Harvard Book Store; WGBH Forum Network; Joseph Stiglitz: America and the Sinking of the World Economy

This evening we're gathered with Joseph Stiglitz and Cullen Murphy for a conversation about Professor Stiglitz His latest book freefall America free markets and the sinking of the world economy. I'm pleased to turn things over to Cullen Murphy tonight. Cullen Murphy is the editor at large at Vanity Fair and was the managing editor at The Atlantic Monthly where he worked for over 20 years. Mr. Murphy has also authored a number of books including rubbish the archaeology of garbage and the word according to Eve. Woman in the Bible in ancient times and our own. His most recent recent and highly acclaimed book Are We Rome the fall of an empire and the fate of America was published in 2007. They've been Gentlemen thank you so much again for joining us tonight and thank you for your patience. Please join me in welcoming Professor Stiglitz and Mr. Murphy. Thanks. Thank you thank you thank you thank you very much Heather and thanks to all of you for coming out on this evening and thanks to you Joe for being here. I remember very very clearly my first encounter with with with Joe Joe doesn't remember anything about this.

It was in 1074 I was graduating from the alma mater we share which is Amherst College. And in that year Joe got an honorary degree you were at the ripe old age of 31. And I remember sitting in the audience watching Joe come up across the podium and being hooded with your the the the. The honors of your honorary doctorate and a friend of mine just elbowed me and just said Joe who. This was it in 1940 a time when we were all hoping that there'd be perhaps a rock star up there. And of course the irony is that there was that and and and it was you. Joe as you all know is the winner of the Nobel Prize in Economics during the Clinton administration he was the chairman of the Council of Economic Advisors advisors and then he went on to become the chief economist of the World Bank. He is probably the only person in the world who can say he's both a member of the Pontifical Academy of

Sciences and a contributor to Vanity Fair. During the past 10 years he has emerged as one of the chief critics of the way we've managed globalization of the end of the Qadri of economists that that you call free market fundamentalists. And even before the economic meltdown Joe was a scourge of the way Wall Street does business over the years he has inquired if he has acquired an enviable roster of intellectual antagonists. But the epithet that he may have the most trouble living down is the New York Observer's which called him Columbia's cuddliest economics professor. But one has to wonder about the competition. So. You know I have I have some questions for Joe. I'll take it for about the conversation for about a half an hour and then then turn it over to questions from all of you and then Joe will sign books and then he will be off to

Davos. So so let's begin with the situation that we that we find ourselves in now which is the very heart of freefall. So if you could take a stab give us the executive summary. You know the five minute version of how do we get into this mess. Well if I had one word I'd say the banks. The obviously the financial system undertook excessive risk. The banks didn't do what they were supposed to do which is to allocate capital manage risk run a payments mechanism and do it all at low transaction cost. They didn't do any of that they misallocated capital they mismanaged they created risk and they charged huge transaction cost to the point where 40 percent of all corporate profits were in the financial sectors on us and we confused a financial system is supposed to be a means to an

end we thought of it as in in itself. Now there's a lot of debate about the causes of the crisis. A lot you know that a lot of blame to go around. And even when you identify something like the banks. And say they were the cause you have to ask the question why. So because you know capitalism isn't supposed to be dysfunctional in the way that it was. So when I look at the banks I say Well the fundamental problem is incentives. The one thing that economists agree on is that Incentives matter. And at the individual an organizational level incentives were distorted and centers for excessive risk taking. And then you have to ask why were those incentives what capitalism is supposed to have good incentives Why did we have such batting sent.

