tv U.S. House of Representatives CSPAN February 10, 2010 5:00pm-8:00pm EST
so strong over the next 12 months for the reasons that i'll talk about a a moment. the fiscal stimulus, as you said, continues but its impact on growth weakens. i agree with the goldman sachs analysis on that and of course we should expect the federal reserve to withdraw support for mortgage-backed securities as we go back into the spring despite the weaknesses in the economy, despite the continuing high unemployment, this is what the fed i think is very clearly indicating both directly and indirectly. . worst part of the picture. the worst part is i am afraid that a serious crisis is brewing in western europe. there are many people who claim that this time is different. i would apply the conclusions that greece has a serious sovereign debt problems. these issues are spreading to
portugal and spain. there may be implications for ireland and italy. there's a great reluctance on the part of the stronger european countries to help the weaker european countries. basically, they don't have an institutional mechanism in place. they will not, in my assessment, bring in the international monetary fund. i will be happy to expand on the procedures behind that assessment. put all this together and you're looking at a substantial shock to government credit. you'll see this in interest rates and credit defaults swaps spreads. ñ'the big unknown in this pictue is what will happen to the financial sector. we still have too big to fail banks. we can reasonably argue that as we wait for financial reform to
come through, this problem has not been addressed. it has gotten worse. the europeans have it -- have this problem on a much larger scale. they're big banks are bigger relative to their economies. some of these big banks are in small economies that cannot sustain, from a fiscal point of view, and additional big financial shock. switzerland has two mass of banks with assets and liabilities roughly six or seven times the gdp of switzerland parted we can argue about the right medicare but if the bank fails, -- about the right metrics but if the banks fail, that will not be a good situation. there's a mass of contingent liability. it is the same on our balance sheet. it is right to stress that the experience where you asked to derive money for toxic assets to buy shares in banks and other
companies, i don't think that is off the table. in europe, i fear it will come back to haunt us in the united states. that continued liability is very big. i would say is at least 40 percentage points of gdp. if you follow the professor's book, that bears that out. it is hard to say how this will spread to the financial system? some of it will spread to the credit defaults market. it is completely opaque and has not been addressed the problems have not been addressed since the crisis of 1998. these all had fiscal implications. in conclusion, i would like to reinforce what the senators have said and the professor has said about the necessity of the
framework. i think you do not want to have fiscal austerity member that would not be the right measure. if you're swings into this mode, that would be bad for growth. the euro will weaken any way in my assessment anyway. they and we need an exit strategy and a framework that tells you how entitlements will be handled over a 15-year from work and what the tax base is and what the gap is between those. when you said the debt has to be controlled, you are absolutely right. japan's sustained as for a long time but this is catching up with them in the last 20 years. most of the debt is held domestically. a large amount of our debt is held by foreigners this has a large consequences. think you. >> thank you. dr. marin, welcome back, always
good to have you here. please proceed. >> thank-you for having me up to talk about the economic outlook and fiscal situation. i want to say that i have previously appeared before you in a professional capacity working for the congress and i am appearing as a private citizen and i find this incredibly liberating to have my own opinion. so, watch out. as this committee and its members are aware, our nation is on an unsustainable fiscal path. we will run $1 trillion deficit in the years ahead even after the economy recovers. persistent deficits and rising debt will undermine prosperity and weaken our position in the world. those threats deserve immediate attention but as this committee is well aware, our economy remains fragile. payroll employment has fallen by 8.4 million jobs since the
beginning of the recession and unemployment levels are record highs. we had strong gdp growth in the fourth quarter but the economy has a long way to go. you face a difficult challenge of balancing concern about current economic conditions with a meaningful response to our fiscal crisis. the first point i want to make is that we should not expect a rapid recovery. it is a good sign that the economy grew in the last quarter of last year but for a whole host of reasons, i would not anticipate that to continue. we're in our recovery path but it is a moderate or modest path. second, uncertainty is one factor that has been holding the economy back. uncertainty discourages investment and hiring and undermines a growth. put yourself in the shoes of
someone to -- who might make an investment or hire someone. the good news is that economic concern has gone down dramatically. the economic environment has improved and is more conducive to grow pretty bad as that policy uncertainties are high. some of your constituents are met with you and i spoke to some business people and many of them are upset about the uncertainty. they do not know what is happening with tax policy or health care in addition to what they don't know what is happening with theb economy having worked in government for a long time, i understand that these uncertainties exist but i think there are opportunities to get rid of unnecessary uncertainty and to give people more clarity about what the future hold pretty extreme example would be what is happening with the estate tax which is a personal thing. there are many other examples on the tax side.
number 3, persistent deficits and rising debt poses serious risks to long-term growth. concerns about the near-term economic outlook should not deter congress from taking steps to strengthen our fiscal position over the next decade. fiscal consolidation should not take place immediately. congress should begin now to plan for deficit reduction and stabilization in later years. we need an exit strategy and that include clear goals and credible means for achieving them. president barack obama outlined some steps in that direction in his budget but i feel they fell short of what is required. vgxsto address that concern, the president proposed the creation of a fiscal commission that log up until 2015. first, i don't think the target is aggressive enough. it would have the effect of
stabilizing jet -- debt to gdp. my own personal preference would be to see it come down to a number by 60% of gdp. i would like the target to be more aggressive. the institutional procedures of the proposals are troubling. in natural -- a natural -- a national statutory commission i have concerns about whether a statutory commission can get there. i would look for something that has the power where everything would be onwc÷ the table. i am troubled when some people say that social security should be off the table and tax revenues. i think if we try to address the fiscal concerns, you need to look at everything. i am looking forward to seeing with the details of that
corporate we need an exit strategy, definitely fourth, bringing long-term to the present day, a credible plan to reduce future deficits is not just about the future. if we do it well, it will help keep long-term interest rates low today. that will help the recovery. fifth, g restraints. that should receive greater emphasis because spending is the primary driver of our budget balanced and higher government spending retards growth. as policy-makers consider how to finance a larger government, they should give special attention to figure out ways to make our tax system more efficient. think about ways to tax consumption rather than income. think about ways to broaden the tax base rather than increased rates. the about ways to tax undesirable things like pollution rather than desirable
things like working. thank you. >> excellent testimony, all three,mwi just terrific. i appreciated very much. let's go right to it. this committee has special responsibility to our colleagues with respect to the budget and it is hard to find a time in our entire history, since the budget committee was formed, when budget policy can have such a profound effect on economic issues and economic growth and all the breast. so, dr rhinehart, you have this responsibility -- if you have this responsibility, what would you pursue? short term, long term, with respect to deficits and debt with keeping your eye on the effect on the economy.
what would you advise this committee to do short-term and long-term? >> let me begin by saying that in my remarks, i highlighted that i think this is the time to lay out a credible plan for deficit and debt reduction but it is not the time to start implementing that. i would like to elaborate on that remark especially as it pertains to the experience of other episodes including here in the united states. in which victory was declared prematurely and stimulus was withdrawn. this was the case in japan which has had a decade-long lingering crisis. this was the case in the great depression.
my work as documented these episodes. that risk is one that should be borne in mind and that is what i stress the credible path. the credible path, i think, we could benefit from looking also at the experience of our neighbor to the north, canada in the mid-1990's which implemented very significant debt reduction programs. >> what was the result? >> the result was, i would describe it as a three-fold. one was they achieved their intended goals in bringing their deficits and their debt, the canadian debt profile, that has
been reflected in their risk premia which had risen and was moving in tandem with the emerging markets by the mid- 1990's. >> higher interest rates? >> higher interest rates, higher debt servicing costs. more volatility. let me add that a second element of their program was also, which i highlighted briefly in my remarks, is paying a lot of attention to how when you have a lot of debt, how dead is managed. d and reducing their reliance on short-term debt end their currency issues. >> dr. johnson, same question to you. what would your advice be to this committee, short-term and long-term? >> i am not a fan of fiscal stimulus i testified before this
committee more than one year ago and i said that it was only the extraordinary circumstances due to the collapse of our credit system and the other problems that led me to suggest that we should have a stimulus around $500 billion. roughly speaking, i think we wound up in the same ballpark. i would hold back again from further stimulus. i think we need to see what i think we need to see what happens. in terms of the longer term, i think the fiscal commission idea is an important one. i think the doctor hit a couple key points meaning nothing being left off the table. medicare is a big item. now, this is not a call for fiscal hiss taret immediately.
professor reihhart explained that idea. i fear it may happen in europe. it should be avoided. i'm calling for them not do that in europe and find a way to help themselves. commission addresses the colmes of our debt where the project three -- where the trajectory is going. everything should be on the table. that is absolutely critical if you have a credible medium in the united states now, you would have a lot more room to maneuver on short-term measures. i might even right now call for a reduction in payroll taxes if we had a media from work but we don't. that is dangerous. >> you are, in some ways, linking the two in your mind. it would be more credible to do something with respect to
payroll taxes, to provide additional lift to the economy if you had some credible process in place to deal with a longer- term debt? >> absolutely. fiscal stimulus is something we have moved away from in industrialized countries in the last 20 years because it comes with a lag. it tends not to hit the economy as you hoped. and also when you open. -- and also when you hope. if you can persuade everyone that you're dead is not on an explosive path and you have the legislative or other institutional mechanisms in place that this is not a big promise -- the british government faces huge problems because of their commitment on the fiscal side which are not credible. we don't have that problem the in the united states, yet. you need a fiscal commission to make sure that goes forward.
>> doctors marin, same question to you. your responsibility is to advise this panel, short-term and long- term, what with that advice be? >> starting with the long term -- what i would personally like to see is a numerical target that lays out in the latter part of the budget what we want to accomplish and what you should -- and what it should be. we should not just make up numbers. you should say something like you want to cap the growth of debt to gdp at like 72% in 2013. >> can i interrupt? you went to an alabama school? that is an excellent school. the lady in the front row is wearing a hat with a big "a" on it.
as a great school. >> in north dakota, we make that same claim. >> you have a comparative team and we usually lose to them in the playoffs. thank you for coming. >> thank you. >> i had a hard day and this know you're probably enjoying it. sorry to interrupt you. >> no problem at all. >> 70% of the debt to gdp ratio in 2013 is a goal. >> 70% by when? >> and then 60% by the end of the budget window. the peterson commission put out a goal of getting to 60% by 2013. i'm talking about being less aggressive than they are.
this morning, i looked at a plan that would get us on that path. >> it is daunting. >> it is, it is truly daunting. i hope that my colleagues understand how serious the situation is that we confront. it is dire. the long-term circumstance that we confront is truly dire. we are not in as bad a shape as japan, debt to gdp. we are not in as serious a shape as parts of western europe that confronted debt crisis today but it is very clear that we could, in very short order, confront our own debt crisis and the consequences to this country would be enormous. i wish it were not so. i wish it were not so.
if you study the trendline that dr. marin and dr johnson, and doctors rhinestone, if there's anything that jumps out to you 10 years and out, we are really facing consequences that could have enormous adverse impact on this nation's economy. do you agree with that statement? >> absolutely. >> what leads you to that conclusion? i said something that in some circles is very controversial. why do you think that is true? >> this is something i have relied on the research of my colleagues. if you look at history where this has been experience in other countries, getting a path ends in tears. it is something where we remain
foot the cost about as a beneficial thing to do. we have not covered all the reasons for iit. there might be a snowball effect and you have yourself a much worse a circumstance. our ability to borrow is our rainy day fund. we have used up -- it has been raining so he had used a lot of that opportunity walked that back down so if something unforeseen happens eight years from now, you can go to the world capital markets again and borrow more money. you lose that flexibility if you do not get a more sustainable path. >> i have used my time dirty cinder sessions? -- i use my time. senators sessions? >> i disagree with that last statement. there is almost too much margin you have a crisis and we are using that up today as if we will never be another crisis.
i am a little disappointed that you seem to be going along with the idea that we cannot begin to ask about spending now. i just do not believe that we can afford to throw another $270 billion of stimulus package when we have so little from the one that we have done dr. johnson, you said you recommended $500 million but it is $845 billion which is quite a bit over, in my view. we have used this margin of. i would criticize the thinking during the bush administration. word leaked out that deficits don't matter. that is what it seems. >> not from me.
