Hans good afternoon, everybody. Let me say on behalf of the world bank and prospects group, we welcome you to this book event. Very much we want to welcome robert samuelson. We will introduce him in a 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 threat of deflation we are , focusing on the consequences, negative consequences of inflation. When all of the policymakers seem to be having tensions at the moment, he explains in this book, the start of the application of thought since the kennedy administration. So currently this is remarkable , because the book was, of course, written a little bit earlier than today. He basically finished the book at the end of last year. Partly also because Bob Samuelson is a very independent thinker who looks ahead also. It is also very remarkable me 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, he looks at the consequences of politics, the consequences of Business Practices and in that , way it gives almost a sociological description of the phenomenon. It very much focuses on the United States, but it is very good that we discuss it here at the world bank, because i think you can argue that it is even more relevant for many developing countries who brought , inflation under control much later than the United States did. Most of them in the middle of the and for whom the 1990s. Consequences of the inflation before that were even more disastrous than what was described here 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. He has been a journalist and editor. I saw in his biography 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. Bob samuelson everyone. Robert thank you. Thank you. Appreciate it. I want to thank the info store for setting this up. Appreciate everybody coming here. Foruld like to thank hans taking the trouble to read 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 i want to make my two conventional disclaimers. I am not an economist. So anything that i say that seems contradictory to what a freshman in college would learn in your basic principles of economics course, i should be absolved of anything of that, because as i say, im am not a cardcarrying member of the fraternity. The second disclaimer is that i am not related to Paul Samuelson. [laughter] again, 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. [laughter] 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, Paul Samuelson who was a 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. When he was appointed to the Federal Reserve board to read samuelson gave up the column in the 1970s, he was basically tired of writing it. And it was passed to his colleague at m. I. T, lester phil thoreau. Ster 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] robert he may have learned to regret that. I want to talk for about 20 minutes. Hans will stop me if i go too long. I would like to talk about the book and its main thesis and its 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 end their selfimposed isolation from the rest of the world, obviously, the development of the internet. But my view is that if you do not understand the consequences of the rising and falling inflation, you really will not understand the context in which many of these events actually occurred. For an audience like this i really am going to emphasize the , consequences of falling inflation. Because our popular world, those , are these recognized, and i think it will be most interesting to you. Whereas the consequences of rising inflation or more familiar. Thosed like to go over consequences of rising inflation, before i get to the consequences of falling inflation. Are, in the facts beginning of the 1960s, inflation as measured by the United States was virtually nonexistent to read it was at about 1 in by the end of the 19601961. 1970s it was double digits. Nobody knew how high it would go. It was roughly 13 in 1979 and 1980. So there was a huge change in the actual behavior of inflation. And again as i say, in the late 1970s and early 1980s, it was not just that inflation was high, it was that nobody knew how much higher it would go and people did not expect that it would go higher. 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 in 1980. When 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 1980s, 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 unemployment at the end of 1982 got to almost 11 , at 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. To crush inflation. There was a purpose to it. Unlike todays recession which is basically 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 that, 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 illusion 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. As a measure of their success. They actually resisted measures which would have adjusted profits for inflation which would have given a lot more grim mer picture of how they were doing. I suppose that is not a surprise, that the managers would not want to embrace reform that would reflect poorly on their performance. 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. 