to identify a few folks. Once again, I want to begin by thanking the Robina Foundation and thank you, Gordon, for being here. This would not be possible, to say the least, the entire program was really, is 100 percent funded at this stage by the Robina Foundation and we have been enormously grateful to that support and we look forward to continuing to work with you in the years ahead. I also want to express my heartfelt thanks to the panelists who participated in this event. Really superb, top-notch panelist including several colleagues including Laurie Richards, just a fantastic -- Particularly grateful to the meetings department, Nancy Bidertha (sp), --(inaudible)-- did just a superb job in organizing this. And then finally, my own colleagues in International Institutions and Global Governance program, Casey Brown, Farrah Fizel (sp), and Alex Noyes. So, thank you all very much. You know, keep looking at our website, please check it out. We're going to get a lot more bells and whistles soon, including something that Richard described yesterday in the global governance monitor, which is going to be a big effort to survey what global governance arrangements exists out there across about 10 to 12 different issue areas. We're getting a lot of input from our Council colleagues on that. And I think it's going to be an exciting thing, including some mini-documentaries and things like that. But I -- this conference definitely lived up to my expectations and a lot of it had to do with also the participation of the audience and the wonderful questions that you asked. So anyway, thank you very much. (Applause) (C) COPYRIGHT 2009, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE. NW; 5TH FLOOR; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL CARINA NYBERG AT 202-347-1400. THIS IS A RUSH TRANSCRIPT. ------------------------- JAMES TRAUB: (In progress) -- is Laurie Garrett. And now my microphone is on. Welcome to the third session. Let me put my spectacles on so I can read this -- MS. : (Off mike.) TRAUB: The sixth session -- this is a misprint -- the sixth session of the CFR conference on the United States and the future of global governance. This session is entitled "H1N1: The Global Response to the Swine Influenza." Of course, you all know by now, turn off -- don't put on mute or vibrate or anything like that -- turn off all together your cell phones. And this meeting is on-the-record. One thing I probably should explain in advance is that I've noticed in the previous sessions I've been sitting in on that the moderator has been at least as knowledgeable as the person he or she is interviewing. This will be different. (Scattered laughter.) Laurie, fortunately, is supremely knowledgeable about the subject, I have agreed to be thrown in to the breech. So please excuse my ignorance in advance but at least that way I can be a kind of tribune for the ignorance of which ever ones of you don't have deep knowledge of the subject. Now Laurie Garrett, as perhaps you all know, is -- has been a fellow here at the Council since 2004. Before that, for many, many years Laurie was a journalist and she won every award that it is possible for a journalist to win, which, I guess, is why she finally stopped because she had already achieved everything. She has written several best-selling books, I'll just mention two. "The Coming Plague: Newly Emerging Diseases in a World Out of Balance"; and "Betrayal of Trust: The Collapse of Global Public Health." Most recently Laurie authored this really compelling cover story in Newsweek. So it is still, I believe, on the stands and it is available to one and all. So, let me begin, Laurie, by asking you a dumb question, which is that as of today there have been a little over 2,300 cases of swine flu resulting in 48 fatalities. LAURIE GARRETT: Identified cases. TRAUB: Identified cases, resulting in 48 identified fatalities. So you might think, well, why are we having a meeting on it here at the Council on Foreign Relations? That doesn't sound like a pandemic. But it is a pandemic. So could you explain that to us? GARRETT: This is a new organism. It emerged in a manner that had not previously been seen or chronicled. It definitely was a pig virus here in North America, in the United States, that through means not yet fully elucidated made its way to Mexico and emerged in human populations in Mexico. After having caused -- depending on what the ultimate genetic sequencing tells us, five or six isolated infections in the United States before that never really went human to human. So individuals acquired it from a pig, from exposure to pigs, but did not pass it on until it gets to Mexico. The timetable is very fast and the response was very fast. And the reason we're worried about this is because this particular one, because it had long been believed that pigs serve as genetic mixing vessels -- that's the term that's used -- for recombination of flu viruses, allowing viruses to swap and exchange genetic information that they've gathered from infecting birds, from infecting humans, from infecting pigs and other species. And thereby, the virus becomes potentially more dangerous and can take on the capacity to truly cause something like the 1918 influenza which killed 100 million people. So we want to really keep close tabs on any newly emerging flu strains that seem to have unusual characteristics. TRAUB: Could you just briefly explain -- you call it -- it's called a triple re-assorted virus. Could you just briefly explain what that means? GARRETT: This particular H1N1 flu, as it's called, for hemagglutinin type one and neuraminidase type one flu, has within it genetic information that it has gathered over the years, not just suddenly but over the years, from wild birds, so flu strains that were in wild birds, from pigs, mostly North American pig populations, domestic pigs, and from pigs in the Eurasian region, so a type of flu genetic information that had been circulating in pigs and -- as far east as Thailand and Vietnam, and then human H1N1 components. And so it had three different species' contribution and at least four different geographic areas of circulation of flu contributed. And the virus itself, when it reproduces, falls apart. That's what flu does; it really falls apart as a virus. It doesn't have real strong chromosomes as we do. And when it does this sort of falling apart it picks up, not only in making copies of itself, not only the appropriate RNA genetic material, but also whatever else is in the environment it has fallen apart in. So if it falls apart in a pig cell it picks up some pig genetic information. If it falls apart in a chicken cell we get some chicken and in a human cell some human. And this virus shows evidence of all of that, the ultimate gamish -- (sp). So -- TRAUB: There you have it. So the underlying causal phenomena of a virus like that, does this have to do with far greater human mobility such that these viruses are moving around much faster than before? Does it have to do with the way pigs are farmed, in massive densely clustered areas as opposed to the way they were before, or what? GARRETT: Well this particular H1N1 seems to have taken advantage of growing in environments of industrial pig operations in the United States. The hallmark of industrial pig operations is that you have hundreds of pigs packed right next to one another. It's a little bit like saying if I light a match at the edge of a very diverse forest, I may or may not start a fire or it might burn one tree and then it hits a really green tree and the fire sputters out. But if I light a match at the edge of a forest that is entirely uniform, all the trees are the same amount of dryness, they're the same type of tree. And if it's going to catch one it's likely to go burning all the