 We agreed to have a podium so that when he recognizes people who wish to be heard You could look at them downwards and recognize them more effectively, but for some reason we have been moved downstairs So here we are Anyway, I'm delighted to welcome all of you here. This is a very special event, which we are very proud to sponsor We have a friend and a colleague who has just recently written an important book And this will give us all an opportunity to exchange views Concerning it and the subject much more important subject that he also addresses But first, let me say a word or two about procedure after introducing Ed He'll come up here or he'll actually descend down here And give you more or less a quick overview of the book. He's not going to engage in a prolonged summary But it is a safe assumption that maybe there are two or three or four people in this room who have not yet read the book So this might be helpful to those of you who are so delinquent and after that He'll return and sit with me for a few minutes and we'll talk a little bit about the book I had the opportunity to read the book So I'm not one of those three or four and I do have some questions I'd like to raise Now beyond that let me first of all say that That probably this is not necessary that Ed Lewis is really very much a figure in this town He plays an important role in commenting about American politics He's viewed as extremely well-informed and incisive What he has to take what he has to say is therefore taken very very seriously He has Significant outreach beyond the city in the country because FT is read widely But also around the world and he is today one of its leading commentators and world affairs He is as I'm sure most of you know a Brit a Brit But resident for a number of years in the United States. He still retains his elegant Accent which clearly qualifies him without any tests for a senior position in American television as you may have noticed lately and He has had an experience also in American politics by working closely with Larry Summers and in fact serving as his speechwriter When I read his book just over this weekend in fact I Was struck by a thought which made me look at the book in a somewhat different perspective It so happens that earlier in the year. I had reason to reread the talk of ill Who 175 years ago traveled to America and wrote a remarkably optimistic? analysis of American society But I read Ed's book and particularly the scope of his interests and his Really unique ability to relate to people and to pump out of them Insights which are of current significance. I thought of the parallel with the talk of ill But obviously also of the rather different perspective that he projects on America today That feeling of mine was reinforced on Sunday when I read the review that appeared in the New York Times Book magazine and incidentally on the first page of that which is a very specific distinction and in the course of reading that interview In the course of reading that review. I was struck at the reviewer at one point suggested that he would have had a different title for the book the Time to start drinking he suggests Now if you start drinking Presumably the end result is some sort of state of delirium So I wasn't taken by that title, but I asked myself what would I offer as an alternative title and what occurred to me was Time to start praying Which is a much more hopeful Conclusion because prayer is designed to achieve an end effect and the benign one in most cases Because God dismisses the malignant prayers So start to start to time to start praying is really a more optimistic perspective Only what otherwise is a very serious examination of contemporary America So with that as the introduction let me yield the floor down here below to you And you can carry on for now very much Thank you very much That was an immensely generous and Totally unearned introduction, but I'm nevertheless deeply great grateful for it also to CSIS Andrew Swartz For setting this up and of course is this you're getting feedback a little bit of a setting this up But they were there's Andrew. Thank you very very much for this and most of all too big for not just Moderating this but also for as a journalist Making his extremely fine nuanced and experienced brain available to me and others over the last few years So, thank you very much. This is a great honor A couple of caveats. I will I'll try and summarize this in a Short sort of 10 12 minutes if I go on too long, please stop me. I've got a 20 minute Stuck in the elevator with me pitch. I'll compress this into 10. I hope two caveats before I do The first is as big said, I mean, this is not exactly an uplifting book But I don't want you all to feel Suicidely depressed by the title. It's it's not quite as bleak as the title and subtitle in particular America in the Age of Descent might imply And as big said time to start drinking. I think is a very good. I laughed I laughed quite a lot when I read that line in the New York Times review on Sunday Just just to say that if I'd concluded with a saccharine prognosis of a saccharine ending to this book it would have been unearned unmerited by what? By what preceded it and so it just simply wasn't merited and I don't think it's the kind of response to the very Complex and that multiply interrelated challenges the United States is facing I don't think it would have been a practical way a response simply to say to fall back on the Exceptionalist lines that nobody ever made money Betting against America etc America always pulls through my second caveat Refers to what's big very kindly again unearned. I think refers to as my elegant accent, which is by now you will have worked out isn't the best accent with which to market and summarize the kind of thesis that my book contains and You know, I'm very acutely aware of the fact that people from my country in the last few years from Prime Minister's Urging America into questionable wars of choice to to historians Urging America to step up and Pick up the baton as the last great imperial power of the English-speaking peoples I'm very aware that there are others of my nationality with with different views and I just want to differentiate myself from them and also to