>> rose: welme to the broadct. tonight we looat the growing coern about the u.s. budget deficit with rog altman, form depu treasury secretary during thclinton administration and a wall street veteran. >> it' the most serio and fascining fiscal policy challenge i' ever seen. and it's been 41 year since i started finance and i served twice in the treasurywhich was a greatprivilege and i've never seen a challge like this, becausas you just said, at one vel, the economs going to be exaordinarily weak and stimulus is cessary. indeed, the argume in the last few days has been do we need a "second stimulus"? buat another level as the deficits emerge-- and they ven't really zuck in on main street yet-- but as they emerge and people see how lge they are, the public i believeill

vi them as unacceptable. this is already evident in the polls. and the ainistration will be in a vice. we should be pursuing stimulus and we should keep that going, say, f two more years. and we should wait-- as e president said in your clip-- to confront the deficit until the economy is stronger. that's right. n theory. the question is whether it will possible in pctice and i ink that'a tough one. >> ros altman for the ur next.

captioning snsored by ro communications from our studios in new rk city, thiss charlie rose. >> rose: we lk about the econy this evening, the growing s. budget defici has alarm misdemnor in washington, many on walltreet, and many across america. economists warthat rising debt levels could be stabilizethe dollar and bankruptafety net progra like social security and medicare. the obama administrationas vowed to address the problem oncehe economy abilizes. in recent intervie with al hunt of bloomberg news, the president said the govnment's de burden was a top concern. >> i amconcerned about the long-term issue o our ructural deficit and our long-ter debt. because if w don't get a hdle

on that, then there's n doubt that at some point-- whether it's the chinese, the koreans, thjapanese, whoever else ha been snatching up treasuries-- are going to decide thathis is toomuch of risk. d so that's why it' so important for us to get a handle on our long-term structural deficit. and the key to that-- as i've been discussing over the last several weeks-- i health care reform. that's t single biggest driver of o federal ficit. >> rose: joining me now is roger at map. he served as deputy treasury seetary during the clion adminiration. last wee he wrotenp-ed in the urinal warning that government will soon need to raise xes to addresshe deficit. i amleased to have him back at this table. welcome. >> rose: >> thank you, charlie. >> rose: here's wh you said in is article in the "wall stre journal," twoo. "only five months after inauguration day the focus of washinon's economic and domestic picy is already ifting. this refcts the emergence of much lger budget deficits than

anybody expect, indd, federal defics may average a stunng $1 trillion annually over the nextten years." a trillion annually over the next ten years. this worsened outlook is stirri unease on main street and beginng to reorder prioriti for barack obama and the docratic congreional leership. by 010, reduci the dicit will becomeheirrimary focus. and en you end thi by sayin "this challenge may be the toughest one . obama faces in his first term. fortunatel the new president is enormously gifted. that's impornt because it is no longer a maer ofhether tax revenues must increase b how." i continue in an e-mai exchang betweeyou and me. "t administration is just in a arly impossible situation. growth as i argued in that piece is goingo be distinctly subnorl for 2010 and 2011. at theame time, t decit outlook will emerge as much worse. at one level, you can't withdraw stimulus, e., pursue deficit

reduction when the ecomy is so wk. buat another, the publicnd financial rkets will be rebelled ov o trillion llar deficits as far the eye can see. this wilbe getty brg fo ama. hopefully he's in a blueniform but who knows?" strong language. a huge problem. >> it is. it's the most serio and fascating fiscal policy challengi've ever seen and it's been 41ears since i started in finance a i served twice in the treasury, whic was a great privilege, and i've never seen a challenge like this. because, as yojust said, at one level the economy's going to be extraordinary weaknd stimulus is nessary. indeedthe argument in the last few days has been "do we nd a second stimulus?" but at another level, as the deficitsmerge-- and they

havet really sunk in on main street y, but as the emerge and peop see howlarge they are, the public, i belie, will view theas unacceptable. and this is already evint in the polls. and thedministration will be in a vice. we should be pursuing stulus d we should keep that going, say, for two more years. and we should wait-- as t esident said in your clip-- to confront the deficit untilthe economy is stronger. that's right in theory. the question ishether it will be possible in practice. ani think that's reay ugh one. >> rose: i they do tha if they say "postpone." we're ing to have a new stimulus... somergue without a new stimus we'reoing to have a dig beprentation. i was tdthat today. paul krugman argues that point about needing a n stimulus. n this program last week. whatappens if they do that? >> theuestion in the context ofuriscussion here would be

ether the financial markets... but even more so main street would accept eve bigger deficits whichuch a second imulus byefinition would cause. because a secondstimulus would mean a combition of more spending and more tax cuts and thefore bigger deficits. >> rose: give mea short primer on deficits. well, first o all, we've never seen deficits of this magnitude either in absolu terms-- just the dollar ount of t defit-- or in relative terms,he size of the deficit to our econom and thegrowing relationshipf the debt ast grows byirtue of these deficits. never seen these bore in your lifetime or lifetime. so for example the deficit for the year we're now in isgoing to be about a trillion nin a trillion nine. >> rose: over 2009 the deficit will be $1.9 trillion >> that's right. and keep in mind, only few

years ago, fou or five years ago, the entire budt wasn't $1.9 trillion. it would have bn, say five years ago o six yea ago. the deficit in relation to the size of our economy is going to be 13% this yr. it's not gng to... it's goi to average approxitely5% for the nexten years. and, by t way, we'venly had deficitss of that magnitude, the 5%, twice since 1946. w, th debt, according, for exple, to goldman sachs, is going reach at thend of this ten-yea period about 85% of the sizeof our economy. now, the last me that happene was at the onset of world war ii 1942 1943. we hav't had anything remote like that, since. the unedkingdom, the u.k., is al facing an outloo like that and s recently be warned by e rating agencies that it will perhs lose its credit rating if the debtets to that size.