>> it did and mr. greenspan has talked about that, actually. he did not realize what was occurring politically and morally in the country, what was happening was we were losing our discipline and people were buying into that language. yes, we could have carried more debt in 2001 and 2002 but was used -- lose your discipline, it seemed like we went forward as it did not matter and we are now reaching this level of debt above which we are endangering our nation if we go above. i'm just really word about it. dr. marin, you mentioned one thing that is important and i need to put on the table, economists, masters of the universe, i call them, think they could pull the strings to
manipulate this massive economy and that is a lot of us and a lot of american people do not believe in a growing government. you mentioned that in your remarks about. that about if we get a bigger government. many of us oppose that. we don't believe in that. some modest contentment of spending today may be not enough to satisfy my concerns. and doctors rhinehart, you read commentators and the essence of a lot of things you see in financial magazines and newspapers and articles in all this, a concern the real world out there where people are buying and selling and loading money -- following monday is that it could lead to the devaluing of the currency and a surge in debt can lead to a
difficulty like the brits have had in selling their debt and could drive up interest rates and a flight to currency. one man called me after a speech last week when i was expressing concern about the debt, he said that we will inflate our way out of it. that is what we always do and don't worry about it. would you share with us any thoughts you have about the danger of that kind of thinking? is that a danger? >> i think the danger -- there are two kinds of danger that i would like to highlight. one is one what i mentioned about higher risk. that will translate to higher interest rates which we are taking for granted the very low, near-zero interest rates and we should not take that for granted. we are on the same line.
the second risk i would like to highlight which i briefly mentioned in my remark is the growth. one has to take seriously that at high levels of debt, and we are close to the gross debt being at that 90% threshold 3 we are close to it. growth declines by about 1%. this is a fairly robust results. lower potential output growth in and of itself is absent and a source of concern. a weaker dollar would not hurt us. one of the things that has been a drag on this recovery from the crisis is that of one looks at the typical recovery from such a crisis, exports and other
episodes, we have not had the benefit because a good chunk of the rest of the world is in crisis and in part because the dollar has not really, relative to other experiences, budged. my concerns have to do with the interest rate, the risk, and with the growth of what happens to the dollar. it has been known to go up and down. there is less of a lesson there as far as i can make it. >> dr. johnson? >> i think the situation is considerably worse than you might think. first of all, the debt numbers we are discussing, our federal government debt and if you look across the country, usually the imf procedures are for general government debt which involves other levels of government and
that would increase the debt target in dr. marin's target and pushes closer to the dangerous threshold that profess rhinehart mentions. the taboo subject is fannie mae and freddie mac. the imf would say to you if they were in a position to speak to the united states, they would say that unless you show was a plan for privatizing these entities which have been talked about, we have to start thinking about these as liabilities to the u.s. government. they hold assets. i would not exaggerate losses but if you're talking about debt owed by the public sector, fannie mae and freddie mac would enter into that picture. . .
based on the chart you showed earlier, that's not being scored, is it or isn't it? does anybody know? >> in the official budget that the president put out, there's a small amount of money in there which is the future cash flows from our support for the two of them. but the several trillion dollars worth is not in the debt there. >> all right. >> excuse me. >> if i could finish, the too big to fail banks are also an impolicity contingent liability of the u.s. government which is not bad. it's not scored in any way. because if those banks fail they'll come to you again and say, oh, we need tarp ii, senator, and we'll tell you what we are going to use it for. i understand this is more usually considered part of the jurisdiction of the banking committee. i just spoke to them last thursday. i think there's a budget issue too.
a contingent liability of this magnitude, an avoidable one. reformling medicare, honestly, is a huge conversation, as you said, senator. you have to look at the tax base, paying for health care for people over 65. the congress tingent liability of the banking system is completely, largely avoidable if you take it on. if you regard it as a budget matter i think that's a major step in the right direction. >> all right. dr. marron.ñr i'd like to welcome the st. paul kids from montgomery, alabama. we're glad that this group could join us this morning. in us this morning as we're talking about things, mr. chairman, he said earlier, that will affect how much they have to pay growing up. >> on this question of fannie mae and freddie mac, my understanding is is in the cbo numbers and not in the other
numbers. our determination was we would follow cbo because we think it has to be on budget. if you cannot say this is somewhere off in the wilderness, not accounted for. we have made a determination that would be included in the numbers. >> but that has not been in the past. >> it was not in the past. >> thank you for that decision. >> my understanding is that they have larger numbers in the deficit for the conservatorship of fannie mae and freddie mac, but when you look at their publicly held debt numbers, they have not gone up yet if i understand correctly. they have taken a step, but they have not gone quite as far as dr. johnson would suggest. your question was about
inflation and the concerns our fiscal troubles might lead us to pursue inflation as a strategy to dealing with it. that's a legitimate concern given what folks have done around the world in the past. but i want to point out that will not work well for the united states. on the spending side, we have an enormous number of spending programs, social security being the most obvious, that are indexed. there is a one-for-one increase in our spending and that's also true for medicare and other programs. increasingly, we started issuing inflation index debt. we have treasury index four protected security, who's in -- whose inflation will rise. -- his index will rise if inflation takes off. it is short term and it could go down because of surprise inflation but the market will charge a premium interest rate and say you fooled us once but we will charge you a higher rate on your three-year bonds. in practical terms, inflation is
not going to be an effective strategy, even though it may be a legitimate concern to some folks. >> thank you. we do expect, according to the cbo score, interest on the public debt last year was $170 billion. they are projecting in the 10th year of this budget and $800 billion annual interest payment. hugely significant as to how much that would actually be in the out years. thank you. >> thank you. >> thank you for your testimony. professor reinhart, you know that government debt tends to soar in the wake of a financial storm. that is often a result of a drop in revenue rather than spending on stimulus. could the deficit we incurred in the united states have been even larger if we had not invested in
building a financial bridge through the stimulus? >> one of the things about this situation, to answer you honestly, as we do not know the counterfactual. in the fall of 2008, confidence worldwide was shattered. the stimulus package played an enormous role, not just the stimulus package in the united states, the stimulus packages that went into effect in different orders of magnitude in restoring confidence. you pose a very difficult question for me to answer. i do think that absent a stimulus, i cannot quantify or give a counterfactual as to the student -- as to the stimulus would have been worse. our gdp declined relative to
declines in other severe financial crises is smaller. our unemployment increases are close to the average, but are still below average. i would have to imagine that given the magnitude of this crisis, which we have not seen the likes of since the 30's because of its global nature as well, absent those actions, we would not be below the average in growth declines and unemployment increases. we would be doing much worse. >> for me to restate that, although you cannot prove the counterfactual, it's possible we could have had the same levels of debt but no signs of the recovery that have been created partially by the stimulus or that we might have even had lower-level of employment and had additional current year
deficits, which would be the worst of all cases. >> which is why i tried to highlight the japanese experience in that regard. japan, in the mid-1990s, assuming the crisis was over withdrew stimulus, so i'd double dip, and wound up with the worst of two worlds. it is important to remember japan's debt, which today stands at about 200%, was around 70% of gdp before the crisis started. they wound up with both. >> thank you. prof. johnson or mr. marron, with either of you like to comment? >> i would give this to military positive assessment. i'm not a fan of stimulus in general. by think this was a very unusual set of circumstances and i think
it saved jobs and prevented damage to potential output you would have seemed otherwise. the price of confidence was global and everywhere. the stimulus was an essential part of leadership in turning world economy around. remember the g-20 summit in april where president obama took a very positive brought role and brought a lot of companies with him in recapitalizing the imf and also help to rebuild confidence. that would not have been possible and would not have been credible without the u.s. fiscal cent -- that the u.s. fiscal stimulus. i don't again would have been higher in the short term if we had not been a stimulus, but the medium term prospects would have been much more bleak for this country. the medium term budget issues are mostly, not entirely, about medicare. that's a longstanding problem we have not got around to addressing even though it has
been in the cards for a while. that is driven by demographics and the rising cost of health care. i would say in contrast to other countries, they're almost all in the same place, they just don't recognize it. the european commission is counting and they are much less obvious than the cbo cost accounting. we're looking at getting growth back on track, preventing the destruction of potential output is very important and helpful, so the stimulus was worth doing. hopefully it will help us tackle the medium term problems. >> i had a bunch of other questions and i am running out of time. >> the standard model and that the cbo uses to analyze the stimulus have technical multipliers that would imply a stimulus does not pay for itself. the choices that you end up with more debt as dr. johnson
suggested but you also get economic bang in the short run and there's a tradeoff. >> thank you. you had noted that uncertainty is a problem and you mentioned establishing the estate tax. what about the rules of the road in general? prof. johnson noted we had not addressed credit defaults swaps and proprietary trading, derivatives, leverage, many of the risk factors that were inherent in completing the trio here -- professor reinhart noted that following financial crises, there are problems with output. this is the rules of the road for a financial community that does not result in high risk taking followed by a collapse. how important is that we get the rules of the road back in place to address these risks with our financial structures?
anyone who would like to jump in on this, i appreciated. >> it is fundamentally essential. the problems you just laid out are all wrapped up in what happens if there is another financial crisis? what if major financial players have failed? how does that add to the system? if it's a big enough shock, you could be called upon to use automatic stabilizers are a good thing -- but the problems you identified are fixable, they're not being fixed, they must be fixed for at a responsible budgetary point of view. >> in your written territory -- your written testimony, you addressed europe and greece and so forth. the argument that the stress test we put our banks through has not been -- was not i high- level stress, if you will. if we do not prepare for that, we may have another wave of
stress coming that could result in a second financial crisis. is that a fair summary? >> yes. the financial system is undercapitalized. the stress tests or not enough. they were not that stressful. i don't think we're facing more financial collapses, but we're facing banks that do not have big buttresses against bigger losses. you'll see a tighter credit conditions throughout the united states and this is a global side -- a continuing weakness in the consumer sector. >> i am out of time. >> because others have gone over and because of the attendance we have because of the weather, i think you should feel free to use another two minutes for 2 1/2 minutes. senator white house, i would do the same for you. >> thank you.
