Moment. He has written a Remarkable Book,the great inflation and its aftermath. I read it over the weekend, cover to cover. That does not happen often. It is a very readable book. It is really remarkable. First of all, of course, because of its timing. At the moment that everybody tries to catch up on what actually the Great Depression was and he tries to focus our attention on the great inflation of the 60s and 70s. And the aftermath, when everybody is thinking of the sudden deflation, we are focusing on the consequences, negative consequences of the inflation. When all of the policymakers seem to have tensions at the bookt, he explains in this what came from the start of the application of thought since the kennedy administration. So partly this is remarkable because the book was, of course, written a little bit earlier than today. He finished the book at the end of last year. Partly because he is also an independent thinker who looks ahead also. It is also very remarkable because it goes way beyond the macroeconomic description of the inflation process and how inflation was brought under control here in the United States. It is much broader than that. It looks at the consequences for politics. At the consequences of business practices. And in that way it gives almost a sociological description of the phenomenon. Bit very much focuses on the United States, but it is very good that we discussed it here at the world bank because i think you can argue it is even more relevant for developing countries who brought inflation , under control much later than the United States did. Most of them in the middle of the 90s. And for whom the consequences of the inflation time frame before that were even more disastrous. More so than what was described for the United States. I do not have to introduce bob, everybody probably knows him from his columns in the washington post. He graduated from harvard. And for 40 years has written columns, mainly in newsweek and the washington post, but in other places. I saw in his bio that he had at least 10 awards for best columnist or best editor. So we are very pleased to have him here. He will talk for some 20 minutes. Then he will raise a lot of food and thought for discussion. We are very pleased that we will have good discussions that we will introduce later on. And apart from that really more debate. Robert thank you. Thank you. Appreciate it. I want to thank the info store for setting this up. Appreciate everybody coming here. Thank you for reading the book and commenting on it. Im not sure he would have gotten through it as quickly as he had if he did not have a deadline on his back. In journalism we know that nothing ever gets done unless you have a deadline. With an audience like this of i want to make my two conventional disclaimers. I am not an economist. I am a journalist. So anything that i say that seems contradictory to what a freshman in college would learn in your basic principles an of economics course, i should be sin of thatany because i am not a cardcarrying member of the fraternity. A second disclaimer, i am not related to paul samuelson. Anything i say that seems ridiculously silly should not be attributed to him or anybody related to him. He does, however, have a son who i am told is not only called robert samuelson, but whose middle initial is j. It is not me. He did write the newsweek column on economics before i did. Newsweek pioneered having economists write columns in the 1960s. And they had Milton Friedman on the right and paul samuelson, the liberal, and Henry Wallick who was a professor at yale and you actually discontinued the column in the 1970s as a sort of middle of the roader. I guess he was tired of writing it. And it was passed to his colleague at m. I. T. But when newsweek named me to replace them, having decided a journalist might be a breath of fresh air, samuelson sent me a nice letter. I think it was one sentence. I think it was as follows. Somebody named samuelson cannot be all that bad. [laughter] may have learned to regret that. I want to talk for about 20 minutes. Hans will stop me if i go too long. And the main thesis is simple, it is that the rise and fall of doubledigit inflation was the most important economic event of the last 50 years. And that he really cannot understand the economic history of the last half century unless you understand both the consequences of rising inflation and falling inflation, this is not to say that other economic events were not terribly significant. Globalization, the decision of the chinese to in their selfimposed isolation. Obviously the development of the internet. But my view is, if you do not understand the consequences of the rising and falling inflation you will not understand the context in which many of these events actually occur. For an audience like this i really am going to emphasize the consequences of falling inflation. Popular world, those are these recognized, and i think it will be most interesting to you. Where the consequences of rising inflation are more familiar. I want to go over those consequences of rising inflation before i get to the consequences of falling inflation. So briefly, the facts are beginning in 1960s inflation as measured by the United States was virtually nonexistent. About 1 . By the end of the 1970s it was double digits. Nobody knew how high it would go. It was roughly 30 . And 1980. 1979 so there was a huge change in the actual behavior of inflation. Again as i said in the late that0s it was not just inflation was high. Nobody knew how high it would go. If you look at the consequences of this rising inflation the most obvious political consequence was the election of Ronald Reagan as president. That was in 1980. Four president s had been unsuccessful in containing inflation. People did not know whether Ronald Reagan could do it. But if you look at the opinion polls rising inflation was the , issue that terrified people and concerned people the most. They did not know whether reagan could control it, but they knew for certain that carter could not. In the american political system , if you do not like that guy you have, the basic alternative is to vote for the other guy. That is what happened. Reagan reassured people that he was not going to blow the world up with a thermonuclear war, basically people said we will try this guy, because he cant be in a worse than the guy we already have. That is what happened. A second consequence of inflation which most people are familiar with is that the economy became increasingly unstable. Between the late 1960s and the early 1980s there were four recessions of increasing severity. The last recession of the early when inflation was the size of was the worst recession since world war ii. It may endure as the worst recession since world war ii, although the current recession may exceed it or rival it. But in employment at the end of 1982 got to almost 11 percent. 