And you keep answering this question. You'll have to buy the book. But the other you know the regulators were supposed to stop them. They didn't and you have to ask why. One of them is we have a we. We stripped away the regulations during for over a long period of time including in the period of Clinton administration part of the problem was we appointed regulators who didn't believe in regulation. So if you have regulators who don't believe in regulation for them doing their job was doing nothing and they did that very well. Sometimes there's blame God. Right now Bernanke is up for reappointment and a lot of people are saying why should we appoint somebody who brought the financial system to the edge of room and they point out that well interest

rates help feed the bubble when the bubble was part of the problem. Oh my. My criticism is a little bit different. If our financial system had been working well low cost capital could have been the basis of a boom. I mean we kind of affirm complainings that workers that were willing to work at too low of the wages in X-Y lost money and the banks are complaining that the Fed gave them capital at too low of a cost. And that's why they messed up. Now you know on the face of it it sends out a really bad argument and we've had periods with low interest rates in which we haven't had problems some countries have had high interest rates in which they have a real problem with the financial sector failed and the Fed didn't stop them. That's really what I think of as as the core of the problem and part of the reason. And this brings me to the final Blain. They got caught up in this

market fundamentalism. They believed that there couldn't be such a thing as a bubble because that would be evidence that markets were inefficient and we know that markets are efficient. They went on to say even if there were a bubble of there's nothing we could do. And besides it's easier to clean up the mess than to try to interfere with the efficiency of the Almighty economy. Now each of those propositions I think was absurd at the time. And I think in retrospect it's clearly been absurd. The economics profession I think bears some blame for that problem because they were the intellectual armor that the regulators and the bankers used to justify a lot of what they did. I want to come back to the economics profession in just a couple of minutes but but first can we just pause on on one part of what you were talking about and that is on regulation. So you were there

in the Clinton administration for a lot of these battles. And in fact your your for Among the things you're famous for if you're famous for some of the battles you lost kind of the Robert E. Lee of economics and the. And one of those battles was the Glass-Steagall Act which was repealed during the Clinton administration. And I wonder if you could just give us a quick resume of what. First of all what Glass-Steagall was and what your position was and then what happened. So first let me make clear why I was there. They didn't repeal it. So it was a battle that was lost after I left but it was a battle that was fought very very intensely while I was there Glass-Steagall was a law that was passed in the aftermath of the Great Depression when they looked around and said what caused the problems. And it attempted to separate out commercial banks which take ordinary citizens

money and are supposed to manage it conservatively because when you would go to the bank you want to be sure to be able to get your money back when you put your money in the ATF. And it says insufficient funds you want to be because you have insufficient funds in your account not because the bank has insufficient funds. So that was the spirit. They didn't have a TMC at the time but but that was a spirit to separate out that commercial bank from the investment bank that take high income individuals money and gamble and sometimes they win and sometimes ago but the. Those people can afford it. So that was the spirit of what we had. Of that we had banks like Goldman Sachs that were investment banks and Citibank that were that were commercial banks. The battle was particularly Senator around Citibank to put some names on this Bob Rubin had been had at Goldman Sachs and after he left and he

became one of the chief people in Citibank and the idea was that you wanted to make Citibank bring in all these a super market of financial services so you had to get rid of these rules that separated the institutions and I argued that there were several problems first there were problems of conflicts of interest that. If you're running an investment bank you could take easy access to money and use it for other purposes. And those conflicts of interest became quite evident in the WorldCom and Enron scandals in the earlier part of this decade. The second one is that there really were two different mentalities you wanted your commercial banks to be conservative to put it somewhat You want banking to be boring and the investment banks like the excitement of gambling in those two cultures to mix

in together the risk was that the risk taking culture would contaminate the conservative culture. And the third problem was one of concentration. One of the strengths of America's financial system has been that it has been a widely diversified financial system running throughout the United States not concentrated like many. Countries in Europe. And there's a worry that when you repealed Glass-Steagall it would lead to heavy concentration. And that's exactly what happened. The to the point where the you know the largest few banks had a 50 percent or more of all deposit so our banking system has become very concentrated. One of the worries about very very big banks is that they become too big to fail and also to big to be managed. And that