way through. And when you have -- we've known for years with agriculture that when you farm in these giant farming operations where you have several thousand acres of the same type of corn, pests take advantage of that kind of environment and they easily acquire resistance to pesticides and they easily acquire resistance to anything else you throw their way and they go right through. TRAUB: Now don't we -- GARRETT: They're doing the same thing now with animals. TRAUB: -- but now don't we respond to that by jamming pigs full of antibiotics? GARRETT: Antibiotics have nothing to do with viruses, number one. And number two, yes -- TRAUB: I said I was ignorant. GARRETT: -- yes, we jam them full of antibiotics and we do that as growth promoters, not because they're sick and not to prevent sickness but because, for reasons never fully figured out but probably related to -- commensal species of beneficial bacteria in their guts not clear, if you medicate regularly livestock with antibiotics they will be about 4 (percent) to 5 percent bigger at time of slaughter than if you don't medicate them. So all across the United States in the livestock industry, whether it's aquaculture or chickens or pigs, we use antibiotics quite liberally and I think quite unwisely. And we know that it does indeed promote resistance, it does indeed promote the emergence of strains of salmonella and staphylococcus and so on that are drug resistant. And they do indeed transmit to people. And it has helped to render many of our antibiotics useless. TRAUB: So -- so long as we engage in this kind of mass farming we're going to be dealing with these kinds of outbreaks, the one is directly causing the other. GARRETT: But there's another piece to this puzzle. You could've had an -- and we have had for at least 20 years the occasional case of flu transmitted to some kid who's working on a pig farm, but that's the end of it. But another event happened here and we don't know exactly what it was that made this turn in to a rapid human-to-human transmitter and we need to figure that out because knowing that answer is important for future potential outbreaks, especially one way more lethal than this H1N1 strain. The other -- the piece of it that our federal officials have, I think wisely not said out loud that I will say out loud -- and they've not said out loud for fairly obvious political reasons -- is that if you look at the sort of chronology of the outbreaks leading up to the big one in Mexico, this does seem to be a relationship to migrant farm labor. And obviously certain people in this country have made it part of their political agenda to try and shut down the border of Mexico. And we've seen them try to use this flu issue to say, yeah, we should've shut that border to Mexico. So our federal officials have been very reluctant to say out loud that there does appear, it's not a coincidence, it was Imperial County, California, an agricultural county, Guadalupe County in Texas, all of these agricultural counties with very large migrant labor forces. And of course, migrant labor is the backbone of servicing our pork industry, our chicken industry and so on. TRAUB: So it's just as truckers, for example, are a key transmission belt for AIDS, migrant workers are a transmission belt for these kinds of outbreaks. GARRETT: At least in this case that does appear to be the case. TRAUB: Yeah. So let's talk a little bit about the response to it. Is the fact that there have been so far a very small number of deaths, is that simply because it is not a terribly lethal strain or does that say something about a relatively effective global response? GARRETT: I think it's several things. I mean, one, we know the genetic analysis of this strain shows us that, thankfully, it does not have the key genes that we know the 1918 flu virus had that made it just super killer. TRAUB: That's just good luck. It happens not to have that. GARRETT: That's fantastic luck. And, thankfully, that is the case. The second thing is that we didn't know early on -- when it looked like we had a big, very lethal problem in Mexico, I was saying over and over again we don't know the denominator. You can't say this is very lethal, you say perhaps 100 deaths, if you don't know is it 100 out of 10,000 infected, 100 out of 1 million infected? You have no denominator to judge. We still don't know because we don't have rapid diagnostics where we can just go out and have people lick a stick and it changes color and you say, ah, that's an H1N1 person. You were infected. You didn't know it. You felt fine. Maybe you had a headache, whatever. We don't have mass screening technology like that. We need it. We should have it. There certainly have been fantastic developments come out of laboratories in academia that could take us there but it's just never gotten off the ground industrially. TRAUB: So, in other words, the countries where a lot of these things are originating, which obviously have poor public health systems, they're the ones who would have to have it. GARRETT: Well, and Mexico was dependent on our country, the CDC, to develop a basic diagnostic that could be done, not rapidly but in a laboratory setting that would discriminate this particular flu from all other flus that are in circulation in the world right now. And that slowed them down because they were waiting for the CDC and then they had to be able to replicate it and be able to do it on a large scale. So early on, where there was a great deal of concern since we didn't know the denominator the two things that were very worrying was it looked like a lot of dead and a lot of sick. We now know many of those weren't actually H1N1 flu. And secondly, they were young people. And that continues to be a big worry. That continues to be a big mystery and worry piece in this whole situation is that, both in the United States and especially in Mexico, the majority of identified infections, hospitalizations and deaths have all been people under 35 years of age. And the reason we're worried about that is twofold; one, that's rare with flu. Typically flu is causing serious illness and death in children under 2 years of age and in adults over 70, 75 years of age. TRAUB: If they have either compromised or immature immune systems. GARRETT: Exactly. But in this case we're looking at the healthiest age group, with the most robust immune systems, and they're the ones the sickest. And this is very worrying because that was indeed seen with the 1918 flu and it was seen with SARS, to some degree, that a lot of the spread was going on in otherwise extremely healthy people. TRAUB: So now to get back to the question of the response. I mean, at least one thing I've read said, well, if you look at the quality of the global response now as opposed to SARS, which was in 2003, it actually has been far more coordinated and far more effective and we should at least feel some sense of relief about that. Is that a fair conclusion? If so, what is it that we have learned since then that has now been put into practice? GARRETT: Well actually, I didn't finish your prior question answer, which leads directly to this -- TRAUB: Oh, okay. All right. GARRETT: -- which was the third thing that could explain why this appears to be a less dangerous flu than we initially thought, is that we should all stand up and scream gracias Mexico because the Mexican people and the Mexican government have sacrificed on a level that I'm not sure as Americans we would be prepared to do in the exact same circumstances. They shut down their schools. They shut down businesses, restaurants, churches, sporting events. They basically paralyzed their own economy. They've suffered billions of dollars in financial losses still being tallied up, and thereby really brought transmission to a