August 27, 2014

Panel Discussion at Concord's Economic Patriot's Dinner

            Pete Peterson:  First, let me give you a few reassuring words about the evening.  I have an old story I use.  My wife tells me that that's a redundancy, that all my stories are very old.  But I learned something very significant when I came to New York out of Washington.  In an attempt to get to meet a lot of people, I used to go to about two of these dinners a night.  At the end of three months, I had done more research on audiences than anybody in America and I knew exactly how they felt. 

So, I was asked to chair a dinner for the chairman of the board I was on.  Felt I had to do it, but I said to them, “There's one condition and that is that we are out by 9:30.”  He explained to me very patiently that that may be true for other evenings, but that they had a program in which four or five people made speeches.  People look forward to it all year long.  The evening went on, he said. sometimes until 11 or 11:15, but I want to just assure you it's a memorable experience, and people would be very disappointed if we didn't continue that tradition.  I said, “I hate to be so rigid about all this, but if you want me to chair the dinner, it's over at 9:30.”  So, they very reluctantly agreed. 

So, I stood up at the beginning of the evening and I said, “Based on my vast experience in the last 90 days, I have a feeling that what I'm about to tell you may interest you as much as anything you're going to hear tonight.  This evening will be over at 9:30.”  At which point I got the only standing ovation I've ever gotten.  So, I'm here to make an announcement.  This evening will be over at 9:30.

(Applause)

            Now, something else about – I don't know how the rest of you feel, but whatever hubris I had after listening to Bill Clinton has been removed.  But it's been a tradition that we've had at The Concord Coalition that four or five of us have a panel discussion.  These guys are so well-known they don't need an introduction, so I'm not going to give them one.  But, I will describe them in general terms. 

Two of them are gifted obfuscators and are masters of constructive ambiguities.  One of them has a talent for indiscretion that livens the evening, and you'll know before the evening is over who I'm talking about.  Okay.  But that's all I'm going to say about these great Americans.

            Let me start with something President Clinton was talking about.  In technical terms, what he was talking about is the current account deficit, or the foreign trade deficit that explains a lot of it.  And you've perhaps heard that it is at levels that America has never seen.  It's about seven percent of the GDP, twice the previous record when the dollar fell by a third and we had a lot of other nasty effects.  It's now at seven percent.  There isn't a serious person alive that believes that it's sustainable.  So, it is unsustainable. 

Now, when I was in the Nixon Administration, we had an oxymoron.  We had a Nixon humorist, which many of our Democrats will have trouble believing, but Herb Stein used to say, “if something's unsustainable, it tends to stop.”  And he said, if you don't like that one, “if your horse dies, I suggest you dismount.”  So, we're riding a horse here that I'm afraid we're going to have to dismount. 

So, I am going to ask Paul Volcker and then Bob Rubin these questions.  Paul, in a remarkable burst of clarity, which was probably totally unintentional, I heard you say or write, “That the current situation is the most intractable and difficult I have ever seen and I've been around for a long time.”  Elsewhere you said, “There's a 75 percent change of a dollar crisis.”  Could you explain to all of us, what do you mean by a dollar crisis or a hard landing?  What are the kinds of things that might trigger it?  And what would happen if we had such a landing?

            Paul Volcker:  You notice I didn't put any time on that 75 percent.  You never do that.

            Pete Peterson:  In the long-term you're always right, right?

            Paul Volcker:  Well, I said these problems were intractable, which means I don't know the answer, but I thought maybe in these fortune cookies I might find something.  I've been diligently opening them up.  I just want you to know the wisdom I got from the fortune cookies.  It says on the back of it, ConcordCoalition.org.  The fortune cookie says, “Everybody wants to get to heaven, but nobody wants to die.”  Now, what has that got to do with these deficits?

            Pete Peterson:  Paul, you're evading my question.

            Paul Volcker:  I know, but you said 9:30.  The question is, what's going to happen?  We obviously have a lot of ability to borrow abroad, as President Clinton was saying.  People are almost eager to lend to us.  If private people aren't willing to lend us, central banks lend to us.  And how long that goes on, we do not know.  But what is the risk? 

