Eugene steuerle argues recent budget decisions have hampered the ability policymakers to solve many of todays problems. He says education, Public Welfare and housing policies are affected the most. This hour and 10 Minute Program starts now on booktv. Well, welcome. Im in a shaker dusky. Im a senior fellow here at the Humphrey School and faculty director of the public not private leadership center. We are happy to host this event today. What we are going to do is have a presentation by dr. Steuerle, some comments by a senior fellow here at the Humphrey School, our [roll call] and then some questions from you and some answers from dr. Steuerle. So let me introduce dr. Steuerle. See eugene starley mr. Richard b. Chair at the urban institute and a columnist for the government we deserve. Yesterday said the assistant secretary for tax analysis, president of the national tax association, chair of the 1999 Technical Panel at rising Social Security and its methods and assumptions. Economic coordinator of National Organizer of the 1984 treasury study that led to the Tax Reform Act of 1986, president of the National Economics club. Educational foundation, resident l. At the American Enterprise institute. Fellow executive at the Brookings Institution economist for financial times. Dr. Steuerle is the author, coauthor and coeditor of 15 books in over a thousand articles and traditional testimonies. His own recent book that i hope you got a copy a few analytes i resent budget decisions have not only hampered policymakers ability to develop an effective approach an effective approach is to todays intractable problems, but have serious repercussions for Critical Service that is such as education, Public Welfare and housing. Ill invite dr. Steuerle up at this point demand i will introduce comments afterwards. Dr. Steuerle. [applause] well, thanks, jay. Its an honor to be on the podium with you. Greatly admiring you as well. Its a pleasure to join you. A special thanks to the public and Nonprofit Leadership center at the hubert Humphrey School of public affairs, the greater twin cities united way of the Minnesota Council of nonprofit for helping to organize this. One object to appear today and i hope i achieve the object is and the rest are details. The object it is simply to convince you that we live in a time of extraordinary possibility. I want to put to bed this argument that we live in a time of austerity. The arguments for a sturdier man that arguments about a straitjacket with tight around ourselves. I will spend a lot of my talk explaining the straitjacket. As i explain it, audiences take the message is being very negative about what we are doing or not doing. I want to be clear this is not an issue or a foreign attack or some disease that was unknown to us that most of the fiscal issues we talk about today are simply arising from a straitjacket we tied around ourselves. In fact, the straitjacket to do with good things happening to us such as living longer have an utter halt here. If you go with that message come i can go see some great possibilities to go far into the future. Words sometimes be interpreted in funny ways. They often get misinterpreted. Im reminded of some misinterpretations to take place in church and synagogue bulletins for the wording is correct, the misinterpreted. One of them is please remember to put your contribution in the collection basket along with the person you like remember. Another was Eliza Mcgillicuddy fan i will not pass this way again much to the delight of the congregation. My favorite was the youth are performing hamlet in the basement tonight. Common pleas early and watch the tragedy unfold. So the United States has always been a nation of crowd you can achievement spurred by a sense of mission and destiny. And its been that way for almost the beginning is when governor John Winthrop told his shipmates aboard the arabella in 1630, for you must vitter we shall be as a city on a hill the eyes of all people upon us. Thats embarrassing. [laughter] with its language is often very much misinterpreted. Winthrop is not arguing why are a city on the hill. The wisdom of the shipmates arguing over whether they would have low enough taxes. He was in arguing whether theyre entitled to 20 years of retirement once they settled on the city on the hill. He was talking about working together for the destiny of the nation to be. And i were not for ourselves, posterity. Over the next for centuries, the United States and its people created the worlds first modern functioning democracy. We led allied nations to the jury. We won the cold war as well. We eventually removed most of the elderly from poverty to sell its expanded civil rights and opportunities. We developed one of the richest nations known in history. Fastforward to today to a time of political disarray and pessimism. Our economy generates, if we do the numbers break on our economy generates about 140,000 per household in Gross Domestic Product or income. Even higher than it was before the great recession. If you look at what government does today, add up all the numbers and even a spinning at the federal and state levels any divide by number puzzles come you get about 55,000 a household. Project forward a little bit. Take number such as those by the congressional budget office, which by the way projects Slower Growth in the future than we have in historical terms. Our Gross Domestic Product 10 years from now be about 25,000 higher than the spending level and mentioned that about 55,000 coming subsidies, state, local, federal everything is about 65,000 or more. Probably a little, but actually it is not far from the number in either case. And yet we complain that we are a poor nation, that we are trapped and we cant do anything. I dont think the numbers tell that story at all. In fact, i think the numbers belie that story. The challenge after challenge after educating children to taking care of infrastructure and highways, to basically just investing