halt. What we want to do now -- and Dick Garwin is here, he had done from a couple of years back -- two years ago, was it? The masks -- asked the question, do we really know what kind of masks work when you're dealing with a pandemic and can you reuse them and do you really need these big fancy N95 ones, or what about those dime store masks? One of the things that's going to be very interesting to study with Mexico is how effective were those masks that the army mass distributed all over Mexico City and in every other major city in the country. If they had any benefit, I assume it was, what I saw with SARS and masks in China -- where people used just about anything as a mask, nothing that should have worked as far as actually blocking a virus -- is that they alarm the person coming towards you. And when -- TRAUB: So keep your distance. GARRETT: Yes. And, in fact, I've already taken a bunch of photographs of a rush-hour Mexico City subway and done comparative analysis and just my totally crude analysis shows a great deal more spacing and you see a lot of people side-glancing. They're looking to see where's the other guy when they have the masks on. And if you take the same subway stations and look at the photograph, everybody's just jammed right in. It looks like New York. And you can't help but wonder how we would respond here under the exact same circumstance. TRAUB: Yeah. But not only that, I mean, in addition, the consequence of the self-sacrifice, as you said, is a loss of, estimated now, at 0.3 (percent) to 0.5 percent of GDP. Politically it may turn out to be a catastrophe for the president, not clear yet. And so if you're trying to design a response that you would be able to repeat in future, colossal self-sacrifice followed by economic and political harm is not the way you'd go about it. So what's the -- is there an answer to that? That is, what ought -- and, of course, the backlash against Mexican tourists, travelers and so on. So what can one do in order to encourage as opposed to discourage the kind of behavior which you've just described? GARRETT: Well, I think it's a really important question because much of the world will look and say what did Mexico get for all of this? They sacrificed an immense amount. And you're absolutely right, you're already seeing a backlash inside Mexico against Calderon. The left in Mexico is charging all of this was a giant conspiratorial cover-up and they were trying to create a diversion to keep the people of Mexico from noticing the narco-trafficker problem, as if that were possible. And there've already been protest demonstrations in Mexico against Calderon, specifically around influenza. So there's going to be a big price. If I'm the rest of the world and countries that are likely to pay a price with emerging diseases I will ask, am I prepared to do, you know, what Mexico did and what reward does Mexico get? If you look at China, you know, China chose to do the exact opposite in 2003 with SARS. They covered it up. For six months they lied while it circulated inside China and then spread outward. So when this happens how does China respond? Well, they quarantine an entire planeload of people based on one suspect case and hold -- and they're all Mexican, or travelling from Mexico. They issue masks. You have a sense of alarm. And you had a repeat that signaled memory to Hong Kong 2003, the Hotel Metropole, where a single individual from Guangjiao, who had been exposed to SARS, knew there was something new and dangerous that was being covered up, fled to Hong Kong to try to get away from it and was, in fact, infected, stayed on the ninth floor of the Hotel Metropole and through means still not yet fully elucidated biologically, somehow transmitted to 12 strangers on that floor, two of whom flew to Toronto, took SARS. One flew to Hanoi, took SARS. Two went to Singapore, took SARS. To Beijing, took SARS. TRAUB: It's like an epidemiological nightmare. GARRETT: Exactly. So how does China respond this time? There's one suspect case in a hotel in Hong Kong. They quarantined the whole darn hotel immediately and only two days ago allowed the Mexicans to fly back to Mexico where they're greeted wearing masks by an unmasked first lady who shakes all their hands. (Scattered laughter.) TRAUB: So -- okay, so we've now described a -- essentially a kind of sovereign reaction to this global threat. And so then, I guess, the global governance question about this is given that this actually winds up quite intensely implicating sovereign issues and that for centuries people have been quarantining, blockading, and so forth -- it's the immediate reaction to this kind of threat -- what ought we be doing to overcome that otherwise not terribly surprising but quite dangerous reaction? How can this be better coordinated than it is being now? Or can it be? GARRETT: Well, first thing we have to do is really see this as a case study and analyze it in great detail so that we really understand which countries did which actions, what worked, what didn't work. Did Mexico over-respond or did they, in fact, stop the transmission and limit the ability of the virus to better adapt to our species? Did they buy the world some time by taking such drastic actions? I think, just by way of example, most people in the field would agree now that in 1997 when the H5N1 bird flu jumped from mainland China to Hong Kong and caused, I believe it was, six human infections, Hong Kong responded by slaughtering every single chicken in Hong Kong, a phenomenal and expensive, both politically and financially expensive action. And I think most people in the field would say Hong Kong bought us all a bunch of time. They bought the world time with that virus. It stopped a certain cycle, boom, and, in fact, the virus kind of retreated from visibility until 2005. It was slightly circulating. You hear of the occasional outbreak but it's not until 2005 that we get this explosive situation in birds and in humans all across Asia with that virus. So we want real detailed analysis, a case analysis. I also think part of that is going to be really looking at WHO carefully. What have they done right and wrong? I think WHO was very slow to issue a -- there is no rationale -- they finally said it only on Monday this week, there is no rationale for travel restrictions. They should have said that well before this time. And they certainly should've come down hard on China for overreacting by quarantining all these people. It sends a very bad signal to the rest of the world. If you're open and honest that you have an epidemic your nationals travelling all over the world are going to be quarantined and isolated and all of that. And again, it would dissuade the kind of transparency that we absolutely need as a global community to protect all of us from disease. The other thing that I know is going to be assessed because it's already all over buzzing in the internet world of public health, global health people. Coming out in 2005 the World Health Assembly, which is the legislative body of WHO -- WHO is kind of unique among all UN agencies in that it actually has like a congress with every country having one vote. So Vanuatu and China have equal vote. Not proportional representation. TRAUB: Must be a tremendously effective body. GARRETT: It actually is remarkable how well it works given 194 bickering nations. But this is an example where it didn't work. In 2005 the World Health Assembly said, alright, we're going to take pandemics seriously. We've learned from SARS and from bird flu. We better get our act together. So let's set up a pandemic threat system. And we'll set criteria for telling the whole world we're at pandemic level one, pandemic level two and the biggest one is pandemic six. The problem -- and so we're now officially