 It is wonderful to have you all with us this evening, it is great to see everybody. We are teasing that everyone sits in the back and so all of the folks who are going to be joining us later are going to get to have a special welcome as they come up to the front. So this is an informal family gathering, the Ford School family and so I hope you'll encourage people to come up to the front as they come in. So good evening, I'm Susan Collins, the Joan and Sanford Wildean of the Gerald Ford School of Public Policy and it is great to see both a number of familiar faces. I look forward to talking with you afterwards but also a number of new faces and I look forward to talking with you as well. With help from many of you in this room, Jennifer Niggemeyer and Elizabeth Johnson have put together a really exciting two days, both activities today and activities that are going on tomorrow and career panels that have included I think about 40 Ford School students on the trip and so I look forward to hearing about those but I hope that they've been as productive as they promise to be. You've come this evening for a keynote event which has become a tradition as part of our DC trip and tonight we have a conversation where I will be joined by two very distinguished economists and friends who I will introduce later. One is my colleague Professor Marina Whitman and the second is Peter St. Institute senior fellow Ted Truman and I will give more formal introductions in just a few moments. I'd like to start though by giving you a little bit of Ford School news. The first item of news is a very sad piece of news and that is that someone who was a beloved longtime member of the Ford School community, a faculty member Michael Cohen, who those who were active in the Ford School during its ips days will probably remember very fondly, died unexpectedly over the past weekend. He had been battling cancer for a long time but it was a surprise and a shock and so we were very saddened by that. There's information about a service this weekend that's on our website and also about the very many contributions that he made. He was one of the really core intellectual faculty members who helped transition ips into a school and he was also one of the founding members of the school of information and so has had a great many contributions to the university more generally as well. So I encourage those of you who remember him to take a look at our website for more information. I also wanted to share some exciting Ford School news that I hope that you will join us in activities related to and that is that we are starting celebrations for two back-to-back centennials, 2013 as many of you know marks the 100th anniversary of President Ford and we have a number of special activities that are already underway to commemorate his life and his legacy. Brent Scrowcroft will visit the Ford School later this semester to dedicate a smaller version of the statue of President Ford that sits in the Capitol Rotunda which we will have in our great hall and I hope many of you will join us there for that and Paul O'Neill who was former Treasury Secretary will be our commencement speaker this year in honor of again what would have been the 100th anniversary of President Ford's birth. But of course it's all of you in so many ways our students and our alumni and members of our community who really continue the legacy and the many contributions that President Ford made to public service and you're really one of our best ambassadors throughout that and we're so proud of all the things that you do. I'm going to ask you to help us celebrate that centennial in a way that I hope you'll think is fun as well as, whoops, as well as helping to spread the word about the school and helping us to kick off the centennial and that is our button celebration so you see that I'm wearing a button many of you took buttons as you came in our speakers our panelists have their buttons and I hope that you will demonstrate your pride of the Ford School and wear it all around Washington and in your travels and all the places that you might be. We're working on the details but in fact we are about to launch a special Ford School picture of your button with President Ford and you might have seen the ad for it out on the table and so the idea is to go through all of your contacts list and see who is influential and impressive or just a really cool person that you would like to have a photo of wearing our Ford School pin, our 100th celebration of President Ford pin. So get a picture, send it to us and we will have a really special prize for who is designated as the winner of that fun contest so you'll be hearing more about that and I hope you join us with that little contest as well. In 2014 the school celebrates its 100th anniversary and so that is the second of our back to back centennials and we're planning a number of activities and events stay tuned certainly one of them is going to be a reunion for alumni and we hope to announce the date in the coming months and look forward to seeing all of you and all of your Ford School friends joining us for that event. I hope that you all saw the most recent edition of the Ford School feed. If you didn't let us know because we want to update your email address and make sure that you are on our card on our list for that and I hope that all of you put your business cards in. If you didn't I think Cliff and Jennifer were collecting maybe Elizabeth Elizabeth and Amy as well were collecting cards. We always do a special drawing so let me get the basket and I will last minute cards. It's great for us to be able to stay in touch with all of you but wonderful. Okay, we've got some more. Okay, dig deep and I'm not looking and we have Keith Fudge. Never, never. So we also have a special prize