The Scribe

Health care reality check. Interview with Uwe Reinhardt.

Host Marty Moss-Coane, and a few callers to WHYY's "Radio Times,"  talk with Princeton economist Uwe Reinhardt about proposed health care legislation.

Marty Moss-Coane:  We're talking about a reality check on what Americans really want and need when it comes to health care... We welcome Uwe Reinhardt.  He's a professor of economics and public affairs at Princeton University.

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MMC:  We all know what the problem is in this country when it comes to health care. We're on an unsustainable path in terms of costs but we don't seem to have the guts to fix it.  Do you agree with that assessment?

Uwe Reinhardt:  Yes, as far as costs are concerned, that's right. We all do agree that there is a problem with cost and that it is unsustainable. As far as the uninsured are concerned, I don't think we all agree.  There really are quite a few people who don't think it's that big a deal.  For others it's a huge deal.  So there's a division of views.  The problem with it is -- I always quote (facetiously!) Alfred E. Newman's equation which is that every dollar of health care spending is someone's income, including Fraud, Waste, and Abuse.  And the fact that it is income to people means that you can expect any cost containment effort, whether from the private insurance industry or the government, to be fought fiercely by the people who book health spending as income.  In our democracy that means it's an uphill battle.  I always say, "It's an insurgency that will take at least 10 years to put down!"  But I think we have to do it because it is unsustainable.  Herb Stein's law said, "If a trend can't possibly continue, it probably won't."

MMC:  But that's a very, very gloomy prediction.  I appreciate your saying it, but what you're saying is that so many players in the system are wedded to the expense of the system.  As we know, it is wasteful in many ways.  There are a lot of redundancies.  We pay a lot of money at the end of somebody's life.  But the system is really designed to keep the status quo.

UR:  It is!  Part of it isn't just venality.  Part of it is really sincere.  Take pharmaceutical companies and device manufacturers:  they argue that if you reduce health spending, that is "our revenues,"  then "we cannot deliver to you these wonderful products that we have been delivering."  And you have to admit they have!  Then the hospitals say, "Look at us! We have a one percent profit margin.  Many hospitals are closing." Often hospitals are the major source of employment in a community, so they have a sincere belief that it's tragic to close them.  So they make that case.  The physicians say, "I'll have to close the practice and retire early because of all the hassle and the little reimbursement I get -- and the high malpractice premiums."  So everyone really puts forth a very credible case.  That's what makes it so difficult. And then you have people who say even raising the question whether some heroic procedure it worth its cost conjures up pictures of Adolf Hitler.  As we saw when the Washington Times had a headline, an editorial, saying, "Efficiency can be deadly," and they put next to it a picture of Adolf Hitler.  We have all of the banging into this debate.  It's gone totally off the rocker!

MMC:  It has.  I'm thinking also of when there was talk about some of those end-of-life conversations that then got translated into things called "death panels."  So you said it requires an insurgency.  Does it also require a president with a bully pulpit to try to address some of these systemic problems within our system?

UR:  Well, as I have put it, it requires a General Petraeus who understands insurgents to deal with it!  The rule among military people is that an insurgency takes ten to twelve years to put down.  But this is a sort of democratic insurgency.  These people don't carry self-propelled rockets.  They have little bags of campaign contributions.  And here's a little secret that the American people may not know.  It costs always more than twice to elect a president than the most recent president.  That is, every four years the cost of electing a president  -- and I'll bet it's true of members of Congress too -- doubles!  These poor politicians have to raise those monies.  Therefore they cannot afford to offend the source of this money -- which is these powerful interest groups who book health care spending as health care income.  It's really a vicious circle.  The fault is in the way we finance campaigns.  But the Supreme Court just came out and said "throw in more money!" by saying corporations can exercise free speech by making campaign contributions.  Can you imagine how hard it will be to have cost containment when the people who are the source of campaign financing are the people whose income you want to cut?

MMC:  Well, let me be naive here!  There are calls in the bills and from the president for making sure people are not hurt by preexisting conditions, a call to cover more people who are uninsured today.  In spite of the system that we have, if Congress is able to incorporate some of that and pass some of that, would that improve our system?

UR:  It would improve the plight of lower income families who now often face the choice, do I now go to the doctor when I'm worried or do I just tough it out, or if they go they end up under fiscal stress, even bankruptcy.  That would actually be fairly easy to do.  And I do believe that if Democrats had, together with Republicans, figured out, "Let's at least deal with the worst of it," you could get that done.  I know a lot of Republican policy analysts and politicians who would go along with this.  If you look at Senator Coburn's bill, for example, you will find in it at least a long way towards a resolution of that issue.  Now that costs a trillion dollars over a decade.  That's the Democratic price tag.  The Republican probably would be lower.  Nevertheless, even a trillion dollars over a decade is only 3% of the $34 trillion we are now projected to spend on health care in the next ten years.  So that trillion dollars that everyone calls a huge price tag actually isn't a huge price tag.  It's only 3% of total health spending.  This habit of expressing everything in ten years has completely confused the American people.  They relate that one trillion to our $14 trillion GDP today and think it's a big amount of money.  It would be, of course.  But you've got to related that $1 trillion for subsidies for the poor to the $155 trillion GDP will produce in the next ten years.

MMC:  So we can afford it from your perspective?

UR:  Oh yes, we can certainly afford this.  The issue is how do you then finance it.  It would mean some people, including myself, would pay more taxes, and it might mean that we really have to hunt for wasteful spending and not spend on waste anymore and use those monies to fund the subsidies.  Again, I believe in cooler moments Republicans and Democrats could really get together on that.

MMC:  But we don't live in a cool moment time!

UR:  Not at the moment.  I think now it's almost impossible to do certainly bipartisan legislation.  That's dead.  But even getting a partisan bill through ... is dicey enough.

MMC:  You have said that we really don't have a system of insurance in this country -- health care insurance -- but a system of un-insurance.  The idea being that if you lose your job -- and sadly millions of people have -- you're also going to lose your insurance, assuming that you get it from your employer.

UR:  That's correct.  The employment-based system is much loved by the American people and it has served people fairly well.  But the problem is, it is ephemeral.  When you lose your job, you lost that coverage.  You can buy it with your own money for another 18 months, or now with federal support.  Nevertheless, even after 18 months it runs out.  So this is really not a solution.  What you really want is portable insurance that sticks with you no matter where you work.  Which means eventually Americans should decouple insurance from the job and have individually-purchased portable insurance.  That actually happens to be a Republican idea which I have always endorsed because I don't like the employment-based system for that reason.  Democrats always want to shore up the employment-based system and I always scratch my head and ask why!

MMC:  You think a system where everyone makes a decision themselves, based on the kind of health insurance that they want, people have -- not to underestimate the public but... -- do people have the knowledge they need to make that kind of smart health insurance decision?

UR:  Well, I personally believe that the kind of people who walked into the sub-prime mortgage crisis as they did, and mortgages are a lot simpler than health insurance, are probably not capable of organizing health insurance in a market that isn't substantially regulated through exchanges.  But you find the idea of exchanges even in Republican Senator Coburn's bill. He openly talks about exchanges and even referenced the Dutch and the Swiss system, that have exchanges, as models.  If you had standard policies that were good and that people could trust and understand, like homeowners' policies are regulated that way -- you don't have to read twenty pages of fine print.  If you had those policies at least available on an exchange, I think individuals could handle this market.  But you have to structure that market for people.

MMC:  And an exchange where plans would compete with each other?

UR:  Yes.  When you look at General Electric, for example, they have an in-house exchange.  It's called the personnel department.  And in it the employee benefit department.  The employee benefit manager, a good friend of all of us, manages this exchange for all GE employees.  It works exceedingly well.  All we're talking about for people who are not working for large companies like GE, the state should organize an exchange where they could have the same benefits a GE worker has.  That's all these exchanges really are.

MMC:  ...One of the issues that Republicans have called for and that the president says the Democrats should at least take a look at is this issue of tort reform, looking at malpractice.  Is that a place where the US can save money?  Is that a fruitful part of our system to look at?

UR:  Yes.  It saves money, but not a lot.  The Congressional Budget Office looked at that issue and they came up with an estimate of some $60 billion over ten years -- or half a percentage point of health spending.  So it won't be the solution but it couldn't hurt to look at it.  But there's another reason why you might want to look at it.  One is this issue of defensive medicine -- meaning that doctors very often claim, at least, to do things not for clinical reasons but for legal defense.  Preemptive legal defense. So they'll do an extra test saying they don't need the extra test, "but if I'm even in court, they'll ask whether I did the test."  Some physicians in a recent survey claimed that 26% of what they do is defensive medicine.  I find that high.  Others have said it's 10%. Some of that might be saved.  And this could be a larger saving than the CBO had estimated.   But the third one is really the psychological cost imposed on physicians of constantly having this little devil on their shoulder.  Every patient is a potential litigant.  That is not conducive to good medicine, I think.  When a doctor sees every patient as a potential enemy.  I think it makes medical practice unpleasant. For that reason we should change it.  Now, do we have to study it again? I think, frankly, the president is being disingenuous here.  He should have taken this issue more seriously early on because we have already studied this issue to death.  There are great scholars -- Mark Hall at Wake Forest, I believe, and Randy Bovbjerg of the Urban Institute and many others -- who are lawyers and health economists or physicians who have studied this and come up with alternative dispute resolutions.  We wouldn't really have to study this a lot.   We could actually move forward with remedial action.  What the Republicans propose is to put a cap on non-economic damages -- for pain and suffering.  I think that's a meat-axe approach.  Depending on the degree of suffering, injured patients should get more compensation for pain and suffering.  That is what these alternative models that have been proposed that actually would not have a one-size-fits-all solution, a cap. They would use alternative dispute resolution.  That has all been basically studied to death.

MMC:  ... One of the findings was -- and this isn't obviously for everybody and there are cases where people are grievously harmed and sometimes even die as a result of medical care -- that the fact that a doctor can admit a mistake apparently reduces the chance of some kind of malpractice suit.

UR:  Yes.  This is what they have, of course, at the airlines.  When pilots admit they made a mistake, usually there may be some remedial action, some more simulated training, etc., but it isn't held against them.   But if they conceal a mistake they get fired.  The same is the case here:  if physicians could admit a mistake, and things do happen of course, without feeling the boom would be lowered on them, they would report them more easily and probably put systems in place to avoid these mistakes.  For example, giving patients the wrong dosages of drugs.  The proper remedy there is to have computerized systems where some hand-held device checks that that's the right dose.  A lot of these are systemic problems, not even that a physician is negligent or malicious.

MMC:  The idea of a checklist or washing your hands -- some kind of basics of health care.

UR:  Yes.  Atul Gawande's checklist, for example. Which, when you go on an airplane, you see pilots go through that!  And they do it sincerely although they have done it for the thousandth time.  The thousand and first time, they go sincerely through that list to avoid mishaps.

MMC:  ....We have a caller.

Wendell:  I'm a big fan of Professor Reinhardt's writings, by the way.  Very amusing and very enlightening!  ...It seems to  me that a single-payer insurer scheme and financing of medical services makes a lot of sense for business as a whole.  I wonder if Professor Reinhardt thinks that there's any chance a Republican -- an enlightened Republican, maybe after the mid-term elections -- might try to enlist support from business for something like that.

MMC:  For a single payer system?

Wendell:  Yes, for business -- whose interest I think that scheme is in.

MMC:  That's an interesting question.  Professor Reinhardt, I'm also thinking of those car companies in Detroit that are struggling.  Part of their struggle is that they have to provide expensive health care and benefits to their employees.

UR:  I think the Republicans would reject that idea because they have an alternative idea, which is to say organizing exchanges and allowing people to buy individually-purchased policies that are portable between jobs.  Which, Republicans will tell you, would achieve the same thing, and that's getting business out of the need to finance health insurance.  They would never go for a single-payer system simply because they do not trust government.  So that idea, I would never even contemplate Republicans doing it simply because they have already proposed an alternative to it.

Carl:  Good morning!  ... I actually worked in the industry but I'm not going to talk about that.  My comment really has to do with an issue which your guest brought up which I agree with 100%, and that is the fact that a hospital and the health care system are operating at 1 - 2% profit margins and that flies in the face of the fact that a lot of the vendors who provide products to our hospitals operate at 20 - 30% profit margins.  Look at J&J, a darling of Wall Street, touts the fact that they operate at a 27 - 28% gross profit margin.  And yet they're selling those goods to our hospitals which are losing money, day in and day out.

MMC:  Carl, that's a very interesting point.  Let me get Professor Reinhardt to respond.

UR:  Well, if hospitals were paid DRG  [Diagnosis Related Group] by every patient -- that is, they get a flat fee per case -- and then would have to shop around for good prices from vendors, in some way this problem, in my view, should solve itself.  Because a hospital purchaser or a purchasing alliance, of which there are several, could shop around among different vendors of medical products or drugs and then get good prices.  So you wouldn't really have to have government get in and regulate this.  That sort of thing the market should be able to handle because these are products, not services to people who have cancer.  They're products; they're commoditized.  And you should be able to get the profit margin further down.  The producers of that technology will, of course, tell you that if you do that they won't have money for research and development.  And you've heard those stories!  But I think this will come one way or the other whether the producers like it or not.  Once we move from fee-for-service to bundled payments, and hospitals or groups of doctors get one payment for the whole treatment of a medical episode, they will shop around and bargain sharply for lower prices for these inputs. That's already coming.  If you look at the medicare drug price situation, there has been a whole series of shifts to generics which really has been a devil on the neck of the pharmaceutial industry.  So the market has really handled this problem.

MMC:  Are you predicting -- are you saying, Professor Reinhardt -- that we will move eventually or maybe piecemeal from a fee-for-service system to bundled payments? 

UR:  I think so, yes.  This will take some time to do.  I estimate five, maybe ten, years, where we start case by case.  First you bundle the easiest, like a normal delivery.  You can have a bundled payment for that.  A coronary bypass is increasingly so standard, you could have a bundled payment for these cardiac cases.  And we'll go sort of case by case and roll it up.  There is now research underway to do this by private insurers.  The government is putting money down to research it.  The Robert Wood Johnson Foundation has done it.  I think this will come.  Then the traditions in relatively high margin in the device and pharmaceutical industries will come under pressure. 

Wes:  I appreciate the goal of the insurance exchanges but one problem that I see is that health concern is very complicated so it seems, for example, that if it's regulated that a certain kind of health insurance has to cover procedures that are experimental to some level could go into making the decision as to whether a procedure has to be covered.  It seems like a really complex decision.  For two different insurance companies to be on the same footing in that kind of exchange, there'd have to be some sort of regulation about what their actual decisions were and what to cover.  It seems like that's actually the most complicated part of insurance.  If you remove that from the decision-making power of the insurance companies, it seems like the hardest part of having a single-payer system is actually making the decisions about what to cover.  It seems like you might end up having to do that anyway just within an exchange.

UR:  This is a very astute observation.  This is, in fact, a world-wide problem:  what do you cover and what don't you cover.  In some countries, say England, they have the National Institute for Clinical Excellence where they actually estimate how much it costs per quality-of-life year saved with this procedure.  And at a certain point they say it isn't "worth doing:  we  will not cover it."  In the US you cannot even raise this question.  You saw the hysterical reaction with "death panels" and so on.  So we're not there yet.  At some point we'll have to come to this decision. Private insurers in some way already quietly are making those decisions.  But there you can say, "Look, if I'm the A-B-C insurance company, and I decide not to cover it, if you don't like it go to someone else who does cover it."  So they're in some way off the hook.  The problems Americans fear is that if the government does it and prescribes it, then it will be dictated and there's no appeal.  So that issue will take at least another half-decade for us to discuss openly.  Hopefully with allusion to Adolf Hitler!  Just as an ethical proposition, this is a hard one the caller raises here.  But it has to, at some point, be made.  For example, with these new specialty drugs it will one day happen that in order to buy another year of life for a patient it may cost half a million dollars.  The question then is, if that's taxpayers' money do we want to buy life for unknown fellow Americans at half-a-million-dollar-per-life-year?  At some point, this problem will stare us in the face, whether we like it or not.  We may decide that yes, we do.  Or we might say, you know, maybe not.  And then Medicaid and Medicare will not cover it.

MMC:  And this gets us into -- and this is something you've written about -- this question about American culture, what we value, what we believe in.  We seem to be a country that values independence, people making decisions for themselves.  But if we're talking about healthcare, the question is whether we're all on our own to figure this out for ourselves or do we all share in a system where what happens to you affects me.

UR:  Well, Marty, that is the problem.  There are two problems in connection with that.  Not everyone is actually able to think through some of these complicated issues.  Again, we're a people who had trouble with mortgages!  These are complex issues that involve clinical issues -- biological and ethical decisions -- so that's just one thing.  Can every patient even digest the technical information?   But then the other part of it is that some people are rich and some are not.  If you're on your own financially, you may very well decide that, gee, I'd really like to have this drug but I can't afford it.  Then the question comes back to the problem whether the government should force your neighbor to buy that for you through taxes and government programs like Medicare or Medicaid or subsidies.  You just can't run away.  I testified before Congress and one congressman threw in my face that I had said human life is not in fact priceless -- the price of human life is not infinite.  Otherwise we would have, for example, equipped our troops better when we went into Iraq!  He was very, very upset about it and asked, "How dare you tell me what my life is worth?"  And I said, "I'm not telling you what your life is worth.  I'm raising the question to what extent do your neighbors have to chip in by force of government to buy you an extra life-year?"  That is a legitimate question to debate.  Somehow to call that "fascism" is wrong.  After all, we do leave a lot of people uninsured in the country now.

MMC:  I realize each country has its own system. But have European countries resolved some of these ethical and philosophical issues that we still seem to be grappling with in this country?

UR:  Yes, they have.  They make these coverage decisions, particularly England, in a very explicit way with NICE, that then recommends to the government whether or not to cover a procedure.  Germany has a similar institution which is now, with a new government, under review.  Nevertheless, they make those decisions as well.  Australia does it and Canada does it.  Of course, we look down on these countries because they make those decisions.  But at some point, given the huge deficits we face... and don't ever forget, over half of all American health spending is already tax-financed now, over half!  ... so at some point we do need to ask, "Is that actually the best way to spend money if you want health?"  There is a lot of research that says education is far more important in determining the health status of a population than health care.  You might get more mileage in terms of better health by education people better, particularly in how to manage their health -- not to become obese, not to take cholesterol too lightly.  That may yield you more good health than putting it into heroic medical care.  We need to have, at some point, a rational, civilized discussion that doesn't descend into what we saw last year.

Kyra:  Several months ago the American Cancer institute, I believe, came out with a study that stated that it was actually against standard of care to be doing as many mammograms as we're doing, that they should be started later and not done as often.  And, from people I work with and so on, it had nothing to do with Obama and nothing to do with the health care debate, but there was all this outcry about rationing.  I think this ties into what you were just saying.  But I'm just wondering, politically, how do you get around this and how do you get around the issue of saying, "Well, we're not going to practice defensive medicine anymore."   How do you establish the standard of care, I guess is what I'm saying.

UR:  This particular study was done an independent council of essentially clinicians.  Though apparently not oncologists.  Although they took studies from oncologists under advisement and came out with a report that said basically doing mammograms on women under forty is not cost-effective because you will detect very few cancers and the cost-per-screening ... they didn't even use costs, they just said the psychological cost to a woman who has a false positive and then has a biopsy and so on, they just said within the clinical realm it doesn't make sense.  But they also said something very, very carefully.  First of all, they didn't bring dollars in at all.  Two, they didn't say it shouldn't be done.  They said a woman should discuss that with her doctor whether or not the clinical risk of doing the test, particularly with a false positive,  is worth the agony.  It was really sort of a heads-up.  It is perfectly legitimate for a clinician to discuss with the patient not to do that procedure.  The idea then would be, in case of a court case, you can say, "Look, this isn't standard medical practice."  But there was nothing in that report, if you read it fairly, that said doctors shouldn't do it.  They simply said, "This shouldn't automatically be done." While over fifty it should be automatically done.

MMC:  Is it possible to have a rational conversation in this country about our health care system?

UR:  I really... have despaired.  I've been here for some time [Dr. Reinhardt is German-born].  I don't think it has ever been as bad as it was last year in particular.  The question now is, suppose the government changes hands.  Suppose the Republicans had the White House and Congress. Will then the Democrats do the same and extract vengeance and simply filibuster everything that comes down the pike?  So we descend into deep bitterness?  So I think what it might take is to have a president like Eisenhower or, in some ways, Reagan, where you just wouldn't dare do it.

¿Obamanos? First term, first year

11/19/09 -- Hendrik Hertzberg of the New Yorker was interviewed about his book on Obama's first year in the White House on Michael Krasny's "Forum" at KQED.

Michael Krasny:  Hendrik Hertzberg is the author of a new book on the last presidential campaign and the prospect for the future -- "¡Obamanos!:  The Birth of a New Political Era."  We'll talk with him about a range of issues as we focus on his book and on today's politics... Hendrik Hertzberg took the title of his newest book, "¡Obamanos!", from a campaign poster he saw on a dusty road not far from Santa Fe, New Mexico.  He describes the book as "simply a real time contemporaneous record of one person's observations, cogitations, and indignations over the quadrennial cycle that ended with the election of Barack Obama as president of the United States."  The author of "Politics," and a staff writer and editor at the New Yorker since 1992, Hertzberg is also a former naval officer, a Newsweek reporter, and served twice as editor of the New Republic and as President Jimmy Carter's chief speech writer. 

MK:  ... Welcome!  Good to have you here! 

Hendrik Hertzberg:  Wonderful to be  here! 

MK: ... This is an election, you point out, that has special magic to it.  Your 15th election, as you were counting!  And a once in a lifetime election, as you see it as well.

HH:  Yes, I did see that -- to my surprise.  It did develop into that -- into a once-in-a-lifetime. I try, in the introduction to the book, to figure out why I got so emotionally wrapped up in this one.  After all, I'd been closer to the center of at least one other election -- the 1980 Jimmy Carter election when I was on Carter's campaign plane.  But I think a lot of people had that experience.  A lot of people had the experience of getting pulled into this one more than they had any other, doing things they never expected to do.  Sending checks and taking trips to battleground states and stuff like that.

MK:  Where are they all now!  That's the question that's hovering over the attempts to get health care through and all the rest of the Obama administration's agenda at this point.

HH:  Well, I guess the administration has not had as much luck as it had hoped to have in activating that volunteer base -- this enormous online base that they assembled during the campaign.  But it's just a different thing now.  The campaign had a particular end goal.  It was tightly focused.  It had a shape.  The fights that the President is involved in now -- especially the health care fight -- doesn't lend itself as readily to that sort of direct action.  Yes, they want to get people to write their representatives.  But the only representatives that really count are a handful of senators from contested areas -- or conservative areas.  So it doesn't much matter what 99% of the public does.  The polls count for something.  But it's not as if a 5-point gain in support for the health care plan in the polls would be a decisive factor.  The decisive factor is going to be the senators.

MK:  But it seems as if, coming out of the gate, there was less of an attempt to rally the troops or to galvanize things, at least where health care was concerned.  In fact, it was almost tacitly admitted that perhaps they could have gotten things started much sooner rather than turn things over to the House of Representatives or the Senate.

HH:  Well, against the background of what happened in 1992 when the exact opposite tack was taken and there the Clinton administration put together its own plan -- which was just as enormous and full of detail as the ones that have been coming out of the House and Senate.  And that backfired.  You can argue, I guess, that Obama went to the other extreme. But I think that the results so far show that he made the right call.  The Clinton plan got killed dead.  The Clinton plan was much more vulnerable to the crazy attacks launched against it than this plan is to the crazy attacks being launched.  Because members of Congress are complicit in designing this one.  They have skin in the game where they didn't -- at least not enough -- in the Clinton fight.  So I think he made the right call on that.

MK:  I want to talk with you, in fact, about Senator Reid's putting forward a program just yesterday about health care, but let me go back to your book -- because there's so much to draw from this.  What you take us back to is that speech that Obama delivered which was an extraordinary speech -- you compare it to Mario Cuomo's speech in San Francisco.  Jazz vs. opera or something along those lines!  A fine metaphor!  But it did really present Barack Obama for the first time launched as a candidate and reminded many of us of an idea that was attached to Julian Bond at one time:  "This is a man for the future."  That carried for quite a while.  There was a great deal of skepticism that he could actually take center stage as he did, which was extraordinary and had a lot to do in your judgment with his temperament -- and all the good organizing.  But you were drawn to the calm.

HH:  Yes, the temperament at the eye of the storm.  That really, really built during the campaign.  At crucial moments -- there were many points during the campaign when his candidacy could have simply collapsed -- his temperament came to the rescue.  He managed to stand back from the 24/7 cable TV news hysteria and think his way to the next step and look over the horizon.  And while all around him were tearing their hair out, he was focused and thinking and calm and then pulled himself out and emerged stronger from each of these controversies than he'd been going into it. 

MK:  You also made a fascinating analogy -- and it was made before, certainly -- in a way that I found quite fascinating:  the cool aristocratic demeanor of John F. Kennedy.  You even compare his book to "Profiles in Courage."  Though I think it's a question of who was helped more.  There are some of these charges now whether Obama had Bill Ayres as his ghost-writer coming from the Right.

HH:  That's an example of utter insanity, complete..

MK:  As insane as saying he was born in Kenya?

HH:  Yes, it is.  It's just as insane as that.  Or maybe not quite because born-in-Kenya paranoid scenario requires somebody having peered so far into the future that they would place a birth notice in a Honolulu newspaper!  So it's not quite as insane as that!  But it's just a random lie, a random, absurd lie.

MK:  What I found fascinating, though, in the analogy to Kennedy was that Obama was not what most Americans perceived as "black" in the way Kennedy was not what most Americans perceived as "Catholic," in terms of their fears or the dangers associated with that.

HH:  That's right.  Kennedy was an Irish Catholic, but his whole style and demeanor was the reverse of the usual stereotypes about a kind of red-faced parish priest combined with hard drinking or a New York cop.  All the stereotypes of the machine Irish pol.  Kennedy was elegant.  He was secular; he was a Harvard man; he liked to sail boats rather than play bowls.  He was the reverse of that...

MK:  Windsurf, as you point out, was toxic for John Kerry.

HH:  And I think that was Kerry's fault in a sense because Kerry was a kind of Kennedy redux.  He ran away from what was natural to him.  It seems to me that he would have been much better off saying, "Okay, let's see who can parasail better, me or George W. Bush.  Or for that matter, let's see who can fly a plane better."  Did you know that John Kerry was a pilot who had logged many more thousands of hours in the air than George W. Bush did?  Nobody knew that!  For some reason it wasn't brought out.  The Kerry campaign didn't bring it out just as -- going back further -- the McGovern campaign in 1972 just left aside the fact that McGovern was a war hero and a bomber pilot.

MK:  We talked about that with Senator McGovern and, in fact, talked just yesterday with James McManus, who wrote a couple of books on poker, and he was saying that, initially, President Obama was saying, "I'm a good poker player," but then he kind of backed away from that.  You're not supposed to be upfront about your poker playing!  Remember he went to Pennsylvania and bowled a game of 37?  That didn't quite impress those who hang around bowling alleys!

HH:  Well, he's lucky -- and his luck is absolutely preternatural, extraordinary -- but the three-point shot kind of wiped away all of the bowling problem.

MK:  ...It's a new political era, although now we've got ... the movement from all of the idealism to governing.  Obama now is facing a great deal of shellacking over the decision that he and Attorney General Holder made to have this trial of Khalid Sheikh Mohammed -- "KSM" -- and these other two terrorists in New York City!  As opposed to putting them in a military tribunal.

HH:  I'm from New York City and I'm not scared of having the trial in New York.  And this trumped fear  about having the trial in New York is of a piece with the fears -- irrational and nasty fears that have been trumped up -- over Guantanamo.  These supposedly chest-thumping, pro-military senators and members of Congress tuck their tails between their legs and say, "Oh, no, no, no!  We're terrified of having a terrorist from Guantanamo in a maximum security prison in our state!"  Even if there were some risk to taking these prisoners to maximum security prisons in the US -- even if there were some risk -- this is a war, supposedly.  That's what these people think it is.  Aren't you supposed to take the odd risk in a war?  Aren't our soldiers taking some risks?  So it's a weird effusion of cowardice -- proud cowardice!  It's as if these people are proud to be chicken! 

MK:  It's not only security concerns.  Those were expressed, certainly, by Governor Patterson [New York].  Not only concerns about security but the fact that this is on "hallowed ground" and there's all this fear attached to it.  This was coming from a Democrat.  But also [concerns] that intelligence things will be revealed during the trial, that you're giving an opportunity to people that say they were mirandized or they were tortured or all kinds of things that could essentially create a hung jury or get them off. 

HH:  Yes.  I don't know.  Maybe it wasn't such a good idea to torture them to begin with?  That's the lesson of that.  And I think that the Obama administration -- and Holder -- want to make a break with that whole approach and to have them tried by a military tribunal -- to deprive them of Constitutional rights and all that would just be a continuation of the thinking that led to torture.  They're trying to restore the rule of law.  They're trying to restore decency here.  I think the danger is rather slim that he'll get off.

MK:  What do you make of some of the criticism -- you followed the campaign -- lately?  David Brooks had a column essentially writing about the indecisiveness of Obama, particularly in light of Afghanistan.   He's an intellect; he's a man of calm.  He's a man Brooks obviously has a good deal of respect and admiration for.  But he doesn't have that ability to make a quick decision -- the black or white kinds of decisions that W made. 

HH:  I think that's wrong.  I think that in the campaign, when his calm temperament would take over, he might take a day or two longer to make a decision.  But when he did, it was clear and it worked.  It certainly doesn't bother me in the slightest.  And from what poll data tell us, it doesn't particularly bother most of the American people that he is looking at the Afghanistan issue from the ground up and he's taking time to do it.  I don't really understand the reasoning that so values quickness of decision over rightness of decision. 

MK:  ... Maybe they've all been reading Malcolm Gladwell and they believe in "blink" or something along those lines?

HH:  David Broder wrote a column saying that it's important that Obama make this decision quickly, whether it's the right decision or the wrong decision!  That's sort of a self-refuting comment!  Who does not prefer to take a little longer and make the right decision?

MK:  Do you think some of this criticism of Obama is tied -- as the president you worked for, Jimmy Carter, seems to suggest -- to race as a factor?  Do you see it that way? 

HH:  It's an underlying factor, I think.  "Otherness" is an underlying factor.  Race per se?  Yeah, I think that plays a role.  But I don't think it's simple racism.  What Jimmy Carter did was a classic Michael Kinsley gaffe.  He blurted out a truth.  Carter's coming from the deep South.  He's steeped in a culture where racism was historically pervasive and he called that one as he saw it.  But that doesn't mean that the Limbaughs and Hannitys and Joe Wilsons of the world (well, maybe Joe Wilson!) are outright racists.  It's an otherness.  It's a sense of alienation from everything that Obama represents.

MK:  Hawaii and Indonesia and Africa and all those things?

HH:  This whole other way of being American.  This whole other way of having American roots that Obama introduced the country to -- at least at the national level.  It turned out that it resonated with a lot of people.  I've got those kind of varied roots.  I'm on the one side descended from Walt Whitman's great uncle and a bunch of people who came over in the 18th century, and on the other side from people from the [inaudible] settlement in Eastern Europe.  There are so many Americans who are these crazy mixtures.  And Obama came along and represented all that.  It's another kind of American roots and it brought out a new kind of patriotism among people.  I think it was one of the biggest factors in his emergence.

MK:  You also have a pedigree going back to Norman Thomas, the party of your parents, although you say unequivocally, "I'm a Democrat; I'm a liberal.  I've always been a Democrat and a liberal."  Does that hurt your so-called political perspective in terms of readers saying, "Well, he has this bias"?

HH:  I don't know.  I think when I wrote for the New Republic for all those years, I was more overtly preaching to a choir.  People who read the New Republic -- despite what some may say about it's apostases -- it's essentially a liberal audience.  The New Yorker is mostly a liberal audience.  But the New Yorker is not primarily a political magazine.  It's at least as much a literary magazine.  It has plenty of conservative readers.  But I don't see much percentage in hiding the fact that if you think about public affairs over a long period of time, you're likely to end up with a set of beliefs.  And those beliefs are something you apply to your analysis.  I don't really see anything wrong with that.  I don't think it harms the quality of the analysis unless the beliefs are crazy!

MK:  I remember Jim Lehrer telling me, much to my surprise and slight shock, that he hadn't even registered in a political party because he didn't want to give the appearance of being biased, and so forth...

HH:  I think that's a reasonable position for someone whose business is presenting the news.  It can go too far.  Maybe Jim carries it a little too far. 

MK:  No, he's right.   It was in the interest of good citizenship and modeling for him to do that.  But at one point ...