more in our future, we seem to be at a stagnant area for a stagnant state. And something that cant do philosophy on large and past government deficits and some blame it on the fact we have political leaders may be from one party, maybe for the other. These are often is interpreted. These actions can the question of a political actors are doing as well as the deficit are symptoms of a broader disease. The disease at diagnosis and named retaken us over several decades and that is the extent to which both Political Parties have attempted more and more to control the future. Now controlling the future so much that basically it hope i straitjacket around what we can do. So in recent decades both parties have conspired to basically respond with a series of Public Programs and create new ones that automatically grow so fast that they observe every dollar of revenue that government would ever have both under current laws and under tax increases. They also conspire along the way to cut taxes so we dont pay our bills and everincreasing interest cost on our dad. The resulting squeeze basically puts current and future generations to the test because it basically says they can choose their own priorities. We as their parents or grandparents generation will determine out for them. They cant reach for their own stars. They can even decide with the current needs are. We have determined in the past with the future needs of this nation are. Consider these two historical forces that talked about. On the one hand i talked about how rising economy makes more resources to do things and ive also talked about the squeeze on the basic function of government. So together these diametrically opposing forces have essentially forced us to what i believe is an h. Or turning point, an historical turning point, one from which we will not proceed. I make this argument a much more detail in the book to explain to you how i think we got to this turning point. What is required to move through this turning point, the points which we must restore flexibility of the budget is nothing less than a freeing up resources so that we can again the choice is for the types of needs, the types of demands that the public saw in the past and that they are going to again see in the future. Along with Economic Growth that makes those revenues possible, i think we can go this way. Put another way, the question is nothing more than how do we constrain the promises we make the constrain all are possibilities going forward. Imagine a business or household that today signed contracts for everything is going to do for 20, 50 or hundred years in the future. Its not that microsoft or apple or other companies dont expect to grow and dont expect to have more revenues, but they dont send contracts today for the type of plan they will buy 50 years are now or even necessarily the type of employee they are going to try to hire. In a household that is growing, aging and expects it to double doesnt say lets decide today the house we are going to buy 30 years from now unless i do contract work. In many ways that is exactly what government has done. If you think about it, its just a silly notion because we dont see the future well enough to predetermine the best way to spend those revenues are. So how do we get out of this bind . Economically it assembled. Politically difficult. Basically the democrats must simply give up on trying to control the growth of programs. Im not saying i had to cut back on things that current Social Security benefits. I am saying what they have to get up on is the builtin growth in spending largely dominated in health and retirement programs that builtin growth in spending and let us decide to borrow the best use of resources republicans have to give up on the builtin growth and fat tax subsidies that often have the same permanent nature, Home Mortgage interest reduction. They have to get up on the automatic growth in the future determined the best use of revenues and in the same time republicans have to be have to be led have to be willing to raise enough taxes to pay bills as we go along because deficits, tax cuts that are paid for are nothing more than bills left to the future. With the budgetary freedom restored, the nation would again turn its attention to an agenda of investment. I i think we restart again focusing on children where we particularly are shortchanging the future. We return to an agenda of mobility, efficiency and fairness. Whether the government becomes bigger or smaller as a percent of the economy to me as a secondary issue and one we need to let future voters decide. So my dream i think of the 21st century in no small part as flexibility to infer the young at the 20th did for the elderly have the elderly and that we make children a major focus for the future. Not just the next year or two. Early childhood education realized constraint we had for resources for the investment. The constraint is basically all these other commitments. Its not that we cant afford these types of things. So i want to now turn to the four Major Political deadly political problems that i think all these commitments have put upon a. And to be clear, as i outlined, and not been achieved. Im not going to use phony math. Theres such a thing as yogi berra math. 90 of baseball is physical in the other half is mental. So we are going to go through these numbers and what i hope will be a very honest way. So the first economic album is one of which are all familiar with. It is simply that we have rising and unsustainable levels of debt. Some people point to world war ii. What is before or an accessory had a rising level of debt. But theres a slight difference between what happened in world war ii and what happens today. Right now our debt is scheduled to rise into the future again regardless of in some way as our economy as is scheduled to rise. After world war ii is scheduled to drop dramatically and it did that over the next 30 years. It dropped dramatically because