means you have a double problem because they're too big to manage. They ought to fail but because they're so big they can't be allowed to fail. And that's exactly what happened. There was one other aspect of the debate that you might find amusing which was on the issue of conflict of interest. Treasury advocate said Don't worry we'll create Chinese walls. And my response was to you know two fold one. First of all I don't trust you that you'll create Chinese walls that are very low you walk over them. And what I trust is that you'll do what's in your interest which is what they did. But not in the interest of the rest of our country. But the second point was that if they did create these high priced high Chinese walls then why bring these companies together. You know I think if they are going to interact don't keep them separate so you don't have the

potential for conflict of interest. They never gave a good answer. And. As I say after I left. Towards the end of the decade when Citibank was being formed they finally repealed Glass Steagall but I should point out it was a long run objective of the financial institutions. Some people argue that you know one of the mysteries is why was Paul Volcker not re appointed as chairman of the interesting issue. Given that we're now talking about reappointment of the Fed because he did what a central banker is supposed to do that is to say we have had double digit inflation. He brought it down. And normally having really managed the macro economy you would have thought he would have gotten

you know a triple A grade a pup plus plus and been reappointed. But he wasn't by Reagan. And the reason was that he believed that there was a role for regulation. And President Reagan looked around for somebody who didn't believe in regulation and he found somebody who didn't believe in regulation. And I'm going to ask you about that individual and just in just a couple minutes. So Joe let's let's just fast forward to the to the present. Or two a year ago. We have the implosion of Bear Stearns we have the problems with Fannie and Freddie and with Lehman Brothers and with AIG and suddenly we have a snowballing economic crisis and then a new administration comes in. Now you've been critical of what the administration has done in my question to you and again just the executive summary version. The if you had been in the driver's seat what would we have

done. And what would we have not done. Yeah. What the administration did was a welcome relief from what we didn't do in the previous administration but much of what it did was too small and not designed in the way I would have done if I had been in the driver's seat let me go through that three three or four issues. The first was stimulus. We needed a much bigger stimulus and we need a stimulus that was better designed for instance. Helping the states they have a balanced budget framework they're cutting back. In California state workers including at the university are being furloughed two days a month. You know we people who can't get a job. Young people want to go to school but there's a couple back in community colleges and colleges it doesn't make any sense. So I would not have had the tax cut because we knew

from Bush's tax cut with this overhang of debt and a lot of job uncertainty a lot of that money would not be spent and the nature of a spinning stimulus is to stimulate the economy you have to spend so. We need to as I say a better design a much larger stimulus. Second thing. It's been clear during the Bush era that we were pouring all this money 700 billion dollars into the banks but we weren't doing anything about the mortgages. And to me that was like giving a mass blood transfusion to a patient suffering from internal bleeding without doing anything at the underlying problem. So finally Obama did something about mortgages. But it was too little. And the result of it is the magnitude of the number of of mortgages going into foreclosure is actually expected to be

higher in 2010 than it was in 2009 and 2008 we expect about two and a half to three million people are losing their homes this year and with it many of them will be losing their life savings and we have a social problem as well as a as an economic problem. The main mistake that was done there was the underlying problem which those in the financial sector did not want to own up to is they had made bad loans on the basis of bubble prices and the bubble crashed. So a quarter a quarter of all Americans owe more money on their homes. Then the value of their house. They have negative equity. Well if you don't write down the value of the equity somehow or deal with this problem somehow there's just going to be more and more foreclosure just stretching out the problem. They're refinancing generating more fees for the banks but meaning that the decks are still there. The third problem

was the banks themselves. And here there were two problems one when we poured money into the banks. We didn't have any vision of what kind of a financial system we wanted. So parts of the financial system do what they're supposed to do. They lend money to small medium sized enterprises for finance for new enterprises like the venture capital firms. Some parts of the financial system are engaged in gambling. We should have poured money into those that were lending. Instead we poured money into the gamblers. And the other mistake that we made was you know when we reformed the welfare bill in 1906 what we said is to the poor people who went on welfare we said if we're going to go on welfare we're going to put conditions you have to look for a job or you have to go into training. When the banks went on welfare and that's what they did when we were giving 700 billion dollars this is a much bigger welfare program than we ever provided