>> rose: what is it now? the debts a percentage of our g.d. for this year. >> is about 40%. >> rose: okay. so double. >> and the administration id-- ani think qte correct and admirably inhe so-called budget blueprint it leased just as president obama took office-- thawe as a nation needed to stabilize our defit at 3% of g.d.p. and stabilize our debt of not higher than% of g.d.p.. that's the administration's own view and they' correct about itto their credit. so the problem i, 're facing a much worse outlook than th. the question is why are we facing that outok? and the answer esstially is that we'reooking at a much weaker economic recovery than any of us would like and it's so much weaker that revenues will fa short of expectations, interest expense will higher thanherefore deficits wi be a lot bier. a lot bigger. , for exple, the administtion at the moment is officiallystimating that

growth next year will be 3.2%, so called real growth. and the following year 4%. but goldman sachs, for examp, estimateding, anmany others-- i wou agree with them-- b goldman sachs i estimated 1.% for next yea and about% for 2011. so about hf the cumulative growth rate ich the adnistration is estiming. now i know the adminiration is going to lower s forecas, it has to and it's been saying so prively. >> rose: lowering them to the goldma sachs nbers? >> i wouldn'tay that far, but they'll lower them. e problem is, though, crlie, and the difference fromthe day president barack obama took offices the outlook for recoverys very weak, there are a lot of reasons forthat, we could talk abo it if you'd like. and that weaker recovery spells much bgereficits and this is the problem. >> re: okay, there's also th problem ofhat the president wants to do in terms of health care and energy. and he's getting a chorus of ople now who are saying to h "you're ying to do too much at e time." and othersre saying "because

of the increasing debt and because of the need to pay attention to t economic covery, you need to slow down in terms of what you'redoing." are they right on tha question? >> n necessaly. no. beuse a number ofhe inittives which the president has put fward-- let's say energy-- actually wouldower e deficit because onef the components of the energy bl is the cap and tradeortion of it, whh is the biggest portion of it and tha would actually raise revenue. so not all the president's initiatives expand t deficit. an in fact, as i point o in that piece, it'suite telling that the president's rtoric over the past three months on health care has shifted. it was threeonths ago cused on the universality covere, whh we ed, the public option we need. and it's not that he' abandoned those, quite t contrary, but today his focus if you list

carefully is a dicit ntral health care bill. that because the separation is enly aware of the cnge in the deficit outlook andhe allenge it's facing. >> rose: to have a deficit-neutral alth care bill wh would heave to do to change in terms of h origina prosals? >>ell, to their credi, they originally... ey've always said that the bilshould be deficit neutral. it just that en theampaign for health care really began, that was notne of the fit things that was out of anyone's mouth. and, by the way, had been serving theri would have pursueit the way they did. w that the deficit outlook has become carer to them- and i nt to emasize,hey're keenly aware of is-- they've been stressing above all the deficit... nessity for deficit neutral tilt in other words, they've alwayseen in that ace but they've said this is paramount. one of the reasonshat the bill is proving to b a gre struggle, althougi believe ultimately they'll getone, is because paying for under the congressional budget fice scoring system you'r faliar th so that is certifiably

paid for is proving difficult. cause this is going to cost approximately $1 trilln over ten years and findin that amount of fincing, which can only bereducing spendg below levelshat otherwise wou occur or raising revenues, the combinion has to be .trillion over ten years, fiing that is provg to be very tough. >> rose: do they recognize the oblem as it exists? do they, for examp, believe that the recovery is not what they hoped and expected it to be athis time? >> yes they do. >> rose: what ee is contributing to the deficit? >>n president obama's defense, the congressionabudget office analyz the varis factors that contribute to the defici. and thei cclusion was tt only about 15% these deficits we're talking about are attrutable to obama initiatives. to steps he's taken since beming president. e other 85%, in otherords,

flects the econoc condition which he inherited,he very sharp burst, is really a burst of spending that we saw under prident bush. parenthecally federal spending rose two and a hf timesnder george wbush than it did under bill clinton. most pple don't reize that, but it did and, of course, the intergeneratnal problem, the aging of america, the fact that the deficits and the medicare trust fu, the actuarial deficits and to a mu lesser extent social securi are now coming closer. ey're inside the ten-year window in a couple cases. >> rose: when th baby boors ha access to thos demands >> the pblem is primarily medicare not social security t yes. >> rose: so what are the choic for th president? >> well, there's.... rose: if he recognizes the dang of deficits at that extreme level, the debt 89% after ten years ofhe g.d.p. >> wel first he sai in your clip--nd he didn't use a atistic-- but he said i fect that outlook would not b