the troops came home and spent most producing a drop dramatically because taxes were raised during world war ii when i permanent level so they started paying down that debt over time. We havent done that. Now we have these in the future for this rising and unsustainable level of debt. So youve read a lot about that. When you read less about is a little more complicated that weve also boxed in our ability to respond to emergencies in needs. So let me again about the economy in western europe today. Theyve had backtoback recessions. They responded to the first recession, they try to respond with fiscal status and provide resources. The second recession because debt levels are were so high they had little response at all. Many economists think thats really not the right way to respond to you that the debt level is raised high enough make these commitments in times into the future. Much less flexibility. It should be a national catastrophe. We box ourselves than respond to todays needs. The third problem i alluded to a little bit when i talked about what we return to children if you look at the federal and state and local levels, usc will be spent on children as a percent of the economy is basically a state of decline. More numbers on this in a moment. The reduction in spending on children, reduction of investment in infrastructure, our budget is more and more a budget that basically tries to provide us with higher and higher levels of consumption, but not in ways that promotes saving and productivity. In some senses a declining nation that promotes consumption nevermore and consumption never last. The final economic problem is its very hard to fix programs for the extraordinary level of commitment. A lot of reforms that take place dont come from dynamic changes. It comes from the fact that the program and as the economy expands the program wanes in importance. Those of you might be familiar with welfare reform that we had the big debate over welfare reform and 96. It is a program called families with dependent children better than 50 of the welfare budget in the 50s and 60s. It was down to 10 by the time they were farmed it and other programs like an earned Income Credit for already replacing independently of the reform. Thats the type of reform you can achieve without necessarily having to reform the program itself. It just wanes in importance. With the sports are the economic problems or three deadly political problems. The first is that we basically remove fiscal democracy from the hands of voters. Particularly true for the young who are boxed in to supporting the types of spending we have decided in the past they need to have them take the vote away from them and elected official. A second is the Political Parties trapped in what is classically called a prisoners dilemma. Im not going into other details of the prisoners dilemma, but it might be familiar to some of you who saw the movie a beautiful mind. This was designed by john nash who came up with something called pain theory. In my simple version if you leave and act independently, you lose. That is exactly what our Political Parties believe today. A very interesting article by the name of jude vranitzky. He wouldve article in the midst of an 80s. Jude was a member of the wall street journal editorial page. The wall street journal wall street journal editorial page is sometimes called extreme supplyside economics. Jude wrote this article called to to santa is very. So what did he say . His argument was that democrats have been santa claus for all these many years. This is the mid70s. Remember from 1932 to 1974 the republicans had the presidency for eight years mouser Dwight Eisenhower and they werent sure they wanted to claim as a republican. They hadnt had the house of representatives at all. Over the course of six years they had those before 60 years. Shes argument was that democrats are santa claus, we are not santa claus. We are screwed because were worried about deficits. We need to cut taxes. The same way the democrats increased spending so we can be santa claus, too. I would argue jude to what he wanted by the first decade of the century was spending increases and tax cuts and wider and wider deficits. I provide some numbers in the book alumnus. So we had these two santa claus is operating at the same time. If you think that, it was entirely wrong. If youre on the giveaway side of the budget, you can win and if youre on the take away side, youre going to be on the losing side. Youre not only going to lose politically, but you will lose economically. Republicans began to believe that and started offering tax cuts without paying for them. Democrats had the same philosophy. They believed in 93 when bill clinton help but the budget agreement they might exaggerate the extent to which this happened has jude exaggerated the story. When he enacted the agreement, have them list the house of representatives for the first time. Not only did they lose the house of representatives, the less politics. A few years later they got george w. Bush getting a tax cut. So they lied and they lost. I think there is some truth to this that or more as the politicians decided they have to operate on the giveaway side of the budget and started making more and more promises, promises started going more and more to the future and that led to many of our current problems. If you think about it now, there is the third deadly political problem, which is closely related to the politicians in a position where to go for what theyve got to on a promise. Today, if they want to inaction a new argue with the dataset, i dont care which side of the aisle. If you want to do something new, the numbers are there. Youve got to renege on some promise to the public and think about the past president ial debate in 2012. So we have president obama and governor romney are gearing up for medicare. So president obama says governor romney, you want to enact this voucher programs and try to constrain cost