tv Today in Washington CSPAN February 23, 2011 2:00am-6:00am EST
development and development and growth in general and how that links up with our european future. thank you. >> now i would like to turn to nick clegg deputy prime minister of united kingdom, the leader of the damp -- and a leader of the new coalition government which did next to go back to the drawing board. it tore up the rulebook of british politics forging a coalition. >> thanks. i speak as a rare british politician who is still prepared to both admit to and still defend my view that at the time the euro was created it was something that deserved everyone's support and impact of the time i even advocated britain's entry in into the euro. when i think about the drawing board that i believed in them,
however many years ago, and what is happened in the eurozone sense, i don't actually think indirect answers the question we need to go back to the drawing board. it is a question of the -- it is kind of actually returning to what the drawing board said in the first place. win the euro was first established, i remember being particularly attached in my own mind to two things. firstly, having this monetary policy straitjacket on a range of different countries, different conditions, would at least force all the countries within the eurozone to implement meaningful and far-reaching structural reform because, so the theory goes, with the of the ability to devalue yourself and use monetary policy, in a capricious way, you have to find other ways of really hardwiring
competitiveness into your economy. so, i was one of those small l liberal sort of economic from a small l liberal economic background who felt that this would be a good thing for the long-term competitiveness of europe as a whole and certainly as part of the eurozone because all of the burden would be placed on governments actually doing the kind of domestic homework that i believed and still believe is necessary for europe's long-term benefit anyway. that was the first thing in the second things was of course the flanking rules, the growth pact and so on and all the other belts embraces assurances within the treaty, of the establishment of the euro which were designed to make sure that member states would conduct themselves fiscally and a way that was responsible, sustainable and consistent with that sort of mutual duties toward each other
within a monetary union. and i felt that was a neat way of resolving this perennial debate about davos monetary union and so i kind of believed and still believe now that it is the kind of rules and discipline that but there in the first place are fully adhered to. actually you wouldn't create many of the tensions which lead to that debate. it of course is happened on both of those counts things didn't quite turn out that way. governments didn't stick to the rulebook and they certainly didn't implement a lot of the structural reforms which i thought were going to be an inevitable consequence of the creation, in part because in a meeting like this money became so readily available and credit was so cheap. so, cheap credit kind of tapered over the cracks. it reduce pressure on politicians and governments to do the difficult controversial stuff to make their economies competitive and that is why we have these asset doubles and behead highly indebted behavior
by consumers and in both the private sector and of course and governments as well. so i start as an observer if you would like the deputy prime minister of the governor that is not part of the eurozone. firstly, fervently hoping that the present issues and problems are comprehensively resolved because i am a passionate european by conviction and indeed by upbringing but much more prosaically because it is overwhelmingly in britain self-interest. we are utterly independent on the economic fortunes and ups and downs of the eurozone. over half of our trade is with the eurozone. we have a massive strategic national self-interest to see the eurozone succeed. and my view is for it to succeed, we don't need to redraw the drawing board in full. we need to return to some of
this basic insight which were on the original drawing board that you can't grow unless you come unless you do the difficult homework of reform domestically sustainable union of the basic rules upon which it was established are not adhered to in the first place. >> thank you, nick. it was very interesting you said that -- in 1999. do you still say that? >> not now, no. >> just checking. >> not now. [laughter] >> george papandreou needs no introduction. nick clegg make an interesting point about what the bank of england called the night decayed, noninflationary credit expansion. your perspective now on the euro same -- eurozone crisis and
>> first of all that i i would say even without the u.k., we are now 331 million people, the magnitude of the united states of america and i would like only before going to economic union. because it was very much what you said prime minister, deputy prime minister from the economic union. as far as economic union, we have after 20 years of the euro price stability in mind with our definition less than 2%, close to 2%. it is exactly a yearly average inflation of 1.97%. it is fully in line with the definition that we gave and it is better than any such arranged
inflation over any such. back over the last 50 years. so i can say they euro delivered would have been asked from it. namely price stability and the information that we are extracting from the financial markets and -- are crediting us from the same stability in the next 10 years. so in that sense, i would say the monetary union has delivered as was foreseen. economic unity is a different story. we have the problem of denying neglect, which was more or less a universal problem. in many respects we have the old elements that were creating a fragile system and by way of
consequences a fragile economy. so there we have a lot of work to do. but i would replace the hard work that the european -- and the european of the 27 single market endeavor have to do with within the framework of all advanced economy. we all have now to devote all the lessons from the worst crisis since world war ii, which could have been the worst crisis since world war i had we not reacted boldly and promptly and i'm speaking of central banks and governments. so, these lessons have to be drawn by all of us and in the case particularly -- and at the european level very actively. all the enforcement of
regulations credentials, permits to have a better understanding of systemic risk and macroprudential. all that is a work in progress i would say on both sides of the atlantic and to reincorporate very timidly. in the u.n. in particular that we have the need to improve governance and improve governance on two sides. what is the -- with the benefit of hindsight, it appears absolutely extraordinary that in 2004 and 2005, the major -- wanted to blow up the pact. france, germany and italy considered that the pact was what was said by others, that the pact was stupid. there was a benign neglect which was universal. the markets were not looking at these indicators and i have to say that we have to fight very very fiercely only to maintain
the pact with the small countries, small and medium countries that were in favor of the pact. now of course now it is absolutely understandable when we have against the benefit of hindsight how we could lose to that extent. the second issue which is also very important and we made the point, very soon in the course of these formidable endeavors which is the single currency, and ever, we had the idea that it was necessary to follow very carefully competitive indicators uniquely because the imbalances, national and balances in order to be sure that we would have appropriate coherence within the u.n.. now it is work in progress, our debate between the parliament and the council, the governments on the best way to improve governance. we are prepared for a quantum
leap in governance and we are descent that even the first proposal of the commission were considered by us too timid, too shy to the extent that the governments have been weakened a proposal of the commission. we are shipping our messages to both government and parliament because really, as was said by the previous speakers, reinforcing government is absolutely of the essence. it is in our case the bigger lesson to be told from across his -- crisis. again all advanced economics have their problem and europe as far as fiscal position is concerned is the euro is in a better position at the end of the year as a consolidated position, and a better position with 4.6, 4.7% of the deficit then say the u.s. and japan.
so, as a group, as a single market with a single currency, we are in a situation which is better than others, but it is no time for complacency and in some cases it is far from being sustainable, so we have to continue to work very very hard and again it is not time for complacency in any respect. >> both in the eurozone and outside the eurozone, your nordic respective here. as you are probably going to say that job creation in the growth has been pretty impressive. >> it has indeed. it is something which is debated in many places here but if you allow me to be the sole voice of business here and just make a few reflections, putting myself in perspective i am the chairman
of an investment company in sweden and our family has been in business for 106 years. we are main shareholders in a long time companies such as electrolux and -- bank. they all have a strong historical basis in sweden but today they are truly global, spanning the world from south america to asia, all around. now on the question of how to move europe forward, let me just say the obvious. politicians as we heard, have a sensory role and i would like to underlie that i think you have done, you have done a lot. i think you are financial crisis, the kinds of decisions that were undertaken by politicians are commendable and should be applauded and i think it worked extremely well and was extremely well done. now ultimately, i believe that
in order to deal with many of the challenges we have today, we have to incorporate, we have to incorporate business and politics. i guess we have to communicate and be in the spirit of divorce if you wish because now, from a business perspective the world has changed. as a shareholder, i have pushed the companies i'm involved with on a number of points. we have pushed them towards restructuring, to increase productivity, improving efficiency. for the long-term through research and development and exports it to go global and get even closer to the ultimate client, to the consumers. that is what i pushed for and with that in mind, of course i then turned to my fellow european politicians and leaders
and ask what more can you do, or mutt -- what more can we do together moving forward? and let me just say a few things. on behalf of the financial crisis, i believe that you need to make sure that we get public budget stability in europe. it has been mentioned by all of you but i really want to underline it. we need transparency through clarity, a level playing field. ultimately that we have an order in our public finances to finally create that full trust that we were talking about in the capital market. we need to further, on the second , further focus on education and research and development. i think ultimately both the public and the private have to invest even more. on infrastructure, i think most of europe came apart as snow
started to appear on the scene and i think europe collectively speaking is underinvested airport and -- and i r market is something where i think we can develop a lot. we have come a long way. i think we can do more. immigration, integration are issues, part of the divorce issue and we can come back to that but i think if we summarize when we hear president obama state of the union address two days ago, and he speaks about the need for the united states to be more competitive. how well so do we hear the president of the united states united states come forward so strongly? than i believe that europe, we don't have a lot of time to wait. i think we all see our country such as china, india rapidly becoming much more competitive. in my book they are hungry, and they are good and they want to
achieve. so, believe that europe now has to be decisive. we have to deliver and we all, business as well as politicians, have to participate. i think we have to take responsibility and we have to show a sense of urgency, because if we are going to move forward i think we have to realize that this new competitive powers out there, it is not that they are going to bypass us. the risk is there going to run is over. we have a tough challenge and i think we all have to pay respect to that and debate that. >> thank you very much. i think there were three scenes that come out of the comments which a bid made by the very speakers. what is one is obviously how to get back to growth? and not necessarily the kind of anemic growth which many countries on the continent have experienced over the past decade. second, the question of market
confidence. how you actually can get a heart of the markets and convince them that the measures will work and third, this question of governance. complicated. first of all prime minister, your government as you say has taken some very belated but bold steps to both curb the deficit and to introduce very difficult reforms, articulate pension reform. but you are not getting much credit in the markets and the markets are saying whatever they do, they have got a huge stack of debt and a huge deficit and that is the combination, which means that at some point there will have to be a restructuring and second, the growth. whatever you do in terms of growth is not going to be enough to bring these levels down. what do you say to the the market and to this audience listening to crack that?
>> yes, sir. a good question and something which we see written about almost every day. i would say that and of course the question of restructuring has been there for a long time over the last few months, this last year the question of default. i also say we are not moving to restructuring. we have a very clear path, and i would say a roadmap to move out of the debt problem and i think there are two elements here. one is that we are doing what is necessary and all these major changes and they are very painful and very difficult, but we have shown the will. last year i was getting the question, can you do it? will you do it? can people sustain the pain? we have shown we can. and we have done most i would say of the difficult things. there are still many things ahead to frontload the changes.
six or 6.5 production of deficit is huge for our country. next year it will be over 2% more reduction and we are on a path where we think we can get onto, get the growth in 2012 and restore confidence and we are hoping to open up to the markets even this year. now, we are doing what we should. the other thing i was talking about of course is that, we can't live in a situation where, as the -- would say the flutter of a butterfly in one of the -- part of the world can create a storm and the other part of the world where we have felt over this last year that even though we are on a very robust path of change in the markets are going up and down and we are going up and down with them. of course we are protected by this new mechanism but that is
not enough because it doesn't create the confidence even in our country. >> at bigger mechanism. >> so i think the discussion that is ongoing about a stronger mechanism, a more flexible mechanism with all of the tools and i don't want to get into the details that are there to be able to deal with the market. there even have been discussions about the eurobond. literally that might be further down the road but still it could be a very major tool to calm the markets and deal with some of the dead goblins. for example the lengthening of the debt we have to the ims and the european member states. if you look at the graph, and i have a graph here, it will i think alleviate a lot of the fears in the markets and the bump we would be facing around 2013, 2014. >> i'm going to ask the same question to nick so he has plenty of time to prepare, but
what people would say is why is it that when contracts are being rewritten say in the public sector, where people are losing their jobs and where pensions, those contracts are being rewritten by is it that we can't rewrite in effect contracts to the bondholders, where they take some losses too. >> you are asking a theoretical question which i think jean-claude trichet could answer. i have understood with politicians, sometimes in this world of communication have much more power to her statements then it is always needed and it can be very constructive. it? that obviously -- speak it
is a philosophical question. >> not at all, but i would say we have made a decision very clearly that we are moving on a path which is, i guess there will be -- this is a decision made in the european union, a lengthening of the debt we have today imf and the european union there've been discussions about the terms of the loan also. these are in the pipeline. all will be positive, and at the same time, i would say that we have to see you have mentioned the growth scenario in the european union, which is on the one hand a new confidence by the markets towards our country but it also is i would say using a number of methods, the eurobond. this is something that generally people have approved of as methods of investing in projects and particularly into a greener europe which i think is very
important. >> up we have growth you can see on the graph that the debt will come down quite quickly. >> we will come back to the green question in a minute. neck, a british respective here where essentially you have taken a calculated gamble or a calculated decision to act early and decisively to reduce the deficit to try and get ahead of the market to head off any loss of confidence in the bond market. perhaps you could explain the thinking. >> as you can imagine i bridle the characterization of what was a gamble. it was an unavoidable decision. i think sometimes memories are very short. people tend to forget that when this government was first formed at me, we had one of the largest deficits in the g20, one of the largest deficit in the european
union. we were spending as much per year simply on the interest on the debt on the whole of our defense budget. we are spending 120 million pounds a day just for interest on our debt so that is about to pay for primary school to be built and as i think you implied in your question, if you don't ask yourself other people will force you to act. it becomes a very fundamental issue of economic sovereignty. the government to try to impose your will on your own economic future or do you say it is too difficult, we will be forced to do it on the terms of which you have no control. i think it was exactly the right thing for a new oncoming government to say we have to seek to take control of this. otherwise there is a point of saying that we are going to try to sort out the mess in the next five years if we don't equip ourselves with the means to do it. that is the first . it is a fundamental issue. the second one is what we have
done of course is we have been opposed to sort of -- overnight. we have announced a plan which will be implemented over for five years. i understand when many people hear the announcement, they think it is -- actually what is now going to happen is the vast majority of the savings haven't even started yet and they are now being reduced in a carefully staged way over a four and a half years, and for happier period. yes that is faster than the deficit reduction plan we have introduced but i think the kind of pendulum has swung to the other extreme. it is assuming it has been done abruptly overnight and it happened at the end of this comprehensive spending review period and 2015. as a proportion of gdp we will be spending about 41% of gdp on public spending which is about a full 5% more, for 5% more and
gordon brown and tony blair when they came in to government. we will employ around 200,000 more people in the public sector than gordon brown and tony blair did when they came into the government in 1997 so yes it is a bold plan but it is not a plan which is being unthinkingly imposed overnight and when you put it in the perspective of a the pressures we render last may and the kind of context of how much we will be spending after we balance the books i can hope over time that people will see is yes it is determined and it is clear but it is also measured >> in just to see the, just briefly this point about going back to the drawing board. clearly, the united kingdom in the previous decade has benefited from a very strong, strongly performing financial services industry. do you think now that we -- britain needs to rebalance its
economy in that respect and where do you see the other growth engines coming from? >> well i think we are again an estate of having to do two very big things at once. extraordinarily difficult and complex with the first to do evidence do with excessive government debt and an overleveraged banking system and excessive traffic consumer debt. and that takes time to unwind. that itself is a challenge. at the same time we are having to do with an economic order which in the last 10, 15, 20 years was over reliant on one particular sectors financial services in one particular part of the country acting as a locomotive of growth for the rest of the country. that doesn't mean you should try in any way to inhibit the entrepreneurialism and dynamism and growth of the financial services sector. when he can continue to need a strong financial services sector but we couldn't in strategic terms over provided on any one
sector because it creates this imbalance. parts of the country which are as i say over reliant on one commercial sector than other parts of the country. for those of you don't know my constituency is in the north of england in sheffield in the part of the country that has almost become wholly reliant on the public sector. and that is very unbalanced. it is socially unbalanced and it is regionally and balance so as well as dealing with overleveraged banks and excessive government debt and debt amongst consumers, we are also having to rebalance growth which i think requires a number of things. it requires a stable environment. it requires continued investment in infrastructure particularly transport and infrastructure, crucially involves the ability to improve the performance. skills we equip people with that have traditionally been very weak in some important respects in and provide the right incentive for growth in new
areas. whether it is about manufacturing where even notwithstanding the rather disappointing figures of gdp in the last quarter of last year, there were significant growth in the british economy going, or in new sectors where we think we have a competitive advantage. >> thank you very much. jean-claude trichet you described in a graphic image that time when the two major countries in the european, in the eurozone, germany and france, the leaders, the political leaders sought to blow up in your words, the stability and growth pact. now here is a the lesson from that actually, that this curious halfway house that we have in the european union and in the eurozone where we have a supranational european central bank, but we also have clear discretion for the nation-states to manage their budgets that
actually that is not feasible. you need to move, in other words, to what the germans call a transfer union, to get the kind of economic union to match the monetary union in which he described. >> first of all i mentioned a period which has been a period of nine neglect and as i said the major countries were sharing the view that the fiscal framework was not necessary. the markets were sharing that view and even i would say other european institutions we are thinking also it was to -- but that is the past. in any case, would have been constructed at the very beginning has an element, a component which was quite strong as regard to the constraint on fiscal policy. because as you remember, the
european union members there is no sanction but for the members of the -- the recommendation, the corrections that are to be taken by the various countries where sanctioned, that is precisely at the moment where the major country has -- and they succeeded in some respects to weaken the spirit of the pact. so we have to go back to the fundamental consideration, and when you have a currency, you need a very strong economic union with elements of, as we say, -- otherwise you would inadvertently be in a position where the configuration would
lose and we cannot afford to be -- but they say that other major economies also had some problems and they were in a situation where they have to engage in correction. i think that is what the u.k. is doing, it is very important and i would say this being ahead of the curve is exactly the appropriate move particularly in this domain where you have to improve countries and confidence is a very conference of concept. if you have confidence, you have both the confidence of the investors and we also are confident of the enterprises,
and we consider ourselves in all observations in india and all europe that there is no contradiction between having a solid and sound and reasonable path towards fiscal sustainability and what is necessary to pave the way for stable growth. we see that the channel of confidence is essential to illustrate this complementarity into two goals. >> again, just a very quick historical perspective. you enter that period when essentially there was an improvisation and currency fluctuation bands were expanded and then we went on to the launch of the single currency. here in this crisis, we have gone through a similarly severe storm and some new mechanisms have been created. what do you think is different
now in the mood amongst the member states today compared to a year ago? >> compared to to year ago? >> yeah. >> well i think we are all, and again i don't think it is only the process of the european learning a lesson from the crisis that all over the advanced economies we are crystallizing our own lessons to be told. and it is absolutely clear that what was perhaps still a little bit possible year ago, namely to say after fiscal policies the equality of the signature of the governance is not that important now nobody can challenge that and there has been a change from that standpoint. i would say it is not only a european change. is a global change and by the
way, i have a side remark. we are working a lot at the global level to introduce an element of solidity in the global financial system. they are working actively in this domain and together with melvin came, we had the inauguration of the systemic risk board which has been created by the europeans. we have exactly the same kind of the entity on the other side of the atlantic at all of that being said, what is absolutely striking is that if despite all of our efforts, we had a new problem of the kind of the 2008 difficulty in the private sector, if the public authorities had no authority, no credibility, how would we arrest the catastrophe? we arrested a catastrophe because we were credible at the time in 08/09 and they think we have to also reflect on that.