HH:  He's probably registered as an Independent.

MK:  I believe that's right. ... Getting back to President Carter for a moment, I did an interview with him which was unfortunately a bit contentious because I was asking him about some of the material that Alan Dershowitz had alleged.  I don't necessarily want to get into that into that whole miasmic swamp with you!  But what about these charges that he's anti-Semitic?

HH:  That's ridiculous!  It's absolutely ridiculous!  It's a common...  You can argue with the substance of what he says and thinks and recommends.  You can't argue with the fact that he was among those primarily responsible for the biggest gain for Israeli security that's been made since the founding of the state of Israel.  This is a man with a track record.  The peace treaty between Israel and Egypt has held all these years.  It is a centerpiece.  The tactic of accusing him of anti-semitism is despicable.  It is inadmissable.  Decent people should not engage in that sort of thing.

MK:  Getting back to the campaign.  Reverend Wright was going to be, according to just everybody observing -- including you -- perhaps a kind of potential Waterloo for would-be president at the time, Barack Obama.  That turned out not to be the case in large part, again, because of a speech, really. 

HH:  Yes.  Because of the way he responded to it.  By all rights, that should have torpedoed his campaign.  If it turns out you've been going for 20 years or whatever it was to a church whose pastor -- the pastor who performed your wedding -- gives a sermon saying, "Goddamn America!", that is not good news for a candidate for office.  When the storm broke the Obama temperament took over.  He absented himself from the crazy swirl around him.  He sat down.  He focused on making a speech that went beyond the immediate controversy and addressed in an extraordinarily sensitive and perceptive way the burden of race in American life.  And he made a speech that rescued his campaign.  He came out of it stronger than he'd gone in.  Now, not everybody who was affected by that speech actually heard or read it.  But those whose business it was -- the kind of "opinion leader' class whose business it is to read such things and pay attention to such things -- were deeply impressed.  Everybody else kind of heard about it.  Everybody else heard, "Well, this guy gave a really, really smart speech where his sympathy not just for "his own people" but for everybody came through.  It simply strengthened the role that this new kind of identity politics played in his victory.

MK:  ...Curious to get your sense of when McCain gave that concession speech.  I thought, and I wasn't the only one who thought this, that if he had conducted the campaign with that kind of rhetoric and taken that kind of style, it might have been (ifs are ifs!) ... That was a different McCain.  That was a McCain a lot of people wanted to see! 

HH:  It was.  And actually I'm surprised we haven't seen more of that from McCain since the election. I had hunch that McCain would end up being a kind of ally of Obama's.  But it hasn't happened.  That was a very sad spectacle, the moral decline of McCain -- selling his soul bit by bit.

MK:  A Faustian drama.

HH:  A complete Faustian drama.  The minute he decided to do that he began that decline.  I only wished that in 2004 he had accepted what I think was kind of an offer from John Kerry to be on John Kerry's ticket.  That ticket -- Kerry/McCain -- would have caused a huge fuss at the Democratic convention.  It would have driven the pro-choicers nuts!  And it would have swept the country.  But instead he sold himself off bit by bit and the worst of it was the choice of Palin.  Although he didn't know how bad that choice was when he made it.  It didn't reflect so much on his willingness to kowtow to the right -- that was part of it -- but it was also his picture of himself as a daring flyboy who takes chances.  It appealed to the maverick mythos that he carried with him.  But in retrospect it was just an appalling -- an appallingly irresponsible misjudgement.  For the first time -- after the Palin choice -- I worried that the McCain whom I'd seen as being much safer for the country than any of the other Republicans, and that even though I thought McCain would run the strongest campaign against the Democrats, that he would be the best president of the Republicans.  So as a citizen I was glad he had gotten the nomination.  But after the Palin incident I worried about his temperament and how it might be dangerous in the White House. 

MK:  Many were worried about that during the campaign -- even some of his non-detractors.  He had a hot head and ...

HH: ... Yes.  Then when he pulled the stunt of trying to cancel the campaign because of the financial crisis -- actually when he did that, similar to the Palin choice -- the first reaction of a lot of Democrats was panic.  It was, "Oh my god! This is a real coup!  What are we doing to do?  He's put Obama [on the spot about ] cancelling the campaign ...  It leaves Obama with only two choices:  he can either obediently trail along beside McCain to cancel the debate, or he can say, 'No, my political career is more important than the country's welfare.'"  And that was a case where Obama, with one line, saved himself and turned everything around when he simply suggested quietly, "I think a president has to be able to do more than one thing at a time."

MK:  It's clear what your sentiments are where Sarah Palin is concerned! [laughter] Nonetheless, she has a tremendous base of support.  She is probably now, just in terms of enthusiasm and the appeal that she has and her book is selling everywhere (except here in the Bay area where a lot of bookstores won't have it on the shelves!)... Right now it's premature to talk about the next presidential election but she will probably be the leading Republican candidate.  If she wanted the nomination, one would have to assume that it's hers.

HH:  I don't believe so.  Maybe it's a failure of imagination on my part.  But I really can't picture a semi-serious American political party choosing her as its candidate.  And I'm not even persuaded that she really wants it.  She may want to run for president as a way of remaining famous and staying in the public eye but there's no evidence at all that she would like to be president. If being governor of Alaska was too much for her and she had to quit that...  well, that's not a real hard job.

MK:  Her explanation is that she did it for the good of Alaska because of all those lawsuits and all that litigation being brought against her.  She wanted to pass the torch on, in that sense, because she felt she was getting too bogged down.

HH:  If she thinks she got too bogged down with a couple of lawsuits as governor of Alaska, try being president of the United States with a gigantic fiscal catastrophe and two or three wars going on!  Then I think she'd feel even more bogged down!

MK :  We have some callers.

Debbie:  First of all, Mr. Hertzberg, I just love reading you in the New Yorker.  You always are able to verbalize what I don't even know I'm thinking yet!

HH:  [laughter]  Thank you!

MK:  That's the highest form of praise!  ...We have some callers.

Debbie:  I, too, just fell in love with Obama.  Even now I can't help loving him!  I'm amazed at myself.  I thought, Okay, he's going to break my heart -- I know he's going to break my heart though I don't know how exactly, but I don't care!  (When you fall in love, you don't care!) 

[laughter]

Debbie:  I try to give him all the benefit of the doubt.  I'm happy he's president but I have to say I'm really disappointed that he hasn't taken the lead in at least trying for things like single payer.  Just going out there, talking to people the way you have acknowledged.  He's able to cut through crap and speak simply -- and explain concepts and reach people, and have Robert Rubin and Larry Summers be in charge.  That's a great disappointment and I feel ...

MK:  ...Excuse me, I want to cut in here.  Is he pragmatic or is he progressive?  I think that may be part of the problem...

Debbie:  Okay.  I want to hear...

MK:  ... hear what Hendrik has to say.

HH:  Well, let's focus on what you said about the health care fight.  I believe -- she believes, I think, and Bill Clinton believes and I'd be very surprised if Barack Obama didn't believe -- that single-payer is indeed the way to go.

MK:  He said it to the AFL-CIO during the campaign.

HH:  Yes, he did.  I think you just have to accept the fact, though, that under our bizarro political system at this point, single payer is not a possibility. We will get there some day.  But it's not a possibility right now and Obama wants to get something done on this.  He wants to achieve something. And the something that he wants to achieve and that he probably will be able to achieve at a minimum is pretty important -- covering some tens of millions more people, preventing people having their insurance taken away when they get sick, or not being able to get it at all because they have so-called "pre-existing conditions."  We all have pre-existing conditions!  One of them is mortality! ... As a fellow in-love-with-Obama person, I would say to you, ma'am, that it's not Obama who'll break your heart.  Yes, your heart's going to get broken.  But, leaving aside Afghanistan for just a moment, it won't be Obama that breaks your heart, it'll be a set of venerable political arrangements that make action so difficult in this country.  More than in other democracies.  That's the thing to focus your disappointment and anger on. 

MK:  ...You were talking before about how the pro-choice people would have been so angry had McCain been added to the Kerry ticket.  But there's a real possibility, as we saw in the House of Representatives, that there may be something the pro-choice people will get extremely angry about in terms of compromise for this health care bill.  Already the House has decided to pretty much compromise and get the so-called "conservative Democrats" behind it, saying abortion's not going to be paid for.  And now they're talking about that in the Senate as well.  Barack Obama wouldn't necessarily support that.  But to go along?  To get it passed?  Yeah... Maybe...

HH:  Yeah, maybe.  It's premature to have to cross that Rubicon right now.  You know in a funny way the best thing that could happen for the pro-choice movement would be the repeal of Roe v Wade.  Because right now the privileged class, which does not need a health plan to get an abortion -- you can get one on the open market and it's legal  -- as long as that is not threatened a lot of people are willing to vote for anti-choice or so-called "pro-life" candidates.  Because they know that in the end they won't be able to get their way.  They know that in the end abortion is going to remain legal and available at least to those who can afford it.  This is a social justice question.  But as it is, abortion has become less and less available -- harder and harder to come by.  I think the pro-choice movement must have been asleep at the switch not seeing this coming.  But I think that this is one which is worth fighting over.  It's premature to talk about whether it's worth torpedoing the whole thing.

Terry:  Couple of comments and then a question.  First of all, the word "cowards" came to mind when I heard a few months ago that certain people are upset that we're going to bring detainees from Guantanamo and keep them in prisons here.  Like, what are we?  A bunch of wussies?  We can handle that!  The same word came to mind when they made the decision to have the trial in New York.  Something could happen but it's not as though we've been off the terrorists' radar anyway.  My question:  I've been under the impression that Obama writes all his own speeches because he's a very eloquent man.  Do you know if he writes his own speeches?

HH:  Yes, I do know, and no, he doesn't.  The important ones he has a very strong hand in.  He wrote his own book.  There's no question about the fact that he is either the best or one of the two best writers to occupy the White House.  He's certainly the only one who wrote a work of undoubted -- at least undoubted to me! -- literary merit.

MK:  You said "Dreams From My Father" would stand up as real quality literature, regardless.

HH:  I think so.  I'm not saying... I wrote at one point after the election that it was now guaranteed a place in the canon, in the American canon.  And it's true that he later becomes president that it guarantees that spot in the canon.  It's not that this is one of our hundred best books ever written.  But it is a work of real, true literary merit.  He has a speech-writing staff, quite a small speech-writing staff.  I think it's six people.  They all are incredibly young.  I met a couple of them the other night.  There was a meeting of the Judson Welliver Society, which is a kind of annual or semi-annual or quadrennial (or whenever we can get it together!) dinner for old White House speech writers. This one was at Chris Matthews' house.  Everybody got together.  There were speech writers there from the Truman administration through to the Obama administration.  Ted Sorenson was there.  It was a wonderful evening.

MK:  Peter Robinson, who is at Hoover out here, who wrote "Tear down that wall..."?

HH:  He wasn't there, but Tony Dolan was there.  Peggy Noonan was there.  There was a good representation of Reagan speechwriters.  The only administration that was badly represented was Bush 2.  There was only one speechwriter there and he was part of the Bush speechwriting staff, but had been a holdover from the Clinton speechwriting staff.  The Bush 2 administration was a time of some awkwardness for the Judson Welliver Society.  But there were these two kids there from the Obama speechwriting staff.  His chief speechwriter, Jon Favreau -- I think he's only 27 -- and the oldest member of the staff is only 32.  You can't expect a president to write his own speeches.  Presidents give one or two speeches a day on average.  He wouldn't have time to do anything else if he wrote his own.  But they are his own speeches.

MK:  That's another thing you hear from the right often is that he's good at reading teleprompters but off-the-cuff and improvisationally he's not as quick and not as gifted a speaker as he is when he's got  speech in front of him.

HH:  Well, I should hope not! 

MK:  Yes, [laughs] I don't know what kind of criticism that amounts to!  But there it is.

HH:  Evidently they haven't been watching his press conferences.

Joe:  I was just watching the HBO documentary on the campaign the other day and was struck by the sense of the historic moment of the election.  Not even a year later it's almost been forgotten.  I wanted to get your opinion on how much you think the election was really an Obama effect.  At the time I thought there was a sea change in American politics and people finally seeing the Republican attack against big government for what it was.  And now, less than a year later, the country -- or at least the middle fo the country -- seems to have dramatically shifted back and even liberal pollsters are predicting losses for the Democrats in 2010.  So how much do you think the election was really an Obama effect vs people just being unhappy with the status quo and the economy.  Now that's actually hurting Obama and is going to hurt Democrats in 2010.

MK:  It's not only the polls, Joe.  There were two gubernatorial elections that showed maybe some shift back.  I don't know.  What do you think?

HH:  Well, I think you could have predicted before Obama was ever elected -- it could have been predicted 20 years ago -- that the party in power would loose seats in the midterm election.  That happens all the time.  That always happens.  That's a given.  It's a question of how many seats they're going to lose.  But I do think that yes, Obama came to power and certainly a large part of it was revulsion from the Bush administration.  And the Bush administration had more wrong with it than just conservative ideology.  It was incompetent and venal and steeped in immorality.  There were many ways in which it wasn't conservative at all.  It's a little like Reagan's election in 1980.  I think Reagan was elected in spite of his ideological conservatism.  When people became convinced that he wasn't really serious about nuking the Russians, then they allowed themselves to vote for him on the grounds that at least they could get rid of Jimmy Carter.  I think a lot of... Obama will have to create this new era just as Reagan created, in many ways, the conservative era that followed his election.  It's part of Obama's responsibility to launch this new what I hope will be progressive ascendance. 

MK:  I did a program years ago on "Talk of the Nation" on the "Q factor."  Likeability.  It certainly plays an immense role, I think, in presidential politics.  McCain was likeable.  Many people felt Obama is very likeable.  People still like him, even those who disapprove of his...

HH:  Bush had a high Q rating. 

MK:  Bush had a high one, went out on the stump and was ...

HH:  And Palin is off the charts.

MK:  Exactly!  One thinks of...

HH:  Even I like Palin!  Not her politics.  Not any notion of her being president.  Or even a governor.  Or even an alderman or mayor.  But, you know, she's gorgeous!

MK:  And pleasant!  I think that's what you're saying.  Except if you're Katie Couric, I guess!  [laughter]  The fact is that this should be far from the American people's concerns and yet it plays a preeminent role. 

HH:  It does.  And it's part of the ... We have an elected monarchy, and elected constitutional monarchy.  This branch of government, the executive branch of government, is one person.  It's actually not, but all the focus is on one person and so it's only natural that we pay attention to that person's personality.  The big difference, I guess, between now and when the presidency was designed is the media.  How many Americans ever laid eyes on George Washington?  Let alone William Henry Harrison.  People got their impressions of the personality of presidents and candidates then through many, many filters -- many degrees of separation.  Now they're right in your face.  There's more personality to look at.  So it counts for more.  I don't see any way around it. You can deplore it, but it's the natural function of the set-up.

MK:  I remember Jimmy Carter smiling a lot and saying, "I'll never lie to you!"  That was kind of a theme of his campaign.  After a certain period of time in the White House he came across as folksy and likeable but also kind of stern and demanding.  In fact, that was what a lot of people seemed to pick up on about him.

HH:  Right.  And they were right to notice that.  He was stern.  He was demanding.  And yes, he had this big smile, this big toothy smile...

MK:  Ear to ear!

Caller from Berkeley: I have a question about the progressivism of the  new politics, and particularly the populist note that Obama struck during the campaign.  I think a lot of us who voted for him and feel good about having a smart person as president had high hopes for that.  But at the same time he's presided over the bailout which is such a massive transfer of wealth from taxpayers to the banking class.  And I wonder about the possibility of any kind of progressive politics when that goes completely unquestioned around the country.

HH:  Well,  I'm no economist.  But I think even the most progressive columnists like Paul Krugman think that the bailout was a necessity -- that you couldn't let the whole credit system of the country collapse because that would plunge us into a great depression.  I'm not sure that I agree that Obama was such a populist during the campaign.  There was a moment when everybody except Obama jumped on the idea of a gas tax holiday.  That was a big progressive gesture -- let's say populist gesture -- that McCain was for and Hillary Clinton was for.  Obama rejected that. Populist politics cuts both ways.  The rightwing -- the hard right -- rebellion against Obama has enormously strong populist overtones.

MK:  What's so fascinating about it are the two almost -- I suppose this is typical of politics and you're more of a sage on this than I could ever be -- but the vectors from the extremes.  On the one hand you have Obama being called a socialist because of the bailout and now the government owning most of General Motors and those kinds of things.  And on the other hand saying he wants to round up the center and he wants to do what fascists have traditionally done against those who are opposed to him -- as if he's a neo-Nazi or something along those lines.

HH:  Yes, those are the same people saying both those things. There's no real equivalent on the left.  The closest thing to an equivalent are charges made on the right, I guess.  It's the idea that he's a servant of the bankers and the rich, and that's the hidden agenda here.  I, too, wish that his economic team had been headed by somebody more like Paul Volcker -- though maybe a little too old for the job!  Somebody who would have taken a harder line with the banks ... But Paul Volcker is not exactly Leon Trotsky!  I mean the distance isn't that great.  Yes, I would rather have had a bigger stimulus.  I would rather have had a stimulus with fewer tax cuts and more spending.

MK:  What about the vetting of the Obama administration?  There are those who have said critically -- even Obama supporters -- how do you get a guy who doesn't pay his taxes as secretary of Treasury like Timothy Geithner!  How do you have Van Jones -- whom we know from having had him on the program a number of times and had a relationship with for years -- who should have been vetted about what petitions he was signing and what Communist party he belonged to, and that sort of thing!

HH:  Yeah, there have been a couple of slips along the way.  There always are. If anything, though, the administration seems to be a little too cautious in vetting and very slow in making judicial appointments. There are an awful lot of jobs that are still unfilled, even in the State Department. That isn't just their fault.  In fact it's probably more the fault of holes in the Senate and delay tactics by Republicans in the Senate.  It's a small wart on the otherwise smooth face.

MK:  You bring the Senate up -- a number of times. You're talking about just a few senators who are going to make the difference in this health care bill.  What do make of Lindsey Graham saying it's dead on arrival?  It's not going to make it through the Senate, whatever it is, however Harry Reid crafts it?  A lot of people don't think Harry Reid has the savvy or cunning of our congressional representative, Nancy Pelosi to begin with.

HH:  Lindsey Graham?  That communist?!  Well I don't know what he means by "nothing"  or by "dead on arrival."  If what he means is that the House bill -- the bill as passed by the House --  is not going to emerge either from the Senate or a conference committee, he's just saying the obvious.  It's going to be different.  But if he's saying that nothing is going to happen...

MK:  ... I think the latter

HH:  He's saying nothing's going happen? Nothing will pass? It'll be a total failure?

MK:  That House bill as it was constituted will come to the Senate and is simply not going to be... they're going to have to start from scratch because it's not going to be acceptable.

HH:  Well, they don't start from that anyway.  They don't start with the House bill.  They start with the bills from the various Senate committees.  So it's a canard anyway that the House bill is going to be considered by the Senate.  The Senate bill will be considered by the Senate.  Whatever they come up with will then have to be jammed together with the House bill that's already been passed.  The bills will have to be shoved together and made to harmonize somehow.  And then the whole thing will have to be passed again by both houses.  It's kind of hard to get anything done in this system!

MK:  It is indeed, isn't it?

HH:  And yet, even with the crazy Byzantine committees and all the veto points, if we didn't have the  filibuster this thing would be a slam-dunk.

Obama in China: assessing the impact

Orville Schell was interviewed by Terry Gross in "After Obama Visit, Assessing US-China Relations" on Fresh Air. He spoke from an NPR studio in Beijing.

Terry Gross:  ... My guest, Orville Schell, was in China this week during President Obama's visit. Schell has witnessed immense changes in China over the decades. Now, he says, as governments across the West have become increasingly bogged down, trying to fix a broken economy, China is veritably humming with energy, money, plans, leadership and forward motion, while the West seems paralyzed. He warns that Americans need to understand how China has changed if we want to understand their impact on our economy and on climate change. Schell has written nine books about China and used to cover China for the New Yorker. He's the former dean of the graduate school of journalism at the University of California Berkeley. Now he directs the Center on US-China Relations at the Asia Society in New York, where he's focused on issues of energy and global climate change. ...

Terry Gross:  What do you think was the most interesting outcome of the summit?

Orville Schell:  Well, I think perhaps the most interesting thing was that it was - it was a rather, I would say, flat summit. There was not a tremendous amount of sort of emotional heat from it. The city didn't get too disturbed. There was traffic -- to be sure -- because streets were closed down, but often when leaders come to China or when the Olympic Games happen or something of importance, the city goes into a kind of a paroxysm. You know, there are no kids in the street waving flags. It sort of came and went without making a tremendous disturbance, and I think one might say that...

TG:  .. What does that mean?

OS:  Yeah, well -- I think actually it means in a curious way that China is becoming something more of a normal country and not quite so much in awe of or not quite so willing to put itself out when big accounts from afar come into town. And I think that bespeaks of a level playing field and a new kind of equality the Chinese are beginning to feel when, you know, the biggest dog on the block comes in, and it's sort of business as usual. I think that's quite a big change.

TG:  Since you're focusing on climate change and clean energy, let's talk about that. Why do you think it's really important that the US and China work together in some way?  Reach some kind of agreements on climate change and clean energy?

OS: Well, you know, China and the US are both extremely well-endowed with coal, and about 70 percent of China's electrical power comes from coal; about 50 percent of ours does. And we are also the two largest emitters of greenhouse gases in the world, and together the two countries emit, oh, 40-odd percent. That's a lot. So what that means is that without the US and China on board -- some kind of a climate regime -- there will be no remedy, and it doesn't really matter what anybody else does. The reality of the matter is that even though Clinton signed the Kyoto protocols, Bush never allowed them to be ratified.  And they wouldn't have been. The Congress never would have ratified them. So we're not in the game. China is a developing country, and that means that they too are really not in the game in the sense that they had to set defined limits on their carbon emission. So you know, Copenhagen has ...

TG: ... You're saying because they're considered a developing country they did not have to set limits on carbon emissions?

OS:  That's right, and this is a huge division  This is really what all of the arguments that are leading up to Copenhagen center around:  the division between a developed country, the United States, Europe, etc., Japan, and developing countries, which have produced, historically, far less greenhouse gases than developed countries. And in the case of China, this is roughly one-quarter the amount that the Americans have produced historically, even though the population of China is much larger. It also means that the average Chinese produces more than four times less greenhouse gas per year than the average American.  So logically there should be a distinction because the Chinese have every right, as every developing country does, to live as well as Americans. But the distinction between these two kinds of obligations, where we and Europe are obliged to set absolute limits on our emissions while developing countries don't have to, is what has riled everybody up.  This is the problem in Congress. Congress is saying, well, how can we have a solution without China setting absolute limits -- defined limits -- and why should we penalize ourselves and join a climate regime and let China run free when all our jobs and factories will go off to China and just compound our economic crisis? So this is the dilemma that we are now in.

TG:  So the meeting in Copenhagen to start a new framework for a climate change agreement is going to happen in December because the Kyoto protocol expires in 2012. So what do you think the odds are that there will be some kind of agreement that China will also -- like the U.S. -- have to respect certain limits on carbon emissions?

OS:  Well, you know, it's very interesting. A lot of environmentalists just heaved this sigh of great despair when Obama announced in Singapore that we simply couldn't meet our obligations in Copenhagen and there would probably be no treaty. But there is a kind of a curious thing that happened since then.  It's kind of a relaxation, and this argument that was going nowhere between developed and developing countries sort of just expired.  Then people started talking in a very different way.  President Hu and President Obama did commit themselves not to sign the treaty, which I don't think they could ever agree on, but to coming up with some sort of an arrangement with some agreed-upon limit. So in a curious way we may find that even though the old framework collapsed, that this may start discussions in a different way without the pressure of the deadline in December -- and something may actually come out of them.

TG:   So you're talking about some kind of bilateral agreement between China and the US, as opposed to a larger international framework like the one that's going to be started in Copenhagen.

OS:  Well, if the US and China could come together with some major new breakthrough agreement, it would inspire every country in the world -- and I think then, you know, Europe's already on board, Japan, Korea.  They've all made very, very strong commitments, and so I think this would turn around rather rapidly.  But we are the two countries blocking the way and the U.S. particularly because the U.S. has no climate bill.  The Senate won't pass it.  And so Obama arrived here in China really with his hands tied behind his back. He didn't know what he could offer because he didn't have a bill.  So I think this too has made Obama feel a certain kind of weakness.  He came here and he didn't have a Senate bill on climate change.  He didn't have any money to give.  He had really no remedies to offer.  All he had was his very fine rhetoric. I think China perceived that and felt that -- and that's a very kind of new dynamic between China and the United States.

TG:  So in China, President Hu and President Obama announced several new clean energy initiatives. There's a clean energy research center that will be jointly sponsored by the US and China, US-China electric vehicles initiative, a US-China energy efficiency action plan. Do you think these things mean anything, or are they just kind of nice things to put on paper that won't amount to anything?

OS:  Well you know yesterday I went to a meeting between the Chinese and the American sides. Gary Locke, the Secretary of Commerce, Steve Chu, the Secretary of Energy, and their counterparts in the Ministry of Science and Technology here in China and other officials.  And you know, it was sort of the prelude to all of these agreements that they signed.  There was a lot of, I think, interest -- a lot of excitement.  But the truth be told, when all was said and done, they sort of swept the floor and they picked up everything they possibly could and threw them into these various baskets that you've mentioned on clean energy, on electric cars, on climate change, on coal. So they didn't put a lot of money into them. This new research institute that they agreed to undertake had already been agreed to, and they'd only put $15 million, and now they put $150 million from public and private sources and each side would put in half. But you know, in the grand scheme of things, that's not much money at all.  So again, the US is kind of crippled.  Just as Obama wants to sort of take leadership, he hasn't got any money, and no one in the US Congress is about to earmark any money for China because China is perceived as the person with all the money. You know, they're loaning us money!  They own almost a trillion dollars of our T-bills.  So it's a very complicated, new sort of dynamic that we're trying to work out between these two countries where we're trying to find sort of a new angle or repose.  And it's difficult.

TG:   But you know, even if there was more money to put into these joint energy initiatives, do you think that the US and China would really feel comfortable collaborating on clean car initiatives and things like that? Because the U.S. and China are very competitive in terms of business. So what are the odds that we'd want to share American business ideas and American new technology ideas with our competitor?

OS:  Well, one could ask that the other way too. Does China want to give away their business secrets to us? I mean one of the things you just feel so powerfully when you're here is that this is now a two-way street.  You go to these cities that you may never heard the names of, Dalian or Chengdu or Tianjin, and you go through these SiliconValley-like parks and start-ups and laboratories, and it's really stunning!  And you realize that there's an awful lot going on here and that it isn't simply a question of China taking our technology and pirating it and stealing it.  They have a lot themselves, and it's going to be a very short while before we will have -- we may be competitors, but the competition will be going both ways.  The truth is that I think if the US cannot understand the terms of the game have changed and do that very quickly, and try to seek some more collaborative relationship with China, we may miss the opportunity when the Chinese then find it no longer interesting to do so.  It's quite an alarming thought, and I know it sounds very heretical maybe -- sitting back in America to hear someone say that -- but that is the reality and America is very slow to wake up to this new reality because it's happened so rapidly. China's rise has happened suddenly and our decline, I think -- with this economic crisis -- is now happening more precipitously.

TG:  ... Are there ways in which China is more advanced than the United States in terms of clean energy, transportation, infrastructure, power grids?

OS:  You know I heard a statistic the other day that a couple years ago they had 700 miles of high-speed rail, and now they have 7,000 miles.  Now I may have those statistics slightly off, but that's a staggering figure. The US really doesn't have one mile.  We have the corridor from Boston to New York to Washington but that's not really high-speed rail.  That's sort of faster-speed rail.  So you see the infrastructure that's getting laid down -- the new highways, the new airports, the new ports, the new railroad systems. It's extremely impressive and I think, you know, it raises a question that is sort of frightening to contemplate for an American, and that's this:  Does the Chinese system, this sort of autocratic form of capitalism, deliver better than democracy?  And as an ardent democrat I contemplate the answer to that question with some trepidation because I think, you know, we feel in America -- and in fact I think it's more than a feeling -- that in many ways our government is paralyzed:  paralyzed by a lack of money, paralyzed in Congress, paralyzed by sort of vicious partisan politics, whereas China is able not only to gather information well but to form policy quickly and then -- most importantly -- to effect it.   And you feel that everywhere you look in this country now, that they are on top of things, they're able to do things swiftly to meet the very high-speed demands of the situation, whereas I think we are kind of languishing in many respects, and I'd say climate change is a kind of a metaphor for how difficult it is for us to do things, and health care would be another.

TG:  So you think China's moving more swiftly in developing clean energy and new infrastructure because it's got money and also because it's authoritarian, and it doesn't have to have these long, protracted votes that never happen, like in the United States? 

OS:  There is an element of truth to it, but there are other elements in this equation, and there's extraordinary energy. I went to a green-tech, US-China green-tech summit for the last two days, and you hear these Chinese entrepreneurs. Every one of them is 30 or 40 years old. Electric car companies, you know -- high-speed rail, all sorts of interesting new technologies, and these people are cooking. Now, the interesting question is:  How did this come to pass?

TG:  Yeah? Can you answer that?! [laughter]

OS:  Well, I mean, I can.  I have some ideas but I don't think I can completely explain it. I mean, I think one thing that happened:  the great paradox was that 1989 came along, and it was a disaster for China. The massacre in Tiananmen Square, the demonstrations.  It was humiliating, and it was really, I think -- even the Chinese leadership thought this might be the end of the line -- and it certainly was for communist regimes elsewhere in the world. But it so shocked them that they realized they had to do something really, really severe -- really bold in order to save the day. And Deng Xiao Ping did exactly that, and what he did was he managed to win the battle to re-open the economy in 1992.  The conservatives in the party didn't want that to happen, and he went down to Shanghai and then down to Shenzhen near Hong Kong and he said we must learn from the West, from any society.  We must have stock markets, we must go high-tech, and he said it's all right for people to make money. And that started this kind of revolution.  I think it never would have happened if China hadn't been sort of stunned and put into this sort of desperate straits by1989. And then of course, you know, they had a very savage, brutal revolution under Chairman Mao, and when that ended and when Deng Xiao Ping came along and sort of let them breathe again and said it's okay for you to exercise your ambitions and to make money and to look after yourselves as well as the commonweal, there was such an amount of pent-up energy and so much sort of desperate energy waiting to get out that people just put the bit in their teeth and they've been running with it ever since.

TG:  China is still thought of -- in spite of all the technological advances that China has made and the economic power that it has -- China is still officially considered a developing country. And in the Kyoto protocol China comes under the category of developing country. So when does that change? When does the title -- I mean, it seems like China -- parts of China certainly are developing. Parts of China really are like quite developed.

OS: Yes, and there are many people who think we ought to invent a third category for a somewhat-developed country because developing doesn't quite describe China. On the other hand, China's very loath to abandon that status because there are a lot of special dispensations that come to a developing country. And you remember back when Robert Zoellick of the World Bank proposed that the US and China really ought to form a G-2.  You might think China would be flattered to be among the elect -- the two top countries in the world -- but no they didn't want to do that at all. They don't want the responsibilities of a developed country and they don't want to lose the perks that come from being a developing country -- such as not having to set, you know, defined limits on their carbon emissions that we've discussed.

TG:  So is the status likely to change anytime soon, the status of developing country?

OS:  Well, I don't think China's going to willingly give up this status --  curiously!  I mean, you know, they spent all this last century trying to overcome their weakness, their backwardness, and you know, they were called "China's sorrow," and now they've sort of overcome it, and we are willing to anoint them with the crown of G-2 status or developed-country status.  And they say no, no, no, wait, we quite like it down here in the developing-country world where the burdens are lighter! So it is somewhat paradoxical.

TG:  You're on your way after Beijing to a conference in Dubai that will be about energy. What are the people in Dubai going to be looking at?  And who's going to that conference?

OS:  Well, this is the World Economic Forum, and one of the things that they are concerned about is how do you pay for all of these remedies. One of the most graphic problems that Asia is going to have to deal with is the melting of glaciers in the Himalayas and the Karakorum. I mean these ice fields are the largest masses of ice short of the two polar regions -- north and south.  The melting of these glaciers has been precipitous because at higher altitudes there's a much more rapid elevation of temperature because of global warming and -- as the glaciers melt -- of course we will find profound effects being felt in every major river system of Asia.  So when you think of China and you think of global climate change, and the Chinese leadership know this, you have to think of things like that, that you're altering fundamentally the sort of hydrology of a whole continent with 2.5 billion people living in it.