at pandemic level five with this H1N1 -- the problem is the system they could all politically agree to, the criteria for bumping up from one to another has nothing to do with the severity or danger of the microbe. It's just about geographic spread. So a totally benign microorganism that is newly recognized, theoretically, could result in a pandemic six threat from WHO, which has absolutely no relevance to whether or not any of you in this room are potentially in danger when exposed to it. And so here we are in this awkward situation where based on the criteria set out for this pandemic threat system, we actually should now be at pandemic six, the highest possible level, because what it says is do you have sustained transmission in two geographic regions of the world. Well, we have sustained transmission in Spain and we have sustained transmission in North America. So we should be at pandemic six. But what we have seen is as they bumped it to five the stock market went berserk, the sale of everything to do with travel -- oil, airlines, hotels -- everything tanked and the only reason the whole market didn't look like it went down was that that was offset by a spike in all the pharmaceutical and biotech stocks. So it balanced it out. So there's prices to be paid with these systems and we really need to figure this out and make it better, relevant to real problems. TRAUB: But even what you've just said described, I mean, this morning for example, the problem we were talking about was nonproliferation. Now -- in some ways a kind of metaphorically at least similar threat. What you've just been describing is a so far not terribly well put together system of monitoring and surveillance. But that doesn't even go to issues of enforcement, for example. And so if we're now -- if we now believe that we're in a world where drug resistant diseases and pandemics of this sort, for various reasons, may become more frequent or perhaps even more lethal and perhaps even more difficult to deal with then doesn't -- does that also say that the whole institutional structure we have right not only is not effective enough at what it does, in the way that you've just described, but perhaps also not at all comprehensive enough in regard to the threat that it's meant to deal with? GARRETT: Oh absolutely. Let me put it to you this way; the virus -- what will now happen, what's going to be the next stages just with this H1N1 and how does this governance structure, if we can even be generous enough to call it a structure, respond? Alright, so if this goes according to normal flu patterns the virus will now head to the Southern Hemisphere and circulate in their winter through humans, pigs, birds, wherever it finds a welcome home and infect cells that it's capable of infecting in those targeted animals -- we're an animal in this equation. And then if it does not just simply die out because somehow in the Southern Hemisphere it fails to find adequate places to reproduce and spread, transmit, which I cannot quite imagine, it will return here in the fall. And we will some time in September or October start to see the evidence that H1N1A is in North America, possibly in Europe, widely circulating in the Northern Hemisphere. So here's the decision point. You're Margaret Chan, Director General of WHO in Geneva, you're Bruce Gellin, who happens to be in charge of all vaccine decisions for our government sitting inside HHS. You have a brand new HHS secretary, she doesn't even know who Margaret Chan is, okay, she just walked in the door. So, you're Bruce Gellin and you have to decide and Margaret Chan and her team have to decide what are we all going to do about vaccines for next fall? So here's your options. Number one, you can say abandon all prior decisions, focus on this virus. Make all vaccine production machinery geared to the H1N1 and let's make sure was have as much as we can possibly make, which turns out to only be 400 million doses for a planet of 6-and-a-half billion humans because we make them on chicken eggs and they're hard to make and you have to have sterile conditions, very hygienic conditions or you easily get contamination and we've certainly had contamination events in the past with flu virus production, vaccine production. Alright, so first problem is you can only make 400 million doses. And between now and September you really can't make multiple vaccines, you've got to make a decision. So if you decide you're doing H1N1 then -- and seasonal flu comes around and it's a nasty regular seasonal flu -- you risk 36,000 American's dying, as typically -- or 36,000 people dying of seasonal flu because you didn't have a vaccine for them. Option two; this H1N1 doesn't look as lethal as we thought it was. We're going to gamble that it won't undergo any re-assortment event or mutational event that's advantageous to the virus and proves to be more dangerous to humans. As it travels around the Southern Hemisphere this next few months -- TRAUB: You should add, by the way, that there already is a variant, as I understand from your article, which is resistant to the principle that occasional -- (Cross talk.) GARRETT: Right, if we -- if it had a recombination event with the circulating other H1N1 strain that's drug resistant, resists Tamiflu treatment, then we would end up with this potential pandemic strain also being drug resistant. So you could make that gamble or you could say, look, I don't think that's a dangerous one. I think it's going to peter out so let's focus on the seasonal vaccine. Or, you could say, can we figure out a way really fast to mix them and make a vaccine that's got some of the seasonal component and this new one and get it out, rush it out the door and encourage everybody to get vaccinated. But now here's the kicker. So you've got 400 million doses and the rest of the world says, hey, what about us? What's with you guys? You get vaccinated and the rest of us are screwed? Here comes the pandemic, you've got a few months to get your act together and there's nothing for us? Why should we cooperate? And that's precisely what Indonesia has said. So Indonesia happens to be the center now of all the troublesome circulation of the bird flu virus and most of the human cases and even some cases of human-to-human transmission but in very, fortunately, intimate settings of the virus. And they have refused to share any of their bird flu samples with WHO or any other entity since 2006. TRAUB: For which you said the expression is viral sovereignty. GARRETT: They've declared viral sovereignty. TRAUB: Really it's kind of a, kind of appalling -- it's sort of a last most baroque efflorescence of this idea of sovereignty in its -- I guess its feverish form. GARRETT: And in and -- yeah -- so -- and their rationale is, if we share it you'll make vaccine against it but we'll never get that vaccine, it'll go for your people. And then you'll come to us and say, you have to give us a bunch of money and then maybe we'll let you have vaccine for your own people made from something that circulated in your country. It's a horrible situation with Indonesia. They're even trying to close down NAMRU-2, which is a big medical research lab run by our navy that's been in Jakarta since the 70s on the grounds that it's a biological warfare center and that they may have even made this flu just to try and hook poor countries on buying medical products from the wealthy west. TRAUB: So -- but you haven't even -- in a way, what you've been describing is not so much an architecture in the sense that we've been describing an architecture for climate change, nonproliferation. It's obviously quite a scanty architecture in compared to -- compared to sovereign national decisions. But just so that we can get a clearer idea what the structure is -- we