11 . About 10. 8 . People did not know when the economy was going to come out of this tailspin. Again, people were terribly frightened by the specter of inflation and the ensuing recession which was engineered , by the Federal Reserve when paul volcker was chairman. There was a purpose to it. Unlike todays recession which is the outcome of the Financial Market excesses, the recession of the 1980s was an active policy. That is a fundamental difference which people tend to lose sight of now. There are several other consequences to the rise of inflation. Again, i think they are reasonably well known among economists. One, i would say, was the stagnation of productivity. That is somewhat controversial, because we do not really understand what caused productivity to grow and to decline or stagnate in any detailed way. But there is a coincidence between the stagnation of productivity in the late 1970s and the rise of inflation. And in the book i argue that the two of them were not unconnected and rising prices essentially caused diverted managements attention from the details of actually running their businesses to the more pressing task of how much or how often they should raise prices, because it had more to do with their profits than any operational changes they could make. I also argue in the book there was something of an inflation allusion during this timeframe , because although the real profits were not doing very well, nominal profits were doing quite well. So the Business Executives tended to point to nominal profits and not real profits. They actually resisted measures which would have adjusted profits for inflation which would have given a lot more grim picture of how theyre doing. I suppose that is not a surprise, that the managers would not want to embrace reform that would reflect poorly on their performance. But in any case, that is what happened. Finally, i would argue that high and rising inflation devastated the stock market during these two decades. If you look at the stock market by the Dow Jones Industrial average, in 1982 the market was no higher in nominal terms than it had been in 1965. There had been a fair amount of fluctuation between the mid 60s and the early 1980s, but basically the market had gone nowhere. And in the late 1970s, businessweek ran a famous cover which said, stocks are dead. The equity markets had been killed by inflation. That was the prevailing wisdom. The underlying statistics support of what happened. Again those are the consequences , of inflation. We can go into more detail if you want to. We can talk about the economic mistakes and theories that led to it, but i dont want to dwell on that for the moment because i think the story is probably familiar to most of you. And less familiar, i think, are what i see as the consequences of falling inflation. I want to talk about three or four Different Things here, which i think falling inflation had a great deal to do with. One is the change in Financial System. Second is the rise in expansion of globalization. And a third is the current financial crisis. Toee all of these as a link the fall of inflation. So let me explain what i mean. If you went back if you go back in a time machine to the late 1970s and early 80s and look at the American Financial system you will see it was heavily based in depository institutions, commercial banks and savings and loan associations. S ls provided half of Residential Housing credit, the banks provided another good chunk of it and the rest of it was spun off into the Securities Markets and usually sold to insurance companies. The Financial System was heavily depository institution based. Consumer loans and Business Loans were made by banks and s ls. And the stock market and bond market, although they existed, where were less important. That system, we talk about how todays new Financial System is very different from that. That you have a huge amount, or you did have until about 18 months ago, a huge amount of credit mediated through Securities Markets, through various securitized estimates instruments which bundle together mortgage loans, credit card debt, auto loans, commercial realestate, mortgages and the like. And the increased importance of the stock market. And people talk, people talk about sort of the child of market triumph of marketbased financing and help how it has collapsed over the last 18 months or so it is responsible for our crisis. There is no doubt that the excesses of the Financial System are responsible for at least part of the current crisis. People talk about it as if it was a conscious change, a shift from what we had, a more regulated depository based system to what we have no. W. That is just that is , revisionism. It is makebelieve. It is fiction. The old system was not a exchange for a new system, it was a conscious act a policy. The old system corrupts. It was basically causing the collapse by inflation. The s l industry was destroyed by inflation. It was a very simple Business Model. Lowcost deposits which were generally shortterm , in nature, but very stable. About twoet them out Percentage Points greater than the deposit rate. It was simple business. They earned their profit on the spread between their deposit rates and mortgage rate. There was a saying you could be , out on the golf course by 3 00 in the afternoon because the business was so simple. Well, that Business Model was great in a time when he did not have any inflation. But when you had inflation and shortterm Interest Rates went up, the s ls were put in an awful position. Essentially they faced a fatal dilemma. Either they raised deposit rates and kept their deposit base, or they could not but they would become unprofitable because they put out all these longterm mortgages at 5 or 6 . But all of a sudden