for our winner and this is our prize winner. Now I know that further north there's going to be a huge blizzard. I don't think we're quite going to get the blizzard here. At least I hope not. Maybe just some rain but Keith you're going to be very warm because we have a Ford School travel mug for your coffee on your morning walk and we also have a scarf for you so I will meet back there. Okay, so now for our main event this evening. We are very fortunate to be joined by Ted Truman who is a senior fellow at the Peterson Institute for International Economics and he was a former assistant secretary for the U.S. Treasury of International Affairs under President Clinton. I got to know him when he was the long time director of the International Affairs Division of the Federal Reserve Board and has enjoyed staying in touch with him throughout the years and look forward to hearing his thoughtful remarks later this evening. Also joining us is our esteemed Ford School Michigan colleague, Professor Marina Whitman who of course is both at the School of Public Policy and the Ross School of Business. She was a member of President Nixon's Council of Economic Economics among a number of very interesting career positions and many of you may have seen her recent memoir, The Martian's Daughter which was published this past fall by the University of Michigan Press and for those of you who haven't read it I highly recommend it. It is both a fascinating read, history, economics, very thoughtful and a very, very interesting life and I encourage you to take a look at it. There's actually a sample copy of it out there. So both Marina and Ted have had careers that are really dedicated to understanding the U.S. economy and its role in the international system from a variety of different vantage points. As we look at what's happening today, the intertwining of economies is increasing and there are severe challenges that certainly the U.S. is facing that Europe, Asia, emerging markets and again they're increasingly intertwined and so we're very fortunate I think to have the range of expertise that both Ted and Marina bring to this topic for our conversation this evening. So here's our format. We're going to start out by inviting Ted to launch our discussion by giving some initial remarks about the outlook and his perspective and then he'll join me and Marina for an initial conversation between the three of us. I want to leave at least 20 minutes for questions from the audience so I encourage you to think about what you want to ask him but the three of us more generally during the initial part of the discussion and then we'll invite you to come to the speaker which is over there to ask questions for the last part of the session. So with that why don't we get started and I am delighted to invite Ted to give his remarks. Welcome. Well thank you very much. I was joking that Mr. Fudge gets to ask the first question and if no one asks the first question we're going to call on you. So it is a pleasure to be here with Marina and Susan this evening. I've known, I won't reveal how long I've known two of them. I have known Marina longer than I've known Susan. Leave it at that. And my connections with Michigan are several but somewhat tenuous but maybe some marginal interest. So my wife's great uncle taught at the law school and more interestingly in some respects her wife whose name was Margaret Tracy was a professor of economics there before World War II. So this was an example of Michigan being substantially ahead of its time I think and my wife's mother graduated there from there. And then the summer of 1958 I spent in Ann Arbor while my father was working with the America Votes project and I played a lot of golf and that's the only course on which I've ever broken a hundred. Then nine years later when I was on the job market I visited Ann Arbor and was not deemed worthy of an offer but I have been back a number of times actually I have a relative who lives in Ann Arbor. And to date we do Route 10 to Route for Michigan and the Big Ten including during the basketball game last Saturday night but that's only until the Maryland Terps join the Big Ten. So this evening we're supposed to be discussing developments of the U.S. economy and policy and implications for the world and I'm going to bend slightly the topic by thinking also of things the other way around the implications of the world for the U.S. economy because as Susan mentioned in her introductory remarks we live in a joint world a general equilibrium system which I was recently learned we're supposed to call now a complex adaptive system that is always in disequilibrium. This is I'm sure you learned this in school these days I just learned it yesterday. I'm going to cover sort of four subtopics one the outlook for the U.S. and the global economy which continues as a timid subpar recovery then a little bit on Europe which may resume growth this year but faces I think a decade of stagnation. The tepid U.S. recovery will continue but we will make a marginal net contribution to the global economic activity in contrast to the half a percent a year that we contributed in the middle part of the 19 the early part of the 19 this past decade and the one percent a year actually the rest of the world contributed to us in 2007 to 9. And then you have the emerging market and developing countries which will continue to grow fast and faster than the advanced countries but their growth will be substantially below their pre-crisis pace which I think demonstrates the fact that they have not decoupled remember actually Susan you've written on the subject haven't you and that they cannot alone drive global growth back to potential. And then also I'll talk a little bit about the United States and Europe and their respective policy challenges