By little you send them back as agents for their intelligent service. I think you need to have somebody who is well versed that can sit down and and look at propaganda, counter propaganda. Very important point. When we talk about the islamic state, again, you can defeat of some capabilities, but you cannot eliminate the ideology. Some places like morocco they try to encourage dialogue and train even women to discuss this issue with religions from other countries. Its a long process. I think the point that you made is a practical, a very important one. We are looking at the clock and the clock is ticking. Im going to ask general gray to make the final remarkses for todays seminars. I want to add my thanks to what i think was a great panel today and certainly many, many very fine comments. I think, again, we have to remember that, you know, we are a great country and with great people in the United States, but there are other great countries in around the world, all of them have many pluses as well as minuses, all of them have distinct cultures and distinct languages, as ive said in every seminars, unless we do a far better a far better performance in understanding what other people are doing, what theyre thinking about and looking at these challenges that we face through their eyes as well as ours, were not going to be successful as we have to be, and i think this is crucial. Our strategy to go forward must be adapted, flexible. It must be on a high moral ground and all that type of thing. I get a kick about all of this on discussion on policy. We heard a very goodies cushion on policy today, every time how many define challenge, define terrorism, define whats legal and it goes on and on and on. And yet, policy, i believe, is only a guide. You really do what you have to do when you have to do it for the reason you have to do it. I was known for violating policy many different times. I got put on report many times than you need to know about. We thought we were right, and im still around. [laughs] i think that when i grew up in the military, for example, we had a strategy of both acceptable and unacceptable acts and the like. They werent good at all. You didnt like them. You didnt want to see them happen. You wanted to try to stop them. You can live with them. There were some that were considered unacceptable like nuclear attacks, et cetera, et cetera, thats when you go out to keep that thing from happening. One of the problems we had with terrorism, first of all, terrorism as ive said is a tactic, a tactic and nothing else. You cant have a war against tactics and all that kind of thing. You can take actions so that it becomes no reason for them to do it anymore. In other words, theyre not getting what they want out of it so theyre going to stop. Its been around since we all know since the bible and its going to be around in the next century as well. It was loaded, we were loaded with terroristtype tactics in vietnam. In 1965 alone 1,000 chiefs were assassinated. That was terrorism to the first degree. I told a story many times in october, if you were with me you had a little vietnamese girl crying, her father was a chief and was killed the night before and her arms had been severed at the el elbows. You never heard about this in the press and all that. They were out to lunch. The comments of rules of engagement, we have to forget all that kind of stuff. You dont need rules of engagement. The average fighting men or women, all the people in all the elements on National Power they understand whats right and what isnt. You dont have to worry about that kind of thing. In 1965 we fired one million shells in South Vietnam at the enemy. We killed 20 people by mistake. 20 friendlies and they were killed because South Vietnamese tried to fire instead of actually knowing where the enemy was. And yet, you didnt hear those kinds of things. Combat is combat. Its tough. Its nasty. We ought to have a strategy that doesnt say too much about what we are going to do. What we are going to do is different in every situation. Its different because as i met the culture, climate, count country, etc. We cant handle all these things in one kind way of doing things. Thats one of our great strengths. There are certain things that are unacceptable regardless of rules of engagement, Collateral Damage or anything else like that because its totally unacceptable. Thats the way it is. Youre going to pay the price. Thats the way we want to do it. We want to be quiet about it. We want to do what we think when we think we ought to do it, etc. Progress problem prop we are losing the war and its a way of life and the enemy and all the people that dont like us, theyre fueling this with the use of internet and social media. So we have to get smart about that kind of thing. Im not going to say much. You want me to sit down . Im not going to sit down so you better say it. We have to get out of here. Very tough coming after al gray. Im not going to say anything. I thought the minister had kind of shown us what the terrible dilemmas are. The book was quite interesting. We have to make problems bigger. Probably go beyond the episodes of hostage taking. You have to take as general gray said historical moment when these things place. Yonah has made pretremendously aware of terrorism. But i agree with the general, i mean, terrorism is a tactic. Were really talking about ultimately kind of the political configuration of this world, and can we really tackle im a great behavior in the Iran Nuclear Dear because when im not suggesting, i know its going to happen, one of the hopes is that it will change the basic political configuration in the middle east over