they were cost about 7 or 8 as inflation went up. So they would become unprofitable. Or they could keep their deposit rates low and lose all their deposits, in which case they would also go out of business. To that is basically what happened to the s l industry. Money market funds came along in the late 1970s and offered a consumer friendly alternative to bank and savingsandloan deposits. And the savingsandloan industry was put in an untenable position. Tore where various efforts reconcile to somehow defeat the dilemma by giving them new powers. The powers were abused. The regulation that of these new powers was inept. And so you had not only inept investments made, sometimes criminal or fraudulent investments made, but the basic problem was not in the regulation, not in the new powers. It was in the dilemma created by high inflation. To some extent a commercial bank was put in the same position. Their loan portfolios went bad as well. They had, especially the large banks, they had large loans to developing countries particularly latin america. , some of the realestate loans went bad. The banks were not in quite as bad a position, because the majority of their assets were shorter than the longterm mortgages of the s ls. Regulatoryh some forbearance they did survive, but they could not increase lending very much. So what you get in this situation is a search for new ways of mediating credit flows and new ways of creating a conduit between savers and investors. And securitization is the most obvious way that arises. So securitization in my view is a direct outgrowth of the calamity of inflation and the consequences it had for the Financial System. The second effect of falling inflation on the Financial System is that it made finance extremely profitable because as real and nominal Interest Rates came down, asset prices went up. So the cost of borrowing is going down. The cost of what you could how to invest in was going up. So high finance became very profitable. You got a lot of experimentation. A lot of innovation. I do not want to claim that everything that happened in finance, of which i am not a great expert on, was the result of falling inflation. What i would claim is the context and climate in which the new Financial System arose was fundamentally affected by first the rise of inflation which describes the old system, and the fall of inflation that created an extremely favorable climate for this new, innovative, experimental form of finance of which we got plenty of the last 20 years. I would say that if you want to understand the origins of this Financial System that we are dealing with today you have to , go back to high inflation. Ofond effect i would say falling inflation was to promote globalization. It was of myth, although it is myth, thaty shared globalization is a phenomenon of the last 20 or 25 years. In fact globalization is , something we call free trade and open World Markets or whatever the United States pursued after world war ii as part of its postwar economic Foreign Policy and foreign economic policy. There were reasons for this. Memories of protectionism during the depression. We can go into this later if you want to, but i suspect most of you are familiar with that history. But you get to 1980, for example, and world trade had expanded fivefold since the 1950s. And tariffs have come way down. Whatever. But i do think it is fair to say that the globalization we have experienced in the last couple decades has really qualitatively gone beyond just the expansion of trade. There has been a greater integration of supply chains than ever before. Many products really are not made in any country. They are made in many countries. They are designed one place. Some components are made here. Some components are made there. Ship to a third country and assembled. Whatever. There is a real integration here that did not exist in the 1970s and 60s. And the second fundamental change in the nature of globalization of the last 20 years is that World Capital flows have become enormous. Again before 1980 did not see , much of this. There was a prejudice inherited from the Great Depression against International Capital flows, which were thought to be stabilized. Thought to be destabilizing. The prejudice may have been right, by the way. So most countries had pretty effective capital controls. Extent beingsome eliminated, but very slowly. In the 1980s most of these controls were dismantled. Now you ask, what does any of this have to do with declining inflation . These are completely unrelated phenomenon. Not so. The dollar was and is the primary global currency which trade and International Financial transaction had occurred. If you tried to imagine a world in which the American Economy of the 1970s is perpetuated throughout the 1980s and early 1990s, as a world of high and unpredictable inflation in the United States, the regular ir regular recesses of growing severity, it seems to maybe e that we would not have the opening up of the world that in fact occurred. In either respect to my greater trade immigration or greater capital flows between countries. Let me briefly explain how and why i think this occurred. When confidence was reestablished in the dollar in the early 1980s, after this really crushing recession that brought down inflation and made the dollar a more Stable Currency the dollars value , skyrocketed. As everyone in this room knows, that made u. S. Exports less competitive abroad and imports cheaper. And getting into the early 1980s, with a few exceptions, the United States began to run trade and currentaccount deficits. The political effect of this in my view was a subsidy for globalization. Other countries regard exports as a good thing. They regard it as kind of a job creation machine. And so as long as the United States was promoting exports the itther countries exports, is essentially acted as a subsidy for globalization. Other countries regarded globalization as a good thing because it meant more jobs and employment. And Economic Growth for them. And they were more willing to sign onto trade pacts that reduced Tariff Barriers and nonTariff Barriers. A number of countries began to liberalize themselves because they felt that this was, mexico is a good example, the only path of Economic Growth. To some extent, the fate in Market Economics was restored as the