Differentiate myself from another kind of compatriot In the late 80s when Paul Kennedy wrote his decline and fall book I'm not distancing myself from him by the way Samuel Huntington wrote this Famous piece defining an American declineist as somebody who wishes for America's decline I'm not in that category either that by that definition I'm not a declineist and if looking at my own country Britain and the multitude of problems it faces And the fact that it is even more dependent on the financial sector Much more in fact for growth than than the US But lacks an international reserve currency I might even consider a book on Britain and tightening a book on Britain time to start sniffing glue Because it's not not not looking too good none of which is to say that the American exceptionist nostrums Are the way to respond to the problems America faces and I have perhaps unfairly Picked on in one or two of my columns recently on Bob Kagan Robert Kagan at the Brookings Institution Also senior advisor to foreign policy advisor to Mitt Romney Whose book the myth of American decline? I think summarizes this exceptionalism and why it's not the best way of looking at The challenges America faces and I pick on him partly because Barack Obama made it known that in his state of the Union address It was Kagan's essay that inspired him to To say the line anybody who talks of America being in decline doesn't know what they're talking about Kagan in his book remarks that America's share of the global economy was and has been at Remarkably stable at roughly a quarter of global GDP since the late 1960s And so I checked these numbers out with the IMF and double-checked them and at market exchange rates The the accurate number is that in 1969 America 36% by 2000 it was down moderately to 31% But between 2000 and 2010 it dropped from 31 to 23 point five and that's a very sharp drop And I think starting on the premise that that isn't happening is a kind of ostrich position to take and Borrowing a cataclysm in Brazil China elsewhere that the rest that are growing Outstripping American growth then America will fall to about a sixth Of the world economy in the early 2020s and I think this is this should be uncontroversial So this isn't the principal subject of my book The principal subject is how America is responding to its relative economic decline and also the multiple economic challenges posed by Exponential globalization the hyper integration of the global economy and also by the Again exponential rate of change of technology and what that's doing to the world of work and to the American Middle-class and to their relative skill sets against the rising rest Let me give you three very very brief Summaries of the core points contained in this book first is The American economy is Latin Americanizing I think that's the best the best way of framing it We're all aware most people are aware that since the late 70s since the early 70s in fact There's been a median wage stagnation the middle class of Failed to keep pace with in many years the rate of inflation and that large sections of the middle class a very little better off Today than they were in the 70s I think what's less well understood is how that process has deepened in the last decade and accelerated and become far more prevalent a mainstream fact about the American economy In the o2 to o7 business cycle expansion This was the first growth period on record in American history where the Median household income was lower at the end of it than at the beginning by $2,000 for the for the median household Since o7 of course, we've had the great recession and then since mid 2009 We've had now almost three years worth of recovery now The median household income during the recession went down by 3.4 percent as you would expect roughly With a recession since the recovery began the median household income has gone down by 6.7 percent so in other words as the economy has grown for most people it's continued to be a recession in fact that recession is in By many measures got worse for them than the actual recession Now a few weeks ago The two economists at Berkeley Thomas Piketty and Emmanuel sites Showed the kind of distribution that we're seeing in this recovery Which is another way of expressing what I've just said Namely that the top 1% have taken 93% in the year 2010 the first full year of the recovery The top 1% took 93% of the growth from that year the remaining 99% left with 7% of that and almost all of that 7% went to the top Decisive so in 2010 and again in 2011 The majority of American workforce were poorer than the previous year But the study also showed that the top 0.01% in other words the top one in ten thousand fifteen thousand six hundred families the wealthiest in America Took almost 40% of the growth in that year We see these trends going back to previous cycles But it each year the share going to the top of a first year of recovery with each expansion Gets much higher. It was about 45% in the Clinton Recovery 93 94 it's gone up to 93% going to the top 1% Now if that number doesn't give you a whiff of the Latin American Hacienda I don't I don't know what will but you could look at the politics because this isn't just When I say the Latin Americanization of the American economy isn't just confined to outcomes in the market system I think I don't need to rehearse. We're in Washington I don't need to rehearse the that we're not going to have a budget for the fourth year running that we can't get a Proper infrastructure bill together that the budget for worker retraining and community colleges is Plamenting by about 40% Overwhere it was in 0607 Now that the stimulus money is running out the fact that Washington is dysfunctional is well known to all of you but if you look at the classic Latin American pattern of politics it's a swing from orthodoxy to populism and back again in the greatly stabilizing lurches that the classic Latin American democracy saw And I fear that the United States is exhibiting very much that connection between the polarization of the economy the polarization of the labor force Into a cognitive elite and then a non cognizant cognitive elite with two very very different Responses to the global economy and the polarization. We're