TG:  ...Now I think it's interesting that your specialty now in terms of the projects you're working on in China have to do with climate change, global warming.  It's not about human rights.  I'm not saying that you're not interested in human rights but what you're focusing on is global warming ... climate change. When Obama was in China his emphasis was on, you know, climate change, economic issues, not on human rights. He mentioned that he thought the Chinese president should meet with representatives of the Dalai Lama as soon as possible.  He said some positive things about the free use of Twitter, but the emphasis was not on human rights. So is human rights kind of taking a backstage here because global warming has become so important?

OS:  Well, that's a very interesting question and I think in my own evolution an answer is suggested. You know my children were at school here a couple of years ago and we took a little vacation trip up North to see some monasteries and Buddhist grottos and it turned out to be coal country. We never saw the sky for a week, never saw the sun and I looked at this landscape that was so desecrated by the mining of coal. And it dawned on me this was the problem. And if you look now at the problems that we as a world confront, I think you have to rank climate change right up there at the top. This doesn't mean that I like people being put in jail or losing their rights and I still think this is extremely important. But if you look at where we really can not afford to waste a minute, I think you'd have to say that climate change begs all of us to make as herculean an effort as we possibly can before it's too late. And China is the heart of the matter and the US a close second.

TG:  Since you've been going to China since 1975, tell us what you think the state of human rights is there now.

OS: You know, it's...  the state of human rights is not terrific but the Chinese fear -- deeply -- instability.  Whether it was under the old sort of regime of Confucianism and the imperial system or under the newer system of sort of Leninist, one-party structure, it's always been a society that's emphasized control.  And so this is the way they sort of manage in the universe and when things get tough they crack down. So from the perspective of anybody who believes in freedom, it's sometimes a difficult country in which to live.  But one can understand why they do it. One can understand that a country of 1.3 billion people if you spill all those people out like marbles on a gym floor and let them roll in every which direction, you would have chaos and that is their most passionate fear. So it isn't that it doesn't have a logic.  And now the logic has results --  has verifiable results -- that look quite impressive to many and I think to many Chinese. A lot of ... most Chinese that I talk to are quite pleased.  They're very proud of their country. They see the accomplishments and they're a lot less, you know, in the thrall of America.  There's an old expression, you know, that even the moon was rounder in the West in America. Well, you don't hear that so much anymore.

TG: I don't think most Americans know much about China's president. Tell us a little bit about him and where he fits in, in the history of Chinese leadership.

OS:  Well, President Hu Jintao is a curious man.  He is probably the only leader from a country of consequence who's never given an interview to a foreign reporter.  And on the last day of President Obama's visit when he held his joint press conference with President Hu Jintao -- who incidentally, here in China, they refer to as Hu Jushih [?] or Chairman Hu meaning chairman of the Chinese Communist Party.  Not president:  it isn't the top sort of position. Anyway, when they had their joint press conference they didn't take any questions. You know, that says something about the urge towards control. They just don't want a lot of crazy journalists jumping up and asking gotcha questions so they just don't do it.  Well, that's a different system isn't it?

TG:   Would you consider him any more or less authoritarian in terms of human rights than his predecessors -- than his recent predecessors?

OS:  I think, you know, if you compare China today with the way it was 20 years ago -- before 1989 -- it's much better organized and I think in many ways more controlling and in many ways sort of more tightly wound.  And I don't think they're in any big hurry to relax these controls.

TG:  Now as the former dean of the University of the California at Berkeley journalism school and as someone who's now involved in the New Media Project, tell us what the internet is like now in China and how much control the Chinese government is exerting over its use?

OS:  Well, it was interesting, when President Obama had his roundtable with students in Shanghai the first day after he arrived, they had big discussions with the Chinese government about whether it could be aired live on television and radio.  And they finally decided no but they would allow it to be aired over the internet.  And incidentally, when President Clinton was here and Jiang Zemin was the secretary general of the Chinese Communist Party, at the very last minute at their joint press conference he did allow it to be aired live and he allowed questions. So that was, what? 1996, I think. So you can see there's a little retrograde motion there. So the internet is an area where -- you know -- I think it's sort of a Petri dish where we can see the efforts that control being injected into the Petri dish to try to control the sort of natural spontaneous forces of the internet.  They need the internet for business and even the party needs it to communicate with its people.  But they're actually spending a tremendous amount of money and effort to try to keep the internet from being, you know, a kind of a wild animal that may eat them alive.  They don't allow pornography and they don't allow a lot of other things which they find politically unpalatable.  And again, it's because they fear the sort of errant effects of too much freedom of information, too much independence of organization and because of social stability.

TG:  Do you get the sense that most Chinese people accept those limitations?

OS:  You know I think as long as the Chinese Communist Party is delivering 10 percent growth rates people will accept a lot.  Now some people don't and those people have a very tough life.  They've made a basic wager.  You know they've in effect said that here's two doors: one's politics, one's economics.  You open the economic door and go through, all good.  You open the political door and go through it, be careful.  So there's a trade-off.  But people have really gotten not just a lot of sort of an elevation of standard of living but I think, you know, not to be overlooked is the tremendous feeling of pride of accomplishment.

LOL! How the internet was born

Excerpt from a broadcast of "Science Friday" with host Ira Flatow, guests and callers

Ira Flatow:  On October 29,1969 -- at 10:30 pm -- a couple of computer scientists were huddled around two computers spaced 400 miles apart. One was at UCLA and the other at Stanford Research Institute. They were able to send a message from one machine to the other.  Even though the computer immediately crashed, what they achieved 40 years ago was perhaps the moment the internet was born!  Here to recapture that moment was one of the guys in the room that night, Leonard Kleinrock.  He's a Distinguished Professor of Computer Science at UCLA.  Welcome!   Can you tell us what you guys were doing in that room that night?

Leonard Kleinrock:  Well, we were about to experiment with the first connection between two computers on this fledgling internet and in order to do so, we needed to send a message from Machine 1 to Machine B 400 hundred miles away, as you said, to the north of us.  All we wanted to do was to log in from our computer to the second computer on the internet, and in order to do that you had to type "log" and the remote computer would type the "in" for you because it knows what you're doing. So we also had a telephone connection as well as the data connection for this new network.  We typed the "l" and phoned the other end and asked, "Get the 'l'?"   And the response was, "Yep!"  We typed the "o".  "Got the 'o'?"  "Yep, got the 'o'."  "Got the 'g'?"  CRASH!  As you said, that remote computer crashed.  So the first message on the internet was, "lo," as in "lo and behold"!

Ira Flatow:  And do most of the computer experts now consider that to be the moment -- the Mary-Had-A-Little-Lamb moment for the internet?

Leonard Kleinrock: Well, there's a few other times when you could think about the internet coming to life.  A month before that, on September 2, the first packet switch -- we now call these things routers -- was connected to that computer I referred to in our lab at UCLA over a 15' cable and bits began to move back and forth.  So I'd like to say that's the day when the infant internet took its first breath of life.  But it was not yet doing what it was planned to do, namely to connect computers together.  It's on that October 29th date when I like to say the infant internet uttered its first words and the first message went.  Just as we say the telegraph was invented when Samuel Morse sent that wonderful, biblical message, "What hath God wrought?"  That sort of sequence has occurred many times in new technology emergency.

Ira Flatow:  Tell us what this new technology of packet-switching was, compared to the old technology?

Leonard Kleinrock:  It began when I was a graduate student at MIT.  I was surrounded by computers and I recognized one day that those computers would need to talk to each other.   The only network that could support communication at that time in any sensible way was the telephone network run by AT&T.  It uses a technology called "circuit switching" as opposed to what we're about to describe as packet switching.  In circuit switching, the problem is that it holds the connection between the two communicating parties -- you and me, for example -- for the entire duration of that conversation.  Even if I take a coffee break or you decide to step out for a moment, the line -- communication path -- is still reserved for our use and it's being wasted.  In voice communications that happens about a third of the time and that's quite acceptable.  But with data communications, the communications path is idle perhaps 99.99% of the time.  I recognized we could not afford to use such a network as inefficiently as that.  So we had to find a way -- and I did as a student at MIT -- to share those resources.  When you take your coffee break then, in fact, someone else can use the line.  The idea of demand access is where it's only being used when you have data to send -- and when you're not someone else can grab it.  The way we did that was to present this data message that you want to send to the system, the system chops it up into little pieces called "packets," and each packet hops its way through the network until it finds its destination.  Each packet may take a separate path.  At the other end, those packets are put together and the message is delivered -- as if a letter were chopped up into a number of postcards and each one send through the US mail system separately.  The key idea here is that if there's no packet to be sent in a particular part of the path, other packets from other users can use that particular part of the path.  No portion is wasted if there's some work to be done.  That's called "packet-switching." 

Ira Flatow:  How do the packets know where to go? How do they know how to be reassembled at the other end?

Leonard Kleinrock:  Each packet has an address.  It says, "I want to go from New York to Los Angeles and I'm going to go through Chicago and perhaps Denver.  How does it know to go through Chicago and Denver?  Because there is in the network a control procedure which is constantly checking which links are giving good performance.  When a packet arrives in Chicago, Chicago will say, "Well, the best next hop is to Denver and not to Dallas."  So there's intelligence in the network which is constantly probing where the good paths are.  It selects them on a demand basis:  which one can take this packet best next?

Ira Flatow:  That's why there's some delay when you're loading your browser?  Trying to reassemble all those packages?

Leonard Kleinrock:  Well no.  The packets are reassembled at the destination.  That's not where the delay is.  The delay is in the speed of the line from the end of the network to your device or, more often, in your operating system. 

Ira Flatow:  And what does the router do?  Is that what you helped invent?  The modern-day router?

Leonard Kleinrock:  Yes. I invented the concept of demand access, one example of which is packet-switching and along with that this idea of distributing control -- distributive responsibility for deciding which are the good paths and lets select them on a dynamic basis.  Right now, where's the best way to go?  The interesting thing is that when I started to look at this problem I said, "I want to build large networks, not small ones.  So we cannot give control of this large network into a single node or a single location.  I had to distribute that function across the entire network.  So everybody's smart, everybody's looking for good paths, and they're constantly being found as traffic arrives to be resent and re[inaudible]. 

Ira Flatow:  ...Was there a thought in people's minds in those days of actually sending email and messages as well?  Or was it just for sending data?

Leonard Kleinrock:  In fact, the original purpose was simply to share resources between computers so that if you had an excellent graphics processing capability and I wanted to use it, I would log onto your system through the network and use your graphics by logging on.  This was data exchange.  It was also, therefore, people to computer exchange.  So I could reach out.  What I never anticipated -- and by the way there is a written, published press release that came out before the network was deployed in which I do articulate a vision -- that it would come to be that this was a network of people communicating with each other.  The social networking.  Email didn't come in until 1972.  Once it did, it was clear to me that this was about people communicating, not about machines talking to each other.  But it took two years before that recognition was made clear.

Ira Flatow:  You know, this seems to mirror the history of communications in general.  The newer inventions were made for businesses.  Even the telephone was not invented supposedly for people to talk to one another.  It was to send data down the line or information.  The idea that people would be talking on the phone and making money on that was kind of foreign at the time.  Alexander Graham Bell was laughed at for that reason.

Leonard Kleinrock:  There was no economic model here and it was, in fact, for science purposes.  These exchanges were between scientists who were conducting research into computer science and other areas of interest.

Ira Flatow:  Is there any way to predict where this is all heading? 

Leonard Kleinrock:  There are two parts to that question.  One is, what are the applications going to be.  And the best thing we can predict is that it will be impossible to predict those new applications that are coming.  We've had a sequence of surprising applications throughout the history of the internet.  Email was the first.  The web.  Google.  My Space.  Facebook.  Twitter.  YouTube.  Nobody saw those applications coming.  They hit us on the side of the head.  We can anticipate that applications will probably arise in the domain of mobile computing, in location-based applications, in video delivery.  But I can tell you what my vision of the infrastructure increase and modernization will be.  I believe we're going to be able to take cyberspace out from behind the screen of the computer and bring it into your physical environment -- in the walls of your room, in your desk, in your fingernails, your eyeglasses and your automobile!  And when you walk into a room, the room will know you walked in, and it will say, "Ira, what can I do for you?"  And you can have a conversation with it.  It may respond with voice, a hologram with a display.  This technology will be made possible by employing embedded technology in your physical environment.  This technology will provide internet access for you.  There'll be sensors and actuators and logic and cameras and memory and display based on today's mems and nanotechnology.  So we're going to end up with basically a pervasive global nervous system across this planet.

Ira Flatow:  It'll be like I'm at the hollow deck on Star Trek!

Leonard Kleinrock:  Exactly.  And it's all going to be invisible.  You won't see it.  You won't have to fuss around with clumsy interfaces which we have today.

Ira Flatow:  Let's take a call from Larry in Wyoming. 

Larry:  I was first going to ask about your perspective on Al Gore's role in helping to get the internet going, but I figure a better question for your knowledge would be if you think the US is going to be able to transfer successfully to IP v.6 or if they're going to have the same problem that they've had transferring to the metric system?  Most of the world is using the metric system now.  We're still using ASC or whatever -- where most of the world is using IP v.6 and the US is still using IP v.4.

Ira Flatow:  What about the Al Gore question?

Leonard Kleinrock:   Sure:  the Al Gore question is an interesting one.  Al Gore was a very important contributor to the expansion of the internet.  In the late 1980's he was perhaps the most knowledgeable person in Congress.  He would visit us all the time.  We'd hold meetings.  He understood the technology of the internet better than anyone in Washington. In fact there's a report I wrote about a national research network and I testified for his Congressional sub-committee.  He convinced the first President Bush to sign into law as his final act the High Performance Computing and Communications Act of 1991 which allowed academia, business and government to cooperate to deploy a much higher speed backbone network.  So his contribution was to bring additional government funding to enhance the backbone network.  He did make a contribution and it was very important.  But it was much later than the birth of the internet.  It was some twenty years later.

Ira Flatow:  So to say that Al Gore helped invent the internet would not be far from the truth in terms of keeping it going.

Leonard Kleinrock:  He certainly was a contributor to keeping it going and enhancing it.  But certainly he was not there at the birth.

Ira Flatow:  Anything surprising that has happened over the years, something that surprised you?

Leonard Kleinrock:  Yes, in fact.  In those early days the culture of the internet was one of trust, openness, shared ideas.  I knew everybody on the internet in those days, and I trusted them all.  Everybody behaved well.  So we had a very easy, open access.  We did not introduce any limitations nor did we introduce -- what we should have -- which was the ability to do strong user authentication and strong file authentication.  So that I know, if you're communicating with me, it's you, Ira Flatow, and not someone else.  If you send me a file, I receive the file you intended me to receive.  We should have installed that in the architecture in the early days.  And the first thing we should have done?  Turn it off.  Because we needed this open, trusted, shared environment -- the culture, the ethics of the early internet.  And then when we approached the late '80's and early '90's -- and spam and viruses and pornography and eventually identity theft and fraud and the botnets and the denial of service we see today -- as that began to emerge we should have then slowly turned on that authentication process.  Which is part of what your caller referred to.  IP v.6 is an attempt to bring on -- to patch on -- some of this authentication capability.  But it's very hard now when it's not built deep into the architecture of the internet.

Ira Flatow:  What about "net neutrality"?  What are your thoughts on that?

Leonard Kleinrock:  Network neutrality is a very key issues these days.  The question is, should there be a controlling body that determines what kind of content you receive, base its pricing on what it is rather than how much communications resource it uses.  I believe that the government and the corporate world should not determine what content I can receive or how its charged.  I should pay for bandwidth but not for it's a video this or that.  Whether I pay for the type of content depends upon the content provider and me.  Except there should be some controls in the case of some proven abuse.  I believe in a very open, free network except where there is abuse occurring which is clear and significant.

Ira Flatow:  Call from Scott in Davenport, Iowa.

Scott:  ...I just wanted to point out that I heard an interview on NPR last night with one of the gentlemen that had actually helped send the first message across the Arpanet.  He told the same story -- that they did the "l" and the "o".  When the machine crashed, they went back, worked the bugs out, came back a little while later and tried it again.  So the first three letters sent across the Arpanet were "LOL"!

Ira Flatow:  Leonard, is that...

Leonard Kleinrock:  That's correct!  The "lo" as the first attempt.  The second attempt was to start that over again with an "log."  So that is correct.  You have to understand:  if you think about what Alexander Graham Bell and Morse and even Armstrong did, those guys were smart.  They had the public relations ready, the media, and they had a powerful message to send.  We didn't.  We weren't that smart!  But the message we ended up sending, the "LOL" ...

Scott:  ... I just think it's quite appropriate that "LOL" were the first three letters sent across the Arpanet.

Ira Flatow:  And they're probably still the most popular letters still sent across the internet!  Do you think we're going to get control of all these forces?  That are trying to turn it into a bunch of junk?

Leonard Kleinrock:  Well, right now I think the internet is approaching teenage.  And it's behaving like a teenager.  It's mischievous, it's unruly, it's unpredictable.  The dark side is a manifestation of that.  If you think you can control and modify and improve the behavior of a teenager -- as they pass from teenage to young adulthood -- the answer is an optimistic "yes."  But along the way they can go wrong, and whether or not we succeed in maintaining and basically subduing some of the bad behavior is a really difficult open question.  When you get the forces of the crime syndicates using the dark side of the internet, then you have a problem in how you're going to control them.  It's well beyond the internet.

The danger next time: the pressures to keep financial instruments unregulated

Diane Rehm Show, October 22 2009.  "A look back at the secretive, multi-trillion dollar U-S shadow banking system. Understanding the role unregulated derivatives played in the economic meltdown last year, and why some say the same risks remain unchecked today."

___

Panel:  

Greg Ip, U.S. economics editor, "The Economist"

Michael Greenberger, professor, University of Maryland Law School, director, Center for Health and Homeland Security, and former senior regulator, Commodities Futures Trading Commission

Martin Baily, is senior fellow in economic studies at Brookings Institution, former chair of the Council of Economic Advisors during the Clinton administration (1999-2001).

____

Diane Rehm:  One year ago the world appeared to be on the verge of the second Great Depression.  Some analysts believe the crisis could have been averted -- or at least lessened -- by heeding the warnings of the Commodities Futures Trading Commission.  That agency was concerned about a growing market that lacked transparency and was mostly unregulated.  Joining me to talk about the rise of the secretive, multi-trillion-dollar derivatives market and its role in the financial crisis -- and what's being done to prevent another meltdown -- are former CFTC senior regulator, Michael Greenberger; former chair of the Council of Economic Advisors during the Clinton administration, Martin Baily; and Greg Ip, US economics editor for the "Economist". ... We'll try to bring clarification to a very complex issue.  ...Michael Greenberger, take a crack in as simple terms as possible at explaining what a derivative is.

Michael Greenberger:  The most classic derivative and the way derivatives got started was farmers who wanted to buy insurance products so that when they planted seed, by the time the harvest occurre they would have locked in a price that would guarantee them some form of profit.  If the real market didn't give them their profit they could shift over to the so-called "futures market".  If the real market gave them a profit they could get out of their so-called "insurance contract."  Technically these are called futures contracts.  The value of that insurance is completely dependent on whether it's going to be used.  In other words, if prices are going against the farmer, the insurance product becomes valuable.  It's marketable.  He can sell it to someone else if they want it.  So the rule -- up to December of 2000 -- was that any contract of that nature had to be traded on a fully transparent, regulated exchange with capital adequacy, anti-fraud and anti-manipulation.  In the '80's and the 90's, the banks -- we call them "swaps dealers" now -- developed the instrument called the swap. Simply put in its most classic and benign sense:  if you take out a mortgage on your house that has an adjustable rate, you could go to a bank and for a fee they will pay the adjustable rate and they will negotiate a fixed rate for you.  So say you've got a mortgage at 6% and you think interest rates are going to go up and you may have to pay 7 or 8 or 9%, you go to the bank and the bank undertakes the obligation to pay the increase and you pay them a fixed rate.  Now, they do that at a very [inaudible) cost, and if they feel they're at risk they go and buy themselves an insurance product to lay their risk off.  That market was deemed, just by the say-so, as being absolutely the kind of market that should have been regulated.  The bank says it wasn't. 

DR:  Grep Ip -- do you want to add to that definition? 

Greg Ip:  Well, a derivative is basically a contract.  It's value is derived from something else such as a currency, an interest rate, the price of corn.  As Michael was saying, the first derivative was quite straight-forward. A farmer wanted to lock in the price of his harvest so he buys a contract to sell his corn 9 months hence.  Financial innovation and cleverness being what it is, we now have countless types of derivatives.  In the current context the one that most people are now quite worried about is something called a "credit derivative" which is essentially a contract that allows me to lend money, say, to Michael and then buy insurance from Martin in case Michael fails to pay me back.  This sounds like a sensible idea.  A bank makes a loan, it wants a little bit of protection.  But it kind of got out of hand.  At the height of the bubble in 2007 the amount of the notional value (if you will) of these contracts was $60 trillion.  A lot of that money was not designed to provide legitimate lenders with protection.  A lot of it was actually people taking speculative positions.  We now know a lot of those derivatives were entered into by firms like AIG -- American International Group -- that had virtually no oversight from bank regulators.  When the crisis broke, we discovered that they had offered to pay this type of insurance on those toxic, subprime mortgages that we heard so much about.  Their inability to make good on that insurance is why they almost failed.

DR:  ... Martin Baily, are derivatives inherently bad?  Or inherently good?  And depending on how they're managed they get off track?

Martin Baily:  I think derivatives are essential to the working of our modern economy.  They're absolutely necessary for companies -- particularly those trading around the world.  They play an enormous role in allowing people to concentrate on that part of business that they know about and are good at and pass off some of the risk -- whether exchange rate risk or interest rate risk -- to other people.  So I think they're really an essential part of our modern economy.  They may even have gotten a bit of a bad rap in this crisis.  I agree with Greg that it was these credit default swaps -- particularly those that were concentrated in AIG -- that got us into trouble.  Normally when you have a derivative there's a swap so there's somebody on one side or the other.  That can be very helpful for international trade, for example.  If someone in the US wants to trade to Germany, someone in Germany wants to  trade in the US, they can both eliminate some of the risk of the exchange rate, change that otherwise might get in the way of that.  What happened here was that certain... that the class of derivatives -- credit default swap derivatives -- were issued in huge numbers by AIG and a few other entities.  There was really no capital, no collateral, put up against them because nobody believed that the price of housing was going to fall and that we were going to get into this kind of trouble.  So my answer would be that they're not only good, they're essential but we do need to make sure that we don't get into the same trouble we got into this time around.

DR:  Of course, you were on the Council of Economic Advisers in the 1990's.  Were derivatives then something that regulators worried about?

MB:  They worried about them, but I think that there were mistakes made.  It wasn't just the administration.  It was also the Federal Reserve that decided there was no need to regulate these derivatives at all.  I think that was a mistake.  I think the main regulation that's needed, probably, is to provide information about derivatives.  If markets had known that these huge pools of credit default swaps were out there, markets would have reacted and I don't think we would have had quite the same trouble.  But I think there were mistakes made in the '90's in not providing enough information about derivatives and not regulating them adequately. 

DR:  Are you saying that had there been sufficient regulation we might not have seen a crisis as huge as we've had?

MB:  Well, I think there were a lot of causes for this crisis.  The underlying cause is that all around the world the risk premium fell and no one was taking risks as seriously as they should have.  So this crisis might have manifested itself in a different way.  If we'd had better regulation of derivatives, I think it would have helped.  We would have had a smaller crisis.  But I think there were a lot of ingredients that went into this crisis.

DR:  ... I want to go back over the history of this whole process a little bit because it seems to me that unless we understand what happened, it could in fact happen again.  Michael Greenberger:  I want to ask you about Brooksley Born -- who she is and what role she played in this crisis.

MG:  To put this in context, Brooksley Born, by the time she became the chair of the FTC in 1996, was a legend among lawyers in the DC bar and, for that matter, nationwide.  Had she chosen, she could have been president of the ABA and/or president of the DC bar.  She was an excellent litigator who specialized in derivatives.  But, I think, more important is that she had a national reputation as someone who fought causes for the public interest -- women's rights, consumer rights, environmental rights.  She was very seriously considered to be Clinton's choice for attorney general because of a long-standing friendship through American Bar Association activities with Hillary Clinton.  She did not get that job.  But she did become the chair of the CFTC.  I would just say, with regard to my fellow commentators here, I agree with them in spirit.  I disagree in tone about the dangers of these products.  Brooksley in 1998 tried to get the Clinton administration and Alan Greenspan to do something about what she saw as a danger to the economy. ...She came into office in 1996 as chair of the CFTC.  By that time, Orange County had gone bankrupt.  Today we're so used to bankruptcies that it doesn't sound very dramatic.  But at the time it was shocking that a county would go bankrupt because they misunderstood their use of unregulated derivative products.  There was a major scandal on Wall Street where Bankers' Trust was claimed by Procter Gamble to have defrauded them, knowing they were doing so.  Their case was supported by tapes with the Bankers' Trust traders laughing up their sleeves at how they took Procter Gamble to the cleaners.  There was uniform concern.  At one point Congress -- because of these events -- wanted to do something aggressive about it.  The GAO recommended that something aggressive be done about it.  Brooksley viewed what was then somewhere between a $13 trillion and $27 trillion market.  By the way, in world-wide notional value it's now $592 trillion -- 13 times the size of our annual GDP.  But she foresaw exactly what was going to happen.  These were unregulated markets.  Nobody was getting information about them. None of the commitments -- like the commitments AIG made, $400 billion -- were backed by capital.  There was no anti-fraud protection, no anti-manipulation.

DR:  And she attempted to bring all this to the attention of Alan Greenspan -- and others!

MG:  She wanted to issue a white paper to be commented on so information could be collected.  She wasn't even proposing a regulatory scheme.  Long story short:  in a very violent meeting chaired by Secretary Rubin and attended by Alan Greenspan and Arthur Levitt ...

DR:  ... and Larry Summers?

MG:  And Larry Summers.  By the way, Arthur Levitt has since recanted his involvement in this.  They in very tough terms told her that if she did this (they didn't use these words but the message was) this would be the end of her.  She did it.  Phil Gramm and many others hounded her for months and months.  At the behest of Bob Rubin, Alan Greenspan and Arthur Levitt.  They issued a statement the day she issued the white paper.  They asked Congress to stop her from doing anything about this.  Congress almost unanimously agreed to do so.

DR:  Greg Ip:  what else was going on?

Greg Ip:  Let me mention a name we almost never hear about any longer. Enron Corporation in the late 1990's had ambitions to be a major player in the trading of energy derivatives.  If Enron had been required to do all those trades through highly regulated exchanges, its business would have been far less profitable.  So they had a very powerful interest in not seeing Brooksley Born's proposal that things be regulated and see the light of day.  So they had a very formidable lobbying operation in Washington that they brought to bear on this.  A few years after Brooksley Born had left the CFTC Phil Gramm, the Republican chairman of the Senate Banking Committee steered through Congress an overhaul of our commodity laws which passed during the lame duck session in 2000.  It basically once and for all said, "These swaps can no longer be regulated by the CFTC."  I do want to add one thing.  There were two major reasons why the banks, Enron, Greenspan and Rubin and Summers opposed this. One was a parochial, self-interested reason:  the banks made a lot of money by trading these things in their own trading room instead of on transparent exchanges.  But the other was that for years these swaps had been growing in a legal no-man's-land.  It had never been made quite clear whether these things were just one-to-one contracts -- which you could do any way you wanted -- or that these were actually futures, just like those that had been traded on corn and oil for decades.  If they were futures then by law they had to adhere to CFTC's rules.  The thing that Rubin, Summers, and Greenspan kept emphasizing was that Brooksley Born was casting a pall of legal uncertainty over these things. Gosh, if this thing went through, all the people who had entered into these contracts would suddenly walk away from them.  They would think, "They're illegal"!  And they though that would bring the financial system down.  Almost certainly those threats were exaggerated.  But it was a legitimate thing to worry about. 

MG:  I just have to intervene at this point!  That is a fallacy about what Brooksley did.  In the white paper it said -- in bold terms -- anything the CFTC did would be prospective only.  It had the power to amend prospectively.  The word "prospectively" was used in terms.  The banks -- and I don't just blame Enron for this -- I blame Goldman Sachs, Morgan Stanley, Merrill Lynch, AIG.  As Larry Summers said when he berated Brooksley for doing it, "I have 13 bankers in my office who say you're going to cause the worse crisis since World War II.  The banks kept saying, "Oh, she's going to undo the old market."  And she kept saying, "No, I'm talking about the future."

DR:  Martin Baily, were you privy to any of these conversations?

MB:  I was not part of the conversations or a part of the decision not to regulate derivatives.  As I said earlier, I think that was a decision that was a mistake.  I think they should have allowed more control over derivatives.  I do think that the discussion we're getting into has that slightly exaggerated sense of a) how important the derivatives were to the crisis that we're in.   This notion of the value of the derivatives is, I think, relatively meaningless in terms of the size of the crisis.  Most of this crisis has come because of mortage defaults and defaults on other kinds of assets.  I might also say that simply regulating something doesn't guarantee that you're going to get a good outcome.  We had rooms full of regulators in the banks. We had rooms full of regulators at Citibank.  That didn't stop them from going down.  As a matter of fact, the Office of Thrift Supervision knew perfectly well that AIG was issuing all these derivatives and they didn't do anything about it.  So a big part of what we've seen is actually fairly by-the-regulators themselves to keep control of the system, not just a lack of regulation.  

DR:  However, you heard Michael Greenberger talk about the fact that derivatives are now at something like a $500 trillion level -- still without the kind of regulation that Brooksley Born was calling for going forward.  Are you not at all concerned that the same problem could rise again?

MB:  I think Brooksley Born was a hero and I had the opportunity to testify in front of the commission that's been appointed to look at the causes of the crisis and she's a member of that commission.  I don't want to overstate my disagreement with what's been said here.  The fact that there are $500 trillion in derivatives outstanding in and of itself does not worry me.

DR:  Why not?

MB:  Well,why would it?  These things are financial assets that are used for ... we have a very large global economy and these things are playing an important role in that.  Just throwing out that number, I think ...

MG:  ...Diane, I really have to say something here.  Let's just look at AIG.  With $200 billion in equity, one of their many subsidiaries guaranteed the investments in subprime mortgages.  They set a floor through insurance.  They issued $400 billion in insurance without a single penny put aside for capital.   Because, as Martin said, they thought housing prices would always go up and this would never be a problem.  You and Greg and Martin and I have bailed AIG out.  They didn't have the money for the insurance.  Now, by the way, who got the money?  The money went to AIG through the front door and out the back door it went to Goldman Sachs and thirteen of the world's largest banks who bet -- who bet -- that people would not be able to pay their mortages!

GI:  I just want to make a small explanation ... about where this $500 trillion figure comes from.  Imagine that I have a house that's worth $100,000 and I promise to pay you 1% of the value of the house at the end of the year -- $1,000.  The way we measure the value of that contract is the value of the house -- $100,000.  But that $100,000 is not actually at risk because I'm not going to lose my house.  The $1,000 is what's at risk.  So the $500 trillion figure here is what we call the "notional value."  But the actual amount of the value at risk is quite a bit smaller.  However, the numbers are still quite large and the intrinsic nature of derivatives is that they allow considerable amounts of leverage.  Which is to say that the amount of money at risk can change quite a lot it a very short period of time given how the underlying thing that you're basing the contract on changes.

MB:  If you had allowed me to finish my earlier sentence -- thank you, Greg -- because that explains why this $500 trillion is an inflated number.  I think it clearly was wrong that AIG could issue these derivatives without capital and it is being proposed by the administration that capital requirements be applied to these derivatives now and that is something I support.

DR:  Why has it taken so long?  That's the question.  Considering that this meltdown first began to occur a year ago and Brooksley Born was talking about this years before that, why is it taking so long, Greg?

GI:  Well,you know, because we passed the law in 2000 and actually shut the whole discussion down.  We basically had to restart the entire process over again.  You could actually say that, given that AIG was one year ago, we're actually moving at considerable speed.  The last regulatory reform we had in this country was ten years in the works.  But I think the question you're asking is, "Why hasn't anything happened yet?"  We have actually got some things happening.  Last week, Barney Frank, chairman of the House Financial Services Committee, did pass a bill that incorporates a lot of the changes that Brooksley Born called for ten years ago. To be sure, there are some important exceptions.  There's a vigorous debate going on right now whether those exceptions significantly weaken the regulation of derivatives that we should have.

DR:  Brooksley Born was the subject of a Frontline piece that aired just the other night.  We invited her on the program but this morning she was flying to San Francisco.  We hope to hear from her at a later date. ...I'm going to open the phones to callers.