u. S. Recovered. It is inconceivable to me that even if the soviet union had collapsed in the which i doubt 1980s, would have happened if the United States had remained as economically unstable as we as it was. Supposing it had it is inconceivable to me the prestige and power and influence would have the influence in the late 80s and 90s, if the United States had been as unstable as it was in the 1970s. In terms of capital flows, my view is that the accumulation of these large u. S. Deficits which meant an outflow of u. S. Dollars , which had to be either reinvested or other companies countries had to let their currencies depreciate. They did not want to let their currencies depreciate. It led to this gradual dismantling of controls. We need to reinvest in the United States, showed that this can be done without calamitous effects of the World Economy and as a result of that there was pressure from the United States to let american investors have easier access to other countries. There were not good arguments against it. And so again, this created a a climate in which things not attributed to inflation actually occurred. So in my view falling inflation , did not create globalization. It did not create greater mobility of capitol. But it created a climate in which the banks actually could in which of those things actually could occur. If you are looking at todays world, you have to go back to the fall of inflation and its consequences and put them in context and understand them. Finally i would argue, we can go into this more in questions if you want to. The current economic and financial crisis is really the last perverse consequence of falling inflation. For most of the two decades after the crushing recession of the early 1980s, the effects of falling inflation were mainly beneficial. We had two decades of largely a uninterrupted prosperity. And in the United States there were two minor recessions. Those where 1990, 1991. Each lasted for eight months. We did not get anywhere near double digit unemployment. The stock market went up. In the Dow Jones Industrial 1982, average averaged under 900 for the year. Even with the bubble, it was high multiples of that. Times more than that, even after the bubble of the late 1990s. There was a huge stock market explosion, explosion of asset prices of all kinds including a ultimately housing prizes. In this climate of declining interestrate and rising asset prices and a smooth business , cycle called the great moderation by many economists. People became insulated. People became convinced that we had kind of gone into a new economic era of low risk, longer and more sustained expansions, shorter and less damaging recessions. Climate, andind of rising asset prices as far as the eye could see, in that climate people became complacent and undertook risky behavior that ultimately defeated the assumptions that they had assumed. They basically made the world riskier than need be. But they did this because we let world that had essentially become pampered by prosperity. And i dont say that in a pejorative sense. I say it in an objective sense. People lost their sense of risk. Lost a sense of hazzard. Hazard. Date that togain the decline of inflation and the initial good consequences that it had. That is my little talk. I think therell be some comments. And after that if you have some would love on it i to talk about it. I will leave you again with the theme of the book, that the rise and fall of inflation was the most important economic event of the last 50 years. Not to take away from the importance of other events, but if you do not see some of these other things in the context of the consequences of the rise and fall of inflation, you are essentially dealing with phenomenon without causes. Thanks very much. [applause] thank you very much or sharing these insights and leaving enough time and creating enough appetite for the discussion and also for the actual book signing at the end. We will start the discussion with a distinguished discussant. She is an advisor at the Research Department at the imf. He is also a professor at the university of john hopkins. Most importantly he used to work at the Federal Reserve in chicago. As a disclosure i have to tell you that you can read in the introduction that they have become good friends over the last couple of years. O manyhe has thrown to softballs, i hope you will correct it. Prakash i want to thank you for inviting me to discuss the book. Since he has outed me as a friend of bob, he has long been my favorite columnist, one data was sitting on the metro, this was around 2003. The person across from me looked familiar, then i realized this was the bob samuels whose photos ive been seeing in newsweek columns all these years. Lecture tomy moms me not to talk to strangers and my own natural shyness i introduced myself to bob and we got talking. This was 2003. The question that bob asked me was, do you think there is a bubble going on in this economy . People are just getting to you euphoric. Maybe i thought bob thinks there is a bubble and i should be thinking of clever things to say about examples of bubbles and so on. A bubblethink there is and as i was going along i thought what examples can i give. We got up at the same stock. I said in our neighborhood there is this place called three dog bakery. Devoted tobakery selling biscuits and cookies to dogs. Said look at this bakery, thiss shop is fancier than the finest pastry shop i grew up looking at in bombay. I said we should go check this out and maybe write it up. He said if i write it up i will make sure i mention you. I kept waiting and waiting, i told my wife. The call never came. I was too polite to ask him. Iout a year later he said asked what happened to that column on three dog bakery you are going to write about the bubble. Not so sure, i am not so sure myself. I cannot just write a column saying there is a bubble because of three dog bakery. My point is that bob does not rush into things. He takes his own sweet time making up his mind, talking to lots of people. Ready far before , so i think the only sin this book commits is the sin of bad timing. A book about inflation at the time when the worry is recession and deflation would be ignored by many commentators. We are fortunate it has not been ignored. I think this book is a successful attempt to