>> the issue is that we need good rules and if possible, it would be good to get good rules sooner rather than later so that everyone can begin to plan with -- plan with the new environment looks like. i emphasize there are a lot of policy uncertainties hanging over everyone at the moment that makes them difficult for them to plan. some of them in both the previous administration and current one, where it -- we fell back on a lot of discretionary government actions. there was confusion about the role of park and other things. those may have been necessary in the heat of the moment they have created doubts about how we run the system. in clarifying that and clarify ways for firms to behave -- for firms to behave appropriately is a very important. >> we face two issues -- the challenge in the commercial real-estate world that will be coming up. it is here now but will continue over the next year or two. the second is undercapitalized
community banks and their ability to do additional lending. on the community bankside, i have proposed in the administration proposed recapitalizing banks to enable them to do more lending to small businesses and unable those firms to recharge the economy. on the commercial real estate side, i have heard very few ideas for how we address the challenges folks are rolling over balloon mortgages but trying to do so with a drop in the value of their assets and decreased cash was due to tenants and have lost during the recession. should we pursue strengthening community banks to lend more to small businesses and what we do about commercial real estate? >> the issue of recapitalization, i think helping banks recapitalize
should come with a carrot and stick approach. one of the concerns i have about the way we have gone about addressing the toxic loans is that it is to japanese. meaning it is too much for parents. i think if -- to much of forbearance. that's very important for lending behavior going forward, if you feel you have a lot of bad debt overhang, it will be reflected in your lending practices. that's the lesson i have taken from the very long japanese experience. even helping the banks that lend to small business recapitalize, a proviso toward more capital write-downs is important. >> thank you.
commercial real estate? >> i think commercial real station left to itself to sort itself out. unsympathetic in about trying to recapitalize community banks -- i am sympathetic about trying to recapitalize community banks. it will be worried about the signal their sunday, but i would be surprised if we could run a program begun to have a macro impact, unfortunately. >> final comment? >> building on the uncertainty point, the other issue for community banks is to what extent there are strings attached. that may discourage them. >> thank you very much. >> thank you, senator, excellent questions and interesting responses. >> thank you. thank you to the witnesses were being here on this challenging day for travel in washington.
we are caught between this is your blades here of on the one hand wanting to support the economy so people are employed and we can begin to have the nascent recovery we're seeing work for everyone and not just ended years. on the other hand, having the overhang of debt that has dominated our discussion today. it strikes me that where we have a very significantly degraded or in the structure, in rhode island, for instance, we have a bridge to what are the major cities that carries highway 95, a major national artery. it's under a weight restriction said that they have to take a
route around it. that will have to be fixed sooner or later. we cannot have that. getting worse and not better. there is a bypass in providence at the department transportation is refusing to put any more maintenance money into because it is so degraded and needs to be replaced. it is very hard to get those jobs than -- jobs done. does it make sense to focus on the old-fashioned theories of, if you are going to have to fix it anyway, it's not really adding to your dad and the proverbial stitch in time saves nine, when you do it more quickly, it tends to reduce the overall cost to focus particularly intently on degraded and in the structure that will have to be repaired sooner or later anyway as a way
to increase employment without adding to the nation's overall actual liabilities? >> the remarks i'm going to make have to be taken with a grain of salt because they weigh heavily with the experience of one country. in the structure spending is at the forefront of the japanese stimulus plan. the streets of tokyo were paved every other week. it does add to that. >> of the streets of tokyo don't have to be repaved every other week. if you are creating make work, if you are building bridges to know where, that's a different proposition. that's why i focus on things you have to fix any way. if my roof had a whole lot in
it, and rain comes in, the sooner i fix it, the less the long-term cost of repair. if my son needs to make money for the summer, it seems to make a lot of sense. why doesn't that simple wisdom prevail? or does it when you are dealing with truly irreplaceable necessary and the structure like bridges that are condemned? >> if we're talking about things that need to be replaced, the subset of the more general proposition of in the structure as a way to go forward in terms of channeling, which is what my remarks were addressing, in the end, anything, be it in the
structure or be it a transfer, it does impact that. -- it does impact debts. i cannot discriminate across types. they just add that. >> done we have a defective accountability, for accounting in an all in way, who -- if i were budgeting and it was my house and had a hole in the roof had been together a family budget, i would put in there that i had the sixth hole in the roof. whatever the cost, i would put it in, even if it was five or 10 years, if i had to put something away to cover it in the meantime -- >> i understand and i take your point, but i would just add that we should go toward looking at any activity as
activities that do have that consequences over the short run. >> i have used a lot of time on that question and would like to shift to another. since it is just the two of us, -- >> i will give you some additional time. >> i would look at the cbo's scoring dan the advantages of payroll taxes over infrastructure spending. second, your point about having a proper capital budget is essentially right. one way to think about that in the context is toll roads. we should be discouraging things are bad like ingestion on the major roads. as somebody who is unhappy user of an easy pass scanned tag on my card, and this is not a federal issue, but if you move people toward a system where they are paying to use roads
that are more expensive to maintain, that will help address the issue and raise revenue for specific issues which are much broader than rhode island. >> i think -- i agree with you on the theory. if you could end of fighting she would have done anyway and move them up, that's incredibly logical stimulus, but there are some is in there. the first is the have budget discipline that says if i spend an extra million dollars today, i literally will come at myself to spending a million dollars less in 2013. you know how highway funding works. that's a hard discipline to institute. the second concern is that in our political system, this is the mean and flip a diversion -- -- a mean and flippant version -- our system requires us to
fund 435. this theory yet described maybe true for a handful of projects -- >> the theory is true that the politics make it hard. >> yes. >> let me jump to health care. you have said twice that medicare is a big item. i'm not disagreeing, i just think it's important we look at this. medicare is a big item. according to a variety of different sources, the amount of waste, duplication, excess cost, and efficiency in the health- care system runs between $700 billion and a trillion dollars a year. we have ways to get at that, but as cbo has testified, it
requires a certain amount of flexibility and experimentation. it's a continuing management problem to work your way through it and it requires providing the executive branch with some tools. but i happen to believe significant savings can be achieved that way. when they are, they are achieved in a beneficial way. it's the extra test you did not need. it is the hours in the hospital waiting for your paper records to get there and having tests redone in an emergency. it's all the clutter and clumsiness of our existing health care system. what i worry very much about is if we get into a physical condition, statutory commission, it gets very narrow and is given a very urgent charge because it's an urgent problem.
if you do not have people who understand the possibilities to understand taking advantages of the efficiency gains in health care system, and they're hard to quantify -- cbo cannot quantify them effectively -- you can not quantify it because it requires executive administration to make it succeed and they cannot predict that. but it worries me that we are laying out an incredibly easy short cut for fiscal hawks to take hold this thing and say i can document we will have real savings in the medicare system if we just throw these people off the system. the pressure to do that becomes irresistible because we have whipped up a great panic about the debt and given people only understand those jewels decontrols over this expedited, high-powered system. i think that would be a terrible, terrible mistake. when you look at a system as
wasteful and complicated and grotesque, more doctors are paid for doing more procedures rather than out of, everywhere you look at it, the system is somewhere between $700 billion and a trillion dollars in waste and excess cost. how do you go with that in the time frame? let's say it takes four or five years to deal with it. how you relate that in two -- how would you relate that to the urgency of the fiscal that given the primacy of the medicare problem and that this will that equation? -- and that fiscal that equation? >> the fiscal situation we're worried about here is something that approaches this over the next decade or decade and a half. but we are fortunate and we should look at countries in europe that are now is set by the financial crisis,
particularly in blood. they have a decade or decade and half. -- particularly in england. they don't have a decade or decade and half. >> the date the efficiency gains could be somewhere between $700 billion and a trillion dollars a year? do you think we can get it out question but i'm not an expert, so i would not want to comment. >> that is systemwide and not just medicare? >> some process of rationalization would make sense. also, i'm sorry your colleagues have left, but passing an unfunded prescription medicine component to medicare under the bush in restoration was unfortunate in this context also. they're going to be some very tough choices about who gets access to what kind of care. the big difference between our
projections and yoursçó are expected cost of technology will change for treating patients, which has been very much the same across the u.s. and other industrial countries. we are more honest about it. europeans only take into account demographic changes. there are very tough choices at and i'm not on the side of saying throw people off medicare. i think that is acceptable. but the budget issue we cannot duck forever. >> i have gone well over the time and i think you. >> -- i thank you. >> let me just say to the gentleman from a profile of that i believe the rest is the flip of what you see. i believe the risk to medicare and social security recipients is a failure to act in a timely way to deal with the long-term debt trajectory that virtually every expert that has come before this committee says is
unsustainable. that is, as i look ahead, i am the beneficiary of social security. i lost my parents when i was young. social security helped me through college. i have seen it in the lives of my family and i have seen that care in the lives of my family. i have seen it in the lives of my constituents. my great fear for the very positive things those programs do, is that our failure to act to deal with the long-term trajectory is what really threatens them. that is my belief. >> mr. chairman, i cannot agree with you more. i think we have a window of time, as the witnesses have said, we're fortunate. we have a window of time. the wolf is not fully at the door right now.
the fiscal my aides do not have to come up in an emergency way you are suggesting. the will have to if we do not get ahead of this. we have lost a year in this administration already before we can deal with this and that fact is agonizing for me. while we are in this window, we should be focusing relentlessly on that while we can because that is the tool that evaporate as it gets closer. the fiscal might will always be there. you can always throw people off programs and shut them down. it would be a human tragedy to do so and we can avoid it if our responsible about delivery system reform in the time we have. >> i agree. delivery system reform that for some reason got no attention in this debate on health care. yet every serious expert that came before us told us it is the
single most important thing. frankly, i think the media have done a grave disservice to the american people for chasing every red -- chasing every rabbet of an issue that matters very little to dealing with that -- dealing with what has to be done. i'm largely pointing the finger of blame on network media that has a minute and half for a story and never has a chance to explain to people what are the things that really matter to this debate? instead, they obsess of things are a complete side issue. that has been an enormous disservice to the american people. i would also blame ourselves for not -- for not doing a good job of coming back to what really matters. it is the delivery system reform
that every serious expert that came before us said is the number one opportunity to get costs under control. it is almost no wear in the debate. instead, it is death panels and things that don't even exist and get the attention. if i could, let me go back to the question of where we are. you testified once we get to a debt of 90% gdp, that has and adverse affect on economic growth of roughly 1%. is that correct? >> my calculus tells me that we will hit gross debt to gdp of just over 90%. if we stay on the path we are on, that will continue to rise with no policy changes, no policy changes to 97% in 2012
and then start coming down very, very gradually. almost imperceptibly. according to your research, we already face the consequences of reduced economic growth in the future because of debt levels today. would that be a correct interpretation of your testimony? >> that would be a correct interpretation. i try to highlight that in my remarks and written statement that while the plan should not necessarily start today because of weakness in economic activity, a conception of a clear plan to reduce the debt would be or should be forthcoming today. one thing we can say with a fair amount of certainty is that we never know when the wolf will be on our door. the wolf is very fickle and markets can turn very quickly.
a high debt level makes us very vulnerable to shifts in sentiment we cannot predict. >> thank you. what i have heard the three of you say -- very clearly, you would not take immediate steps to reduce deficits and debt because of the risks it could create to a double dip. what i have heard each of you say is that you do have to put together a credible, long-term plan to deal with the debt threat. if we do not, jury of the country going forward. is that a correct restatement of the testimony? >> if i could clarify, my
position would be falling what is the imf practices, to focus on next government debt. the numbers would be slightly lower than yours. >> we should say for people who might be listening, when i talk about gross debt, and talking about the debt owed to the public plus the debt owed to the various trust funds of the united states. i use that figure of gross debt because in a budget context, that is what matters the most. all of that debt has to be serviced and serviced out of current income. economists like to look at what is called publicly held debt, which is a lower percentage, in a 60% range of gdp, because they look at the effect of government borrowing on the public sector. >> general government would push
it higher toward 80%. the imf position is that all industrialized countries to face a similar situation. new taxes or revenue between 4% and 8% over the medium term. that's my position which is not inconsistent with the spirit of what you're saying. >> i cannot speak for senator gregg, but he and i have gone on this effort to have a commission because we have been convinced that you have got to have an overall plan. when that takes account of where we're headed in recognition that dr. reinhart's research is accurate and as you add that, you fundamentally weaken economic growth. let me go to the next point, if i can, and we're going to come back -- i will stop and
recognize him next because he has not had a round. as we look ahead to this medium and long-term plan, spending has got to be adjusted, and yes, that means shall security, medicare -- social security and medicare have to get on a lower growth trend. it has to be because that is where most of the spending is. i also think the revenue side cannot be exempt. we have the lowest revenue of shares of gross domestic product in 60 years and the highest spending at a share of gdp in 60 years. so we have the lowest revenue, the highest spending, i don't know of any logical conclusion that you don't have to deal with both sides of the equation. that goes to the question of
what should the balance beat? i would like each of you to answer this question -- going forward, in the longer term, should most of the emphasis be on the spending side, should most of the emphasis be on the revenue side, or what do you think the appropriate balance should be between spending and revenue? contributions to dealing with this long-term debt. dr. reinhart? >> i think both the spending and revenue side have to be addressed. i had mentioned in my earlier remarks that looking at what canada did it would be useful. nose down with a downturn. -- no stone was left unturned. unemployment insurance, decisions involving retirement age, and of course, the revenue side as well.