ours being more of a political paralysis with little effect on the rest of the world so far and Europe being much more serious with very large effects on the world so far and lastly as a former central banker and it's still slightly more respectable to be a former central banker than a former Treasury official central banks are controversial in the world today and the issue of currency world currency wars are one manifestation they're more real than imagined more imagined than real in my view but they illustrate some of the potential challenges in the world today so on the outlook Christine Lagar the managing director of the National Monetary Fund recently opined that the outlook was for timid recovery and her comment coincided with the latest World Bank I mean IMF's projection for the world of 3.5% growth this year and the word timid is justified by the fact that there's certainly a risk to the outlook and by the fact that for more than two years the IMF staff and putting together its outlook has marked progressively marked down the outlook for say this year indeed for the level of global economic activity is now projected for this year to be 3 percentage points lower than was anticipated two years ago and even then they were hardly projecting a boom and that if you want to have some number of the two numbers associated with it that is one and a half trillion dollars two and a half trillion dollars or three hundred dollars per capita globally and in my view most of this lost output is attributed to the failure of the Europeans to decisively address their the Euro debt crisis and that failure has adversely affected us in the United States and we have not had the policy scope to compensate so a little bit more on the three pieces of the puzzle the IMF now projects that the Euro area will have a shortfall in the same sense I used it before of four and a half percent and the explanation for this bleak outlook is their failure to address and resolve the debt crisis three years ago in early 2010 the European authorities failed decisively and comprehensively to address the Greek crisis and the result was a spread of economic and financial contagion both within Europe and abroad and the inevitable fiscal belt tightening in the program countries the countries in crisis which now are five or Cyprus is six makes them six has been accompanied by a physical contraction which is inevitable but there also has been physical contraction in the rest of the Euro area which has in turn exacerbated the slowdowns and recessions roughly by twice as much, half as much in the other countries like Germany, France, Austria, the Netherlands as in the program countries and this generalized fiscal austerity and the fact that the European Central Bank has been behind the eight ball not behind permanently but behind the eight ball which doesn't mean that they've never done anything have exacerbated the crisis and the financial situation with negative effects on the world as a whole and even with a mild recovery that the IMF projects for in 2014 if you take their numbers over the ten years ending in 2017 the Euro area will average growth of one half percent per year so that's what I mean by stagnation and I think the point is that no region has been immune from this sort of this slowdown and the spillovers from the Euro debt crisis which I think demonstrates the point that it's largely their problems rather than a surge in commodity prices or other things that you might point to Arab Spring, whatever it might be so the projected shortfall in U.S. economic activity is about two and a half percent on the same basis but and even with a and we're supposed to get maybe close to that it grows this year excuse me two percent this year with some pickup in the second half of the year but this is the broad consensus but more recently I think forecasting lags, facts sometimes seriously and I was interested to note that the Congressional Budget Office came out with a forecast for this year now which is closer to one and a half percent two days ago based on the fact that not only have we had the tax deal but it looks like the federal sequester will go into effect largely as well and as far as the emerging market and developing countries are concerned they're projected to grow at five and a half percent this year but that compares with eight percent a year on average in the pre-crisis period and their shortfall on the same basis is about two and a half percent and again every region of the world has a shortfall and basically I think that demonstrates that they have not decoupled from the advanced countries and they lack the capacity to propel by themselves global growth back to potential no group as I said has been immune for example even in Asia, developing Asia which we think is the most dynamic on the same basis their outlook this year the level of economic activity in the emerging market developing countries in Asia is expected to be four percent lower than was projected two years ago so what about the United States and Europe I should say in advance it's going to sound like I'm beating up on Europe but I started out doing my work on Europe to Michigan to do my job interview I actually gave my paper on trade creation and trade diversion in the European economic community maybe that's why they didn't harm me so the principal difference between the crises in Europe and the United States if you want to call them that is that in Europe you have economic crises combined with political crises which in turn have exacerbated the economic crisis and the United States we've only had essentially political paralysis associated with our incapacity to achieve consensus over the shape and timing of getting our fiscal house in order so one question is whether the United States has been