acceptable and i ink that's correct and it's also... makes clear that at some relatively near term moment the administration is gng to have t confront the deficit outlook and pu together a deficit reduction package. now al hunt, who did that interview with the president and i had aebate, a prite discussion the other day and he read my ece and hesaid "you're dead wrong on when they will do that. th couldn't possibly do that as early as next ye because the economy will be too weak. the congressnal elections will be approaching"nd so for and so on. they would have to do it later. so there will be a ga dete over when to confront itnd a great debate, charlie over exactly how to confront it. but i said in the piece, the's really no debate inside the administration abo whether they wl have to do it. >> ros so they have the do it. the question is me and meod. right. >> rose: all right. so y say they' got to dot earlier, al say they can't

it because of political considerations and youay if they don't do it now, the nsequences are? >>o. let me just puthat in contex the question i was addressing is when they will be forced to do it. >> rose: oh. >> a that comes down to two things: ma street, plic opinion, andinancial marts. and i was sgesting that some combination of therass-roots reaction to these enormous deficits and the financl markets reacon may-- ian't be sure-- force their hand sooner than th would otheise like. i hope not. >> rose: i'll geto the choices in a moment but i nt to make sure we undetand that. is main street going to rct to a deficit? is thawhat has happened or will the marke react and main street will fghtened by the reacti of the market? is that theay it willappen? >> i was particularly fascinated by the last two really major

polls. the cbs/"neyork times" poll and the "ll street journal"/nbc poll. each released o weeks ago and they both asked about the deficit. i thought itas quite surprising that the public registered alrea-- fore having seen the outlines of these mu worse defits-- twe as much concern abo the deficias, for example, health care and for e last threeor four years, health care on the domestic ledger has been number one. so already the public is saying by a two to one margin "we're more worried about the deficit than ware about health care." now, ask yourself a year fro w when the deficit outlook that we'reiscussing here becos the universal view what thpublic reactn will be. i suspect it wilbe considerably me adverse than we saw in lt month's poll and there will ba lot of pressure on the congress, for example, on the president andso forth, t do something about it. and this is the conundr you discussed at thebeginning. the economy will be weak and in macroeconomic theoryone should not withdraw stimulus at a time when the economy is that weak.

but the public may be and/or the financiamarkets may be demanding it. anhow will they handle that? that's why i say it's... the political equivalent of gettysbu. >> rose: i'll come back to that int in terms of what they can do in termof the litical equivale. but is there nothing the admistration can do to make the economic recovery faster? >> relative little. >> ros do they regnize that? >> wel, as we discusse a minute ago, there's debate that's broken out in the last really 48 to 7 hoursabout a second stulus. we had a roughly $800 blion, $787 billion stimulus psed, as we well know, inhe early days ofhis administration. latively little of it has been spent oro far or injected into thbloodstream of the ecomy yet. so a lot o it has to pay out but ready a debate h broken out aso whether we ne a second stimulus, meaningnother round of tax ts and/ spending increasing say early next year. paul krugman, who you had on your show, i arguing th.

's mnstream economics in terms of what yowould normally do. >> rose: spen money in a time of crisis. >> yes. and the queion will be whether more stimulus--hich by definiti makes the deficit evenbigger-- would be acceptable tmaintreet. i noticed the republicans are already saying you cld never do tt and a lot of others, david ooks, for example, argug that the first priority has to be to get our fiscal house in order and n to do that a so forth. whether the public would accept that and whether the financial markets wod accept that, i don't know the answer to that but it seems it's up in the air. >> ros a stimulus program, that's the only option they have to try to. >> that's the only option the adnistration has. w the biggest pler when it comes to stimulus is not the executive branch, it's t fed. >> rose: right. >> on monetary policy, which is a much me powerfulool. so, of course, one thing that washington as a whole could do-- st that the administratio

wouldn't be ing it-- woulbe psue the extraordinaril accommative monetary polic we're now seeingor a longer period thanthey otherwise would do. that would be something th washington could do to provide adtional stimulus. but it would ce from the fe, not the administration. >> rose: what do we know about bernanke's ideasbout that? >> well, i wou expect the federal reserve in the face of an ecomic outlook that wee talking about here to keep interest rat as low as they are nofor a lonr period of time than they otherwise wld dof the onomy were showing the kind of strength at the administration hed. >> re: do you expect the feral reserve to look at this crisis anday "we havgot to change, we've got to do this"? >> there at ximum accommodation now. short-term intest rates are approximately ro. >> rose: so we've run out of motary policy? >> we uld have a technical bate about things lik quantitative eing but essentially we'rnow at maximum accoodation. but you n stay there. you me, pedal to the metal

longer if you tnk you needo for reasons of economic weakness. and the fed, in otr words, may provto be the more important participant,s usuall it does, than the administration and the congre when it comeso what can you do now. >> rose:ll right. th is what david brooks said. "and the irony is tha obama supporters wl be confrted by the problem for which they ha the least experience and for which they are the least prepared, the problem scarcity. raised in prosperity favored b getics, these young merocra will have thedemands on the tion's wealth outrip supply. they will grapple with the gring burdens of anaging society, rising healt care costs andigh energy prices. they will have to ke up for the trillionlus dollars the governme will spend to avd a deep recession. they will haveo struggle to keepheir promises to cut taxes createn energy revoluon, pass an eensive health ce plan and all the rest." david bros. do you agree with that. >> i do largely agree with tha, yes.