for the poor when the banks went on welfare. We didn't put any conditions. So as we were pouring money into them they were pouring money out in the form of dividends bonuses buying other healthy banks. No wonder that credit didn't didn't didn't increase so they didn't do their the critical function. And the final mistake that we made with respect to the banks was. We didn't address the underlying problem of incentives and regulations. What the president proposed in June was inadequate and I feel very relieved that in the last two weeks he's recognized that that was a mistake. And finally the proposal to do something about the too big to fail banks to proprietary trading which is a kind of conflict of interests excess of risk taking. Finally begun to do something about these regulatory issues. Of course you weren't in the driver's seat. And one of the things that you that

you write about and and I found this to be especially fascinating because it's not it's not so much part of the conversation and yet it's not hard to see that it could become part of the conversation has to do with the impact abroad. And I don't mean the you know the the cascade of economic consequences. What I mean is the cascade of mental and intellectual consequences. So the American way of doing business has for four decades and longer been a model for for many people in the world. Now people are looking at that model and perhaps turning away from it or turning away from the way we conduct our business as a liberal democracy and turning away from perhaps turning away from reliance on free markets as something that's that's desirable to what extent do you see that as a problem. Looking down the road. Oh I think it's a very serious problem and you might you might say there's a positive side to this

which is they they are much more skeptical of blindly accepting advice from outsiders. You know. We sold our policies our institutions as good institutions good policies we told countries around the world. You know for instance to imitate our central bank. But in fact the central banks in India Brazil China did a much better job than the Fed. And that has given them you might say new confidence which I think is a good thing but it also is totally undermined our credibility. And you know I think making it all the worse in many of the developing countries is the contrast between the way we responded to the crisis here and

what the IMF and the U.S. Treasury told countries to do in the East Asia crisis for instance just over a decade ago. And your contrast is just so stark where the U.S. Treasury and some of the same people by the way U.S. Treasury and IMF went into Korea Thailand Indonesia and other countries and told them in a moment of crisis cut back expenditures balance your budget raise interest rates when I say raise interest rates I mean you know really raise interest rates to 25 50 percent or more. Don't bail out your banks. Let them go. They went into Indonesia shut down 16 banks and said By the way more are going to go cause the panic in Indonesia a little bit like Laman some of the same people again doing the same thing. But the contrast between the expansionary fiscal policy large deficit there the low interest rates and the massive

bailouts I can tell you when I go to Asia you can feel the resentment. You know they haven't forgotten us. And they say you know this is all hypocrisy and and the respect with which they hold our leaders and and our institutions is is is really plummeted. Now a few minutes ago you brought up the role of the economics profession in what we've been going through and one of the there's actually a chapter devoted to this in in freefall. One of the topics you bring up is the need for economics to take a more behavioral turn and that the reliance on the notion of there being you know simply on human beings as rational actors is. Well you know in our own lives we all know that there's a level at which it becomes absurd. So what would you what is your recipe for the economics profession.

Well I guess what at first you say you know we the economics profession has to recognize that some of the models that have been very dominant in thinking are very badly flawed. You know the markets are not as efficient. People are not as rational as we had assumed you know. It's not just that there was a bubble I mean I think we all recognize there was a bubble but if you start looking at the kinds of mistakes that they made the kinds of intellectual incoherence it is really mind boggling let me just give you a couple examples. One of them is they were very proud about the new products they were innovating in the financial sector is very broad of the new products they were innovating they thought that that justified their very high salaries of which they were very pleased with. And they argued that it had transformed our economy. But then when it came to

using models to assess the risk of these products they used data from the past from the recent past. Now. There was an intellectual incoherence there because if their innovations had in fact transformed the world then that data from before their innovations was irrelevant. In fact they were right it had transformed our economy but for the worse they had just forgot about elementary propositions like when you securitize you increase problems of what I call you know asymmetries of information. The whole securitization was based on the premis of the greater fool theory that you could create these products and sell them because no one would know how bad they were. And globalization had opened up a