fiscally profligate and opinions on this of course can differ the IMF estimated last fall that over the three years ending this year the United States will have reduced its cyclically adjusted general government budget position by three and a half, three and a third percentage points of potential GDP and that probably is now an underestimate by the way and the rule of thumb which they pronounce for countries who are in good shape is that prudent adjustments in fiscal position should be more on the order of one three quarters to one percent a year by that standard but I think the basic point is most of you live and work in Washington so you may not agree with this but I would argue that the underlying debate in the United States about fiscal policy is not whether the budget deficit and the build up of government debt should be cut but how fast, how far and by what means which is relatively simple set of questions anybody can do with this spreadsheet they may not come up with the same answer and we have not had a crisis and any serious crisis but yet but any serious crisis clearly would reverberate around the world but today the rest of the world in my opinion is more worried that we'll be too much too soon rather than wait too long in other words our political paralysis yet seriously affected the world economy Ken Rogoff another former colleague of mine recently wrote in the Financial Times that the world is right to worry about U.S. debt but that at the end of the article, that was the headline in the end of the article it said a little bit which I think is probably about right in contrast the European crisis started out as a traditional macroeconomic banking crisis which normally are resolved by in six or nine months these days Europe is in its fourth year and the reason is that European leaders have bickered about how to address the immediate causes and at the same time they have engaged in a existential debate concerning the future of the Euro after six decades of progressive European economic and financial integration and finally during this past summer it was agreed that the Euro is irreversible and then that decision that's just until a few weeks ago when the German Finance Minister said suggested maybe Cyprus is an exception now to be fair sympathetic observers argue that delays in the European decision making are a necessary complement to fundamental long-term economic governance reforms and are necessary to force recalcitrant political leaders in affected countries to take tough measures and to deal with the problem of moral hazard and the Euro area may emerge stronger from the crisis and in fact that would be my best guess but meanwhile I think it's fair to say that the heavy economic toll has been extracted not only in Europe but as I've demonstrated around the world and there's some considerable risk of further political unraveling as one headline I saw this past week said quote bond yields rise as markets discover that the crisis may not be over after all so that brings me to my last subtopic currency wars with the global recovery well below par central banks have kept their feet on the respective accelerators led by the Federal Reserve and that has been controversial and one area of the international controversy has been captured by this term currency wars so I do do a little teaching these days so this is a teaching part of my talk so let's unpack this term in a world of low inflation fiscal policy that is largely paralyzed like it or not monetary policy and for those countries with the scope exchange rate policy are the only tools available to stimulate their economies in the short run so we want to step back and ask ourselves what we mean by exchange rate policy in this context and one possibility is what is called by economists oral intervention that's expressions of official opinion that currency is too strong which are largely harmless they make good headlines in the financial time but that's about all and they show the people that the officials care sort of feel good stuff second candidate is active purchases for foreign currency to drive the country's currency down which is of questionable lasting effectiveness accepting countries that are sort of disengaged from the global financial markets and a third candidate is directing monetary policy at an explicit exchange rate objective as Switzerland is doing which is somewhat more problematic for the rest of the world depending on the circumstances of the particular country but I would argue that the aggressive use of monetary policy as we generally understand it through the purchase of domestic assets in order to address weaknesses in economic and financial conditions as has been done by the Federal Reserve is something else and should not be a major source of global concern but of course it is and the counter argument is that Federal Reserve expansionary policy has two offsetting effects on the one hand it tends to depreciate the dollar thereby absorbing demand from the rest of the world and on the other hand it tends to stimulate domestic investment and consumption thereby adding to global demand and then that effect on the rest of the world may be either positive or negative but it's small because you're taking a plus or minus if you take them together they're going to be smaller absolute value than either and it's approximately zero in the US case now different countries may be affected differently so it's zero on average and the problem I think is that other countries may focus on the negative effects and not ignore the positive effects but what we do know is that tensions and risks are increased and the bottom line we also know is that all countries can't devalue their way to prosperity at the same time assuming they can devalue their way to prosperity at all