had just spoken right before we got on about this idea of an H1, which you were very much involved with creating, which involved the eight major -- GARRETT: The H8. TRAUB: -- I'm sorry, the eight major health organizations. So just quickly so we have a sense of what it is we're talking about beyond WHO, and we're talking about the structure, what is that and maybe kind of quickly before we open this to others, what ought it be? GARRETT: Well, one problem that we see with the whole global health architecture is that there are too many players and they're not coordinated. And just in the last eight years we've seen a whole bunch of new giant players, multibillion dollar, well-funded ones like the global fund to fight AIDS, Tuberculosis and Malaria, or GAVI, which is the vaccine initiative. And then you have a whole bunch of UN agencies that have overlapping jurisdiction. UNICEF does child vaccination. WHO is supposed to be the main one. But then you also have the world banks funding global health programs and setting agendas and it goes on and on and on. So the secretary-general, Ban Ki-moon, signaled that he really saw one of the big issues on his agenda trying to bring some coherence to this mess, trying to get all these different pieces coordinated and talking to each other. And here at the Council we were directly involved in that effort on behalf of the secretary-general's office. And what has evolved is this thing called the H8, the Health Eight, and it's the eight key international agencies -- WHO, UNICEF, UNFPA, Global Fund, GAVI, World Bank -- help me Kim -- Gates Foundation and UNICEF, or UNESCO. Who did I leave out? TRAUB: Okay, you got at least seven anyway. GARRETT: The point is it's totally informal. It has no actual power but its sort of the second tier of management right under the directors are supposed to be in constant communication. The main thing it has done that's positive is that we no longer have UN agencies putting out opposing and different policy statements on key health issues. At least, you know, they've thrashed it out before it goes public and they sort of are on the same page. But in terms of as an apparatus that makes decisions about financing and moving priorities and so on, it's not that sophisticated. TRAUB: So compared to the other subjects we're talking about, it sounds like public health is actually, I suppose, a kind of under-institutionalized sphere, which actually, given the kinds of dangers we're talking about needs more fully articulated, better coordinated, maybe more enforcement equipped institutions than exist now. Is that your sense? GARRETT: Well I would agree with that. I would go a step further and say, look, one of the things we know -- and here's back to why were we worried about this flu -- we know that viruses are very dangerous to our species when they jump from another species, when they first make that leap. SARS had been a bat virus. It makes it into civets and then to humans and it hasn't toned down. It's a very virulent organism at that time. And we believe in 1918 the same thing happened. The virus had just jumped basically from birds into people and was quite virulent at that moment in its biological history. So if we're really serious about protecting humanity we need to better integrate the sort of veterinary side, the animal and wildlife side, of our surveillance, our investigation, our monitoring and our response with the public health side. But what we've seen is that these two communities have a really hard time being on the same page. In 1999, when we had a mystery virus emerge here in New York City and we had eight encephalitis cases in the same hospital in Queens, that sent an alarm button to our public health people. But when the head pathologist at the Bronx Zoo was saying, but I've got exotic birds dying by the bucketful. I've got a huge problem here. Birds all over the zoo from all over the world are dying of something and they're showing seizures and responses that are indicative of encephalitis. I think it may be the same virus. The attitude of the public health people was, shut up. Who cares about dead birds at the zoo? And meanwhile, you had veterinarians out on Long Island saying, we've seen horses that are dying and they're having encephalitis. And again, the public health response is, what has that got to do with us? Well, we learned too late from west Nile that we should've been paying attention to a virus that HAD emerged newly to North America from Africa, never been, as far as we know, on our continent before, and then had found many happy homes. It had found that -- you know, the majority of our bird population, songbirds to crows, were happy homes, that humans were happy homes, horses were happy homes and it's now spread all over North America. We need to better integrate things like our food and agriculture organization, OIE, which is the animal health organization and all of these things in a much better, smoother orchestrated governance. And frankly, what the -- as he was leaving, Ban Ki-moon did was to designate one person, one individual to coordinate everything and to run back and forth on behalf of the secretary general following bird flu between this agency, that agency, this minister of Agriculture, this minister of Health. I mean, the guy's super human but come on, one guy? TRAUB: So there is no one such one. Ought there not be one person or no? GARRETT: There should be -- one person can't do it. You need a group, a team. I mean, this poor guy never sleeps and he lives on airplanes. TRAUB: So is this the kind of situation, though, in which there ought to be one, in effect, master institution? Or should WHO be a more powerful, more coordinating institution? Or is it rather a matter that we need to have more effective forms of coordination between the bodies that already exist, these eight bodies that you've described. GARRETT: Well, it's complicated. We came out of World War II and set up these institutions that are the United Nations, that are WHO and so on in the late 1940s and early 50s. And we set them up to interact with their counterpart at the country level. So food and agricultural organization talks to ministers of agriculture and deals with the ministries. And WHO deals with the ministries of health and so on and so forth. Well we've partitioned all our national governments in a similarly irrational way from the point of view of biology. I mean, a microorganism doesn't know, oh, I'm being handled by the ministry of agriculture. (Scattered laughter.) I better not infect people. And yet this is -- the problem is bigger than asking is there a global governance umbrella that will bring it all together because we haven't even brought it together inside the United States government. And you get down to cities and states. New York City has had enough brutal experiences with everything from multi drug-resistant TB to West Nile to 9/11 and anthrax that we're better -- we're more likely to have the various pieces of health and veterinary and the environment speaking to each other. But we still have bumps in the road here. You leave New York and you see -- you know, the public health person doesn't even know who the lead veterinarian person is in their region. TRAUB: One last question and then I'll throw it open to questions. President Obama just released his global health plan a couple of days ago. And it was criticized by AIDS activists on the grounds that it scanted AIDS, but others were quite pleased because it talked about infectious diseases and indeed, possibly you'll tell us, was to some extent inflected by the swine flu outbreak. So, from your sense is -- did that represent some important kind of progress? Did it include an understanding of the sort of issues you've talked about or no? GARRETT: Well, the problem right now that we're in with the Obama administration and global health and frankly all foreign assistance efforts, development writ large, is that none of the key positions have been filled in the government. There's nobody running USAID. We're pretty far down the path and we still don't have anybody running it. We just got a name for PEPFAR, the President's Emergency Fund for AIDS Relief. And, you know, we can go across all the tiers of it and there's empty offices and empty seats at the table. So when the president gives an announcement like this, we don't really know how it's going to play out and what it really means. What we do know is he's committed to a six-year, as opposed to congressionally voted authorized five-year PEPFAR II, Emergency Plan for AIDS Relief Type II, if you will. And that program will eat up around 70 percent of all global health spending from the United States of America for the next six years every single year. So HIV gets 70 percent. Now with the other 30 percent we need to see how the various agency appointments are going to drill down and break that apart. But all this is happening against a much bigger background, which is in the House -- of the House Foreign Operations Committee (sic), Congressman Berman is the chair, he's introduced a bill to completely revisit the whole foreign assistance act and rethink what in the world are we doing here because it's a train wreck right now -- it's so confusing it's mindboggling. And John Kerry is running the Foreign Affairs Committee (sic) in the Senate and he's signaled that he's interested in the same effort to try and really fundamentally rethink all of this. And meanwhile, we have a real struggle going on between the State Department, the NSC and the White House over where's the relative power of USAID and who does it answer to? PEPFAR -- does the secretary of State control all of this? And all that's a long way of saying we don't have the backdrop yet of the Obama administration's own approach to these problems, much less an international global scale view of how you're going to organize this. TRAUB: Okay. Well thank you. Let's throw this open to questions. So, Dr. Garwin. QUESTIONER: Dick Garwin, IBM Fellow Emeritus. The workshop we had three years ago looked at some pandemic flu and what could be done with non-pharmaceutical means, so no vaccine, no Tamiflu and so on. And any epidemic propagates by reproduction factor, typically two or three. What Mexico did was to reduce that suddenly, maybe to 0.3 or whatever and then the epidemic dies out. Now the question is what's going to happen now? Even though it's the end of the flu season the virus has difficulty living in wet weather and so on -- in humid weather. As people go back to their usual interactions is it likely that the epidemic will resume in Mexico? And, of course, Mexico can then take moderate measures and kill that again but it's not clear that that's compatible with a functioning society. GARRETT: Well the good news about influenza is that it is a seasonal virus. It doesn't particularly like hot weather. It dehydrates quickly on surfaces if the air temperature is above 90 degrees. And it can't tolerate exposure to ultraviolet light. So in the summer the lights -- the daylight is longer than in the winter so you're more likely to get exposure to UV light on any surface. That reduces the transmission from things like a doorknob that somebody just sneezed on their hands and then turned the doorknob, thank you very much, and now you come over and all of that sort of thing. But what worries me, Dick, is now the virus, if it does follow normal patterns, heading to the Southern Hemisphere, what happens when it hits South Africa, HIV prevalence 25 percent? What happens when it hits Botswana, when it hits Swaziland? When it hits all these places where we have vast pools of individuals who are immunosurpressed and they are in that same age group. See this whole thing of circulating flu and the relationship to HIV, we didn't have to be as worried about it with a normal flu because it's really whacking out people over 70 years old. But now we're seeing a flu that's circulated in under 35-year-old adults, that's you prime HIV populations and we don't know what happens. We do know, and I've pressed our National Institute of Allergies and Infectious Disease director, Tony Fauci, on this quite directly and he concedes that we do have a body of evidence that people who are HIV positive, if they are exposed to influenza and get a whopping case they're more likely to die regardless of age than people who are not HIV positive. And the second piece we know is that people who are on treatment for HIV, so they've -- they may be in Africa but they're some of the lucky minority that have actually been able to obtain anti-retroviral drug treatment, that one of the side effects of that treatment is it makes you more prone to cardiovascular disease in some cases. And so we see that if you are on such drugs and you get exposed to HIV you are statistically more likely to suffer a cardiovascular event, a heart attack, than your peer matched non-HIV positive individual. So the worry I have, and Peter Navario who is also with the Global Health Program here at the Council and has been working in South Africa quite a bit -- we're both very concerned about what's going to happen with this virus as it circulates in Southern Africa. TRAUB: Anyone else? QUESTIONER: Irene Meister, Council member. You mentioned that the work had started on the vaccine but hasn't been decided yet what kind it will be. How much cooperation is there between the different countries working on it? Now, U.S., we know, we hear it on the various radio and television sources. But how much will it be really coordinated and offered to each other to help and to build because one country cannot just produce, in this case, enough to serve the world. GARRETT: Well no country -- all countries combined that make flu vaccine can't make more than 400 million doses combined, that's the combined total. And the United States is the major manufacturer so the bulk of those, around 300 million, are in the US of A and we will preferentially give them to our own people, as will the other countries that make vaccine. This is why, actually, the determination of what vaccine to make each year is a fairly well-oiled machine. It's one of the few things where the governance has been in place for a long time, it's a procedure where from all over the world leaders gather in WHO in Geneva, sift through all available data on what's been circulating most recently in the world and decide which vaccines should be made. And it's literally that WHO controls the seed stock for the vaccines and gives to the pharmaceutical industry and says this is what looks like the priority. Now, on top of that, in rare cases such as 1976 when we had the swine flu scare here in the United States, a country may decide to do extraordinary efforts to make a targeted special vaccine. And that is what is now being debated here in the United States. QUESTIONER: So they're in cooperation but then in that case why we didn't make more? GARRETT: She asked why can't we just make more so 6 billion people can be vaccinated? The problem is you make them on chicken eggs. It's very tedious. It's handmade vaccine. Just think of it that way. And it takes a long time. And we only have so many chicken eggs in the world. And you only have so many that are hygienically sterile in hygienically sterile facilities, handled by people completely suited up so they don't contaminate them because if there's bacteria in there and now you make vaccine you will potentially pass bacterial contamination. Some countries had to give up making flu vaccine because they never could