reclaim the lost history of the great inflation, as the title says. The does in the blamescribed a lot of the , anhe u. S. Federal reserve institution i used to work for. As bob says, the fed has committed two major blunders in its 85 year existence. It worsened the Great Depression of the 1930s by refusing liquidity to a Global Economy that was thirsting for it, and then in the 1970s it permitted the great inflation by not soaking up liquidity from a Global Economy that was drowning in it. The Great Depression looms large in public consciousness. If you were to type it into google you would get 8 million hits on the term Great Depression. The great inflation has faded from memory. It gets under 50,000 hits. Depression gets its own entry in wikipedia, the great inflation there is no wikipedia entry. Is a Great Service to tell us about this history. Bob laments the fact that history also skimps on economics and economics skimps on history. Is neither a professional economist nor a professional historian, but has given us in his book ample helpings of economics and history. I think the book is more than the story of the conquest of inflation, it is a narrative of economic history from 1960 to the present. From 1960 to 1979 u. S. Inflation increased from 1. 5 to 13. 5 or it. He writes that during these years, large price increases for the norm. We have forgotten that at the time u. S. Citizens protested against this rising inflation , andublic opinion polls Public Opinion polls inflation was considered more upsetting than vietnam or the watergate scandal. Huge, vietnam offers a space and historic memory, 12 million google hits for the vietnam war, using that as the metric. As bob mentioned in his remarks, he argues that in allowing inflation to drip into the double digits had devastating economy for the u. S. In the 1970s. High interest and rates that came with it stunted the increase of Living Standards by lowering productivity growth, causing stagnation in the stock market and leading to a series of debt crisis that affected American Farmers and developing countries. Perspective,mists what is missing from the book evidence onch more the links between each of these things, between inflation and these consequences. Let me take the one about productivity. We had ae have productivity slowdown in the u. S. In the 70s. It is true that it remains a mystery to this day. When i teach my executive mba i call thederbilt u. S. Productivity slowdown a cold case and urge them to try to solve it. What killed productivity . We have many suspects, that even today we do not know. It is an interesting hypothesis that it was inflation that wased productivity and it the killing of inflation that allow productivity to come back up. This is an interesting hypothesis to solve a case that remains unsolved to this day. Prefer to have a much more robust quantitative thatach to this to show inflation affects productivity in this case, but we have to have many other examples globally of the links between ,nflation and productivity which if someone were to demonstrate would be a Great Service. We have some of the speculation that bob has about how this happened. Inflation devoted managements attention away from worrying about their companies to worry about how much to adjust the prices. We have conjectures that could be tested with rich data sets about what happened. The same thing with inflation in the stock market. Beautifully,rites and when you read the book and youre captivated, but when you step away you think maybe i would like to see the correlation or a study that establishes these links more carefully. Inflation did pick up and then it was brought down. Bob does emphasize economics and the belief in the phillips curve that led to allowing of inflation to get out of hand. Book as a good chapter about the history of economic thought that led to this episode and what had to be done to change that. That after inflation had crept up to Double Agents to double digits was it brought back to a mere 4 between 1980 you had a massive drop in inflation. Bob argues that this was the a published minute two men. Debt this was the accomplishment of two men. Episode is close to trumping what happened in the 1980s or coming close. Role was tons allow the fed to maintain this punishing policy long enough to alter inflationary psychology. Even today, the social cost of what the u. S. Economy had to endure between 1980 and 1982 to quite inflation horrendous. Let me end with the most controversial and debatable part bobs book which is credit for a shrink and a large part of the past quarter century prosperity, he talks about how globalization and the triumph of the u. S. Model and the market model was partly due to inflation. In the book and as well as here he goes back and forth and to how much positive influence he wants to ascribed to inflation. Were a lot of other factors going on. I think the soviet union was collapsing because of internal contradiction, it could have collapsed before it did or after it did. The fact that it collapsed around the time the u. S. Had licked inflation was a coincidence that i do not feel comfortable relying on. The fact that the u. S. Looks strong at the time the soviet union was collapsing was a good thing, but i feel uncomfortable thinking that all this happened because of inflation or that inflation was really a major factor in bringing this about. Not to take away from the book, i am glad inflation was licked of i agree the consequences low inflation were beneficial to the u. S. Economy and the Global Economy, but i would like to see more evidence if bob is going to push this line that was the conquest of inflation that brought about globalization and all the good and not so good things that went with it. Bethe same token, i would loath to blame low inflation and the prosperity that bob says followed from it for the troubles that are now upon us. Bob writes that the prolonged prosperity, the continuous , helped to spawn a complacency and carelessness ofut the Consequences International demands, culminating in the present turmoil. My view is we are prone to showing complacency and carelessness about Financial Markets every few years regardless of the chain of events that preceded it. Yes it made us complacent, but if you look through the history of financial panic, you will see there were