[inaudible conversations] host Michael Tanner nice to be with you. To date we will discuss your book going for broke. We will start to talk about what prompted you to write this book . Guest one thing that has frustrated believe these people stopped paying attention to the debt crisis that they think we have beaten it because the deficit is down a lot in the last couple of years than people think that will solve the problem but the reality is we are in a very temper revel and within a year or so below sea the deficits go back up as we add to the debt every year we have not even begun to see the problem ticket with medicaid and medicare and Social Security start to add up and if we dont start to act now while the sun is shining we will be in trouble when the rain starts. Host what does through the numbers. People probably dont understand the difference so what does through the numbers with those fiscal metrics. Guest the dead is a much more we spend then retaken with revenue that is about 450 billion range that sells a lot of money bet 34 years ago we were 1. 4 trillion so we are doing a lot better. But that is just temporary it will go back up each year you get the debt that is the total amount that we owe if you think of it as a Household Budget if you read a short this week it is our deficit that this is every week that next week and the week after that that is the debt the will of. Talking about how the deficit has or added every year that consist of both the debt held by the public then did your portfolio with government or Treasury Bonds of course, it is mitt said foreign governments told that is one type of debt that the economist talkedabout a lot but it also includes that intergovernmental that that one part of the government rose another like the Highway Trust Fund or Social Security or medicare where the government proposes money and that adds up to 18 trillion and that is the national debt. But there is a third kind that is the intergenerational roll or unfunded liabilities but we know how much we owe under current law to pay these benefits but we also know pretty well love retaken with tax revenue a and a gap between the two while that is not as solid as the treasury bond is still plenty we promised to pay solely through all of that it is a real dead where between 70 or 120 trillion depending how you measure that. Is eyepopping numbers. Talk about the debt held by the public that is twice the average historically. What does that mean . So what should people think when they hear it is twice the historical high . What does that mean for them . Were an unfortunate set of circumstances that the world is so messed up we still can low Interest Rates and were not as bad as we might be but debt held by the public there is a lot of problems but it is because of slow Economic Growth that the level we are at so businesses find it more difficult to borrow money and people are less willing to take the risk of investment because they see that as something they will have to pay back through higher taxes. All of that slow steady Economic Growth and our children to be 2,000 per year every year for each earning less simics simply because of the amount of debt we are carrying right now and we have to pay interest on this that and that begins to crowd out other Government Spending eventually you spend a lot of money they pay to Foreign Investors the you cannot invest and what you want to the republican or democrat but we spent that to pay back interest for investors collecting government bonds that seems like a big waste of money. Host people say if we just get rid of the waste it is silly thing to think we will fix the budget but if you bring down the Interest Payments that is the fastestgrowing part of the budget if it comes to the thing back to the historic rates of interest it does not do anything. It is simply money that will pay them to lend us money so it is a real waste of money. Just like your credit cards but if you pay that interest on the credit card that is just money that you pay to the bank. Host if Interest Rates were to go up one percentage point that would cost 130 billion every year so they are staggering numbers. Rates are very low right now with that will increase the cost and that they could squeeze out if you want to cut taxes and fewer spending interest is not on those priorities. One of the things you talk about is that we owe it to ourselves back that is the classic keynesian argument that says we shouldnt worry about that because in the end riel led to ourselves and we could argue that borders called a certain amount and well hold their summit out but the bigger problem is the distribution of who holds the debt is not the same as to benefits today. To make the argument in a classic stance if you borrowed money to go to college and keep you then turned higher wages when you got out and use that to pay back the debt you are no worse off. Became to borrow the money but a lot of that is not to make our wages better in the future or do something that will make a higher Economic Growth to make it easier to pay it back instead it is redistribution today essentially be part of that money so it is not impacted in any way it is consumption the second part is the person who ultimately will pay it back will not be the same one who benefited from today so it could be someone else so there is is that of fairness to be followed as well and people will think about that in the future that has to be repaid to affect the decisions they make todays a rebate not see those benefits that the College Education may not necessarily be there if that business has to pay back your load instead. Host and the interesting part is you is are we were spending they say dont worry it is all in this country orrery barley from