time. Its the only way that we get the correlation of forces in turkey, iran and israel that we have a chance. Then we could have the seminars, and i also agree with the general that, you know, each case will handle with good judgment. That isnt going to solve the worlds problems. It makes me aware of terrorism and interested about underlying situations that create the conditions of terrorism. If i was israeli i wouldnt be as calm as being an american. What i am going to do is thank everybody else except al gray. I want to add my thanks to his thanks. Lets get out of here. Remember that if there is an emt attack and we remember if there is an emp attack and we lose our create, to me thats an unacceptable act. Whoever does that is going to lose far more than electronic grid if i have anything to say about it. Thanks for being with us. Thank you. [applause] this month marks the 10th anniversary of Hurricane Katrina which the gulf an east coast in late august forcing more than 1 million from their homes and taking more than 1800 lives. We appl former Federal Reserve chairman ben bernanke said monday defense spending cuts could have an adverse affect on the u. S. Economy. They spoke the brookings institution. This is 90 minutes. Good morning, everyone. Good morning. Welcome to the brookings event. Im Michael Ohanlon from the Foreign Policy to grandpa, joined by ben bernanke and mark muro. Markets with our metropolitan studies program where to dr. Daley about defense and the Defense Sector more generally at its affect on the us economy and vice versa. Theres a lot on the table. We are going to talk about everything from defense role towards economic policy, effect on shortterm growth to longerterm issues about defense role in aiding the development of research and develop technology, which defends can help the economy Advice Service but also the way defense spending is a part of her budget under budget deficit. It runs both ways. My job this morning as moderator first, we need a couple of brought considerations here. Introduce them, ask a few questions i will spend have the time to do and then go to you for your questions. I think you all know beyond the broad interest in this question the importance of the subject right now, congress is soon to return home to washington to face the question of how to reverse the potential sequester or even shut down, and defense spending as part of the conversation. We are all watching president ial candidates, and for those of you who are watching a lot of cspan these days this is not the iowa state fair. [laughter] none of us are running for president although perhaps one of us should be. Were going to talk about defenserelated broad Economic Research and broader National Competitiveness in an era when the although these issues, front and foremost in voters minds as they should be. Let me before it introduce ben and mark, let me say couple more words to put defense spending in perspective. Im going to try not to overdo the statistics. You can hear out loud without visual, not wanting to conjuring numbers, a couple of them would be useful. As you probably know, some of you, defense is now representing the Defense Sector, is representing a little less than 3. 5 of our gdp. Just under 3. 5 , thats a downward slope from about 4. 5 at the very end of the bush years, early obama years when the wars were at their peak and are headed downwards now to perhaps 3 of Gross Domestic Product at the very end of the obama presidency. Projections would have it to slide further after although who knows what the world will bring, but the next president and congress will bring. By historical standards this is a modest burden on the u. S. Economy. Certainly compared to anything in the world war ii our postworld war ii era. In the clinton years were also around 3 in the reagan years we been up close to 6 of gdp, defense as a fraction of Overall National economic activity. In much of the 50s and 60s the figure was often 8 10 . Defense spending is to very big. Its still almost 600 billion per year. Still about 15 of the federal budget, much reduced from earlier periods but still a large fraction of the overall budget to be clear and to be sure. And, therefore, this is certainly one of the main ways in which the federal government interacts with the broader economy. If we frame things in those terms i think we begin to get a sense of the importance of the sector. A few more statistics and then for the real show. Even the defensive zone all the more than 3 of national gdp it can be a lot more in certain parts of the country. Thats one of things i know mark is going to talk about, and i will say why in just a moment. Were just across the river from virginia. Virginia is the highest defense concentration or dependency of any state. 13 of virginias growth state output is defense spending of one sort or another. When i say defense in this context im including Intelligence Community and im including also the Nuclear Weapons activities of the department of energy. Not including veterans affairs, not including homeland security, just to be clear on definition. Although you can bring those into the discussion if you wish a little bit later on. Here in d. C. And Maryland Defense is more like 6 of state or local economic output. So its substantial. Another way to look at it is in terms of defense role in high technology. In promoting manufacturing in research and development. And again here the Defense Sectors make sure of the National Economy than that 3 gdp number would imply. So, for example, a National Manufacturing, military procurement is 100 billion a year. National manufacturing output around 2 trillion, so 