The risk is that something comes along that makes people nervous about the dollar.  And there are a lot of dollars out there and if they decide to sell dollars, the dollar will depreciate, which some people may appreciate, if you understand what I mean.

            Pete Peterson:  Yes, I can understand that.

            Paul Volcker:  Because it makes them a little more competitive.  But if it happens too suddenly and interest rates rise, we may have a little disturbance in the economy and nobody knows how serious that is going to be, which is the problem.  When people get nervous, they tend to get nervous in a hurry and then things cascade.  And I think we are – the longer this goes on . . .

            Pete Peterson:  Now, Paul, isn't it true that if the dollar were to fall, it can either fall precipitously or gradually, doesn't that tend to affect interest rates?

            Paul Volcker:  Could well do so because we have to raise interest rates to defend the dollar.  But let me say, I think the greatest danger of this having an unhappy ending – one can think of relatively happy endings – but it would be a loss of confidence in the dollar related to a sense that inflation is rising again and the country has a fairly intractable problem with inflation.  It's one thing worrying about the dollar exchange rate, but if you're worried about the inflation on top of that, then I think you've got a real problem.

            Pete Peterson:  I would think also that given that borrowing is at a record level and given the housing situation where people are buying houses no money down and all interest, we've got an economy that's very sensitive to big increases and interest rates, I would assume. 

Well, what do you say about this, Bob?  You used more gentle words like, “We confront a day of serious reckoning.”  What does that mean?

            Bob Rubin:  I think you've got it exactly right, Pete.  I've been around markets for a long, long time, and things that don't add up ultimately tend to have very unhappy endings.  I think the problem we've got right now is we are the only developed nation that has a combination of very high fiscal deficits, both the ten-year projected deficits, and then the rapid increase in the rate of entitlement growth coming in the middle of the next decade --  a combination of that, plus very high current account deficits as Paul mentioned, and virtually zero personal savings with high levels of personal debt.  That simply is not sustainable, Pete.   

And it has sustained, and the answer, I think, to President Clinton's question is it has lasted because we've had these vast inflows of capital from foreign central banks that have supported the dollar in order to, in effect, subsidize their exports to us.  But as Herb Stein said, what can't last, won't last.  And as they're overweighting towards dollar denominated assets continues to build in their portfolios, Pete, I think it is virtually inevitable at some point that they're going to make a different calculation, even including the benefits of subsidizing their exports. 

And when that time comes, then it seems to me there is a high probability that we will pay a very serious price in terms of the possibility -- at least as Paul said -- of a

sharp decline of the dollar, not a gradual one, and very substantial increase in bond market interest rates, with all the effects that will have on the economy.  And unfortunately, Pete, the longer this goes on, not only does the higher the probability come of trouble, the greater the magnitude of trouble we're going to have.  Consequently, I think it is imperatively important, that we do exactly what we're not doing – and what the system seems to have no interest in doing right now -- which is addressing, in some serious way, our fiscal problem.

            Pete Peterson:  Okay.  Warren, you were obviously involved in the Gramm-Rudman Act.  I hope that wasn't a phony . . .

            Warren Rudman:  A lot of people thought Graham was my first name actually, Pete. 

            Pete Peterson:  You know, as I indicated in introducing the President, you had spending caps, you had pay-as-you-go and all that sort of thing.  And your party, the Republican Party, mine too, but I'm embarrassed to say that in this respect, it's done away with spending caps, it's done away with pay-as-you-go.  Not only that, but discretionary non-defense spending is up nearly eight percent annually, which is just perfectly off the charts. 

And furthermore, we have a Republican President who is the first president since John Quincy Adams, not to veto a single bill.  And the Republicans are in charge of both Houses and the White House.  So, my question, sir, is what's going on here?  How do you explain this abhorrent dysfunctional behavior in your party?

            Warren Rudman:  Let me start off by saying that there was a great movie some years ago.  I think Eddie Murphy was in it.  It was called “Trading Places.”  And that's what's happened.  The Republicans have become Democrats fiscally and the Democrats are becoming Republicans, although they haven't quite got there yet. 