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. I see all of these as a link to the fall of inflation. So let me explain what i mean. If you went back, to in a time the late 1970s and early 1980s and look at the American Financial system you , will see it was heavily based in depository institutions, commercial banks and savings and loan associations. Savings and loans, as they were known, provided half of Residential Housing credit, banks provided another good chunk of it and the rest of it tended to be 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, 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 instruments which were bundled together such as 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 the triumph of marketbased finance, and how it has collapsed over the last 18 months or so, which 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. And people talk about the new Financial System, as if it was a conscious change, a shift from what we had, a more regulated depository based system to what we have now. That is just revision is in, it is makebelieve. It is fiction. The old system was not an exchange for a new system, it was a conscious act a policy. Act of policy, the old system collapsed. It was basically caused the collapse by inflation. The s l industry was destroyed by inflation. Collapse used the caused to collapse by inflation. It was a very simple Business Model. They took in lowcost deposits, which were generally shortterm in nature, but very stable. And they let them out about two Percentage Points greater than the deposit rate. It was a simple business, they earned their profit on the spread between their deposit rate and their 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. It they could raise their deposit rates and keep , but theysit base, or would become unprofitable because they put out all these , longterm mortgages at 5 or 6 . All of a sudden, their deposits were costing them about 7 or 8 as inflation went up. So they would become unprofitable. Or they could keep their deposit , rates low, and lose all of their deposits in which case , they would also go out of business. So 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. There were various efforts to get to reconcile or 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 to some extent, the commercial banks were put in the same position. Their loan portfolios went bad as well. Especially the large banks in many developing countries who had made loans to developing countries such as in 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. And so, with some regulatory 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 and a lot of innovation during this. 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 old Financial 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. Second effect i would say of falling inflation was to promote globalization. It was of myth, although it is now a widely shared myth, that 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 , proceeded avidly 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. There are designed in one place, some components are made here and others made their. They are shipped to the third country and assembled. 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. They were abated and to some extent they were being 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. In my view. 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 irregular, recessions growing in severity it seems to me 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 large and rising trade and current account 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, other countries exports, it 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. They were more willing to sign onto trade pacts that reduced Tariff Barriers and nonTariff Barriers. Im number of Companies Began to liberalize themselves because they felt that this was example, thatood it would aid in their Economic Growth. They thought it was the only path to 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 1980s, which i doubt would have happened if the United States had remained as economically unstable as it was, but supposing it had it is , inconceivable to me the prestige and power and influence of the marketbased economic system, would have the great influence that it turned out to have in the late 80s and 90s, if the United States had been as unstable as it was in the 1970s. That is, inflationary. 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 countries had to let their currencies depreciate they did not want to , let their currencies depreciate. It led to this gradual dismantling of controls. Capital controls. I need to reinvest in the United States showing that it could be done, without the calamitous effect on 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. Decline in 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 those things could actually occurred. So if you are looking at todays world, you have to go back to the fall of inflation and if consequences and put it in context in understanding them. Finally, i would argue, and we can go into this more in questions, if you want to, that 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 1982, the Dow Jones Industrial average averaged under 900 for the year. Even with the bubble, it was high multiples of that. Six among 7, 8 times multiples of that, even after the bubble of the late there was a huge 1990s. Stock market explosion, explosion of asset prices of all kinds including a ultimately housing prizes. In this climate of declining Interest Rates 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. And in that kind of climate, and 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 live in a 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. And i would again date that to 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 questions on it i would love 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 also for leaving enough time and especially also for 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. 