>> re: so now what... beyon netary policy, keeping alth care as deficit neutral, looking at some benefits fr climate control policy, what else is there to do to raise revenues? ruce the possibility of an overwhelming deficit? >> here is one possible scenario beyond what we disssed alread if they achve a health care bill, and i tnk after quite a ruggle, especiay a bloy one the end, the will, then they could foow thatp.... >> rose: 60 democrats on the senate se. >> thethey could follow that up with an effort to dress social secuty. peter orszag the budg director hinteat this in an opd piece he wrote in the "fincial times" a coupleeeks ago and jer si wrote aut is in the "wall street journal" this morning. and even though social security is a relatively sma part of the lo-term deficit problem it's a very important par symbically. and if t administration were

to follow up healthare-- which would be quite a big ctory and triumphal momen- use that momentum to get a soci curity deal, which would be toh but possiblydoable, tt would build condence in their ability to deal effectively with the deficit over th loer ter evenf the actual impactof social security deal would be moderate, not enormous as it relates to the dicit. th's what i believe is bei considered. i don't know if they'll do it. it being considered. so that would be another step. >> re: sohey're looking at health care euphoria giving them increaseleverage to deal wit thdeficit in a w that will be unpalatabletherwise? >> well, we've all seen that over the past... since the greenspan coission of '83, so l that time, is proved. a social surity solution has proved elusi. president bush tried tha and every president in recent times has said "we have to deal with this." so, yes it's oved elusive and perhaps is is the moment when that cou be achieved. that would bquite an

accomplishnt and very important step. it wouldn't solve the entire budget problem,it wouldt make e deficit suddenly acceptable and find but would be an portant step. >>ose: and wouldn't have anything to do wh privatization of sial security. which is what the previous president was commted to... >> they wouldn't go that way. >> rose:o what are the options? >> well, "the ultimatred sox show" may there's going to have to be a deficit ruction package. ifou want to think back, for ample, to thendrews air force base summit, budget summit of ielieve 1991. we'll have something like that. and a deficit reducti package by definion has to include a combination... it's either all spding.... >> rose:pending cuts and tas. >> or a combination. it would end up being a combination. you n't do it all on the revenue si or the spending time. rose: is it hard to say the words "rais taxes." >> not if you'ren the private sector, it's not. (laugh >> rose: is it hard for them? they say they'll raise taxes for people over $250,000 and ty also say they're going to increase. continue t bush tax ts and increase theax cuts for the

ddle-class. that's what they say. can they do tt? >> well, of course, for them at thisoment they have so many immediate priorities, health care first. get the energyill pasd. possibly do cial security. let alone the internaonal agenda the preside is going with right n withrussia and so forth. nobody wan to address the deficit and i wouldn't recomme it either in 2009. we're onlyalfway through 2009. so they shouldn'te talking about raisg taxes rht now. it comomising their near-term agen. they shodn't inject that into the health caredebate if you're rahm emanuelr.... >> ros okay. but therefore ty're not going to address this until afr the congressional electionsn 2010. >> possiy, sure. if they can stave o or hold back the preures i referred to fr main street, financial markets or both, yes. >> rose: that's the smarthing do if they can withstand the pressure. >> that's right. yes. >> ros because it's polically deadly to subject we

need new taxes to reduce the deficit. >> don't know aboutdeadly but it's prett hard. >> rose: and you take on this president andthis administrati is that they would not be prepared to do it? >> no. i believe we will see new revenue or higr taxes, it's just a questn of when. >> rose: i understand that. but yore suggesting that politically they're not prepared to think about raisingtaxes until after the conessional election of 2010. >> as ng as the pssures don't becomerresistible i ink they won't want address this, norhould they. >> rose: doou think the pressure will become irresistiblend that's when gettysrg is here? >> i don't know thanswer to th, charlie. but if y step back and take a wider perspective, whether this is addressed in 2011 or whether it's addreed in 2010--nd i think th is the fundamental

oice-- it's going to be tough and brutal and the primary challenge am-- th is my point-of the first termf president ama's. >> re: the primary cllenge. you made that veryclear and i made that clear. let's take you beyond the ngressional elections. let'take you into 201 >> all right. >> rose: the president says "roger, i know you suppted hillary clton but i respect your views and i've been reading the "wall street journal" and the way you expressed tm and watching younelevision. forget my politica life. ll me the right thing to do lookinat the deficit tt i face. at is it?" ting is no longer a question. it is what? >> well, fst, the problem is so large that it's going to have toe dealt with partly onthe spendi side and partly on the revenuor tax side. not just one or thether. >> rose: where'she spendi you want to cut? >> well, we have a reay big

budget, chaie, $3.6 trilln th year. and know that in recent years in whington no one has cut anything and as iaid a momenago, ending exploded under present bush. but if you hav to, forexample, eeze spending, we've had those before, you can do it. w, of coue, you wouldn't freeze every last dime of your spendi, you wouldn't necessarily freeze socia security paymentor medicare payments and so forth but if you wanted to feze spending across half the budgetr0% of the budget in an emergency, you c dot. no that saves aot of mon cause savings, you know, in this lexicon,refer to money you would otherwise spend that now you won't. in other wds, spendg is always procted to grow. so savgs flects spendin less tn you were going to spend, n necessari cutting the program om 10 to 9 or 10 to 8. so remember that, it's important. so if you freeze spending, you sa money becausetherwise it was going to grow. and so a freeze-- wch we've resorted to from time to time in erican history-- is onway to address spending >> rose: okay. on the revenue side.