just as many events that may been preceded by a lack of prosperity. I find myself uncomfortable thinking that inflation and two decades of prosperity are what led to the present problems. I think the present problems happened for reasons people are and it may be not connected to the concept of inflation and prosperity. This is a Remarkable Book because it does remind us of an event that has faded from memory relative to the vietnam war or the Great Depression, relative to deflation, this is an episode we really need to be reminded about. I have no doubt believing that the rise of u. S. Inflation was a bad thing for the u. S. Economy in the 1960s and 1970s, and i have no doubt, no problem believing that the conquest of an the conquest of inflation was necessary to the revitalization of the u. S. Economy. Bob has done a Great Service and telling us about this episode in a uniform and persuasive way. That iconclude by saying agree completely with bob when he writes that the lessons learnt from the conquest of inflation should not be forgotten he writes that the lesson from the great inflation is that inflation should be nipped in the but. I hope that this lesson will be remembered if the time, in the not distant future when we have to slay the dragon of inflation. Thank you. [applause] thank you for these observations and for asking for more evidence. Before i give bob the opportunity to respond, i would like to open it up. We have 25 minutes before we moved to the book shop for. Igning and refreshments please start with introducing yourself into the microphone. Manager and the prospects group. I used to be executive director here. I would say that in terms of rate inflation talk about great inflation. We know about real inflation in south america. One of the problems with inflation is that it is a manmade, man measure tool. In a country where so much Home Ownership is pushed, the inflation component of houses still goes through the rental part. The value of the assets itself is not. Much of the inflation we see is how much we want to record. In homesow inflation were the houses are going up as a contradiction in terms. I want to get down to the real worries, and that is that the great inflation is yet to,. Is yet to come. The shop until you drop has been substituted by stimulate until youd drop. The world is waiting to see some type of token that restores the fragile confidence in the substantial value of the dollar. Clearly, there is been no discussion of taxes, theres been no discusses of how these bills piling up are going to be paid. When thees a moment market, somebody decides this safe haven is getting crowded. Essay payment is good as long as it takes some a safe haven is good as long as it takes some people. Cannot take everyone. Circumstances of the world having identified the u. S. As a safe haven, and the dollar as the safe haven, leading us to pile up a tremendous amount of debt and deficits even before the crisis , if that is picturing great inflation in the because a dollar without confidence leads to inflation. Let me see how my questions there are and whether we should collect questions. Bob, please respond. Robert that is a good question. I do not at the answer to that. Years old. Ive been covering economics since the early 70s. Ive been hearing since nearly early 1970s there was going to be a dollar panic, except in the late 1970s when the value of the dollar became an trustworthy , theres never been a dollar panic. It might occur tomorrow morning, for all i know it is occurring right now, it is not something that can be predicted by models. It is a psychological and political as well as an economic phenomenon. I do not like the idea that we engaging or likely to engage in the massive deficit spending just beyond the horizon. By all estimates the u. S. Federal budget deficit next year will be in excess of a trillion dollars. One has to keep perspective. Until recently, the debt to gdp ratio of the United States was in the mid30s. That is to say for every publicly held dollar of u. S. Debt, there were about three dollars of gdp, of national income. Ratio. A fairly low at the end of world war ii, the ratio was 110 . If we go into a period of slow growth and rising debt levels, this ratio is going to go up substantially. In termscal question of maintaining confidence in the dollar is whether or not the u. S. Economy after this massive stimulus is able to regenerate something that looks and feels thatspontaneous growth, restores confidence in our ability to grow our economy and gives people faith that the trillion dollar deficits will not become everyday occurrence. When you are talking about flight from the dollar, you are talking about a phenomenon that is psychological. There are dozens of things that can affect psychology. I cannot predict any of them, nevermind all of them. Any other questions . Use this microphone. I thought this was interesting. I used to work at the world bank. Two questions i have. One of the things that went on the 70s and 80s and 90s was looking at sustainable development, that is the environmental issue had to be taken into account as well as the economy issue on inflation. The other thing that needed to be taken into account was the social side that had to do with race and an race and ethnicity and gender. The u. N. Took a strong view in terms of development in terms of the environment in the late 80s and early 90s, and then also and to raise ethnicity and gender and social development. We took it up in the bank in the 90s. The question i have, do you need the inflationeen control here as well as the other issues on the environment and social development . I am not an expert on the other issues and do not pretend that i am. You political matter, cannot pursue these other goals unless you have a strong economy. The legitimacy that governments enjoy in the first instance depends on having a fairly viable Economic System that people have faith in. When you have that system, then to pursueent is able other social and political goals. If you do not have that kind of system, the pretense you are pursuing those goals is a pretense. Regardless of what your political agenda is, there ought to be a bedrock commitment to Economic Development that is viable. Not an easyhat is question, and im not an on it. If you cannot do it, these other cosmetice