seeing in American politics second I've probably a lot taken up ten minutes already, haven't I I'll accelerate these two final points second is competitiveness Now whenever I talk to people about the difficulties the widely acknowledged difficulties with the health of America's political economy People say yes, but America has the ultimate get out of jail free cart Which is the ability to remain the world's leading innovator Unrivaled innovator, and I think this is true America does remain the world the world's unrivaled innovator But if you look at how it's failed to maintain its innovation infrastructure in the last 10-12 years And I'll give you one example ITIF information technology and innovation foundation rank globally on global competitiveness and Innovation measures and multiple measures America now comes forth. It's not not alarmingly low And the three countries ahead of it include people like Singapore not strikingly large places But if you look at the improvements to innovation infrastructure in the last decade the 40 countries ITIF ranks America comes 40th out of 40. So we are facing a new situation and for this book I spent a lot of time in Silicon Valley talking to venture capital funds looking at the fact that if you exclude the social media the funding for innovation that venture capital raising Process is a fraction of where it was in the late 1990s during the height of the dot-com boom There was about 200 billion dollars raised By the VC funds in Silicon Valley. It's never gone above 25 billion since then And part of this is it is it owes to the fact that there's been a wall Streetization of the American economy patient capital is more difficult to raise and talk to anybody outside the social media sector in biotech and Robotics, it's very hard to get startup money Nowadays in in Silicon Valley or at least non angel investor money And I think that's an important and underappreciated point a couple of a couple of riders to that point If you look at the American trade deficit Which is back on the rise again? There's a massive massive deficit there in advanced manufacturing products It used to be zero in the mid 1990s and now we're up to a hundred billion dollars a year That's a big big deficit and I think The flow of research and development It's still three to one out of America than into America. These are the kinds of brain Cerebral activities that the models the economic models told us in the 90s America would monopolize During this new brave new globalization period America would be the brain American like Minded countries would be the brain and others would be the hand and it's not really working like that at all according to how the models would project and the final point is an intellectual crisis and I don't by this mean the constitutional fundamentalism of the tea party the problems with an intransigent Republican party. These are real By this I mean the much broader intellectual crisis That includes in particular I think economists and and what The challenges America faces pose as challenges to their world view the Models didn't particularly work the efficient market hypothesis Didn't really describe what we saw before us in the build-up to the 08 meltdown And yet they haven't been revised to nearly the degree that I think the paradigm hasn't Been upgraded or changed to nearly the degree that you know 708 people might have been anticipating The models told us that productivity growth leads to wage growth Which of course they haven't the models told us that when China joined the WTO in in 2000 that the trade deficit with China would shrink rather than explode And the models today are telling us that if we pump Simply pump demand back into the economy We will get back to the status quo ante We will get back to a well-functioning market system and that that pre-existed the 0708 meltdown In the last few months we've seen 200,000 jobs also created a month a little bit lower last month But these jobs are coming at lower wages These jobs are coming with falling incomes. The market is clearing at a lower price Not a higher price and that is a deeply rooted structural problem that these models don't answer So I think to some extent America has lost a paradigm and not yet found a new one. I'll conclude not by trying to be too uplifting but by By making the point that a Lot of people look at America's relative economic decline and either deny it's happening or deny it's important I think it's actually a product partly of America's success That we're seeing in China or India that the global commons has been sustained by the United States These are larger markets for American exporters. It should be a virtuous circle that we're seeing here but to deny that there is relative decline and that these are Accompanied by very great challenges to the way America lives and works through globalization through technology Is I think as I say an ostrich-like position and I've heard a lot of people recently Say in various quarters on interviews and in public fora But America always gets through these crisis look at the challenges posed by Nazism By Stalin in the Cold War the civil rights era the Great Depression We get through these challenges and America has and it did remarkably well And if it hadn't the 20th century would have been a dark century for everybody But these are very different kinds of challenges to the ones that are being posed now They unified America when Nazi Germany declared war on the US it unified America instantly The challenges posed today are dividing America and making it very very difficult for for America to respond with with the kind of Gravitas that I think Washington ought to be exhibiting but shows no signs of Exhibiting and then finally very very finally. I promise because I know I've overshot Is that these people who are saying we've made it through before? Are also denying there is a crisis So if you deny there's a crisis, however slow burning it might be How can you come up with solutions to it? That would be the non uplifting question. I would leave it with but since we'll be Continuing on and sit over there Well, Ed, thank you very much as expected. I was very incisive and also rather sobering in so why don't we take off for a few minutes