whatind of tax wou you propose 2011. >> well,there aren't a lot of... the's not a long nu of chces. and i sa in that piece that i ought for the firstime at ast in memo we migh see a seous debat- i'm not here to recommend it, i'm not se it's the rightstep-- but a serious debate over a value-ded tax. >> rose: but you n't believe in it eugh to rommend it or.... >> no, no. value-added taxes an different things to differenpeople. for examp, there e some interestg proposals that have been made, professor grets at yale, michael grets, has made somef them on how to sucture a val-added tax so at it can be latively progressive for exame, y take.... >> rose: what is a value-added tax? >> well, there are different versions of them in some countries inurope, like france, value-addetax essentially nationa sales tax. other couries, cause remeer the term "value-adde," you ta for example, production at its various sges as value is added. so if someone is producing a

piece of original equipment which th goes to some othe equipment bere it becomes the final product, y would tax i each stage of production. there are variousdifferent types of value added taxes >> rose: what's e argument against it? >> they're regressive. the simplest version oit is a national sales tax. everyoneays it rardless of income as compared to a progressive tawhere the more you make the hher share oft you pay. so any value-added tax y would seriously debate in th count would have thave a big progssive element. as an example, you take... you put one in place, but at the same time you take a larg number of lowerand middle-income taroles, taxpayers, out of t income tax system. so they wouldn't be paying income tes anymore, they'd only be playing value added xes, state and local taxes, property taxes and so forth. that's one version of a relavely progressive value-added tax. none of them are goingo be perfectly prressive and the argue against em is they'r notrogressive enough. but almo every one of t

othe reallydvanced societies in the world today has a value-added tax. andhether we should have one or not would depend on whether we could structure one t be progresse enough to fit the american way. if we could, i think it's something is which we would have to very seriously explore. the other alternatives in many cases don't rse enough money d in some cases are less palatable. >> rose: if i was presidenof the unit states and i surrounded melf with all these gh powered minds like larry summers and timeithner, i'd expect them to be thinking about this tay and allthe eventualit and to have some opinion on it even thoh it may be 2011. do you know that kind of discussion, date, is taking place inthis white house? >> to e best of my knowledge it isn't but the presidentharged his economicecovery advisory brd chaired by paul volcker with addressing "x refm." and at some point over the next

femonths, that will get organized and thwork will begin. one alternative is to... that s th when that groupcomes forward and pl volckeras unique standing to propose various rms of tax reforms, me of which would raise revenue not just be revenue neutral,nd that would be one way r this to evaluated and proposals to come forward other than directlfrom the white house. >> ros is the bottomine of this piece tha you've written for the "wall reet journal" th we've got this huge problem and in thend thenly way to cure it is going to be a value-added tax? >> no. e only way to cure it isoing to be a combination o spending reraint and new revenues we could go with a value-add tax. you could obviously go with a suax on high incomearners ke me instead of ying 39.6% we pay hier rates than that. you could go wh higher capital gains and dividends. >> rose: how wouldou go fm 39.6%,ow high? >> well,39.6% by long-term historical standards in th

united states america is not one the high incomeax rates we've ha if you look bag overmerican histor we've had rates higher than tha most of the te. now, ion't like to pay highe taxes any more than anybody else and i sure don't like gng around saying, gee, is easy, let's pahigher taxes. it's notasy and not anhing you woullike to do if you could avoid it. but the soluon is going to involve a mbination of spending restraint and new venues. itould be aalue added tax, higher cital gains taxes an dividend taxesut we will see more renue. rose: we live in enormously difficult times and everybody is talking out uncharted waters. t me do a little historyere. when paul lcker was chairma of the fed during the time of ronald reaganronald reagan came into office and he realize head had inflaon at a huge level, correct? uh-huh. >> rose: and he decide that he woultake the pain then in order to deal with... have better economy fouryears later.