when one is dealing with gaps that we're dealing with right now, even abstracting from the cyclical component that is very big right now, you cannot leave any stone unturned. >> but less you bend the curve for medicare -- unless she bends occur for medicare, that is first and foremost. >> that the 800 pound gorilla. >> absolutely. and it's a very unfortunate thing. it is perhaps more about ethics and economics to decide what to do there. that's a very hard social conversation. but taxes, you have to address that. this is a fantastic country. it is based on a thin and fragile tax base. if the united states wants to be one of the leading powers in the world, i see any alternative
but tax reform. i would emphasize what dr. marron did before -- our tax reform group and we have not redesigned this in a long time and not try to think about what do we tax to discourage, rather than taxing income, which will allow people to earn. we have to address the low private savings rate. witnesses them where people don't feel they have to save and as a counterpart to our foreign borrowing. when they haven't talked about today as we finance so much of the budget deficit by borrowing from china and the chinese government. it makes no sense at all in geostrategic terms. even if you address and we come up with a strong fiscal framework, you still have the current account issued a low private sector savings.
and as you wish for the united states to slip into the right of second-rate powers, that has happened to many countries in the past. >> i could not agree with you more. if this fiscal commission does its work, one part of it should be fundamental tax reform. we have a tax system that is an efficient and by that, i mean a high percentage of what is owed is not being paid. we have incredible leakage through offshore tax havens. if anybody doubts that, go punch in offshore tax havens and sewage you get. google that and see what you get. we also have a tax system that was never designed for the time we're in. it was designed when america was completely dominant in the world and we did not have to worry about our competitive position. we have a tax system that now this incentivizes savings and
this incentivizes investment. -- dis-incentivizes investment. it's almost an upside-down system, given the circumstance we're in today. dr. marron. >> the first point is a budget process in terms of where should the emphasis be on taxes or spending -- we are in a situation where it's going to be difficult have an intelligent conversation about that. if there is one view that has taxes expiring, -- as you saw on the recent cbo report, if you add them up, the difference is three percentage points of gdp in 2012. i'm not going to have an answer of which one is right or wrong, but politically it's hard conversation to have intelligently because people will differ in what they choose. in terms of substance, the basic story is, once the economy is on
a recovery path, what happens every year is spending makes the situation worse because it grows faster than the economy and tax revenues make it better because they grow faster than the economy. it has to be the case that spending is going to get more of the emphasis than the revenue side because they're growing faster and that is what is causing the challenge. but if you look ahead and ask and we go back to a historical 18% of gdp tax level and finance types of things are government and society appears to want our government to do, my answer to that is no. the arithmetic does not add up. that finding a way to raise more taxes in the future seems inevitable given introductory whereon. if you are going to do that, scaling up our existing tax system is not an intelligent way to do it. as you just described, what you want do is revisited and ask what that system makes sense the economy we have today, if we have decided instead of 18%,
we're going to raise 20% in terms of tax revenues. >> thank you for calling this meeting. i think this discussion is critically important to our committee and to our country. thank you for doing this. i welcome all three of our witnesses, particularly dr. reinhart, but i thank all three before your testimony. the bottom line is, what are we doing about the standard of living for people living in our nation. i know we cannot rewrite what happened in the past, but we need to understand and learn from our mistakes. i find it inexcusable that when we had a growing economy, we still allowed the dead to go up. there was no excuse for cutting taxes and increased spending without paying for it. we had a booming economy.
dr. johnson's point about savings, when our economy was performing the strongest in the world by far, when we were a leading indicator on every good economic indicator you want for america, during the 1990's, into 2000, then defined our savings ratios during that time to be among the worst of the industrial world, and we said that's ok. we have to worry about saving because americans are saving because they're getting the value of their homes increasing by a dramatic amount. then to find out what happened to the value of our home, we need to learn from the mistakes we made when our economy was growing. it is the mismanagement of debt and the failure to enact policies that encourage savings. many of us, including the
chairman, tried during that time. i was proud of the work we did on the house side to try to focus on policies that would increase our national savings. we did not do what we needed to do. now we're in a recession. so now it is difficult to get attention to reducing the debt or cut spending or increase taxes when you are in a recession, or it's difficult to develop policies for americans to say because you want them to spend when you are in a recession. my concern is, as we look at how we're going to deal with the national debt, and the german's commission is by far one of the most credible proposals to address focus on national debt and had to deal with it, i am concerned the focus may be short term rather than long term. because we're in recession. we to grow and create jobs and
spend. we need to make taxes less burdensome. but that may not be in america's best long-term interests. certainly allow the debt to increase and deal with the issues the chairman raise about tax policy that encourages savings. i know my friend, senator white a space house -- center white house raised -- senator wh itehouse raised. to reduce the costs america and reduce the federal government cost costs so that we are reducing health-care costs and reducing the budget. my concern is if you look at health care costs solely in light of the federal government's budget and say we
have succeeded if we can reduce the entitlement costs of the federal government. we do not look at it as to how much seniors might be asked to pay. we don't look at as to how much businesses might be asked to pay. we don't look at it in the context of what individual workers are going to be asked to pay. at the end of the day, we might be weakening the economy, strengthening our federal government budget commitment as far as reducing cost. reducing our economy, certainly reducing the standard of living for people in this nation. i have a concern as to how we focus today in a recession and focusing on how to get and what our debt. we're all saying the right things, we want to bring the debt down and increase national savings. but what to increase the standard of living for people living in our nation, but if we tunnel vision this health care debate in to the federal budget
and don't look at health care costs as growing, long term, we're doing a major disservice to the people are country. how do you put this in context? how do you deal with the current recession? how do you deal with the current crisis americans are facing and still allow our economy to grow and deal realistically with the problems americans are facing, of whether a small business owners trying to maintain health insurance for employees or a senior is struggling to decide whether they can afford madison this month for workers find themselves falling further and further behind, when they look at their payroll and look at how much might have to spend on health care, they are wondering what happened during this prosperous time and why should we trust you now to get this right when you didn't do a when the economy was growing --
didn't do it when the economy was growing? >> my view is if you create a fiscal commission with everything on the table and people regard that as being a credible step forward, which i think they would if it came with the right framework, that gives you the scope in the short term -- >> if the commission's charges to deal with the federal budget deficit and we are in recession when this commission is required to issue its ruling, how does it overcome those two major obstacles to the long-term issues that you raised on the tax code, for example? >> the good thing about being the united states in our current position in the world, we have the only reserve currency. the euro is seriously under
pressure. this gives us time. it means, to go back to the german's mask, we will be able to run up more debt -- the chairman's comment, we will be brought word that are unsustainable tax base. we have 10 or 15 years, maybe the budget, we have 20 years to confront those issues. the fiscal commission's mandate would not be to slash the budget now. it would be to get the budget on to a sustainable basis and take it on according to cbo projections. will allow us to -- >> i am not sure we have other options. i'm not sure there are any better suggestions that have
been made. all i can tell you is a lot of us worked on the savings issues and we did not have a lot of support out there to try to do things to bolster national savings. we got some things done, relatively minor when you look at the overall problems that a nation. it was not easy getting that done. i just hope the political will will be there to deal with some of the fundamental issues that have been raised here. when you start looking at we shouldn't be talking about how much revenue to raise but how to raise its, -- how to raise it, i happen to believe our tax code does need major revisions of lead to rely more on consumption-based revenues and we have to do it in a progressive way. i will be interested to see whether the type of political support -- dr. reinhart?
>> i would like to address the issue you raised that in good times, our policies have tended to be pro cyclical, namely in good times, there are two things the government can do. can save during good times directly and that it can create incentives for the private sector to save. during the last boom, we did not do either. i think the role of the commission to ensure during boom times, we did not congratulate ourselves too much. the seeds of the next crisis are sown during the boom. that's when over spending has this directly to ending -- tended to take place. i do agree that -- i said earlier, no stone left unturned, the tax code, this is also simon
johnson's point -- we need to address the issue of low savings rates and dependent on borrowing from abroad as part of the medium term issue. one last comment i have is i do not know that we do have 10, 15, or 20 years. we just do not know. the sooner we can articulate a plan -- you raised the issue of uncertainty -- people today, if the debt is perceived to be growing out of bounds, that will create uncertainty not only about future investment, but what people expect as to future benefits. so a credible plan cannot be articulated. >> thank you. i would just say this to my colleagues. i have just gone through an
exercise to get the deficit down to 3% of gdp by the fifth year of the budget and to balance by the end of a 10-year budget window. i've just gone through that exercise. i ask all of my colleagues to go through that exercise before we get into our budget negotiations. i think you will find it as sobering as i have i think you will find it as sobering as i have. what it really takes, in 10 years to get the balance, on a very modest downward trajectory of deficits and debt to gdp. it is very sobering. when we go to the question of political will, what is going to be necessary to get this under control. that means to get back down to 60% of gdp.
by publicly held basis. -- on a publicly held basis. it is very sobering. senator sessions. >> that is an insightful challenge to us, mr. chairman. i think you are correct. i would just share a few thoughts that -- i think we have to light a treatment to the wasteful spending now. contain spending now that is not producing much for the economy. the $800 billion for medicaid, welfare, many things that need to be strengthened, but the extent of it was so great that we have not had enough emphasis on job creation to pull out of this.
i would just ask you to think about how will we pay back $800 billion? the president proposed at the state of the union, saving $15 billion this year and that might amount to two under $50 billion over 10 years. that's a lot less than $800 billion. now we're talking about another stimulus package. these numbers are so large that you cannot spend today in an unlimited way. we will pay this back one way or another. going to be a burden. my democratic colleagues have to recognize that we just cannot ignore the year that we are in and the next year as if we are in this severe recession and therefore all the rules don't apply and the money we borrow is not going to be a burden on us. will be a burden.