5 of National Manufacturing output and a lot more in certain sectors Like Aerospace, space launch, some others will talk about today. One last way of looking at it, research and development. Research and Development Spending isometrics defenserelated activities are 20 of all National Research and development. Thats probably overstates things are not going to bore you with all the details right now but its probably fair to say as if much of Overall National research and development, Defense Sector attributes, can be a tribute to maybe 10 of total activity in this domain. Thats largely government money, also to some extent the money a defense contractors as theyre looking to promote new ideas to the future. So as you can see theres a lot going on. The Technology Better issue could not only aerospace as i mentioned, cyber, propulsion, advanced materials, nanotechnology, a number of other things that are going to be central in our future National Competitiveness more broadly defined. Thats why todays subject are important and again we are grateful you have come out on a hot august morning to join us. Mark, youve been at brookings about ten years now. Like ben he is a harvard grad in which a berkeley for his graduate work and spent time in arizona. Sort of one of the upandcoming states by many measures of advanced industry and i would wonder think we talk about today. He worked as a journalist and as a scholar in arizona before joining the metropolitan studies program. One of my favorite studies hes worked on a brookings is called launch explanation mark that its about colorado and mutual in a space launch industry in ways in which national government, local government, public and private sector, universities can Work Together to further the competitive candidate for colorado already has. Thats just a case study of the broader dynamics we will be talking about today. Hes also done a good deal of writing on advanced industries more generally have attended and on Green Technology and a few other things. Ben bernanke needs no introduction. We are very, very grateful to have him at brookings what he has been a scholar and i think studies at city. He was chairman of the Federal Reserve from 20062014. He and i were both born in augusta, georgia. I wont claim i knew him then but ive known since the 1980s when he was a professor at princeton when i was a graduate student and he was one of the most supportive, collegial and encouraging professors back then and is personally has not changed in the slightest, despite the thing is achaemenid since that time. He was on the council of economic advisors prior to being chairman of the fed and of the roles in the pedestal. He was a princeton to the 1990s essential as chairman of economic studies, Economics Department but also at the Woodrow Wilson school. His ph. D was at mit. For those of you who also have not yet discovered it you should check out Ben Bernankes blog. It is one of the most entertaining and sometimes even tricks you into learning macroeconomics along the way so i would national i was reading to do his usual with Alexander Hamilton should be taken off the 10 bill and other a lot of fiscal policy and Monetary Policy in the process. By the way the answer is no but im sure he will say more later on. He blogged about the Washington National back in july and they shall have more to say about the subject as well. [laughter] but maybe not. Before we launch into questions let me, we have the opportunity to thank ben. Let me ask you to join me in doing that right now. [applause] im going to begin within. This is not a sneak preview of his book which will be i think, he wrote economic textbook and an essay on the Great Depression when he was a professor in an earlier period. And working with the fed here and to the local, on october 4 and it would be unsure much watched but to be different events about that. Today is not one of them. Today id like to begin by personal thanking again for joining us with this discussion and ask you initially just have to think about the size of the Defense Budget and the appropriate, from an Economic Perspective . Thanks for inviting me to speak on this important topic today. We have known each other a long time. But at princeton and i followed mikes work ever since then. I always found him to be one of the most thoughtful and all is right about National Defense. Also full disclosure, im not a defense expert im an economist and hope to bring that perspective to help us understand rules of the military of defense in u. S. Economy. You asked about the size of the military and you said before whole bunch of numbers, total spending. Those numbers are important, resources been used in the National Defense. I guess i want to start by being at the economic and saying those dollar figures on a message of a good measure of capability and potentiality. One number just to take the opportunity, one number that bothers me a lot is a journalistic tendency to say the trend extends more than the rest of potential competitors combined, therefore were military secure. I think thats a mistake from a lot of ways. We have different goals, different needs. But in particular theres a problem of making comparisons across the country using Exchange Rate to try to evaluate qualitative distances. If im comparing the Living Standard of the United States to china, i dont want to look simply at Exchange Rate adjusted gdp per person. Instead of what to do what economists call a purchasing power parity comparison, which is what you take into account that labor is much cheaper in china, therefore haircuts, for example, are much cheaper and contribute much less to gdp but