ourselves betted is into generational so if you were investing for the next generation is very different so talk about that intergenerational issue that is a part of that. Is the unfair type of taxation without representation we consume and the kids pay the bills even those that are not even born yet will have to pay for all consumption that is like saying you will have all little party and sent the bill to my kids. In addition a think people realize how little investment reaction lead to only 13 percent is considered an investment that is just of broad investment not roads or bridges or so on so when we talk about federal spending we dont talk about investment it is talk about taking money from person day and it does not do anything to grow the economy for the future. Host talk about Discretionary Spending for entitlements. This is what people say that Social Security is not the Entitlement Program i paid into it when i was working plus the interest. It is not a welfare program. But the reality is it is wrong. Entitlements is a legal term that it is mandatory spending that congress does not vote on there is no annual appropriations bill. People are entitled and they have met the criteria and Congress Spends whatever is necessary to meet to those benefits. That is all it means but so are farm price supports surprisingly but traditional welfare is not because they appropriate the money on the a annual basis. So that is what people mess. Host but onethird of the digit goes to the appropriation process to a third sonata and also how do they decide which is a mandatory process is the pretty tricky process how did they determine which is which . With the original and acting legislation whether are not how that is legally defined in terms of the budget process for every five or tenures some programs like medicare and medicaid security so you could the those that our domestic Discretionary Spending the the part of the Commerce Department and that is defense spending or Discretionary Spending. That is it that is all congress basically talks about that is what the budget bill is all about with those two sets of programs while everything from the Entitlement Programs such as security medicaid with interest on the debt, multiyear programs is all outside congress able vote. Host antenna is sequester replied that it plays a couple years ago. Basically that was the cap on how much could be spent over the next ted years but that only affect did it to the types of Discretionary Spending and defense and it limited decided to impose some costs that would be split evenly. Now we already see in the budget we take money from discretionary to ruth pass it over to the war fighting portions of that does not apply to to that portion of it but its essentially there was no sequester reduction there was some things with medicare but that was outside the pier sequesters so it is a cap of those two types of programs and largely responsible for the slowdown may have seen in spending the last couple of years. Host is something we do is the budget gimmicks. The overseas Contingency Operation is becoming a slush fund for other parts of the budget to talk about putting money in judy emergency area then they can spend more than they are supposed to. We see that all the time as a way to get around things. Clearly with the defense spending. And they were in a situation from defense spending for domestic spending so essentially they took money that is not overseas or emergency spending and took routine spending and congress does this all the time with the emergency spending whether Natural Disasters that had nowhere near that Natural Disaster or defense spending for the iran and iraq war was fought off budget that did not apply to normal budget rules so congress does this sort of thing all the time and makes honest budgeting very difficult and their raises questions how much you can trust promises into the future that says we will balance the budget ted years from now in some way not exactly trustworthy often they involve savings that are very mysterious. One of my favorites is they continue the saved money by not invading countries. Four years after rippled out of iraq we saved money by not invading iraq. Host with the ted your budget you see the numbers for 10 years a lot of times it is back coated that is the point you cannot trust what they talk about the future and they said hillary we will do that someday. Host but in one hand it is certain she would now not add more to their debt at the same time if they pass the bill we are adding or half a trillion over two decades, it is significant. It was hailed ted as say big bipartisan success. The only time the republicans and democrats can agree. That is the problem is that we have right now in their party watch is the balanced budget democrats are happy to tax and spend and the republicans will borrow and spend but the idea to iraq to reduce spending is something that Neither Party seems to be serious about. Host and talk about that. There is a difference of opinions. What is the responsibility . You pay for what you spend. And balance the budget but over a certain amount of time you pay for what you spend. You say it is less just about bringing your deficit down by your spending so touche talk about cato is the spending issue. Talk about that. Milton friedman said the real cost of government is how much you spend. Taxation and borrowing take resources out to transfer to the government that it is not invested it is consumed. Weld different people play taxes and pay taxes they take it out of the economy and transferred to the government and both are equally bad. Handed given this book to try to make the point ultimately you can have a government that is so big to consume so much of the economy, and the