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. So if he has thrown too many softballs, i hope you will correct it afterwards in further debate. Prakash i want to thank you for inviting me to discuss the book. Since hans has added me as a friend of bob, the maturely how i met him. He has long been my favorite columnist, one data was sitting on the metro, this was around 2003. This person sitting across from me looked familiar, and i kept wondering who it was. Then i realized this was the Bob Samuelson whose photo i had been seeing in music columns all of these years. So overcoming my moms lecture , to 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 too euphoric . This was a question i had not thought about it all. But because i wanted to impress bob, i started thinking that if bob think there is a bubble, that i should be thinking of clever things to say about examples of bubbles and so on. , there is aeah bubble. And i was trying to think of examples that i could give. We got out at the same stop to read i said to bob, in our neighborhood there is a place called three dog bakery. This was a bakery devoted to selling biscuits and cookies to dogs. Ok . They fed dogs. And i said, bob, look at this bakery. This shop is fancier than the finest pastry shop that i looked that i grew up looking at in bombay. And he left. I said, you should go and 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. I told my wife that maybe i would be mentioned in music. The call never came. I was too polite to ask him. About a year later he said i asked what happened to that column on three dog bakery you are going to write about the bubble and so on . He said yes, i talked to you and i talked to others, and they were not so sure, neither was i myself to read we had to think about it. I cannot just write a column saying there is a bubble because of three dog bakery. My point, and i do have 1 [laughter] is that bob does not rush into things. He takes his own sweet time making up his mind, talking to lots of people. This book was ready far before it came out, so i think the only sin this book commits is the sin of bad timing. A book about inflation at a time when the worry was about recession and deflation, could be somewhat ignored by many in the comment areas. We are fortunate it has not been ignored. I think this book is a really successful attempt to reclaim the lost history of the great inflation, as the title says. As bob noted, the does in the book ascribed a lot of the blame to the u. S. Federal reserve, an 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, what bob talks about, is that in the it permitted the 1970s, great inflation by not soaking up liquidity from a Global Economy that was drowning in it. Ok . Now, 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. But the great inflation has , faded from memory. It gets under 50,000 hits. The Great Depression gets its own entry in wikipedia, the great inflation there is no wikipedia entry. This is a Great Service to tell us about this history. And i think bob laments the fact that history often skimps on economics and economics skimps on history. This is a quote from his book. But he neither a professional , economist nor a professional historian 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. 13. 5 . He writes beautifully about that saying that during these years large price increases for the , were the norm, like the rain that never stopped. We have forgotten that at the time u. S. Citizens protested the imminently against this rising inflation and public inflationlls in fact, was considered more upsetting than either the vietnam war or the watergate candle. Watergate scandal. Occupiesoday, vietnam a huge space as bob said in 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 consequences for the u. S. Economy in the 1970s. High inflation he says, destabilized the economy leading to full recessions of growing severity. And high andn volatile Interest Rates that came with the stunted increase of leaving standards by lowering productivity growth, causing stagnation in the stock market and leading to a series of debt crises that affected American Farmers and the u. S. Savings and developing countries as well. From an economists perspective, i think what is missing from the book, for me, is much more evidence on the links between each of these things, between inflation and these consequences. As an example, let me take the one about productivity growth. It is true that we have a productivity slowdown we had one in the United States in the 1970s. It is true that it remains a mystery to this day. So when i teach my executive mba kids at vanderbilt university, i call the 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 killed productivity and it was 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. But i think that i would prefer to have a much more robust quantitative approach to this, to kind of show, really, that inflation affects productivity. In this case, but also it is fun to have many other examples globally of the links between , inflation and productivity, which if someone were to demonstrate would be a Great Service. And we have some of that speculation that bob has about what happened. For instance he said that , inflation devoted managements attention away from worrying about their companies to worry about how much to adjust the prices. So we have conjectures that could be tested with rich data sets about what happened. The same thing with inflation in the stock market. I think bob writes beautifully, and when you read the book and listen to him 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. Two graphs somewhere that show me a correlation or a study that establishes these links more carefully. Anyway, inflation did pick up and then it was brought down. Here, best in this talk bob does emphasize the , keynesian economics and the in the phillips curve, that led to this allowing of inflation to get out of hand, but the book has a very good chapter about the history of economic thought, that led to this episode. And what had to be done to change that. So how is it that after being allowed, after inflation had crept up to double digits, it was brought back to a mere 4 . 