we cannot let the signature of the public authorities in a situation where the market would have a lot of doubts on them. because again, we would be done in a world which would be much too dangerous. >> as editor of the financial times it couldn't possibly put words into -- batumi as an observer there is a higher level of appreciation in certain countries in the european union about the interdependency. >> i wanted to say that myself. on the dependency of the u.k. of our own prosperity and it is so obvious. but we have to know that the u.k. is -- more important in the u.s. so we have as i said a new
stake in the prosperity of the u.k.. >> let's go finally to you and then i promise a little bit more about job creation, because and growth, because from your private perspective. this is really where europe, continental continental europe has lagged in the last decade. with the exception of germany recently, but still it is a big problem. >> obviously it is a problem. it is an area where the swedish current government, the conservative one has one or two consecutive elections on the basis of job creation and so indeed it is something which is very much in focus. i think relatively speaking, that european business has to rethink, and we have to work together with their fellow politicians as i mentioned
before in order to say -- stay more competitive. it goes back to the very fundamental question of education, research and development. it goes back to having a more educated population. it goes back to moving -- i think we have to have an understanding with labor unions, with the labor movement, that it is acceptable to move job opportunities -- jobs to other places but, have some kind of flexibility in you your system like they have in denmark and like we are working on in sweden where you are actually, for you except that you can move the factory, which we have done in sweden in great numbers. you reeducate the people in sweden and out of this, you have a collaboration in the issue, the job creation market and entrepreneurship and we re-create the new jobs but as a
higher knowledge content. it works. it takes time. you need a lot of flexibility from all the interested parties. and it goes against a number of accepted premises in labor relations. >> such as? >> really, if you have a job, you don't move the factory. you don't run the risk of loosing lots of jobs long-term and they will never be re-created locally and so on. of course people are afraid that you are not going to re-create jobs. it is sort of like you have to jump and it takes a lot before you actually dare to do it. our stance is it works, but just one example of many. my point, talking about india and china before is that they are so much on the move also
when it comes to high-tech. we are not talking about the old times, when you had low cost, low value-added programs coming out of these countries. they are competitive at the highest technological level. i think we have to accept it and we have to deal with it with open eyes and that i believe means that we have to break a >> and i'm going to open it up to the floor. we don't have an enormous amount of time but would anybody like to ask a question? you just raise your hand. i can't see a thing but that is fine. the gentleman there. >> a question on monetary union. it is interesting that we talk about -- at the same time the federal reserve and the u.s. government have 15% of its own
gdp. the sterling and the u.k. government is the same with the bank of england and the euro so far has not and the central bank has not -- if we add the greek bailouts and irish bailouts, it is less than 2% of gdp. these are a way to solve this equation when it key counterparty in pounds and dollars have been 15% of gdp, in europe with the to bailouts as in the ess. >> okay, i think i've got the trip to that question. and i think probably jean-claude trichet should perhaps say something. >> i think the question would call for a very long response and i have to say that i am not
sure that i would share entirely your presentation. you also have to take into account the expectation in the medium and long run. you have to take into account the various nonstandard measures that have been utilized by the various central banks, which were not the same as you rightly say as far as we are concerned. we did not engage in --. that being said we engage ourselves very early because it was propagating the case of our own economy and a limited supply of liquidity, which is something very unusual. by the way, we started the ninth of august, 2007. that marked a narrow constituency of the central bank
let me say that i consider that between the central bankers, we are very divided in purpose. the purpose is to solidly anchor inflation expectations in the medium term and lined with our understanding of price stability. very easy in my case. it is less than -- i think it is very easy outside the u.k.. it is 2% in the medium term. and our friend ben bernanke says himself, if i am asked what is price stability and you say in the medium term, to or slightly below two. you see that when i speak of unity of purpose, i am clear. that being said again, i don't
dispute that we have different economies, different shops, different structures. our own economy is -- at banks. the u.s. economy by markets which might explain they have constant markets. >> i think would be fair to say although the european central bank cannot be gauged in easing, the e.u. government -- there is somebody waving at me. >> thank you very much. i wanted to come back to the point that was raised first of all by mr. papandreou in his introduction on the question of social cohesion and also to take up the whole question of jobs. i am grateful for what mr. volum percocet because he has talked about state investment in infrastructure and so on one which could be part of job creation. i think that one of the issues which is being forgotten the
short term memory problem there is very much in europe and elsewhere has been that when the response to the crisis was being dealt with and assistance was being given to the markets particularly in the front and conservative area there was a lot of talk in electric at the time about a jobs led recovery, about the need to maintain social cohesion and the creation of jobs. we look at the latest figures from the aiello the job situation across the globe and in europe has gotten markedly worse and for truly there is a problem and a question that could be asked by people outside of this room, what steps need to be taken to promote social cohesion? >> okay, got it. otherwise we are going to have a legal speech at. would you like to tackle this question of how you create jobs while maintaining social --. >> i just wanted to be controversial on this a bit by taking up with -- and economic
model. i lived in sweden some years. competitiveness is absolutely essential for europe. at the same time, the fact that other parts of the world, the emerging countries is also and we have to recognize this. there a lot of ideological baggage behind us by this but want to put this out. low wages, no collective bargaining in some of these countries. a lack of any kind of a small type of pension or health services. the capabilities could easily degrade the environment for production purposes. these all do give a competitive edge. it is not the only thing that is in place but it is part. now the question for europe is, do we emulate that model, and that is a very big political
question. this is the controversial debate. what we are seeing, and i'm saying this to a group here that is representing some of the wealthiest in the world, we are seeing on the one hand the race to the bottom at the level of the middle class and they are being squeezed. and at the top, we are seeing a race to the top. who will concentrate more wealth and more riches. that is unsustainable. the question of equity, which davos has -- is very important. politically, i believe we are at a tipping point where we could see, and there are signs in europe, more nationalism, more racism, anti-muslim, anti-semitism, fundamentalism of all types, populism and i think
we need to go to -- a different model. yes it is the nordic model but the nordic model has two things. doesn't only have a leap of faith but there is a -- when you leave. and you need the flexibility but you also have been able to show the social network system and that model is important. you have been able to combine and show the competitiveness. you can have competitiveness if you invest in innovation, education, make sure that our democracies a robust because that creates an innovative spirit and i think this is where we need to go. >> do you want to have a quick word on that? the new economic model. >> very quickly i think as i said earlier if you are trying to unwind the effects of private corporate government debt and rebalance the economy, i would say you need absolute the following ingredients in place. firstly obviously a stable economic stability and a macroeconomic plan.
uncertainty means people sit on their money and it is very disruptive for job creation. secondly circling the case of the kingdom we need to do much more to release the potential for more job creation in the private sector and that means playing doing our bit to get the banks to lend money to those cash starved parts of the private sector. it means providing a tax regime which is favorable to private sector activity and the regulatory regime which is favorable to private sector activity. thirdly, infrastructure. george mentioned this earlier. i think particularly in the area reinvestment. we are establishing in the next few weeks a green infrastructure bank to leverage significant amounts of public and private capital into new energy infrastructure, a huge very ambitious renovation of the building stock in britain that you have seen in generations. what we call the green deal could bring hundreds of
thousands of jobs. they are making changes in the tax system. mostly by lowering the tax burden in income tax system for the 23 million basic rate taxpayers, people low and middle incomes. socially it is also a way of getting the wheels of economy moving. in the me say to other things. welfare come absolutely. you must remain on the european model. welfare that protects the vulnerable and protects the weak but you can and must have a welfare system that actually destroys incentives to work. that then almost becomes a self-defeating form of welfare. there is plenty of evidence that the way in which the disincentive to work have accumulated in our welfare system needs to be change. the final point gives a real real problem. it is a crisis across europe and not just john claude's point but about underemployment of
most young people. it is not actually just an issue which is acute during times of recession. there is a longer-term trend of young people leaving school and college who are not able to find work in sufficiently large -- and i think that is something that i would put at the top of the agenda. >> we have time for one more. >> i would agree with nick and we are doing this. the social welfare system should not be something where you put somebody sort of on the side in the refrigerator as we sing great if you have a very active -- on the market and so on but i think europe can also plan this is an important roll, we are consolidating fiscally and being very robust. europe and the european union can invest in big area such as green growth and and our infrastructure opening up the market even more to make it
e-commerce and so on to really make europe much more of a growth model. and under strict instructions not to go over time so i think i am at this point going to have to call it close. to what i hope you found an interesting discussion. would like to take on your behalf all of the -- for having to put up with my questions. [applause] thank you very much indeed. [inaudib
this legal panel discussed how food-born illness is little gaited. we'll hear from a litigation attorney involved in the nation's food safety lawsuits, and an attorney who defends the food industry. this was part of a symposium at northeastern university law school in bossing. this runs just under an hour and a half. >> okay, hi, everyone. welcome to the last panel of the day in this room inside food foodborne illnesses. he respects national hospital, and partners in the health care
entities in proceedings before the mcad. in addition, he's also an adjunct law professor. welcome -- help me welcome josh abrhams. [applause] >> thank you. raw milk, sprouts, petting zoos, eggs, cruise ships, and jack-in-the-box, are incompetitivewords when i started looking more into this area. i was asked to moderate this panel just a few days ago, and my first reaction was why me? it's true. i work in a health law setting,
and teach health law and disability law, but this is certainly not my field of expertise. that being said, i don't think it's a lot of people's field of expertise, and, in fact, we have a pretty good representation of the best in the field up here on this panel. more on them in a moment. i want to start out by saying as i did research into this area over the last few days, it's some pretty scarry stuff. i can understand why attorneys wouldn't want to make this their calling. it really impacts every one of us in a way that almost no other area of the law does. we all eat, and there's no other way to put it. we are all in danger. what each of the attorneys brings to the table, though, is an interest in trying to make the world a safer place to eat. whether from regulatory standards enforcing food safety
laws or holding bad actors to account or a defendant's stand avoiding costly litigation, each plays an important role in making the food market more accountable. they have so much information to impart about litigating foodborne illness issues, but before i do, some quick introductions. jason sapsin is currently out of denver colorado, but he was formally chief counsel in the fda's office of chief counsel and currently advises clients in fda inspections and enforcement actions and counseling.
as an in-house attorney, i can tell you i know firsthand of the value of this expertise. nothing like a former regulator in your corner to avoid costly mistakes. we're lucky to have him here as well. shawn stevens is a part of gass weber mullins, llp with food born illness litigation. he's one the best defense and brings a wealth of information to us today on how to defend and as we all know is even more important to avoid having these suits. finally, fred pritzker. from pritzker olsen pa. i googled subject, and i was halfway through it before i saw
it was the website of our speaker. he's a leader in the area and a food advocate for food safety nationwide. there couldn't be a bet ere member from the bar representing the plaintiff's view. without further adieu, i want to begin by turning the microphone over to jason sapsin. >> all right, thanks, josh. if we weren't being recorded i'd keep my mouth shut and keep the promotion, but for the sake of the record was chief counsel. i think ralph would be offended as well as my former colleagues. i want to take you quickly on a lightening tour on food and food safety not with standing the absence of the afternoon coffee
service, i'll move along quickly as we can. you're talking about possibilitily the oldest, and in fact, the oldest federal agency charged with protecting public health. fda, just to give you a sense of the scope and scale represents .25 cents of every consumer dollar spent in the united states, and .10 cents of which every dollar is spent on food. fda has 80% of all food consumed in the u.s. with 160,000 domestic food registered establishments in the order of 231 foreign food facilities. it has currently about 9 million import entries in food alone on an annual basis with 15% of the u.s. food supply being imported, it's higher as a percentage of
particular food subgroups. fruit and vegetables can reach up to 50% depending on the cat category. i think it's important to think of agencies like it is as any large structure as organisms. i think agencies like other significant entities and accumulations of people have penalty, characteristics, they have a type that changes in its expression over time the way something in the natural world might change its expression over time, and it's important to understand the history of fda. it all started with a analytic keep mist hired in 1848 who sat, i believe, in the basement of then department of agriculture, and his job was to perform analytic chemistry, and what was the new growing field at the time, and then came dr. wily.