likely to be and not serious. Yet over there . Your book is a record of the history of those times. One of the major events was the vietnam war. Could you say about how the vietnam war and the great inflation were connected . Theories ofof the the great inflation was that it was an outcome of the vietnam war. It was a standard consequence of bad war financing. The United States was not willing to make a commitment to financing the war that was wantedy, Lyndon Johnson guns and fire. What you got was easy monetary and in fiscal policy you mucheficits and too demand. That is why you had inflation. Stopped, intion had the early 1970s, that wouldve been a very plausible explanation. We got out of vietnam. We demobilized in the early 1970s and got out entirely. Inflation got worse. I think you have to conclude that although these events were coincidental with each other, they were not cause and effect. If you had the same economic doctrines embraced in the 1960s without the vietnam war, probably the path of inflation wouldve been different, but it in a familiarsen sort of way. I argue in the book that the economic doctrines which became were as kinsey has him and referred to as the new economics, the idea that government policy could manipulate the Business Cycle and maintain constant Economic Growth and constant for employment and an Unemployment Rate at 4 were doomed to fail. Iam not an economist, but think most economists have come to that conclusion. From a political point of view, the peel the appeal of these economic doctrines was huge because it said governments should run deficits to prod the economy when the economy was operating a low its potential. Politicians like to spend more and tax less, so that rationalized behavior that was selfinterested for politicians. As you could do that as you had no reason to stop. You would try to push unemployment as low as you could get it. They started at 4 that at the the of economists thought employment rate could go lower than 4 . You would push until there was some obvious public reason to stop pushing. The only obvious reason would behind relation. In my view, there was a destructive political logic ids nto the economic ideas that were raised in the 1960s. Even if we had not had the war in vietnam, we wouldve had d stabilizing inflation. The history would have been different. In fighting inflation in those days, the Interest Rates were a strong element. Involvedal policy was deck of what fiscal policy was involved . Pressure,as fiscal has the country recovered fiscal responsibility . Obert the answer is none when Ronald Reagan came and office he pledged to cut taxes and pledged to increase defense spending and congress was unwilling to go along with any major cut in domestic spending. You got much larger deficits. We had consistent deficits sincerely 1960s with the exception of 1969. From 1961 to 1998, we had one year of surplus. That was 1969. It was a small surplus. The idea that took hold in the early 1960s that you should use deficits to prod the economy rationalized for the political actors perpetual deficits. They got much worse under reagan. What brought inflation down in the early 1980s was Ronald Reagans repressive monetary policy. Didnt. Hat alone that that alone that did it. Fiscal policy play no part. A question here . I hate to say that the emperor has no close, but sometimes i wonder as a member of the younger generation, the u. S. Has used its tremendous buying power to increase Consumer Spending and create a cycle of debt and spending, but not much of it on infrastructure. Now that we need to have a convincing economic front to the world and show we are growing and doing real things, it is hard for me to see the best way to do that. How fiscal policy can help us achieve real Economic Growth. Your asking me to map out an Economic Strategy for the next 10 or 15 years, which i am not competent to do. I think with United States needs is export led growth. The present economic crisis, and a report onong Global Economic prospects, the current economic crisis is not just a domestic crisis. There is a mitch a mismatch in global spending. Over saving and compensating for over saving by exporting a lot to us and other countries but particularly us. We have been overspending and basically gotten away with it because they buy our Treasury Bonds and other securities. Equilibriuma stable. It is not stable economically because it required american households to go deeper in debt. Ok, butpoint that was we went well beyond that point and the result was that some. Amilies became over indebted even those who campaign off their debts do not want to increase them anymore. Many families took on debts they cannot repay. In terms of fiscal policy, a large stimulus package now is a necessary evil. I prefer we do not have to do it, but i think we ought to do it or it does not mean im crazy about it. In the future, over the long term if we are going to increase infrastructure spending, we need to find ways of curbing other Government Spending so that Government Spending does not run out of control. Given the aging of baby boomers and the commitments made to them for Social Security and medicare, if you leave the government on automatic pilot, Government Spending is going to go up substantially over the next 25 years. That means your generation is going to be taxed more heavily. Cannot be all financed through deficits. My view is we need more infrastructure, need to find ways to curb these other spending commitments we made, otherwise we will find that decisive government is counterproductive because it creates a burden for the real economy. I do not think anybody knows where that Tipping Point is. Gdp ist say that 21 of ok but 22. 