approach, whether or not but the precarious economy weather got -- more investment is necessary or is it better to work on the deficit. matthew mitchell is at george mason university's mercatus center. guest: we are a research institute that focuses on the intersection of public policy through the economic plans and try to bridge the gap. host: politically on the spectrum? guest: i would say we are a market-oriented think tank. we do have a view that and a lot of ways market solutions tend to be superior solutions. host: and isabelle sawhill, economic studies senior fellow at the brookings institution. i would start with you -- and interesting photograph of why obama loves reagan. you see a picture of the president and a former president together. i would like to ask you, how does this debate differ from the supply side debate versus the keynesian debate of the 1980's? guest: i think, by the way, one of the things obama shares with president reagan is they are both very upbeat, very optimistic. i thought the state of the union address was a very upbeat talk about how we can win the future if we did the right things. on economics, i think there really is a difference because supply side economics says all you need to do is make sure the economy has low tax rates and very little regulation and let the market work and it will grow very rapidly. and there was a specific believe that if you cut taxes, it would actually bring in more revenue. i don't think any mainstream economists believes that is true, although tax cuts can have some impact on growth and have some revenue and facts -- effects. the other side, more keynesian side, says it is really important when you are in a downturn such that we have right now and unemployment is over 9%, to use government -- you use government to bring back jobs. you may need fiscal stimulus, you may need monetary policy. right now monetary policy is about as stimulative as it could be and fiscal policy in is in this bind because we have these very large deficits, which makes it difficult to say we should do more. it is also political and possible -- politically impossible. host: you espouse what theory? guest: i would argue, as most conventional economists would these days, we should pay attention as we are in a downturn and not a good time to be cutting spending and raising taxes. you don't want to do that in the middle of a recession. on the other hand, you do want to have a fiscal plan going forward that shows that you can get your fiscal house in order. that will reassure financial markets and our creditors abroad that we know what we are doing and prevent an increase in interest rates for a fall in the dollar from disrupting any recovery that may be incipient. host: matt mitchell, you were not around for the reagan administration, but let me ask you about how you viewed the problems the country has as different or the same as earlier periods in our recent history. guest: i think one thing i think is different is spending. if you look at what happened during the reagan and the station and really what happened with republicans in the decades that followed, it was a significant, only laser-like focus on taxes and taxes on the. while they did cut taxes, they never addressed spending and the share of the economy actually increased. bill clinton is one of the only presidents in the world war ii period as salt spending as a portion of the economy decrease. -- that saul spending as a portion decrease. the people who are opposing the administration, i think for the first time in quite a while, are not focused as much on taxes as they are on the spending problem. to me, i think that is heartening a little bit because this obsession with cutting taxes and let spending continue at its previous paced i don't think makes a lot of economic sense. host: but the recession we are in, why do you call spending a problem? guest: for a number of reasons. the main reason is it that it drives two things we know that harms economic growth. if it is paid for with taxes, that can harm economic growth. there was a study by president obama's former economic adviser and her husband on that. if it is paid for with debt, when not excessive debt and deficit also harms economic growth -- we know excess of debt and deficits also harms economic growth. it is in my view, unsustainable. not so much what is happening today -- as a share of the economy it is 25%. in the next five years it will grow another 10 percentage points, 50% in a number of decades. host: you see the same trajectory and are you concerned? guest: i do see the same church rectory and i am extremely concerned, but we should be clear about what it is due to. the aging of the population and the fact that health care costs per person in the u.s. are accelerating at a very rapid rate. that is basically what is in increasing spending as a proportion of the economy. right now, there is a temporary increase in spending because of the recession and the need to have unemployment insurance at some other programs that were part of the stimulus package. but that is a very short-term thing. i think basically what i am concerned with -- and it sounds like what matt is concerned about -- is not what is going on right now. what we should really be worth about is what the fiscal situation looks like a decade from now, two decades from now, three decades from now. by about 24, just three programs -- social security, medicare, and medicaid -- by 2040, just reprogram skull will consume all the resources we have unless we -- just host: there are three ways to get in touch with us. you can tweet or send us an e- mail or give us a call. the phone lines are on your screen. we are talking about the economy and the prescription for it and concerns for the future. all that on the table. r two guests have different prescriptions for how to address it. let's talk about the concern about the demographics, the programs and interest on debt which will consume so much of the gdp. >> i think it's a bell is right. in a lot of ways people in washington are eager to put a white hat on someone and a black hat on someone else and say it's the other side causing the problem. this may have a lot to do demographics and rising health- care costs. that is nothing that anybody has a firm grasp on how you can address rising health care costs. despite the demographics, there is something you can do, which is take steps now while people have enough time to prepare and to accommodate by increasing their retirement age and indexing the cost of living adjustment, to change into cpi, which is the change in prices. take