global marketplace for fools and we were very good at ferreting them out all over the world in this you know some of the really interesting stories is how we managed to sell them in northern Norway or you know all over the world about 40 percent of all the toxic mortgages were sold abroad and you know and when you think about what would have happened if we hadn't shared our misery with the rest of the world how bad things would have been here. So but but the point is as they were going through their analysis they never thought about these problems. If they had been rational it would've been obvious. So I think that that is these are just one of many examples of of the sort of cognitive dissonance that the lack of coherence of the economic of economic actors and economic models that ignore this reality are obviously going to

give a wrong predictions. Now you've looked a lot at history economic history and what's so interesting is that historically we've had bubbles and crashes manias and panics since the history of capitalism probably even before that back and Roman times. And there was only one period in our history in which the Sasson didn't occur and that was the short period of about 40 years after the Great Depression when we imposed when we had strong regulations before we began the deregulation movement of the 1980s. But what was so striking is that some of these so-called social scientists believed that we had changed to human nature and that these were all things these ups and downs bubble is a mania as were things of the historical past but we have because we were

so smart. We would never be subjected to that kind of of irrationality and what's so remarkable is that the only thing was that was irrational was our belief in rationality. So let me take this down. This is my last question for you and then I'll turn this over to the audience but let me take this down to the level of individuals. I told Joe before him that I was going to do this and I was going to ask him. You can see him rolling his eyes I was asking about specific individuals. Just to get a just a quick assessment like what he would chisel on their tombstone. And and Joe said that would that was going to get him into trouble. And I and I said that would be OK. So so Alan Greenspan. Well I guess the thing I think of first is when the bubble was going he said just a little froth. And

here was a person who believed in efficient markets who told Americans to go out and get variable rate mortgages that subjected them to more volatility. Again it's an example of this kind of intellectual incoherence. If you believe in efficient markets on average you can't save money by going to one form of mortgage or another because markets have arbitraged that out. But going to one form of Amar mortgage or another does affect the risk that you face. And he encouraged them to go to the riskiest form of mortgage. He made the observation that when if people had had invested in and these variable rate mortgages 10 years earlier they would have saved money. The reason was obvious because no market never anticipated market interest rates going down to the 1 percent that he brought it. But when

interest rates are 1 percent which way can they go mostly up. And they should have known that when they took out a 1 percent mortgage and they borrowed as much as they could. There were problems coming up when interest rates rose would rise as they almost inevitably would. So I think this is really a real example of almost cognitive dissonance of the kind that I talked about before Tim Geithner and the previous answer didn't get you into any trouble either way. Well meaning. OK. Robert Ruben he wrote. A book about his experience I think it was something about risk I forget the exact title you remember the exam. Well anyway. He

was partly responsible for managing the risk of a large complex organization like Citibank that was bigger then anybody could could really manage. As Paul Volcker's these banks are too big Actually to be managed I think they're too big to be. But the point is that understanding risk is not so easy. You have to understand you know when you look at where where the banks went wrong on problems of mis estimating the probability of price decline underestimating the degree of correlation underestimating what we call fat tail distributions the probability of some of these rare events occurring. That requires some statistical sophistication and unfortunately so far most of our law school training doesn't really cut the cut cut cut

it. And so the real question about whether the heads of these large organizations want to have a little bit more training in risk if they're claiming to be managing risk. They can get through that. You said unprepared. Lawrence Summers. You're really making this difficult. People here know a lot more about Larry that than I do because they have a lot of them later. Yeah they've experienced him firsthand I guess. You were saying what. What is the Epitaph One of the things that he claims I think as one of his great achievements on his picture at the Fed at the US Treasury where he was secretary of treasury was the financial so-called Financial Modernization Act which

ensured that we did not regulate the derivatives. Remember they had the commodity the CFTC the writ which regulates futures markets had said that we need to regulate these dangerous derivatives. Warren Buffett called them weapons of mass financial destruction. After the Long-Term Capital Management débâcle in which one prop one firm almost brought down the global financial system and there was an intervention massive intervention by the New York Fed. They had the CFTC said you know boy do we need regulation of these derivatives. His. Claim to fame is making sure that government the regulators would not be allowed to regulate these derivatives. This failure