-- it will be a burden. dr. reinhart, i would like to follow up with your comments and that of the chairman about the amount of debt that we have. maybe all of you discussed this generally, between the internal debt and the public debt. would you not agree that 30 years ago, 20 years ago, there is a bigger difference than there is today because we did not see quite the dramatic actuarial and soundness of our entitlement programs? . .
but that was not true. and c.b.o. eventually made that quite clear because it created about a $300 billion surplus in the medicaid account. but it's spent it on a new plan and they didn't store the internal debt going back to the medicare trust fund as a reality and since medicare is clearly heading to default and will be called that debt pretty soon, it seems to me we've got to understand that this is not
the reality of the internal debt is more significant than it may have been when lyndon johnson first started doing this. >> the work that i have done emphasizes gross federal debt. ultimately we feel that it is ultimately the federal government, whether the debt is held by other branches of new government or by the public that we care about. i would say about gross, even using gross federal debt that it doesn't take into account all these important liabilities, hidden debts, that are associated with our social security system and all other
implicit guarantees even outside our social security system such as simon johnson mentioned, fannie mae and freddie mac. >> but your gross debt as you figured does include the internal debt that the treasury owes to medicare and social security? >> partially. partially. >> but not totally? >> not totally. >> i think that when one looks at the dead issue -- debt issue, we're going to be looking at very different measures of debt. there's -- i would start out with gross debt but i wouldn't end with gross debt. i think to take into account
medium term debt sustainability, a lot of these other hidden debts need quantityfication along the way. it just so happens that gross debt is something that we can measure more readily and more transparently than some of these other explicit or implicit liabilities that we have. >> senator sessions, would you allow me just to interject on this point? because for those who are listening, i think it is a hugely important point that you're making. the publicly held debt, that is the money that we have borrowed from the public, is at 60% of g.d.p. today. the gross debt is at 90%. the difference is, the gross debt that you're remembering -- referring to includes the money that we owe to the trust fund of social security and medicare. i think for people bho are
watching, this is awful confusing and it's important so they understand the gross debt, the reason you're focused on it, i'm focused on it, is because all the debt has to be repaid. and from a budget standpoint, debt can only be paid out of current income. by definition the only money we have to pay this debt to social security has to come out of current income so there is a real budget consequence when those trust funds that have been producing more money than was needed all of a sudden flipped and now all of a sudden they're spending more money on social security and medicare than is coming in trust fund income and that has happened to both those programs today. both of them are cash negative today. and it's why i wanted -- i'm sorry for interrupting but it is so important -- >> i couldn't agree more.
>> my colleagues understand the >> my colleagues understand the implications of this. >> when i came here i kind of ackquiested into the idea that public debt, we'll argue over it as a basis, the public debt, and use those numbers. as i have come to realize the actuarial unsoundness of medicare and social security you really can't do that. of course they do show up, mr. chairman, as you know to be fair, they are showing up on the surge of the public debt increase as these bonds that are the treasury executes to these trust funds called. that's one of the reasons is it not, mr. marin, that's one of the reasons the public debt is moving as dramatically as it is. >> right. the debt subject to limit. >> it's beginning to move. transfer. we are having less and less
internal debt, i assume, because it's being converted to public debt inevitably as we go forward because there's not enough money to fund social security, medicare without calling the bonds that are out there. i'm just -- would say that anybody you would -- my time's about up. so if any of the two of you who haven't commented, i wish you would -- >> just a couple thoughts. you notice whenever i speak of the debt i focus on the publicly held debt which is the notion of debt we need to go play with world capital markets to finance ourselves. it's not because i don't worry about the other ones. when you worry about the other issues, the gross debt understates the scope of the problem from those programs. we have raised money for social security into a much lesser extent for a part of medicare and labeled them as trust funds for budget accounting and adding those up we can have a larger
measure of debt. if you take seriously the commitments we have made for medicare for the other parts of it not covered by a trust fund, you have seen these numbers millions of times. here people come in with the $40 trillion number, and $60 trillion number. these guy nantic numbers which are an attempt to measure the overall commitment. i won't call it a debt because we can dial it up and down, hopefully down in the future, i think even the gross debt understates just how severe the trajectory is that we are on. >> understates. do you agree with that? >> yes. i think dr. marin said it very well. in addition the conbegin tent liabilities of which we know is there, that doesn't fit our sentiment as all. we have one or two more crises we'll change that methodology. dr. marin, i think is right. don't think of the gross debt as the extent of our problem. focus on the -- focus on the publicly held debt for what you have to sell and find for the
market will or will not buy. then you have to look at the projections going forward, including the contingent liabilities. >>ç briefly, the uncertainty tt dr. marin and others have mentioned, i believe a lot of that and throughout the entire economy, throughout the entire financial world is the concern over the debt. would you not agree it creates a cloud of economic growth and productivity psychologically as well as otherwise, and that the sooner we get a clear path out of this fix we are in, the better it will be for -- to restart economic growth. >> i think one of the scenarios
that i alluded to earlier is one in which if there is no plan for -- containing debt and deficits medium term, i think uncertainty is a enactor -- factor why we get the results that we get. that higher debt levels are associated. >> you are factoring that in. yes. dr. johnson. >> i think we should take events of the past few weeks in europe, senator sessions, as a wake-up call. exactly on the lines you are suggesting. you need a fiscal commission, you need it now. if you don't have it, in the second half of the year it is a substantial slow down, which i'm expecting, you room for maneuver. the root doesn't matter. whichever way you want to go you won't have that room because financial markets will become more difficult.
that's what the europeans have woke yield back the balance of my time up to. tomorrow they have a big meeting in europe, summit, this is for them is the topic. how do you limit the damage. how do you make the fiscal judgments credible. we don't want to go there. that's raising tax, cutting spending, you don't want to do that in the second half of the year. if the financial markets force you into it, that's a disaster. >> do either of the other senators want a second round? senator whitehouse? >> if it's not too much 6 an ordeal -- of an ordeal for our witnesses. >> they are here and ready to answer. >> thank you. dr. marin, in your written testimony you looked at the 11 million households that are under water on their home mortgages and conclude, a, they are likely to default, and b, that that will eat away at the thin capital cushions of many
banks. to what extent do you believe that the liability for these mortgages has already been written down by the banks, and would you distinguish between mortgages that have been securitized and mortgage that is are actually held by the bank? >> i don't have a good answer to your first question. maybe dr. johnson does. on the second, there are, as you know, some of these mortgages have been secure advertised and have been moved in various places including back on to the federal balance sheets. you have other ones out there held by the banks. the reality is, this goes back to the uncertainty point to what extent have we realized the difficulties we are in. financial institutions still differ in the degree to which they have recognized their losses. some have been more aggressive about it than others. and that that cash continuing uncertainty over the financial viability of various firms is
ultimately hard to track this through. >> isn't it advisable to move through that uncertainty as quickly as possible? >> at some level the ends that you want is where everyone honestly appraises what their losses are and moves on in life. the difficulty we faced over the last couple years it's very -- very hard to get people to go through that process. >> go ahead. >> i think the lack of success of the government programs have had, particularly the one that's supposed to buy distressed assets from the bank, just haven't got up to stale because the banks don't want to sell. i don't think they have written this down. but i think that the strategy that they have had, been encouraged by the previous administration, this administration, sit on your losses and wait for the economy to recover. that works unless you have a double dip or further losses or more strategic default which i think is, to my mind, what we
are looking at here. >> the reason that i was asking that question is that it strikes me we are prolonging the agony by continuing to forbid the residential mortgage holder if they are in appropriate financial circumstances to simply go to bankruptcy court and settle their debt the way everybody else does. in fact, i saw a news article earlier today, the mortgage bankers association argues developmently against allowing -- vehemently against allowing regular folks go to bankruptcy court and get that debt settled the way every other debt can go to the bankruptcy court and get settled. i guess it turns out that they may have written down their own mortgage on their building here in washington. because it's a commercial
mortgage, they can get away with it. so they are -- they know it's the right thing to do. they know it moves you quickly to a market based solution. then everybody can adapt and move on as opposed to being in this sort of throws and states in which banks are asked now to determine what their losses are going to be mortgage by mortgage and then the nightmare begins for the person on the other end. we don't have a balance sheet that quantifies the nightmare for the family that has to put up with this, but clearly it's a nightmare. we don't have a balance sheet that quantifies the loss in property values around that house as it gets forecasted and abandoned and stripped. quantification of what that means in revenue to municipalities that are struggling. there's a whole piece of collateral damage that i think is avoided if we solve that problem. in addition to moving quickly to a market base for those. it's so disingenuous of the mortgage association to be here
lobbying against it for regular people when they are doing it with their own darn building themselves. and i would just -- i would be interested in your thoughts on -- wouldn't that be the quickest way to find the bottom. as soon as people could cut to bankruptcy court and have a quick, fair final determination of it, then everything adapts. there's your finality. mr. marion -- marron. >> i'll take a stab. i'll confess i haven't thought about chapter 13 in those issues for some time now. my memory is hazy. i'm an economist, i'm going to invoke many. on one hand i'm generally reluctant to do things that are changing the rules in the middle of the game. i'm sympathetic. i may not find it dispositive, but i'm sympathetic to the argument the mortgages were initiated under a set of expectations about what the rules of bankruptcy here. >> over the past year -- >> i know. i'm going to be whatever the many handed right thing is.
i'm sympathetic to that. with the passage of time, the emphasis i place on that goes down as we seem -- i don't know what federal program we are on, six, seven, eight trying to address this problem. i no disparagement to the previous administration, current one, and the congress it's a hard problem. it's not surprising it's taken this long. i don't remember -- there is an issue that houses are different than most of the assets that normally go through chapter 13 bankruptcy procedures. you need to think about ways -- most of those things are cars, boats, whose asset value is depreciating rapidly. it's more challenging to apply that to housing. you need to figure out a way to do it. over time i have become more sympathetic to the notion that some reform in bankruptcy could be part of the help. the numbers i saw a year ago when i used to think about this more seriously suggested that even if you did kind of your dream scenario on that front. it's still only a relatively
small fraction of the homeowners who are facing these difficulties. but would be a portion of it. >> can you think of any other circumstance, ever, in which there are actual market losses that need to be processed through and a system whereby you didn't get to the actual market loss but instead allowed an interested party to be the definer of how much they are going to lose on something with an efficient or effective way of finding -- letting the market operate? >> the first part is, yes, i can think of folks trying that separately. the commercial real estate is an example. there are plenty of balloon mortgages under water for which the lenders are doing things lie extending--- extending terms by year. the problem is certainly not unique to residential real estate. at the end you have the second part of your question, then it works well. history does not suggest that it works well. >> clarity is what works well
and finding the actual value, correct? >> yes. >> mr. johnson. >> let me ask both of you to answer then i'll conclude. >> i completely agree. your mortgage through bankruptcy makes sense. this did come up last year and defeated by the lobbies involved. that's a problem. these are not -- this is not lifetime inservitude. this is a no recourse loan. the more people who default, the more people walk away, the lowerer cost of other people walk away. this will change over time. most of the bankruptcy laws in this country has emerged been response to big debt crisis. this confrontation and crisis. this will change, too. in five or 10 years you will be able to modify first leans in bankruptcy. won't do us good right now, throw. >> extremely briefly, i think when we talk about overleveraged households and financial
institutions, restructuring is a viable way of bringing down at least partially that overleveraging. and part of my remarks about forebarons, delaying the inevitable, in the case of banks, and the common -- your comments delaying the inevitable on the parts of households are doing just that. delaying the inevitable and making the slowdown much more protracted than need be. >> making the slow down much more protracted than need be. thank you. >> thank you. i would like to just conclude by trying to make sure that we clear up for those who might be listening the gross debt publicly held debt, then we got into unfunded liabilities which is a third category. so that we don't leave that confused in the record or confused perhaps in public mind. the gross debt is all of the
debt that is owed by the federal government to all of the entities, publicly held as well as to the trust funds, medicare, social security. for example. the publicly held debt is just that debt that is due to the pub lick. that doesn't count the debt to the trust funds. the unfunded liability is still another concept that looks at the differences between the promise that is have been made in legislation versus the revenue streams that go with those spending commitments. that is a more future oriented look at where we are headed. and the unfunded liability of the united states is in the trillions of dollars. and the biggest part of that is medicare. medicare is the unfunded liability, my memory serves me correct, in medicare six or
seven times the unfunded liability in social security. so they are three separate concepts. the reason that we were focusing here i think, i can't speak for senator sessions, but we were talking about that as from a budget standpoint. from what we have to deal with. we have to produce the money in this committee to meet those debt obligations. both the publicly held and the gross debt. because those obligations to the trust funds are backed by the full faith and credit of the united states. they are real obligations. but they can only be funded out of currentok resources. so when medicare's cash negative, social security's cash negative that has budget consequences. we are the budget committee. i know economists like to look at publicly held debt. dr. rhine heart -- reinhart is
demuring. but we have a special obligation to our colleagues to deal with the revenues that are going to be needed to meet these requirements. not only of the publicly held debt but also the gross debt, the obligations to the trust funds. and that has significant budget consequences. we have been in this long-term period where the trust funds were producing more money. there was more money coming in than going out. that has been a very happy circumstance. that is all changing now. and i think when the changes occur that it's often least recognized. it kind of gets missed by our colleagues. this is going to have very, very significant budget consequences. it's important for our colleagues to know that and it's
important for those who are watching to understand. let me just -- >> follow up on that. with regard to -- the way we account for the money in our government allows this confusion to continue. it was very dramatically revealed to me, and i didn't fully understand it until just before the final vote on the health care bill, president obama submitted a score from the medicare that said if you raise medicare taxes and you cut medicare benefits as they propose to extend the life of medicare for nine years, i believe, i think -- as it was stated, that is a true fact. but in the report from the c.m.s. chief actuary from medicare, he had a little parenthetical and it said, but of course you can't simultaneously use that money to
fund a new program. and also extend the life of medicare. all right. but the c.b.o. score, dr. marron, you used to be at c.b.o., the c.b.o. said that you could. because the c.b.o. scores does not score internal debt. and so the president also used the c.b.o. score to say that he could fund his medicare program and extend the life of funded new health care program, extend the life of medicare by nine years. and he had a c.b.o. score that agreeed with him. and basically what -- they don't score the internal debt. so the -- you had an increase in revenue out of medicare and it was spent on the health care, new health care program, and it didn't score as increasing the debt.