1982, we980 and suddenly had this massive drop in inflation, and bob emphasizes that this was principally the accomplishment of two men, paul volcker and Ronald Reagan. Stopthey had to do to inflation was not pretty. Essentially they headed liquidity to bring about the most punishing economic slump so far, since the Great Depression. The present episode is close to trumping what happened in the 1980s or coming close. Ronald reagans role was to 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 reduce inflation quite horrendous. Let me end with the most controversial and debatable part , bobsbook, which is crediting the con quest the byquest of inflation ushering in a large part of the past quarter centurys prosperity. He talks about globalization and ,he triumph of the u. S. Model and the market model being partly due to inflation. In the book and as well as here he goes back and forth and to he goes back and forth and to how much positive influence he , wants to ascribe to inflation. That, to make a mother were a lot of other factors going on. I think the soviet union was collapsing because of internal contradictions, and it could have collapsed before if it did, two years or later. To me, there 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 thinking that all of this happened because of inflation, or that inflation was really a major factor in bringing this about. Get not to take it away from the book i am glad , that inflation was licked and i agree the consequences of low inflation were beneficial to the u. S. Economy and the Global Economy. But i would like to see more evidence again, if bob is going to push this line, that it was the conquest of inflation that brought about globalization and all of the good and not so good things that went with it. And by the same token, i would lowinflation,me 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 Economic Growth that went through to mild recessions, helps despond a cup complacency and carelessness about the consequences of increased complexity of international finance. Culminating in the present turmoil. Here again, my view is that we are prone to showing consistency and carelessness about Financial Markets every few years regardless of the chain of , events that preceded it. Yes, in this case it was maybe the prosperity that made us complacent, but i am sure that if you look through the history of financial panic and financial crises you will see that there were just as many events that may have been proceeded to a lack of perspective. So again 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 that people it may be not and connected very much to the conquest of inflation and prosperity. Said, this is really a remarkable book, because it does remind us of an event that has faded from memory. Relative to the vietnam war or relative to the great russian. ,elative even now to deflation this is an episode that we really need to be reminded about. Thate no doubt believing the rise of u. S. Inflation was a bad thing for the u. S. Economy, in the 60s and 70s. And i have no doubt, absolutely no problem believing that the conquest of inflation was absolutely necessary to the league globalization of the u. S. Economy. Dust to the globalization of the u. S. Economy. Bob has done a Great Service and telling us about this episode in a very uniform and persuasive way. Let me conclude by saying that i 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 bud. Ped in the the longer we wait, the harder it becomes. 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. Once again. 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 signing and refreshments. Please start with introducing yourself into the microphone. Which reminds me, i probably did not introduce myself. Zimmer, i am as manager in the Prospect Group at the world bank. I used to be executive director here. I am representing south america, and i would say that in terms of rate inflation, we would probably have a copyright on it. Here,bout great inflation we know about some real big ones. Now one of the problems with , inflation is that it is a measured tool. In a country where so much Home Ownership is pushed such as in the United States the inflation , component of houses still goes through the rental part. The asset itself the value of , the asset itself is not reflected. So much of the inflation we see is how much we want to record. Because we have a very low inflation in the moment warehouses are going up, it is something contradictory in terms. Having said that i want to get , down to the real worries, and that is that the great inflation is yet to come. Because unfortunately, that shop until you drop has been , substituted by stimulate until you drop. The world is waiting to see some type of token that restores the very fragile, real but still fragile, confidence in the real substantial value of the dollar. Clearly, there has been no discussion of taxes, no discussion of how these bills that are piling up are going to be paid. And there comes a moment when the market, we are on the edge, when somebody decides that this safe haven is getting crowded. A safe haven is good as long as it takes some people. But it cannot take the whole world. So i would like to ask you, specifically on this book if the , current circumstances of the the world having identified the u. S. As a safe haven, the dollar as a safe haven leading us to , pile up a tremendous amount of new public debt, creating huge deficits, even before the crisis had started, if that has, or is sort of picturing great inflation in the future, because of obviously, a dollar without confidence leads to inflation . Host thank you very much. Let me first see how many questions there are and whether we should collect questions or not. Bob, please respond . Samuelson that is a good question. I do not at the answer to that. I am 63 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 became untrustworthy, there really has 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 are 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. Having said that however, one has to keep some perspective. Debt to gdply, the ratio of the United States was in the mid30s. That is to say, for every publicly held dollar of United