Tom:  I've been in the wealth management business for about ten years.  I'm a registered principal.  I find all this extremely fascinating.  I once held in my hand a futures contract written on a cuneiform tablet from thousands of years ago -- from what was then [inaudible].  The challenge that we have is that 1) the wealth management companies, since the market dropped, have been firing their compliance departments and making do with fewer compliance officers to oversee transactions.  And the other was just brought up:  a person with, say, $5 buy $100 worth of futures contracts which means that if the futures contract goes down 5%, he no longer has any money.  He's going to be called on a rent fee.  The rent fee on stocks is if you have $2 you can buy $1 worth of stock without selling anything, without having additional cash.  You can see that this can easily get out of hand, especially when the regulators are understaffed, [inaudible] is understaffed, and now the Wall Street banks' wealth managers are understaffed.  So this very easily gets out of hand.

GI:  It comes as a surprise that wealth management companies are firing compliance people.  The evidence was the opposite, so that's very worrisome.  But let's talk a little about how risk the situation is going forward.   We've seen companies like Morgan Stanley and Goldman Sachs report their earnings in the last week or so and what you discover is that they're still making a huge amount of their money by trading things.  So it's a legitimate thing to say:  are things just as risky?  My own view is that they're probably not.  Because of the trauma inflicted by the last year or two, the riskiest of these derivatives have been flushed out of the system.  In fact, the latest data do tell us that the amount outstanding of these dangerous credit derivatives has fallen roughly by half.  But I think that there are problems waiting in the wings and they come from a couple of sources.  The first is that the government has essentially put its guarantee behind our financial system.  They felt they had to do that to stop it from melting down.  But what that means is that all of the companies that are explicitly or implicitly covered by that guarantee -- whether it's your community bank or Goldman Sachs -- are now able to borrow excessively cheaply because all their lenders think, "Well, if Goldman Sachs goes down, the government will bail me out!"  That is a license for them to take excessive risk.  We still do not have the regulatory mechanism in place to suppress that risk-taking.  The other thing that I just wanted to mention here is that the essence of the change to the laws that we're going to have on derivatives is that we're going to centralize this trading on exchanges -- much as we trade stocks on the New York Stock Exchange.  These swaps will now be traded through something like the Chicago Mercantile Exchange or the New York Mercantile Exchange.  Sounds like a good idea, right?  Instead of Goldman Sachs trading with Bank of America,  Goldman Sachs will trade with the Exchange and Bank of America will trade with the Exchange!  Why is that a good thing?  Well, if Goldman Sachs goes down, instead of being a problem for Bank of America, that'll be a problem for the Exchange.  Hopefully, the Exchange will have lots and lots of capital and collateral and it won't be a problem.  But it's entirely possible that the opposite will happen, that so much risk will become concentrated in just one place that the failure of one big firm -- like a Goldman Sachs -- could bring the entire system down.

DR:  Are you concerned about that as well, Martin Baily?

MB:  Yes... I think we have to make sure these exchanges or clearing houses have an adequate amount of capital to deal with the situation.  I think it actually would be a mistake to require that all derivatives be traded on exchanges because there's also a role for customized derivatives that are not on exchanges.

DR:  Michael Greenberger, I want to ask you about Larry Summers' role in the failure of that derivatives market -- if we can call it a crisis.  Does he concern you as the director of the president's National Economic Council?

MG:  Let me say, as I said in the Frontline piece (and Brooksley does not want to comment on the record), he was extremely rough with her in trying to convince her not to go forward -- shouting at her and using what I would call bullying tactics.  That having been said, the Obama administration put out a white paper in June that satisfied me and many other reformers because it said all these products essentially -- save a few -- have to be traded on exchange.  When the administration sent its legislation up, it said "except if it deals with foreign currency" -- which is what brought down one of the biggest hedge funds -- or "except if a non-banker is a counter-party" -- which means everybody else except banks.  On August 17, Gary Gensler -- who by the way was a Summers and Rubin protege in the Clinton administration and is now the chair of the CFTC and former Goldman partner -- wrote a letter and said, "These are exceptions that swallow the rule."  So on the one hand -- and this is what is happening today -- people are saying, "we're fixing it."  But when you read the details, there are exceptions that swallow the rule.  That's true of the Obama administration.  It is even more true of the financial services legislation that went out last week.  It is even more true of the Ag Committee's reports yesterday.  When we say, "Will exchange trading work?", my compadres in this -- the unions, the environmentalists, the consumer groups, Consumer Federation of America, investor protection groups -- they believe that the law will end up being worse than the law that was passed in 2000 which Brooksley Born complained about.

MB:  I think Gary Gensler is right to warn against the dilution of the regulation.  At the same time I think some of the efforts are being made to sort of throttle financial markets altogether, and I don't think that's the right answer.  We need a financial system that is robust but we can't expect that companies will never go down or that failures will never occur.  We just want to have in place institutions which will allow those failures to occur without bringing down the whole economy.  So success and failure are part of our financial system and I don't think we should over-regulate it so we always prevent these things from happening.

GI:  The people who advocate these exceptions -- there is a point to what they're saying.  Financial contracts come in a wide variety of types and sizes.  The case for trading like the stock of International Business Machines on a stock exchange is cut and dried. IBM has billions of shares and each share is exactly like the other one.  Hundreds and millions of them trade every day.  So everybody who goes to buy or sell a share of IBM -- they know what they're getting.  But when you get down to some of these derivatives contracts, they get pretty obscure and pretty tailored to the needs of a particular company.  I need to borrow euros and swap them into yen for exactly 93 days for exactly this amount of money.  It's very hard to find people with exactly the same needs.  Therefore, if all those types of contracts must be traded on an exchange, there would be no volume and that could actually drive up the prices.  The trick for the regulators now is what the dividing line is.  Because you can be quite certain that those who want to trade things out of the oversight of regulators -- because it's more profitable, for example -- will look for exceptions and try to exploit them.  That's more or less how we got AIG.  AIG traded these products through a non-bank subsidiary precisely to avoid the higher costs and tougher oversight of some of its regulators.

DR:  Here's an email from Rick who says, "Tell me if this is correct.  Number one, Goldman Sachs buys credit default swaps, insures them through AIG, for $12 billion.  Number two, CDS's fail and AIG requires $185 billion bailout.  Three:  AIG pays Goldman Sachs $12 billion in insurance.  Four:  Goldman Sachs declares bonuses of $16 billion.  Goldman Sachs basically insured a bad bet with an unregulated insurance policy that the Fed needed to bail out -- thus allowing capitalized gains and socialized losses."

MG:  Absolutely correct!  Goldman Sachs made a decision over the summer of 2007 that the subprime mortgages would fail.  It wasn't just AIG.  They went to Lehmann and Bear Stearns and said, "We want the insurance."  The insurers never asked, "Are you holding any of the instruments?"  In other words, it's like insurance somebody else's house knowing it's going to be set on fire.  The money that went to AIG -- which is your money and all of us here -- went in the front door and out the back door.  Not $12 billion but $13 billion to Goldman Sachs whose CEO was in the meeting in September 16th deciding whether AIG would be saved by the American taxpayer.  If the American taxpayer -- who does not come up in any of these discussions -- were worried about Exxon Mobil and Cargill and whether they're going to have to pay for regulation, the American taxpayer is not represented in this fight.  Brooksley Born believes and I believe that if we don't get true, meaningful regulation, we going to go through this cycle again.  And every time it comes back, it's worse.

MB:  Come on!  We were in the middle of a financial crisis.  The decision was made that when AIG went down the people who had purchased the insurance contracts would be paid off 100%. With the benefit of hindsight, I think that was probably a mistake.  They should have been given what we call a "haircut." That is to say, not paid off every dollar but paid part of what they were owed.  Now, remember that folks like Tim Geithner and Ben Bernanke were dealing with a financial crisis which is having a massive effect on taxpayers and on people and their jobs, and they were trying in an extremely stressful situation to make sure that our financial system and our economy did not collapse.  They didn't make every decision right.  But I would point out to you that the economy is recovering, the financial sector is recovering, so they did it right!

DR:  We have a call from Grand Rapids, Michigan, where the unemployment rate stands at 15%.

William:  ... I want to know how $17 trillion's worth of mortgages can be insured for $60 trillion. 

DR:  I'm not sure I understand.

MB:  People bought the insurance who didn't own any stake in the mortgages.  Three to eight times the number of insurance to somebody who had exposure to subprime loan were bought by people who said, "These people are never going to pay their mortgages!  I'm going to take a bet!"  In insurance law you can't buy insurance on someone else's life, car, property, home, but AIG was selling it to anybody who wanted it.  And we still don't know whether Goldman was exposed to risk or just made a bet.  And we paid the bet off 100-cents-on-the-dollar.

DR:  Call from Scott in Mayfield Heights, Ohio.

Scott: ... I'd like to look a little bit at how we got here.  Can you guys comment on two questions?  Senator Phil Gramm put in a Commodity Futures Modernization Act that basically had an explosion of unregulated securities that created the cds in 2000.  And then we had -- I believe it was Christopher Cox who was head of the SEC.  Instead of having a 1:10 leverage, we went to 1:40 leverage.  Can you comment on these two things?

GI:  Even though this show has been about derivatives and it's appropriate to discuss the role they had in aggravating the crisis, I think I agree with Martin that they aren't really the prime suspects. In fact, I'm not sure what the prime suspect is.  It's like "Murder On The Orient Express": everybody did it.  Who do we blame?  The successive Democratic and Republican administrations that pushed the industry and everyone involved in housing to get everyone to own their own home?  Do we blame the Federal Reserve for keeping interest rates too low?  Do we blame the subprime mortgages?  Do we blame the derivatives that were written on the subprime mortgages?

DR:  Greg, are you saying there are too many people to blame so you can't blame anybody?

GI:  It's society's fault! 

DR:  No!  I mean, yes, yes indeed!

MG:  People invested in these risky investments because they thought they had insurance. Talk to George Soros.  He will tell you.  The thought that you had insurance that wasn't capitalized in the end would allow you to invest in the proposition that people who didn't have adequate credit would pay their mortgages.  There were many, many abuses.  But the faulty, phony insurance was, in my view and I think in many people's view, the engine that [inaudible].

DR:  A call from Sycamore, Illinois.

Bob:  Congress failed us in the Clinton administration.  Congress failed us when they let the bankers that caused this hand out the TARP money with no conditions.  The bankers are making money but they're not making loans for this economy to recover.  And I'm hearing that AIG, even though it has been saved, will never pay back the TARP money.  It's time to elect no incumbents!  So the strong message to Congress is to listen to their constituents, not to the corporations and their lobbyists with the slush funds.

DR:  It's going to take a long time to get there, isn't it!  Martin Baily?

MB:  There is some truth in what's said.  Lobbyists have too much power and maybe some large corporations have too much power.  But I don't think we should get carried away with the populist view that that's all that's responsible.  Remember, a lot of individuals who borrowed money on their houses didn't always tell the truth about their financial situation. They borrowed too much and so, as Greg said, I think a lot of people were responsible.  One thing I will say, though, in agreement with what my colleagues have been saying.  There was an atmosphere that developed starting in the 1970's and went all the way through that somehow deregulation was going to solve everything.  It applied to airlines, to electricity, to the financial sector.  I think , in many cases, deregulation was a good thing.  But I think in some of these cases we went way too far into deregulation.  We have to step back and review what we need.

DR: But, according to Michael Greenberger, it sounds as though what's being considered in the way of new regulation may, in fact, miss central portions of what's needed to curb this result.

MB:  Well, I don't think so.  I think there is going to be significant encouragement to move these derivatives onto exchanges.  And if you don't trade on an exchange, you're going to have to have a higher capital requirement.  So there will be a financial incentive to put these derivatives onto exchanges.  And I think that's probably the right way to go about it.  I don't think we should over-regulate this market.

GI:  Diane, I don't know what the next crisis is going to be.  But I'm pretty sure it's not going to be credit derivatives. It's just the nature of crises and our response to them that we end up putting up all sorts of regulations and solutions to the crisis we've just had and we have a fundamental failure of imagination to think about where the next one is going to be.  Now, one of the elements that draws what we're talking about together -- whether it's mortgages or derivatives -- is that it's the nature of our dynamic, capitalist, wealth-seeking society to always try to find a new, clever way to product a new product, whether it's an iPod, a drug, or a derivative.  So wherever the exceptions are, that is -- I guarantee -- where the innovation and risk taking is going to flourish.

DR:  Okay.  What bothers me is that the people who are able to envision what the risks are for these kinds of new things -- new problems -- won't be listened to.

MG:  Well, if I can add to that, they're not being listened to today.  These callers call up and they're justifiably angry.  I can tell you there are five bank lobbyists for every member of Congress who are working on these so-called re-regulatory bills.  The device that is being used is to say as a general matter things will be regulated so "don't bother to read the fine print."  There aren't enough average people whose voices are being heard.  The voices that are being heard are those of the banks, and they have got their customers (in other words, the Chamber of Commerce, the Business Council, the American Petroleum Institute) to come in and say, "Regulation is expensive!"  What isn't being asked is, "How expensive is de-regulation to the taxpayer?"

DR:  Well, how do you propose that the taxpayer voice be heard?

MG:  I was on the Hill when gasoline hit $40/gallon.  People called, faxed, emailed and screamed at their members of Congress to do something.  Right now the banks are faxing, meeting, voicing -- five lobbyists for every member of Congress!  People who are listening who agree with what I'm saying and are worried should be on the phone, faxing and emailing your member of Congress and saying, "Please do what President Obama promised in writing and in his Wall Street speech.  These instruments, without exception, should be regulated."  What is happening is that Democratic members of Congress, I'm ashamed to say, [are saying] "These instruments are going to be regulated.  Don't read the fine print!"  And the fine print says, "No regulation."

DR:  What do you think, Martin Baily?

MB:  We live in a democracy.  If people don't like what's done they should vote for someone else to change it.  It's appropriate for banks to have a voice in what's going on. But it is appropriate that consumer groups also have a voice and they do have a voice.

DR: Enough of a voice, Greg Ip?

GI:  Well, I think so.  But you can often ask whether the voices that get heard are the right ones.  For example, in our country we hate big banks and we like small ones. Small banks were hurt and that it why there is a very large exception in the consumer protection legislation for small banks.

"Uh-oh. Wall Street has got its swagger back!" Interview with economist Simon Johnson

Marty Moss-Coane of WHYY's "Radio Times" interviews economist Simon Johnson on the anniversary of the collapse of Lehman Brothers.  Johnson believes we're about to enter the boom-bust cycle once again and that President Obama isn't at this time doing what needs to be done to curb Wall Street's excesses.

MMC:  On September 14th, President Obama gave a speech at Federal Hall on Wall Street one year after the collapse of the investment bank, Lehman Bros.  He warned financial executives not to return to their risky and irresponsible behaviors which led to a world-wide crisis. He reminded them that the government -- taxpayers -- had come to their rescue and may not do it again.  Obama also called for more stringent regulation of the financial system.  According to news accounts, the audience was not enthusiastic about the president's speech.  They applauded just once and otherwise looked as though they wanted to get the heck out of there!  So what did we learn in the last year and what are the prospects for meaningful oversight and regulation.  To put it another way, are we headed for another financial meltdown?

Simon Johnson is a professor at MIT's Sloan School of Management.  He's a senior fellow at the Peterson Institute for International Economics.  He was the International Monetary Fund's chief economist and director of its research department. 

Simon Johnson, how close were we a year ago to a complete financial meltdown?

Simon Johnson:  Well, we had a complete financial meltdown!   The credit markets froze.  In the week to ten days after the collapse of Lehman, it was very hard for anyone to borrow on any terms almost anywhere in the world.  Actually, that is a financial meltdown.  We averted some of the worst consequences if that kind of meltdown -- I think through some heroic actions on the part of the Federal Reserve.  A massive financial fire was put out and prevented from spreading as widely as it might have through the economy.  There's no question we had a meltdown and the damage from that was enormous.

MMC:  We're seeing, though, the stock market beginning to inch its way up. It seems to have stabilized a bit.  Some are saying that because we didn't have a sustained total collapse that means the system has been fixed.  What do you say in response to that?

SJ:  [laughing] Well, it's obviously not fixed!  I don't think anyone really believes that.  President Obama didn't say that on Monday.  Actually, his speech was very good at one level.  It was very disappointing at another level.  But at the level of diagnosis -- at the level of saying, "It's basically a problem of the structure and organization of incentives on Wall Street" -- he absolutely hit the nail on the head.  Then he said, "It's not fixed yet," and asked them to please behave nicely going forward -- which of course they're not going to do if left to their own devices! He also outlined his own regulatory program.  That's the disappointing part.  Those proposals are anemic and weak.

MMC:  I do want to get to that, but in terms of the response to the president, are you saying that the president doesn't have the kind of clout to get the financial world to behave instead of taking these risks?  Risk not just to the US economy but risk to economies around the world?

SJ:  Well, Marty... I don't want to sound exaggerated or outraged or anything!  But let me point out that the Wall Street Journal reported the next day that not a single chief executive officer -- not a single CEO of any major US bank -- attended the president's speech.  Okay, so every one of them was too busy to come and year him speak?  That's incredible, right?  That by itself absolutely encapsulates the arrogance of this industry. They're not grateful. They're not sorry.  They don't even want to acknowledge that they messed up on a major scale.  And the president -- and the president's men and women -- saved their rear ends, their companies, their jobs, their salaries, their bonuses, their pensions, their everything!  It was done on amazingly generous terms.  I think excessively generous terms.  They can't even show up and applaud politely?  Extraordinary!

MMC:  But when the president said that if this happens again we may not be able to come to their rescue, do you think they believe him? 

SJ:  No, of course not!  The key words there are "may not."  The point is that if you run the Fed or the US Treasury and the big financial players as currently constructed are coming to see you on a Monday or late on a Sunday afternoon, and they say, "You know, if you don't give us a big bailout we're going to collapse and the world' banking system will come down with us," and you look them in the eye -- maybe they're bluffing, maybe they're not, maybe they know what will happen, maybe they don't -- are you going to risk that?  No, you're not!  When you say that these banks are "too big to fail," what that means is in that conversation -- and this goes, of course, to the Oval Office -- the president has to decide.  "Do I take the risk?  Do I close down these guys who've clearly messed up, clearly behaved irresponsibly?  Do I risk a second great depression?  Just to make my point?  Or do I bail them out?"  The big players on Wall Street are very sophisticated, very cynical, very experienced.  They know how to play this game!  They'll even show up to the president's speech.  It's a done deal, as far as they're concerned:  next time there will be another bailout.

MMC:  We're talking about -- in the last year -- mergers, so we're talking about in some cases banks that are bigger than ever!

SJ:  Absolutely.  Our biggest banks that were already apparently "too big to fail" have become bigger.  They've acquired other banks and other pieces of the finance industry.  The concentration of economic power in the banking sector has gone up.  And -- get this! -- their political clout on capital hill and more broadly in Washington (where I work part of the week and where I spend a lot of time talking to people and following the nitty-gritty ins-and-outs of this).  The political power of finance and of the biggest banks has actually gone up! Washington Post has had a series of articles documenting this in a very impressive way, with a lot of detail, and people like Jamie Diamond for example, who heads JP Morgan-Chase, says:  "Oh yes, now we're focusing much more on our Washington strategy.  It's absolutely critical to us as a big bank going forward."  These guys know how to play the game!  They pretty much own the town right now.

MMC:  If Congress were to, in some ways, create legislation to make banks smaller, you're saying that the chances of that happening are perhaps nil?

SJ:  First of all, the administration is not proposing that.  They've never put that forward.  Secondly, it's unlikely that Congress would take up such an idea and that it would get through the legislative process.  And thirdly, it's rather unlikely that regulators -- if they had some discretion in the matter which they almost certainly would -- would enforce that.  But that's the key thing.  It's the size of your biggest financial players.  So CIT Group, which is a substantial financial institution -- total assets earlier this year when they were in serious trouble -- about $80 billion.  Eight zero. They came for a bailout saying, "If you don't help us out, small and medium business in America, to whom we lend, will collapse."  Actually the Treasury -- to its credit and credit to the rest of the administration -- turned them down and said, "No, you go sort it out with your creditors."  And that's what they've done and have gone through some sort of (what we'd call) bankruptcy process.  That was 80.  The banks we've had trouble with, the Lehmans, the Bear Stearns, and all those other guys, were $600 billion, $800 billion and up to $2  trillion in total assets.  If we could take those $2 trillion banks and break them up, turn them into more banks of below $100 billion in assets, it wouldn't be a panacea but it would definitely help and move us in the right direction.

MMC:  You have described the Federal Reserve as the world's greatest bailout machine.  Obviously the Federal Reserve can print money and help some of these banks stay in business.  But you're saying that because of the power of the Fed, they have created this moral hazard that encourages bad behavior.  Describe how that works.

SJ:  I think that in order to understand the Fed, the good side and the bad side of the Fed, you need to go back to the founding of the Federal Reserve.  It was after the crisis of 1907.  A lot of big, powerful bankers got together and said, "We need public money to support the banking system." Senator Aldrich of Rhode Island was the leader of that faction.  But there was also pushback from what we might now call "Wilsonian Democrats." Louis Brandeis, was the person who nailed this one -- he wrote a fantastic series of articles that became a book called "Other People's Money And How the Bankers Use It."  People like Brandeis said, "No, no. Hold on a minute.  Bankers are already too powerful.  You can't just give them public money to play with.  You have to have sufficient public control over the institution you set up."  So the Fed is a compromise [laughs] and sometimes compromised by this relationship between helping the private bankers, particularly when they get into trouble, particularly in a crisis -- and having enough public oversight.  Some phases of Fed history -- like from the '40's, '50's, '60's, and '70's --  have actually gone quite well.  When finance has been heavily regulated.  But prior to 1935, it didn't go that well. We had a massive speculative frenzy in the '20's and then a big crash in the Great Depression.  Since 1980, we've actually taken away a lot of the regulation that worked after World War II.  We've gone back into this unregulated, deregulated -- "finance can do whatever it wants and the Fed will bail it out later" -- Greenspan philosophy in a nutshell.  That is really, really dangerous.  So the Fed is a bailout machine.  If you combine it with a tightly regulated financial system, we can all live our lives pretty well with innovation and plenty of growth -- that's the post-World War II experience.  If you let finance get out of its box and get deregulated,  really bad things happen quite quickly.  And they happen again and again.

MMC:  So when the President called for more regulation, what is your critique?

SJ:  Well [laughs], calling for more regulation is what I'm calling for.  The question is, what's in the details?  If you go through it point by point and dissect what the government is putting on the table, it's very weak.  They're not proposing to break up the biggest banks -- nothing in there about that.  They're proposing to increase the amount of capital in the banks as a cushion against losses.  That's what the shareholders have to lose before everyone turns around, looks at the taxpayer, and says, "Okay, your turn to cough up some money!"  The administration, by the way, won't tell you how much they're proposing to increase it.  As far as we can ascertain -- those who follow it very closely and talk with people on the inside -- the increase will be very small.  One of my colleagues is actually calling it "dinky"!  The increase is so small that if it was any smaller you wouldn't be able to see it.  If you go back and look at how our financial system operated back when it was deregulated -- back when there was a lot of risk -- it had a total amount of capital, two or three times what we allow our banks to have.  What our banks have now made sense if the '50's and '60's when they were tightly regulated.  It does not make sense anymore.  But the Fed isn't saying that.  The President isn't saying that.  We're not taking on these big issues.

MMC:  There is a call for something called the Consumer Financial Protection Agency that would protect consumers.  As an idea, do you support that?

SJ:  Absolutely.  That is the one piece of the President's agenda that I think is right.  I think it's been well-defined.  I think it's a sensible proposal.  It's with Congress now but the banking lobby is vehemently opposed to this. You can see a lot of the debate by looking at the contrast between how the banks are attacking -- fully, head-on, using all kinds of contributions and various other devices -- to prevent this agency which would protect consumers from coming into being.  On the other hand, all these other regulatory proposals the Obama administration has made -- the banking industry has no problem with them.  Has never had a problem with them!  They were allowed in on the design with the administration.  They didn't even particularly object to what the administration first put on the table.  It tells you that's not pushing these banks at all significantly in the right direction.

MMC:  This gets a little bit into the weeds, but it's important.  Some are calling for a merger between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).  Where do you stand on that idea?

SJ:  There's no question that we have too many regulators in the US.  A lot of our problems are actually the different distinctions and distance between federal regulators and state regulators -- for example, in insurance.  This is a huge issue.  So I'm in favor of consolidating these regulators as much as possible.  And -- what you talked about -- potentially merging the people who regulate securities and the people who regulate [laughs] ... securities -- of course makes sense!  That is incredibly difficult to get through because they report to different committees in Congress.  Those committees in Congress do not want to give up that jurisdiction and that authority.  That is an incredible uphill slog.  I... would like all of the above.  That's actually my approach to reform.  But you have to make some choices and I would go much more directly after the underlying structures:  the size of the big banks, their capital, and (by the way) the revolving door between Washington and Wall Street.  It is incredible!  You can walk out of a failing or failed Wall Street bank on Friday and on Monday be in charge of the program for bailing out those banks.  When the US sees that in other countries, we're very, very critical of that.  Yet that's our current situation.

MMC:  I heard something recently on NPR.  Someone had saved a tape of Bernie Madoff talking, I believe, to some potential investors in his company about the SEC and what to do about regulators.  He was bragging about how you can hoodwink them and trick them into not knowing what it is that's going on in your investment company.  Do you think he's unusual?  Obviously, he sits in prison for this ponzi scheme.  Does he represent an anomaly within the financial system or business as usual?

SJ:  I think he represents a relatively unsophisticated player, actually.  The other big people in finance are much more clever about how they run their schemes.  I guess they do share the ability to outfox -- and stay ahead of -- the SEC.  But there's a question about how hard the SEC has been trying, particularly in later years.  A lot of the regulators, a lot of the people in Washington, really believe that what's good for Wall Street was good for the country.  And of course that turns out to be sadly and almost completely wrong.

MMC:  We're learning this week that the median income in the country has dropped about $2,000 from the year 2007 and 2008.  The median income for a typical American family is close to $50,000.  That's not a lot of money to raise a family on. 

SJ:  Absolutely.  The people with a median income have not done well over the past 12 years, obviously.  Inequality has got worse.  That's not all.  I guess it turns out that a lot of what we thought was growth in the early 2000's was not really growth.  It was growth at the cost of these massive risks that we'd have to pay for later.  Who pays for this?  It's people who pay taxes.  It's people in the middle of income distribution -- that's a lot of where the income tax burden and the [inaudible] tax burden falls.  This is a disastrous outcome for most people in the middle class.

MMC:  So is Wall Street just entirely disconnected from the rest of the economy?

SJ:  Yes.  There are some connections, definitely.  I'm not anti-finance.  I'm a professor of entrepreneurship at MIT.  And I'm very much in favor of being able to raise capital, take risks, and fund non-financial innovation.  I think venture capital, for example, is absolutely crucial.  It's a big part of how this economy moves forward.  But the financial sector, as currently constructed and operating around Wall Street, has become problematic.  The costs vastly outweigh the benefits of the way they operate.  Most of what they call "financial innovation" is not just not useful to the rest of society, it's extremely dangerous.  They've taken these massive risks -- which maybe they understand and maybe they don't.  Doesn't matter. When it fails -- and it's designed to fail in an important sense -- they come to the taxpayer and ask for money and it's blackmail, of course, at that stage.  Jamie Diamond said this in a speech earlier this year when he said, "Well, you know, you can let us fail, you can vilify us, you can say it's all our fault.  But then you'll have an even bigger recession.  Your choice!  What do you want to do?"  And, of course, that's how they get off the hook.

MMC:  But are you saying that Wall Street is essentially back to its bad old ways? Before the bailout and the implosion last fall?

SJ:  Oh yes, absolutely.  I think in some ways we're in worse shape than that.  Now I'm not saying that we're going to have another crisis immediately.  Back to back, severe financial crises are very rare. Instead, of course, you go through another cycle where people feel good and the major players take on a lot of risk.  Of course, they'll have a good run for a while.  They'll pay themselves massive bonuses.  When there's an upside, they get the upside.  When the downside comes -- 2? 3? 5? 7? maybe 12? years down the road -- it's huge.  Look back over the last 20 years.  think about Alan Greenspan's achievement as governor of the central bank, as chairman of the Federal Reserve in this country. In 2001-2005, people said he's the greatest central banker we've ever had.  Now you look back and say, "I don't think so.  I think he was actually a disaster."  What happened over the past 20 years.  He was probably the worst central banker this country has ever experienced.

MMC:  What do you say about Ben Bernanke so far?

SJ:  [laughs]  Ben Bernanke has done a very good job as a fire fighter.  Once the financial fire broke out and once the meltdown occurred, he worked really hard to prevent that from spreading and from becoming even more damaging. But of course fire fighters have two jobs, really.  One is fighting the fires when they break out.  The other is trying to prevent fires, trying to think ahead, trying to design systems and strategies that make fires less likely -- and less damaging when they break out.  And on that one, I'm afraid his track record is not so good!  When he worked at the Fed under Alan Greenspan, he was absolutely in line with the Greenspan idea that you don't worry about bubbles or financial frenzies when they're building up, you just clean up afterwards.  That's what we just done, the last 12 months.   You really don't want to do that and you really don't want to do what we've been doing the past 12 months again.  More importantly and more relevantly, in terms of what he's saying now about what he's planning to do... you know, he's been giving speeches -- he gave a speech at the Brookings Institution in Washington and he laid out his view of what the problem is and what reform [inaudible] is, and so on.  It's all very technocratic, all very hollow-sounding.  And it is hollow.  He's not confronting or even speaking about the deeper, underlying political realities here and the power of the financial sector and how it's going out of control.  Now, not all of that is up to him to fix.  But his intellectual leadership of the Fed is absolutely critical, for good or ill.  ... [inaudible... note:  Johnson speaks very fast, and occasionally words get lost]

MMC:  So if you ran the Fed -- perhaps we're hearing what you would do if you ran the Fed! -- what would you do?

SJ:  I think that the task that we're facing -- specifically the chairman of the Fed needs to take on the diagnosis and definition of the problem in much more stark terms.  And explain to people -- some of which you can do in public, some of which the chairman of the Fed can't say in public but can push for very hard in various private contexts on Capitol Hill, with the administration, and with the industry.  You have to push for the true end of this too-big-to-fail syndrome.  And having these little technocratic tweaks such as "We'll have a Resolution Authority that will give us the legal power to deal with these banks" (that's what the administration wants to do and what Bernanke's supporting at the moment -- it's just not convincing.  Because when these big guys come to you and they're across borders, for example -- CitiGroup is a massive global bank -- and if they were, hypothetically, to come to you and say, "We're about to fail," this Resolution Authority that they're putting all this weight on doesn't deal with cross-border issues.  So even on their own, narrowly defined, terms the solution they are seeking does not address the problems they faced last fall.  How can this make sense?  The Fed has to do things very differently.

MMC:  I'm looking at something you wrote at your website, Baseline Scenario.com.  In part we've been talking about this.  You're saying, "Financial institutions have to be made smaller.  They have to have more 'skin in the game.'  You have to address the revolving door between Wall Street and Washington."  The Fed has to rethink it's ability to be this bailout machine.  Is that what you're calling for?

SJ:  Yes, absolutely.  None of that is stuff the Fed feels comfortable calling for -- the existing Fed chair or Fed structures.  And that's kind of the point.  We've designed a system in which the guys in charge of the bailout, the guys who really know how the thing went wrong and what you need to do to fix it -- I think they do understand this -- feel constrained.  They feel it's not their job to talk about it.... and so on.  That's a problem.  That's not okay, as far as I'm concerned.

MMC:  But it sounds like fixing this revolving door between Wall Street and Washington is the top priority, then?

SJ:  I think that's huge, to be honest.  I think there's a very clear conflict of interest where people go either from Wall Street to Washington or when they go from a key regulatory position in Washington to Wall Street the next day.  Or to an advisory position on Wall Street.  I think there should be a five-year moratorium on that.  I think people will be shocked, they really don't like that proposal.  But I'm afraid we've sunk so low that you have to swing to the other extreme now.  You cannot have people going back and forth and people in government thinking, "Aha!  I'm going to land very nicely at Goldman Sachs after I'm done with this government gig."  Of course that leads to perverse and crazy incentives.  And by the way, when you see this kind of thing happening in another country -- when we saw it in Indonesia, for example, in the fall of 1997, when the US Treasury was controlled by Robert Rubin, Larry Summers, and Tim Geithner was also working there -- the US was very hard on Indonesia.  Very critical.  And directly and through the US position at the IMF, they put a lot of pressure on the Indonesian government which after -- perhaps -- some unintended consequences led to the fall of of President Soeharto. 

MMC:  Hmm!  Have you been asked to testify before Congress?  Curious...

SJ:  [laughs] Yes, I've testified to quite a few committees of both the House and Senate, and the Joint Economic Committee, over the past nine months or so.