            Bill Clinton had it exactly right tonight, because I'm in a position to talk with a lot of these people who I violently frankly disagree with about their ideology -- and it's not  their ideology – it's their arithmetic.  They really believe that the global economy in terms of net savings versus net expenditures is what you have to look at.  And as long as the Chinese have a high savings rate, along with other places in the world, it doesn't affect our economy.  I haven't found an economist yet who agrees with that. 

It was like the Laffer curve.  Very few truly non-political economists agree with that either and it finally had to prove itself wrong.  So, I would tell you that ideology is ruling the roost, and I belong to a political party that seems to think that unless you give the public tax cuts every year, you're going to lose your political base. 

I don't buy that for a minute.  Clinton proved that that was true.  Let me give you one glimmer of hope.  In the past several months, as our Coalition members who work these issues could tell you, there are starting to be rumblings of coalitions in both the Senate and the House.  And there are people in both parties who are deeply concerned about the issue. 

Now, having said that, there's something else I also believe which comes to what Paul and Bob Rubin were saying.  And that is simply this, that no matter how hard they try in the Congress, unless you have a leader in the White House who can inspire the American people, that they must take bitter medicine or else face a worse fate down the line.  I don't think Congress itself can do it. 

Gramm-Rudman was a very unusual thing because there was a debt ceiling which had to be extended and we got in the middle of that fight and said you can't extend it until you give us a vote on that issue.  And once there was a vote on the issue, nobody dared vote against it.  It was political hardball with the President and with your colleagues.  It rarely comes along that you have that kind of an opportunity. 

With all due respect to my good friend, John McCain, who's trying to fight a noble fight in the Senate, with a number of Congressman on both sides of the aisle, a lot of conservative Republicans, Blue Dog Democrats, are trying to get this done.  I don't think, unless there is a President who wants to stand up and say, this must be done, you're going to get it done.  And I have to tell you very reluctantly, that so far, I see no sign that that will happen.

            Pete Peterson:  Bob, can you treat us to some indiscretion on this point?

            Bob Kerrey:  I just feel so mellow tonight.

            Pete Peterson:  Oh dear.  Well, I'll go on to the next speaker then.

            Bob Kerrey:  Yeah.  I would.  That'd be my advice to you.  Well, I want to first of all – this is the largest audience that The Concord Coalition has had at one of its Patriot Dinners since I've been actively involved, after leaving the Senate.  I just want to thank – I know you came here to hear President Clinton speak and I'd be shocked if anybody in this room is disappointed. 

But I do want to thank you for writing checks because The Concord Coalition is almost the only game in town when it comes to providing non-partisan assistance to people who are trying to fight the fight.  It's exceptionally difficult to do because in my view, the economic circumstances are much different today than what they were in 1992 when Governor Clinton was campaigning for the presidency.  I mean, at that particular point in time, you could make a credible argument that deficits were driving interest rates higher. 

Now money's free.  I mean, I suppose half the room's full of bankers.  You tell me.  What the hell's going on?  I mean, it's practically free.  And when you can give an audience something for free, and it seems to work with three percent growth and so forth, they just keep doing it.  I mean, San Diego is bankrupt, Contra Costa County is bankrupt and the California legislature is introducing bills to expand pension rights to public employees. 

The President comes to office saying: “I'm a conservative Republican.”  There's absolutely no evidence of it.  To vote against that prescription drug bill was a damn difficult thing to do.  It was very difficult to do.  The only thing I can say to you is thanks for writing checks to The Concord Coalition ‘cause I do think it's among the few things you can point to right now and say I think this will make a difference.  Because when Paul Tsongas was singing the song in the 1992 campaign, it didn't turn an audience on.  He was saying you've got to eat your spinach.  That was his message.  And it can't just be about Santa Claus, and he was going after all of us who were acting like Santa Claus, and he didn't win the Democratic nomination in 1992. 

So, I think you've got to reward people who are telling you the truth and you've got to punish people who aren't.  You've got to tell them, “I know you're lying to me.  You're trying to make me feel good and you're not telling me the damn truth.”  And unfortunately we give standing ovations to people who lie to us.