from where you left off in In an overall sense one gets from your book a Real appreciation of the complexity and magnitude of the challenge the United States faces What I don't yet fully comprehend is How you and the final analysis down deep in your gut feel about what all of that implies Ultimately forced to the wall if threatened with getting shot if you don't provide an answer and Told that if in the next several years the answers proven to be false The person will come back and shoot you What would you say about the prospects of the United States? given the whole Complex of issues that we now confront. I would say America will ultimately change its political course that something has to give This situation isn't sustainable. My fear is it has more to run and Time is short things are changing really very very rapidly around the world have to give What will have to give I think first and foremost now should be you know as a practice journalist Less accented in this answer but I do think that when one of the two major parties in a system that is designed only to work well when they are cooperating when the factions are the some fluidity up there on Capitol Hill that when one of the two major parties is in a position of denying evidence and science Reasonable debate it makes it very very hard and and possesses the tools to stymie When they're in the minorities as they are in the Senate still to stymie any meaningful action Then you see a California is Asian. I spoke of the Latin American Isation then you see a California is Asian people tell me that in California after the latest census We might get to a position where What is essentially the Anglo party the Republican party is below a third and therefore can't stop stuff from happening But we're we're nowhere near the situation where the Republicans are being forced nationally to recalibrate From I think this is very impractical and very un-Republican stance that they've adopted in the last few years That's that would be my number one. Well now in the course of your journeys around the United States Really somewhat on the dead talk you will model What is your sort of intuitive sense as to the source of this inadequacy of one of the two political parties? Is it some sort of deeply rooted prejudice? Is it escapism from the world? Is it an adequate education? Is it some sudden? Economic socioeconomic travails What creates this special source of paralysis? I mean I think every political culture has traits in its past that it Returns to in a situation that I think the American first well the no-nothing movement the Shays and whiskey rebellions. There's a deep anti anti-elite and anti-intellectual Electual strand in American history that you can understand That is very much part of the political DNA here So there is that to reach to reach for in times like this But there is also I think a very interesting demographic Change happening in America That Ronald Brownstein really at the journalist of the National Journal really really captures well when he writes And that is that in places like Texas and already in California the white Blue-collar classes the non-college educated whites are becoming a minority. They're not particularly served well They are part of the middle class to the mass socioeconomic phenomenon they are squeezed and And They're reacting by reaching for this part of America's political DNA. I do think you know Texas majority of people in Americans Texan schools are now Hispanic. It just went over 50 percent last year And the Republican Party is faced with a real challenge that gradually Election after election that share of the electorate is going to get higher and higher at some stage something has to give They can't keep willfully losing potential voters without changing changing their course. So that's that's a source of hope But not yet a prediction now this parochialism of American society, which you also imply What is it rooted in is it some sort of a hankering for a past that never really existed? Is it a self-imposed? Isolation in in a time in which the world is more interwoven and more interconnected than ever before is It's some basic failure of the American educational system to create a public that is more in tune with what's happening in the world Where would you point to us the cause of this malaise? I mean I think out even people do blame Washington They make a fetish out of Washington as if it sort of exists apart from them and I do think Washington is to some extent the Washington America deserves at the moment if you look at who participates in politics It's increasingly For primary elections and it's increasingly party activists. How often do the people who complain about that actually participate? I think if you look at spending in a place like California where people do through the ballot initiative Have direct control and have and have tied up their legislature in Sacramento in bounded hand and foot They vote for contradictory things the whole time One example of which is the three strikes on your outlaw The initiative in the in the mid 90s, which now half of American states have which explains a great deal of white American spending on Prisons which of course bought Tocqueville over here in the first place a study of prisons Has outstripped spending on higher education by a factor of six in the last 15 years in America This is spending on yesterday not spending on tomorrow the budget for tomorrow Keeps getting cut and of course that applies writ large to the federal budget. Look at the bit that's been frozen It's the it's a discretionary the domestic discretionary non-defense portion now defense has also been hit But all the yesterday items How much of this sort of disappointment with the government is conditioned of inadequate government in Washington Is the byproduct of this extraordinary? Incumbency the duration of incumbency the fact that most legislators are here to stay Relatively if you get replaced in the actual process Corrupt and the connection of that to corruption of money of the American political process I was just looking right now at your index to look at the word corruption And then I realized there's no index here. We deliberately excluded the Washington read That was that was a