this one failure cost one hundred you know AIG money many of you may know that there was an eighty nine billion dollar bailout. But when you weren't looking you may not have realized that the government continued and continued to pour money into AIG. So the total now is oh of around one hundred eighty billion dollars. And you think about what that amount what that means. That's equal to the total a from all the developed countries to all of the developing countries over a two year period. It represents the total aid to Africa for instance over a quarter century. That went to one firm. It then went on to you know that money went through them to people like you. Goldman Sachs one of the concerns of course is that the way this bailout was done that was a consequence of these derivatives was done in a very non transparent way

really undermining I think the democratic process sees the Fed has said that it is not subject to the Freedom of Information Act or won't respond. Bloomberg has had to sue Bloomberg won the suit and the Fed is appealing. So there's a little bit of a long answer to your question but we're going to bigger to histone. Yeah but I think of all of these as the derivative consequences of not regulating derivatives. Well I feel very strongly that we need a second round of stimulus. The economy remains very weak one almost one out of five Americans who would have like a full time job cannot get one right now. The unemployment among certain groups is horrendous among Afro-American youth. The official unemployment rate is almost one out of two. So you know we have some really serious

problems in the strength of our economy. And the the issue some people say well we're growing employment always lags behind growth. The fact is the growth isn't fast enough for the new entrants into the labor force and there's not likely to be so for this year or next year. And will be lucky if we don't do something to get unemployment down to six five six seven percent by 2012 or 2013. So very strong supporter of a second round of stimulus focusing in part on the helping the stakes that I mentioned that before also focusing on investments because one of the concerns that being raised all over the country is what about the size of the deficit and the national debt. It is a source of concern. But if you spend money on investments that

yield a return. Then in fact. The long run national debt can actually be lower in the break even point for reasonable value under reasonable assumptions as only about 6 percent. So as long as we can get 6 protect set return real return on our investments the long term national debt is lowered and the returns on investments in infrastructure education technology are well in excess of that. I mean first you're absolutely right that the radio agencies did a miserable job. Part of the reason they did a miserable job was that their incentives were distorted. They were paid by the investment banks that were producing the rotten products and so they had incentives to give them a good grade. And as I said before what economists believe is that Incentives matter. But you're also absolutely right.

Getting good models is difficult. But one way of thinking about this when engineers build a bridge they know that they don't have exactly the structural properties and so they overbuilt they assume that it can withstand two three four five times the weight that they're designing for. So the answer to that is you don't try to push the system to the edge which is what our banks were trying to do they were trying to push it to the edge. Now having said that I think the risk analysis of the banks and the credit rating agencies was an forgivable you miserable as I said before they just let me give you one example. They assumed that the likelihood of a decrease in the price of a home in different parts of the country at the same time was very low.

What they forgot was there's a common factor throughout our country called monetary policy. And if interest rates go up. As well they would from the 1 percent level to a more normal level. It would have an impact on housing markets throughout the country. And that's precisely what happened. So my Would you know if they had just taken an elementary macro course at a good university they would have learned about this. Well the reason the question of those you didn't hear was it was that state regulation of insurance is state by state and then you shopping for for the lowest or the least regulated insuring some regulator or insurance regulation is archaic. You know we have a national market and you can buy

insurance products. Percent over the Internet. So that means you know what might have been true in a world where you had to deal with the salesman is no longer true under modern technology and we really ought to move towards a national regulatory system. That having been said. The systemic risk posed by the insurance industry is much less but not zero. Much less than by the banks. AIG a problem were really not because of the insurance part of AIG. It was the AIG derivatives and how AIG is derivatives interacted with our banking system. So AIG as an insurance company did not cause our problem was AIG as in the derivative markets in this

unregulated market that I talked about before. Let me ask you the second part first because that is very important understand why the economy is so weak and likely to remain weak sustain the American economy in the years before the crisis. Was this housing bubble which allowed people to consume. And we were really good at consuming as a country we were living beyond our means. How so. The average savings rate went down to zero. And when the average rate savings rate is zero that means a lot of people have negative savings were living beyond their means. It was all possible because they believed that they were going to be rich because their house price was going to soar. Now reality has intruded. The savings rate in the United States historically have averaged about 7 percent. As zero savings rate is not sustainable.