which is questionable and the risk is that in trying to do so trade and other frictions will increase in other words we live in interconnected world in which every country can and should have used about its own policies as well as those of other countries as I've tried to illustrate tonight so I hope I've given you all including Marina and Susan something to think about and I welcome our discussion of these issues as well as anything else is on your mind Thank you Good chance to sit down Ted let me start by asking you to unpack a bit more a couple of related comments that you made that the EU clearly had a crisis whereas the United States didn't it merely had a paralysis at the moment secondly that while the European situation was having negative effects on other countries the United States was not and despite the significant contractionary effect of US fiscal policy so I was wondering if you could say a little bit more about those distinctions and why you make them so clearly Well I think partly it's a question of sort of looking back and saying what really has changed over the last two years and although lots of things have been going on in the world commodity prices have gone down that helped some countries but others right in general they've gone down but there have been other events economic and political we haven't grown right if you're an advocate of Paul Krugman we could have done a lot better that's a different issue in some sense but we sort of have muddled through so the sort of that effect on the world has been small and in the European case they sort of magnified their own problems partly because they're all tied together the countries are all tied together and that sort of the internal linkages magnified each other as well as some of the policy aspects of it as I suggested and you've had a lot of uncertainty generated by the international financial markets I mean you actually see articles in the newspapers and I suspect more academic things which say in some sense the unusual period in which events in Europe have been driving day-to-day movements in financial markets and one of the sets not continuously over time but one of the features was just a general rise in risk aversion which has affected the emerging market in our countries so money has come back into the dollar in particular Swiss franc which is one of their problems and that has adversely affected the emerging market in developing countries and that has a further feedback effect on the United States and the sort of major component of the increases in risk aversion over the last couple of two or three years has been the European crisis and whether they're going to have the big national bankruptcy or not so that's the logic that I would use to make that argument about Europe and in our case we obviously could have done better but for better or for worse I mean some people would even say for worse there hasn't been any financial market manifestation of our particularly of our incapacity to figure out what we want to do with the fiscal situation over the medium term and so that's basically the argument now that doesn't mean that we certainly have the capacity to do this but we hope that it doesn't happen the whole kind of thesis that your talk was on had to do with these repercussions in both directions or in all directions and a lot of the mechanisms by which this occurs were implicit in what you said but I was wondering if you could sort of say explicitly and sort of fairly briefly what are those different mechanisms by which countries affect each other economically well there are obviously as you say if your question implies there are multiple so there is trade which in turn is linked to economic activity there is finance in terms of financial flows as well both financial flows and direct investment flows there are monetary financial market conditions including risk premium on various types of assets so I think you have all those different channels now they don't all work the same way I mean in some sense one reason why we have it's not just the Federal Reserve which is driving down long-term interest rates in the United States it's because the European crisis is driving down long-term interest rates in the United States and indeed over the last several months you've had a backup and the backup is probably only getting slightly above 2% it's hard to argue that it's a backup but you've had a rise of 30 to 50 basis points and long-term interest rates in the United States even as you've had the same rise in long-term interest rates in the government interest rates in Germany which reflects a somewhat calmer situation so you have all those kind of channels it seems to me that are affecting the system as a whole and we are bound more together I mean again I think it is impressive that not only in the global financial crisis itself but in this European Coda all, not all countries that would be too much but all regions of the world have been affected similarly I think of the other major period in the post-war two other major period in the post-war period where you had sort of global events where the oil price crisis in the 70s where you had lots of countries going into the recession but not everybody did and the global recession come that crisis of the early 80s but again if you look at the data not everybody was going down at the same time not everybody region of the world had a lower growth last year than the year before which is pretty remarkable to have that given the sort of you think about the diversity of countries and regions of the world it's pretty remarkable to have that and I think that just as demonstration the fact that we are all tied together even more than we used to be which is partly why you add things like the G20 and so forth and so on being