            Warren Rudman:  And the other point I'm sure Bob would agree with, Pete, just a brief added comment is, I have never seen an atmosphere of partisanship and bitterness between people as I see now when I go up on the Hill to meet with people, to speak to groups for the Coalition or whatever.  That didn't exist when I was there.  There were partisan battles about things, but it was far different.  You can't reach across the aisle today.  I am told that some members of Congress feel you're almost a traitor if you approach the other side to work with major legislation.  People want to block that. 

Well, that is not the way most major legislation, domestic or foreign, has been made in our history.  It's always been bi-partisan.  The amount of bi-partisanship left on the Hill, you could put in a thimble right now.  Either that changes or a president will force change.  But I don't see it changing in a vacuum.

            Pete Peterson:  I was remiss in not thanking you for your contributions.  Another one of my old stories is a story of Clarence Darrow, the great criminal lawyer.  He had this murder case and he was successful in acquitting the father of this family.  And the family walks up to him and says, “Oh, Mr. Darrow, how can we express the depth or our feeling, our emotion?”   And Darrow was reported to have said, he'd yet to experience the emotion that could not be expressed in money.  So, I want to thank you all.

            Now, let me turn to our two economists here.  I think you'd agree that almost every economist says that we have to increase our net national savings.  This, among other things, means of course, getting rid of the negative savings -- or dis-savings – in the budget, but it also means increasing consumer savings.  And I don't know how many of you are aware of these numbers, but it's just stunning. 

Just 12 years ago, Americans were saving about eight percent of their disposable income.  In July it was a slightly negative number.  So, savings have plummeted.  So, we've become the biggest consumers, the biggest borrowers, and the lousiest savers in the world.  So, how are we going to increase, get people to save more. 

Now, I had a personal experience and, Bob you may recall this, during your years I think.  I was asked to chair a little committee on capital formation that included the White House and the Congress.  And I got the best economists I could find, left, right and center.  And said, you know, we have all these tax incentives, 401ks and so forth, give me your analysis of it. 

I expected the Republicans to say one thing, the Democrats the other.  They were unanimous.  These tax incentives have rather limited and ambiguous effects in America.  I said, “Why is that?”  And they said, “Well, because many of the people who use them would save anyway and they use the tax incentive and that lowers the net increase.”  So I said, “What are you characters saying to me?  On the one hand we have to increase savings, on the other hand you say the tax incentives don't seem to work.”  And they said that “Frankly, Pete, in our view, the American consumer, the boomers, say ‘I want it all, I want it now, spend and borrow.  It's reached a dysfunctional point.  If you're serious about increasing savings in America, we'll have to do what Singapore's done, Chili and Australia.'” 

Now, that's very tough medicine.  So, I'm going to ask both of you, and I hope you'll be somewhat unambiguous.  Suppose that I'm the President for just a moment – don't get frightened by that – and I say to you, Bob Rubin, “Rubin, you're the savings czar in America.  I want you to figure out how to increase savings because we're being dysfunctionally dependent on foreign capital and it's absolutely dangerous.”  How would you get the American consumer to save?

            Bob Rubin:  I think, Pete, I'd probably respond by saying let's ask Paul Volcker. 

            [Laughter]

            Paul Volcker:  I'll tell you how to make them save.  You may not like the answer.  It's very difficult.  But I think these individual savings things don't amount to much, as you say, because people can always shift from taxable savings and what they would do anyway, and non-taxable savings.  You can increase national savings by dealing with the budget deficit, which we all understand here.  Increasing personal savings is very difficult when people are sitting here saying, “why do I have to save?”

            Pete Peterson:  Well, would you be offended by a Singapore type plan where everybody has to save or not?

            Paul Volcker:  The way to get savings up is to get the stock market down and housing prices down.  Then people will save some more.  I don't think you're going to like that solution particularly, but why are they going to save when they think they're getting wealthy from their house value's going up and the stock market's going up, which is what's happened in the last decade.  And that's why we've got to, in part, why we've got a zero savings rate. 

It's easier to borrow, as Bob said, at practically nothing and your assets are going up.  So, we've got to have a little shaking of confidence before people are going to save.  I'm afraid that is the hard fact of the matter.  I see no tendency for public policy changing this.