manage to make safe stock. So there is a tremendous amount of research and exciting stuff going on all of a sudden and just since the bird flu scare beginning in 2005 on innovative new ways to make flu vaccine involving technologies that could result in six billion doses in a year. But all of that is still in the pipeline, the R&D pipeline and none of them have yet gone to large scale clinical trials. So there certainly won't be available anytime in the near future. And this is another reason why we were distressed about the foot dragging by the Obama administration on sending Peggy Hamburg's ratification over to Congress. And Congress' foot dragging on bringing her nomination before -- because she was nominated to run the FDA; she's the former health commissioner here in New York City, much admired. And, you know, the FDA is a shambles. It's an agency that's really been allowed to fall to pieces. The Bush administration had a very unusual perspective on what that agency was supposed to do. And it desperately needs to be brought up to speed to be able to rapidly assess that scene safety and it cannot do that right now. We need new leadership and we need the scientists brought back in. Actually, if you don't mind, while I'm mentioning scientists, one of the most exciting things we've seen with this outbreak of H1N1 is how fast the science has happened and how internationally cooperative it has been. It gives me goose bumps because I just, you know, having been in epidemic after epidemic after epidemic over my career I've never seen anything move this fast. Within eight days we had online published the genetic sequence of this virus, comparative analysis of how this one was related and unrelated to other known circulating flu viruses. We knew its susceptibility and non-susceptibility to all the available drugs for treatment. And we had electron microscope scanning and transmission microscope pictures of it. And it's been totally public. There's nobody hoarding information, as often happened in the past in the scientific community and fantastically transparent and fast, very exciting. TRAUB: Sir. QUESTIONER: As long as there are scientists who are working so hard on this and both on the vaccine but also on, I suppose, how the virus works, it seems to me there will be bad people exposed and that bioterrorism is a threat. Would you comment? You did a little bit. Would you comment further on that? TRAUB: Could you, by the way, also -- I forgot to ask you, would you just add your name and affiliation? QUESTIONER: My name is Gordon Aamoth from the Robina Foundation, Minneapolis. TRAUB: Thank you. GARRETT: When the Clinton administration was in that was the first time we had a real serious reassessment post Cold War of the probability of any given microbe being used as a bioterrorism agent. And a list was promulgated of about 26 key microbes that were thought to potentially -- and toxins -- thought to potentially be used as biological terrorism weapons. Influenza was not originally on the list because it is so hard to make vaccine that it was though, man, this would be like thermonuclear war. You would just infect the entire planet, including your own people, and it would obliterate them. And we really hadn't thought, in those days of discussion about bioterrorism, that there was any entity out there so crazy that they would want to obliterate everybody including their own. After 9/11 we started rethinking that premise but I don't think that anyone has demonstrated, despite Dick Cheney's insistence to the contrary, that Al Qaeda has, you know, biohazard level four laboratories in Torra Bora that are equipped to produce new novel organisms for mass distribution. Influenza, the bird flu, was indeed put on the CDC's list of potential bioterrorism organisms. I don't really know why that was done. I don't fully understand that because I don't see that there's any, again, any unique way that you could discretely mass produce a vaccine, given how tedious it is and difficult it is to make flu vaccine, in order to protect your own and then release the organism. I would say of the list of potential bioterrorist organisms at this time, flu would rank very low if not -- I'm not even sure I would see it as on any immediate timetable on anybody's list. One of the often discussed possibilities was the use of flu basically to kill livestock. So you would introduce a contaminated animal into a rival country's livestock. The problem is that containment is just not a reality, especially if you're going to birds, chickens or what have you. And it's just very hard to understand how any scientist capable of making such an agent would be stupid enough to believe that it could be contained within a nation or a geographic zone discretely. TRAUB: We have time for one last question. Sir, and please, again, state your name and affiliation. QUESTIONER: Herbert Levin. Since I live next door I come to a lot of events and I would say that you have -- the socks are the most interesting I've seen on any event here. TRAUB: Glad I've had some kind of contribution to the event. QUESTIONER: What about the pigs? We were told early on don't bother the pigs, they're fine, and go eat your pork chops. And then we got some other things. And, of course, in Egypt and Jordan they killed the pigs because they don't eat them, only the Christians do. So tell us about the pigs, please. GARRETT: Well there's no doubt that this virus has been circulating in North American pigs for a long time in one form or another. It has evolved literally in the pig populations. I just have to say as a side -- when I used to give talks about bird flu inevitably somebody in the audience would ask me what's the probability that this virus is going to become a human to human transmitter in the next, and then they'd say year, five years, whatever. And I would say, well, if you're the president of the United States, this is when George Bush was president, and you're asking me that question I would have to say, Mr. President, I can't answer it for you because you don't believe in evolution. And, you know, it's funny but it's true. You have to understand we're looking at an evolutionary process and it has been evolving in pigs. So the insane messages from certain governments have to do with that somehow eating pig meat that's been cooked is dangerous. That is not true. This virus will fall apart when exposed to heat, no problem. And there's absolutely no evidence that anybody ever got flu from eating, you know, pork sausage. And frankly, because we all know that trichinosis is a problem with pig meat we cook pork considerably before eating it. However, we do have a problem with the pig population and the circulation and the permissive environment for evolution of these viruses, of influenza. And we need to seriously look at how we raise pigs, how we monitor them, how we survey it. This comes to another global governance question because the same has been true with the chickens since the beginning of the bird flu situation and we've never really come up with a good answer. We've gone in and slaughtered hundreds of thousands of chickens in a given area and it stopped transmission for some period of time but the next year the virus is back again. Do you just keep slaughtering those chickens? Well, of course, what happens is if it's an area where the farmer is poor and the farm community is poor they will start hiding their sicker animals and not turning them in and not notifying government, even if family members get sick. And we now see that to be the case with bird flu in Egypt very definitely which turns this whole Egyptian slaughter of 300,000 pigs on its head because they've never slaughtered the chickens in Egypt. And they do have bird flu and they don't have swine flu. So