he was active in the fda around the beginning of the 20th century, and wiley's commitment to public health and safety were his hallmark characteristics, and that's what he attempted to bring ultimately to this organization that would in time grow to become the modern fda. i don't know, you may be familiar with the good housekeeping seal of approve. i didn't know very much about the seal, but dr. wiley did because he helped to invent. after he left fda, he worked for the good housekeeping organization, and he helped that really consumer advocacy organization to help identify for members of the public what was saved, what was good, and what wasn't. that was aceps of what he was about. maybe the best sense in part of what he was about and what the early agency was about has to do
with the poisen squad. the poisen squad was something that came to be called the poisen squad in the press. this was a group of young male, healthy volunteers who basically sat in the basement again, spent a lot of time in the basement for some reason in the early years, in ag eating stuff, and the goal was to see what would happen. remember, we're in the early 20th century. there's a lot of excitement about advances in chemistry, better living through chemistry, the idea that the life of foods could be extended, foods could be made better, and improved, and so among other chemical compounds that many manufacturers were experimenting with at the time including fee meld hide. they had the idea that was not a good thing, but regardless, it
was something people should know about before it was tried out in food. in a series of studies, which would not pass modern human subjects protection, these guys sat and would eat. actually, if you look in the back of the picture, there's a gentman called william carter, one the first african-americans in the history of fda. he was hire the in 1902 as the cook and waiter of the group. he went on to get a degree if chemistry and worked in the labs for 42 years. wiley is referred to as the father of the fda, and it was wiley's add advocacy that led to the act. that act is the act in which the agency still functions. it deep in the dna of the agency. why do i tell you this?
i tell you this because there are aspects of fda culture, i think, that can be traced back to this form of highly interventionist, highly active agents and government employees attempting to do what they think they are of course legally empowered to do and what is in the best interest of public health. the agency is at some part in its core a public health law enforcement agency, and that is an important part of the mission. now, that emphasis waxes and wanes over time. we've been through a period where the agency focused more on market facilitation, and now the pendulum is beginning to swing back, and the agency is turning more towards some of its original roots. what does that agency look like today? that's the new office building. it's one of the two new
headquarter building. why do i show you that? one is it's just attractive, but the other is the reason the building was build is what the agency hopes to be going for. it is recreating a campus model like cdc or nih, and the goal, the long range vision, has been to pull in fda resources and encourage communication between the component parts, make it a science-based organization, make it collaborative, make it able to move quickly. six centers in fda, drags, bilogic di vices, vet med, advances in tobacco, and --
anyone want to hesitate a guess to which center is not going to be on the new campus? foods. foods is not going to be on the new campus. foods was moved to a beautiful facility near the university of maryland in college part, and that's where it sits, and in some ways, again, this is my personal view, and in my mind, at least, # this reflects a distinction that existed in the agency between the world of food and the world of drugs, devices, and by logics. everybody but foods is over there. why do i say one office, really two? the most important office in fda that if you're not familiar with the agency what you need to know about is the office of regulatory affairs. these are the guys, and i say this mostly joking, these are the guys and women now today who would be in wiley's poisen squad
if he were here. they are the approximately 3,000 plus field force of fda, the people who stand at the borders, the ones who conduct inspections and the investigations. now, there's approximately 10,000-12,000 employees with a budget of $1.3 billion and monitors goods worth over $1 trillion every year. i want to mention the important role of two other offices. one is the office of chief counsel which i think many people inside fda and outside fda felt played an increasingly important role and from various perspectives. sometimes too much of a role in the operations of the agency. the other office i want to mention is the knewly created office of foods which is formed in part to try to address the
met metaphysical problem which the plant is trying to address in the new environment. the office of foods headed that is supposed to be talking to ora, the center for foods and vet med and coordinating the food safety activities on an agency-wide basis. when fda looks out at the world of food in the united states and food safety, what does it see? there are two accepted, i'm not going to comment on the reliability because the statistics are too complicated to draw firm conclusions, but for most of the last decade, in fact, all of the last decade, fda's relied on a cbc estimate from 1989 suggesting there's 89 foodborne illnesses.
that's the scope of the problem we seek to identify. by the way, the little mousy guy, that is a real photo, and that's an example of the kind of thing that the agency frankly doesn't like to find very much, and that's one of the reasons why we tend to think as public health people, i used to be a public health person that regulation is a good thing. , but in any event -- >> [inaudible] >> yes, that one, but in one or two cases was similar. that was revised, and there's some discussion of that this morning. it's important to understand where these numbers come from because it's tempting to arrive at easy conclusions regarding the agency's estimation of foodborne illnesses.
neither came from fda but by other teams. if you look, for example, so if you add up the figures for 2011, you're looking at approximately 47-48 million foodborne illnesses compared to 76 million. in the 1999 estimate, that seems like a big difference, but as we know, you have to understand where the numbers come from, so both of these estimates are birth built on best estimates, best guesses, best assumptions on assumptions to the point that if you were to take the 38.4 million unidentified cases of -- i'm sorry, unidentified source cases of foodborne illness, the confidence interval is actually extends i believe down to around
20-25 million to as high as 60 million, so be careful when you look at these numbers, but nevertheless, the new estimate published by someone i know who used to work at cdc, now works at the university of colorado, best statistical analysis hit that approximate number. you see this is lot in this field. it's very difficult to figure out how many people get sick from food. why? because we rely on a passive surveillance system. there are not armies of people despite what some portray, there are not armies of people across the country asking individual americans did you get sick, when did you get sick, can we see your lab results? number one, there are not people to do that, and number two, there are not lab results. it's difficult to estimate. in each case, the number before
of foodborn illness, and the second case it's an identified bug. that's roughly the picture. let's go ahead and look at simple enforfor the -- enforcement metrics. that is taken from roughly the second bush administration from 2004-2008. it's publicly available data reported by the fda itself. as you can see, generally a decline in easy metrics. foreign and domestic inspections from fiscal years 2004 and 2008. this is also the period, roughly the period by the way in which import lines of food were roughly doubling, okay? there's inverse slopes on these two angles; right? more food coming in, in theory,
more complicated more distributed ways of bringing food into the market statement that fda was able to unfortunately accomplish fewer and fewer inspections. there are lots of reasons for this. some of them are frankly political, some economic, and some have to do with the difficulty of getting a pure bureaucracy with the number of responsibilities that this one has to be able to change and keep pace with the changing demands of the marketplace. if we look at the same here, important domestic samples, again, here are the changes that are not quite as obvious. you see there was a huge effort to keep import sample ling up at the same level as the previous four to five years, and towards the end of the period, an increase in domestic sampling as well. again, this is the same period of time in which the volume of imports, for example, coming into the country was doubling or
by some estimates, quaddrupe ling. this is representing roughly the number of, or actually exactly, the number of injunctions that the agency undertook during a period of time. part of the reason for this is because up until recently in the passage of a new food safety modernization agent, there were not recall authority. it was forced to rely on the threats of legal action in the form of injunction and get them to comply with federal law. we're not talking about big numbers here obviously. much of the agency's enforcement
work happens below this level, okay? changes in it because the numbers are small, changes in it can feel, at least from inside the agency to industry as a fairly particular, and fred and shawn may have more to say about that. this is my personal view and has nothing to do with the agency other than the fact that i once worked there. this is what i would characterize as a generally declining enforcement environment toward the end of the 2010 decade. it was the environment een counter by the new administration, so let's take a look at some of the critical players for a minute that the new administration brought in. first is dr. margaret hamberg, former city health commissioner for new york. what, in my mind, one of the
things that is most admiral about commissioner hamberg is that she was a city health commissioner. city health commissioner in my experience in public health are people who are action-oriented and friendly. if you're a city health commissioner in new york or baltimore, i had a chance to work with the baltimore commissioner for a little while, it is not unusual to get calls from people in the city complaining about rats in the garbage cans or food that they think they were served that was spoiled from the restaurant, and their inclination is to do something about it and take action relatively quickly, and that is tempered by an acknowledgement that she's presiding over a complex organization, the kind of personality that hamberg brings. this is one of my old bosses
brought from the office of chief counsel an now is acting director of sapsin. there's cfsan, the aves commissioner, officers of chief counsel, that's may taylor, the office of regulatory affairs and its ralph taylor, and ora's new directer. there's an hhs attorney and a former partner at porter. one the things to observe from your point of view since this is a law school is that many of these people are former
attorneys or practicing attorneys. this team in particular i think has an unusual amount of legal understanding and sophistication. there are -- they are also inclined to be more proactive which is part of the point. the gentleman to the left of dana is dr. sharpsteen. he just left before commissioner hamberg was appointed, and he was probably one the most energetic leaders in the fda for a long time. very enforcement oriented. he wrote in the new england journal of medicine, possibly the journal of record for medicine, and she talked about what the medical profession
expected of the fda. she wrote about education, regulation, and enforcement. you say to yourselves, why is that significant? it's significant in part, i think, because it's not that often that a commissioner of fda writes an article and has it put or offers it for publication in the new england journal of medicine, but she mentioned the role of enforcement, and this had not been an emphasis in the public's statements to that degree in the last 5-10 years, and so as fda often does, and part of its coordinated efforts to industry and the consuming public and to the medical profession, it then followed up in a more formal statement at least internally in 2010. in in it it talked about enforcement. this document from which this is taken is a combination of the
input of multiple components of the agency. it's ora, director of compliance for drugs, food, pet-med, and others and the office of the commissioner. it's a big deal because you got to go around to every one of the centers and the directors and the compliance directors and get them to agree on the things they are all going to say publicly they are about, and with respect to enforcement in setting the enforcement philosophy say said it's one of their highest priority, and then they explain way and the agency's theory of the market, and that is in simple terms that most industry players are going to comply with the law because they think that's the right thing to do. it makes not only business sense, but human sense. there are some, and it's difficult to tell how many in an accurate sense, but there are
some who simply will not, and for those actors, they need to be put on notice that the agency is watching and the agency is prepared to take action, and frankly, the companies that comply and take the appropriate safety precautions and regard the rules and the laws need to be protected because that's costly. it costs them money to do that, and so the agency and our society as a whole needs to make sure that they are not unfairly disadvantaged, so that's the rational. okay. i want to give you a sense, quickly, of where fda has been going and where it plans to go. the work plan is a document that the agency sets approximately a year in advance. the numbers that you see there reflect something called fte's or full time equivalents. not quite the same as full-time employees, it's a complicated personnel calculation, but it's full time equivalents. i'm sorry, i apologize.
that's not that. i took that slide out. okay, bear in mind the full time equivalent thing. that number declined as have the numbers for inspections. i apologize. this is the raw number of inspections the people perform. you notice from fiscal year 2009 to fiscal year' 11 they have a planned slight decrease in domestic inspections except for food. the agency feels, i think, strongly that food is one of the areas of greatest as a vulnerability, and so to the extent that it has been protecting any of these numbers or increasing any numbers, one of the two areas it's been doing that is specifically in food, okay? all right.
fiscal year 2008, the total number of inspections was 15 thowrs. you can see we're roughly increasing by 20% in the years. how did they do it or what are the results of the inspections? these are the agency's four main enforcement tools. the inspection, dfa arrives at your plant. it's an ad hoc or planned inspection based on a report or emergency. they can send you a warning letter is an option. they can see a problem in the plant, they want to notify the company that action needs to be taken, and then they conduct an injunction. these are the basic authorities that the agency relies on today these things. food drug and cosmetic act, still basically the main enforcement tool of the agency supplemented for records access
for the diseases and of course, the code of federal regulations, and then finally this, the last slide, this is the new food safety regulation that has been talked about a little bit. as has been correctly pointed out, there was no mandatory recall authority. i can tell you from personal experience there are companies that refuse to withdrawal or hold their products from the marketplace. it is not the case that the market exercises sufficient discipline to enforce voluntary compliance, and the agency can spend a lot of time, frankly, in the state of uncertainty negotiating with companies when the evidence is fairly clear. this attempts to remedy that. records, tracking, and traces again, the goal is to find the contaminated food, find it and get it as quickly as possible. there are inspections under the
new legislation, and finally the concept of the international parity in which the agency says we've looked at the products coming from this particular country. we think that that country lacks in adequate enforcement mechanism, and so we are putting the agency, putting that country and producers from that country on alert. finally, i know shawn is going to talk about this i think, has to, for everybody, has an analysis critical control point except for small establishments like small farmers. the goal is to require every food producer or manufacture to go through and identify potential sources of problems in its operations and to address those in a written plan. that's where fda is today. thank you, and i apologize for running a little over. [applause]
>> i think we'll -- fred, you want to come up? there you go. >> thank you. good afternoon. i'm fred pritzker and i represent people who were harmed by foodborne pathogens. shawn and i are last because we are involved in the place where the rubber hits the road so to speak where everything kind of comes together and where companies have to decide how they compensate individuals who harmed by foodborne illness. okay, there.
really what is comes down to is fical matter in food, and it's something people find distasteful in food, and frankly it is. whenever you can talk about a corporate wrong doing causing fecal matter to be in your food, you're a leg up in the proceedings. that's why very few of the cases get tried. what i want to talk about briefly today is how do we as food safety lawyers evaluate cases? what constitutes a good case? what can we do? what can't we do? our firm is involved in just about every national foodborne illness case that you've heard about. we've been involved in the
spinach litigation, the poultry and steak litigations, the steaks you get at chain restaurants, and there's one i want to just touch on briefly, the bravo farms, the raw cheese causing costco stores on the west coast talking about raw milk. raw milk is like drinking liquid tuberculosis. it is one of those things where the, and i realize i'm talking to you now and there's some in the audience thinking my, god, this guy doesn't get it or understand there's virtues of health, but i'd like to tell you about that, and i'd like to do it in the context of a case that we're involved in right now, a raw milk case where a man who
was sixened as a result -- sickened as a result of drinking raw milk at a high-end pittsburgh area is still basically a quadriplegic or the functional equivalent of one from a disease resulting from the consumption of raw milk, and i'd like to talk to you about the lady i'm representing in phoenix who is basically bedridden and near death as a result of eating the cheese that was made from a small grower, but who is now near death as a result of eating this food that about which science has been subordinated to belief, and that's a lot of what drives a lot of foodborne illness issues is the difference between science and belief, and one of the things, the great things about our system, and if any of
you lawyers or law students planning to be lawyers, this is an opportunity to go before people and present actual data from experts where all the hype cuts away, and everybody has the opportunity to present to a jury of your peers what the facts are and then let the jury decide. it's a great opportunity. i mean, i'm talking now to the law students where if you ever wanted to effect change, this is the place to do it. this is the place to do it because between money and representation, that's what drives food safety. the foodborne illness outbreaks that you hear about are those in which companies are horrified to know that their products of implicated, are fearful of paying out millions, tens of millions of dollars in compensation, and that's what really drives food safety as much as regulation does, this is what drives it in the public
mind. that's the pennsylvania raw milk case i just talked about. national steak and poultry, if you go to any one of the national chain restaurants what they are serving you if you order a steak is mechanically tenderized meat. it's a cheaper cut, a rougher cut of meat that goes through this little needle device that softens it up, and what happens oftentimes is what's called translocation where you have the pathogen on the surface of the meat that would normally be killed out when you sere the meat on the surface, but because the needle is penetrated in the middle of the steak that when you order something medium or rare like we like to do, it's not cooked to 160 degrees to kill it off, so you are still consuming beefsteak which is
thought to be safe is filled with e. coli. one was in applebees celebrating her 4.0 high school quarter, and had mechanically tenderized steak that she did not know about. she went on to develop e. coli poisenning and developed another syndrome that and now as 50% of kidney function at age 18, and by the time of 45 will require dialysis and transplantation and is hypertensive so now will have difficulty having children. this is the real aspect of foodborne illness and what it really comes down to. . .