States that, United States states debt, there was about three dollars of gdp, of national income. This is a fairly low ratio. At the end of world war ii, the ratio was 110 . If we go into a period of slow growth and rising debt levels, then this ratio is going to go up substantially. So the critical question, in my view, and i think it will be the critical question in terms of maintaining International Conference of the dollar, is whether or not the u. S. Economy, after this massive stimulus will be able to regenerate something that looks and feels like mantegnas growth. That restores confidence spontaneous growth, set restores confidence in our ability to restore our economy. And also gives people faith that trillion dollar deficits will not become an everyday occurrence. But again, when you are talking about flight from the dollar, you are talking about a phenomenon that is in large part psychological. There are dozens of things that can affect psychology. I cannot predict any of them, nevermind all of them. Zimmer any other questions . please use the microphone . I thought this was interesting. I used to work at the world bank. In the social development and environment sector. Two questions i have. One of the things that went on the 70s and 80s and 90s was along with looking at inflation, 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 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 a balance between the inflation control here as well as the other issues on the environment and social development . Robert i am not an expert on these other issues, and i do not intend to pretend that i am. I would just say that as a political matter, you cannot pursue these other goals unless you have a strong economy. A reasonably strong economy. That the legitimacy that governments enjoy in the first instance, it really depends on having a fairly viable economic system, and evil need to have a fairmont of faith in. When you have that kind of system, the government is able to pursue other social and political goals. If you do not have that kind of system, the pretense you are pursuing those goals is a pretense. So i would say that regardless of what your political agenda is, there ought to be a bedrock commitment to economic. Evelopment that is viable again, how you do that is not an easy question, i am not an expert on it but you cannot do these other things, they seem to be cosmetic. And not serious. Zimmer over there . Your book is a record of the history of those times. One of the major events was the vietnam war. Could he say a little bit about how the vietnam war and the great inflation were connected . Samuelson one of the theories of the great inflation was that it was an outcome of the vietnam war. That it was a consequence, a standard consequence of bad war financing. That the United States, politically, was not willing to make a commitment to financing the war that was actually underway. That Lyndon Johnson wanted both guns and fire. So what you got was easy Monetary Policy and in fiscal policy you got deficits and too much demand. Chasing too few goods and prices went up. Which is why you had inflation. And i think, if inflation had stopped, in the early 1970s, that would have been a very plausible explanation. But in fact, we got out of in the, we demobilized early 70s and got out entirely. Inflation did not get better, it got worse. I think you have to conclude that although these events were coincidental with each other, they were not cause and effect. And that 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 would have arisen in a familiar sort of arisen in a very very lent sort of what virulent sort of way. I argue in the book that the economic doctrines which became known as kinsey has him and were and wereian economics 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. I think most, i have not an economist as i said at the beginning, but i think most economists have come to that conclusion as well. From a political point of view, 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. Operating below its potential. And of course, politicians like to spend more and tax less, so that they basically rationalized behavior that was selfinterested for politicians. As you could do that, as long as you had no reason to stop. So you would try to push unemployment down as low as you could get it, and they started at 4 but at the time, many economists, some of them widely respected, thought that the Unemployment Rate could go lower than 4 . So, there was some obvious public reason to stop pushing, and the only obvious reason would be high inflation. So in my view, there was a kind of destructive political logic built into the economic ideas that were embraced in the 1960s. And that even if we had not had the war in vietnam, we wouldve had high and destabilizing inflation. The history would have been different. In fighting inflation in those days, the Interest Rates were a strong element. The hike of the Interest Rates as a very strong element. What fiscal policy was involved . Was it inflation in the sense of taxing or monetary . How much was fiscal pressure, has the country recovered fiscal responsibility . Robert the answer is none. In the early 1980s, when reagan came into office, he had pledged taxes, and congress and he also pledged to increase defense spending. And congress was unwilling to go along with any major cut and domestic ending. Much largerh deficits. 