those steps to shore up the system now. i would add to the list of things that are causing this increase in spending. which is sort of the a exception that everybody in washington takes. most people in washington, most politicians admit there's a spending problem, but they make exceptions for one project or another. when you add up 535 exceptions, nobody wants to cut those particular projects, then you have a spending problem. >> what percentage of combined expenditures from home and security, defense, cia, includes securing the nation are in that? >> isabel may have a better gas. i would say 20% or 30%. >> all defense + homeland's areurity would be around 17%. host: do you support the kind of reforms that mitchell suggested? guest: yes, but i would emphasize when we talk about raising the retirement or slowing the growth of benefits, we are not talking about affecting anyone who is retired right now, or is about to retire. we are talking about putting in place now and plan for the longer-term future that says to younger people today, you are going to get as least -- at least as much in benefits as the car degeneration. you are just not going to get as big an increase as you might have expected. and we are going to encourage you to do some saving to make sure that you have enough resources when you retire. social security was never meant to be the only source of income for retirement. it was intended to be part of a three-legged stool. it was one leg and then another leg was attention from your employer. the third was your own personal savings. host: it was called supplemental security income at one time? guest: know, that targeted mostly the disadvantaged, a separate program. host: the social security suggests a wider net. guest: well, i think that is a problem. i think the american public b --need to understand it's not going to be the sole source of income for retirement. for low-wage worker working his or her entire life and has a difficult time saving, i dig a case can be made that we can actually boost what they get in retirement a little bit from where it is now. the president's bipartisan fiscal commission recommended that although we slow the growth of benefits for the more affluent beneficiaries, we should absolutely increase benefits for those at the low end of the scale and we should also have an exception for those jobs where later retirement would be better difficult. manual jobs, for example. host: do you support the health care law and adjusting costs? think theon't health care law get the problem. it is interesting. there are claims the health care law brings down the deficit over the long run. the truth in that is what the health care law does is it raises taxes, but it does nothing to decrease spending and does nothing as far as i can tell to lower the cost curve. i am not a health care expert, so i don't want to talk beyond my knowledge. there is not a lot that government can do other than remove the perverse incentives that intervention in the health- care market party has. host: the you believe the health care law will address spending concerns on health care? guest: i think it will do so modestly. there's a lot of uncertainty. the potentially -- it could potentially have a positive effect, but we don't really know. according to the congressional budget office, which is neutral, its will actually reduce costs somewhat and it will reduce the deficit. it is a very difficult challenge to reduce health-care costs without affecting access. but we should be able to do it. this country as much higher health care cost per person than any other advanced nation by a wide margin. we don't get better health care as a result. so there is something fundamentally inefficient about the way we deliver health care. we don't get good value for the dollar. i think the bill is a good thing, but not perfect. host: say the doctor has been a guest at c-span many years, so its collaps -- so we are glad to have isabel sawhill at the table. she has spent her life at the brookings institute and pryor was a senior fellow at the urban institute. she's co-director for families. and focused on domestic policy, federal fiscal policy and co- director of the center for children and families at the brookings institute and president of the national campaign to prevent teen pregnancy. matthew mitchell, this is your first time on c-span. >> it is. >> research fellow with state and local policies at george mason university's mercatus center. he has his ph.d. in economics from that school. a ps from arizona state university. thefirst-- a bs from arizona state. let's get to some calls for our two guests. beginning with norwalk, conn. tom, republican, on the line. caller: my question is obama keeps on pulling money out of the private sector through his policies and he keeps on adding to the regulations of the private sector, of the business sector. if you pull money out of the private sector and give it to the public sector, you shrink the money in the private sector. and it keeps the job growth down or exacerbates this long unemployment that we are seeing. changing in the hearts of obama in his policies since the election of the party candidates that will change his policy towards continuing raising taxes and regulation on the private sector? guest: i think in the state of the union address annual saw a very clear pivots of the president towards reaching out to the private sector. in his appointment, also, he has signaled that he will work more closely with business groups in the future. -- his appointments. that suggests that he is very aware that government does not create jobs, only the private sector creates jobs. the government's role is to make the environment such that businesses will want to hire, will want to invest, will want to use some of their record profits. the private-sector is very flush with money right now. corporate profits are at record levels. the stock market is high. what is preventing businesses from investing and hiring is the fact that people are not buying what they have to sell. until we can get the unemployment rate down and get in comes of households but, you are not going to see a lot of hiring. for the longer-term, i do think the things that the president is talking about such as a drop in the corporate tax rate, closing some corporate subsidies or eliminating some corporate subsidies, and reviewing regulations can help. i do not totally agree with your assessment that obama has been especially bad on pulling money out of the private-sector and regulating more than his predecessors. if you look at the data, in fact, the