            Pete Peterson:  Well, that's what brought me to mandatory savings.  I'm having trouble getting you guys to say, “I think you're full of baloney, Peterson.”  Or whatever you want to say.

            Paul Volcker:  Mandatory savings.  How are you going to manage that?

            Pete Peterson:  Well, three other countries have done it, Paul, and are doing it.  You take . . .

            Paul Volcker: Well, I don't think any have done it successfully.

            Bob Rubin:  You know what does strike me, Pete.  This can't go on.  I mean, we all live our lives, and most of the people in a room like this are probably doing very well.  You speak to investors and fundamentally people feel there is a problem here someplace, but it's not today, so we sort of go about living our lives. 

I think the fact is that if we don't deal with all of this at some point, the probability is pretty high that we could have something – probably none of us in our lifetimes have – well, maybe a few, but most of us in our lifetimes haven't experienced this.

            Pete Peterson:  Listen, you're no spring chicken either.

[Laughter]

            Bob Rubin:  I agree with that.  I think we could have a very serious and extended set of market disruptions, economic disruptions in this country. 

One thought that's been thrown around a little bit, Pete, instead of having an opt-in 401k system, have an opt-out.  So the 401k is an automatic, unless you opt-out.  There's a fellow named Peter Orszag in Washington who's done a fair bit of research on this and he at least thinks that a very large percentage of people who would qualify for a 401k would in fact invest in it if they had an opt-out system. 

But I think it's a relatively minor solution – a part of an answer to what is a very large problem.  But, if you can't do it any other way, it seems to me you've got to fix your fiscal situation.  And I think, in some sense, Pete, we're going to have to do something whether it's mandatory, and yeah, it probably could come down to mandatory savings.

            Pete Peterson:  Okay.  Bob Kerrey, you may recall I once asked you what the Democrat's plan was for Social Security given that George Bush should at least put something on the table.  And you very contemptuously, as you often are with me, said, “You mean, you haven't heard of the Democratic plan?”  And I said, “I sure in hell haven't.  What is it?”  You said, “We call it the do-nothing plan.” 

Okay.  Now, this president at least put something on the table.  It's obviously flopped.  Why did it flop?  If it were structured differently, would it have made a difference?  If it were presented differently, would it have made a difference?  In other words, what did we learn out about that experience that might be useful to some future president putting this on the table?

            Bob Kerrey:  God, well, yes.  That's my answer.  Well, I mean first of all, the do-nothing plan has more co-sponsors, Republican and Democrat, than any other plan in Washington.  I think there're 535 elected people in the House and Senate.  And Charlie [Stenholm] can probably tell us, I mean, I don't know, maybe there's ten or 12 people that are co-sponsoring something or 20, maybe, total that have put their actual name on a piece of Social Security legislation. 

And by the way, not even the President put his name on a piece of legislation.  He had a set of principles and guidelines and things that he wanted to do as opposed to saying, “Here's a bill on reform.”  He said, “Well, I'll leave all the specifics to all of you.”  I think what President Clinton said is very important.  Not just with Social Security, but with all the claims that people over the age of 65, those who are currently over 65 and those who will live long enough to have that claim, are going to make on the system. 

That's the big problem and they vote in very large numbers.  I'm sure the reason that both Gingrich and Gephardt said no is they have to face the voters.  Bush doesn't have to face the voters.  And the House and Senate know it.  They say, fine, now you've won re-election and you want us to do something about it, but I've got to face the voters in '06, '08, 2010, and you don't.  You're going to be a former President out there charging $250,000 a speech.  And that doesn't exactly get me excited about supporting your plan. 

I think in addition – I don't think he had the context right.  I don't think he talked about this overall claim.  I don't think he presented an alternative.  I don't think he described a way to make it sufficiently progressive that Democrats could sign onboard, which I think he could have.  I think a lot of the ideas that Bob had about how to make Social Security work or how to make these savings accounts work as an add-on to Social Security were quite good.  He could have built a Democratic – I think he could have built a Democratic coalition.

For example, if he just said, what I seek to do is reduce the number of Americans who hit 65 and are living in poverty.  It's currently 12 percent, the least poor cohort in America, by the way. 