chapter excluded It was I can't remember was Reagan or Nixon who said that fewer elect You get a bigger turn over with the elections to the Soviet Presidium right then I think that's part of it. I think though that the gerrymandering you see in districts Isn't isn't the explanation you would use for the Senate whether no boundary changing is possible and yet the Senate is just as polarized I would point more towards people like On the left or left ish bill Bishop the big sort Or on the right Charles Murray people who've analyzed how Americans are sorting themselves into completely different worlds and that the super zips Zip codes that Charles Murray talks about are bordered by slightly less super zips and so on and the distance between Americans and how they experience the world not just the media they listen to Or the way they vote is become way greater than it used to be That that's part of the Latin Americanization phenomenon I feel another aspect of it is that the popularly elected elite in Congress, but also in the executive branch is Overwhelmingly representative of the 1% you talk about that's absolutely right The role of money in politics. I mean we talk talk about how Washington's got dysfunctional I don't know whether the Supreme Court should or shouldn't be included in that but it does listening to the arguments the other day Regardless of what your view is whether you're pro or against Obamacare you hear basically eight eight people for each on party line questioning and one swing vote Which I guess is Obama's coming Kennedy moment just as Kennedy moment That's the Degree to which Washington is even the Supreme Court the public Public opinion polls show it plummeting not just After the 2000 gall versus Bush ruling but in the last ten years steadily going down not to as low as Congress is or the presidency but Lower than it's ever been and I think this again reflects the feeling that Washington is out of touch And and very disconnected from the average American great one final question for me in how do you envisage? the impact of the outside world on the United States in this context is it going to facilitate the needed response or it's going to make it more difficult to mount The outside world and in terms of shocks I mean you could think of you know the Spanish bomb going off in the next few months or the straight of Hormuz Being blockade Iran. Yeah, I do you mean in that respect but also the rise of China I think there are some Rabbit in the world. I see yeah, no, I think that's a good question I think there's some paradoxical short-term effects of this America seeks to sustain its global footprint and its bases around the world China only seeks to extend its area of denial in its own region. So there's a big asymmetry of rivalry there It's easier for China to do what it can do than America to sustain what it has but in the short term that's obviously made China's neighbors very nervous and I think has actually increased America's clout in the region and I think improved its Leverage in the short term at some stage though, that's in the world But what about within the United States regarding the problems that you've been addressing is it likely to contribute to revitalization? out of a sense of threat or More passive resignation and difference and ignorance which will prevent the needed response And one of the things I deal with in my book is the fact that there's a lot of apathetic people out there I can understand why they're why they're apathetic I can understand that the market system in votes isn't isn't working like a market should do if the consumer is the voter People's frustrations are not being heard or felt or reflected in what Washington is doing I Don't know what is going to change that Because if you are and I'd quote and speak to Jeff Immelt for this book he makes the point I think nobody would disagree with that if globalization were put to a referendum in America It would lose absolutely rejected. It would be rejected, but those You know those are sort of gradually It's sort of frog in frog in boiling water analogy. This is this isn't like Nazi Germany declaring war on you This is a slow structural Set of complex problems that are very hard to produce a unified solution Well, I think it's time to let the audience have a crack at you. So will you now? Spot people recognize that absolutely. Yes. Do you want to go down or so you could stay here? I think we're higher up here than down there I'm Harlan omen. My question is both for you Ed and also you's big I would counter your argument by saying that the issue was not economic But we have a political process that's badly broken because politics are no longer about governance They're about getting elected and doing the worst things to the other side and both political parties have become So radicalized by the left and right that compromises out having said that I Remember the 70s when Zbigg became national advice security advisor terribly well when the situation was really very very bad We had lost Vietnam the oil and bar go Nixon resigned all these kinds of things desert one and the nation really was in a spirit of malaise inflation and Unemployment and the misery index was running high. Tell me why then was not as bad as today and Even though you're very pessimistic about today, and I take your arguments about a broken government I think that's a big distinction But tell me why we were able to recover in the late 70s and why you think we're not going to be able to recover today Because I think from a psychological position this country was probably worse off than than I think it's a very good question The country knew that it was in crisis. It wasn't responding in a unified way But if you look at the kinds of things that were done under Reagan Pragmatic things as well as Carter, but let's move on to Reagan because it makes my point more strongly And under Carter mean that the by-dole act that bought the university system Into the innovation it made it much easier for universities to fund innovation because they could keep a share of the gains a Beautifully pragmatic thing to do which had a big impact on American innovation If you look at the tax reform of the 80s the simplification of the code if you