bush administration actually increased government spending more than any administration we have had since the second world war other than lbj, other than president host: johnson let's get a call from michigan, democrat. caller: good morning, c-span and susan. my question is as we investigate trade agreements that have been devastating to our job markets in the states. i think that would have an impact on the employment, either that or looking at these countries that flood our markets. host: what do you think of trade and its effect on the state of our economy? guest: there's a remarkable degree of agreement among economists on this. my view is that of adam smith, that trade is beneficial for every party, really. artificial barriers to trade cause more harm than good. if the government says i cannot buy a product from somebody because they live in another country, that does mean harm because it raises the prices of my goods and services. the harm that it does for me outweighs whatever benefits of bestowed upon the producers in the u.s. i would argue that there's a dynamic effect where it harms the producer in the long run because it makes them less competitive. the auto industry in the u.s. benefited from intervention on trade policy for decades. over the long run it makes them less competitive and less appealing to consumers. host: there's a great deal of popular sentiment that suggests otherwise. people often say it field trade agreements have decimated our manufacturing base. guest: manufacturing is going down in just about every country in the world. the reason is the economy is changing. the service sectors are improving. this is thinking turn. this is what happens in an economy, it's very painful for those going through it. i would argue that it becomes much more painful when government policy shelters people from the fundamental changes that are happening in the economy. host: when naphtha -- nafta was being sold to the public, we heard there would be displacement. they spoke about the need to retrain our work force. was there enough of that done in this country? guest: i am not sure there was enough. i agree with what matt said in general, but what we need to remember is that there are groups of workers that are going to be very much hurt in the short run. if all of us benefit from trade, as he argues, but some group is harmed, then we ought to have in place retraining programs and other ways of helping those having to adjust to these very painful changes. i think that the training programs that we have in this country are not terribly good. look at germany. germany is doing extraordinarily well economically, despite all of the financial crisis and everything that we have seen around the world lately. one of the reasons germany does so well is because germany begins to train their workers at a young age. they train them very well. they have partnerships with business to do that. they have apprenticeships. we could probably benefit from restructuring our training programs. and using community colleges more for this purpose. host: next call from tennessee, california, a republican. caller: thanks for taking my call. ronald reagan when he cut taxes at that time the rate was 70% so it really expert more economic growth. they got more money in their pockets. the president had a good speech. st. that there's gonna to be a freeze is not enough. we need a 20% across the board, including closing the department of allocation. and health benefits to the epa. and federal workers should get a 20% cut across the board. too much t regulation. i'm a businessman and it's almost impossible to do business anymore. caller: thanks for the call. some interesting points. one thing that is interesting is obama has this portion in his speech which is absolutely right on. he says that we cannot address our long-term problems without lowering spending and without the loring spending in areas that people do not want to address. these are the entitlement programs like medicare, medicaid, social security. it was about 1.9% of the entire speech. he never followed up with a realistic plan for addressing that. i still got him for saying this is a problem. what i would like to see is some leadership that says this is what we are going to do to get spending under control. with regard to the short-term, 20% cuts, i am one of those that thinks if you give a politician a reason not to cut and make the tough decisions, they are going to run with it and choose not to make the cuts. on the other hand, the biggest problem is projected spending increases. we have to figure out how to get the projected spending increases under control. there's no better time to start than now because it gets more and more difficult mathematically to deal with it as time goes on. host: the caller gave us three points. guest: there's a lot to cover. we spoke about the reagan tax cuts earlier. the caller mentioned them as well. they were put forward with the supply side rationale, but they were really keynesian tax cuts because we were in a recession in 1980, a very deep recession. those tax cuts helped us to get out of that recession. ronald reagan then raised taxes in 1982. then subsequently several other years in the 1980's raised taxes. so that was basically keynesian tax cuts designed to get us out of recession, not to help long- term growth. the president in his state of the union said that the freeze was not going to be enough and then went on to talk about some of the big entitlement programs and revenues. i just want to get on the table that if we were to allow the temporary tax cuts that are going to last two years now that were enacted in december, including income taxes that we all benefit from and that were extended for middle-class and wealthy, if we were to let those tax cuts expire, that would solve a lot of the deficit problem that we face. that would not be the only solution, but it should be part of the solution. we have already set a lot about regulations. host: here's a clip from congressman paul ryan in his response to the state of the union address. let's listen. >> instead of restoring the fundamentals of economic growth, he engaged in a stimulus spending spree. not only failed to deliver on its promise to create jobs, but also plunged us even deeper into debt. the facts are clear. since taking office, president obama has signed into law spending increases of nearly 25% for domestic government agencies and 84% increases when you include the failed stimulus. all of this new government spending was billed as investment. after two years the and and plummets rate remains ab