wielded to action so I'm going to jump in with the question and just play devil's advocate and push you a little bit further and then I think we should open things up to the audience so if I wanted to argue that perhaps you are letting the US off the hook and that your argument suggests that the US is much less to blame for the challenges of pulling this very interlocked global economy out of the challenges that they're all facing so I wonder what you would say to the view that what's happened in the US is that with a spreadsheet you could have figured out how to deal with this fiscal problem as you suggested one way to have dealt with it and Krugman is one but there are many who would argue in this direction but one way to deal with that would have been to make it very clear that there was a long term plan and that it was the debt and the fiscal problems were going to be addressed over time but to be much more expansionary in the short run and possibly we wouldn't have seen the very poor growth in the last quarter and the US would have provided much more of an engine of growth globally and that's a very different scenario than the one you painted and relative to that one it sounds like the US has more to account for than you suggest I did say the United States could do better could have done better and what you lay out I think is once in a while I would subscribe to so if you and I were the economic czar and czarina we probably could sit down and figure this out and one thing would be why weren't we able to say well we have this long term plan which addresses the long term issues of entitlements and associated issues and then we have the short term issue a short term plan and by anchoring the longer term expectations you have more skeptical from the short run to be more expansionary which makes quite a lot of sense I'm interested by the way just to be slightly provocative and personal I mean so as you mentioned I was at the treasury for a while and therefore I was working with Larry Summers when he was both deputy secretary and under secretary and the interesting thing is that over the last year his financial times op-eds have reversed on that so he was a Krugmanite a year ago and his most recent one was the other way around he said we have to tack down the long run and then we have more scope in the short run and that's even extracting the fact that we probably were in the wrong position when he started but that's built milk so I think we certainly could have done better and that we would have been better and because we would have been better off the world would have been better off though I have a tendency to I mean it's not again a false analogy so those are sins of omission we failed to do what we should have done and I think in the European case at least viewed from the perspective of a student of financial crises they had sins of omission they were not they the advice they had was to use massive policy and financial force to stop the contagion and they were unable I think that's the right word I don't know they were unable to do so that certainly was the we want to put it crude about it but we are in Washington after all that was the advice they were getting as far as I know from the administration you have a crisis the way to deal with the crisis is you use overwhelming force Powell doctrine is sometimes referred to and they didn't have the governance capacity to do that to trust each other enough and therefore they sort of muddle through and that meant the thing got worse and worse that's the sense in which I think the distinction about omission and omission may be a little exaggerated but that's what we're here for so I suspect we could continue this but why don't we open things up and see if anyone would like to ask a question or share a perspective we have a microphone that's here I want to make sure that people can hear so please come on up Hi, so my name is Noor Shamut I'm a student from Jordan I do not know if we can say that the air spring affected the US economy but I can this is a speculative question this is the first time that we are living in a world that has more people living in places than rural and I wonder how we can how the US is ready for this or how it will affect the US economy in general this paradigm shift in the world well my answer would be though I'm looking for help Susan she's done a lot of work on these long-term trends but I don't know where that's one of the in some sense it's a long-term trend we reached a tipping point just as we've reached a tipping point in the sense that emerging market developing countries now account for more than both 50% of global GDP on a PPP so we've reached a sort of tipping point and I think the world is much more complicated difficult to manage so the way I tell the story is if you live in New York and there's a problem like a big slow storm the whole place shuts down if you live in Washington which is a big city or a small city a reasonably big, medium-sized city by US standards not by Chinese standards it's a village if you have a big snow storm you can handle it in DC if you have a small snow storm you can't handle it you have to know how to handle it the people live here but the truth of the matter is you can walk home right? many people not everybody but you can walk home so the city is much more manageable as an entity it doesn't break down so much and so you actually need more complicated another example is which is I didn't realize this talking to someone in administration so we had this big hurricane Sandy and just as the case with the New Orleans but we all have read about that people have been apparently warning about a big hurricane in New York City for decades and saying we were unprepared because the infrastructure was not there to deal with that many