You're looking at your watch.  Have I gone on a little too long here, Pete?

            Pete Peterson:  No, no, no.  I'm remembering 9:30.

            Bob Kerrey:  Anyway, and the last thing I'd say is he puts Carl Rove in charge of the damn thing.  I mean, that's not exactly going to inspire the kind of trust you need for people to vote on something that's going to be . . .

            Pete Peterson:  Particularly now, huh?

            Bob Kerrey:  Well, no, even before.  His top political person -- he puts him in charge of policy as the lead person on Social Security.  Anything that's unpopular with the voters, you're going to need Republicans and Democrats together to defend from attacks on the left and attacks on the right.  And he didn't even come close to getting a bi-partisan beginning.  There wasn't any trust on the Democratic side.  And I would say their distrust was warranted.

            Pete Peterson:  Let me try this theory on – [Treasury Secretary] John Snow came in to see me and Al Hubbard – you know the economic advisor to the President – they asked me this question.  And I said, “If the American people don't think there's a problem, then why are they going to take the pain, as it were.”  They said, “What are you talking about?”  I said, “Well, I think the average American has heard for the millionth time that the trust fund will keep the system solvent for the next 40 to 50 years.  Now, if they really believe that, then what's the motivation for doing anything?”  And I said to them that in my view, somebody, probably a president, had to tell the American people that the trust fund is an oxymoron.  It shouldn't be trusted and it's not funded, and other than that, it's very appropriate.  It's a pay-as-you-go cash flow system, and in about 2017 it starts turning negative, and by 2042, we have to go out and borrow five trillion dollars.  So, I've often felt that if you can't persuade the American people there's a problem, you're going to have an awful time persuading them that they have to make sacrifices. 

Now, is that crazy or not?  I don't know.

            Bob Kerrey:  No.  I do not think it's crazy.  Although I think you mis-described the trust fund earlier for the purpose of getting a laugh out of the audience.  I'll just point that out.  I mean, Social Security is a transfer program.  Anybody who gets up and says it's going to go bankrupt doesn't understand the policy – I mean, that's the problem.  People are constantly mis-describing – Social Security is a transfer program.  You tax one group of people and you transfer the money to another.

            Pete Peterson:  But it's pay-as-you-go, right?

            Bob Kerrey:  Well, it's sort of pay-as-you-go.  The reform legislation in the – '83 legislation that – actually '77 is the first year we broke away from pay-as-you-go.  The promise was that we were going to build up this trust fund – and as Bob knows, I mean, he ran Treasury.  He knows how this works. 

There's only one little period of time when I was in the United States Congress when it was working as it was supposed to, and that's after President Clinton eliminated, through his leadership, eliminated the deficit.  There was one little moment there when people who are getting paid by the hour weren't shouldering a disproportionate share of deficit reduction, because you basically convert it and use it to pay the bills of government. 

That's basically what it does.  I don't think you're going to persuade an audience by trying to scare them that somehow Social Security's going to go broke.  It's not. 

            Pete Peterson:  No, but you're going to have to borrow the money, Bob.  Right?  Or increase taxes.

            Warren Rudman:  You're going to have to raise taxes on everybody else.  That's the point.

            Bob Kerrey:  You're exactly right.  All that's going to happen out there in 2030 something, all these things are going to be a problem out there in the future, but I do not think that you're going to get – this is my own opinion – I don't think you're going to get the audience to understand the need to change it unless you say, the problem is there's too many of you who are reaching retirement age and all you have is Social Security.  And if all you have is Social Security and your gene code says you're going to live to be 85, you're going to have a miserable 20 years because you're going to be drawing Medicaid, you're going to be drawing food stamps, you're going to be living as a welfare recipient.  That's your lifestyle. 

So, you've got to have something besides Social Security.  I think if the President had said we're going to try to eliminate the number of people who are arriving in that status, I think he could have gotten Democrats on board.  And only by getting Democrats on board – look, this is not finding a cure for cancer.  And it's much, much easier than Medicare by the way.  But there's only ten or 12 things you can do.  If you raise taxes, you cut spending, you've got a list of things you can cut on the spending side, there isn't that many damn things you can do.  And none of them get the audience to laugh or give you a round of applause.