that's a clear case of using --(inaudible)-- for political purposes. But we need to figure out how to survey the pig populations and all the sort of industrial scale livestock operations all over the world, without it being perceived by the industry as a direct attack on their livelihood. The pork industry is in a defensive posture right now in this country. They're very PR conscious. They're not eager to have outside investigators sniffing around testing their pigs. We have to figure out a way that the industry continues to feel that they can turn their profits and they don't hide infections and they do allow inspections and we have some barriers put up between these various populations of birds, pigs, and humans that can be hosts for this virus influenza. TRAUB: Alright. Well, thank you very much, Laurie. That was incredibly educational and I really thank you very much. I know that Stewart Patrick, who has organized this entire extravaganza, wanted to say some last words so, Stewart. (Applause) STEWART PATRICK: First of all, I don't know if this is on but you can probably hear me anyway. I want to say how great it was to have you here, Dr. --(inaudible). I know that there are a lot of other temptations on a sunny Friday afternoon. Jim Traub, in addition to being a fabulous journalist and an excellent moderator is quickly becoming one of the go-to guys on global governance. I spent a couple of days in Paris with him on this very subject last week. And Laurie Garrett, I can't say enough for what a wonderful colleague she is and how she's helped put the global public health agenda on, not just the Council's agenda, but on the world agenda. So it's absolutely fabulous to be able to collaborate together. We've obviously had an incredibly rich discussion over the last day and a half or so. And, you know, the five different issue areas that we talked about are very different and the challenges are quite different. You know, for the nonproliferation treaty regime we're talking about how to update and close loopholes in a regime which -- in which country's itself -- excuse me -- a prohibition regime which has a lot of contradictions within itself and how to update that to the threats that we find. In the second session on climate change, we're basically talking about they're dealing with externalities that are created by globalization and these consequences are obviously very unevenly distributed where the burden of adjustment is going to be different depending on what part of the world you live in. For international finance it was how do we end up managing global interdependence in a way that preserves our prosperity, not just dealing with the crisis as we find it but actually dealing with and updating some of the structures that we have to reflect major changes in the global distribution of power. For international law the challenge is how do we update our rules and norms to deal with new threats and also to bring perpetrators of mass atrocities to injustice? And then today, obviously, or in the most recently in this last session, we heard about how -- what are the challenges to try to grapple with global public health emergencies and what's the balance between domestic and international? I won't attempt in this stage to go through the entire list of lessons that have emerged from these five sessions -- six sessions actually if you include the one last night -- but just will try to telegraph just a few things that seem to be emerging as a result as broad themes. One of the things we heard today, well all the sessions, was that U.S. leadership is critical. It's not always going to be sufficient but whether or not one accepts that we live in an age of non-polarity it's often going to be necessary. Another thing that we heard was that solution sets are going to require major players that we haven't in the past incorporated. Regardless, for instance, if you look across the issue areas whether you're talking about disease, whether or not you're talking about climate, whether you're talking the global economy, trying to bring the bricks in, particularly China and as well an India is going to be huge. And then a third one, and I'll leave it at this, I have many more but it's getting late, is that international problems are too complicated to rely on single formats. To some degree we still live in a UN centered world but, as we've discovered, many of the challenges that we face require some nimbleness and some issue specific groupings. And one of the major challenges is how we marry what is on the one hand this desire for flexibility and multi multilateralism or variable geometry, if you will, with the necessity for also bolstering the universal organizations that have the standing and capacity and the international legitimacy that we're going to need over the long haul. And that's going to be one of the ongoing themes, among many others, that we're going to be focusing on. At this stage the time has come simply to say thank you and I just do want to identify a few folks. Once again, I want to begin by thanking the Robina Foundation and thank you, Gordon, for being here. This would not be possible, to say the least, the entire program was really, is 100 percent funded at this stage by the Robina Foundation and we have been enormously grateful to that support and we look forward to continuing to work with you in the years ahead. I also want to express my heartfelt thanks to the panelists who participated in this event. Really superb, top-notch panelist including several colleagues including Laurie Richards, just a fantastic -- Particularly grateful to the meetings department, Nancy Bidertha (sp), --(inaudible)-- did just a superb job in organizing this. And then finally, my own colleagues in International Institutions and Global Governance program, Casey Brown, Farrah Fizel (sp), and Alex Noyes. So, thank you all very much. You know, keep looking at our website, please check it out. We're going to get a lot more bells and whistles soon, including something that Richard described yesterday in the global governance monitor, which is going to be a big effort to survey what global governance arrangements exists out there across about 10 to 12 different issue areas. We're getting a lot of input from our Council colleagues on that. And I think it's going to be an exciting thing, including some mini-documentaries and things like that. But I -- this conference definitely lived up to my expectations and a lot of it had to do with also the participation of the audience and the wonderful questions that you asked. So anyway, thank you very much. (Applause) (C) COPYRIGHT 2009, FEDERAL NEWS SERVICE, INC., 1000 VERMONT AVE. NW; 5TH FLOOR; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL CARINA NYBERG AT 202-347-1400. THIS IS A RUSH TRANSCRIPT. -------------------------

Watch experts analyze current nuclear nonproliferation agreements, as well as how to address the nuclear ambitions of countries such as India and Iran. This session was part of the CFR conference: The United States and the Future of Global Governance, which was made possible through the generous support of the Robina Foundation.

In Money, Markets, and Sovereignty, Benn Steil and Manuel Hinds present a fascinating intellectual history of monetary nationalism from the ancient world to the present. Today, the authors argue, an unprecedentedly liberal global trade regime operates side by side with the most extreme doctrine of monetary nationalism ever contrived—a situation bound to trigger periodic crises. Join Benn Steil for a discussion of his new book and the implications of monetary nationalism for today’s global economy. For more information on Money, Markets, and Sovereignty, visit: http://yalepress.yale.edu/yupbooks/book.asp?isbn=9780300149241