of people injured each year and are ones that are never correlated to and actually foodborne illness outbreak. so what we are trying to do is follow on the heels of local, state and national agencies that are investigating foodborne illness outbreaks. so we want a first of all find out if there's an outbreak going on that we know about that we believe might be responsible for an individual's foodborne illness case. by the way, i want to just
digress for one quick moment. we've been looking today at the metaphor that seems to be active is google earth. when you look at google earth it drives around, you get dizzy watching it for older folks like me, then you suddenly come down in kazakhstan or wherever it is. we have been looking at this as a pointillistic view of this, and the view that i would like to focus on is not the, you know -- all of which are important, i'm not suggesting - more important -- but the emergency room, which is where i often see these people in the hospital where you have people interested not in the politics of foodborne illness, they are not interested in the regulation of foodborne illness, the year interested in getting compensation for the losses that they've suffered, and they want the system fixed. they are outraged that the food that they've eaten and taken on good faith is please send.
so, what else are we looking for? i can't tell you how many cases and get each day or calls from people around the country saying i'm sure that it came from the hamburger i just ate a couple of hours ago or the place i was set yesterday because i really didn't eat anything and then i got sick. well, you first have to know what foodborne pathogen state, and the only way that we can really identify that is through a store will test. everything is about stool in foodborne illness. it's either the backend for cowal or the back end of a victim, and we need to first of all identify which pathogen is responsible and that is usually done by a store test that will identify with it they have had, for example, e. coli, but e. coli really doesn't 20 thing. when we are trying to narrow down the keys is what we need to look at, the metaphor is at the top widest part it might be a stoole test that confirms the of e. coli, but e. coli doesn't
tell where the e. coli came from. then the next step we have to figure out is oelwein 7587 or one of the other species we know account for human illness and then further down is then trying to come up with a genetic fingerprint. that is the important one that demonstrates whether that pfge pattern matches up with other old brick victims. that is the microchronology of these outbreaks. then lenny to look at the epidemiology if we know that it came from a particular food or restaurant, we need to be able to show notwithstanding the fact they have the same pfge pattern which may mean almost the determinative fleet that's where it came from, we still need to be approved date the product at the same restaurant at about the same time in the same general area to understand the bin edemea logically linked as well so we are looking from an outbreak and looking that they have the actual pappajohn
associated and then we are looking for the micro biological evidence that determines whether they have the same genetic fingerprint or the epidemiological evidence that demonstrates that in fact they were approximately related to this particular product. then the other thing we are looking for is frankly because this is a business, this is about money, or the damage is substantial enough to justify the time and risk and effort that we have to put into a case? because after all, we are as plaintiff lawyers pure capitals. everybody hates the plaintiffs' lawyers because we think that we are antibusiness, but in fact we don't get paid until our clients get paid so we are the ultimate capital. and then the final point which is somewhat cynical is to make sure the defendant has enough assets to justify making a claim against them because in fact
poor wrongdoers are oftentimes not held morally and financially accountable for the harms and losses because. so this is the first issue, documented outbreak of foodborne illness. if you look at -- if you go to the fda or the usda there will be all >> reports. this is a summary of one. this involves the national stake and poultry one about the year-ago. in the stool sample, this is a little stool sample humor. [laughter] if you do google images which is transformed my ability to become speaker i came up with this one man who would have fought anybody to give stool samples enough consideration to think about something like that? this is a pfge pattern. basically what pfge is -- i don't want to cut shawn off so please let me know if i'm -- am
i getting close? all right. pfge is just basically the testing involved. this is the epidemiological evidence. this is the famous curb the plaintiffs' lawyers will get to make sure the sickness occurred in the time period in which it occurred substantial damages, this is the hemodialysis machine with enough assets this is a country cottage restaurant and oklahoma there was a huge - 01578 outbreak about two years ago. scores of people were sick and if he were killed. this restaurant had a million dollars in coverage. there was no point in bringing a claim because there wasn't enough money to go or not to compensate all of the terrible victims of that. i was going to talk about more of the legal issues of how we prove these cases but in the interest of equal and -- equals opportunity for defense lawyers i will end my remarks and thank
you all very much for listening. [applause] >> we will have time after the last speaker has gone to talk about some of the other issues he didn't have a chance to go over either through questions or for speaking among each other. let me get the next presentation >> i would like to start by saying thank you to fred. he could have very easily spoken for hours on these topics, given his depth of expertise, and he truly is an expert in this area, and one of the best.
and in litigation, plaintiffs always to go first followed by the defense, so he's very gracious in allowing me at least an opportunity today to speak following him. my name is shawn stevens and bayh with milwaukee wisconsin. for a decade now i've been representing the food industry defending foodborne illness claims and one of the only attorneys in the country who has devoted his entire practice exclusively to defending industry in these types of matters. now our mantra is probably defending the hard-working americans who feed our families coming and we do that in a couple of ways. number one, preventing litigation. speaking to the industry groups, talking with clients, helping them find ways they can reduce risk. also, when the inevitable sometimes does occur, managing out bricks and of course defending the claims brought by plaintiffs lawyers like fred that will always follow. now everything i'm going to talk about today is also located --
>> perfect. well now we are on the right side of things. [laughter] i'm going to talk about is also located on the website to the extent the projector times aubuchon it is defendingfootsafety.com. we are going to talk about uncovering the truth of foodborne illness litigation. we are opening of the umbrella from seed to stomach, and some people will talk about it in the context of from farm to the fork and in the world in which fred and i operate, it is really for court. [laughter] how many people in the room have seen the tv show "did least catch." it's a television show a lot of hard-working americans who go out and attempting to do their best in the face of adversity to feed our families and they go out to see many times each year, trying to raise their families and also feed our own.
and in the context of doing that, they are faced with all sorts of unpredictable scenarios, things that they know might occur but oftentimes are an anticipated from the winds to the ice freezing on the ships to individuals, men or women falling overboard and of course the waves. what we confront with with the food industry, despite how hard some companies to work, despite the best intentions of the leadership or quality assurance people, no matter how robusta their programs or the intervention the use, we are talking about microorganisms that exist naturally in our environment and oftentimes despite those efforts unknown to us it can still make their way into food, so i like to think of this world more i can to the deadliest batch, and it's the same issues and problems that confront the hard working americans trying to feed our families and sometimes when pathogens to make their way out into our food supply, in all
intention is focused on one particular company, things can be very difficult. and that's where, of course, individuals like fred will step in. but i want to talk a little bit today about dismantling the plaintiff's qassam liability, and the circumstances where indeed, there is a true defense. now product of bricks and recalls have always occurred and they will continue to occur. when they do occur and there is a lummis there will of course be lawsuits. now if you do a google search for slip and fall attorney who will get about 20,000 hits. if you do a search for food poisoning lawyer you will get about 300,000. and of course fred is at the top of the list. there's a lot of lawyers out there who are just waiting for the next outbreak so that they can try to get a piece of that so they can file a lawsuit. food safety of course is in the news, and when there are outbreaks, those lawyers will bring lawsuits and file claims. in a lot of things that we need
to be there on the plaintiff's side of the bar or the defense, and fred talked about this, understanding the pathogen, understanding the scope of any outbreak that may have occurred and understanding the circumstances of the illness. and i am not going to talk about those issues. fred and dressed them and if he's done his job right he has a claim that will be difficult to defend. but what i want to talk about today is the instances an outbreak investigations and litigation where mistakes can be made. just because we hear about an outbreak or if a particular company may be at fault it doesn't necessarily mean that it is. we often see is what is only on the surface, the health department showing that of the iceberg but what is underneath the water? and we are going to talk a little bit about that today. that raises the question can we extract our client in any instance from an outbreak? and that leads to my second mantra which is being innocent can and should count for
something. when we are trying to understand the real source of a particular topic or illness it's important to look at incubation periods. it's important to look at our own internal production records; were doing everything right, following the cylinders, and we have safety plans and with a working? it's important to look a distribution records i will touch on in just a moment and then preparation records, how was the product prepared? was it prepared by a restaurant or the individual consumer in such a way that would ensure order of least make it less likely that that particular product was a source? i had a case where a woman had cooked hamburger and she testified that she had cooked in the often for three hours at 450 degrees. that's a little bit of an exaggeration to the extent any pathogens or anything living might have been present it was likely killed. and then of course other illnesses. thanksgiving dinner this 13 people. the young girl was the only to get sick likely wasn't thanksgiving dinner, and the same type of -- the same applies
to restaurants, any particular given day we serve 500 hamburgers but hit only one person alleges they got sick cities are the different types of tools we use when we are critiquing the source of an illness. i want to look just quickly and closely at the distribution records. let's assume for instance i represent a client that makes hamburger patties based in georgia and there is a woman in indiana who claims she went to the store, brought this patties, put them in her freezer and eventually took them out, cut them, a few days later became sick with e. coli and was a horrible course. she was in hospital for six weeks, developed renal failure and his $1.5 million of medical expenses and swears up and down it was our product. fred talked about genetic typing and the first thing i'm going to do in that circumstance is go to the cdc and find out how many other cases assuming this is an outbreak or acclaim or an individual who was cultured not
linked to any particular not prepared to know how many cases through the country have the same genetic strain. one else did it appear? if the answer is none, then i am going to take a close look at the product we produce and where we send it. during the relevant period i sent to million pounds to the west coast which represents 8 million choices and 3 million pounds to the east coast which represents 12 million there's no other illnesses anywhere in the country. it's very unlikely my product was a source. the same analysis applies what if i do find other illnesses scattered throughout the nation that have the same pfge pattern? maybe some in washington, a few in north dakota and a few in texas but i don't distribute any product to those geographical locations. again, it makes it unlikely my particular product or mike clay at's product was a source and there are different scenarios we can run with respect to epidemiology and while epidemiology helps us to attend these claims and show that these
individuals and associated illnesses in the country didn't necessarily get sick from a product mike clay and produced, it also creates problems with respect to solving outbreaks, and we've learned in recent years epidemiology alone is not always sufficient. a good example is in 2008 the national salmonella outbreak associated with at least originally tornadoes. a few weeks for tornadoes, right? through door tornadoes away, hide them, keep your children away from tomatoes. everybody in the country, not helped by the media outlets believe there's a wide scale salmonella outbreak associated with this product. and of course the media have a lot of fun with it. attack of the tomatoes, they cried. after a few weeks went by we discovered it had nothing to do with tomatoes and was peppers grown in mexico and imported that actually carried the strain. so mistakes can and do happen. another is simply like to cite is 2008, to doesn't mind
salmonella outbreaks. there were mistakes made as well and the original days -- this is august and september of 2008 -- this was showing up on the cdc radar screen as a large scale low-level salmonella outbreak and there was a cluster of cases in ohio, and it just so happened a few of the individuals have been to eat at the same restaurant. aggressive and probably rightfully so health investigators immediately determined that the source of that particular cluster must have been something they ate at that restaurant because they all ate chicken they assumed that it was undercooked. the health department report was being written. the source of that particular cluster in that state was that restaurant when additional cases appeared scattered throughout the country and eventually we learned it wasn't under cooked poultry a restaurant, it was salmonella in peanut butter. i mean just going to show you quickly a couple e-mails over the years relating to different of bricks we've been able to
collect from various health departments and health officials and the cdc showing that although people with this intentions they are doing their best under a lot of pressure, limited resources and constraint for time trying to figure out a lot of overlapping outbreaks. here's 1i like. unfortunately i think i may have confused the salt creek with a different one. i think i may have typed the cluster number wrong. sorry everyone, but i am getting really, really confused. we have several continent things going on in the risk of confusion as high. i suspect our lab made an error. well, that's not good if you're the company in the crosshairs of the investigation. good grief, our lab over the weekend must have gotten the clusters patterns. they're checking now. sorry for the confusion. a little bit of fighting between the federal agencies pat got upset when someone at cdc in plight we should be doing something else to make sure things were done right.
there's been more communications on timoney issues associated with this than i have time to write about. are you okay with this report, final report, did he call to coordinate the fight? in putting a particular company is the source. he did not come to coordinate and i am in disagreement with a lot of what he wrote. and then of course the media has played a role again with respect to increasing the confusion in some instances. as of 11:30 on sunday there were 17 and articles nationwide relating to the suspected source of an outbreak. this is getting out of hand, they wrote. we don't even have confirmation yet. apparently the law firm, and it's not fred's firm, has cross pollinated the two outbreaks for some reason. somebody needs to tell him they are wrong. and that is where we come in and i am going to give you one example of a very large-scale outbreak where at least on the surface it appeared that everything was done right. it appeared the health
department investigators have found the actual and right source. but india, they had not. my client was a national verse retrain, delhi service and also caters food on a regular basis. in this particular instance is the wreckage during thanksgiving dinner for a local church and the membership of the church would come and get together and eat these thanksgiving dinners and the church was repackaging the food and styrofoam containers and sending out, volunteers would send it out through the community. individuals who were elderly or have less resources couldn't get to the church at least they could have their thanksgiving dinner. at the same time on things giving the also prepared a large number of meals for local warehouse. what we discovered was of the 600 meals that were sent to the church, 300 people got sick either eating them at the church or at their homes. 25 of the 50 people who had received those meals at the warehouse had gotten sick. that's a very high tax rates, about 50%. and of course there was appointed someone who had
received one of the meals at her home and was always their tradition to get together with their friends, have one of these meals delivered and sit down and eat and then different would leave at the per together evening they had their dinner, the friend left and assumed she went to bed as she usually did. the next day friday after thanksgiving he tried to call because they spoke of reading on the phone but the phone rang continuously and nobody answered. the following day on saturday he tried to call again and the phone rang, tried to call multiple times and he began to become concerned. eventually when he called the last time and still nobody answer, she went to her apartment talked to the neighbors and nobody had seen her. there were two days worth of newspapers sitting in front of the door peter was very concerning. they were able to gain access to the department with the assistance of the police and the scene was modifying. the bed was covered with diarrhea, a public by area flowing down the side of the dead. this woman was still alive but
unconscious lean on the floor between the dresser and the bed. there was fecal material can print on the wall. the alarm clock had been pulled off the debt stand and was laying on the floor and the assumption was the phone was ringing and she was laying on the floor semiconscious trying to reach for the phone but could not. she eventually was rushed to hospital and died two weeks later after a very country difficult course. now the pathogen at issue here was [inaudible] the assumption was after dinner this woman resulted in decembre technology that because of dehydration stroke and she was paralyzed on her body when they found her. the question was was a decatur, the turkey dinner or something that occurred at the church i talked to somebody from the of the part that a few minutes ago and this was issued about a week and a half after the outbreak
occurred stating they hope to have a news conference on friday. do not see anything but they will be able to identify the pathogen and the source. it's not the desert, which by implication means it was the turkey. of course there was a news conference. it was bad temperature control the assume that the delhi. they found the bug and the plaintiff and they found in the turkey. the turkey was to blame. and of course you know what followed, a lawsuit. the client asked us to take a look at this case to see if we could help because this is the type of work we do it originally said no i'm sorry, you are dead in the water. there is no way we can help you it sure looks to me like it was you. no, we've got great employees, employee-owned, they are well trained, we haven't had any turnover in this department three years. we have a really robust food safety program. we don't believe it was us. okay we will take a closer look.