people and those kinds of circumstances and as someone that half was growing up in New York City the fact that you found subways flooded for ten years subways being flooded so there are these more complicated problems and I think it makes it more difficult to if you don't get them right you end up with much bigger disaster if you're often in Hillsdale, New York you can go out and have a country place use that example cut your own wood you can shoot your own deer with a license of carrier gun and so it's much life is more complicated but maybe you could be optimistic about it I think it's I heard on the radio so this is the birthday of the famous American writer by Sinclair Lewis and he wrote a book called Main Street which I must have read when I was 16 that's somewhere in Ann Arbor but it actually made fun of Main Street it made fun of a small town in America which is not exactly what we've actually been doing when we're talking about Main Street versus Wall Street over the last several years so there's a certain sense in which we've made progress but change let me just add a couple of thoughts to that I mean you said is the US ready? I think essentially that there are a lot of changes that we're still grappling with not just the US but more generally and let me just highlight a couple of trends which Ted talked about one is there's the way that risks play out when people are concentrated are quite different and so there are these small probabilities of catastrophic events and I think arguably dealing with those is more challenging when people are more concentrated because there's a you know there are hacks more people and more activity in small areas so one issue related to that increased concentration is how you manage those small probabilities of things that are catastrophic I don't think we know well how to deal with that I think that's a huge challenge which relates to infrastructure we also have seen in China in particular the growing urbanization and congestion and some of the major environmental challenges and I think some of those sustainability trends and issues or things we're grappling with throughout the world and it's not something we've solved certainly at the same time some of the pluses have to do with the fact that there are agglomeration economies so to the extent that things are interconnected there are a lot of activities that actually are perhaps more productive and so they're both pluses and minuses so have we figured that out? Absolutely not I think it's a really interesting challenging thing that has pluses and minuses like most parts of what we see happening out there so a really interesting question There is another long term tipping point if you want to put it that way which interacts with these others both the urbanization and the issue of the growing significance of the developing countries and that is the drop below replacement birth rates in virtually all of the rich countries which means that and actually it's true of China as well because of their one child policy which means that there is going to be increasing difficulty in these countries in the working population making good on the promises that have been made to the retired or older population and none of the, actually the United States although it's having all this to do about social security and healthcare is better off than almost any other rich country largely because of immigration but every one of the Our promises are smaller too Our promises are smaller too, that's true but but the fact is that none of these countries has figured out how to deal with this issue and of course China has the additional problem which is reflected in this question excuse me will China grow old before it grows rich because at least in the developed countries they're rich enough so that they have some chance of dealing with this problem China is still a poor country despite the very rapid growth of income and yet they're going to face the same problem as well while they're still poor so for them it's kind of a double whammy thank you other question thank you for speaking with us today my question is kind of in two parts but they're both based on a theme that I detected in your talk a lot of the problems that have faced the developed world and recovering from the crisis of 2008 have seemed to be more of a political problem than an economic problem and what I mean is that in the view of many mainstream economists the proper response would have been a short term fiscal monetary expansion followed by paying down that expansion in the medium to long term and so my question is how would you formulate the argument since you're speaking to a lot of future and current policy makers right now how do you formulate the argument both domestically for something like a short term fiscal expansion for example taking advantage of negative real interest rates to fund something like an infrastructure bank and to the Europeans convincing the Germans in the IMF that austerity went out of fashion and it's showing really poor results right now how would you formulate those arguments and they could be different for different audiences I think you asked that I'd be interested in Susan and Marina's answers to this question so I think you ask a very actually two questions one is how do we talk to ourselves and the other question is how do we talk to the Germans and I know they are related in some sense when I'm being flip I blame the professors by the way I do do some teaching so I did it at the beginning of my career and at the end of my career but in between I did so they learned their economics from these people and then they did seem to have not learned it and by the way I have some classmates who graduated in the same college and I said well we all took the same economics how come I