1961, really to 1998, we had one year of surplus amount which was 1969, a very small surplus. So the idea that took hold in the early 19 axes, that you should use deficits to prod the economy, essentially rationalized and justified political actors, perpetual deficits. But they got much worse under Ronald Reagan. What would say that brought inflation down in the early 1980s was Ronald Reagans repressive Monetary Policy to repressiveolckers Monetary Policy. It was that alone that did it. Almostcal policy played i would say, no part. Zimmer a question here . I hate to say that the emperor has no clothes, but i wonder sometimes as a member of the younger generation, the u. S. Has used its tremendous buying power influenced in part by the forces you are talking about 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. And how fiscal policy can help us achieve real Economic Growth. Robert 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. To some extent, the present economic crisis, and i brought hanslatest Global Economic prospects, which i think is really good i think we need to remember that the current economic crisis is not just a domestic crisis. There is a mismatch in global spending. The asian economies have been essentially over saving and compensating for their oversaving by exporting a lot to us and other countries but particularly us. We have been overspending and basically gotten away with it because they have been willing to buy our Treasury Bonds and other securities. I think, this is not a stable equilibrium. It is not stable economically, because it required american households to go deeper in debt. Up to a point that was ok, but we went well beyond that point and the result was that some families became over indebted. Even those who campaign off those who can pay off their debts do not want to increase them anymore. And many families took on debts they cannot repay. So we have a financial crisis as a result of this. In terms of fiscal policy, a large stimulus package now is a necessary evil. I would prefer that we did not have to do it, but i think we have to do it. It does not mean im crazy about it. I do think however, that 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. Because someone has to pay for it, it cannot all be 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 the size of government is in my view at least counterproductive because it , creates a burden for the real economy. I would say i do not think , anybody knows where that Tipping Point is. So i do not say that 21 of gdp federal spending is ok but 22. 1 , is a calamity. I do not know where it is, but i do 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. Inflation is 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 hits remained in the Financial Sector . There was a lot of uncertainty and the big gains were in housing . Robert i appreciate you bringing up this point. People dont recall how much americans detested inflation for the reasons that hans talked 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. Complete fog. That sense of fright people feel is similar to the sense of fright people felt in the late 1970s, for different reasons, but politically and socially the consequences are the same. Even if inflation has no bad economic consequences, and it does have bad economic consequences, i would argue the worst consequences of bad inflation are the social and political consequences. They undermined faith and authority and legitimacy of government. Lenin 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. You suggested there is a 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. It was harder to see an actual surveys of Consumer Confidence and peoples judgments about their own financial wellbeing. We do have a cultural complaint where nothing is perfect, im in the business on focusing on what 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. It is true what you said about the huge gains of the 90s and this first decade were often capriciously distributed 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. My response would be that essentially this current recession has created an economic 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. Can 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. He says the secret of our business, first we simplify, then we exaggerate. I have try not to simplify too much and exaggerate. Ive tried to draw a commonsense conclusions from the evidence that i saw. I agree with your points. I wish i couldve pointed to more elaborate 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. Thank 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. It is for sale for 23. 40 it is 10 off the cover price. Thank you very much for coming and lets go to the other room. [applause] [captions Copyright National cable satellite corp. 2017] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. Visit ncicap. Org] sundays at 7 p. M. Eastern on aural histories, a series of six interviews with prominent photojournalists. Franka conversation with johnston about his photos and career. When they broughts walled out, he was within three feet of , who we doubtuby from behind me and went be seen between bob and i and fired were all thrown to the floor because there mustve been 100 police in that basement that sunday morning. Watch our interviews on aural histories, sunday at 7 p. M. Eastern on American History tv. Im cspan3. On cspan 3. No one is going to deny that gin gave senator menendez all these trips on his private jet, for example, or that the Campaign Contributions were made. And no one is going to deny that senator menendez did lobby with various executive branch melginss on behalf. Why did it happen . The government is alleging this is it was because of a corrupt relationship it the senator is claiming it was friend. He was his tonight on q a, randall ongoingtalks about the trial of democratic senator bob menendez and other prominent political corruption cases. Tonight at 8 p. M. Eastern on cspans q a. Christa mcauliffe was selected to be the First Teacher in space. American history tv and set them mcauliffe Sheppard Center in concord to see how her life is being remembered. Mr. Veilleux 15 seconds. T minus 10. We were in the grand stands there and we were located directly behind christas p arents. And lift off. After the launch, everyone was yelling and very