that a good idea? >> well alittle historical correction. paul volcker took office as chairman of the deral rerve boar in 1979. ronald reagan beme predent at the ginning of '81. >> rose:ight. >> the feder reserve slammed on the brakes, began to inflict the pain well before president reag took office to reagan's credit, he realized it was the rightmedicine. but the fedad already admistered the medicine before reagan.... rose: but paulocer is the guy who diit? >> yes. and president reagan uerstand it was necessy and he had to sit there and take it. fortunately o years later, begining in the fall o '82 it gan to work and by e fall of '84 as you rember it was morning in amica. >> rose: nowurn to the... bill clinton cos to office in 1992, comes into oice in january '93. what is ithat bob rubin and you did in terms of deficit

reduction and th legislaon in order to produce, me say, you know, aather attractive surplus at the e of eight years and larry mmers and others. >> wel there were a whole seriesf things and evebody knows it's been widely chronicled. leme mention one that hasn't gotten as much attenti. president clintoand the congress installed tough budget rules-- two of them- an thentic pay-as-you-go system aning pay-go, any time u were to increase snding or cut taxes you had to offset tha >> rose: president obamis favor of that w, isn't he? >>ut there are some conditionalitys of that. and the other one was a cap on mestic discretionarypending which couldn't risabove the rate of inflaon backed upy at the techcrats call a sequesterment meaning if you low spending to go above inflation, there's an automatic acss-the-board cut. those budget rules were straight jacket, they really

worked and as someone wh served at that time, th played aig role-- not the only role but a dig one-- in produng those surpluses. that why spending unde president clton rose at0% unr the rate of george w. bush. >> rose: that's why they called you defic hawks, you and bob rubin and others. so now these two last questions. number one, and then george bush comes innd he s the surplus. he also got a... 2001 andlater afghanistan and thenater iraq and all those unexpected expenditur and other thins and ent... had a huge spending program. and redud taxes. >>es. >> rose: ending up wi a huge deficit. >> biggest fiscal swing in the history of the country. >> rose: question is just in econom policy, the idea that lowering taxes increases growth and is a good idea allther things being equal.

>> well, look, if tax rates are 90 as we saw, for example, in britai years ago and actually at one point in the united states 50 yes ago and you reduce them, you're going get growth becauseaxes at that level are stifling owth. they're suffocating gwth. if tes arehere they are today, 35% for people le me at theighest rate and you raise them, for exple, to39.6, which president obamis talking about, which we had und president clinton, that's not going to have any suffocati affectn growth. rose: but one of the presidents who bought into this idea was jackkennedy, corre? >> yes, that's right. >> rose: what would t rates... when he came in and said "we're going to lower tax to increase goat." >> ian't give you the number but ey were much higher than today. i wa to say the highest rate was60%. president john. kennedy, had tax rates roughly 60%. i'm not saying that was rit and we shouldo it again. but we have keep in mind tax rates toy are not highlyoepl

hiorical standards. ey're just not. >> rose: how are they in terms of europe? >> mh lower. we rank 24th out of the 28 o.e.c.d. countri in terms of federal revenues a share of our country >> rose: the economic recovy, people like paul krugman and others and you hear this noise cong out of the administrati we may have a second stimulus bill. yoare suggesting that is a bad idea for the present time to create an economic recovery or to add to aneconomic recovery? >> i'm suggesting that it will be difficult for the american public and the fincial markets to accept the defit consequees of that. if you wereto say toeroger, don't worry about at, don't woy, trust me." >> rose: i can handle theublic pressure. >> then a second stimulus fits with traditional macroonomic theory if, indeed, we e the

kind of weak recovery that i believe we will. i'm notebating whether 's good theory. i'mdebating whether i practice it will acceptable giventhe enormous dicits we'relready facing before you might increase themith a second stimulus. i' skeptal it would be acptable. >> rose:hen are we goi to come out of all this? >> well, there'sgood news. this economic and financl crisis, i tnk,in the medium and longer run, will prove to be cathartic. let meive you one example. for manyears, the psonal savings rate in is country bumped along aroundzero. zero and 2 no society is going to continue to incase its standard of living with no savings. it's axiomatic, youan't. savings equal investment, investment equals productivity, productivi equals standards of living. no savings, no investment, so forth. now, becse of thecrisis, the personal sings rate hashot . it's 7% now whichwe haven't seen in years and clearlyecausehe average

american houseld has losto much here at time wheit was so leveraged, the savings rate is going to sy up for quite a while. one optimistic scenario i think haa real shot. it's that we returnto a period of better savgs. maybe we're n at 10%, but 're... our societyurns back to a point where it reaze it is virtue of some savings. in the short term that constrains o recovery, as we just discusse in the medium and longer term 's positive for getting incomes risinggain in this country. i think that ma be aery good medi and longer rm result of this cris. >> re: well, and many people make that point. i mean, the prlem is wve be a consumption society ther than a sangs society, china has been a savings socie rather than a conmption society. theye trying to change in creating a $500illion stimul so that ey can sell their stuff to theirown people rather than selling it to us. >> the savings rate in china is ofn estimated around 40%. we won't go to that. >> rose: but that's changg, to ey're changing. >> well, there trying.

>> rose: their stilus program is wking. >> know, but that doesn't cessarily reduce their savings rate. savings rate is e private vings rate that i'm talking about. in any event were to mov- and i thi we may well-- io a piod where the country in general is saving more than it was. not china's rate, t japan's rate, but more than it was,hat would be good for our lg-term income growth and sndards of living. >> rose: so that's a good thing thatay come out of this. what bad is going to come out of it? is sething dramatically going to change about standard of living becau of this global economic isis? and could we tip offnto a depression as some of the peop that you and i both know believe? well, my answer to the second onis no. i don't think we're at risk of pression. in fac i don't think we're at risk of dipping back down to wherwe were six months ago. >> rose: okay. so the contraction has ended?