MMC:  And the reaction you got, was it kind of like what the president got at Federal Hall with those financial titans sitting in the audience?  

SJ:  No, no.  Actually the response on Capitol Hill is pretty good at the level of "we have a huge problem in our financial system and we should fix it."  I think over time it's become more polarized and more partisan -- which to my mind may be actually fairly productive -- with the Democrats saying how we have to regulate properly and more.  There's always a range of opinion on the Democratic side.  On the Republican side, you have a lot of people saying, "No, no, the problem is regulation.  We should deregulate more!"  Right?  So I'm more in the regulating camp, as you might guess.  But that's at the level of testimony, that's at the level of these sessions I'm involved in which are more about the economics and economic incentives and policies going forward.  The problem is that when you get into the nitty-gritty of designing legislation that the special interests come into play.  It's interesting.  I've never been called to testify on a panel, sitting next to a banker for example. I think that would be quite interesting!  And, at the height of the crisis and subsequently, various people have tried to arrange debates between me and (say) the American Bankers Association.  Or the roundtable that represents big finance.  And they don't want to talk in public. They work very effectively in private.  They work behind closed doors.  They have lots of leverage, I guess!  [laughs] And they're very good at blocking in the trenches what otherwise should happen.

MMC:  ...  We have a call from Vincent from Philadelphia to join our conversation.

Vincent:  Just to support what you said, Niall Ferguson, the Harvard and Oxford professor and a good friend of [Professor] Johnson's, I'm sure, points out in a current issue of Newsweek that the 10 largest financial institutions rose from  10% to 50%.  In other words, 10 banks control 50% of the financial assets in America today.  Boy, if that's not "too big to fail" I don't know what is!  But anyway, there was an earth-shaking judicial ruling coming out of Judge Rakoff's office yesterday and it's been all over the financial media.  He won't accept Bank America's settlement -- the SEC settlement of $33 million -- which is ridiculous.  He's going to have them go to trial and has got Congress swinging into action.  I hope Professor Johnson will be invited before the Oversight Committee chairman Edolphus Towns and I hope you [MMC] get Congressman Kucinich on because both of them have just send Mary Shapiro, SEC chairperson, a letter.  She's been presiding over that agreement.  Professor Johnson is right on target...

SJ:  I thought that was a terrific ruling.  I don't know if it will stand up under appeal. But what the judge said was absolutely brilliant because there's $30 million or so settlement that the SEC had agreed to.  Basically, that's a fine on Bank of America and its shareholders for Bank of America misleading its shareholders.  Which is crazy.  And the judge said, "This is crazy! I want to see the issue of the responsibility of Bank America executives -- the individuals, the people -- I want to see that on the table.  You could presumably do that through a revised settlement or through a trial.  I think he's absolutely right.  We've got to the point where the people -- individuals running our banks -- are not held responsible for their actions.  And that has to stop.

MMC:  We have a call from Dale in Kennett Square.

Dale:  It was Republican Teddy Roosevelt that made the case that some companies were so big that they were too big to fail and they were a threat to democracy.  Having said that, the matter of personal accountability comes in.  Why is it okay to kill people in death penalty cases but it's unthinkable to put a business out of business -- have a death penalty for businesses?  In Pennsylvania they took the charters away from ten or twelve banks in the 1800's because they did egregrious harm. 

MMC:  ... Imagine if Lehmann Brothers or, let's say, AIG had been allowed to fail.  What do you think the impact would have been?

SJ:  At the moment when the government faced that problem last fall -- once you get to that point, allowing these big guys to fail can have potentially catastrophic consequences.  That's the point.  That's what they designed these structures.  That's what give them this blackmail-in-a-crisis power!  But I'd like to what the caller said ... two dimensions I thought he had exactly right.  Teddy Roosevelt is exactly the right historical parallel here. Teddy Roosevelt stood up to the big financial industry interests of his day.  He had a big showdown with J.P. Morgan, for example.  Teddy Roosevelt said (and felt very strongly) that the industrial trusts which were finance-backed -- but they manifested more as railroad trusts, for example -- had become too powerful politically.  They challenged the executive power of the US.  Andrew Jackson had the same showdown in the 1830's, by the way, with the Second Bank of the US.  FDR had to face down the securities industry in the 1930's.  This is a repeated cycle in American history.  As for the caller's point that why don't we have the death penalty for businesses:  the US is very, very good at shutting down small and medium-sized banks.  The FDIC's resolution and [inaudible] process first class, okay?  What we cannot handle is the top ten, thirteen, fifteen banks.  That's where we choke right now.  That's what has to be fixed.  The only way to fix them is to do the Teddy Roosevelt strategy:  break 'em up. 

MMC:  An FDIC for these big banks?  Is that what you envision?

SJ:  Well, the FDIC for these big banks has been proposed.  Some people are kicking that around.  ... But if you think in those terms -- FDIC as an insurance arrangement -- they would have to charge, for this to really work, an insurance premium that is appropriate for the risks being taken by these massive banks.  Well, you've seen how big the risks are.  You seen all the resources -- Federal Reserve resources, taxpayer resources -- that have to be committed when these things fail.  A properly priced insurance premium would be prohibitive.  The large banks wouldn't be able to exist -- which is fine with me!  That'll press them to be broken up.  But realistically, they'd just pay a lower premium than they would otherwise.  And you'd basically be carrying the existing arrangement which is an implicit form of taxpayer guarantee that ends up being incredibly expensive and doesn't prevent them from taking on these relentless risks that we all come to regret.

MMC:  One description I've heard of our system is that you get unfettered capitalism on the way up and socialism on the way down when the government intervenes!

SJ:  Some people like to call it "lemon socialism." Meaning, you only get the lemons, you only get the bad stuff!  The Wall Street expression is: "Wall Street gets the upside and the taxpayer owns the downside."  In a sense what we're seeing here is a repeat of what Wall Street's seen before.  But it's happening now on a scale that was never previously imaginable.  The financial sector in this country used to be 1-2% of GDP back 50-100 years ago.  It was 4-5% of our economy after World War II.  Since 1980 it's 8%.  8% of all we produce in this country is financial services and these turn out to be very dangerous.

MMC:  I want to talk about executive compensation, something that you and many others have talked about and certainly something that rankles most of the the public.  When you look at compensation for financial executives, is it just that they get paid so much or that somehow their pay is not connected the performance of their company?

SJ:  Well, the pay is obviously connected to the performance of their company when things go well and when they do great.  When things go badly, they don't lose.  And this is a big change from, say, the 19th century.  In the 19th century when you managed a bank that failed you lost your money -- because most of your wealth was in that back -- and you lost your social position.  You were not re-employed in the government or another major bank!  Some how we've moved away from that.  The culture of executive compensation, very broadly defined, is "make out like a bandit in the boom and when things go wrong, walk way with a golden parachute or a lot of cash."  Or maybe you lose the value of shares.  But still, you go from being a billionaire to being a multi-millionaire.  That is definitely part of the problem here.  Executives are not being careful enough because they don't have enough skin in the game.

MMC:  How would you get more skin in the game, to use your phrase?

SJ:   I think the key is to make their compensation contingent on they're not being a major failure.  Of course the trick there is that these failures are not manifested within 12 or 24 months but over a much longer period of time -- 5 or 10 years, for example.  So there has to be a lockup and a hold on the wealth that they acquire from these activities for a long period of time.  The debate is nowhere near even recognizing that principle.  But if it were up to me, I think at least a 10-year hold would be appropriate.

MMC:  And give shareholders more control, more say over executive pay?

SJ:  That certainly would be constructive.  But I would also stress that shareholders need to have more equity, more commitment.  The amount of capital that banks had at risk before 1935 was roughly two or three times what they have now.  In fact, under the National Banking Act of 1863, if the bank failed you, the shareholder, were liable not just for the money you had in the company and could lose but for another hit equal to the par value of those shares. This was contingent liability or contingent capital that bank shareholders had to put it.  As a result and as you can imagine, bank shareholders were a lot more careful about who was managing the bank and what they were doing because they had more money at stake.  If you let these banks operate with very thin cushions -- a little bit of equity and lots and lots of debt -- then, if it fails, you the shareholder don't mind that much.  If they're a lot more capitalized you're going to be much more careful.

MMC:  What about this board compensation committees that come up with these executive salaries?

SJ:  Well, it's obviously cooked! 

MMC:  They're all part of the same club? They literally go to the same clubs and send their kids to the fancy private schools? 

SJ:  Yes. Rakesh Khurana at Harvard Business School has written a brilliant book and some other pieces on exactly this -- on how you construct this social reality and perspective, sort of cultural capital around boards and compensation. It's a huge problem for shareholders.  These financial companies are run primarily for the insiders, primarily for the powerful insiders, and very little for the shareholders.  It's a very, very tough problem.  We should be working on that, too.  While we're working on it, we need to break them up, make them smaller so at least in the meantime they're a little less dangerous. 

MMC:  You're saying it's a culture where it's not unusual for someone to make millions and millions of dollars so why wouldn't you give an executive some lovely golden parachute?

SJ:  Absolutely.  The whole thing is priced relative to what other execs are getting.  They say, "Well, this guy down the road has got these incredibly generous terms.  I should be getting this.  Or I should be getting something a bit better." And the boards are not browbeaten.  The boards are convinced.  They believe.  That's very important.  A lot of this is about ideology.  A lot of it's about shared believes and perspectives.  It's a form of cultural capital and cultural capture by these powerful finance insiders.  The likes of which you've never seen before in this country or actually anywhere else.

MMC:  Jerry is calling from Haddon Heights.

Jerry:  We'll have to go back to some of the financial regulations that were repealed.  I was wondering if part of the prevention of the  "too big to fail" scenario would be some sort of Glass-Steagall type of regulation.  When they repealed all that, that's when all this nightmare started and these banks became 'way too big for their britches.

SJ:  Jerry is right.  The waves of repeal of financial restrictions around the time of Glass-Steagall were absolutely critical here.  I would put more emphasis, perhaps, on some other things and particularly the failure to regulate derivatives at the end of the Clinton administration.  Glass Steagall, of course, was the measure taken in the 1930's to address the problem in the 1920's that investment banks had become very much like commercial banks and were able to use some of the protections and activities of commercial banks to fund speculative investment activities.  I'm not sure that in today's world that distinction has quite the same importance.  Remember:  the financial sector is innovative, they move one, and they found ways for pure commercial banks to do absolutely crazy things -- like lend subprime mortgages, like get involved 'way over their heads in derivatives -- while that remains commercial banking.  And of course the investment banks did lots of crazy things as pure investment banks.  They made themselves so big that just as investment banks they threatened the world's financial system and the world's economy.  I'm sympathetic to this Glass Steagall line, but I think much more important, much more cutting to the modern chase, is making them smaller and having a lot more equity and reducing the Wall Street/Washington revolving door.

MMC:  What would you do about derivatives?

SJ:  Derivatives are a very interesting and tricky matter.  Some people in the non-financial sector say they want to be able to hedge risks and they can do that with derivatives.  But I think the consensus of opinion is putting all derivatives on exchanges and having them be much more regulated, much more transparent.  Then of course there's this issue of to what extent you allow the financial firms to have risks which turn out to be hidden risks through their derivative positions.  That's where you really have to clamp down.  Again, if they're smaller, it doesn't matter as much if they take risks and fail.  If you go to Las Vegas and lose all your money on whatever kinds of speculations -- derivatives, roulette, whatever! -- that doesn't matter too much to me. It's your money.  It's sad but it doesn't endanger the economy.  It's when you're very big and you lose money on wild, speculative gambles -- even if you're gambling on sensible instruments -- that's where we get our huge problem.

MMC:  We have Michael from Unionville.

Michael:  My question is about the credit rating agencies and what maybe we should have done about regulating them. What basically happened is that they were delivered bags of rotting offal, had their palms crossed with three pieces of silver, and stamped "USDA AAA Prime" on the stuff so it could be sold to the Fisherman's Bank of Norway or something!  Seems to me that those rating agencies, where everybody is complicit in particularly the subprime issue -- is anything being done or should be done to control their activities and their methodology of risk assessment?

SJ:  It's a great question and a very nice statement of the problem, actually!  Very little is being done to arrest the problem of credit rating agencies.  Clearly the underlying problem is that they're being paid by the guys underwriting the securities.  They should be compensated in another way.  They should be compensated by the people who buy securities.  There's no agreement on how to do that and I don't think this is going to be where you'll see change.  I think the credit rating agencies are a tool, an instrument in the hands of these big financial players.  We should address the problem at its core, at the level of how much power the financial players have and how to make them smaller.  I'm certainly in favor of finding ways to change the compensation schemes that fund the credit rating agencies and allowing more entry into that business and broadening the set of people who are allowed write ratings could also be helpful in that context.

MMC:  We've got Robert now from Jersey City. 

Robert:  I'm just curious to know if you're familiar with the work of Dougless Rushkoff.  He just came out with a book called "Life, Inc." where he talks about the corporate age being the cause of the economic crisis.  Basically, this virtual economy which is predicated on the creation of debt not the creation of value which was the original foundation of our economy.  I just wanted to know what your thought are on that or his work, if you're familiar with it.

SJ:  I must admit I'm not familiar with it but I'll see if I can download it to my Kindle immediately after the show!  I think on the point as to whether we've moved away from the creation of value to the creation of  debt, that actually sounds right.  Within the financial sector.  I think it's very important that we have a strong, non-financial sector in this country.  We're very good at innovating and creating things.  I work at MIT.  I'm not an innovator, not an engineer.  But I've seen a lot of that over the last twenty-five years.  I really appreciate it and have seen how that become companies and new products.  On the non-financial side, we're the envy of the world.  We have people lined up at the door at MIT wanting to understand that process of non-financial innovation.  I think where we've gone wrong is that too many of us have bought into the idea that financial innovation is kind of like non-financial innovation.  After all, the word "innovation" is really good, very positive connotation in  modern American culture and with good reason.  But financial innovation is not just like non-financial innovation.  Much of recent (last 20-30 years) modern innovation has come with these hidden risks.  And these hidden risks, when they materialize they materialize together and they're a very big hit on the taxpayer.  That's very dangerous.  It's totally unlike non-financial innovation.

MMC:  But I wonder how you create an economy that encourages this kind of non-financial innovation that you just described?

SJ:  I think we have.  We had an economy that was very good at that in the 1940's through '70's. 

MMC:  How do you bring it back?

SJ:  I think you put finance back in its box, to be honest.  We had a highly regulated financial sector in that post-war period.  It didn't prevent us from having big breakthroughs in technology.  Think personal computers, think telecommunications.  Actually, even within banking.  The banks invented ATM's.  We invented venture capital in and around the financial sector.  And credit cards were also invented in that relatively regulated phase.  So I just don't buy the idea that you need modern, unfettered, so-called "financial innovation" in order to have growth.  It's done very little for us even in the most positive reading.  And in my reading, which is not at all positive, it's led us into great and grave danger.

MMC:  In fact, I'm looking at the New Republic, the September 23rd issue, and you and Peter Boone co-authored an article.  The headline reads, "The Next Financial Crisis:  It's coming and we just made it worse."  Are we on the cusp of another financial crisis?

SJ:  Yes... but let's be careful.  Remember, back-to-back crises are not the norm.  The norm -- what we've seen in the last 20-30 years in this country and other places where finance gets out of control -- is you have a boom-bust cycle.  The boom can last for a while. I think in a year's time you might look back on this conversation and say, "Well, Simon was exaggerating.  We haven't had a crisis."  I'm not saying we're going to have a crisis in the next twelve months.  I'm saying we're building up the same kind of vulnerability that we had in 2003, 2004, 2005.  And of course it kept going unti 2007.  In fact, a lot of it kept going until 2008, right?  And people felt good.  People said, "Well... all this is acceptable, all this is fine, and if there's a problem we'll clean up later."  And then we have a huge crisis and when you reassess the previous decade -- I'd say the previous two decades of Alan Greenspan's tenure at the Fed -- and you say, "Oh My Goodness!  We were just deceiving ourselves.  That was illusory.  That was ripping off people."  A lot of financial people walked off with much cash but the rest of us got absolutely hammered by this experience.  So we're on the cusp in that sense.

MMC:  It sounds like you're saying, looking at the past, that we're only able to diagnose our problem in hindsight?  I ask that because I'm curious, as you look ahead -- and perhaps it is signs of a boom and then of course the bust follows the boom, what you will be looking for to indicate that uh-oh, here we go again!

SJ:  I think you look no further than the attitudes and behaviors of the financial sector.  As I said at the beginning, the fact that no bank CEO's came to listen to President Obama when he was asking them very politely to please behave better in the future -- with or without regulatory reform -- I think that tells you a lot.  I think the financial sector has its swagger back.  The swagger is good for them and very bad for the rest of us.  That is what we've learned the hard way over the past few years.  If you go back and look at the last years and the way the Fed has operated and where the Fed has been a positive force in the American economy and when it's actually not been a positive force but reinforced these cycles, that's what we do in the New Republic article -- I think we say, "We need more financial regulation in a hurry!"  If we're going to make an error here, perhaps we should err on the side of too much regulation for a while and put those guys much more in the box where they were in the '40s, '50's, '60's and '70's.  And the rest -- the non-financial part -- of our economy based on that evidence and based on what we're seeing now more broadly would do just fine.

MMC:  You've mentioned that both Roosevelts -- Teddy and Franklin -- stood up to the banks and the financial system.  Are you saying that Obama needs to be tougher?  I mean, he used some strong language but that he isn't tough enough with this part of our economy?

SJ:  Yes, that's exactly what I'm saying.  He should have been tougher on them back in March.  He felt, for whatever reason, that was inappropriate.  Now the economy is recovering.  He should absolutely be tougher on them.  He should be pushing them much harder.  I think you can see from the fact that they don't even come to his speech that when you don't demonstrate strength -- when you try to accommodate them and try to be nice to them -- you don't get respect from Wall Street.  Wall Street is about power.  Wall Street is about looking at the odds,  assessing the trade, and saying, "Yep.  We know where this one is going!  Thanks very much, President Obama.  We've got this one and we're going to run the next cycle just like we ran the previous one."

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Recent articles from and interviews with Simon Johnson

Atlantic, "The Quiet Coup: How bankers took power, and how they're impeding recovery."

On Point, Roundtable discussion on "Wall St., A Year After the Meltdown"

New Republic, with Peter Boone, "The Next Financial Crisis: It's coming--and we just made it worse."

Serious threats from the right: Max Blumenthal on "Republican Gomorrah"

Interview on NPR's Fresh Air with Max Blumenthal about how the right is trying to de-legitimize the Obama presidency. 

Terry Gross:  There's the movement of people who claim that Obama isn't even an American citizen and others who accuse him of being "a Hitler" or "a Stalin."  In Blumenthal's new book, "Republican Gomorrah:  Inside the Movement That Shattered the Party," Blumenthal writes that the Republican party has gone from a "big tent" philosophy to being fully in the grip of its right wing.  Blumenthal has been covering the Christian Right for six years, attending dozens of its rallies and conferences, listening to its radio programs, and sitting in movement-0riented houses of worship.  In his book, "Republican Gomorrah," he writes about people who created the blueprint for the Christian Right and the people who have funded it.  Blumenthal is a senior writer for "The Daily Beast" and has written for "The Nation," and the "Huffington Post."

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TG:  Your book ends with the scene of Republican Congressman Paul Brown of  Georgia and two of his friends who are very highly placed in the anti-abortion movement praying over a door that Obama was about to walk through to take the Oath of Office.  What were they praying about?  Set that scene for us.

Max Blumenthal:  Paul Brown, a Congressman from Georgia, is a born-again Congressman who said that he was inspired to become an evangelical Christian by the guy who used to hold "John 3:16" signs in sports games, who wore a multi-colored wig, and who's actually in prison now for kidnapping and stink bomb attacks.  The image of this character at sports games inspired him to become a born-again Christian.  He gave special access to two characters, Paul Mahoney and Rob Schenk, who were involved in "Operation Rescue" during the 1990's.  That's the militant wing of the anti-abortion movement which was at least indirectly connected to several assassinations of abortion providers and attacks on abortion clinics.  Most recently, the assassination of Dr. George Tiller in Kansas.  What they were doing there in the Capitol was they were planning to anoint the door that Obama would walk through as he prepared to give his inaugural address with oiled crosses.  The reason I described this scene and thought it was important was that it was emblematic of where the movement was going to go.  They were "consecrating" their planned opposition to the Obama administration at a time when the media and probably the Obama administration believed that they had the good will of even elements that had opposed Bill Clinton in the 1990's, and that this was a new, post-partisan era.  I think this anointing of the door was symbolic of what was to come.  I think it's bearing out right now in the health care debate. 

TG:  One of the things Paul Brown has done is to compare Obama to Hitler and Stalin.  He said on his website that he's concerned Obama has a vision that's "fundamentally different from the system of limited federal government that our founders established" and that he "will attempt to destroy the free enterprise, free market, economic system which has made us the wealthiest nation in the history of the world."  We're hearing a lot about comparisons between Obama and Hitler and Stalin lately.  What do you think is behind that?

MB:  Well, Paul Brown was referring to Obama's plan to implement a civilian force that could help during natural disasters.  George W. Bush actually introduced this plan and Paul Brown and his Republican allies said nothing.  But the grass roots right is determined to de-legitimize President Obama, to prove that he was not born here, that he's "not one of us" or that he has totalitarian intentions.  So Paul Brown has compared Obama simultaneously to Hitler and Stalin, two leaders opposed to each other.  Seems like a bizarre comparison, but if you tune into rightwing radio, especially fringe rightwing radio hosts like Alex Jones, you're going to hear the warnings that Barack Obama plans to create concentration camps for rightwing dissidents, that he's going to implement mass gun seizures.  This fear is designed to mobilize opposition at grass roots level -- to Barack Obama, to the Democratic Congress, and to the Progressive agenda in general in order to win more followers to the Republican grass roots and to the right wing, and to raise funds. It's working. During the Bush years, the rightwing groups lost a lot of money because they function better throwing stones from the outside than they do calling shots from the inside.  Now their coffers are filling up so a lot of the rhetoric is designed just to ramp up the debate and to mobilize forces and elements that have been dormant for eight years because the Republicans have been in power.

TG:  You describe someone named Anton Chaitkin as launching the opening volley of a campaign designed to link Obama and his health care proposal to the mass euthanasia of Hitler. Who was Anton Chaitkin and what was his role in launching that opening volley?

MB:  Anton Chaitkin described himself as a historian without disclosing his affiliation with the political empire of extremist cult leader, Lyndon LaRouche.  He publicly accused Ezekiel Emanuel, who is the chief bioethicist at the National Institute of Health and the brother of presidential chief of staff, Rahm Emanuel, of creating a plan for Hitlerian death panels based on Hitler's T4 program.  He did this well before anyone in the conservative right -- within the Republican party -- suggested that Barack Obama had a Hitlerian agenda in his health care proposals.  The LaRouche movement began distributing leaflets throughout the town halls of Obama with a Hitler mustache painted on his face.  Interestingly, rightwing groups adopted this rhetoric.  I can't say they adopted it directly through Lyndon LaRouche, but I was unable to detect any other sign of this rhetoric anywhere else before Anton Chaitkin pinpointed Ezekiel Emanuel as the point-man for Obama's Hitlerian agenda.  Subsequently, we've seen mainstream Republican leaders echoing LaRouche rhetoric.  For instance, Sarah Palin accused Obama of planning to implement "death panels" based on the advice of Ezekiel Emanuel.  Charles Grassley, the senior senator from Iowa who is in charge of negotiating Barack Obama's health care reform proposals for the Republican side, said that there may be some reason to worry that this plan will include some kind of mechanism for pulling the plug on grandma.  So you can see mainstream Republicans echoing the rhetoric of an extremist movement that many people thought had disappeared years ago.

TG:  What is Anton Chaitkin's connection to the LaRouche movement?

MB:  He's a LaRouche staffer for "Executive Intelligence Review" which is the bulletin of the LaRouche organization. 

TG:  Do you see a connection between Christian Right and the claims that Obama bears resemblance to Hitler and Stalin -- that he's leading us in the direction of fascism?  This is different from the kind of anti-Democratic rhetoric we're used to which is more about "family values" and culture wars and abortion. This is Hitler-Stalin-fascism/communism!  Do you think that's connected to the Christian Right?  Where do they come in on that?

MB:  I think it's ironic that they would level this rhetoric about someone who's sort of a centrist, consensus-building figure when one of the movement's great inspirations, R. J. Rushdoony, advocated replacing the US Constitution and secular government with a totalitarian theocracy in which disobedient children, adulterers, witches, abortion doctors, women who receive abortions, etc., would all be executed. Rushdoony's son-in-law, Gary North, who's a former staffer for Ron Paul the Republican Libertarian and who is an economist, advised stoning these evil doers to death because "stones are less expensive."  The Christian Right, during the 1980's, advocated putting people with AIDS, particularly homosexuals, in quarantine in camps.  They're on the record saying this.  Mike Huckabee, who campaigned for president in 2008, was among those who advocated quaranting AIDS patients, and he's refused to recant his advocacy for this sort of policy.  So I think it's ironic that a movement that has authoritarian if not totalitarian tendencies along with this paradoxical anti-government strain would level these accusation at one of their opponents.

TG:  The Southern Poverty Law Center released a report about how anti-government rhetoric is spilling over into the mainstream.  As examples they mention some politicians, including Texas governor Rick Perry, Fox Business Network anchor, Cody Willard, whom the report quotes as saying,"Guys, when are we gonna wake up and start fighting the fascism that seems to be permeating this country!"  Glenn Beck's example is, "If this country starts to spiral out of control, Mexico melts down or whatever -- if it really starts to spiral out of control, Americans just won't stand for it!  There will be parts of the country that will rise up!"  I know that as part of the research for your new book you were listening to mainstream media and you were listening to more fringy media -- talk shows of all sorts.  Do you agree with the conclusions of this report, that a lot of anti-government rhetoric is spilling over into the mainstream?

MB:  I would simply say that the Republican party over the last twenty years has been subsumed by extreme elements, mainly by the Christian Right.  The Republican party at the same time has been the most dominant party over the last thirty years.  So naturally the extreme rhetoric of the rightwing fringe is going to become mainstream if the major opposition party to the Democrats, who now control Congress and the White House, are echoing it and Fox News is providing a megaphone for it.  So this is no surprise at all.  What also needs to be noted is that many of the radio shows that are projecting this information and broadcasting these conspiracy theories about concentration camps for rightwing dissidents, mass gun seizures, death panels, are some of the most popular radio shows in the country.  James Dobson of  "Focus on the Family" is one of the top five radio hosts in the country.  So is Michael Savage who accused Obama of trying to indoctrinate an "Obama youth corps" with his speech encouraging public school students to study hard and stay in school.  Same with Sean Hannity.  So all of the people who are introducing these conspiratorial theories about Barack Obama, suggesting that he's either Hitler or Stalin (or both!) command enormous audiences and are therefore taken seriously by the mainstream media which attempts this veneer of "balance" and entertaining both sides when one side is completely hysterical, conspiratorial and is leveling baseless attacks.  Should it be taken seriously?  What are the consequences of taking those attacks seriously in a democracy?  I think those are questions that need to be raised.

TG:  You went to a couple of gun shows in Reno, Nevada, and in Antioch, California. You write that you came away with "a portrait of a heavily armed, tightly-organized movement, incited by rightwing radio to a fevered pitched resentment of Obama and his allies in Congress."  The Southern Poverty Law Center recently released a report that the militia movement, which had strengthened during the Clinton years organizing against the federal government, faded out in this decade with Republicans in power. But it's on the rise again.  The militia movement is on the rise again. Did you see evidence of that at the gun shows that you attended?

MB:  Absolutely.  I think there is a perception, especially within the media, that Barack Obama could avoid inciting the kind of opposition that President Clinton did by implementing a moderate to liberal agenda.  What I was able to witness at these gun shows -- earlier in the year, before the battle was brewing over health care and the government bailout -- was an incipient extreme opposition to Barack Obama building within the Republican grass roots and on the far right.  It stemmed from conspiracy theories spread by radio hosts who are not very well known in the mainstream but who are extremely popular -- like Alex Jones -- that President Obama had a plan to put rightwing dissidents in concentration camps under the federal emergency management agency -- FEMA.  When I spoke to people at gun shows, this conspiracy theory was really popular.  The same with Obama's supposed plan for mass gun seizures.  So people were buying as many guns as they could, including high power weaponry like 50-calibre semi-automatic rifles which have been shown to be able to down aircraft.  Sniper rifles that can be easily disassembled and put into a briefcase that's concealable.  I showed this in a video I did called "Gun Show Nation."  The crowd you see at gun shows -- some people are just basic, apolitical gun enthusiasts.  But  it's a very political gathering.  There are confederate flags.  There are even Nazi flags being displayed throughout the conference.  It brings in elements that are even considered extreme within the right wing grass roots, like neo-Nazis.  Gun shows have become gathering place for people who are the most extreme opponents of Barack Obama's agenda and they're energized again by the battle over health care.  We're seeing it across the board.  It's not just the extreme militia-oriented elements.  We're seeing it within the Christian Right.  A recent poll showed that 7 out of 10 white evangelicals are extremely opposed to Barack Obama's proposed health care reforms.  The Christian Right is raising a lot of money organizing against health care.  It's across the board.  The right is growing again.  Those who pronounce the death of conservatism or the death of the Christian Right were premature.

TG:  You say that at these gun shows -- in addition to conspiracy theories that Obama will put people who opposed him in concentration camps which would be another Hitler comparison -- there's also a lot of people who say Obama will usher in a Marxist dictatorship. 

MB:  There are.  There are also a lot of people -- perhaps the majority of people I spoke to -- who didn't really seem to know the difference between fascism and communism.  The goal is to paint Obama as a totalitarian, secret communist-fascist-terrorist-Muslim!  Whatever they can do. A basic pastiche of rightwing hobgoblins, a multi-colored piñata of every "evil doer" they want to smash in order to delegitimize him and mobilize as much opposition as possible.  As I discuss in my book, this began during the rallies after Sarah Palin was nominated as vice president.  It began when Sarah Palin said (I'm slightly paraphrasing it):  "Barack Obama is not one of us. His America is not our America.  He's palling around with terrorists."  At that point, we began to hear cries from the crowd that Barack Obama is a "traitor," that he is "treasonous," and so on.  The campaign didn't end with Barack Obama's inauguration.  Those rallies didn't end.  They've extended into the health care debate, into the debate over the government bail-out, and into every element of Barack Obama's agenda.  The more time that goes on, the more extreme the rhetoric  becomes and the more diffuse the opposition to Barack Obama becomes.  So it's not led by Sarah Palin or any conservative leader anymore.  It's hard to pinpoint where the opposition is coming from -- from diffuse rightwing elements that are mostly within the Republican grass roots.  It's spreading and it's growing more and more extreme -- to the point where Barack Obama is compared to Hitler, the "most evil man in history."

TG:  One of the things your book does is give portraits of a lot of the people who helped create the right as we know it now.  But along with people you profile in the book are people and groups whose names won't be familiar to most Americans. They are people who operate largely behind the scenes, who are known to insiders but not to outsiders.  Let's do a bit of a Who's Who of the people you write about in your recent history of the right.  Let's start with R. J. Rushdoony.  I guess you would describe him as one of the founders of the extreme end of the Christian Right as we know it today.

MB:  I would describe him as the man who gave the Christian Right its theocratic blueprint for the society and government it hoped to create in the US at a time when the movement was moving from the pews into the streets and becoming increasingly radicalized by federal government attempts to integrate public schools and even so-called "private Christian schools."  R. J. Rushdoony was a survivor of the Armenian genocide who came to this country and became a theologian.  He's the descendent of six generations of high priests.  He laid out of a plan in several tomes for replacing the federal, secular, government with totalitarian theocracy in which functions like road building, medical care, and schooling would be provided by the church.  The criminal justice system would be turned over to the church and run according to Leviticus case law.  So disobedient children, adulterers, lose women, etc., would all be executed.  And of course many of the people he influenced didn't take it as literally as Rushdoony did but he, as I said, provided the Christian Right with a blueprint for the society they hoped to create.

TG:  Where do you most see R. J. Rushdoony's influence in the far right today?