where didi] the money come from? it was borrowed from medicare. a debt instrument shows that debt. both agencies scored according to their accounting conventions but together they created a misimpression. anyway. that's one of my sore spots. >> i'm sure that senator sessions did not want to create any misimpressions himself but i believe that he said that the president was cutting medicare benefits and i think it was
clear that he was cutting medicare spending and -- but -- >> right, the president did contend that he could cut spending without reducing benefits. >> particularly in the area of the insurance companies making 14% profits on medicare and areas like that. >> >> well, that's good. i would just say that if we can ex tend the life of medicare nine years without cutting any benefits, let's do it today. the problem is, you can't use that savings to fund a new program and also extend the life of medicare with the c.b.o. -- which the c.b.o. was absolutely crystal clear. >> it's going to be an interesting year, isn't it? let me just say this, i think we do have an extraordinary challenge and the question for all of us, are we up to this challenge? in the short-term and where
differences among us on this issue, but i believe the testimony here has been quite clear. it would be a mistake to start to reduce the deficit too soon. week of seen what happened in the depression when that was done, the japanese have warned us against doing that. at the same time it would be a profound mistake not to have a plan to deal with this debt challenge longer term. because this burnlening debt fundamentally threatens economic growth, economic security and the position of our country in the world. and this is not just numbers on a page. i want to emphasize i think sometimes people listen to us and they hear us talk about this number and that number, why are these numbers important? the reason they are important is because they ultimately affect people's lives. the ability of people to have a
job, to buy a home, to get a college education, all of these things are directly affected by the strength of our economy and the strength of our economy is fundamentally affected by the decisions the united states makes with respect to its budget obligations and its debt obligations. the federal government represents 20% of the economic activity of the country and has a broader impact with respect to our long-term economic position. because if we take on too much debt as dr. reinhart has testified in a very compelling way here, she's looked at the history for extended periods going back and looked at countries that face similar circumstances and then saw what happened and what she's telling us is very clear, you take on
too much depet, it -- debt, it affects the rate of economic growth in the country adversely. that translates into people's quality of life. so it's very important for us, i think, to connect the dots for people. these aren't just numbers on a page that are of interest to government accountants. these -- these things contribute to the economic strength of the country or the decompletion of our strength -- decompletion of our strength and that's going to have an affect on every single american. and more broadly it's going to affect -- have an affect on the global economy. so we have a very serious burden here, a serious challenge. and we've got to prove that we're up to it. week of got to prove that we're up to it. i just want to thank the witnesses today for their assistance to us in that task.
dr. reinhart, you were terrific the first time before the committee, we certainly will invite you back. you were really a great help to the work on the committee. dr. johnson, always good to have you here, a lot of great clarity of thought as well as the ability to articulate these issues in a way that's understandable even to those of us who are not economists. .
>> former congressman charlie wilson died today at the age of 76 in texas. he served 12 terms as a democrat in the house of representatives. his work was the subject of the book and subsequent film "charlie wilson's war." >> here's what's coming up on c-span, idaho governor butch otter delivers his state of the state address. economists and business leaders discuss aid at the world economic forum in switzerland. and a symposium looks at
american culture and morals and we'll hear about civic literacy. >> thursday on "washington journal," representatives dan maffei and aaron shock of illinois discuss economic relief for americans. after that, tom schats talks about the president's 2011 budget and gives recommendations on where cuts should be made, plus your emails and phone calls. "washington journal" live tomorrow at 7:00 a.m. eastern on c-span. >> it's the only collection of american presidential portraits painted by one artist. now on display at purdue
university in west lafayette, indiana. the exhibit looks at the lives of the 43 men who held the office through paintings, photographs, prints and audio recordings, sponsored by c-span and white house historical association. if you can't get there, see the entire collection online at c-span's website at american presidents.org. >> three-day president's weekend, authors include henry paulson talking with warren buffet on the 2008 economic collapse. historian garry wills on how the atomic bomb changed the presidency. "after words quee reairs. all day monday, books on american presidents, f.d.r., president obama and our culture, and ronald reagan.
go to booktv.org. >> idaho governor butch otter state of the state address. he is completing the final year of his first term of office and has not yet declared for re-election. he served three terms in the u.s. house speaks about idaho's finances and education. from the state capital, this is about 50 minutes. >> thank you. thank you. thank you, everyone. i want to begin by apologizing. this is probably going to be the longest and i suggested maybe to the majority leader that perhaps my speech was going to belonger than the session, because i had 11 minutes to it over the previous one. thank you all for that warm welcome and thank you for being here today. mr. speaker and mr. president,
honorable justices, my fellow constitutional officers, legislators, members of my cabinet and my friend, senator rich, welcome back. i introduce my 95-year-old mother. mom, you don't have to get up. [applause] . >> my two daughters representing 4/5 of my grandchildren, kimberly and carolyn. [applause] >> my mother in law, thank you so much for being here. [applause]
and of course mine and your first lady, miss laura. >> if i may divert a little bit from my prepared remarks, special guest, esther. [applause] >> and finally, but not least, my fellow citizens. welcome back to the people's house. it's been three years since a state of the state address was delivered in this historic building, monument to freedom and self-determination. join me in thanking all the skilled men and women who restored our capitol beyond its original glory and reflected our best hopes for an even brighter future. please join me. [applause]
>> and they did it on time and on budget. [applause] >> and now, join me in extending our congratulations to two outstanding football teams that have made all of us in idaho so proud. whether you are a bronco or a v and nondal. they give me the bragging rights of one of three governors in the entire united states has a 100% winning percentage in the bowl season. so let's hear it now for the university of idaho. [applause] >> the head coach and his team showed us it could be done at
home. and chris peterson and broncos showed us it could be done elsewhere. let's also congratulate the broncos. [applause] >> we take a great deal of pride in our football teams and all our youth, all of our young people, all of those folks here in idaho. that's one of the reasons it has been difficult to watch these past few years that we have been away from this capitol while the world around us has changed so dramatically. today we have a new president, a different economic climate and out of necessity, we have different priorities. but our people's spirit remains the same, challenge, but strong, concerned, but resilient. i have been consistently inspired and energized during this past year by the shared sense of responsibility and community support shown by the
hard-working people of idaho all over the state. and i want to express my deep gratitude and highest praise for everyone who looked beyond themselves during these difficult times. thank you to everyone who held your families and friends close in their struggles. thank you, too, to everyone who reached out to neighbors and even complete strangers, to assure them that we're all in this together. we offer comfort and hope that things will get better, and they will get better. what i said a year ago is just as true today. we have the experience, we have the talent, the intelligence, the will and the people in order to get through this, smarter, tougher, and better than ever, and we will. ladies and gentlemen, after a lifetime in idaho and the generation in idaho's public life and having traveled to every corner of this great state listening to people we serve, i will tell you that our little
corner of this republic is alive and well. but make no mistake, a rebirth of prosperity won't happen on its own. it will require strength of character and the courage of our convictions. it will require us all to look beyond the next election or even the next budget, to the next generation of the people of idaho who will be reaping the harvest that we sew now. and it will require reassessing the core values that define us as public servants. what are the core values? the people of idaho are as independent and freedom-loving as ever. they rightly believe that their money is well, theirs. they believe that government should champion peoples' own solutions without imposing its own. they believe what government does it must do well,
effectively and efficiently, and they believe what government does not do well, it must either do better or not at all. they believe that the best government is the government closest to the people and most reflective of their will and our citizens and in our cities and counties and other local jurisdictions. they believe that more government does not mean more opportunity or more freedom. and they are just as firm as ever in their belief that government is meant to have only a limited and well-defined role in our lives. so what does maintaining the proper role of government mean and have to do with us here today? everything. starting with our commitment to these fundamental principles into work that we are about to undertake. number one, we must not raise taxes. [applause]
>> it is not our place to impose additional economic burden on the people of idaho who are already are struggling to put an economic or to put an economic damper on this recovery. what's more, i heard over and over again from small business owners and individuals that what they expect is predictability and i know the chairman understands that. number two, we must continue to maintain some level of cash reserve against the prospect of our economic recovery, taking longer and being less robust than we hoped. even the best case economic scenario involves months and months of delay between the business activity that's generated and the tax receipts that follow. prudence demands that we act with caution, and i hope we will. number three, we must do whatever we can to protect the
educational opportunities and safeguard the potential of the next generation of the people of grandchildren. as our recovery advances, one of the first priorities for new dollars should be our public schools and higher education and i'm sure the chair men will be the champions for that effort. number four, we must protect the health and safety and well-being of our citizens, especially the needs of the most vulnerable amongst us. and number five, we must do whatever we can to avoid the duplication of effort or any waste of the hard earned taxpayer dollars. you'll hear more about that in a few minutes. as you know, i spent a lot of time during the past year listening to idaho employers and employees. i conducted day-long public meetings with scores of business innovation leaders from
throughout the state. i held extensive discussions with part pants and policy makers. and i met with more than dozen chambers of commerce. just this past week, i met with leaders of the business finance community from all over the state and we talked about capitalizing and promoting our economic resurgence. next week chambers of commerce director and i will meet with the economic development professionals from every corner of the state to get their perspective. my project 60 initiative, our business plan for idaho's renud prosperity involves taking that good advice and building private-public partnerships that are leveraging the message to employers and that message is that idaho is open for business and that we have a stable tax and regulatory climate in place
to help them and that our people are ready to compete with any in the world for the opportunity to shine. [applause] >> great individuals in business, large and small, are making a real difference all over our state. people like martin, at a.t.k., whose ammunition business is growing, robin woods, whose moscow company is at the cutting edge in the pharmaceutical. doug sayer from premier technology whose operation is now expanding to other places in the state setting the standard for economic opportunity. paul shell, at quest aircraft, whose business has been recognized nationally for its
groundbreaking technology and can-do attitude. ron needlesson, whose business is creating innovation and incredible value. and tom harris at western states equipment whose faith in idaho and our people and our potential convinced him to expand to a great new location in haiti this past year. mark bonner, a unity media group and eagle, whose breakthrough online technology is being adopted by health care professionals and other businesses throughout america. ellen meyer, whose company is among our most competitive and aggressive exporters. john eli, who's recognized the unique opportunity as a location to grow and prosper in america's best seed-producing area.