so we went back to the original e-mail talking a press conference and what struck me, a red flag went off because was only a week and a half or a little more than -- less than a week before they actually identified the fact an outbreak had occurred and the optics often take a long time to investigate. i thought to myself what are they doing to have a news conference announcing the source while the investigation is ongoing and sure enough, a week later -- and this was the county health department director that had this press conference -- his day in the spotlight, and the county was receiving scientific support from the state level, state epidemiology and microbiologists providing support and the state epidemiologist a week after the news conference wrote as for the data i've broken everything in every direction i can possibly think and even did the tables by hand and i did that for all the times people eat and with the aid and everything. the turkey just isn't showing any certain to become significant. following a telephone conference with the director of the health
department the turkey not significant statistically and then in parentheses yet. if you torture the data enough it will amount to anything so they were trying pretty hard. there were other problems as well. i was hoping to get another draft of the report but we need to review the chain of custody forms to determine what samples with which of brick. my fear is this a ploch associate with one outbreak is also being investigated is actually a product from a different outbreak. i will spend some serious time trying to get this sorted out. confusion with respect to microbiology. in the did pfge testing on the streams remember found in the plant is and also the food. they finished the eye slits that were able to grow and preliminary testing should the allies were different. and that actually ended up in the draft report. toast to the compost field showed the two samples were different. there was no genetic match meaning they likely didn't come from the same source but when we look to the final report issued by the county that sentence had
been deleted. there's also a reference in the final report turkey contained a high number of pretensions -- perfringens. and the draft report there's another sentence that said the food isolette, the turkey, didn't contain the chain, the c. perfringens, and you need this gene for the perfringens to cause illness. without it, nobody get sick. about 50% in this room are carrying the perfringens in our body and you will find it in about 50% paltry. it has to have the gene to making get sick. well, it didn't. and that sentence was deleted from the final report as well. so suddenly, the conclusions that had been issued by the health department were called into question. what also didn't end up in the final report was the fact that the local deli had also catered meals to local news station and nobody had gotten sick. they also served 300 people that day at the grocery store itself. the family members, wives,
children, husband of the people who were working and actually making the food, nobody got sick. investigators, because early on the determined turkey must be the source, eight ward 15 other pot luck items that were served the church that day as well as 100 food handlers call volunteers. they were all ignored. they were not interviewed and nobody collected or did samples for testing. the warehouse facility, malling pot luck items from some the same as the church, were ignored. the food handlers were ignored, and also ignored was the fact that the church and the warehouse were only 1.5 miles apart, and some of the orders to the co-workers of the warehouse were also volunteers at the church. the state epidemiologist and i took a deposition said despite the county's attempt, it appeared to hurt to focus the attention on the turkey. she personally thought that it was a virus outbreak, not the perfringens and you can imagine her surprise when i hand it to her a lab sheet showing the plan to turn the case had indeed tested positive for the virus
she started crying. and the case promptly dismissed. another fact that wasn't referenced in the final report. and there's more examples to what the last decade that we have stumbled across where mistakes can and do happen. so, some final thoughts. in today's environment, we of course our lawyers on both sides but from our perspective we need as many tools as possible to show our product was not involved. if we can't show it wasn't over product, i personally need to convince the media, the public and the jury we were able to find and fix the problem and the food safety system is working. if we can do that i can stand up in front of you and say i probably defending the hard-working americans that the hour families. thank you. [applause] >> thank you to our panelists for the three really interesting
and important presentations. i want to make sure we have enough time for questions from the audience, and also for the panelists if they have questions or comments for each other to come forward. maybe we can start with an audience question-and-answer adamle -- yeah? >> the regulation question may be the first speaker everyone can address with, but i was really struck by the recall that involved the farms in iowa because in doing research for a project a year or two ago about factory farming and i look, i had come across an article that was maybe five or six years or even older about the environmental problems at the farm operations in terms of discharging waste and polluting air and water, and i think -- i'm wondering whether there are
any links around food production facilities especially with livestock that don't properly manage their maneuver outside the facility and then what the food safety issues are in sight, and might it make sense to have some kind of linked where people were cited for discharging the new or illegally and the sort of environmental regulatory context to than a red flag that facility for infection by the fda for what is going on inside that might impact food safety. i want to get a chance to respond and i should say first of the i didn't -- weigel i was at the agency during that i didn't work on that particular project. so, what i say is not related to any personal knowledge on that case, but there is work that has been done. i position epidemiologists and i and thinking of the doctor in
johns hopkins school of public health and has looked at environmental contamination and the possible consequences with human health around, and i would consider this a species of concentrated animal facility paltry and people who are connoisseurs' might draw the distinction but i will open them together. so, there are -- i think there is good public health research that suggests there is a link. getting to the second point, which is is there a link between the outside of the planned and the inside of the plant, i don't -- i don't know that there is a sort of formal position on that. - certainly the public health scientists i know and the bacteriologist who i know would suggest that there is because
you've got ingress and egress and the sort of direct link and then the secondary link is a plant that is not taking care to conform to the environmental requirement may not be taking care to conform to other requirements and it indicates it is direct evidence of a lack of attention to detail. the final point is, you know, one of the area as the fda has been working on very hard i think in the last five years or so is to try to increase the web or expand the web of information upon which it can draw, and so it's been doing more and more work or attempting with the state health department, and part of that involves the environmental health in that aspect of the state health department, so i think that is something the agency is becoming more attuned to but not necessarily have a formal policy
to deal with. >> i think that we are involved in that all three cows will and there is an indisputable connection between the environmental damage and the food safety that occurs as a result especially in the context of amol waste -- animal waste because it might be organic but it's still a toxin nonetheless, and when you have the proximity between fecal matter and food production, you are going to run into danger to get the spinach outbreak. that was identified as basically, you know, you've got wild boar, the working hypothesis that treats through
and that was adjacent to the spinach field and ran into the spinach and that is how -- and then mixed all together and is concentrated area where they brought the spinach from all these things ground up one crown up mixed up and then i became a national things and you got basically fecal matter in close proximity to food and always a danger. but you can't avoid. >> can i had a very quickly i agree with fred that sanitary conditions and food processing are absolutely critical, and everybody at every stage needs to make sure that we are not seeing circumstances like we saw with respect to the eggs. the debt doesn't involve my clients and i'm not involved in a particular client, but i would also say that this theory about the wild boar is fascinating to me because of it wasn't the wild
boar, what if it was some birds, migratory birds perhaps or any other animal or tradition of nature and it demonstrates perhaps at some level and some point avoidable it demonstrates how difficult it can be in this industry to avoid the tremendous a far cry with what we saw. >> one i was thinking and i know you'll are the experts but for regular people who don't know the information that you know the first thing when i hear that peanut butter has salmonella, you first think how does poop deck in peanut butter and on lettuce? and has to be to have people ask me what that does become contaminated? so it's just, you know, to hear the wild boar fury i never did understand what poop deck on spinach when you don't have animals involved in it? another thing i was thinking and
this is just my a torrance, you know how you see the debut, the undercover video is done by peta? could you use or in your litigation the information that peta uncovers to show how animals are treated or how salmonella might get into some of the hamburgers at mcdonald's? could you use something like that? >> this kind of the holy grail, when you can find somebody that's on the inside of a plant. we were involved in a litigation with an outbreak in the northeast in 2002, in which for those of you who don't know, the fury is probably the most virulent but relatively rare foodborne pathogen. but in this particular case, but we did to find an insight in the plant is to look for the workers' compensation records for the plant which were a matter of public record because
oftentimes workers' compensation injuries involving plant workers and a meat packing plant involved very disinfected workers who might be willing to talk to us who are no longer a employed to try to find out what goes on because when we get involved in an outbreak it is a fact, it is long after instrumentality has been introduced into the plant with two product so we are looking for somebody that can go back in time looking at the light from long time ago and that is what we are trying to find someone with knowledge about what they did from contrary to what the golden plan says about what they're supposed to do these are the people that work saying we never change our uniforms were never washed our hands. so yes, when we can find peta or insiders of that is why we are looking for. >> i would start by adding real quick of course none of my clients would ever have any of
those to the llosa associated with the way they conducted their business, but i think there has to be some connection between that particular entity, the video and the causal connection with respect to the illness or at least in time and proximity and then just to follow up on your question with respect to animals and spinach fields. 0157 can be shut through its fecal material or saliva like eating plants, there could be bird droppings and there is a fury to the extent there's a small stream that overruns every once in awhile and is contaminated it can contaminate the field or lettuce can even pull bacteria through the root system so there's a lot of different mechanisms possibly they could become contaminated. >> leaves just wondering as people who deal with the system every day and assuming no amount of regulation put in could ever
get rid of all so it probably won't put you out of business, what more could the fda do for you? you see the system not as litigators, but having gone through litigation what more do you think the fda needs to be doing to keep the american food supply safer? >> you know, i can't speak for shawn, but to be honest with you, we don't get involved -- i mean, the regulatory people and the litigants have attention we want to get as much access to their records, the government records, the government says you can't do that because then they're basically shields for litigation and we can't do our job so there is always that tension about privacy versus proving causation versus policy issues involved so i'm not sure
from my plaintiff's practice will do much of anything that's going to materially affect what i do except if i can get more access to their records and their people which in a given case is almost impossible. >> i would just add representing industry and defending industry i consider myself a food safety advocate and i've been involved in cases where things have gone wrong and i had a lot of exposure to the different scenarios that can result in problems and i often share those with my client and help them really help themselves and i think from the fda standpoint, you know, maybe not much more than it's already doing i'm very encouraged by the new regulations. i think it will take some time that that's going to have a
positive effect. beyond that, i think the changes going to be driven by folks like fred in the industry to the extent that outbreaks cost companies a lot of money. it's bad publicity, the year is damage, they don't want to be on the times. they are going to do with the can as best as possible to limit those risks and when the large players like kosko and wal-mart began demanding to see from their suppliers i think that is where the changes going to take place. >> any other questions? >> all right, it looks like we are finishing on time. i want to thank the panelists and thank the audience. [applause] >> thank you. >> you had an eventful panel and a symposium, but your ideas and expertise came through and i
hours. good afternoon. i'm sonya mashaal director of the united states studies here at the wilson center and i am delighted to welcome you to this panel on rethinking retirement the past, present and future social security. you may notice a slip in an extra word for some reason i forgot when i came up with this panel but obviously it's important to speak about the present because we can't think about the future without taking that into account. this panel is being co-sponsored by the global economy and the director and i would like to thank him and his staff for helping to plan this even. before introducing the speakers let me say a few things about the woodrow wilson center. as many of you know the center was founded in 1968 as the nation's official memorial to
the 28 president and is a living memorial intended to perpetuate the values that characterized president willson's life and the commitment to the scholarship and public service to address issues of general concern. today's meeting is very much in that spirit. we have with us some of the leading experts with academics and advocates on the issue of social security, and with their help and i'm sure some spirited debate we will have an opportunity to explore this cornerstone of social policy within the american context and also comparative perspective. this couldn't be a more opportune moment to address the issue of social security since it seems to come up in nearly every discussion of the current budget crisis. social security assessed as a part of the budget or does it separate funding stream and remove it from consideration? our current projections the social security trust fund would
run out of money in the land would never appropriate here are those projections accurate, can and should today's workers support the retirees for decades to come? can and should future generations of workers expect to rely on social security? what reforms if any are needed? as a historian i can't help think about the impact of social security on the american society. before the social security was initially passed in 1935 and really began to take hold of the decades that followed for the millions of americans old age meant poverty. as workers build up their accounts old age insurance, which is part of the program people usually mean when they talk about social security old age insurance began to deliver substantial benefits to the elderly and to their dependents spells as and survivors and the problem of old age security began to fade from the collective memory. since that time the prospect of economic security combined with
substantial gains and occupational retirement benefits, pensions and individual retirement accounts as well as major advances in health care we integrate longevity and have offered americans every different prospect from retirement from the one that prevailed before the 1930's. to be sure congress has seen fit to amend the social security act, multiple times since its initial passage, but its existence has never really been called into question. now hover at least some in congress and beyond are calling for social security to be put on the table along with other entitlements, and this shift along with the decline in private pensions and retirement accounts resulting from the economic downturn it's having a dramatic impact on the way that americans are currently thinking about retirement. is social security in danger and so what can be done to fix it? i'm going to identify since you have longer bios in front of you
and then we will proceed in alphabetical order since by happenstance this will allow michel borkenstein who is our competitive to go last after our other speakers have had a chance to give their perspective on the status of the united states. so starting from my left we have the american enterprise institute, charles was a senior research fellow with a new america foundation and a member of the social security -- >> a public trustee. >> we of the economic policy institute, heidi hartmann, for the institute of women's policy research, barbara kennelly of the national to preserve and secure medical security and then mitchell orenstein of european studies at the school but fans international studies at johns hopkins university. and as i said, all of these panelists are experts in one way or another on the ferc aspects of social security, so we are really very fortunate to have
them with us. i asked each of them to limit their remarks to about 12 minutes so we will have plenty of time for q&a and discussion afterwards. mr. biggs, the floor's yours. >> thank you very much tall of you for coming. i really appreciate the opportunity to speak on the social security that is such an important and timely issue for today. i'm going to try to abstract the to technicalities. you overwhelm the numbers and formulas and technical things and social security ultimately depends on those things, but i want to talk in a big picture qualitative sense of what we think of social security and where the program may go in the future. i would like to start with social security look like if we were designing it today from scratch? this goes back to the question of the management expert what we do what we are doing if we were
not already doing it? when we talk to the congressional staff instead of the technical what you want this program to do the response is a weekend the design a program from scratch and we have this system but most of the reform people talk about wouldn't be fully implemented for decades to come and the young people today are going to enter the work force effectively weaken the design, with adverse system for them we want, and the question is how we transition to that system? it makes a back way of the question. the first i would ask is why do we have a social security program? what we want a system to? if you answer the question social security forum becomes easier to manage. the first social security program in the u.s. and around the world is effectively to force people to save. if you didn't require people to save for retirement a good number would fail. they wouldn't be looking ahead, the and in poverty and retirement and they depend on
other people for assistance. so requiring everybody to save their income each month, that helps not just people themselves but also helps the taxpayers that might otherwise have to bail them out. the second task is to redistribute money to the lower earners, the disabled and the survivors. these are people even if they save responsibly every month wouldn't have enough money to provide for themselves at a decent standard of living and retirement. the third task of the social security program is to help people productive consulting their assets to even if you survive age 55 you know your life expectancy is around age 83 but a lot of people live significantly longer than that and it's very hard to design and protect yourself against that risk. social security's benefits as an annuity that lasts as long as you live. by doing that it provides insurance protection against ending up in poverty when you are 90 or 95-years-old and don't have the option of returning to the work force. so to answer that i ask the
second set of questions and that is what we think about the social security program in light of what we know about our aging population. we know the population is getting older, we have more retirees, few workers to support them. what would we want to do in that circumstance? why would outline in an aging population you easily want to encourage people to do three things, work more which means greater labor participation, save more which means more savings for individuals to prepare themselves for retirement and more savings to build capital to get more productive, and their commitment to encourage people to retire later. it feels like extended work lions delay and reduce the effect of the population, so if we encourage these three things it helps smaller populations and workers become more productive to support larger populations and retirees in the future. i think that i'm confident you will hear folks saying we should fix those securities problems, financing problems mostly by raising taxes rather than
reducing benefits. let me lay out here how would raising taxes affect these goals for addressing population aging? if you raise the security taxes people tend to work less. heitor taxes means lower the words and low were rewards to work using the means less work. likewise people tend to save less, have less to come to put in their retirement account commesso and vegetables are almost surely reduce the amount they save and third, they tend to retire earlier. if you raise social security taxes, the after-tax replacement rate in the ratio of social security benefits to the after-tax earnings will increase that will encourage people to claim his retirement benefits earlier rather than later so that approach tends not to work with these goals that i think are pretty reasonable when we think about how to address the aging population. given that, but what i propose? we require people to save in
this day and age i say just require people to save. back in the 1930's we didn't have mutual-fund for the internet or anything like that, so people couldn't save effectively on their own you had to do it through the government. today we could sign everybody up for a 401k account. to contribute to .5% of the earnings to a 401k matched by their employer would be 5% more set aside for the retirement. second, i would have a flat bit of benefits to protect everybody against poverty. the idea would be of benefit would go to everyone regardless of their earnings and this would be designed to be a protection against poverty in old age. today 15% seniors are in poverty we could erase poverty in old age for about half of the social security currently spends we take a poverty level benefit which is about $850 a month and give that to everybody at retirement. the idea is a combination of the
poverty level benefits and mandatory individual savings account would equal the generosity and the current social security program third, we would like to help protect against running out of assets and retirement by requiring to monetized of the savings account and get the account to retired you need to convert part to annuity so you don't run out of money at old age. the idea there is if you are replicating the basic protections of social security you are doing it in a way that will have a much stronger safety net for the low-income people because the savings base will be better incentives for people participating in the workforce, better for the economy, and and it provides many of the same protections that are consistent with what we think about retirements in the twenties and fifties and kratovil 1950s. so i guess to some up, i would say social security is not the biggest problem for the budget challenge, but it's a challenge
we know how to fix today. we know the pros and cons of the different approaches and we just have to come to some sort of agreement on what to do about them. something like medicare by contrast we don't even know how to fix the program if you look at the recent health care debates there is disagreement even today on whether the health care reform bill will greatly increase budget deficits and greatly reduce them. we just don't understand the health care issue nearly as well as social security by solving social security today i think we give both the americans and financial markets' confidence that the government is capable of getting on topics long-term budget problems and we are in a recession like we are today increase the continents in a good way to get you out of it. with italy will leave it. thank you. >> thank you very much. [applause] >> i need somebody's help. >> is richard here? >> i probably could figure this out, but i'm risking wasting
everyone's time. that presupposes i don't waste time. >> all right, great. okay. i'm going to do something that's really -- first let me start by thanking the center. i haven't been back here since so it's great to be back here and is a wonderful place to look. absolutely marvelous people got very idyllic environment. i wasn't actually working on social security when i was here. i was working on pensions and it's hard to read about and player provided pensions unless you have a good environment to concentrate heavily and not be distracted by anything that's more interesting than pensions which is pretty much everything in the world, so i really appreciated the environment that
was provided here and in a good of the wilson center. i'm going to do something that is pretty out of character for me. those of you who know me, some of you on the panel know me, some of you in the audience know that i have a pension for arriving at presentations like this with monk powerpoint presentations and charts and slides and all sorts of the commission that is more than anyone human being can absorb. ..