1 is a calamity. I do not know where it is, but i think if we get up to 27 or 28 , the economy would see the consequences. One final question. You have an important observation in the book that during the great inflation it was the middle class that was hit hard. Aswas inflation redistribution of income and redistribution of wealth. It is not clear who benefits from that redistribution. That means it is not clear what your real reward is. It is not clear what your reward on savings is. When i read that, i thought is that not also a good description of the last 10 years would you characterize as a situation with low inflation because real wages were not growing that fast and the real games remained in the Financial Sector . Was a lot of uncertainty and the big gains were in housing . I appreciate you bit you bringing up this point. People dont recall how much americans detested inflation for talkedsons that hans about. It undermined middleclass values. People do not know whether hard work would be rewarded. They could not see the future. If you think about the uncertainty that people have today about the economy, it is not that the economy is in a recession, it is not even that the recession is going to be severe, it is that they do not know when the recession is going to end, they do not know how bad it is going to get, and they do not know what is beyond the recession. The future is in a complete fault. That sense of fright people feel is similar to the sense of fight the sense of fright people felt in the late 1970s, for different reasons, but politically and socially the consequences are the same hurried are the same. Even if inflation has no bad economic consequences, and it does have bad economic argue thees, i would worst consequences of bad inflation are the social and political consequences. They undermined faith and authority and legitimacy of government. Nin was reported to have said that the best way to destroy democracy is to debauch its currency. I would say the best way to destroy any government is to debauch its currency. There is a reason for that. Those are the most important consequences of inflation. They are political and social. Au suggested there is parallel today, and i think there is a parallel in the future, the right now. I think a lot of the uncertainty and insecurity people felt in the last decade up until a year ago or 18 months ago, it was polemical. People wrote about it a lot and talked about it a lot. See an actualto surveys of Consumer Confidence and peoples judgments about their own financial wellbeing. We do have a cultural complaint where nothing is perfect, im in on whatness on focusing is wrong and not right and so are my colleagues. You get a lot of this. There is a qualitative difference between the anxiety people feel today about the future and the complaints they had two or three or five years ago about getting ahead enough, they do not have enough income. Abouttrue what you said the huge gains of the 90s and this first decade were often capriciously disturb needed to people who in hindsight should not have gotten them. On the other hand, americans did do ok. I think some of the measures of standard of living are statistically suspect, and the fact that peoples housing values did go up was legitimate up to a point. We went well beyond that and we got a bubble. It is not as if all of the increase was completely artificial, and the same was true of stocks. Thatsponse would be essentially this current recession has created an fears that are qualitatively different from what we had two years ago or during the 1990s or late 80s. It matters how we come out of this. . An i make a Quick Response i basically agree with everything you say, but i am a journalist. I cannot do these kind of studies, i wish i could do them. I was saying on my wall attributed to an anonymous journalist. Secret of our business, first we simplify, then we exaggerate. I have try not to simplify too much and exaggerate. Commonsenseo draw a conclusions from the evidence that i saw. I agree with your points. I wish i couldve pointed to licorice te and and rigorous studies that reached the same conclusions that i believe are true that which the evidence is not i wrote to provoke people and remind people that there were consequences to falling inflation that we do not think about very often. You. Thank you very much. Let this be the conclusion to this part of this. We will move to the bookshop itself where you can buy the book. For 23. 40 it is 10 off the cover price. Thank you very much for coming and lets go to the other room. [applause] bookshelf, here from the best American History writers of the past decade every saturday at 4 00 eastern heard you can watch any of our programs at any times on our website cspan. Org history. Historyatching american tv all weekend every weekend on cspan3. America. Ek on real both sides of the question. A 1970 film made by detroit news looking at the newspapers operations and opinions of readers. Here is a preview. Liberal,hings we are and others we are conservative. There is an effort to give both sides of the question. To give our readers a balanced diet from which they can select their own opinion. Editorial department . Peace. Now. On the face of it, it is another peace march. It cannot be just another story. In this case, there was an obvious way to do it. There are essentially two stories, we are following both of them. First to ask people who were there in their own words. Alongen talk to people the parade route and ask them what they thought of the demonstration. It was a delightful contrast. I think it is disgusting. The way they are going about this is all wrong. Well cut of a protest is that . I am here because i feel strongly that the war must end and now. Difference of opinion makes for a good story. A reporter must document it, not aggravate it. He may aggravate it without meaning to just because he is there. Watch the entire film tonight at 10 00 eastern on American History tv only on cspan3. If youre a teacher of social studies and civics to middle and high school students, try our classroom resources at the cspan classroom website. There is ready to go resources including current event videos and enhanced teaching tools to engage your students in with new content added regularly. You should try it. It is quick, free, and easy. It is cspan. Org classroom to sign up. Rada talksthor james about his book the last to fall which chronicles the march of marines to reenact the civil war battle of gettysburg. Than 100 thousand spectators attended the event including president warren harding. The lead up to the reenactment was marred i the death of two aviators in a plane crash. Good afternoon and welcome to the gettysburg heritage center. This is our second in the series for today. Ive the pleasure of introducing the next speaker, james rada. He is a historian and an author. He has written many works of fiction and nonfiction history. Booksnclude popular