tom britt who is solving problems for his customers while he works to attract partners from other states to take advantage of all the benefits of doing business here in idaho. jefferson jewel, who looked beyond his own software company to recognize that it is a rising tide that lifts all boats and is now working with his industry and innovateors throughout idaho to grow our economy. tom crarbone, who is helping to turn eastern idaho into a renewable energy hot spot that will drive our prosperity and steve appleton, who continues to believe so strongly in idaho and the potential of our state and our people and is seeing a rebirth of new technologies and business opportunities. they are all showing the way to
a smarter, more responsive and more promising future for their employees and their communities. some of them folks are here with us today. ladies and gentlemen, please stand and let us thank you. [applause] >> with that kind of talent and economic energy that they represent, my message today is let's build on that success. let's find more ways to unlock the tremendous potential that resides in our cities and towns and our countryside and within our citizens. we have many great examples of how to grow our economy for all the benefit of all idaho. that involves more aggressively buildings partnerships and collaborating and listening and
making our public policy consistent with the real needs of men and women who make our economy go. speaking of aggressive, that's exactly what the approach is that we're taking to convince the air force that boise and mountain home are the best places to provide the training and homes for their new joint strike fighters. this is an exciting opportunity that has the potential to bring 3,000 more or direct career-level jobs and many more positions in the support of the new mission throughout the treasure valley. at my direction, lieutenant governor and i, our department of commerce and the national guard leaders are working closely with folks at the air force base, idaho's congressional delegation, our state agencies and community leaders to make a compelling case for bringing the f-35's here. i appreciate the help and support that members of the legislature are providing in
that effort, to bring a new generation of freedom's wings here to idaho. our citizens have long proven themselves time and again to be tremendous supporters and contributors to our armed forces in the defense of this great nation. the f-35 campaign gives us yet another opportunity to show our patriotism and our civic virtue as well as the tremendous advantage we have in terms of airspace, weather, proximity and enthusiastic citizen support for military missions here in idaho. we have a great opportunity to make this happen. thank you. [applause] >> we have a great opportunity to make these things happen, thanks largely to the contributions made by our troops and the ones that they have made over the years. but it will take us all working together to achieve our goals in
cities, counties, state, private businesses and individual citizens. and i know that i can count on your support in that effort. at the same time, we aren't putting all our eggs in one basket. we are reaching out every day to employers who are considering a move to idaho, to take advantage of our quality of life, our stable business tax-friendly and regulatory structure and our rural class workforce. we soon will be submitting reports from business and innovation sum myths to the legislature on what we're hearing from idaho businesses. in those reports, you'll see calls from eliminating the personal property tax. you will see a recommendation for significant tax credits for infrastructure construction, investments, including and involving education. you'll see a proposal to create a home buyer tax credit, similar to the one that has been used so successfully down in utah. and you will see calls for
continuing to work of our innovation council toward making it easier to move great ideas at our universities to great products and services in the marketplace. folks as incredible as they, our universities are not the only source of great ideas in you idaho. and great ideas don't come from within boise and this capitol. i have held a dozz i don't know capitals for a day throughout 2009 from franklin and cascade and dubois. my capitol for a day program takes our seat of government to small and in some cases remote communities in our state every month. i'm joined by members of my cabinet and hearing directly from the people from around the state about their challenges, hopes and fears. unfortunately in some cases, my visit to capital for a day
communities have come hard on the heels of devastating news. an employer just shut down or a business opportunity is shutting down or a local operation is shutting down or a business development opportunity has been missed. there are fewer experiences in this job as difficult as consoling those who are frustrated by the froubles life has handed them. there are few experiences in this job as aspiring and uplifting looking into the eyes of people we serve and recognizing that spark of civic virtue that motivates them to stay involved and keep working for something better. what i hear clearly and consistently from the people of idaho is incredible humility and i hear a desire from everyone for opportunity, a freedom to succeed on their own terms. the people of idaho are people who want to define their own
success. they only want what they earn by the intellect or sweat of their own brow and want jobs that can become careers by virtue of their own hard work, creativity and commitment. from government, they expect us to be held accountable and then to get out of the way. they do not want a federal-style, one size fits all federal government that doesn't only tell them what to do but how and when. they don't want a federal-style government that is spending into recovery by mortgaging our and do not want a federal-style government that is willing to cut any deal, put aside any principle or risk any freedom to build costly entitlement programs at our expense. so that's why it is so very important that those of us entrusted with these jobs fulfill our responsibility to make government as efficient as
it can possibly be and to never forget that it is the peoples' l's money. no need for me to recount our economic situation. we all know the downturn is among the deepest and longest since the great depression. we know that state government must limit our spending to our revenue. as was once said, government, government's great contribution to human wisdom is the discovery that the taxpayer has more than one pocket, end quote. now, i wouldn't go quite that far, but our history does show that it is far easier to expand government than to rein it in. it is also true that that government that tries to be all things to all people inevitably fails both itself and the people whose expectations it has raised. i will not ask you to believe there is a magic possession to cure what ails our economy or state government.
it will require sacrifice and hard work. as you know, the tier that i ordered addresses to the shortfall in 2010. i'm asking you to approve that holdback and bring your collective wisdom and experience to bear on the remaining shortfall. i'm asking you to work with me that reflects our shared priorities and our commitment to do what must be done rather than choosing the ex pedyent or popular course. ladies and gentlemen, i know that chairman bell and cameron agree with me that state government must lead by example. we must live within our means. that means finding and encouraging more efficiency, more innovation, more creativity and collaboration and more flexibility. and perhaps most of all, we must earn the trust and the understanding of our people, both those who serve and those
who rely on those services. [applause] >> building public trust and understanding is why we will continue about our discussions on the funding needs of roads and bridges throughout the coming year. transportation remains a very important priority for my administration, as i know it does for you as well. our economic well-being as individuals and as a state will remain in jeopardy without safe and efficient corridors of commerce and the lieutenant governor is leading my transportation task force with the help of other legislators and private citizens to study and consider the long-term needs that still must be addressed once our economy turns around. in the meantime, we're focusing on what works in making better
use of the people's money. at the idaho department of transportation changing the way we do business is working. it has led to savings on highway projects throughout the state. along with federal stimulus funding that has enabled us to stretch our transportation dollars further than ever, and i know that's a fact that both greatly appreciate. the inmate population in our prisons has leveled off and that is due to your hard work led by the two chairmanmen and thanks to the interagency committee that includes the department of corrections head, debbie field, the office of drug policy, dick armstrong and colonel jerry russell at the idaho state police. it includes sheeree at the department of juvenile corrections, pardons and pa
roles officers, courts administrator as well as public-private partnerships that extend to all branches of government. and it has resulted in substance abuse treatment programs that are working. building safety and cross training initiative that is enabling more inspectors to be conducted by better trained inspectors. public utility commission, energy efficiency measures with local jurisdictions, are working. they are already saving enough power each year to serve the city of twin falls. department of agriculture and department of environmental quality and department of water resources, an end to the duplication of water quality monitoring is working. in our judicial branch, our courts recently won recognition
for their innovation for rural justice administration thanks to the leadership of our chief justice and the other justices. [applause] >> the judges themselves, 100% of them work voluntarilyly two days without pay to help balance the budget. these examples and many more are aligned with ronald reagan's goals and mine, when he said, quote, it is not my intention to do away with government, it is to rather make it work with us. stand by our side, not right our back. government can and must provide opportunity, not smother it, foster productivity, not stifle it, end quote. you often hear the term good government being tossed around.
i guess i toss that around as much as anybody. well, the people of idaho believe that good government doesn't mean more government or bigger government, it means government that is effective and transparent, accessible, accountable and responsive while maximizing individual freedom. it is government that understands its limitations and that its authority is derived from the people in whose individual creativity and civic virtue lie the answers to our collective challenges. before i go any further, let me dedication and the professionalism of our state agency directors and administrators and their staffs as well as the great body of public employees throughout idaho. seeing their willingness to engage in this god good profit and put forth their best efforts on behalf of our citizens is one of the most satisfying parts of my job.
and i want you to know that i remain committed over the long-term to making sure that these employees are not only appreciated, but also are competitively compensated for their service to the people of idaho. [applause] >> for about six weeks now, our state employees have been joined in actively addressing our budget concerns by anyone in idaho with an internet connection and an interest in good government. in fact, today, we are launching a new feature on the efficiency .idaho.gov website and looking at the ideas that our citizens have submit smied. thanks for going online and offering opinions, insights and perspectives on our state
budgets. those ideas are appreciated and important part of our consideration. some of them are already being put in place. for example, about a dozen individuals suggested energy efficiency in our state buildings should be one of our goals. and i'm pleased to report that our newly restored capital and other state buildings have been outfitted with such improvements as better insulation, high efficiency light bulbs and motion sensors that turn out the lights and turn down the heat when the rooms aren't occupied. that effort is being led by the director at the department of administration. mike is working hard across state government to implement a shared system of fleet management to ensure we are getting the most out of the thousands of vehicles that are used by state agencies. of course, not all the public suggestions can be implemented right now. so we're compiling a report and will join with the committees of the legislature in exploring
what works and what will best serve the people of idaho. with that in mind, let me say again that the budget recommendations that i bring to you today are based on the fact that it is not state government's money, it is the people's money. as a result, these recommendations are responsibly conservative. they were developed with great care and deliberation and a full understanding of their consequences, both real and perceived. and they will provide a balanced budget as our constitution so wisely requires. my recommendations include sweeping changes to the way we do business in state government. those changes are meant to be permanent based upon a philosophy that government that recognizes our responsibility to individual people of idaho rather than to government itself. i believe they represent what can and must be achieved within the realities we now face and to more closely align our
government with its proper and limited role. having said that, i don't believe there is anyone in this room that respects the separation of powers and the importance of checks and balances in our system of government more than i do. while we share a long history and a strong set of values, like many people of goodwill, we sometimes can review the same set of facts and come to different conclusions about a path forward. i have no doubt that there will be disagreements with some of my elements of my plan. that is your prerogative, your privilege, your responsibility. i'm not asking you to substitute my judgment for your own. i'm not contending that i have any greater insites or superior perspective on the challenges we face. i only hope that you will take the time and the effort to study what i'm proposing and join me in working patiently and civil toward a conclusion. [applause]
>> i appreciate the tone set by the speaker. during these difficult processes. and i appreciate their partnership. as you will see in my executive budget, my recommendations are based on zero revenue growth for fiscal year 2011. that threshold agreement on a starting point for our budget work was reached over four months of unprecedented discussions with legislative leadership. it reflects the relationship between economic recovery and revenue recovery as well as our continuing commitment to being frugal stewards of the people's money. my budget eliminates 400 positions throughout state government, including about 375 that are now vacant. and it con sole dates other agency operations. and finally, i'm proposing for the balance of fiscal year 2010
that we hold back an additional $40 million from all state agencies and operations, including public schools. that's amongst the toughest recommendations that i make today. but the fact is, while other executive branch agencies have been cutting their budgets by $499 million as a result of holdbacks over the past two years, we have used almost $318 million from reserve accounts, federal stimulus funds during that same period to reduce the impact on public schools. now that is buffered them to some degree from our difficult economic reality. now, legislative leadership and i are in agreement that public schools must participate in this new effort to respond to sharp revenue reductions by pairing an additional 1.6% from the remainder of fiscal year 2010. our proposal would look to local school districts for their
specific ideas on how to best achieve their savings, including their discretionary use of local reserve accounts and in extreme cases, advance future state funding. this is not the course that any of us would have or would prefer to follow. it is unfortunate, but it is a temporary situation made necessary by the circumstances we face. keeping faith with our fundamental principles and with your support, we'll get through this together. keeping faith with our principles also is the basis for my proposal to continuing increasing the grocery tax credit as planned in the coming budget year. [applause] >> two years ago, we dread on the importance of providing relief for the neediest and most vulnerable amongst us from what was then a new increase in our state sales tax.