>> this program faces a substantial imbalance between what it is promises beneficiaries it will pay and the resources it has on hand to pay those promises. wop way or another, that very substantial balance has to be resolved. that's not an if. it has to be resolved. the government cannot send out the checks without collecting the resources to send out of checks or the deposits or whatever. they have to get the sources from somewhere. we're not talking about whether to deal with social security, but how. we can either plan for it and do it in a way well in advance or we can just let things happen as they would happen under the no action scenario which would be the most unfair possible set of
outcomes, but it's not a question whether something's going to change. something has to change because we have this substantial imbalance, and it has to be dealt with and it will be resolved one way or another whether we deal for it or not. the longer we put off dealing with it, the more disresultive the -- disruptives the changes will be. economists make that point, you know, the more disruptive the facts will be, ect., ect., and it bounces off people's skulls and they stop thinking about what that means. this is a very real consequence, and it's going to have a very real impact upon real individuals, and we need to wrap our minds around the fact that the longer we put off action, the poorer many classes of people will be. we're going to be responsible for that if we don't act. i'll give you the extreme
scenario. we don't do anything until 2037, and then therein benefit cuts across the board of 22%. that's not just affecting people retiring in 2037, but everybody on the rolls, including a few people collecting benefits today. if they live long enough, they would get a sharp harsh reduction of 22% in their benefits. now, by bipartisan consensus, there is a general agreement that we shouldn't cut the benefits of 595-year-old widow by 22% which raises the question what if we try to shield people already in retirement? suppose we implemented this bipartisan consensus to shield already retired people from change? how much would the reductions been then? turns out you can cut the entire benefits to the new class of 2037 and still not close the
system's imbalance. you realize these very extreme outcomes that take place in 2037 are all inacceptable. you then work the problem backwards. how bad is it if we act in 2036? still bad. 2035, 2034. you walk the problem backwards, and you realize the window for having a fair solution to the problems is closing fast. if we don't act within the next few years because the demographics and baby boomers and because we don't want to cult benefits for people already retired, we don't have fair outcomes in resolving the short fall and reducing the chances to get bipartisan agreement on just how to do it. very important point. this is something that i think a lot of people have exactly backwards. you hear people saying, well, i'm worried about legislation to deal with social security finances. i don't want there to be social security reform because i don't want there to be benefit cuts.
that's exactly backwards: if we reform the system today, in theory, not i'm saying to do this this way, but in theory, reform the system, you didn't raise taxes or cut benefits now, and future classes get benefits that are higher in per capita terms relative to inflation rather than what today's retirees are getting. you would have cuts to not reel diff to what people are getting now. we don't have to worry about benefits being cut or slashed. there's no plan that produces benefits if enacted today blow today's level. the longer this balance plays out, the closer we come to the date in which we have real benefit cuts. you get to a point where the incoming taxes are unsigh to fund the promises we make without someone accepting a decline in levels previously to
what was paid. politicians instead of saying i'll defend you from cuts should be saying the opposite. you have to worry about benefit cuts if we act today, we can avoid them. here's another one. this is just a pet peeve of mine. actually, there's a few, but often we get into a rather silly debate talking about people going after social security and other people defending social security as if somehow this is a debate between people who are trying to tear the system down and people are trying to preserve it. that's wrong and a damaging way to think about it. the reality is we have an imbalance. now, we're not doing anyone any favors by having the system promise benefits it can't fund. that helps nobody. when we don't account, we are concealing from people the changes that we know are ultimately going to be necessary. we don't know how they're falling out, but we are concealing from something something that will happen to
them. benefits will be lower or taxes will be higher than we are currently saying, but in this case, people don't know what's going to happen. we are not fessing up what's going to happen. that's not a defense of social security's workers to basically conceal from them the effects of corrections we know have to occur. all this inaction means is that participants have adverse effects that they are not warned about and cannot plan for. another very important point, the social security trust fund is in theory solvent until 2037. i find that when i am in discussions about social security that there's a lot of confusion about that. you will hear people saying, well, if the system is fine until 2037, why make changes now? wouldn't it be breaking faith with people on social security to make changes say to the benefit level well before 2037 in the system is sell vaunt for another 26 years. this confusing and confounds a
lot of issues. it's important to keep them separate. first of all, the trust fund didn't tell us how long we prefunded benefits in any way. if you accept the portrayal of the trust fund as a meaningful meth -- method of funding, the trust fund is never holding assets that's equal to more than three half years of benefits roughly going forward. it's not like they prefunded 27 years worth of payments. the vast majority of benefits would be paid by taxing workers through the payroll taxes. we haven't prefunded 27 years worth of benefits with the trust fund. we are depending on younger workers to keep the benefits flowing. the trust font doesn't tell you -- fund doesn't tell you anything. your benefits are determined by a formula that's written in the law and that has nothing to do with the trust fund or little to
do with the amount that you personally put into social security. it's the set of formulas in the law that's a function of your personal wage history. now, in fact, not only is there not a direct relationship between the trust fund assets and the formula, but there's actually a great inconsistency between the too. we have benefits increase inmy night and well beyond 2037 and advancing benefits are cut after 2037. the two are not aligned. they didn't measure the appropriateness of the formula. the trust funds measure past taxes over past expenditures plus interest and that tells you nothing about the appropriate formula going forward. it doesn't tell you when action should be taken. go through the experiment if you wait until 2037 you get the worst possible outcomes. you get the best outcomes if you act today. the fact that it's solvent
doesn't argue for delaying action in any measure. okay, well, i thought before i was going to go through my biggest pet peeve, but now i will. [laughter] whenever you talk about social security reform, there's, of course, a lot of people who are worried about the effect of social security reform and raise arguments about why it shouldn't happen, and over the past several years, i think the biggest red herring has been the myth that the social security projections that were overly conservative. if you know, for me, personally, this was always the first litmus test frankly because you cannot read the social security projections and reach that conclusion. this is a mean that's circulated around the block and was picked up in mainstream press reporting. there's absolutely no grounds for it. the basic idea was that the trustees were being conservative in the growth projections. if economic growth was just
consistent with historic norms everything would be fine, and the trustees of the past have been too conservative anyway. that's all false. the trustees were not projecting the per capita growth was slowing down, but projecting it would accelerate a little bit. most of the problem is still there because it's driven by fertility and longevity and other factors. looking at the history, it's not conservative. they are too opt -- optimistic. there's no grounds for this whatsoever, but it got repeated over and over as an argument like the problem is not really there. now, we've had the recession, and now the program finances are very obviously so much worse than projected in any previous trustee's report that people stopped saying this because no one's really taking it seriously anymore. now there's a new red herring not to deal with social security because it has nothing to do
with the problems of the rest of the deficit and it's not a contributor to the deficit and social security is being targeted and not necessarily for cuts that are necessary to balance a federal budget that is out of balance and has nothing to do with social security. this is ridiculous. first of all, social security has an imbalance. first of all, social security is contributing to the deficit now. it's clear about that. it's running a deficit. more money goes out than comes in. it's not correct that the program is not contributing to the deficit. it's a bigger contributor in the long term to everything that's not medicare or medicaid. it's bigger than anything else. that's substantial. when you rule out everything that's not medicare or medicaid in terms of your fiscal practices, then you run out of corrective actions quickly. putting that aside whether you think social security is part of the budget or not, it doesn't
matter. social security is out of balance from the narrow view of the its own finances. no one is proposing to cut a penny from social security beyond what is necessary to balance the books. this idea that anyone is targeting social security unnecessarily is beyond absurd. the idea that policymakers go after the most sensitive area of the budget and cut it rather than deal with other sources of budget deficit is ridiculous and flies in the face of other good proposals put forward none of which require social security to sub subsidize anything in the federal budget. couple of points to make on solutions before turning it over. one is that we need to be very clear on what constitutes a face call correction. in 1983, they did good things and also made mistakes. one of the mistakes made is they did not look at whether to see the solution they came up with is balanced on an annual basis over the next 75 years, and we
went at this with a set of reforms that produced large sur surpluses in the early years and deficits in the later years. that can only work if you can do something to bank these surpluses and reduce other federal debt payments or improve the fiscal position of the federal government. to improve the condition to finance the deficit in the deficit years. most people on both sides of the aisle recognize that's not effective, but there's a myth out there that that was the intent in 83. it was not the intent. i have a chapter in my book on this history, and it's very interesting. a number of advisory and technical panels said don't make the same mistake again. don't just look at getting the actuaries saying the program is balance in 75 years on average. you so to be sure -- you have to be sure to resolve the annual balances otherwise you left it for future generations to deal with. this does not mean you'll treat
it as a real obligation. every plan does that, but if we are serious about corrections, we have to deal with two things. we have to close the very large short falls over the long term and have to deal with the real source of the financial short fall, the big cost explosion over the next quarter century. the vast problem relieses in that cost growth. if we don't get a handle on that, we're not solving the problem. i'll end with one opinion. i'll look at kathy as i say this because she disagrees with this, but i can't go forward without a description of the problem without offering something on the solution side, and i would say my personal opinion, president obama's fiscal commission did a great job on the proposal. they are not my preferred policy, but i personally for reasons that i think an due would agree with but i think the
proposals are reasonable middle ground between competing visions on dealing with the social security short fall. i have a more, i think, positive view of the commission proposals than some others do, and i have written favorably about them in the past and will do so in the future, but i think there are reasonable starting point and worthy of discussions going forward, and that's that. thank you. [applause] >> thanks. [inaudible conversations] [inaudible conversations]
>> hi, good afternoon, i'm heidi hartman from the institution research. this is a report we released last month on social security vital to women and people of color and men increasingly reliant. i 4r tell you about -- i will tell you about our findings from this report and i'll take a special look at the program from a woman's point of view. first, i want to go over a few basics because i did notice they were kind of missing from the excellent presentations that we just heard. just to give you an idea how big the system is today, this is what we're paying out, about $670 billion is going to 53 million people, so it's a large share of our population, and a very large number of people in households that get some social
security, even more people than those 53 million. most of those people are retired workers, some are disabled workers, and some are survivors of deceased workers. i noticed in andrew's preferred program, he didn't say how he would deal with those who die early or become disabled at younger ages. he talked about his ideal retirement program. the individual accounts obviously wouldn't help those people very much because they wouldn't have been able to pay into them for very long. when you look at who is getting the money, it's 4 million children, that's 3 million minor children under 18, but it's another million who are disabled adult children or children still in high school, 18 and 19 years old. 21 million men and 27 million women. women are the majority of recipients, and that's why we like to say social security is a
women's issue. this is funny the little clicker works, but i guess i'm doing it the right way. this is the size of the trust fund. now, i think those of us on the panel admit that the trust fund is real. it holds u.s. treasury securities, $#.7 -- $2.7 trillion. chuck said that social security wasn't in deficit this year, actually, the trust fund grew this year. if i had a trust fund growing, i wouldn't think i was in deficit actually. what happened this year is that tax receipts did come in lower than payouts partly because of the recession with fewer people working and fewer people putting in taxes, but this trust fund earned interest and takes in income taxes on taxes on social security benefits. it is continuing to grow, and it will grow until 2025. at that point since it was built up to pay for the baby boomer
retirement, it starts paying, and it will gradually decline until it reaches 0 in 2036, and at that point as chuck said, benefits fall for everyone 22%-25%. now, one of the interesting things is chuck thinks it should be a prepaid system and have this money in a trust fund and shouldn't be in notes because the government will really pay you back. it should be in gold. if we had prepaid the entire retirement of the entire population if we held it in something, i don't know what, other than notes, it will be amazingingly deflation for the economy as a whole. i can't imagine that economy. it was never intended it to be a prepaid system, but a pay as you go system. that means current workers pay for current retirees. the reason we pay 70% of benefits is because that's what's coming in from the
payroll tax revenue at that point. we did build up with trust fund because of the baby boom unlike senator simpson, the actuaries for the social security system did predict the aging of the baby boom and tried to take into account and, you know, ideally that change back in 1983 would have lasted 75 years, 2037 is not quite 75 years. what happened during that time to make us not get to the full 75 years without having to address sol yen sigh again? well, income grew unequally. the income is not as equally distributed as it was at the time. i think we used to be just a few years ago we were more unequal than any other time since world war ii, and now we're back to 1929. our income distribution is as unequal today as 1929. that means less and less of our income is paying into the payroll tax, and so the revenues
are down over what they were projected to be. these are just some of the basic facts about where we are. that trust fund is still growing, and a lot of people say, oh, but the government owes that money, # so that money, that's social security that's causing the deficit and causing the government to owe money, but if you think about who holds government bonds and we hear about how much china holds of our government bonds, do we think china is causing the deficit? the fact is we will have to pay back the chinese or anyone else who holds the bonds, but we don't think of those people as causing the debt that we have. the debt that we have, the current deficit is a lot because taxes were reduced, unequal income, taxes were reduced, fought two wars without paying for them, and now we have a major recession. even the high health care costs
are not really, you wouldn't really attribute the whole deficit to them. going forward, they are important because they are expected to grow above inflation, but really we should be looking at where the debt and the deficit come from, and it is not social security. i wanted to take a special look at the system from the a woman's point of view, and one of the good things about it is that to be fully covered and to get all the benefits disability survivor benefits for your survivors requires only that you work 10 years at $3460 per year. they made it change. if you work only one quarter and own $4360, you get the credit for the full year. that was important to women because they don't always work four quarters a year. 95% of women will be covered. people retired today, only 70%
are fully covered, the other 30% are only getting social security benefits because they married a man who is eligible for benefitsment going forward, 95% will be fully covered because of their own work. today, looking at those 65 and older, 95% get social security, and another good thing about the system is as a wife, you can get money either through your own work or through your marriage, but it had to be ten years and it had to be ten consecutive years to the same guy. if you got divorced, you have to say ten years to get those benefits. keep that in mind in case that's a strategy for you to pursue. [laughter] these benefits are fully adjusted. that's particularly important for women because they live longer than men, and returns are higher for lower earning workers than higher earning workers, another advantage to women, and
this is not subject to market risks or investment decision. this is a graph showing how things have changed for women. the pink area is women who got benefits, all women retired today, 62 and older, some are still working, but are receiving benefits. the share has gone up slightly to 49%. the share that is dually entitled because of the marriage and because of their own work increased to 28% dead, and the share using only benefits because they are married or were married to a man for 10 years is only 27% today, more than half than 1960. women are working more and getting more earnings because of their own work effort. looking at how much people depend on social security, women depend on it more than men for 67% of their income. these are all people 65 or
older. sadly, that circle is bigger for men because men have more income in retirement than women do. the gist of the new study going through this quickly is that reliance on social security has increased for those 65 and older in the last 10 years from 1999 to 2009. this is just looking at those who rely on social security for 80% or more of the income. looking at the men with 80% or more in the middle, you see it go up to 39% over the 10 year period. that's a big change on the share of men relying on social security for 80% or more. for women as a whole relying on social security, 50% or more, it didn't increase that much. what's happening for women is they are shifting towards the higher end of reliance on social security. for men, it's up overall at the upper end so 80%-100% reliant on