MB:  Most of the leaders of the Christian Right would deny that Rushdoony has any influence at all on them because of the controversial, radical nature of his work.  However, Marvin Olasky -- who helped to inspire George W. Bush's faith-based initiative -- has footnoted and cited Rushdoony in some of his early work.  You see some of Rushdoony's ideas reflected in the faith-based initiative which has replaced government social services with services performed by the church and funded groups -- including abstinence-only groups -- with taxpayer money.  So Rushdoony has at least loosely inspired that initiative which continues into the Obama administration.  I also see it in initiatives funded by one of Rushdoony's acolytes, his financial angel whom I write about in my book, Howard F. Amundson, Jr, who is the son of the famous philanthropist, Howard Amundson, from Southern California.  At age eighteen, Howard F. Amundson, Jr., inherited $300,000,000 after his father died.  His mother died soon after.  He literally went crazy, spending two years in a mental institution.  When he came out of the mental institution he became a born-again Christian.  He encountered Rushdoony who became practically his surrogate father.   In return, Amundson funded Rushdoony's political empire.  Then he funded some very successful Christian Right initiatives.  For example, the "intelligent design" movement.  Howard F. Amundson, Jr., has donated at least $2.8 million to the Discovery Institute in Seattle which created the "intelligent design" curriculum. Howard F. Amundson, Jr., donated $1 million to Prop 8, the successful ballot initiative in California in 2008 to ban same-sex marriage.  In 1985, Howard F. Amundson, Jr., said:  "My goal is the total integration of biblical law into our everyday lives."  And whether or not he's an avowed follower of Rushdoony anymore, I think that remains the goal of all these initiatives that he's funding.  They remain successful even though some pundits are pronouncing the death of the Christian Right.

TG:  What's another group or funder on the far right that you've been following that you think is important and powerful but unknown to most people?

MB:  Well, I wouldn't call this individual "unknown."  He's an important person in American life and history.  I'm referring to James Dobson who's commonly (and wrongly) referred to by some pundits as "Reverend" James Dobson.  In fact, he's not a religious leader.  He's not theologian.  He has no religious credentials even though he's the most influential leader of a religious movement, the Christian Right, and also the most popular.  He's a child psychiatrist!  James Dobson understands that behind the right's politics of resentment is a culture of personal crisis that he's been catering to and cultivating since he became a public figure in the early '70's. What Dobson does, and where he strength comes from is the correspondence department in his organization, "Focus on the Family," based in Colorado Springs.  It rakes in about $150 million every year.   The correspondence department there handles so many letters and so many phone calls that they have their own zip code in Colorado Springs.  Letters basically are from people pleading for advice on basic problems from their child's bedwetting to marital strife.  They will receive in short order Dobson-approved advice.  But then their personal information is entered into a database and they're bombarded with political mailings telling them that the sources of these problems -- the source of social decay -- is liberalism, the homosexual "agenda," feminism, etc.  Dobson's radio show, which is one of the top five radio shows in the country, operates the same way.  So what Dobson has done and why he's a central character in my book is he has helped cultivate the sensibility of the movement that controls the Republican party.  And with these people who view him not just as a political leader or religious leader but as a magic helper who's helped save them from personal problems.  They will do whatever he commands at election time.  He's been able to set his shock troops against Republican moderates and against vulnerable Democrats.  He was credited for helping to reelect Bush in 2004.  I credit him as a major reason why Sarah Palin was named vice presidential nominee of John McCain in 2008.  It has a lot to do with the fact that James Dobson said on his radio show that he would not vote for John McCain unless he named a suitable vice presidential candidate.

TG:  ... Which would be Sarah Palin.

MB:  Which would be Sarah Palin.  When Sarah Palin was named, Dobson gave McCain his full-throated endorsement and began promoting Sarah Palin to the Republican grass roots.

TG:  Tell us about Tony Perkins.

MB:  Tony Perkins comes from Louisiana.  He was a state legislator there who wanted to become a senator.  He wanted to be in the position David Vitter is in right now. Because of a scandal in which he signed a check when he was chief of staff for another senatorial candidate paying the Ku Klux Klan member, David Duke, for his mailing list, Tony Perkins was unable to make good on his ambitions.  Tony Perkins, as I reported, also spoke to a white supremacist group, the Council of Conservative Citizens, in 2001 and has refused to disclose what he said there.  So he went to Washington and was sort of tapped by Dobson to lead the Family Research Council after Dobson fell out of favor with his  previous lobbyist, Gary Bauer.  Perkins has emerged as a figure even probably more influential than David Vitter, the person he could have been had he made it into the Senate.  He's able to dictate the Christian Right agenda to Republican senators who depend on the Christian Right grass roots to get reelected.  He's incredibly involved in the town hall disruptions that we're seeing across the country.  The Family Research Council posts weekly conference calls with hundreds of pastors across the country who are telling their congregations to go out to these town halls to create disruptions and to voice their discontent with Barack Obama's health care proposals.  Perkins has also helped to introduce the rumor that Barack Obama's health care proposals contains a mandate for citizens to fund abortion.  They're running commercials -- the Family Research Council -- making this claim and raising lots of money among their followers to broadcast these commercials throughout the country.

TG: You have managed to get into places and report on meetings where the press is not welcome.  One example of that was about a year ago when you went to the church Sarah Palin had been baptized in, the Wasilla Assembly of God, a Pentecostal church in Alaska.  She spent over twenty years there as a member.  You were there on one of the days Bishop Thomas Muthee of Kenya was there.  He's somebody who claimed to be able to expel witchcraft from deep within people -- exorcisms, I guess!  Would you give us a sense of what it was like to be there when Bishop Muthee was there.  Was Sarah Palin there that day too?

MG:  Sarah Palin was campaigning that  day and Bishop Muthee, the self-proclaimed "witch-hunter" from Kenya who had anointed Sarah Palin in 2005  when she was running for governor against the spirit of witchcraft, was there.  It was a small house in Wasilla.  It was pouring rain outside.  I stumbled in and the entire congregation was speaking in tongues.  I had heard from other reporters that no media would be allowed, that taking notes was forbidden, that filming was strictly forbidden.  So I began speaking in tongues.  I'd never done it before so I just started rattling off the names of the Jackson siblings!  I insinuated myself into the congregation and watched Bishop Muthee as he referred to Sarah Palin as "the biblical Queen Esther" and then began leading the crowd in really intense prayer to cast out the spirit of witch-craft.  Then another pastor came up, took the microphone, and declared that we would put our feet against the heads of the enemy and crush the python spirit by stepping on the enemy's neck.  It was an instructive event to attend in terms of the theology that animated the congregation that Sarah Palin and her family had belonged to for twenty years and baptized into.

TG:  Were you discovered there as actually being a reporter and not a true believer? 

MB:  Well, I couldn't resist pulling out a small digital camera and so I was sort of discovered.  But afterwards I pulled out another digital camera and concealed it much better and was able to show some of the episodes I just described in a video that I have online called "In the Land of Queen Esther" along with some interviews I conducted around the Wasilla and Anchorage area, but especially in Wasilla which is considered the bible belt of Alaska, with people who consider Sarah Palin to be a biblical figure -- or at least biblically-inspired figure -- and who believe that Alaska, because it's shaped like a crown, was called upon by god to lead the nation and would be a refuge in the end times for everyone from the lower forty-eight who had escaped the rapture. 

TG:  The church meeting that you went to is just one where you've used a hidden camera.  Are you 100% comfortable with going in under false pretenses and using a hidden camera to document what you see?

MB:  That would be the only time I've used a hidden camera.  Generally, I think I've never entered an event under false pretenses or concealed my identity.  Which is why I get kicked out of so many places!  Including violently as I was tossed out of the College Republican national convention in 2007 -- physically because of my disclosure that I was basically a member of the "liberal media."  So it's always a risk.  But I think it's best to be above board.  The only reason I concealed my camera at Sarah Palin's church was that there was no other means of capturing what was going on.

TG:  Your book, "Republican Gomorrah," is in part motivated by words written by Republican president Dwight Eisenhower.  Would you leave us with some of what he said that, in part, inspired you to write this book?

MB:  While I was writing my book, I discovered a letter from Dwight Eisenhower to a dying veteran of World War II.  He had terminal cancer.  The veteran, Robert Biggs, wrote to Eisenhower that he felt from his recent speeches a little hedging and a little uncertainty and that he waited for someone "to speak for us and we'll back him completely if the statement is made in truth."  It seemed to me -- and to Eisenhower -- that Biggs was sort of suggesting that he would prefer a more authoritarian leader, at least a more heavy-handed leader.  Someone more like George W. Bush.  Eisenhower decided to respond to Biggs when he could have just tossed the letter in the trash can or issues a canned response.  Eisenhower's response was, I think, really remarkable and somewhat eerie.  At the time he was under attack from the radical right of his day, the John Birch Society, which had named him and many of his Cabinet members communist agents.  Joseph McCarthy.  He wanted to guard his Republican party and it's "big tent" philosophy against its right flank.  So Eisenhower responded with his vision of the open society, remarking that the unity Biggs was asking for was only logical in a military organization.  In a democracy, debate is the breath of life.  Eisenhower bemoaned the fact that there are people who had experienced mental stress and burden, who viewed this form of government -- democracy -- as possibly dispensable because it places too much pressure on them.  He recommended a book called "True Believer"  by Eric Hoffer, a really interesting figure who was a self-educated philosopher and dock worker.  The central thesis of Hoffer's book -- which is an analysis of the mentality of the true believer -- is that faith in a holy cause is really a substitute for lost faith in ourselves.  This book was passed down through the Eisenhower family and helped inform Eisenhower as he warned against the rise of the radical right and its influence on the Republican party.  I included this letter in my book because my book shows the Republican party ignoring Eisenhower's warning and realizing his worst fears.

"How Blogging Began, What It's Becoming, and Why It Matters"

Steve Roberts interviews Scott Rosenberg, co-founder of  Salon.com and author of a new book, "Say Everything:  How Blogging Began, What It's Becoming, and Why It Matters."

Steve Roberts:  Scott, define blogging!

Scott Rosenberg:  A blog is really just a personal website, usually organized with the newest stuff on top and usually with a lot of links.  So it has these traits.  But it's not like a checklist you have to check off.  At this point I think we recognize it when we see it:  it's a website that one person (typically) defines and usually with a passion for a particular subject. 

Roberts:  But this notion of "interactivity" -- of having people comment -- seems to me to be right at the core of what makes this format different from almost any other form we've had in media history.

Rosenberg:  Absolutely.  But what's interesting is that some of the earliest bloggers still don't have comments on their blog.  Their attitude is yes, interactivity is central to what they do, but the interactivity is something that happens among and between blogs.  So simply by linking to one another, they're having that conversation.

Roberts:  As opposed to allowing for comments at the bottom, which is a very familiar...

Rosenberg: ... comments are a wide-spread standard...

Roberts:  ... More and more common?

Rosenberg:  Pretty standard.

Roberts:  You also mentioned the linking and this seems to be one of the dimensions people outside this world don't fully understand.  This is really the currency for a lot of bloggers:  how often you're linked to and how you're connected through out this entirely universe in this sort of horizontal system of communication.

Rosenberg:  Definitely.  A link is sort of a social gesture in blogging, as well as an informational tool.  It's the way when you write something on a blog that you support what you're saying. You provide the evidence.  People often talk about, "Well, how can I know who I can trust in a blog?"  It's an important question.  One way you can know is does the person writing it link to sources?  You can't do that in print.  In print, you have to quote the sources and we have lots of ways of doing that but on the web all you have to do is link and let your readers say, "Are you quoting accurately? Is there any support for what you're saying?"

Roberts:  And also links are used -- you say it's a gesture -- as a gesture of approval.  "You want to read more?  Here's an interesting  argument..."  It's part of the conversation, this process of going from link to link to link."

Rosenberg:  Definitely.  It is often used that way. It's also interesting in the part we often overlook:  people link to people they disagree with.  They're arguing with them.  This is something we forget.  We hear about bloggers only creating these echo chambers where they're just repeating one another's points of view, or they're recycling a perspective that the reader already has.   That absolutely happens.  But there's also this element where people will link to stuff they disagree with because they're arguing with it.  I think of growing up as a liberal in the '70's and '80's where I would never pick up a copy of the National Review on the newsstand.  But when the web came along, somebody might link to an article in there or to a conservative blogger's post.  I'll click on the link because I'm curious and want to test my own point of view.  I will actually be exposed to more people I disagree with through these links than I might have before.

Roberts:  And it's very accessible.  You don't have to go to the library to find the National Review or borrow some conservative friend's copy!

Rosenberg:  And you don't have to spend money on it which is another whole aspect!....

Roberts:  Talk about the evolution of the blog.  You write in your book that there's a big debate -- unsolvable -- about who's the first blogger.  But you do have a sense of how this phenomenon evolved. 

Rosenberg:  We have to cast our minds back to ancient times -- to the mid-1990's!  Blogging has actually been around under that name for ten years and, really, in some recognizable form for about fifteen years.  And you have to remember that in the earliest days of the web, it was a medium full of scholarly papers, research, academic information.

Roberts:  It started when Tim Berners-Lee was ...

Rosenberg: ... Exactly.  It was designed for that purpose.  At a pretty critical, early point in its development there was a college student I write about -- Justin Hall.  It was in January 1994 when the first article were written about the web by the mainstream media.  Justin learned how to build a website, took a look at the web -- which he'd been introduced to by a friend -- and said, "You know, I know how to build a website.  I don't have to have it be academic research.  I can have it be all about Me! 

[laughter]

Rosenberg:  And he did it!  And he found people were interested in what he was writing.  He was a 19-year-0ld.   He had a lot to say about himself, as 19-year-olds often do.  The site became popular.  The other thing he did was fill it with links to other websites.  At the time, the web was sort of in a Big Bang phase.  It was very early.  There were lots of new sites coming online.  And when new sites came online, he would link to them.  Right there you really have these two foundations for what we now recognize as blogging -- autobiography and linking.  He put these together and established a norm on the web that hadn't existed before which was that a website could be a mirror of yourself.   That was really the first key element in the development of blogging.  The second important factor was the development of tools that made it easy for lots of people to do what Justin Hall had done.  The software developers came on the scene and said, "It's too hard to do this.  Let's find ways to make it easier."  It took years, but over time -- by the early part of this decade -- it became something that you didn't need any expertise for, you didn't need to know any code, you didn't have to spend any money.  You could go to a website...

Roberts:  ... and download this open source software...

Rosenberg:  ... And eventually not need to download.  Just sign up on a website as you do today and there you were, publishing to potentially anyone around the world.

Roberts:  Give me a sense of the scope here.  I know the numbers are hard to define, but Technorati, a popular site that tracks these things says there are over a million posts a day. 

Rosenberg:  That's right. So the best number we have -- and it comes with lots of asterisks -- is 133,000,000 blogs world-wide as of, roughly, a little less than a year ago.  Of that number some huge fraction -- perhaps more than 50% -- are no longer active.  So right there you have to scale the number way back.  But wherever you land, that's tens of millions of people still actively blogging today.  That's an extraordinary number.

Roberts:  One of the points you make in your book, Scott, is that people know about segments of the blogging world.  They might know about the political blogs.  They might know about something called "mommy blogs."  There's a movie that just came out with perhaps first the first blogger-heroine -- "Julia and Julie."  Give us a sense of the range here.  Because it's virtually infinite.

Rosenberg:  Yes, it is.  Once you get a phenomenon on this scale, it reflects the diversity of humanity.   It's sort of a mirror of our interests and our passions.  And so you have everything from people at one end who are just writing about the events in their daily lives for a small group of readers -- they don't expect a lot of readers and they're not hoping to become a media star, they're simply saying, "Here's an easy, simple tool..."

Roberts:  ... Although probably after people watch the movie and saw that Julie Powell became this media star... you know, "Maybe Amy Adams will play me in the movies..."

Rosenberg:  So she started her blog at Salon in a program I managed.  Starting in 2002, we let everyone come and blog at salon.com and within a month of the launch of that program she was there, cooking her way through Julia Child's cookbook.  We linked to it.  It started to get some interest.  Eventually she got a book deal and now it's a movie ... So that has happened.  And there's always a possibility... But the likelihood of that happening to an individual blogger is sort of like winning the lottery.  It's not going to happen ...

Roberts:  And most people aren't in it for that reason.

Rosenberg:  Exactly.  So from that end of the spectrum you move forward to people who are using blogs to augment their livelihood in some way.  If they're in a particular field, whether it's real estate or marketing or technology -- you name it -- they want to establish a little authority. They want to build a little attention for themselves on the web. They'll start blogging because it's an effective tool for doing that.

Roberts:  And what about some bloggers -- there's been a big article about this in the Wall Street Journal recently, a contentious article by Mark Penn, the demographer and pollster.  He was saying there are actually now people who make money just from blogging. 

Rosenberg:  And there are.  His numbers were rather inflated and needed to be knocked down a few pegs.  But there are people who are able to make money with advertising on their blogs.  Again, the numbers are going to be less rewarding than you will be led to believe.  It's not a significant source of income for most people.  What it is is a way for you to hang out your shingle, for you to tell the world, "Hey, I know this subject!  If you want to know about this field of crafts or something, you can get it here." 

Roberts:  ... One of the important dimensions of the new media is its relationship to the old media.I teach a course at George Washington on this very subject and I thought one of the paradigm moments was this incident, several years ago, when Dan Rather goes on "60 Minutes" and does a report on George Bush's experiences in the National Guard.  Within minutes, various bloggers are correcting this report.  In the end, after a couple of weeks of denial, CBS had to say, "They were right. We were wrong.  We can't stand behind this."  Talk about that incident and what it signified in terms of the relationship of the new media and the old media.

Rosenberg:  There's a long tug of war that's been taking place between these two forms of news delivery.  One crucial difference that people tend to overlook is that on the web, when you make a mistake, you can correct it easily.  You simply publish and update and you can actually change the original report.  In the print and broadcast world, it's much harder to correct something once it's out there.  So in print and broadcast we have these traditions that are very formal about how you correct something.  There's also a kind of reflex that often kicks in -- a kind of circle the wagons attitude where when an error gets reported, people get their backs up.  There's that old proudly stated refrain:  "We stand by our story!"  What happened in the Rather case was that the reflex and refrain kicked in very quickly for CBS.  And, in fact, they were either wrong or they simply hadn't done the proper work to verify the reports they'd presented.  This occurred in a very politically charged moment.  It was the middle of the election in 2004 and and a lot of ideological rancor.  People on the right really believed Dan Rather was a lefty and they had their guns at the ready.  And CBS gave them the opportunity to open fire.

Roberts:  But it seemed to me that this was a perfect example of an argument that people have made in favor of the blogosphere -- that you had the wisdom of the crowd, you had all of these people who had expertise on the typefaces of typewriters and military terminology...

Rosenberg: ... absolutely!

Roberts:  ... and CBS didn't understand what was happening.

Rosenberg:  They didn't at all. At that point when that story was unfolding in 2004, I'd been publishing on the web for ten years.  I'd spent ten years before that at the San Francisco Examiner, the newspaper.  I had sort of gone through this process personally -- of understanding that the web was different and that this world had changed.  Really, you have no choice today but to be more open and more receptive to the kinds of feedback that you're inevitably going to get from the public.  I think for CBS it was a rude awakening.  It was a moment that really showed in vivid and painful relief how much had changed.

Roberts:  Another moment I think shows how much it has changed, again, from the positive side, Talking Points Memo, a major blog now, run by Josh Marshall, a person you profile in your book and who is one of the real pioneers here -- they won a major award, the Polk Award for their investigative reporting.  There was a story about what had been happening to the US attorneys around the country.  This was a story that was happening in different places.  Because Marshall could tap into his network around the country, he was able to see a pattern that, say, a journalist sitting in Washington did not see.  And it seemed to me another good example of the advantage of tapping into the blogosphere as a source of information.

Rosenberg:  That's right -- absolutely.  The other thing that's fascinating about that story and the way Talking Points Memo and Josh Marshall operated was the sort of unfolding in real time of the character of the reporting.  Where a reporter at a newspaper would spend days and weeks gathering information and then, at the end, after it's been carefully reviewed, pushing it out into the newspaper,  a blog lets you deal with the story as it unfolds.  It lets you sort of a little bit -- "hey, I've got this lead, I've got this information, I'm checking it out"! -- Josh Marshall happens to have a pretty knowledgeable and in-touch group of readers so he can actually say, "Help me out!  What do you know about this?"  He gradually builds a story.  If you make a mistake or go down a blind alley, you say that, too.  You admit it:  "That one didn't pan out" or "We were wrong" or "Let's try something else."  That's a whole style and approach that wasn't possible before we had this form -- the blog -- that allows it.

Roberts:  Although I must say, as a creature of the old media (I'd be the first to admit that I spent the first 25 years at the New York Times, that's where I got my training and my perspective, and while I appreciate what you're saying and teach this in courses), one of the phrases that always brings me up short comes from Jeff Jarvis, a major figure in the blogosphere, who says, "We publish first, edit later."  There's something inherently grating to me about that!  What is the downside of that?  You say that the web can be self-correcting and I think that's absolutely true.  But it can also lend itself to a lot of mistakes, a lot of rumors.  The whole recent spate of stories about the "death panels" is an example of a rumor that just makes its way through the blogosphere.

Rosenberg:  Certainly.  And I think "we publish first and edit later" is kind of an oversimplification -- a shorthand... I think Jeff Jarvis, for instance, like most bloggers, edits his own posts before they're published.  You write and you read.  And then, if you really get out of line in some way, your readers will tell you.  There's an editing that actually happens that way. The larger your platform is, the more careful you're going to be as a blogger.  I think you'll find that there is editorial intelligence at work in all the best blogs.  The difference, though, is that the misinformation problem is not, I believe, limited to the blogosphere.  The "death panel" story became a story because it got picked up and amplified by cable news and it was promoted by public figures -- politicians -- who injected it repeatedly into the news cycle.  If it were simply something happening in the wilds of the blogosphere, I don't think it would ever have caught on.

Roberts:  There's no doubt that there's a very complex interaction at work.  You mention the advent of more editorial processes in the blog, the more quality blog.  Your old colleague at Salon magazine, Michael Kinsley...

Rosenberg:  He was actually at Slate ...

Roberts:  Okay, but a companion online magazine... He made the point recently and said, "Look, in the early days of online publishing in the blogosphere, we were such outlanders that we could almost afford to be irresponsible.  But we've become so much more important that there has to be more editorial control.  There has to be more sense of accuracy and more sense of ethics.  Do you agree with that?

Rosenberg:  I don't think there's ever an excuse for irresponsibility.  I think we have to think differently about reputation and trust.  If you're talking about a blog network or a company of professional bloggers who are trying to create media institutions, then the editorial values of of the old media still apply.  If you want people to trust you, you're probably going to have some editorial safeguards.  The publishing cycle may be faster ...

Roberts:  ... that the Huffington Post, for instance, has put in ...

Rosenberg: Yes.  The editorial cycle may be faster, things may be a little more informal, but still things are going to look relatively like they used to look.  The difference is that there are millions of bloggers today who are not in that world at all.  They're doing it personally.  They're doing it in an amateur way.  For them, reputation isn't an institutional by-product.   It doesn't come because you're affiliated with the New York Times or the Huffington Post or wherever.  It comes based on your record and on how much you let your readers know about who you are and how much you know about the subject.  How reliable you are is then simply something your readers can find out by looking at the record you've created.  It's a different way of thinking about how your reputation is formed.

Roberts:  Well, and also another issue of considerable discussion is the issue of resources -- particularly as mainstream journalism is shrinking.  Many news organizations are reducing their staff at foreign posts and other places.  The blogosphere is, to some extent, filling that vacuum by producing information.  But one of the arguments is that, if you have a New York Times, or Wall Street Journal, or National Public Radio for that matter, and you can afford to invest in a full-time correspondent in Beijing or can afford to invest in a three-person investigative team and spend six months uncovering misdoing, that no blogger can invest that kind of time and probably doesn't have that kind of expertise.  There remain parts of this media universe that mainstream media still has to be counted on for doing.  Is that a fair account?  Do you agree?

Rosenberg:  I think we have to be careful.  There are two different trends taking place here.  One is the long-term decline of newspaper publishing.  There was something called the newspaper "preservation act" that Congress passed in the 1960's.  So this has been going on for 50 years.  It's accelerated lately.  That's completely independent of the rise of the blogs.  Newspapers are in decline.  Most bloggers don't claim that they can somehow replace what's going away.  That's a cry that you don't hear except maybe from a very small handful of extreme idealists.  So the question is:  newspapers are going away, blogs do represent a kind of petri dish of experiments.  It's cheap to start a blog.  It's easy to get going.  It's an easy way to begin to look at different models for the future.  Which we have no choice but to do at this point. The question about expertise is more complicated and maybe one where I do disagree with you.  In an awful lot of cases, you find that a blogger who has built some authority in his realm -- economics or foreign affairs or health care reform -- the blogger often has considerably more expertise than the beat reporter who just took on that beat six months ago and is trying to get up to speed, or even the beat reporter who's done it for a number of years but who doesn't have a background in it.  There's a lot of expertise online among the leading bloggers that is enhancing all of these huge and important public debates that we're having today.

Roberts:  Go back to the Dan Rather case.  A perfect example where there was expertise that was tapped by the blogosphere -- as we mentioned earlier -- in the typefaces and the military terminology that maybe the reporter for CBS didn't understand.  At the same time, to be able to spend six months on that story and get paid by CBS -- that's an investment of manpower that's very hard for the blogosphere to duplicate.  So there are ways in which, I guess, the argument still holds, but there are ways in which it doesn't.

Rosenberg:  The support for that kind of investigative journalism sadly has been in decline for years also.  You have less and less of that in the old media, too.

Roberts:  One more point, and then I'm going to get to all of our callers... In this rapidly changing universe, blogging almost sounds old-fashioned compared to twittering or social networks like Facebook.  How do you see the relationship of blogging -- which you say has been around for 15 years in some form or another -- to these newer, emerging networks and forms of communication?

Rosenberg:  One of the reasons I wrote "Say Everything" is that I thought the experiences people had had in the early days of blogging -- what happens when you tell the world so much about your own life and all of the perils these people encountered like getting fired for something they posted on their blog and things like that.  Those stories and experiences had more and more relevance because more and more people are putting so much of their lives online.  So first of all I just see in the story of blogging this great value to all of us as we twitter and move our lives onto Facebook, all the social networking that's so popular today.  The other thing that's happening is that blogging from early on was attacked or criticized as being "trivial."  Who cares what you had for lunch today?  I don't want to read about that -- that was the common line.  Today what's happening is that people who want to express that or share that are doing it more on Twitter or on Facebook and it makes more sense to do it there.  Those forms are better for that purpose.  Blogs are becoming more and more substantial.  They're the place where you have something significant you want to say. You want to tell a story about your life.  You want to argue with...

Roberts:  ... and you have more than 140 characters! ...

Rosenberg:  More than 140 characters and you have the confidence that what you're writing is going to stick around.

Roberts:  Directly on this point, I have an email here from Lisa [] and she writes:  "I've been a mommy blogger for almost two years.  It began as a way for out-of-town family to keep up with our growing children.  Quickly it became a type of therapy for me as a work-at-home mother. The comments I receive from stories I post are not always what I want to hear.  But the community of readers I have is always honest and the connections I feel with people I've never met is priceless."

Rosenberg:  That's wonderful to hear.  That experience is much more common and widespread than a lot of the coverage of blogging would indicate.  There's a condescension that creeps into the conversation about blogging where people just say, "Who cares about your life!"  And the truth is that millions of people may not care about your life but some number do.  It's not as though when you blog about your own life you're crowding out the discussion of someone else's life.  There's an infinite amount of space on the web.

Roberts:  Unlike the old media where there was always a limit in time and space.

Rosenberg: Exactly.

Roberts:  Linda [] writes to us from Hobe Sound in Florida.  "Please ask your guest to comment on the differences and similarities between sites like Facebook and a true blog."

Rosenberg:  One of the differences between Facebook, Twitter, and all social networking, and blogging, is that when you're on a social network, everything you express occurs in the context of everyone else.  It's a social milieu.  That's why we call it "social networking."  Blogs are partly social and partly individual.  They're right on the cusp or the liminal point the crowd and the individual.  That's a unique place. There's nothing else quite like that on the web where you can be yourself and yet have a connection to other people that you can sort of dial up or dial down at will.

Roberts:  ... I've got an email from Tony ... who says, "With 133 million blogs, how do we find the one or ones that we want to read?  Is there an index, a dictionary, a yellow pages of blogs to help out those of us who want to find an interesting blog?"

Rosenberg:  It's a tough question to answer because each of us is going to need a different avenue in.  The best advice I give people is to ask a friend.  Find someone you know who is more immersed in this world than you are and ask, "What do you read?"  For me, for political blogs, I could say Josh Marshall's Talking Points Memo.  For technology blogs, you might start with David Pogue at the New York Times.  Then follow the links.  Click on things that interest you and before you know it you'll have more than enough.  You'll be pulling your hair out and saying, "How do I stop!"

Roberts:  One of the things you just mentioned -- here's Josh Marshall, the classic paradigm of the independent guy who created Talking Points Memo and there's David Pogue at the New York Times and one of the things that's happened  (talk about the differences between the blogosphere and the mainstream media!) is that mainstream media has coopted the blogs in some ways, or at least tried to have a share in it.  Every mainstream media site has numerous blogs of its own now.

Rosenberg:  The form just makes sense, you know?  When we first landed on the web -- we who came from print media -- we couldn't see that this form where you just put the new stuff at the top -- made sense.  It was created by people who came from the technology world mostly and they just said, "Well, this is the way to organize it."  It's taken years, but finally I think it's generally understood that, "Oh, this is a good way to organize stuff!"  So the New York Times now has 70 or 80 blogs and that's great.  What they're still working on and getting better about is openness to the rest of the web, the willingness to link out and to say, "We're not trying to keep you hostage on our own website." 

Roberts:  Yes, but that becomes a financial question to some extent, right?

Rosenberg:  It does.  But the "let's hold readers hostage" -- the thought was that this was a good financial strategy but it really wasn't.   It doesn't really work that way.

Roberts:  And also, if you link to other people, you have the reciprocity where people link to you.  So if you try to put up a wall, it also keeps people out.  Let's turn to some of our callers here.  We've got several folks who are blogging themselves.  Nathan in Tulsa, OK:

Nathan:  ... I'm a minister and a young pastor in a denomination that doesn't have many young pastors.  I started a blog when I was in my last year of seminary and have kept it for the past five years or so.  I've found it a great tool to connect with other folks in my kind of context.  I've also found it a very effective tool -- I've been serving rural churches since I started the ministry -- and one thing that it's very efficient for is helping rural churches where there's a technology gap, helping them get on the web and have a presence on the web.  So the two churches I've served since seminary -- we started a blog at both churches for them to share what they're doing.  It's got quite a bit of hits and a lot of traffic there!  I think one reason blogs are so efficient and effective for these contexts is because if you can do an email, you can do a blog.  It doesn't take any more technical knowhow than that.

Rosenberg:  Blogs are just a great way to create a hub of information for any community and to create a community out of people who didn't even necessarily know they were a community.  So if you have this group of congregations or churches that weren't able to share information, suddenly they can.  That's important to realize. Again, our conversation about blogging tends to be shaped by the concerns of people in the media who are covering the phenomenon.  People in the media have been affected hugely by blogs.  But the impact of this tool is so much wider and it's happening in so many more places and communities like Nathan's.

Roberts:  But we do have an email from someone who says her experience is that when there are a lot of insults and rudeness and that "the anonymity that online nicknames provides has turned people ugly!  Sometimes I reply to a rude blog by asking, 'Would you talk like that to the person's face?'  I believe any ethical blogger should use his or her real name and make every effort to adhere to a conduct of civility when online..."

Rosenberg:  Well, it's definitely been an issue.  In the earliest days of blogging there were some who maintained that the principle of free speech meant that you shouldn't delete someone's comment on your blog.  We've moved beyond that, I think.  Most bloggers now accept that part of their role is to be a host and a moderator for the comments on their blogs.  And most bloggers I know will say, "Hey, if you're going to be uncivil you're outta here!"  As your blog grows it can be something that takes a lot of time. But it's sort of like maintaining your own front porch.  You're going to keep the atmosphere on your blog how you want it to be.  What happens over time is that people model their behavior on what they see.  If you're on a blog and you see lots of other people posting rude comments, you may think, "Oh, that's acceptable here."  There are lots of parts of the blog world where you find groups enormously supportive and civil.  The mommy blogging world is one.  There's a community called "Open Salon" -- [email protected] --that are just enormously nice to each other.

Roberts:  I've noticed that certainly in a lot of the mainstream media blogs, they have a very specific caveat saying, "We have the right to delete anything.  We expect people to be civil."  Part of what you're saying is that it's in your interest, as a blogger, to keep things civil because otherwise people have the exact reaction of our emailers:  "I don't want an ugly conversation!" 

Rosenberg:  That's right.  The problem that some newspapers get into is they reserve that right but then don't do the work of actually moderating the forums.  And there is sometimes some latent hostility in their community to them.  Or there's a sense that they're not a responsive institution.  So in some ways it's much harder for institutions to do this than for individuals.

Roberts:  Interesting point.  Let's turn to Gerald in Fort Walton Beach, FL. 