            Pete Peterson:  Warren, what did you think your President might have done differently here?  You notice I said your President.

            Warren Rudman:  There's an old saying in the Army, don't get too far in front of your troops, you may get run over.  I felt it was very inartfully handled. 

They essentially did very little consultation, according to my information.  Came up with a broad set of policies, but never a specific bill, Bob is correct about that.  Dumped it up on the Hill and said to the Hill, “Well, here are my principles.  Why don't you kind of turn them over in your grinder and see what you come out with.”  Well, I'll tell you, that's no way to go to the Congress with legislation.  President Clinton's great remark about not watching law and sausage made.  I'll tell you.  You don't want to give the Congress a group of principles and say here are my principles, now make it happen.  And that's exactly what happened. 

Now, having said that, I will tell you that I've come to a different conclusion over the last few years about how we're going to solve that.  And unfortunately, it's not a very happy answer.  And I base my attitude on what happened to us in the Senate, under Howard Baker's leadership -- strong, good leadership --  when we took over the Senate for the first time in 40-some-odd years in 1981.  And then we courageously tried to do something about entitlement programs, to try to address the deficit -- and we lost the Senate four years later.  The Democrats ran the most incredible series of effective ads destroying any Republican.  I was not up in '84.  I was up in '86.  A little time to let that die down, but I will tell you, it wasn't easy. 

And from that experience, people have learned that unless a president and both parties come together on one plan, you're not going to get it done.  Therefore, it is my view that we're going to hit the wall on this and then it's going to get fixed.  I just don't see it getting fixed before you hit the wall.  I have come to that conclusion regretfully after being confronted with this question for the last 20 years.

            Bob Kerrey:  I mean, you've got to cut benefits.  You've got a claim that's too big.  You can't underestimate the difficulty doing it.  I ran in '88.  I was attacked by a Republican incumbent Senator, Dave Karnes, who you know, I was attacked by him for signing a letter of support for that proposal that you're talking about when I was governor.  And it cut.  It won audiences.

            Warren Rudman:  When it's going to happen is when you suddenly realize the FICA withholding from its present levels to 50 percent above those levels.  And when people who are out working for a living find out that their FICA is going to go from eight to 12 or 13 percent, then you're going to hear from them - but not until then.

            Paul Volcker:  You guys are all talking about Social Security.  You've got a problem twice that big in Medicare.

            Bob Kerrey:  Four times bigger.

            Warren Rudman:  Much bigger problem.  Same answer.

            Pete Peterson:  Of the unfunded liabilities – for those of you who don't follow these numbers, using the same method the White House uses, the Social Security unfunded level is about $11 trillion.  Medicare is $62 trillion.  Just to give you an idea.  It's five or six times more difficult.  Now, let me . . .

            Warren Rudman:  Could I just say one thing at the end of this though, which I think ought to be said here tonight.  I think the political atmosphere in an age of incredible communication is harder, not easier.  With all the blogs and all the cable networks all trying to fill time up.  Just look at the nomination of Samuel Alito  – whatever you think of him – and look at the amount of coverage that has received in 24 hours on both sides, all kinds of interest groups building fires on both sides.  It has become impossible to govern from the center. 

And the reason it's impossible is because, in my view, we've become a nation of, if you could have it, too much in the way of communications.  Not too little.  Too much.  Much of it uninformed.

[Applause]

            Pete Peterson:  One final question I've written out here.  My parents' generation not only shared responsibility for the future, but as President Clinton suggested tonight, had a sense of shared sacrifice to fulfill that future.  And if my parents' generation were going to fight a war or have a GI bill of rights, they understood they had an obligation to pay for it.  No free lunch for them.  No slipping the bill to your own kids and grandkids. 

Now today we have these ballooning deficits -- domestic, current account -- as far as the eye can see.  We're fighting a war.  We've got the biggest reconstruction effort we've had.  We've got an energy either crisis or cost explosion.  And the question I ask is what are we being asked to give up?  What sacrifices are we being asked to share?  Is it a sacrifice for Pete Peterson to get his estate tax eliminated, which is one item, or to keep my tax cuts indefinitely? 