social security. that means that almost 2 million more men rely on social security for four fifths of their income than ten years ago and 2 million more women as well, and the proportion of women relying on it is higher. the big change was really among men, not women. the first set of bars here is white, second blacks, the third set is hispanics. each minority group is more dependent on social security than whites. people who are 75 or older are more dependent than those 65-74, and women, the green bars, are more reliant than men, the gray bars. social security is very important to people of color and especially important to women of color. there are some disadvantages to women in the system, and for many, many years, the women groups talked about these, and then when social security became under threat of privatization and losing benefits, everybody
forgot about the problems saying we have to extend it no matter what because people are attacking it. we stopped talking about it. now, a good strategy would be to strengthen social security so it's better for people, and now groups are talking about this again. it's based on the 35 years of earnings and since you have 0 earning years, that could be a disadvantage to you. there's no spousal benefits for you, so there's no way for care giving to be taken care of, and the earning wife gets no additional benefits compared to her next door neighbor who did not pay anything to the system. this working wife is dually entitled, but she doesn't see benefits increase, so some people consider that to be a disincentive for women's work effort. what we need to do to improve social security for women, we want to account for the fact
that women increased their work effort across the kids. we want to see them get reward for that. we want to address new family structures, take care of care giving outside of mother especially single mothers, we want to increase benefits for women who live alone, those who are most reliant on social security is the unmarried women, especially older unmarried women, and we want to strengthen social security and other benefits for retirees and not just cut back on social security as economic insecurity increased. in closing, i would say, you know, what people have said that we might design a system differently if starting now, it would be good to do something now. i don't disagree with those points. it would be great just to solve that long term funding gap, but i think it is useful to keep a perspective on the idea that benefits will fall to 75% if we do nothing. if you look at the bold simpson plan and other proposals, they do take you down to benefits at
questions you are asking to begin with. andrew asked some sometimes questions and posed a -- an answer to what's the purpose of social security? that i think is too narrow and might have been adequate 30 or 40 years ago, but given where we are now is no longer -- i don't think -- is the right approach, the right framework. the questions that we need to ask and answer about social security are what is the state of retirement security today? and what will it be in the future? will people have enough to survive decently in their only age? and will social security benefits be enough when combined with the other resources available to provide workers a dignified, financial secure old age. the answer to these questions, i think, doesn't lead to the kinds of solutions proposed by the deficit commission which was 2/3
cutting benefits and 1/3 finding increased revenues. here's what i consider the key fact about where we stand with social security. older americans are going to need more help from social security in the future, not less. and there are a number of reasons for this. if you look at where things stand now, it's already a very different picture from 30 years ago, the last time in 1981 -- 1983 when the greenspan made adjust wants to social security. the average household led by someone in the peak earnings of 32 to 64 had retirement savings that are about $90,000 too low to have -- an average to assure an adequate retirement. this number goes up the closer you get to retirement, the worse it is, unfortunately. this calculation was made by the center for retirement research, and it takes into account all
major resources of retirement income and assets, social security, traditional pension plan, 401(k) plans, and other forms of saving and housing as well. it assumes that a household in retirement will take out a reversed mortgage and spend down their entire equity in the home. it assumes that think will work longer than they do now. they will retire at 65 instead of at 63 1/2. even using the conservative assumptions, they calculate the total retirement is $6.6 trillion. that's trillion. of course, the federal budget deficit for this year. reducing social security benefits at all, whether my raising the retirement age, or changing formula to reduce the replacement rate will leave
retirees with less income and make the retirement income deficit even worse. why is? you know, what has changed since 1983? and why is it bad? why do e expect it to get worse? pension coverage has been falling. it's about 1/2 in the private sector what it was when the greenspan commission met in 1983. less than 20% of private sector employees are covered by a defined benefit pension plan. and if you look at people who are already on the cusp of retirement, people in households age 60 to 62, only half, a little less than half, expect to have any pension income at all. what -- those who do, the median is about $10,000. it isn't very much either. going forward, a smaller percent of each successive generation of retirees will have pension income, because employers are
continuing to do away with defined benefit plans and unions are finding it nearly impossible to win plans through collective bargaining. so this is a road that's leading basically to the disappearance of pension plans, traditional plans. andrew's solution is the 401(k) that will have people save more through 401(k) plans and ira. we have a lot of experience over the last 25 years with 401(k) plans and frankly they have been a disaster. they have left families with less and less retirement income. the wall street journal just this weekend published a great story called retiring boomers find 401(k) plans fall short. how short? well, the average -- or the median household nearing retirement had about $150,000 in it's 401(k) plan.
half had more, half had less. how much did they need combined with social security to meet -- to maintain their living standard in retirement? they needed $630,000. so they were way behind. now this is worse than the retirement -- center for retirement research numbers that i gave you before. partly because this is post financial collapse. but people, you know, people lost 1/3 to 1/2 of their assets in some cases. so the boomers are in bad shape. and they, you know, the question is, well, we've got this lousy experience so far. will it get better? is there any reason to think that people will do better if we force them to save more and more not through the government social security plan, but through their own 401(k),
there's no reason to hope it will be better. employees put too little in and employers put in even less. that could change. but employers can cancel their contributions as they did during this downturn, many employers didn't make the match that they had been making. employees mismanage their funds. they are not skilled investors. skilled investors sometimes don't do that very well, but the average person managing a 401(k) does pretty badly. broker funds, administrators, skim fees off. they can -- the fees over a lifetime can reduce the assets in a plan by as much as 25 to 30%. and then, of course, when you have two stock market crashes in one decade, the assets get globbered. then finally, we allow people to borrow from their 401(k). they do. they lose the job, they borrow with hardship, they borrow to finance a home, send kids to
school. and they end up without money when they need to retire. and, of course, unlike social security and pensions as heidi pointed out, 401(k) plans aren't guaranteed by the government. so what do we expect? the center for retirement research looking at how risky -- what the risk is for the various generations going forward cohort s to actually have a secure retirement, maintain their standard of living found that more than half of early boomers, 64% of late boomers, and 71% of genexers are at risk, significant risk of not being able to maintain the living standards in retirement. so we ought to be improving benefits in the social security system. not looking to cut them in any way. you know, if our goal is to help people have a secure, dignified
retirement. so what should we do about social security? as i say, the first thing that you should not do is cut benefits. raising the retirement age, which andrew proposed,-didn't say exactly how he would do it, but raising the retirement age, making people work longer is a benefit cut when we raise the retirement age in 1983 from 65 to 67, it cut benefits for the average worker who retired at 65 by 13%. meaning that over the course of their retirement, they would lose $28,000. if we raised the retirement age to 70 now, that would be another 19% cut and another $35,000 loss retirement income for people covered by social security. people say, well, this is the fair thing to do. people are living longer.
and everyone, you know, is living so much longer. we should raise everyone's retirement age. everyone is not, unfortunately, living longer. and people, especially low income people, have hardly gained, in fact, they have -- their increased longevity at age 65 since 1983 is the less than the increased retirement age that we've already enacted. men, lower-income men, have increased their longevity at age 65 by about a year. upper income men by five years over that period. so the effect of this, it's not -- it's doesn't have the same effect on everybody. raising the retirement raise obviously is a problem for people who are physical jobs. and there are still, you know, something like 45% of americans who work in physically demanding
jobs. if you are on your feet all day long as a cashier or lifting patients in a nursing home, or driving a truck, working in a steel mill, it's very different from the kind of work we do. we can work forever. but, you know? not that we all want to. but raising the retirement age is much harder on low income people and people in physically demanding jobs. and it's -- you have to remember social security benefits are not very generous already. the average retiree gets $14,052 which is less than the minimum wage for a full-time worker. we're in a situation where the social security replacement rate is already declining. it's going from 41% in 2002 to 36% in 2030.
so on top of the loss of pension coverage, we have already declining replacement rates in social security. so what's the solution? if you are worried that lawyers and bankers and professionals are going to live for 30 years, and we can't afford to pay their benefits is the answer to cut benefits on hotel maids and janitors, or raise taxes on the people that can afford it. i would say the answer is clearly you should raise taxes on the people who can afford it. a construction worker who makes $50,000 a year, paying 6.2% social security tax on every dollar. but a bankers who makes $1 million pays 6.2 on only the first $106,800 meaning his effective social security is less than 1%. when you add in the employers
tax, the construction workers is paying 12.4%, and the bankers $1 million is taxed at less than 1.5%. you know, there's a real problem here. a real equity problem. the tax cap was originally this $106,800 was set in 1983 to cover 90% of wages. since then we've had tremendous -- a tremendous growth in inequality in the united states. and to the degree that it's -- the numbers are almost -- well, they will stun you probably. 55% of all the income growth since 1983 has gone to the top 1% of americans. so as a result, only about 83% now instead of 90% of total earnings are covered by the social security tax. wage stagnation for most
workers, coupled with the growing inequality is the main reason that social security outlook has worsened in recent decades. the actuary says it's that not unexpected or even the expected growth in longevity, increase in longevity. if the richest 10% of americans had the same share of national income throughout the 25 years from 1983 to 2008, that they had in 1983, their income would have been $11 trillion less. and the income of the top 1% would have $6.5 trillion less. so i think that taxing salaries fairly would -- well, the social security actuary has said if we remove the cap and tax people on their entire income, it would completely solve the long-term
solvency issues that social security has. rebuild the trust fund and guarantee full benefits for 75 years and beyond. i think that is the fairest solution that we could have. [applause] [applause] >> thank you very much, ross. >> thank you. and being the 1, 2, 3, 4, -- 5th speaker in the program. very much of what i planned to say has probably been said, and said very well. >> not everybody has said it. >> but not everybody has said it. exactly. i'm the president of the national committee to preserve social security and medicare. my members come from all walks of life, republicans, democrats, inaffiliated, what they share is
their passion for social security and medicare. you know, i've had a long history. i'm one of those people like alison rivlin, we just don't quit. we are here. it was never -- social security was never intended to be the sole source of income. there was going to be savings and pensions. we know our rate of savings in this country went way down. it's coming up a little bit, thank heavens. it would weigh down. pension, defined pension plans is a thing that's going to be a memory that some people have them, and they are lucky. but future people will not have them. and now where we are right now is that one in three seniors absolutely rely on social security for 90% of their income. six out of ten for half of their income. and the benefits, as you said, when it can't be said enough. the benefits are not overly generous. i mean we're talking about an average of $14,000 a year for
women $12,000. you try living on that. guess what, there's a lot of people that are living on it, and there's a lot of people that i want to be able to continue to live on it. and it's -- we have to keep remembering. when we had the last commissions. charles, by the way, i want to congratulate you, charles is the new public trustee. we haven't had public trustees in a number of years. we have two of them. and they are very, very important. although the other people have other jobs. we're counting on you. there's no doubt about it. but, you know, right now we're at a point where we have to remember the -- you know, the last time we had a commission on social security, they didn't even think about disability. didn't even think about it when they had the privatization situation. and we have to think about that. and also people who are the main breadwinner for the family, they die. and, you know, i know you know in this audience, and this panel obviously knows.
but six million children rely on social security for part of their family income. and why do i take time to go over these figures? because i think we have to. because right now the time is ripe. i am shocked at the huge amount of our deficit. shocked. absolutely. i can remember when i was in congress, $200 billion deficit. what are we going to do? pay as you go, et cetera, et cetera. when you look at the deficit now, it is truly shocking. as a result, everything is being thrown in to figure out what we are going to do. don't get me wrong, social security has to be strengthened. no doubt about it. you know, i have ten grandchildren about to have my 11th. and yen -- and i know it has to be there for the future. we have to careful how we tackle this and how we cut the deficits. and we certainly don't want to add any more to the deficits.
you know, it's a dedicated -- what social security has which people don't remember all the time, is social security has a dedicated source of income, very different from the regular situation for the rest of government. it's dedicated because it coming out of your payroll and mine. i've been paying it for years. every time i get a paycheck, social security coming out of it. the thing about social security, by the law, and i'll talk about that in a little bit in the future. by the law, social security cannot add to the deficit, and it can't do anything to borrow from government. the money that comes in is money that goes out. and then we have the money that's in the trust fund. and let's look at social security funding. look at the trustees report of 2010. we are taxing 156 million for the social security. they are paying in 6.2% of their
income. when -- if you are have a small business or something, you are paying 12.4%. you know what, guess what we are taking in 2011? $707 billion we're taking in. and, you know, that's the money that's coming in. now there are other sources of income. we have a tax, and let me tell you, this was one the most unpopular things we ever did in congress. we tax higher income people on their benefits. and that tax is $27.3 billion in 2011. it's not a lot of money. i can remember when 27 -- when a billion used to mean something. the remaining source of income, i think this is what's up for debate constantly is the interest payment. currently what happened in 1993, by the way, i was there in 1983,
i was on the ways and means committee, i remember it like it was yesterday. currently in the trust fund we have $2.6 trillion. if you put the interest there, it's $120 -- just this year, 2010, it's $120 billion. when you look at this, we are -- you have to match up the obligations where we have to pay out. and that's exactly what we have to do. and we have to address the shortfall. and 2030 -- you know, i can tell you about how strong the program is and how, you know, it's going to be okay. until 2037. then 2037 we're going to have paid down all of that extra money and, you know, 2037 we have to look at what we're going to do. should we wait the 2037? of course we shouldn't. and, you know, can i tell you there are people in washington right now and i'm sure charles
will probably be on the commission, there are people inform washington right now, we're scared to death about social security being looked at as part of the whole deficit situation. there are some very, very wise people in this washington situation that could be on a commission and would understand that we'd have to get real about the future of social security. and, you know, let's talk about the trust fund. it was established in 1939. it's been with us since 1939. it wasn't important. very small. it was only used because there was extra funds. as a continueing, there were a few problems. but no big deal. just a minor role. in 1983, it really got to be important. because in 1983 -- i enjoy watching what's going on. senator simpson said we didn't know the baby boomers are
coming. where the heck was he? they were in their late 20s and early 30s, we knew they were coming. one the things we knew we had to do when we were looking at this, look, i'm the last one to be talking about the good old days. it was a bipartisan agreement. i mean it was tipped and our president ronald reagan, it was some wonderful people who knew that social security was in a terrible, terrible situation. and they knew they had to come together and do something about it. and so they did. but, you know, now '83 is a long time ago. and now there's questions, constant questions, economist that we have right here argue it's -- the trust fund is not economically meaningful. how do we deem all of the bonds? guess what, we know how to redeem the bonds. a lot of people don't want to redeem the bonds. you know, those bonds are there. you know, what do we do?
i think, and you can have the next speaker talking about the international situation. i think any country worth it's salt has a social security program. and ours is not that generous to be very frank. but now if we are going to have a mix into the time, very difficult times with we are getting with the deficit. at least some of us think we should protect our social security system. and let me just read you about the trust fund. americans who expect the trust fund to be honored have the law on their side. it's quite clear and right in the social security act to section 201d basically it stays each obligation purchased by the trust fund shall state on as they said it is incontestably in the hands of the trust fund to which it is issued. that the obligation is supported by the full faith and credit of the united states. and that the united states has pledged to the payment of those obligations. i mean so many people just want
to put that whole situation aside and just go on. i don't think that is a good idea. i really don't. when you look at what people are going through in this country, i travel all the time. i talk to my members all the time around the country. my members are not well off. let me tell you. they pay $12 to join my organize, because they can't go to washington and lobby. i'm a lobbyist. believe it or not, i am a lobbyist and very proud of it. i lobby for social security, and for medicare. and i think this country has to protect those problems. -- programs. but, you know, i know we are in a crisis situation right now. i know we are going to have to make some very tough decisions. but let's not make those tough decisions on those people who are just trying to get along. [applause] [applause] >> thank you, barbara.