Gerald:  I enjoy blogging because of the validation that it offers.  I blog on movies but I can see people from around world who have the same opinions that I do, you know?  I like that!  I like the feedback. I also have a current affairs blog where I blog on a particular subject and use some of the principles I've learned in, say, economics, to evaluate a particular situation.  Like for instance the president's economic plan as it deals with education.  I'll say, "Well, okay.  Economics principle of supply-and-demand says the more of something there is, the less value it has. So if you increase the number you have in education, does that reduce the value of the education people have?"

Roberts:  Thank you, Gerald, very much for your comment.  What Gerald is bringing up is yet another dimension.  The threshhold of entry has been eliminated in terms of cost.  The old adage, "You've got to have a printing press to have a voice," is no longer true.  Your reaction to Gerald's comments?

Rosenberg:  There's a basic human need that's filled by seeing that other people appreciate what you're saying and agree with you.  That's an experience I think a lot of people find.  The other thing that happens is that simply writing your thoughts in public is something that, until recently, was not an option for most people who are not professional journalists or writers.  Suddenly that opportunity is there and it's a different experience.  When you have to compose your thoughts for public exposure, it forces you to think more clearly and carefully about issues.  And even if you don't have a huge readership, that experience is valuable. 

Roberts:  The word he used was "validation." 

Rosenberg:  Yes.

Roberts:  Let's talk to Chas in St. Louis, MO. 

Chas:  I'm a left-leaning independent voter so I'm stuck in the middle.  I don't feel anyone has a voice out there saying what I want to hear.  So I'm interesting in starting a blog but I'm sort of a Luddite.  I don't know much about the web.  What does it cost?  Where do you go?  Don't you have to know Dreamweaver or something in order to build a website?

Rosenberg:  That was true years ago.  The amazing thing I can tell you is that no, you don't really need to know too much of anything technical today.  If you have a connection to the web, you can go to any number of sites -- blogger.com, wordpress.com, open.salon.com -- any of these sites and simply give them your email address, give them your name, fill out of form, click a button, and you're starting. 

Roberts:  They do all the work for you.

Rosenberg:  Yes.  Now if you want to customize it, you can get technical beyond that if you choose to or want to.  But to do the basics -- to start a blog, to have your writing appear on the web in a blog form -- that's really it.  Doesn't cost a cent.

Chas:  One more question.  How do you get people to know you have a blog out there?  How do you get people to actually discover it? 

Rosenberg:  That's a bigger and tougher question for sure!  Start with people you know, whoever's in your email address book, someone you know who's got a blog.  Let them know that you're doing it.  Link to them, maybe they'll link to you. If you're lucky and persistent, it can snowball. 

Roberts:  This is emblematic of what we've been talking about -- that with millions of blogs, not everybody is going to become famous!  But part of it is, do you have something to say?  And will people notice it?

Rosenberg:  Yes, if  you're saying something new or interesting or you're saying it in an interesting way, you can get it out there and I'm still pretty confident that people will link to you and you will be found!

Roberts:  Claudia in Miami, FL, has an interesting take on this.

Claudia:  I'm a frustrated writer.  It has been an incredible tool for my business -- I'm a makeup artist and have been a professional makeup artist in film and TV for 20 years.  I'm always asked for makeup tips.  So I started a blog to help my customers learn about makeup and what utensils I use, what cosmetics I use.  And it's helped me a lot.

Roberts:  Helped you in terms of getting more customers?   or in terms of informing your customers?  How has it helped?

Claudia:  Just informing my customers -- about makeup and what things are out there.  That makes me more accessible because a lot of people think that, as a makeup artist in film and TV, you use very expensive things.  That's not necessarily true.  So I give a lot of tips.

Roberts:  Thank you, Claudia. This is another example of the business world in blogging.

Rosenberg:  They're saying that blogs have become the new resume, right?  If you want to establish yourself in your field, what better way than to start showing your expertise in public. 

Roberts:  Let's turn to Sonny, in Grand Rapids, MI: 

Sonny:  My wife is a dynamic, incredible person who decided to stay home with our three children while they're young.  The blog has become her lifeline, her connection to the outside world.  It makes her life bigger than the walls that surround her -- and the screaming kids that can sometimes drive her crazy!  In fact, she's gotten so into it and has connected with so many other moms like herself that she even started a website to help people design the templates and everything to make their blog an expression of who they are.  It's a way to put yourself out in the world and connect in ways you can't otherwise.

Roberts:  Thank you so much!  This is yet another dimension.  The community in cyberspace -- the old community was the neighborhood or was the social club.  Now it can be world-wide. 

Rosenberg:  We hear the complaint that people spend too much time on the web, retreating from the rest of the world.  We sometimes forget about the people whose lives...

Roberts:  ... and that's not an entirely unfair argument! 

Rosenberg:  Absolutely.  It can happen.  The flip side of it is that there are people whose lives, for whatever reason -- either because they're raising three small children or they have some problem that keeps them home -- they need a way to connect with other people through this form.  And they can.

Roberts:  You also look into the future -- where this is going.  Blogging, you say, is kind of a mature form and you don't see blogging itself changing very much.  But there are new forms developing all the time.  You mention Twitter and Facebook.  But you also talk about the role of video in blogging.

Rosenberg:  Well, there's this movement of people who are really recording their lives -- audio and video -- and streaming it all out on the web.  It's called "life-logging" and it's fascinating!  It's a whole nother dimension of self-exposure.  I see blogging as being much more traditional than that.  When you blog, you're actually crystalizing moments from your life and writing about them and putting them out there.  You're being selective.  The life-logging phenomenon is much more about just letting it all ... putting everything out in public, not being selective.  So, again, if that becomes more common, as I think it will, it will leave blogs as more of this kind story-telling form, a way of telling our history, putting our history together on the web so that people in the future can look at it and say, "Wow!  That's what it was like to live in 2009?"

Roberts:  This is such an interesting point.  People bemoan the advent of the web, destroying letter writing, destroying diaries.  All of the fabric of history.  I've done this in several books, borrowing heavily from letters.  So does my wife.  What you're saying is that there is a form being created that's not a hand-written letter but is a documentary record that will be there for future historians.

Rosenberg:  There are more people writing about their lives today than ever before in history.  How can that be a bad thing for future historians? Their problem is going to be, "How do we organize all this stuff?"

Roberts:  How do you save it?

Rosenberg:  Stuff that's digital today is saved.  In the internet archive, I was able to find basically all of the blog posts I needed to find from 1995 on.  Once something is in digital form, it rarely disappears.

Roberts:  For good or bad!

[laughter]

T. R. Reid: How to win over the right and get "better, cheaper, and fairer health care"

Terry Gross, of NPR's "Fresh Air":  It's proving awfully difficult to change our healthcare system and provide care for people currently uninsured.  Yet, as  T. R. Reid points out in his new book, all the developed countries -- except the US -- have decided that every human being has the basic right to health care.  Reid says we can bring about fundamental change by borrowing ideas from foreign models of health care.  His conclusion comes from personal experience.  He spent years as foreign correspondent for the Washington Post and lived with his family in three continents.  For his new book, he went on a global quest, searching for solutions to two health care problems.   The first is our nation's health care system;  the second was his bad shoulder. He took his shoulder to doctors around the world seeking alternatives to the risky surgery that was recommended for him in the US.  T. R. Reid's new book is called "The Healing of America:  A Global Quest for Better, Cheaper, Fairer Health Care."  T. R. Reid:  Welcome back to Fresh Air!

NPR:  One of the main arguments that we're hearing at every forum is that this would be socialized medicine.  You point out in your book that argument was actually created by a PR firm in the 1940's.  Can you describe what happened then?

TRR:  Yes.  Harry Truman wanted to provide universal health care in 1947.  The American Medical Association -- the doctors -- hired a PR firm that invented the term "socialized medicine."  Nobody knew what it meant.  But I think the idea was that if you wanted to provide health care to your sick neighbor, you were a commie!  During the Cold War that was a powerful argument!  The amazing thing is that it's still a powerful argument.  I don't know that anybody can define "socialized medicine," but nobody seems to like it.  Except, Terry, when Americans get government-run medicine, they really like it.  The VA, the Native American Health Service, and Medicare are the three most popular health care systems in America -- all run by government. 

NPR:  You've broken down western healthcare systems into four categories.  It would be really helpful for us to understand what some of the options are out there -- how other countries do it.  Let's talk about those systems, starting with what is often called "the William Beveridge model" because he's the person who inspired the British National Health Service (NHS).  And you describe the British National Health Service is probably closest to what Americans have in mind when they talk about "socialized medicine."  Give us an overview of that system.

TRR:  In the Beveridge model, taking care of people's health is the government's job -- just like picking up the trash, putting out fires, or running the public library.  When you need the service, you get it.  And you don't pay there:  you pay for it in taxes.  It's a government service.  About 97% of the people in Britain -- and Spain, Italy, New Zealand which are also Beveridge Model countries -- never get a doctor's bill in their life.  They go their whole life and never get a hospital  bill.  How do you do that?  You assume that it's government's job to keep people healthy.  I would say that's socialized medicine:  government owns the hospitals, employs a lot of the doctors and nurses, and government buys the pills, pays the bills.  Yeah, I'd say that's socialized medicine.  But you get a lot of benefits.  For one thing, it's so simple administratively.  The billing office of a British hospital with 900 beds?  I said to the guy, where's the billing office?  Oh yeah, it's one drawer in my secretary's desk over there.  She opens it once a month to send records to the government.  It's so much simpler.  There's one set of rules.  Those systems really work.  Our family lived in Britain and guess what happens, Terry -- your kid has an earache, the doctor comes to your house, she goes back and sees him and says, "I believe it's otitis mediae and I gave him a penicillin jab."  Your kid feels better, the parent feels better, and then, guess what?  She walks out the door.  No bill.  No 3-month fight with the insurance company over who's going to pay the bill.  So I found a lot to like in Britain.  For our family it worked well.

NPR:  Are there insurance companies in England?

TRR:  Yes.  Because the NHS covers almost everything, there are private insurance plans that will cover things they don't cover like Botox or breast enlargement.  Private health insurance would get you to the top of the waiting list faster, although now -- because Tony Blair spent so much money -- the waiting lists are a lot shorter.  It'll get you a private room in the hospital.  About 10% of the people in Britain have private insurance but it only accounts for about 3% of the money spent on health care.  When anything serious has to happen -- this is interesting -- people go to the public hospital.  This is really interesting:  I had a friend who had a baby.  She had private insurance.  And I said, "Well, then you're going to go to a private doctor?"  "Oh, no, no, no, no, no!  For my baby, that's too important and I trust the NHS!"

NPR:  So what about the question of choice?  Can you go to any doctor you want to?  Can you see a specialist if you want to?

TRR:  Britain has a gatekeeper system.  You have to go to the general practitioner first, just like in a lot of American insurance plans.  You can go to any GP in the country, but most people pick the guy who's right down the street.  Our doctor was two blocks away.  So when we called her, she could get to our in an hour.  But if you want to go to an orthopedist or a cardiac surgeon, you have to go to the GP first and get a recommendation.  When we lived there four years ago, there were still some waiting lines to see specialists.  It was tough.  But I think those waiting lists are way down since Blair and Brown spent a lot of money.

NPR:  On the health insurance system.

TRR:  Yes.  You know they have the thing in Britain on Wednesdays when the prime minister stands up in Parliament and the other party insults him and shouts questions at him?  One of the most standard questions is, "A woman in my constituency has been waiting four weeks to see a doctor.  This is outrageous!"  And that happens.  And then the answer that the prime minister always gives is, "Well, obviously the gentleman opposite wants to see us institute for-profit American corporate-style medicine!  This we will never do!  And they never will. 

NPR:  Is that the worst thing you can say?  We're going to institute American-style corporate medicine?

TRR:  All over the world people say that.  If you complain about health care, they say, "Well, you want to move to America?  You think that's better?"  Everywhere I went!  People had this kind of smug superiority!  They know that we let people go bankrupt and die by the thousands in the healthcare system and they don't do that so they feel better.  A person in the health ministry in Canada -- you know, they're kind of understated people in Canada! -- said to me, "We don't go around chanting, 'We're #1,' like some countries I know.  But there are two areas where we're better than the States.  Hockey and health care."

NPR:  What about the question of choice.  You quote the British health minister saying, "We cover everybody but we don't cover everything."  So what are some of the things the NHS won't cover?

TRR:  Well, I'm a man of a certain age and in America a man like me would get a prostate cancer test -- a blood test for prostate cancer --  and I was really friendly with my GP in Britain and I said to him, "Hey, I should get his test.  I get it at least once a year in America."  He said, "No, no.  We don't think it's cost effective."  So I'm thinking, "Hey, if it finds cancer in me, it's pretty cost effective and I like that!"  But they're thinking of an entire society and of course, as we now know and American researchers have now concluded, that that is not a useful test.

NPR:  Is there anything you would describe as "rationing" -- the kind of rationing Americans are really afraid of?

TRR:  Every country rations health care, Terry.  There's no question about that.  They do some at the end of life.  They limit some of the procedures.  They limit this drug Herceptin for breast cancer.  They only allow that in certain cases.  That's certainly true in Britain.  But it's true everywhere.  Every country rations health care.  This is not a nice thing to say, but the US rations health care.  The distinction is that we ration differently from everybody else and this is important.  In other countries they have a basic floor of care that everybody has access to.  As a result of this, nobody dies from lack of a doctor.  In America, some people get everything -- the ceiling is the sky -- and get in right away with no waiting.  But a lot of people don't have access to any health care.  So that's how we ration.  We ration by cutting off access for tens of millions of people and no other country rations health care that way.

NPR:  Okay. Here's another question about the British National Health Service.  You mentioned that there is a kind of rationing at the end of life.  So what are some of the procedures -- or some of the things that are typically done -- at the end of life in the US that wouldn't be done under the NHS in England?

TRR: That's really hard to say. I think there's an age cut-off in Britain and it's kind of hard to figure out what that is -- I think it varies by region -- after which they won't give you kidney dialysis.  That's a fairly expensive and intrusive procedure and at 89, 90 or something, they won't do it.  but that's true in some plans in America, too.  This business about throwing grandma off the cliff -- I think it's frankly baloney and I'll tell you why.  There's a standard statistic, Terry, in health care:  healthy life expectancy at age 60 -- how long are you going to live on the day you turn 60?  All the other rich democracies have a longer life expectancy at age 60 than 60-year-old Americans have. So they can't be throwing seniors off the cliff over there!  They're keeping 'em alive longer than ours are!

NPR:  Let's look at the French model.  You seem particularly interested in the French system and I think that was rated the #1 health care system by the World Health Organization study that ranked countries around the world. 

TRR: Yes.  Everybody in France knows this and they're thrilled about it.  The WHO did rate them #1.  I went there and I can see why.  It's a very good health care system.  But in contrast, you remember we said in the British system the government provides the care and the government pays for the care?  The Bismarck models on the continent of Europe and in Japan -- they're all private.  They're private docs, private hospitals, and mainly private insurance plans.

NPR:  So are these insurance companies in the model that France has -- are they for-profit companies like our for-profit insurance companies?

TRR:  No.  No country that has insurance companies lets insurance companies make a profit on basic health insurance.  And they have pretty strict rules.  This is nice insurance.  In Germany, for example, there are about 200 insurance companies.  It's not single-payer -- I want to make that point. 200 insurance companies and anybody in Germany can buy any of the 200 plans.  If you don't like your insurance, guess what?  You can drop it, shift to the next guy, and the new guy can't raise your premium.  That's more choice than anybody in America has.  These companies have to cover everybody.  They have to pay every claim -- they don't have all those people going through saying, "Sorry, we don't cover that."  In many countries if you're stressed and the doctor says you need a weekend at the spa, the insurance has to pay for that.  It's the law.  Generally they have to pay in a short period of time.  In France, the doctor has to be paid within three days. Get this:  in Switzerland, if the insurance company doesn't pay your claim in 5 days, your next month's premium is free!

NPR:  Wow!  That's amazing!

TRR:  Exactly!  People actually like their health insurance companies in those countries and, you know, this business in America where we have the in-network deal and you have to get pre-authorization?  In France -- this is true in Germany and Japan -- any doctor, any clinic, any chiropractor, anybody in the entire country -- you choose 'em and you go and insurance has to pay the bill within 2 weeks or so. Pretty good insurance!

NPR:  I'm trying to understand how a non-profit insurance company would operate.  I think there are some in the US but for the most part we, in the US, think of insurance companies that kind of bet against you in a way. (laughter)  They're betting that they're going to make money off of you!  Because your health is going to be good or not so bad or whatever and if the odds are against you they're going to try and drop you or not insure you in the first place.  But it's a gamble.  The whole insurance industry in America -- it's gambling and sometimes, as the insured, you lose the gamble!  So what's the difference between a for-profit American-style insurance company and a French non-profit-style insurance company?

TRR:  Well, all over the world health insurance in non-profit except in the US and, as a matter of fact, when health insurance started in the US -- the original Blue Cross and Blue Shield in every state -- were non-profit and they operated fine.  The concept is more like the taxes you pay to operate the fire department in your town.  Most people will never have a fire at their house, and therefore the fire department makes enough money from everybody to put out the ones that do happen.  In those countries, the insurance companies are, basically, charities.  They're community organizations and they have one goal in life:  to keep people healthy.  That's what they're for.  And the reason for that is, those countries have all decided that there's a basic conflict between making a profit for investors and covering people's health.  The last country -- as I say in the book -- that allowed health insurance companies to make a profit on the basic coverage was Switzerland.  Guess what! In the mid-'90's, the Swiss companies were copying our companies.  They finally decided, "Why should we sell a policy to anybody who's sick?  They might make a claim and cost us money?"  So they started turning people down for pre-existing conditions. Switzerland got to the point -- fasten your seat belt, Terry! -- where 5% of the people in Switzerland couldn't get insurance and that was a scandal.  That was unthinkable!  Well, we're at 16% today. That is not acceptable in Switzerland.  So they had a national referendum, took the profit out of insurance, and said that everybody has to have a policy.

NPR:  So in the model that we're talking about that France and Germany and Belgium and Switzerland and some other countries follow, do you have your choice of insurance companies or is there just one national company to buy from?

TRR:  In some countries -- like France and Japan -- you get the insurance that applies to your industry, your company, or your region, and that's it.  But some countries -- like Germany and Switzerland ... Germans can choose any of 200 health insurance plans and the plans do compete even though they can't make a profit.  Why do they do that?  Well, one reason is that the more members -- the more customers -- the plan has, the more money its executives make.  So that's a reason to compete.  In Switzerland it's interesting.  The same company that sells the non-profit basic health insurance plan also sells life insurance, and fire insurance.  They sell this kind of supplemental insurance to cover breast enlargement or hair replacement.  So they try to win you by being really good non-profit health insurance companies and then you say, well, that's good, I'll buy my life insurance there, too.  And they're all making more money because they use the basic health insurance as a way to bring in customers.

NPR:  When you say they're making more money, do you mean that the salaries of insurance executives in the countries you're talking about compare to the multi-multi-million dollar salaries of insurance CEO's in the US? 

TRR:  Oh, no!  Nobody makes American insurance CEO kind of salary!

NPR:  One of the things I loved about your description of the French health care system is the health care card that everybody carries.  Why don't you describe what makes that so special?

TRR:  The "carte vitale."  Yes, French doctors don't make a lot. They do fine.  They're good middle class people.  But they're not rich.  And their offices are spartan.  They don't have National Geographics sitting on the table.  There's just a plain white waiting room and then the doctor's office.  But what's missing in all doctors' offices in France are the files and files of patients' records.  There's no billing office.  And I said to this doc -- I spent some time with him -- "Where's your billing office?"  He said, "Oh, zees would be ree-diculous!  I don't make enough money to pay somebody to do billing."  But he doesn't have to.  Here's what happens.  The patient comes in.  Out of her pocket she pulls this green credit card called the "carte vitale."  He puts that in a reader on his desk and her entire medical record shows up on the screen.  He chats with her about her problem.  He's typing what she's got wrong.  And he says to her, "Well, I think I'm going to prescribe a course of antibiotics.  I want you to take two a day for two weeks."  And he's typing all that up.  And then he's finished with her and he turns to me and he says, "Please watch."  He hits one key and the entire bill has gone to her insurance company.  He's going to be paid in 3 days and she's going to get her co-pay back from the insurance company within two weeks.  Done.  No paper.

NPR:  And the next time she goes to a different doctor, he can put her card in the reader and see what this doctor had prescribed. 

TRR:  That's right.  And he'll ask, "Did that other antibiotic work for this condition when you had it two years ago?"  Yes.  It's perfect. They find you.  You can actually see on this card:  there's a little good chip where you're health records are.  So doesn't this raise privacy problems?  And I asked that in the health ministry.  But he says they've never had a problem with identity theft or people stealing records because this is encrypted and I guess the encryption is pretty good.

NPR:  Japan has borrowed this model that France has.  You say that in Japan there's good access to fine doctors -- lots of choice.  But the system is over-stretched and it's pinching pennies.  So how does that affect the health care of Japanese people?

TRR:  Well, their health care is fabulous.  They have the longest lived and healthiest population in the world.  They have much better recovery rates for every major disease than Americans do.  It's just a marvelous health care system.  And they love going to the doctor in Japan.  In Japan -- on average -- people go to the doctor 15 times a year.  We go about 4.3 times a year in America.  Average hospital stay in Japan is 36 nights.  Ours is 6 nights.  So they're big consumers of medicine with very, very good results.  But the Japanese spend less than half as much per capita as we do.  How do they do that?  The answer is, they're stingy!  They have the stingiest pay scale of all the rich countries.  Docs and hospitals just don't make much money and the result is a lot of hospitals in Japan are now borrowing money from banks just to operate.  They're under a severe strain.  The solution -- they spend 8% of GDP on health care and we spend about 17% -- is to raise that to 9% and pay all their doctors and hospitals better.  So far they've tried to resist that.  But they're going to have to do it.

NPR:  So that would mean raising taxes a little bit.

TRR:  Yes, or maybe raising the insurance premium or something.

NPR:  We've talked a little about Britain's National Health Service.  We looked at the French model -- used in Germany and Japan and several other countries.  Let's look at the model in Canada which you describe as the "national health insurance model."  What are the basics of that model?

TRR:  Remember Britain:  government provides the care and government pays for the care.  In Germany, the providers and the payers are private.  The Canadian model is a blend.  They have private docs and private hospitals but the payment system is public.  It's one big government system.  Actually 14:  there's one for each province.  Everybody pays.  In some provinces it's a tax.  In some it's called a premium.  You pay in every month just like we pay social security taxes and medicare taxes.  You go to the doctor and it's free.  This works pretty well.  The doctors are private and they just bill the government.  You don't get a bill.  This means anybody can go.  It means that nobody with an acute condition in Canada dies for lack of health care, as happens in America.  The flaw with the Canadian system is that to save money, they've cut back sharply on the number of specialists and operating rooms and on scanning machines.  So if it's anything that's not acute, they keep you waiting.  I mean they keep you waiting weeks or months.  I have this bum shoulder and I said to this wonderful doctor I was with in Canada, "I got a bum shoulder.  It really hurts me."  He said, "Yeah, I'd better send you to an orthopedist."  "How long would it take?"  He said, "Oh, ten or twelve months..."

NPR:  Whoa!

TRR:  Twelve months?  Twelve months!  It hurts!  It hurts every morning when I wake up.  And I've got to wait twelve months to get treatment?  And this guy says, "I didn't say treatment.  No, it would be ten months or so to get a consultation.  If he wants to do anything, it'll be six more months before an operating room comes up..."  So this is just a choice they made.  It's not a function of their system because other countries that have the same system don't have waiting times.  But it's absolutely true that Canada keeps people waiting and they do it to save money.

NPR:  Can you get supplemental insurance and through that jump ahead of the line?

TRR:  Ha!  That's up in the air at the moment.  The Canadians are so egalitarian.  The Swedes did this too -- they first said no, "No, we have a very good health care system  here and that's where you're going to get your health care." Obviously some people in Canada could go south to America and buy health care without waiting in line.  The number of people who do that seems to be pretty small.  It's not as big as you hear in the argument, but some do that.  But three years ago, the Canadian Supreme Court ruled that they can't bar you from buying private insurance and going to private doctors.  This created all sorts of concern in Canada because their big bugaboo -- you know how we're all worried about "socialized medicine"? -- their equivalent, the thing they all hate is "two-tier medicine."  They definitely don't want a system where rich people get better care than poor people.  That would be un-Canadian!  So what they did is, they tried to step up the spending on the system they have so that people can get care.  As it turns out, there are a few places in Canada where a doctor can operate privately but not many.  The rule is, if you operate in the Medicare system -- the national system -- then you can't also treat people privately.  So you've got to be a doc in a pretty rich neighborhood to have enough private customers to make a living.

NPR:  Let's look briefly at the fourth and final model that you write about and this is the out-of-pocket model that you sum up very quickly. (laughter)

TRR:  Yes, that's the most common model in the world.  It's only really the 40 or 50 richest countries that have a health care system.  In all the other countries in the world, maybe 150 countries, here's the rule:  if you can pay your doctor out of pocket, you get treated, and if you can't pay, you stay sick or you die.  That's it. Brutal.  Simple.  Fact of life in most countries.  Some third-world countries have a big hospital in the capital city where the people can line up.  But out in the villages, no care.  So people, if they have money, pay in money.  They pay in potatoes.  They weave a rug.  In some countries the woman brings her child in and serves as a wet nurse for the doctor's baby to pay.  But basically, this is a brutal system and if you don't have the money, tough.

NPR:  Okay, so we looked at four models and three of the four models -- the three models that most westernized countries use -- everybody is guaranteed health care.  You write that in America we have aspects of all four of the models, the three where people are guaranteed health care and the fourth where if you don't have the money you don't get the treatment.  Explain how we have aspects of each of those models.

TRR:  So look, please don't tell my publisher because I spent a lot of their money going around all the world for three years looking at these different models of health care.  Turns out we have them all right here in the US!  If you're Native American or a veteran, you live in Britain.  They get government health care at government hospitals from government doctors and they never get a bill.  If you're an employed person sharing your health insurance premium with your employer, you live in Germany.  That's the Bismarck model invented in Germany and used in many countries. If you're a senior and you buy Medicare insurance from the government and go to private doctors, you live in Canada.  That's the Canadian model.  As a matter of fact, the Canadian health care is called "Medicare" and when Lyndon Johnson provided it for our seniors in 1965, he borrowed both the model and the name from Canada!  And if you're one of the tens of millions of Americans who can't get health insurance, well, you live in Malawi or Madagascar or Mali or something.  Because it you can pay for health insurance, you can get it -- or maybe line up at the free hospital sometimes.  We've got them all, and that's really the most important difference.  All the other countries have decided that it's cheaper and it's fairer to provide one model so that everybody has the same access to the same care at the same price.

NPR:  But it's not just a sense of egalitarianism that underlies your criticism of our multi-tiered system.  It's really also an expensive system to maintain because there are so many different systems within it -- so many different forms of billing, so many different prices!  Give me some examples of why that both complicates things for doctors and patients and also makes it much more expensive.

TRR:  Well, just think about it.  It's just vastly simpler if there's one set of rules, one set of forms, one price or one regional price for the whole country.  You go to the doctor in France and that doctor by law is required to post on the wall the price she's going to charge you for the 100 most common procedures that she does.  And then the next column says how much insurance is going to pay you back, and then how many days before the insurance company pays you.  No doctor in America could do that because they don't know what they're getting paid.  They get 30 different fees for the same procedure in the same week because of all the different plans.  The result is enormous administrative complexity.  The American health insurance industry -- it's free enterprise, it's competitive, and those guys, as we said, make huge salaries -- it's the least efficient payment system in the world.  They spend 18-20% of every premium dollar on administration costs.  Do you think of France, Terry, as a model of management efficiency?  The French insurance industry spends 4% on administration.  Germany, 5%.  Japan about 5%.  So we are just pouring tons of money into stuff that doesn't buy anybody health care largely because we have this hugely complicated and overlapping set of systems.  And that's one of the reasons all of the other countries went to a single system.  Another reason is, if everybody's in the same system -- and it doesn't have to be a single payer, Japan has 3,000 payers, but it's a coordinated system with one set of rules -- if everybody's in it, then they have an economic incentive to pay for preventive care.  Preventive medicine works.  But it costs some money up front.  In our system, the insurance company is probably only going to cover you for five or six years until you move to the next job.  It's not in their interest to keep you healthy!  By the time you get sick, you're somebody else's problem. 

NPR:  One of the reasons you undertook this travelogue around the world looking at health care systems is that you have a bum shoulder.  Tell us briefly what's wrong with your shoulder.

TRR:  I fell and broke my shoulder in the US Navy some thirty years ago.  The Navy fixed it at Bethesda Navy Hospital.  They literally screwed my shoulder back together so there's a big stainless steel screw in there you can see in the x-rays.  I'm gettin' old now and it's freezing up -- I can't swing a golf club anymore.  It hurts when I wake up in the morning.  So my major quest in this book was to see if we could do better health care in America.  But let's admit it, I also had a selfish reason:  maybe I could get good care for my shoulder, too.  So I set out to see what I could do.

NPR:  In America, the doctor you saw recommended a very challenging (laughter) operation for you which would have been ... what?

TRR:  Well, he's an orthopedic surgeon and they're confident guys.  I showed him my sore shoulder and he comes in the room with this little red metal box and he opens it up and he says, "Okay.  Here's your new shoulder."  He's going to cut out the shoulder that god gave me with a saw and put in this piece of titanium and teflon and that's going to replace my shoulder. "It'll work fine," he says.  He's a good guy, this doctor. Well, so what could go wrong?  "Well," he said, "It's major surgery.  There are always some problems."  "Like what?"  And he says, "Well, death, paralysis,disease..." (laughter)...  So I said, "Okay.  Maybe I'll go look around."

NPR:  So let's start with England.  You took your shoulder to England and what was the advice you got there?

TRR:  Britain?  That's where they developed the stiff upper lip.  To be blunt about it, my GP in Britain said, "Live with it."  It's not destroying my life that much. I've got another hand I can reach up and change light bulbs with, you know.  So he said, "I could send you to the orthopedic surgeon. He'd look at it and he'd say, 'No, not serious enough.  We're not going to do the operation.'  And you could come back to me and we could send you to another surgeon and he'd say no."  He says, "I'll tell you what, in the National Health Service we'll give you physio" -- that's physical therapy -- "and that'll help some, that'll reduce the pain, but go home and live with it."  That's the advice he gave.

NPR:  Was that satisfying to you? 

TRR:  You know, it helped a little.  It's not that bad.  Rather than sit around and moan about it, just live your life and you can kind of forget your shoulder hurts.  Yeah, it wasn't bad.

NPR:  You went to France?  What kind of advice did you get there?

TRR:  The orthpod in France loved me because he threw my x-ray on that light machine they have.  Big smile on his face because he saw that stainless steel screw I got at Bethesda.  That operation was invented in France.  It's called the "Latarjet procedure" and this guy was so thrilled that I had a French operation on my American shoulder.  So we did just fine.  He said that he, too, could cut out my shoulder and give me an artificial one and it would only cost about $6,000 in France -- a real bargain by American standards.  He didn't think that was recommended either.  He thought physical therapy and maybe some pain shots would handle me fine.  If I wanted the operation, I could get it in France because they have a lot of choice.  But he didn't think it made sense.

NPR:  He was recommending cortisone shots?

TRR: I think it was a steroid, but...

NPR:  Okay.  You went to Japan.  What did they tell you?

TRR:  That was the most interesting doctor.  For one thing, he was the only doctor I went to who called up my condition on the computer and read about it while I was in the room just to make sure he was right.  He said that in Japan they definitely would do that surgery if I wanted to replace my shoulder.  He suggested monthly or bi-monthly steroid shots.  He said he thought I'd get a lot of elimination of pain with that.  And guess what?  It worked!  And it was really cheap!  He suggested traditional Chinese medicine, herbal medications.  He suggested physical therapy.  He gave me the longest, widest range of anybody, and all of it was covered by Japanese insurance.  And I tried.  I tried the traditional Chinese medicine.  I had acupuncture.  I know a lot of people get good results from acupuncture -- I got nothin'.  It didn't hurt.  It was kind of interesting to do it, but I got no gain.  But Japanese insurance would pay for that, too. 

NPR:  I should mention that the cortisone shots and the physical therapy that the Japanese doctor recommended -- you could have gotten the same advice from a lot of American doctors and had your health insurance company in America pay for it, too.

TRR:  I think that's absolutely right, yes.  I went to an orthopedic surgeon and they want to orthopedically surge -- that's what they do.  And he's a good one.  I'm sure it would have helped. 

NPR:  You had a very interesting experience in India.