economy cannot function regardless of how you pay for it. Also we spend 21 percent of gdp by the government and other tedder 15 at the state level and onethird of the economy. Were going up to a point to spend 40 or 50 under current projections. So even if you pay for it all. Host what would to cut . Guest i think we should cut across the board. The usual suspects they really dont get you very far. Listening to the republicans of waste fraud and abuse cut foreign aid or killed big bird or planned parenthood. That will not get you anywhere. Foreign aid is 1 . People believe we spend all this money but it is 1 . And some we want to keep going frankly. Of planned parenthood is 1,000th of a percent a year are not budgeting the balance budget that way. Defense has to be on the table. Despite the current climate there no doubt there is a great deal of waste in the budget we pick up defense spending for a lot of other countries that spend a lot less because we will do for them there is a reason why we spend 4 percent of gdp europe is 1. Five the b2. Nowhere near what we spend because we are there are me. We have to cut their as well. But the big money is the Entitlement Programs. 47 on medicare and medicaid security alone. You cannot really do much with anything unless you are willing to take on those three programs. Host we will talk about them in detail. Would you agree with the taxes you are willing to raise with then they have lower taxes today and i dont trust that reduction would like to see that then we can talk about whether or not tax is needed to be raised. I am not opposed to any specific taxes being raised as opposed to overall revenue there are some tax breaks out there that our extortionary. Like aversion for ethanol, those sorts dont benefit the economy nor how it but dont think that any particular tax break is sacrosanct. Host expenditures are 1 trillion per year of lost revenue so you want to get rid of them to broaden the base for spend them on Something Else there is a lot of money there and many people are more going through the tax cuts. Unless you believe the government owns all the money bet that said every jews from the mortgage Interest Deduction over the tax break you currently get for Employer Provided Health insurance that is the biggest deduction actually these are harming the economy some favor to eliminate nearly all of this is a much flatter system. You get a lot of people best off if they dont know those are targeted they pushed up the price so if you have a home loan mortgage Interest Deduction and makes house is more expensive to as it goes to the industry. Guest thats right. It goes to second homes and the money is passed through or direct spending it is passed through to the final end user just like call a jade it drives up the cost of college then they raise their tuitions. Host so lets step back before we talk the specific program but talkedabout the Cato Institute and your of the richer areas. Considered one of the big four also with the Heritage Foundation is a conservative on the right the Brookings Institution on the left the American Enterprise institute i think is where old politicians go to hang out until the next administration but cato is centerright. We are libertarian which means we take the idea of limited government very seriously. Government does not belong in your wallet or a bedroom or business or medicine cabinet so we would reduce government control over pretty much all aspects of peoples lives part go probably be settled uneasily what to cut defense and domestic spending and legalize drugs. To favor increase emigration and increase free trade as we are across the board with individual liberty. What are issues you think about the most . Is a senior fellow i have no fixed address is generally work on the domestic side with social welfare including poverty poverty, welfare programs programs, health care from the Affordable Care act, medicare, medicaid or afford it at the local level and retirement issues like Social Security as it feeds into the overall budget deficit. You arent looking for those things . Rand there is the couples love books on welfare reform the pull ultimately should not be more comfortable but half to lift people out of Poverty Program they. Host a different book the was it is one thing we could do . Guest one of the most important things is to end the war on drugs that destabilize is the inner cities increases crime to lure people lot of jobs that is the first rung on the economic ladder because they could make big profits on the shortterm that these to the criminal justice problems. All smell a it is what government can fix. Host and now the big parts of your book start with a government Biggest ProgramSocial Security. Talkedabout how it works and what we need to reduce to one i think it is misunderstood people think when they paid those taxes that pays for their retirement but when you pay your Social Security taxes none of that is put away for your retirement. Has nothing to do with you you are paying the benefits for people who are already retired to dave parker you hope when you come to retirement you hope there are those that our behind you to support you. It is like the pyramid scheme the people on the bottom support the people at the top and generally the first retirees get off pretty ball well. But now the pyramid is inserted we had 16 people paid for every person but today is about three and now we are heading slightly less than two. Now we are making higher wages but still ultimately the system will break down you could only tax them so much before they resist. And in fact, that tax burden is enormous so after that but we are living longer. But rate retirees are living a lot longer in retirement. We could expect to spend onethird of