>> hi, i'm mitchell orenstein from john hopkins school of international studies. i'm bringing to the panel a rather different unique perspective, which is an international perspective on the problem of social security today. my research has focused on pension privatization worldwide on the trend which i'll talk about in a moment of privatizing pension systems. and emphasizing issues of learning from one country to another. countries don't deal with these problems completely with their
own resources, but also rely to great extent on the experiences of other countries to consider solutions. i've always been looking since the financial crisis working on a new article on the future of pension privatization pend after the crisis which is quite interesting. the questions that i'm going to ask are rather more comparative. where does the united states fit into an international perspective? how is the united states affected? and what lessons can the united states draw from other countries? so first let me address this question of where the context is, a sort of historical context in which we are considering social security reform to date. since 1981, there's been a major trend worldwide which has partly touched the united states. but it has been experienced by many countries, most countries i
would say. which is a large, a very concerted campaign for privatization of pension systems. that was led in large part by the world bank and other organizations actually based in washington, d.c. with the support of many u.s.-based academics. and economist primarily. that advocated for replacing social security type systems around the world and it is true that as was said previously, most countries worth their salt have a social security, some are more generous than those in the united states, some less, i suppose. and these organizations began to promote a replacement of social security systems with ones based on private individual pension savings accounts. and about 30 countries worldwide, start, chile in 1981, and continuing through most of latin america, a lot of central and eastern europe, including russia, including poland,
the longevity is increasing but it also means pension systems are put under considerable pressure because people were spending a long career period of their life or proportion of their life in retirement but also because of the trends that were mentioned before towards income inequality and stagnation of average wages also have this tendency to put pressure on social security type systems. so that's the broad context in which the united states considered privatizing its pension system in 2005. as you know, those proposals were made and they were rejected by congress. it has to be said that the united states to some extent has privatized its social security system as was said through the back door which essentially means as there have been gradual cuts in the replacement rate of social security, and as there have been increasing --
increasing tax benefits for individual retirement accounts the government is spending more and more on the private retirement system and less and less on social security also it's been more moderate than in other countries. the financial crisis i believe radically changed the global penchant picture. radically changed the debate. it should be set the financial crisis hit both social security tie pension systems and funded private pension systems. both of them are in trouble, and in fact, one take away from this is today everybody is were soft the and they were before 2008. regardless of your such situation. [laughter] it's been interesting that privatized pension systems were much worse affected than social
security type pension systems and countries around the world. because of that, the trend towards privatizing is basically stopped. when i stopped, might be the bases and chablis is all countries around the world, what are they doing in their pension reforms. and when you see is that since 2007 no country has privatized their pension system which is a big change because there were a couple countries in the years before that. of course that is one metric for looking but another was also mentioned here that the assets decrease in these private accounts, so anybody who had a private retirement account or any asset asset prices declined precipitously and the figures are mentioned it was about half or a third. people were losing their value
and their accounts and therefore their retirement income if they were relying on those recounts for income. interestingly from that perspective social security did really well during the crisis. social security benefits were not cut dramatically in 2008. in fact, they were maintained the same level as they were before. and there was obviously a huge boom for people who were relying on those benefits as the other assets were decreasing. this was a matter of stability for them personally but it was also a huge matter of stability for the economy at large because i don't know if the word automatic stabilizer means anything to you but it was often used in europe to indicate that when we and the united states ought to stabilize the economy and to stimulate the economy social security actually played a pretty important part in that because it maintained that level
out payment and maintained people's incomes at the time when other incomes were declining and being cut or people were losing their jobs. so i think that opinion within the community of people that think about pensions and social security shifted radically in 2008 towards realizing the importance and a crisis benefits of social security and the way the date -- the private pension systems could be vulnerable to the crisis you could think of this has pros cyclical countercyclical terms that private pensions tended to be pro cyclical meaning to come into crisis the same time the economy is in crisis whereas social security attempt to be countercyclical because at the time of the crisis it does better than at other times. what have country's been doing to react to this reality? a couple of countries have
gotten rid of their private pension systems, only a couple of the of 30 or so that have privatized the systems, but it's an important trend and needs to be watched. argentina which was one of the first countries to privatize the system in 1994 the government seized all assets in the private pension accounts which total around $30 billion they took that money into the social security trust fund and used it to set its deficit rate and began to pay benefits promising that those money people had contributed would be credited to words their social security pension and the future. a similar but not exactly the same process has unfolded in hungary which was one of the first former communist countries, they actually reversed the privatization a few
weeks ago under a right-wing government. this isn't a left and right thing. argentina it was left government that did that in hungary it was the right wing that did that and the reason is that the need that money that was living in people's private accounts to cover their deficit that, and the imf actually approved of that on the basis that there was went to help them get out of the debt problems. some countries cut the contributions. this was a more frequent solution. others have made participation voluntary, but i think it's fair to say that the privatized pension systems have been badly hit and destabilized by the financial crisis. u.s. private pensions as was mentioned before are also in crisis. those people who have private pension accounts of the various types know that they have been dramatically reduced balances. there was a joke going on about
401k becoming a 201k, and i've seen that in my own family. the -- there's also the problem discussed before that there is general in adequate that's going to result in the baby boom generation perhaps more than others. at the same time, because of the broad fiscal crisis of the government will only in the united states model for the world governments are having serious problems meeting their obligations, and i will speak about europe and a second. there have been a number of discussions about what to do and how to bring peace pay-as-you-go social security systems and to balance which is obviously an important challenge. by far in europe are the more comparable countries to the united states. the most popular thing to do is to raise the retirement age, and
i want to just focus on that for a second. you may know, i will show you in a couple slides and a second there were protests in france against raising the retirement age from 60 to 62. and spain interestingly also recently there were protests against raising the retirement agreed to do that in the spanish age from 65 to 67 and they case of the unions agreed to that and the french case they didn't agree to it but i think it happened anyway. but i think it's instructive to look at these increases and note that in the united states the retirement age for a believe my generation is going to be 67. in france the increased it from 60 to 62, in great britain women were getting i guess a good deal that age 60 retirement got their retirement age raised up to 65 to parity with men and there is
talk of their planning to increase the age to 67 starting in 2020 force of this postponed for a while but they are going to do that. germany is increasing gradually from 65 to 67, the the netherlands from 65 to 66. i mentioned span already, 65 to 67. usually these are phased in over a number of years. it doesn't happen immediately. for a benchmark year life expectancy in europe is currently around 76 years for men and 82 for women and they aren't expecting that's going to go up by about eight years or seven years by 2016. and the european commission right now is trying to suggest the countries should legislate further increases in the retirement age that would keep them in line with increases in life expectancy in the future. but what is interesting is very few countries are thinking about
retirement age increases beyond 67 which is actually where we are presently. the united states and 83 the was part of the 83 legislation mentioned. they put in place that increase already and served foreigners in net. we don't see anyone else talking about -- you see brereton talking at 68, you don't see anybody else talking about 70 also that is obviously where things need to go if you were to solve the problem by retirement age increases. so, what are the lessons that the u.s. can derive from looking at some of the international experience as? i think one of the lessons of the financial crisis was pension privatization can't really solve the problem. in the u.s. if we were to do a panel one u.s. pensions or workplace pensions or sometimes called occupational pensions, 401k, you would find in the
u.s. private pensions are more broke and social security is. they provide insufficient, our system which costs a lot of money in tax breaks that are driven primarily to wealthy individuals provides insufficient volatile pensions and the volatility tends to be when people need the income the most unfortunately. our system as was mentioned, the 401k of the understand people on the panel agreed with this if it were to be redesigned as something effective it has to be totally redesigned from what it is today, and that begs the question of if we haven't been able to do it well until now how exactly are we going to be able to do that in the future? i also agree the problem in the united states in this international comparison is not that we have too much social security but to little. the issue here is that further
cuts are will impoverished elderly people. the scope for the retirement age increases i agree they can be and should be considered rather more limited than a country like france which has 662 retirement age. taxes need to be raised. was talked about the payroll tax threshold in particular if you are going to deal with this. however, i do agree with one of the previous speakers that this could be a good time also to consider not only strengthening social security systems but also undertaking the redesign of the occupational workplace or 401k system at the same time. that is more crisis than the social security and we could look to britain and its current mess pension system that is going to be produced in the next
year as a possible model. i was talking with a panelist earlier maybe new zealand is another to have interesting ideas for interviewing seating on top of social security. after what we've seen the last couple of years it's protecting income. it's not about cutting social security, it's about meeting even more than is presently in social security for people to retire on and taking on that challenge means of addressing the the bigger problem than the private system as well. thanks very much. [applause] >> as you can see there's a number of differences among the panel but i think rather been giving them time to address them now i will give them time at the end because you all been sitting here patiently for quite awhile so let's hear from you now, your questions and comments please wait for the microphone and identify yourself and try to
keep your questions and comments relatively short. >> with the congress project at the willson center. we've heard references made the president's commission, but little reference made to the president himself and the congress and the vacuum there on taking leadership and doing something about this. i'm wondering whether any of you were going to speculate where this is going politically both with the administration and the congress in terms of coming to some type of i don't know whether it's going to be a summit or what but where you see things going. >> i am pessimistic since this is going anywhere. my view is a pretty substantial opportunity in danger of being lost. we have split control of congress right now.
it's very hard to do a social security fix when you have one party in control of everything and the minority party in such circumstances to help the majority party help them solve the big problem. when reagan did the social security tax in 1983 you had both parties with some skin in the game. we are also at point where the president's bipartisan commission has reported and this was a star ranging as senator coburn on the right and center durbin on the left to their names behind. we also have the budget office saying the deficit since march last year are not permanent features of the finance. you have an increased substantive imperative to act and you have unusual circumstances that would allow for action. i don't think the president's budget presentation moved in the
direction of action. basically the rhetoric is basically a series of thou shall not cut benefits for the most vulnerable or privatize, thou shall not cut for future generations. that puts them in the company of a free author and reform plan, but it doesn't really tell where we need to go. at some point you have to pick between saying this is what i won't allow to happen to explain why action is unacceptable and would present it on health care reform the last two years they were not specific in their budget but they had a place holder and they said these are the broad fiscal condors to achieve in health care reform and the company rhetoric this is why we want to change in the positive benefits maybe something could happen but i fear the opportunity is being lost.
>> i would just answer a different reason why nothing is going to happen is because to have this work even under the deficit commission is a terrible solution to have two-thirds benefit cuts with revenue increases republicans are led by people who say there will be no tax increases, they will not vote for tax increases. if that's the leadership position and they do in force in the house of representatives the president would be crazy to step forward and say i'm for a balanced package of cuts and tax increases immediately attacked for the cuts and he will never get the tax increases, so it would be a politically suicidal thing for him to do, and unlike
my colleague i was happy to see that he didn't in his state of the union take that step. >> i would just like to add so much of what we do here in washington as politics, but i think the president knew very well that the freshmen were going to do their things and discretionary cuts. only 12% of the legit but discretionary cuts so why would he come forward doing something else? he did his discretionary cuts, but volume convinced if we would separate what's happening with social security for the whole budget we are in, i know there are people in this and you know them, too, that can sit down and solved the social security future problem very well. the problem is we throw it in
the deficit reduction and that didn't have anything to the deficit so that is the up and down of the whole thing. >> i'm going to be one of his pet peeves in the future. [laughter] >> i disagree. there's been estimates of that that basically are arrived at by saying let's take the provisions and throw them in different categories and say here's the revenue provisions and here's the revenue provisions and we will add them up. two-thirds are in the benefit site but that's not how you do it. each provision has benefits. the the impact on both to get a sense of the impact you have to have each side and after that it is roughly 55/50 on the revenue side so i don't agree on the characterization. second, i don't agree this is about the republicans. we saw the commission put
together last year. republicans were not the ones. this is in the white house. in the terms they told the president it was a republican, yes republicans don't like the tax increases and after opening bargaining position there's no change in benefits but the predominant pushback on the commission from work was not from the republican side, and i think to be realistic we ought to recognize that this is a dialogue between the white house and the left on the social security. >> if i could just sort of follow on from this the president is dealing with his own party. when the president can to office, there was talk then he was going to appoint a commission to look to the deficit and they were on the verge of doing it and he didn't
go with it. eventually he said i'm going to appoint a commission and they come up with a set of proposals which he gets pushed back from the left and says i'm not going to do anything, he's not going to say anything to the state of the union. there's a story in "the wall street journal" where on named presidential aides say thinking of proposing to cut benefits and reducing cost-of-living adjustments and tax cuts but he didn't want to go that far. i fink by definition leadership means you go first. some of the president wants to get it done he has to be willing to stand up and take some heat on it and whether you like what president bush proposed one of he stood up and he took the heat. >> and he lost. >> but the question is did he want to get this done you have to take some risks and be willing to put yourself on the line and if president obama doesn't devotees not going to get anything from. >> can i china in from the left?
[laughter] >> don't sell yourself short. >> first fall that assumes the commission was a balanced commission. it was not paid to our disappointment the president appointed well-known heaters of social security. senator alan simpson appointed 20 or 30 years ago, so he isn't a guy we would look to to come up with a balanced plan and the plan was and rebalanced. similarly people were singing to has to be on the commission. we've already got them about the membership of the commission or the co-chairs. [inaudible] secondly but we are talking about here is the consensus in
washington. the only people who think the social security problem should be solved by cutting benefits me to be on the editorial board of the post and "the new york times," and they are many people beyond the panel were from around in washington or in congress and it is an elite position, and when you ask the american people what do they want the say don't raise the retirement age, don't cut benefits, by a wide margin even a multi-party people and independent and republicans and democrats. the vast majority are actually willing to pay more taxes if that's what it takes. so you have a populist that is trying out for the security of social security. we will even pay more for it and for medicare by the way. and you have a leadership that is out of touch with with the american people want. the interpretation i can put on