And I think it would be a mistake to want us to go back to the Ciro savings rate. It's not good for our country in the long run particularly given the demographics the aging profile that the aging of our population. Because of the loss of retirement wealth the hot work loss of housing wealth. There are even even possible that the number the savings rate will go beyond 7 percent. But that is what presents a real problem because if people aren't spending. There's a lack of aggregate demand and the economy's going to be weak in the short run. The government stepped in but that has meant the government has gone from spending from the households have gone from spending based on borrowing to the government spending on the basis of borrowing. That's OK if it's for investment and that's the critical point.

If we invest we're investing in the future we can stimulate our economy. We and and get a return. It's particularly true because our economy needs to invest enormous amounts of money to adapt to the problems of climate change. And this is where I think there was a really big mistake made in Copenhagen. If at Copenhagen there had been agreement that that the. UN Climate Change it would have led to the price of carbon emissions going up. I mean we're treating something that scarce as if it's free. Right now the price of carbon is zero. Most economists think the price of carbon ought to be about $80 a ton if we had done that that would have provided a kind of impetus for a lot of investment in the economy which would have been good both in the short run and the long run. Now your

first part of your question was Where are the jobs going to be created. It's very difficult to ever predict where jobs are going to be created but what we do know is if we have enough aggregate demand the market will answer that question. But there are lots of obvious things and there are some things that we ought to be moving towards. I mean obvious thing is are green jobs that I just been mentioning that's one thing but let me give you another example. There is. A lot of concern a lot of the jobs have been lost. I have been in manufacturing and there is a general sense that will never get those jobs back. The general view is that an advanced industrial country like the United States can't compete in manufacturing. Well I think that's wrong. You look at Germany which has been the largest export in country in the world is very competitive in manufacturing but they spend a lot of money on

training in research and technology in a way that we don't. So the lesson for that is that if we're going to create the jobs and we're going to high wage jobs and we're going to be competitive we have to invest in technology education. Some of the other things that I was talking about before there's been a lot of support in the last year or two for a what is called a Tobin tax which is a financial service transaction tax. France has actually passed one on the condition that other countries will do what. You might say that was a cheap shot knowing that others wouldn't. But a lot of support in Germany in the UK US has been one of the countries Dick's been a big holdout. The basic principle is one that I think is is pretty clear. It's trying to discourage a lot of the short term volatility short term drags actions

which serve no very little social purpose but do lead to increased volatility. And there are very social costs to this volatility. And you know interestingly. Not only have I but Larry Summers have written why this is a good idea. That was Larry Summers before he became secretary treasury the. The only question and it remains a subject of a lot of debate is the financial sector is very good at tax evasion and tax avoidance. And there are two principles in taxation. One is it's a good thing to tax bad things rather than good things. So it's a good thing to tax pollution is a good thing to tax de-stabilizing financial transactions. So that's a positive. The negative thing is it's a bad thing to tack to impose taxes that are easily evaded and

avoided because circumvention has a huge cost. Some of my friends in financial markets say that they believe they could design a tax that cannot be circumvented and these are guys who are very good at creativity in the financial markets. Others believe that in practice when we delegated to the people who will be doing it they will find out come up with a tax structure that will be easily to easy to circumvent. So Joe let me just wrap up with with one final question. I don't know how many of you drove in here listening to NPR but there was they featured a rap song with characters playing the parts of John Maynard Keynes and FAA Hajek. And so my question is are you following this up with rap video. Yeah yeah I know but if you think it would be a good

idea anything to get these ideas out there. Joseph Stiglitz thanks so much you've been.