ladies and gentlemen, it is a fundamental principle of good government that we ensure that we can pay for the promises that we make. to that end, i'm recommending that we continue to carefully use our rainy-day funds to address some of the most immediate and pressing needs. specifically, i'm recommending that we use almost $241 million including the nonendowed portion of the millenium form to address projected revenue shortfalls in the balance of 2010 and fiscal year 2011. that includes $49 million that i asked you to draw from our public education stablization fund to cover the public schools' portion of the tiered holdback that i ordered at that time. like you, i remain sensitive to the serious budget challenges idaho. and that's why i'm working with the superintendent, the state
board of education and diverse coalition of education advocates from the public and private sectors to develop long-term strategies for improving our public schools. one such person is skip from the idaho business coalition, another person, from the educational alliance from idaho. both are with us here today. gentlemen, please stand and let us show how you are improving idaho to be a state for world class education. [applause] >> i also want to thank the foundation for itsen rossity in helping to continue to expand our idaho network. jamie is with us today. jamie, please stand so we can acknowledge your great contribution and your leadership
. [applause] >> jamie, i apologize, all the afford one more check. by the end of the current budget year, we will expect to have 80 high schools connected with idaho's education broadband capability. that already is expanding the horizons of students from bonner to bear lake, empowering students who might otherwise not get the chance to benefit from a uniquely qualified instructor that lives elsewhere, enabling students in sugar city to get the same education as those in jerome and twin falls. i understand that we have students from some of those schools watching us live today over that very same network.
welcome. the albertson's foundation will add 80 more schools during fiscal year 201011 and 40 more in fiscal year 2012. >> now while that will make a big difference to access to education and the ability of our students to engage and do a credit nolment programs, that offers a leg up of higher education as well. it will help us keep us improving student achievement scores building on local educators and assessment group led by kristen, but i don't want anyone to think that the idaho education network is only about schools. it's also about bringing employment opportunities to our communities and making government more efficient,
accessible, responsible and opening up the wider world to all of our citizens. these goals are why i'm proposing that we continue preparing for tomorrow's workforce by, number one, providing funds to handle the tremendous enrollment growth at the college of western idaho. fully funding our commitments through cooperative and medical education programs. in groundbreaking work being done at the center for advanced energy studies in idaho falls. and four, by providing $1 million in opportunity scholarships to help our students stay here at home to continue their education. after all, you and i both know that we badly need the best and brightest of our young people to get their education here and stay here for productive and fulfilling careers, careers like those being created in such emerging green industries such as geothermal, wind, solar,
biomass and other renewable energy generation and for what we hope and believe will be a resurgence of cleaner, carbon neutral and more efficient nuclear power. we need our idaho young people to stay here on the land. that means ensuring that we have the water they need to keep making the desert bloom and to raise their families as well as their crops and livestock in keeping with our strong and rich agricultural tradition. that's why i'm proposing to invest $1 million to implement the management plan that shows great promise in preserving our precious water resources. i appreciate the work of all in that effort. we need our idaho young people to stay here for the careers that will be created in the new and smarter electrical transmission corridors being
planned throughout the region and we need our young people to stay here to bring their passion, energy and talents on our growing health care community needs. that's why we are launching a new public-private partnership aimed at paying for the more newly minted physicians to perform their residencies right here in idaho. i'm pleased to announce today that blue cross of idaho is leading the way in that effort by committing $300,000 to idaho residencies over the next three years. blue cross president and c.e.o. is with us here today. ray, stand up and please let us thank you. [applause] >> in that commitment, ray extracted a promise and i agreed that we would do everything that
we could in order to enhance that fund even larger. but thank you for your willingness to act on your belief in a stronger and healthier idaho, ray. now we want to challenge, as i said, all our other partners in the insurance and health care communities to join us in this endeavor, to put more medical communities. you can expect to hear an awful lot more about the health care later this year as we work with the chairmen on those issues. the bottom line of all these efforts is empowering idaho, ensuring they have the freedom and opportunity to reach their own greatest individual potential. we also deserve the opportunity to reach our own greatest potential as a state. and that's why i want to congratulate the idaho fish and game commission, the director, the legislature and our idaho sportsmen for developing a plan
that passed muster. now this federally imposed predatory is being managed for the long term sustainability as a trophy animal and our livestock have a fighting chance. i want to con great the office of species conservation and fish and game and local units and land owners who worked well together to protect and preserve a southern desert plant. unfortunately, the federal government in its wisdom concluded that the local folks weren't up to the task, so it imposed an endangered species act protection. yes, the feds are casting aside the collective judgment of those born on this land and who care more about it and less in favor of bureaucratic nonsense and
limitation to endless court battles. ladies and gentlemen, i am fighting that decision in court and with your help and continued strong support, we will carry the day while doing what's right not only by the species, but also by our people. [applause] >> i also am continuing my fight to keep the feds of using idaho as a dumping ground for element tall mercury. we have worked too hard and too long in protecting the snake river in building a collaboration with our partners at the laboratory to allow it to be put at risk by a misguided federal decision. i will not allow idaho to become the nation's dumping ground for
element tall mercury. [applause] >> there is a similar policy-making slight of hand going on with the federal administration's effort to foist the cost of a budget-breaking entitlement program our backs. the health care reform bills being promoted by the president's party in congress could add half a billion dollars to the cost of health care in idaho. that unprecedented expansion would force us to make even more painful and difficult decisions about what gets cut from the public schools, higher education, corrections, public safety and other fundamental services of government. just as importantly, it would saddle our children and our children's children with what thomas jefferson called the moral canker of a staggering
public debt. thank you for supporting me and our congressional delegation in fighting against this assault on our self-determination. [applause] >> that message is a desire for individuals and communities to have the freedom and the opportunity to live up to their own greatest potential. and that is a thread that ran throughout all of my capital for a day events this past year. the people of idaho need to know we are listening and their opinions and well-being are what really matters to us. i have been humbled time and again by the expression of thanks and surprise. i hear from citizens in communities throughout our great state.
and when they get to stand and be heard, it's even more a blessing. sometimes they arive angry. many times they arrive frustrated, but they come away with a renewed belief in what government can and should be and renewed faith in their own ability to make a difference. the people of idaho are not looking for handouts or for government to solve their problems. they only want government to get behind their solutions and not stand in the way. you and i can and must be the champions of those local solutions. you and i can and must put aside any partisanship that clouds our vision and focus. instead, on the great things that we can do together for the people that we serve. being together here in the capitol will be a big help, i'm hopeful. our communications may have
years, that we were displaced, but please remember that my door's always open and remains open to you within 24 hours. my friends, there's no limit to what we can accomplish if we work together. consider the settlement with a long running dispute with idaho power over the snake river and reduce grass burning and its impact on northern idaho by bringing together the growers and those concerned about the consider how we protected the precious drinking water for hundreds of thousands of people of idaho and ended years of litigation with waste cleanup agreements. consider how we laid the groundwork for hundreds of high-paying careers and to build a multi-million dollar uranium enmitch rnt plant did i say million, i meant billion. consider how we create more
community colleges and training opportunities for idaho's young people and those working throughout mid-career transitions. and consider how we join hands together to create the opportunity scholarship fund. as a result, we are now able to help ensure that money doesn't keep more idaho students out of college or career training. and we can do all these things that are appropriate things without imposing seemingly endless squabbles on the people that we serve. legislative sessions have averaged 82 days over the past 20 years or so. last year, factors beyond our control pushed us about 50% over that average. and i'm sure that you share my hope that today, by sticking to our principles and our core values, we can balance the scales and make this amongst one of the shortest, most con genial, most collaborative and most productive legislative
sessions in our history. [applause] >> before i close, let me say a few words br men and women of our army idaho national guard. as you know, there ig a very real possibility that thousands of our friends, neighbors and family will be deployed into a war zone later this year. that knowledge made the recent holiday season particularly bittersweet for our citizen soldiers, preparing once again to go into harm's way to protect our freedoms and our way of life. ms. lori and i were there early on that sunday morning immediately after christmas as groups of idaho national guard warriors bound for duty in afghanistan said good-bye to
their loved ones and friends. those troops came from the airlift command. they will be helping to protect the comrades in arms over the improvised explosive devices that are killing and wounding so many of our men and women. please join me in remembering them in your prayers and your well wishes for their safety. and please join me as well in praying for the freedom and safe return to his idaho family of private first class boyd birdau who has been held prisoner by the taliban since june. we are united in our outrage at his abduction and his support for his family and friends and loved ones. ladies and gentlemen, we are the idaho family. we have a shared history and a shared vision for our future, a
opportunities match our unlimited dreams and potential, where individual freedoms and civic virtue are synonomous and where we are the arc texts of our own destiny, because we are truly in this all together. thank you for your attention today. thank you for your service to idaho. may god bless this legislature and the work you are about to undertake. thank you so much. [applause] [captions copyright national cable satellite corp. 2010] [captioning performed by national captioning institute] >> former congressman charlie wilson died today at the age of 76 in texas. he served 12 terms as a democrat in the house of representatives. his work and support of anti-soviet fighters in afghanistan was the subject of the book and subsequent film
"charlie wilson's war." you can watch video of the book's author on booktv.org. >> thursday on "washington journal," representatives discuss congressional efforts to spur job growth and economic relief for americans. after that, tom shats, talks about the president's 2011 budget and gives his recommendations on where cuts should be made. plus your emails and phone calls. "washington journal," live tomorrow at 7:00 a.m. eastern on c-span. >> his film, "hillary, the movie," was the focus of a recent supreme court decision, documentary producer and head of citizens united, david bossie, sunday night on c-span. >> tune on c-span 2 booktv for
three-day president weekend. authors include henry paulson. historian garr wills on how the atomic bomb changed the presidency. "after words" reairs on sunday night. on monday, books on american presidents, f.d.r., president obama and our culture, craig shirley on ronald reagan. for the complete schedule go to booktv organize. >> the only collection of presidential portraits painted by one art activities by chaz-fage and now on display in indiana through february 21. the exhibit looks at the men through paintings, photographs, in