look at the Greenspan Commission How social security was dealt with then if you look at sematech the creation under sustained assault from Japan The semiconductor industry which the Reagan administration agreed was an absolutely critical strategic industry Even the Reagan administration agreed to industrial policy and look at immigration reform I think Jim Mann is here very and Jim would be able to Elaborate on this at much greater length, but the fact is it was understood there was a crisis It was understood the model had run out of a lot of its usefulness and measures were taken to respond to that Where where is that now? Some people don't even agree that there is a crisis Where is that now? I think the political system is Degenerated a lot further and if you use purely political measures of polarization. I mean voting measures of polarization You will see that it's far more polarized and therefore far more paralyzed Today than it was then and I don't as I say I would emphasize I don't see Washington as somehow existing a part suspended from the society that produces it and sustains it I think it does reflect stuff that's going on out there that is very deeply rooted very structural And it's about the changing nature of the economy in America in the context of a changing global economy That would be my answer but speak Well, I basically agree with you. It seems to me that The crisis in the sort of 70s was a crisis which was occurring in the context Still of a very lethal potentially lethal rivalry with the outside world and that Was a source also of stimulus to internal responses And in any case it wasn't yet a crisis that it was pervasive culturally socioeconomically as it is today in some ways the victory The sort of historical victory in the great contest that took place at the end of the 80s and early 90s Then produced a period in the United States really of significant permissiveness deregulation and Of what you emphasize in your book But in my view perhaps needs to be emphasized even more the growing social disparities between the rich and the poor All of that really emerged in the last 20 years Yes, see we're good Thank you, Paolo from Shirak Shirak report just also in terms of sort of historic continuum that you Portrayed in your in your earlier remarks a question as you have clearly indicated the share of US Prod you know GDP world GDP has shrunk more than it is Officially admitted at least you know in you know, bioficial economists My question is the Clinton years which are portrayed, you know, supercharged America things were going great And of course we can account for some particular historic circumstances the end of the Cold War the peace dividend the cutting down of you know The ability to cut down defense spending no major crisis barring Bosnia or Kosovo that the Clinton administration had to deal with Oil at $20 a barrel as opposed to what we have today And of course the internet revolution that happened not really much had much to do with Washington policy But it was happening and control of public spending with agreement with the Republican Congress after the 94 elections my question to you is was just that again just a blip in in what was Inevitably a downward trend that we had a moment of glory for the United States There was due to just lucky circumstances that then indeed when Clinton left the White House We had the dot-com bust in 2000 and we had that nine, you know the the major scandals the MCI the adult The big Wall Street scandals and then last but not least 9-11 and everything that followed in other words Where the Clinton years times in which we were doing the right things We were just lucky in in what was inevitably a downward trend that is you know that is continuing as you described And and one final point is you have not at least in Europe a brief remarks addressed Public spending much, you know, you talked about economic trends, but certainly our fiscal situation Is has become a really a significant part of the problem given the weight of entitlements You just briefly mentioned, you know the compression of our non-defense discretion Discretionary spending if you could talk about that too. Thank you. I mean, I think you're there was a one-off Hopefully not the only one off But there was a one-off major major positive supply shock in the 1990s namely the internet revolution and actually that the personal computer revolution that have preceded it and this had a major impact on America's bottom line into and and on its productivity Broke productivity picked up and it'd been languishing for 20 years and it picked up I Think the stewardship of the economy broadly speaking under the Clinton administration and Bob Rubin Larry Summers and others Was very responsible and it was namely it was the Kensian full cycle Kensian view Which is during an upturn and when revenues are surging you go into budget surplus so that you have funds and firepower to keep for a rainy day The trends were there's a brief five-year blip there basically in the median median wage stagnation problem Where wages do grow for the vast majority of the workforce in the 90s So there was good stewardship, but I don't think that's nearly as important a point as the impact of The one-off positive supply shock which we can't rely on happening again In terms of the fiscal picture Well, I guess that leads on your second question leads on from my answer to the first because of course that Balanced the budget over the cycle Golden rule was dispensed with by the Bush administration It squandered a lot of money on tax cuts for people who had already in the 90s at their pre-existing tax rates being creating a lot of jobs and being creating a lot of wealth on on on the notion that these are the job creators and So we do find ourselves in a situation adding a couple of wars adding interest on past due debt Where as I said in an earlier answer We've got 85% of the budget Given to entitlements defense and interest payments on past due debt and the tomorrow bit of the budget that includes R&D Infrastructure education that 15% portion of the budget is the first one. Everybody can agree on to freeze Now what does that say about that the changing political climate that the pragmatism? That America is