So, my question to you is, we've become an all-gain and no-pain world, what do you see is the solution to that?  Do you think the only way we can solve a problem that requires us to give up something material, is to have a crisis?  And I'd be interested, as a final question, what any or all of you think about that.  Bob, what do you think?

            Bob Rubin:  I think Warren had it right – by the way, there are some sacrifices now that are being asked.  Congress in its latest proposal in respect to the budget where they want to cut food stamps, they want to cut Medicaid.  This is exactly the wrong people being asked to shoulder the burden.

No, I think Warren had it right.  I think the whole is so deep, these problems are going to require so much in order to put us back on the right track.  You're going to have a president that provides leadership and then the leaders of both Houses, both parties, come together with some kind of a special process.  That seems to me the only way it's going to happen.

            Pete Peterson:  Do you think it'll take a crisis to animate them to do that?

            Bob Rubin:  I think if you look at the current political atmosphere, it seems to me the odds are very low that it's going to happen.

            Pete Peterson:  Bob, what do you think?

            Bob Kerrey:  Well, yeah.  Actually, I'm hopeful that it won't take a crisis.  I think if you get the kind of message that we heard tonight from former President Clinton at the end of his presentation. 

I mean, I think Americans have it in them to respond to that kind of a challenge, but when you get right down to it, as far as I'm concerned, we will probably – I don't know what the numbers are --  Charlie's [Stenholm] probably got much more detailed understanding of what the numbers are -- but I would guess we're going to put $100 billion more this year into Social Security, Medicare and Medicaid.  And if you can just take $30 billion of that and put it into education and research and infrastructure, I'd feel much better about where the country's going because at the end of the day, that's the kind of trade off we need. 

Somehow you've got to get somebody like President Clinton who's got the ability to reach the baby boom generation and say that we have to knock down our claim a bit.  Because if we continue with the claim that we've got on the earning power of the kids that are coming up behind us, rather than taking that claim down so we can start investing in them, we can't sustain the greatness of this nation.  Personally, I think the only way to avoid a crisis is with leaders who will lead us away from the crisis.

            Warren Rudman:  And Pete, one thing that President Clinton said tonight, I've it heard from a lot of my friends -- probably more of my generation and the generation just before it -- but it is truly offensive, with all the sacrifice that young men and women have made in Iraq and Afghanistan, that it is truly offensive that the country has not been asked to make any sacrifice at all.  Even if that sacrifice would ensure that we would have a more stable economy for these kids to come home to.  We're asked to do nothing.  We're told that patriotism is marching in parades, waving flags and tying yellow ribbons around the wall.

            [Applause]

            That is not patriotism.  I think the American people would respond to leadership that says “We need all of the American people to help in some particular way.”   With the right kind of a leader -- there have been leaders like that in our country's history, whether you liked their policies or not.  You can go back to Franklin Roosevelt, to Harry Truman, to John Kennedy, to Ronald Reagan, they inspired certain things in the American people, whether you agreed with their policies in totality or not.  And certainly Bill Clinton did in many ways. Unfortunately other things distracted from that. 

But the bottom line is, the bottom line is that we are being asked to do absolutely nothing.  And I happen to think that as a veteran of the Korean War, that that is disgraceful.

            Bob Kerrey:  Well, there is one answer – since I've not said anything offensive tonight, I'm about to at least to you.

            Pete Peterson:  I said indiscreet.  Not offensive.

            Bob Kerrey:  I'll both be indiscreet and offensive, at least to you.

            Warren Rudman:  You're capable of that.

            Bob Kerrey:  We need you to do for America in 2008 what Ross Perot did for America in 1992, because he had a huge impact.  I'm glad he didn't win, but he had a big impact.  And when I hear you on radio and I watch you on television, when I read your writing I think, oh, wouldn't it be great if Pete Peterson would become a candidate and go nationwide and bring this to the attention of the American people.

[Applause]

            Pete Peterson:  I have to tell you, Bob, I'm suspicious of your motives.  I've made a big contribution to New School University and I'm not giving you anymore.  It is now 9:30.  Will you join me in thanking four great Americans?

[Applause]