learned something different than you did but I think that's illustrative in some sense you don't we have a first of all you have different values that's one of the points but we don't always recognize the problem at the same time and then we don't have the same diagnosis and therefore not surprisingly we have different medicines prescriptions for that crisis and it's certainly true that that fiscal sustainability which is a little hard to actually whatever you mean by that term is as opposed to unsustainability is to be preferred then the question is how do you manage yourself around the fiscal sustainability whenever you get off whatever the path is to fiscal sustainability do you say oh well we got to go right back because which is sort of a political economy question because the longer you stay away the harder it is to get back and the more difficult it is to push that mixing my metaphors that rock up the hill or do you sort of say well we can handle this along the lines of Professor Collins earlier right where you have both a medium term and a short term at the same time which you could sell not just in the United States to us to the here one would hope but we didn't and and tried there were some efforts but they were pretty weak and we certainly didn't sell it to our critics abroad now the critics may be wrong just in terms of dealing with short term macroeconomic stabilization and certainly right for the reasons why Susan excuse me Professor Collins asked the question earlier I would say that we've got it exactly backward and the reasons I think are not so much because the politicians didn't learn anything from EC101 as because politics trumps economics pretty much every time and what I mean by backward is that as Susan said what we needed now was stimulus to get us moving again but with a credible medium and long run plan for getting at the deficit and that really means attacking entitlements now what we've done instead is done absolutely nothing on the long term and meanwhile introduced a totally unwarranted fiscal drag in the short term Ted what did you say was the CBO forecast of 1.4% they now have on the assumption I think basically that the sequester will be implemented 1.4 but you also said that that's about what it should be no no no it's marked down so the general forecast I think is sort of in the 2 plus range these days right so the sequester takes 3.4 I'm told by the experts 3.4% of growth this year on top of everything else so that gets you from 2.25 to 1.5 so that's I think where that's flirting with once you get down around 1% you can go into recession that's the way numbers bounce around but I don't think as I say that the reason is that the people I was going to say down there in Washington but I guess I have to say here in Washington think that this is the right solution it's just that for quite different reasons people on both sides of the aisle think that it is the least politically costly solution the one I think one distinction is and it applies to a comparison of the European debt crisis with the debt crises that we knew about in emerging markets so they all have political economies right but the emerging market crises are like the crises in Greece itself right they don't have any choice right they've been noisy about licking the choice but they basically don't have any choice what they have to do right and so at that point the economics trumps the politics they use your term right the economics trumps the politics in Europe as a whole because they're wealthy enough the politics can trump the economics and here too right so why we haven't addressed our longer term problems well the politics trumps the economics and we're wealthy enough in some sense to be able to muddle through for a while so I'm actually going to suggest something because we're basically out of time but I have folks who wanted to ask so what I'm actually going to invite people to do is to come and talk with us during the informal time and so we have other opportunities as I hope everyone will stay for us to continue this conversation but since we are out of time for this part of our event I wanted to thank Ted and Marina for joining me in this conversation clearly there are a lot of challenges both for the US economy but more globally and so this is not a conversation that we have come close to ending I also wanted to thank all of you for coming and joining us here this evening and hopefully continuing to think about some of the issues that we've raised we are also hoping that you will all stay and be active participants in our student alumni network which is the next part of our event and I have to say it's one of my favorite activities because it's an opportunity both to find out what a number of people are doing but also to hear about interests of students who are looking forward to some of the careers that they are preparing for and so a special thank you to all the alumni for coming here and for spending time talking to our current students and helping them with a number of the kinds of questions that they may have as you I hope saw outside we have divided things into a number of tables that are highlighted with different topics and each table has a set of hosts and so I'm going to ask on behalf of me Jennifer, Elizabeth, Amy our team here that you spend perhaps the first 20 minutes at the tables that are the most closely related to your interests or your current activities and then certainly by all means I hope you have a chance to catch up with all of your friends and others who are here with us this evening so again on behalf of all of us we are delighted to see everybody and hope that you stay and enjoy the food and our networking reunion so a final thank you to Ted and Marina let me get this started you're saying that the fist