so richly deservedly associated with is missing in action And I think the budget is a really good If you had another implied question about the need to have a fiscal term medium term plan I would agree with that. I think we're in Washington. We know we know more than enough about that subject Just as a follow-up to your answer. How do you feel? the possibility the consequence How do you assess the possible consequences of America's involvement in a conflict with Iran on this sort of overall Domestic condition and the mood of the country. I I should have asked you that question and you should now Do it How do I how do I assess the impact of a conflict of an Israeli strike on Iran? Well, none of America involved in it America's involvement and then it becomes which would lead to it on The mood of the country and its capacity to address some of these issues before or after the election Well depends when the strike occurs two days before the election or three weeks before or what? I would but seriously in terms of the overall impact of the Reasonably anticipated consequences. I think that's very hard to say I mean the opinion polls show large not large a small majority rather of people would support Military action in some contexts to prevent Iran from getting a nuclear weapon So it's not it's not axiomatic that this would necessarily be unpopular for Americans initially initially and I think very quickly this would turn into An anti-arrival sentiment squared because people are sick of war. They do want focus on the domestic problems They're not as terrified by the 9-11 kind of scenarios as they used to be And so my my assumption based on no evidence whatsoever other than a couple of stray opinion polls that are in my head is That it wouldn't it wouldn't be sustainably popular But I would I would I would pass me to the euro would it galvanize a greater inclination to deal with domestic problems Or would it contribute to greater fracturing of any residual national unity? I think you judge me I mean if you look at the kinds of hostage to fortune Mitt Romney has made on the campaign trail on this issue They're not they're not in the ambivalent language that will make it easy for him to wriggle out of if he becomes president Even President Obama has made pretty strong commitments that that containing Iran is not an option So, you know, I I do worry this could be I mean this would not do worry This would be a very fissile and divisive political issue because I doubt I Doubt most of the I doubt a large chunk of the American people would think this was a good idea at all I Jim man, I Let me ask you to square two things that I have a hard time reconciling in my own mind, which is when I Listen to my friends say that the country is going to the dogs or when I come to that conclusion myself, which usually involves some Some something involving the transportation system the roads or airports of this country And I draw that tentative conclusion, and then I happen to go into an Apple store And see the part of the country that's working and this is on getting away from the anecdotal level a country with a company that is Terrifically profitable and is able to shell out in the last a couple of days a billion dollars to 12 kids getting out of Four kids, I guess just getting out of Stanford to buy their company. You have this tremendously productive Part of the economy. How does it fit in? Is it isolated? Is it linked? Why doesn't that part of the economy? flow over and Down and around it's a very good question. Did you mean the Instagram the Facebook acquisition? Yeah, the There are I don't know whether you know Tyler Cowan's book the great stagnation. He's not talking about middle-class incomes He's talking about the innovation revolution, and I think there are two two points worth making here Steve Jobs was a genius, and he was an innovative genius, and there's no downplaying that But I think that Tyler Cowan's points that we are picking the low-hanging fruit of the internet revolution The social media bit is a particularly low-hanging fruit now And that that broad productivity gains that you've got from big leaps in former stages of American history for example the introduction of mass education to go from Semi-literate illiterate society to literate what an enormous leap in America's innovative potential To go from having a central government that had no R&D Funding and no R&D capacity to one that has DARPA and the NIH these were huge breakthroughs, and then of course the Unification of a national economy. We're not getting those kinds of easy opportunities now to lift American growth and You have in Silicon Valley all sorts of Really impressive companies still very impressive companies and some yet to be impressive companies of no doubt about that But if you look at the infrastructure around it and the impact of the infrastructure around it on Silicon Valley And you look at the history of Silicon Valley and how it benefited from the government largest through the research laboratories through the contracts and through the making available lots of highly educated foreigners on easy visas Then lots of these things are changing. I mean the the last in particular I think most reasonable people on left and right would agree a staple act Where you staple a green card to the visa of this Chinese PhD student or Indian PhD student is Common sense the kind of pragmatic thing that Washington would have done in the 1950s 60s if you look at the Fact that venture capital funds are much more run by X investment bankers nowadays rather than people who used to run Companies the character of the seas have changed dramatically if you look at the fact that Sequoia capital if you you know one of the best Has eight offices around the world of only of which only one is in the United States It's not because opportunity necessarily is shrinking here, but there are all sorts of entrepreneurial Innovative opportunities arising elsewhere. So my point isn't really to knock down America's innovative potential I mean, I don't think there's a culture in the world Where you go bankrupt and boast about it like you do in America and that's a really healthy thing But I do think that America's period of total unrivaled Lead in