TRR:  Yes.  In India we went to an ayurvedic clinic. That's a 3,000-year-old Indian form of medicine.  It's herbal and it's all about getting the "prana" -- the flow of power in your body -- to flow correctly.  And the way they do it, Terry, is marvelous.  You lie on this dark, nim wood table and six people massage you with warm oil.  I mean it was fabulous!  I did this for five weeks and made a movie about it for PBS Frontline called "A Second Opinion."  After the massage, the guy would take me to the shower and these same, strong masseuses would take the soap made out of green beans and wash the oil off my body.  That felt great, too!  It was just great!  (And after I made that movie, trying to get my shoulder better, people would come up to me on the street and they would say one of two things.  "How's your shoulder?"  Or, "I saw you naked!")

NPR:  How is your shoulder?  Did the massage work?

TRR:  It definitely improved.  I did not believe in this ayurveda.  It comes out of the Hindu religion.  So while I was being treated, they made me go over to the temple and walk three times around Dhanwatari, the Hindu god of healing, clockwise -- it had to be clockwise.  They made a person from the yajnapati department -- that's astronomy -- and read my star chart before they would treat me.  I didn't buy any of this.  And guess what?  I got much more movement and much less pain.  It definitely worked.

NPR:  I'm glad you shoulder has improved and I hope it stays that way!  We're having a lot of political obstacles in the US that are slowing or prevent health care reform.  You went to two countries that recently remade their systems.  Taiwan and Switzerland.  And you say in both countries, liberal political parties stepped up the pressure for change to such a level that the conservative parties were unwilling to resist.  Could you elaborate on what happened in those countries politically that enabled major health care reform?

TRR:  Taiwan is one of these new Asian tigers, a country that got very rich.  They went from about 100th in the world in GDP per capita to 20th in about 15 years.    Once they got there in the mid-'90's, they said, "Well, we ought to have a rich country's health care system." So they did what I did -- they went around the world and looked at all the health care systems, including ours,and ended up choosing the Canadian model.  Then they had this political fight to put it into effect.  The argument that the liberal parties took was, "We're a rich country now and rich countries have a moral obligation to provide health care for everybody.  The pro-business party in power resisted that for a while and then decided, no, actually that's right, "We think we do have a moral obligation as a rich country to cover everybody."  So then the conservative party grabbed onto the idea and they put it into effect before the liberals could win the next election.  Pretty interesting development!

NPR: You mean it was so popular -- reform had become so popular -- that the conservatives decided they wanted to take credit for it?

TRR:  Yes.  I think that's exactly right.  They saw they couldn't stop it.  Taiwan felt they were a rich country as important as any country in Europe or in the Americas.  And rich countries have health care systems that care for everybody -- which is true for all the rich countries except us.

NPR:  I should mention that doctors in a lot of the countries you went to get paid much less than doctors here.  But, as you point out, they don't have to go as deep into debt to get their medical education as American doctors do.

TRR:  Yes, most of them go to medical school for free or almost nothing.  Their malpractice insurance premiums are much lower than in the US.  But I think a lot of it is expectation.  They don't expect to make $450,000 a year and drive a Lexus to the country club.  They expect to be comfortable, middle class people who are helping their patients and getting satisfaction in life that way.  Frankly a lot of American doctors have that same set of expectations.  They don't particularly want to be rich.  They just want to treat their patients and help their community.  Of course, they see this ridiculous system we have getting in the way.  So I don't think that's such a big obstacle.  I talk to medical societies a lot and most docs definitely would accept a system with lower payments if they had an easier way to treat their patients.

Wendell Potter on corruption, profits, politics and the need for health care reform

Former executive at two major health insurance companies, Wendell Potter,  became a whistleblower who is working now for health care reform.  He is senior fellow for health care at the Center for Media and Democracy.  He is interviewed here by Marty Moss-Coane on WHYY's "Radio Times" and by callers to the program.
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From Radio Times, 7/21/09:  "As Congress and the President grapple with the complicated issues surrounding health care legislation insurers have launched an aggressive ad campaign conjuring up "Harry and Louise" to share their concerns about the Obama campaign with the public. Our guest Wendell Potter is a former corporate executive with one of the nation's largest insurers who has concerns about the health insurance industry and how they do business."

Radio Times:  Wendell Potter was an executive for Cigna Corporation, one of the largest insurance companies in the country.  He was a go-to guy for reporters covering health care and was part of a well-funded PR machine as its chief spokesman.  A life-changing event led to his retirement from the company last year.  Potter testified before a Congressional committee last month [pdf] because he was concerned about the campaign to manipulate opinion about health care legislation.  He told the Senate Committee that for  20 years as a health insurance executive, "I saw how they confused their customers and dumped the sick, all to satisfy their Wall Street investors." ... Wendell Potter, you were the chief spokesman for Cigna?

Wendell Potter:  I was.

RT:  And your job was to...?

WP:  ... was to make sure that the messages we wanted to convey to the media were conveyed.  It was my job to make that happen, to defend the company's reputation, and also to work within the industry.  Often I wasn't speaking  for just the company but for the industry as well. 

RT:  I'm interested in the kinds of questions reporters would have for you -- reporters perhaps covering healthcare, maybe even covering the insurance industry. 

WP: Having been a reporter in my first career, I love working with reporters but I was always expecting to be challenged more than I was by reporters.  I think what has happened to the media over the last several years has made a big difference in how reporters do their jobs and the information that we get as Americans.  I think many reporters are overworked and don't have time to really get to know the companies they're covering.  So I think oftentimes I got away with a lot!

RT:  By that you mean that a reporter would call you, get a comment or a statement from you and then it would show up in their report?

WP:  Exactly.  And so I was able to do my job, I think, a lot better than maybe I would have several years ago.  Most reporters will take the statement that you spoonfeed them and then just go with it.

RT:  You also had to handle some crises for the company as well?

WP:  Oh, I did.  Many times.  Over the years crisis communications was a big part of my responsibilities. 

RT:  What was one of the more memorable crises you had to handle?

WP:  The last one, I guess, toward the end of 2007 right around the holidays.  The doctors at UCLA -- for a patient there, a 17-year-old girl -- the doctors said that she needed a liver transplant.  It was the only thing that could possibly save her life.  She was covered by a plan that was administered by Cigna.  The request was denied.  The family was so distraught that they took to the media in California where she lived and enlisted the support of the California Nurses' Association to bring a lot of public pressure to bear on the case.  It was a remarkable thing to live through because I was, at that time, the spokesman for the company. 

RT:  She died.

WP:  She died.  The company did agree to cover the procedure and pay for it after the family had gotten so much media attention.  Regrettably it came too late.  She died just a few hours after the family learned that the procedure would be covered.

RT:  What did you say in defense of Cigna at that time?

WP:  Well, that in any system there has to be some means of determining whether a procedure should be paid for.  The fact that the patient's doctors had recommended this didn't mean that the procedure couldn't go forward, it just meant that Cigna's decision was that it wasn't going to be paid for by her insurer.

RT:  Do you think there was anything wrong that you were doing as a spokesperson for this insurance company? 

WP:  I tried not to lie or mislead.  I don't recall ever having lied to the media.  Looking back, I think there are times -- one of the reasons I ultimately decided to leave was that having been a journalist I felt that much of the time what I was doing was  just the opposite of what I'd tried to do as a reporter.  I was often, I think, while not lying, I was not disclosing a lot of information that I think would have made a difference in a reporter's story if the reporter had had more information.

RT:  Withholding information vs. misleading or lying to a reporter.

WP:  That's correct.

RT:  You also have described -- I don't know whether "life-changing event" is making it more dramatic than it is -- but nevertheless you were actually visiting family in the South where you're from.

WP:  That's right.  I grew up in Tennessee -- was born in North Carolina but grew up in eastern Tennessee.  I was there and picked up a local newspaper, the Kingsport Times-News -- in fact I had an internship there early on!  And there's a story about this exposition or health fair that was being held a few miles up the road in Wise, Virginia.  I borrowed my dad's car because I was intrigued.  I'd never heard of this organization.  It had been held for several years and I'd never heard about it because I hadn't lived there in a long time.  I wasn't prepared for what I saw.  When I drove up to the parking lot of the Wise County fairgrounds, it was jam-packed.  I don't think even the county fair would have attracted as many people as this expedition [exposition?] did.  I didn't see people until I actually walked inside the fairground gate.  When I did, it was absolute overwhelming.  I saw people by the hundreds -- probably thousands -- who were lined up, standing in the rain or sitting in the rain...  They were waiting to get care that was being provided by doctors and nurses and dentists who were volunteering their time in animal stalls!  Volunteers -- in fact, they're doing it right now because it's going to be held again this coming Friday through Sunday in the same community -- volunteers come early to disinfect the animal stalls.

RT:  So the human patients can come in and get care.

WP:  Exactly.  And that's where many of them get the only care they can get because they either are uninsured or many are under-insured and can't afford to make the payments to get care. 

RT:  You have been part of the insurance industry as an executive for many years:  15 years with Cigna and about 5 years with Humana.  You didn't know about the millions of people that were uninsured or underinsured in this country and the desperate straits they were in?

WP: Not so much the latter.  Yes, I knew -- I knew the numbers.  I think most of us hear the numbers and think, "Well, that's bad.  We've got 46 million or more and now it's probably closer to 50 million who are uninsured."  That's not a good thing.  But there are a variety of reasons why people are uninsured.  When you're in the executive offices, you think in terms of numbers rather than human beings.  One of my responsibilities was to communicate the financial condition of the company to the media.  So I dealt a lot in numbers -- in the billions of dollars, in the millions of members.  As I was talking to the media about public policy, I would obviously reference or be asked about the number of people who are uninsured.  But you don't really see it in the executive offices.  Sure, I probably knew people who were uninsured but you don't really think about it that much.  It's probably a good thing or -- it's not a good thing, it's not, and ultimately I realized that you can't just think in terms of numbers.  You have to realize that real flesh and blood is attached to those numbers, and we're talking about men, women and children.

RT:  You saw this and you said, "I've got to change my life.  I've got to get out of this business that I've been in"?

WP:  I did. I knew, although I didn't know exactly how I would do it or when I would do it, I knew at that moment. It was really life-altering. It was an experience I've never had before or since.  Almost like being struck by lightning.  I was affected very emotionally and that was important as well.  If you think about these things just intellectually, it doesn't have as much power or impact until you can actually see it and witness it.

RT:  I notice that you resist being called a whistleblower.  And I don't want to get bogged down in language here  But nonetheless I find that interesting.

WP:  Well, I don't mind being called that.  I don't care what people call me as long as they listen to what I have to say and maybe open their minds to my point of view.  As a former journalist, I tried to provide information, tried to educate or enlighten people on whatever I was writing about and I see myself returning to that kind of role -- maybe more advocacy journalism now than what I did before.  I do write a blog and I do speak out and I appreciate opportunity to do interviews.  But I see myself more as a journalist I guess because of my journalistic career.

RT:  How about people still at Cigna?  What do they... do they talk to you?  Do you hear from them?  Do they criticize you?  What do they think about what you're doing?

WP:  Well, they're very careful in what they say about me.  I think I understand why.  I would probably have taken the same tack had I been there and someone else had done this.  They've been very careful not to be critical of me.  They've acknowledged that I worked there, the work that I did.  They've noted, when they've been asked, that they have a disagreement with my point of view.  They haven't argued with the facts -- with one exception to that.  But I think that one of the reasons they haven't said anything more about me is that they don't want to perpetuate the story or keep it going.  I think they think -- and rightfully so -- that if they do begin to talk about it, it will fuel the fire.

RT:  What is your message?

WP:  My message is that this is an opportunity for us to have meaningful health care reform.  We can't blow it this time.  And I want to make sure that people understand the tactics that the special interests -- especially the large health insurers -- are using to kill health care reform as they have done in the past.  And that we, as Americans who know the importance of reform, need to be aware of that and get involved if we really think reform is what this country needs.

RT:  When you talk about tactics, I'm thinking about some of the words that have been used to criticize healthcare legislation:  "socialism," "rationing"... Is that what you're talking about?

WP:  It is.  The industry has what I refer to as "evergreen" messages.  You'll see and hear many of the same tactics used and many of the same things being said this year as you did in 1993 and 1994 -- the last time we had a big debate on health care reform.  In fact I went back and looked at some of the Senate testimony and I saw that the leaders of the industry back then were making some of the same promises and assurances and commitments.  On the surface they'd say, "We for reform."  But what happens behind the scenes is really what's going on.   That's just window-dressing.  The PR charm offensive, as I call it. Behind the scenes they are working through their allies to use the same language and the same scare tactics that they did back in the early '90's any time reform has come up.

RT:  ... So what are insurance companies afraid of?

WP:  They're afraid of more competition.  They're certainly afraid of competition from the government and that's why you're hearing so much criticism of the so-called public insurance option that was a big part of President Obama's campaign.  It was something he proposed -- so did Hillary Clinton in her campaign -- and it's a part of legislation that's working its way through Congress in both the House and Senate. We haven't seen final legislation that will be voted on.  But the insurance industry is adamantly opposed to this  and this is the main thing they're targetting right now.

RT:  Because they think it will put them out of business?  Is that their fear?

WP:  That's what they're saying.  It would not put them out of business but it would be some additional competition and significant competition.  They don't want to have anything forced upon them.  They're very adaptable companies and if there is -- and I believe there can be -- a public option passed as part of reform legislation, they can adapt.  One thing these companies are very good at is being adaptable and making money.  I've seen over the course of 20 years how they've changed their business models many times in the face of changes in the economy and in the insurance industry.  So they're very adaptable.

RT:  Is there anything wrong, from your perspective, of an insurance company making money, being profitable?

WP:  When I first started my job, I didn't think so.  I thought there were good things about being a for-profit company.   But in more recent years I've come to think not.  I was able to see in the last few years of my tenure in the insurance industry how these companies make money, and because of the pressure from Wall Street investors on these companies less and less money is being spent of the premium dollar on actually paying claims.

RT:  In fact, in your testimony before Congress -- before a Senate committee last month -- you quoted a study conducted by Price Waterhouse Coopers looking at, I guess, the profitability of some of these insurance companies.  Can you talk about that?

WP:  Right.  These companies have become very profitable.  Two or three things that I think people have not been made very aware of is that since the '90's there's been an enormous amount of  consolidation in the insurance industry.  There are not nearly as many insurance companies as there had been.  And now the industry is dominated by for-profit companies.  The seven largest for-profit companies combined had revenues last year of over $250 billion and many billions of dollars in earnings or profits as well.

RT:  And this is during an economic downturn!

WP:  That's right! Much better than the rest of the economy.  In fact, these companies are often places where investors go during a recession because people do need to have coverage.  So even if their enrollment declines, these companies know how to continue to make money. 

RT:  You also detailed before the Congressional committee the ways that these companies maximize their profits -- including denying benefits, canceling policies, increasing rates -- and again I wonder if you could describe what some of these companies' strategies are.

WP: Right.  One that I'll start with is how it affects people who buy their insurance in the so-called "individual market," who can't buy it or for whatever reason don't get it through their employers.  When someone who has insurance through the individual market has an illness or an accident, or has fairly high medical claims, back at the insurance company someone will review not only those claims but will go back and look at the application that the person filled out.  If there is any reason to think that someone might have withheld information or didn't include something that was pertinent and that might have indicated a pre-existing condition (as it's referred to in the industry), then the insurance company will use that as rationale to cancel the policy.  So if a person has been paying premiums on time for months or years but at the time they really need the insurance most, they may find themselves not having insurance and being left with a lot of medical bills and no insurance coverage at all.

RT:  How common is that practice?

WP:  It's quite common.  It was investigated in California -- where this investigation originated.  And when Congress looked at it, they found evidence in this particular investigation 20,000 people whose policies had been canceled.  That is significant when you look not only at the numbers of those individuals who were affected, but that meant that the insurance companies did not have to pay out more than $300 million dollars in claims!  So just a few of these makes a big difference in the profitability of the company.  And there are other ways that they do the same thing.  People who are enrolled in employer-sponsored plans are also vulnerable to being dumped by the insurance company.

RT:  For the same kinds of reasons?

WP:  The same kinds of reasons.  This is a particular problem for small employers and people who work for small employers.  Because they're small, one person's illness within the small group can make a significant difference.  Insurance companies look at the claim experience of these small businesses as well, and if one employee or one dependent of an employee has unusually high claims that also will trigger a review of the business. And when that business account comes up for renewal -- annually, usually -- then the underwriters will determine what they can do to make this company either more profitable or make it go away.  The evidence shows that they often will jack their premiums up so high that the small business has no alternative but to walk away.

RT:  But I would say that for most people who work for a company that has health insurance, thei premiums have gone up -- maybe not exploded like that, but certainly have gone up.  Co-pays have gone up as well. And I think most people are told, "Well, it's an expensive business and this is what we need in order to be a profitable company. 

WP:  That's what people are being told.  You're exactly right.  But the premiums have increased significantly more than regular inflation.  Much, much more.  The insurance companies have always figured out a way to make sure that they're pricing their health plans at more than what they expect medical inflation to be.  So they've got that figured out.  But you've mentioned something that's also going on that insures their continued profitability.  They've been shifting more of the financial burden -- even if you have insurance -- onto the people who hold policies, who are insured. It's a cost-shifting that I think people are experiencing -- in the form of high co-pays and larger co-insurance responsibilities.

RT:  Do you think, though, that the insurance industry -- what are there, say 45 to 50 million people who don't have insurance in this country? -- isn't that an opportunity for insurance companies?  Wouldn't they want a lot of those people to be insured?

WP:  They've now come around to accept that.  They have embraced, as an industry, what they refer to as an individual mandate.  That's inside-the-beltway talk for a requirement that everybody be forced to have some kind of insurance coverage whether in a public plan like Medicare or Medicaid or the Children's Health Insurance Plan -- "S-CHIP."  Or a private insurance plan.  And they certainly would prefer that all these 50 million people who don't have insurance be required to buy insurance from the private insurance industry.  If they have any trouble affording it, the federal government will send tax dollars to these insurance companies to subsidize those payments.

RT:  How many people do you think in this country are under-insured?  I guess paying they're paying for the basic insurance but it doesn't cover a lot of conditions.

WP:  There is a study by the Commonwealth Fund that indicated at least 25 million people are underinsured.  This is a problem that is not as well known as the uninsured.  It's a problem that's gotten increasingly worse as insurers have been pushing and marketing these so-called "consumer-driven" or "consumer-directed" plans which really are the high-deductible plans that we've just been talking about -- that shift a lot more of the financial burder onto consumers.

RT:  You also say that there's been another shift in the health insurance industry from shared responsibility -- I guess the idea is that you have a big pool of people and it's shared risk -- to individual responsibility.  Why is that significant?

WP:  That's significant because it reflects a philosophical change from the whole concept of insurance as we used to know it -- or when we grew up knowing or thinking that we had insurance in this country.  It's part of an ideological shift by the executives of these companies.  It's very much aligned with the thinking of the Bush administration, for example, which enabled a lot of these consumer-directed plans to really gain strength.  It's a belief that individuals have far more of the responsibility to not only take care of their own health but to pay for their own insurance and out-of-pocket expenses.

RT:  One more thing -- because there's so much talk in the past couple of days about health care legislation -- and one of the critiques of this "public plan" is that it puts the government between you, the consumer, and the doctor.  What do you say to that?

WP:  It's a specious argument. It's not true.  Many people are enrolled in Medicare, which is a very popular public plan.  I hope people will remember that.  There's no government bureaucrat between a Medicare beneficiary and his or her doctor. More like, and what is really true, is that there really is now a corporate bureaucrat between a person enrolled in a private plan and his or her doctor.

RT:  Let's get some callers in on the conversation.

Chuck:  ... Thank you, Mr. Potter, for your courage and for speaking out as a former industry official.  Just for purposes of full disclosure, I'm the executive director of Health Care For All (Pennsylvania).  We're an advocacy group working on a couple of bills in Harrisburg:  Senate bill 400, House bill 1660.  They would provide publicly funded, privately delivered, health care for all.  Single-payer is the shorthand name. At the national level, the readership has said that single-payer is "off the table."  Mr. Potter, what do you think about moving up the single-payer solution to state level?

WP:  I think that's especially where it's important.  You're right.  Regrettably, all options are not on the table in Washington, and single-payer is one that is not on the table because the leadership of both the House and the Senate have kept it off the table. 

RT:  And why do you think that is?

WP:  Because of the power and influence of the insurance industry.  That is the ultimate thing that would put them out of business as we know it.  Canada has a single-payer system and there are no private insurance companies that compete with the government program. ... So they're fighting.  They don't want a public option but they certainly don't want a single-payer.  I think that it's more likely.... I think single-payer efforts could succeed at the state level much more than they could at the national level.  And in fact, in California, bills have passed twice in the legislature that would create a single-payer system.  Both bills have been vetoed by the governor.  And, as Chuck mentioned, in Pennsylvania there's strong bi-partisan support for single-payer in the legislature.  So I think it should be enabled.  There should not be passed anything at federal level that precludes adoption of a single-payer system.

Ruthanne:  Wendell, thank you so much.  My question has to do with whether there's been any survey or do we have numbers on how many people are well-insured but cannot pay their co-pay?  I've been well-insured for a long time but because of certain personal economic situation, was not able to pay my co-pay after a breast lump was removed.  I could not go back for the follow-up, could note even get a mammogram to see that everything was fine, and that caused a lot of stress.  I then couldn't pay for stress-related medication like asthma medication and I just went downhill.  Recently I took in a tenant in return for work around the house.  He is a vet, a Gulf War vet, who has had radiation illness ... [inaudible] ... and cannot prove that it was because of the Gulf War.  So he gets no coverage and his new job will not cover a pre-existing condition. ... There really are a lot of people who can't pay their co-pay.

RT:  It's a poignant story.  Let me give our guest a chance to respond to that.

WP:  It is.  And there are at least 25 million people who have insurance but who are considered under-insured and partly because they cannot afford to make the co-payments.  It's going to be more and more of a problem.  That, frankly, is one of the reasons I decided to leave my job.  I saw that the insurance industry was moving more in this direction, shifting more and more of the financial burden.  That is pretty much the last card they had up their sleeves to manage medical expenses for employers and for themselves.  It's a shifting of the cost of the financial burden to individuals.  It's not sustainable in the long run.  But they're going to try to do it as long as they can because these are very profitable plans for them to market and to administer.  But ultimately, if we don't have reform, more and more of us are going to be in that same predicament.

RT:  You mentioned that the Clinton attempt to change the health care system.  But you also said that the insurance companies are richer, more powerful and more connected than they were 15 years ago.

WP:  Absolutely.  There's been consolidation in the industry as I mentioned before. There are far fewer and the surviving companies are much, much bigger.  Wellpoint and United are the biggest and they both have well over 3o million people enrolled in their health plans.  If you take the seven largest plans -- just the seven largest for-profit plans -- it's over 100 million people.  So one out of every three Americans is enrolled in one of the plans sponsored by one of these big seven for-profit companies. So it's changed a lot.  And also at the trade association level, there's been a merger of the trade groups into one very powerful lobby group in Washington.

RT:  So how many lobbyists do you think working today on healthcare legislation?  Or against healthcare legislation!

WP:  You can bet there are hundreds.  I've heard at least three hundred and I'm suspecting it could be even more.  Every one of the big companies has several lobbyists at work for them. Some are in-house that they employ, but they hire lobbying firms.  They each have both Republican and Democratic firms.  They want to do that because many of these lobbying groups have or are headed by former members of Congress on their payrolls.  It's important for them to do that.

RT:  We're talking about the revolving door here?

WP:  We sure are.  Absolutely are.  A revolving door in Congress and also in the administration.  There are a lot of people, for example, who went from private insurance or some of the PR firms or lobbying firms that supported them into the White House.  It's a giant revolving door in Washington.

RT:  I wonder if you could talk a bit about Montana senator Max Baucus. He heads the Senate Finance Committee, one of several committees looking at health care legislation. Is he tainted?

WP:  Well, Senator Baucus probably is the most influential member of Congress because he is chairman of the Senate Finance Committee.  Any health reform legislation would have to come through his committee -- it's the committee that figures out how it's going to be paid for.  He is the recipient of more money from the health insurance industry than any other member of Congress.  He's a Democrat and obviously a very influential one which is one of the reasons why he's been a recipient of so many contributions from all sectors of the health insurance industry.  Is he tainted?  I know he says he's not.  And the other thing, as we talk about the revolving door, is that many people who used to work for him are now in lobbying firms and representing the special interest in this debate.  I think he bristles at the suggestion that influences him unduly.  But, uh, all the evidence is that he is listening more to the insurance industry than to average Americans.  He's been very slow to warm up to the idea of a public option.  He's not entertaining the idea of a single payer.  So many of the things I've seen him say and do indicate that he really is someone who's paying a lot of attention to what the insurance industry wants.

RT:  Do you think it's a fair fight because there are lobbyists and interest groups on the other side -- the other side that might be for a single-payer or a public plan?  Do you see this as a kind of David and Goliath situation?  Is one side richer and more connected than the other?

WP:  Absolutely!  There's no doubt about it.  The insurance industry is much more powerful and richer and influential than it ever has been.  It's able to spend millions and millions of dollars not only in lobbying and public relations but they'll be gearing up advertising.  So we're seeing the evidence of their spending and influence there.  The only way -- and I've thought this for a long time -- that we can achieve meaningful reform in this country is if individual Americans -- the same people who voted for Barack Obama and voted for him because they thought that health care reform was so important... People just can't say they voted and be done with it.  They really have to make their point of view known to these members of Congress and more than once.

RT:  President Obama has invited members of the health insurance industry to the White House to try to fashion some kind of bi-partisan or inclusive health care plan.  Was that naive on his part?

WP:  I don't think it was naive.  I think it was important for him to do that.  I tend to think that he's abiding by the adage, "Keep your friends close and your enemies closer," and just making sure he understands where they're coming from.  I think he knows that having them to the White House was something important.  I think he probably benefited from it from a public relations point of view and certainly the industry representatives did who went there.  He's very smart.  I don't that he really thinks these people are really his friends.

George:  I really appreciate the conversation, particularly about the for-profit cost centers that impact the cost of our health care.  Obviously the insurance industry is a part of that problem.  Another problem that I'd like you to address is the legal cost to our health care.  We look at malpractice insurance as an issue, but the driver of malpractice insurance is the settlement.  I don't think that our health care practitioners have gotten more careless and our health care itself less capable.  What I believe is that the legal process is a highly for-profit process. ...

RT:  Let me take your question.  It's a good one.  We haven't talked about it.

WP:  It is a contributor, I think.  Not as much as some people might have been led to believe.  But there is such a thing as "defensive medicine" to a certain extent.  The doctors are concerned about being sued for malpractice -- maybe more than is necessary.  One of the things I think people need to keep in mind is that most people don't have the ability to sue their health plans, for example.  You can bring a suit against your doctors.  And I think that reform has to encompass a lot of different things and this is an area that should be looked at as well.

RT:  If insurance executives had the perks reduced and their benefits reduced and their pay reduced, would that make a dent in our trillions and trillions of dollars-worth of health care?

WP:  I've always thought that it would make a dent.  Some of the salaries in my view are exorbitant.  One of the things that I dreaded most during the year was the time the company released its proxy statement -- which is the document which has to be filed with the Securities and Exchange Commission.  It discloses the total compensation of the five top executives.  I was always expecting that I was going to be asked a lot of questions by reporters about that.  But I was not!

RT:  You weren't?

WP:  I was not.  Only one reporter that I can recall called me consistently.  It was something that reporters just didn't seem to think was all that significant.  The executive salaries are really quite significant and could pay a lot of premiums for people.

RT:  What kind of money are we talking about if you aggregate them, put them all together?

WP:  Oh, hundreds of millions of dollars a year.  The CEO of Aetna alone over the last two years pulled in a total of $65 million.  A few years ago the CEO of United Healthcare was in the news a lot with his really outsized compensation in the hundreds of millions of dollars.

Dan:  I'd like to thank Mr. Potter for doing some myth-busting. People have to speak out.  One of the myths which becomes prevalent is that a single-payer system will imply a limit on choice of doctors.  In fact on this show, years ago, when John Fox was a Congressman, he said, "Well, it would be like Canada.  You wouldn't have a choice."  I called his office and said, "That's not true.  You can pick any doctor you want in the province."  He was actually receptive to hearing this but people perpetuate these myths.  The second thing is:  I think if a company pays a claim or pays for care at any point, then that's a waiver of recision.  They've admitted they've done their due diligence.  They only come back when it becomes expensive.  My question for Mr. Potter is about the public option.  Why won't this be a gift to the insurance industry?  Won't they do cherry-picking, take the best cases and the worst ones will have to go into the public option?  I'm skeptical that anything in the law will require them to take all comers.

RT:  I've seen that criticism or even concerns about the public option, just as Dan says.  The private companies take the healthy people and leave the unhealthy people for the government.

WP:  Yes, and the legislative language will have to address it or that situation could arise.  Whoever drafts the ultimate legislation that goes to the president, that will have to be addressed.  The public option cannot be something that's just made available for those who are not potential customers of the private sector.  The insurance industry will have to be prohibited from doing the cherry-picking that it's been doing for years and years and years.

RT:  Let me put another criticism of the public option and also of efforts to change the healthcare system.  "We're talking about one sixth or one seventh of the total US economy.  We have to take our time.  We're rushing this.  There are going to be unintended consequences."  Do you think there's any legitimacy to those concerns?

WP:  I don't.  Those concerns are coming from people who want to kill reform.  They know that if they slow it down, that gives them more time to use scare tactics and move people away from reform as they have every time it's come up before.  So it is just a tactic of theirs.  It's been 15 years since we last did this.  That's a long time.  The Congress has held many, many hearings and has an enormous amount of information about our healthcare system and what needs to be done.  So delaying it is not the way to go.

Cathy:  I would like you to address something which happens with insurance nowadays.  There's an increasing reliance on families to supply medical care.  They let you out and the families are expected to do this.  I have a friend who had no family around here.  We had to rally a whole slew of people to take care of her. They don't complete the process.  They expect family and friends to pick up the remainder of the services for people nowadays.

WP:  That is a concern.  It's very real.  These problems developed during the height of the managed care era when insurers and employers were moving people more into managed care plans and very successfully moving them.  A lot of the insurers did to control medical costs proved to be very onerous.  Some are still in existence and things like this -- discharging patients from hospitals earlier than probably their doctors would really like -- that continues.  Not having the skilled nursing or whatever in place and covered by insurance is an issue too.  I'm facing it as a son.  My father actually had a stroke a couple of years ago.  He fell a couple of weeks ago and broke his arm -- he's in the hospital now.  We're trying to figure out what next.  Will he be able to go to a skilled nursing facility?  Will there be some skilled services available to him?  You're left wondering and it's not the kind of a system we should have when families are worried about that.

RT:  Before we went on the air, we were talking about our healthcare system, the fact that it is the most expensive in the world and yes, some people get very good care  from the system.  A lot of people don't get very good care and millions of people don't get care at all.  And yet it seems so difficult to try to change the system that doesn't really work very well and is extraordinarily expensive.

WP:  It is.  Americans like to think that we have the best of everything.  Nobody else could have anything that any better than ours!  That's a myth -- that we have the best system.  We do have some of the best facilities, there's no doubt about that. The tragedy is that so many millions of us don't have any access or ability to get treatment at some of these great facilities.  What has happened over the years is that a system has developed -- I think it's a dysfunctional or non-system for most of us Americans -- that has been a big profit machine for many, many companies that have developed.  And not just insurance companies.  It's a vast, vast system that generates profits.  No wonder we spend so many of our dollars on healthcare because there are so many people who want to make money off of us!

Dr. Noller:  I'm a family practice physician in Reading.  I deal pretty much mostly with Medicaid.  In Pennsylvania, Medicaid is actually handled by private insurance companies because it's a very profitable business.  Very few journalists seem to have the answer.  My question is what do you believe the profit margin is if a Medicaid insurance company receives $700 from the state, what is the cost of medical care that is provided?

RT:  I'm not sure I understand the question, but perhaps you do?

WP:  I don't have the data that would answer that as directly as maybe you'd like.  But your point is correct, though, that many states have turned over administration of the Medicaid program to private insurance companies and some of those companies are extremely profitable!  Very profitable!

RT:  You were part of the industry campaign that criticizen Michael Moore's documentary a couple of years ago -- "Sicko".  What was your message against "Sicko"?  How would you describe that movie today?

WP:  I would describe the movie today as a movie that really contained a lot of truth.  I hope that Americans will have a chance to see it and take another look at it.  I think it's being shown on TV now.  It does give Americans a realistic view of how other systems operate.  The industry was attacking it pretty much the same way that it's attack healthcare reform -- by pointing to the deficiencies of a single-payer system and saying, "If we want to adopt something like another country has, we are almost assuredly moving down the path towards socialism."  They used scare tactics then, and they're using the same tactics now.