>> well, the fall. we're n falling anyme. we've bottomed. for ample, the first quarter of this year,eneral, februa, march, we had i think a 6.3% negative growth rate the quarter which just ended a few days o is widely seen as hang been about a 3 negate owth rate. we've bottome and we'r stting to move up. the second hf of the year is gointo be weakened, as i said early in thehow. 10, 2011oing to be ch weaker than we uld see. are we going to see a depression.. >> rose: but 2010 wi be better th 2009? >> it ll be growth, just subnormal. mean, historilly, the further you fall the faster you comeack. and we cld have a who other discuson about why that is. buthat's been the case histically. unfortunely in this case, that'sot going to be true. weave had this extordinarily sharp ll, worse than the great depressi, and for reasons 're talking about here,he recovery rate instead of being a ve rapid sharp one, as we've seenistorically, is going

be a tepid one, that's the problem. now, what's thebad news? look, we both saw over the weekend the data terms of the employnt picture. alof the jobsreated durg this most recent economic upcye fro 21 through the present have now bn lo. we s that. >> re: 2001? >> everysingle job that was created which i belie is 6.5 million-- from 2001 through the ginning of this crisis, mid-2010as now been given back. rose: paul krugman sa we're going toave in 20 double digit unemployment? >> everyone agrees on that. >> rose:nd that's the primary reason wneed to have me government action? >> well, everybo agrees we're going to e double-digit unemployment. 're already at 9.6% andobs are continuing to fall as we just saw in last thursday's report. rose: but unemployment is always a lagging indicator. >> but it's going to get qte high ts time and it may not come down until 2011. >> rose: how do you think it might go? t only what you believe what

do the smart people you know believe about howigh employment could go? because my argument would b that's whenou're going toet main street reaction. >> well, it's hard tobe pcise on that. my own ew would be in the mid-10s. >> rose: 10.5, 16. what about the dollar? what's going to happ to the llar during all of this? >> well, havg served in the treary twice, i've learned the hazards of cmenting on that. even as a private citizen. it's prey damn hard... >> rose:elieve... >> no, to forecast the dollar. theorecally the dollar should weak for a whole series of reasons. but, of course it alws has to weaken again something. so, younow, you have to say to yourself, what's t outlook fo thdollar and what's t outlook for the euro and is the dollar going to weaken agait the eu. i think it very diffict to know thee theoretically the doar should weakennd not the

least of rich whichis the deficit outloo we face. it should have been weaker in rent months than it has been. so i.... >> rose: why hasn't it? theoretically ithould have been wker than it has be. >> a, theollar is a safe haven currency in times of fare a al semi panic ople move into the llar. so it's had a safe haven halo around it. second, our current account deficit,he amount weborrow from abroad,ctually is going to come wn because of th this economic weakns. that been something that's been putting downwar pressure on the dollar and will p less wn war pressure on the dollar. third,interest rates have come down around theorld as low as ours. so usually an overnight bas people put money into t currency which pays th higst short-term interest rates, now they're out the same in the advanced countries s there's no benefit to being out of dollar from a sho-term return point of view. that's w the dollar has been stable in recent months. but the theories if you had red six nths ago or nine months

ago would have hadt should get weak y >> rose: jap. ebb keeps talng about the japanese example what was tt? >> well, it's in acouple of pas. first of all, beginnin inhe mid-'80s, japan fell into what turned out to be a very long-lasting recession what they mean b the japanese example ishat theirheir recession re or less lasted a decade smup ten years, right. >> and the's aouple reasons why it did. one was unlike the ited states they had very difficult time facing up to the ndition of their banking system and taking all the losses and takinall the pain quickly. that really isn't the japanese way. , to our credit, whether it was the savings and loan csis of the le '8 and early '90s or thiscrisis today, we're king the pain in th classic ameran way, get it er with. we'rdoing it quicklynd i think history will treathe united stes and very favorably in terms of h it's resolving this bankingcrisis. pan let itinger and fester

and so forth. a secondthingas in japan, they kepputting in place fiscal stimulus pgrams but after a while th had repaved every road and rebuilt every bridge anbuilt additional nker hill bridges in the country d there was little room for actual additional fective stimulus. ey'd gone to the weltoo many times. and then, of course,he very high japanese savings rate, which makeit difficult to have a domestic driven.... >>ose: and what happened to the banking system? >> well,it toctually more than ten years for the japanese banking system tget back to what the regulators an others said was healthy conditis. >> rose: wha do you recomme th administration do about... and the financi sector that theyaven't done? is it public/priva parership deal, is it goingo work? >> i think that's being.... >>ose: evaated. >> no,t's being deferred. and i n't know whether that will actually ta effect or it won't. but i give them high marks because the steps they'veaken undethe mos crushing presre

have been very effective. let's look at what's happened. there's been an enormous reliquying of the banking system. a lot of the institution which is itially received tarp money ten of them already he paid back much earlier than anybo ought possible. and e banking stem because of the federal reserve monetary policy, t fact that banks are borrowing about zero in every performing asset ey have wch earns them anything makes them a prot, so ey're earnina lot of mey right now, the bking system is gettinhealthy at a faster rate than anydy had a right to exct. is it going be greatthree months from now? no, wead the worst cris since thgreat depression. buthey are doing a good job on this. whether the public/prite investment partrship happens or doesn't, i think they get high marks. >> rose: and do you give the adnistration high marks for what it sd about executive compensation >> well, i think if youstudy what they have said d what they hen't said, what they're talking abt isuidelines for boards ofirectors and so forth and trying to align risk with