innovation is very much becoming a thing of the past others are beginning to innovate I don't think China is going to produce an apple or It's got its own Twitter, of course, but that's a copy or or a Facebook But I do think if you look at the kinds of money That governments in East Asia and elsewhere are putting into R&D and doing so in very pragmatic Collaborative arrangements with their private sectors as America did in the 50s 60s 70s as America did to create Silicon Valley that America is no longer alone on the stage of being an innovator. It's not a Get out of jail free card I guess that doesn't that doesn't fully answer your question, but The distribution while the tax system has changed But of course the production Silicon Valley only funds ideas now You don't get funding if your idea doesn't include a China strategy. You don't get funding if production is here I mean, that's that's the absolute basic first base template for going and seeking funding is it doesn't include in America Making things dimension to it please All the discussion seems to imply that the country is in bad need of some kind of shock I mean, you're implying that Iran could play that role, but it seems that it's much more of a domestic Lead and economic shock that the country needs to focus its mind on what is necessary Are we probably talking about something similar to what is just happening in Europe could that focus the mind of the people? suddenly Treasuries coming under pressure because markets start losing their confidence that the country can get a grip on its problems I mean, I hear that a lot and I understand why people say that is that you know Lehman Brothers wasn't enough it didn't shift the thinking sufficiently But I'd be careful what you wish for. I mean, you know shocks can produce diametrically wrong outcomes. I mean if you think of The McCarthyite Red Scare if you think of the invasion of Iraq shocks don't necessarily lead to good actions They do sometimes. I mean the 30s is of course a primary example of bold persistent experimentation Experimentation incidentally which included at its core what will happen to human beings? What are they going to do? How are we going to employ them? I feel we we conduct debates now slightly higher altitude And but that's a irrelevant to your question some kind of some kind of a jolt To the way people think about this is going to be necessary because this is a long process We're in it is something we gradually we're way more acclimatized to than we think we are Yes, I'm sleepwalking is another word I use and of course that would imply Somebody you know giving you a prod or electric shock But I would I would hate to what wish for a shot You know Hurricane Katrina times five or whatever it might be that people in the environmental movement wish for to shock America and others back to Warming sensibility. I would hate to wish for that equivalent in the broader geopolitical competitiveness space I'm talking about because I dread to think I dread to think what it might be and whether it would induce the right Rethinking I think people have got to do it themselves One more Sorry Sitting sitting just here Two microphones a duet duet to the back Tom man's back To what extent do you think that this is Precipitated by the rush to the bottom line That our industry no longer looks to the future looks to the next quarter All you have to do is look at how the drug industry has changed it buys new companies. It doesn't do any research itself It goes to China. It doesn't think about long-term stuff. I Wonder how NAFTA fits into that Much more complicated, but I'm most interested in the rush to the bottom line and the role of Wall Street and all this It's a very good question. I mean one of the numbers that That is often cited is that the American private sector Spends I'm not sure whether I'm a year out of date now, but spent last the last year I remember the number for three hundred and thirty billion dollars on research and development a lot of money And that's bigger, you know than the R&D government budgets of many of the big Asian countries way bigger But if you look at what this involved a lot of it is Routinized bureaucratic activity. This isn't basic research. This isn't scientific research and Alcatel which took over Bell Labs when it took over 80 that bit of AT&T Recently converted Bell Labs into a normal corporate R&D center and we won't be hearing anything from it for again I don't think because that's not what normal corporate R&D is about So the basic sort of serendipitous research that produces breakthroughs is not what most corporate R&D is going to The reason for that is because the time horizons The Bell Labs hat that they had to make all the amazing Nobel Prize winning breakthroughs They made in the 60s 70s Just don't exist for a normal corporation the pressure to justify You know spending 200 million dollars on something that might five ten years from now Produce a breakthrough only the pharmaceutical sector can do and as you've pointed out It's changed its strategy, which is now to gobble up small companies is basically it's a boa constrictor and it swallows things And these small companies don't go to market anymore. They don't have IPOs these VC funded biotech companies Are created expressly with the purpose of being acquired and the acquisition kills the entrepreneurialism straight away It's the lot of this is under the radar and a lot of this is what my book addresses But your question is absolutely right I think it's it's um, you are you're putting your thumb on a very important problem with the time horizons most of Corporate America not all of corporate America, but most of it Well, I'm sorry that time doesn't permit us to accommodate everyone who has signaled that they would like to raise an issue But let me say simply in thanking Ed for this incisive discussion That I think he has demonstrated to us very effectively the correctness of his title time to start thinking This was very much part of that. Thank you very much indeed There are refreshments and I'm take it you're going you're willing to mingle so absolutely yes Let me turn this off. Thank you. It was really good. Well, I'm delighted to do it. It's really good. It was a good session