compensation a so forth. principl that any shareholders for example-including you and me-- would support. they're not talking abo the deral government determining actual levels of compention. there's been lot of rtoric about it. there's been a l of misunderstanding. >> rose: not put y ceiling on compention. >> the admistration is not saying let's havehe government deci who gets paid what. they're not sayin that. rose: david brooks,the afementioned david brooks, also hasaid in a very interesting comn that this administration isifferent from ny, including the one you served i because it's letting congress wte everything. it sort of almost delegate .... i stued that, yea >> rose: that true? d is it good? actually, i thinkhe administration isshrewd. they studied carefully someof eistakes that were made historically, iluding by the clinton administrati. >> rose: you mn health care or.... >> even more oadly than that. and i think they... you watch on health care, i think here's

wh's happening. initially the opposite of president clinton, they set up a senate... nt up to the hil a set of prinples. very broad principles and ey ha allowed the congress to work on trying to turn those principles into precise programmatic direcons and figure out ways to pay for i anso forth. but we'reetting towards crunch me. and i think administratn will be centrally invold inhaping the final bill. i could be wro. but i think tt's how they'll dot. i don't think that david... i think david suggested that ty are just saying"look, pass whater you can pass, that's great." no, i don't tnk that's...t's that way. think people like ra emanuel and so forth are veryastute out this. >> ros part of the reaso i think they're doing it is because rahm emanuel... you've got the presidenwas a senat, the ce president was a senator,he chief of staff was a leading mber of congrs and you've got others, you know, who have the understanding of congress >> my undetanding is that the degree of teraction between the ngress and the white house

is at an all-timeigh. >> rose: really? >> yeah. just for the reason you just mentioned. at the people in senior levels of the administration wh come raight from the hill, know h to dohis. >> re: they're wing like his deputy chi of staff d those jobs wdon't know about. >> that'sight. >> rose: pete petern was here at this table last week an he talked to us, as he has for a long time, abou coming t coming burden of entitlements. he ao talked abo the fact that the cnese hold so much of our debt. is that going to change and are theyoing to change it? >>, they're clearly conceed about , about the concentration riskhat they have. b, tir options for changing eelatively few and there's no scenario in which they can change it qukly. ere just isn't. >> rose: they'd have to take that money a find another... >> it would be self-defeating. it woulde self-defeating to act qukly. therefore, any dersification

whh the chinesepure sue... and they will-- ll be slow d gradual and therisk that so ny people talk abo, ihink very loosely, you know, t chinese may"dump the dollar" or lee the dollar." that's misguided. >> rose: becse it's notin their interest. >> it's not in their interest and it's not possible to do it. sot's not a good thing for over the long rm, as esident obama himselfsaid, for china to be... for us to be the consumer and china to be the lender. we have to stop that. but cna's not going to make.. take self-destructivection and duing the dollar or quickly trying to ex the dollar would be ver self-destructive and they're way too srt for that. rose: thank you for coming. >> my pleasure. >> rose: roger altma served in the clton administration, as i said, an advisor to hillary inton during her campaign, principle economic advisor to her. 's been a very successful

investment banker and private equity person, evercorps being the name ofhis company. but he has always beeengaged in the economic conversatn of this country. thank you for ce canning. we'll see you next time. on the next charlie rose, rober mcnara in his own words. the former secretary of defense during the vietn died at age 93. >> two men who i think loved and respected each other, johnson and i, came to the pointhere i coul't convince him and he coul't convince me. and wead to part. now, who took the initiative? ionestly don't know. but i wrote a memorandum in y of '67 a anotheremorandumn november 1 of '67. >> re: all about halting bo >> about halting bombing, turning the military action, in a sense, over to the south vietnamese reducing u. caalties, preuring the north

vietnamese to know,s in orr to try to disenge. and he, i knew wasn't prepared at that time to accept that. th november e memo i delivered to him byhand. it has a note on it, you can see there. i sa "mr. prident, i ven't shown this to anybody, not to de russ, not to the chairm of the joi chiefs, not the naonal security advisor because i know you m not agree with it. and ion't show it to them until u authorize me to." i neveto this day have received an answer i'm not cticizing johnson. i'm just ying thathis was the dilemma we were in. it was an impossibituation. captioning sponsed by

rose cmunications captioned by media access group awgbh access.wh.org jack eardley made his ving

fifty feet off theround. it was funit was different. you're halfway scared, but at that age

you're too db to be scared. pole bpole, road by road. ja was literally linking ople together. when iirst started, was just supplying power for the porch light. d now it's so much more. the flow of power rely is the flow of infoation. and puic tv is one of the best sources. it gives you a chance toearn something that you never kwn before. it makes a better-educed public. guys like me laid the groundwork, and we wanto see it put to good u. that's why jack includedis public television stion in his will. tevision to span generations.