Transcript:

Well it’s a lot better than a lot of people thought it was gonna be. Let’s start with that. It is rather surprising to me in some ways that it’s done this well this long, because I was taught at the University of Chicago and Northwestern that it was terribly important for countries to have savings, and to invest a lot in the future. And that had a lot to do with how well they’re doing. Well America today has the lowest savings rate it has had in many, many years. At the national level, it’s fallen dramatically from 10, 11% of the GDP as we call it down to one or two. Personal savings rates stunningly have gone from nine percent of our disposable income to a minus one percent. And we’ve become very gifted, ardent, robust consumers and borrowers, and not savers. Now the big question is . . . We’ve become huge borrowers as a country with our very large deficit. We’ve become borrowers at the consumer level with very hard debt levels and a really lousy savings level. And the big question I have about the American economy is not today . . . but it’s how long we think we can continue, because we’ve got some huge challenges that are coming. There are 78 million baby boomers, plus the size of the current generation due to begin retiring next year. We have Social Security and Medicare that are programs that are . . . where we’ve made a lot of promises but we haven’t funded them. And we’ve grossly misled the American people with such euphemisms as the Social Security Trust Fund. I argue that it’s an oxymoron, and it shouldn’t be trusted and it’s not funded because the money has already been spent. We haven’t provided for those programs. We are getting to be fancy language; but if something called a “current account deficit”, which measures our deficits abroad, which is largely a trade deficit . . . It’s now twice as high a percentage of the economy than it’s ever been in American history. And we’re borrowing, borrowing, and borrowing and becoming _______ and I think destructively dependent on the long run on Chinese money, and Japanese money, and Asian money and so forth. And which they lend us this money.

But you know it’s a funny thing about borrowing. You have to pay it back some time. And as a country, we can’t continue to borrow seven percent of the economy, which is what we’re borrowing now, for very many years without looking like a very different America than we have now. So I think the economy today is in pretty good shape; but it’s getting pretty turbulent now with housing. And housing is a wonderful example. I did quite a study about 18 months ago, and I was simply astonished at the number of people who bought homes no money down. It’s called “interest only”. And then I was astonished that even though mortgage rates at the lowest level in 30 years have averaged around 9.7% or something like that, and now they’re like six, people are not taking long term fixed mortgages. About half of them are taking what are called “adjustable rate mortgages”. Well one might say, “Gee, that’s fine if we have a lot of savings that we’ve stacked away, and if we aren’t borrowing very much for other purposes.” That isn’t true. We’re borrowing more _______ income than we have in many, many years. So now we’ve had this big blowout of the so-called “subprime mortgage” market. And today I hear in the press that housing prices are falling and so forth. What did we think was going to happen? How are these loans gonna get paid back? We don’t have any savings, and we’re already heavily borrowed. So my concerns about the economy of this country are much more in the future, and much more of our culture. We have become one of the biggest savers in the world. And saving, remember, is a metaphor for the future. We’ve become the biggest consumers and borrowers in the world, which is kind of another way of saying, “I want it all. I want it now, and I don’t want to give up anything.” And a kind of “to hell with the future.” Well I’m far more concerned with America’s economic future 10, 15, 20 years from now than I am with what happens over the next six months.

Well it’s interesting you should ask that question. You’ll be sorry you asked it. I am planning to take my bounty from Blackstone going public, a lot of it – and it’s quite a windfall – and set up what would turn out to be a very large foundation. And because I’ve been boring people relentlessly for the last 20, 30 years about some of these problems, I’m going to take a number of these problems that are what I call undeniable and unsustainable, and yet politically untouchable because of the political culture we now live in where it’s considered almost politically terminal to ever ask anybody to give up anything, or to pay for anything. And you know, “I want more, and more, and more, and I want it now.” And to take these issues which I think are a serious threat to America’s future, and take those issues where there’s a huge gap between what we should be doing, and what we could be doing, and what are or are not doing, and figure out how at the margin, a major foundation might be able to make a difference. For example, looking at you you’re a very young person, certainly by my standards. When I think of young people today, I think of what we’re leaving them 10, 15, 20 years from now. You remind me of that old joke from a philosophy class where the professor asks the students which is worse – ignorance or apathy. And some poor kid from back of the class says, “I don’t know and I don’t care.” Well I think it’s an interesting question. Is there an exciting way that we could get the young people of this country aware, and their parents? Because I refuse to believe that parents have suddenly become cold and indifferent to their own kids and grandkids. I think they’ve been deceived, and misinformed, and disinformed and so forth. So we have a political system today, for example, where the elderly are unbelievably well represented. The American Association for Retired Persons has 38 million dues paying members. They write more. They lobby more. They call more. And by and large, it’s not too unfair to say a lot of their programs are “We want more”, even though by any reasonable standard – as I say some of these challenges are unsustainable – we’re not going to be able to meet the promises that we’ve made. For example, in about 20 years or so . . . 25 years, I’m looking at you, your payroll taxes are scheduled to go from 15 to 30% or more, which would be a huge, huge burden on you, on the economy, on your future and so forth. So on one hand we have this culture of our ethic of “shared sacrifice” being a kind of a dirty word – not wanting to give up anything – we have political organizations who are dominant in representing one age group. And the young people who are all about the future are somehow being slipped this huge check – hidden check, I might add – for our free lunch, and nobody seems to be doing anything about it. So I would like to gather together the student and the young leaders of this country, and take a day or two and say . . . try to give you the biggest, best rundown I can in half a dozen areas of the economy and fiscally, and what the world looks like. And I want you to contemplate that – because it’s not my future. It’s yours. I’m 81years old. Lord knows I don’t need anything more – and ask you, “What are the best ways to do something about it?” And should we have an American Association of Young People and Their Parents, for example? Because until this democracy gets educated and gets informed – which is the first requirement – and then get active and motivated, not much is gonna happen on these problems unless there’s a huge crisis. Then it will be a very costly crisis when it hits. So that’s a long-winded answer how I feel about the economy. I’m much more concerned about the long-term picture than I am about the next year, or two, or three

Recorded On: 7/26/07

Transcript:

I’ve had so many jobs in my life that you might say I’ve had a checkered career. I haven’t been able to hold onto a job very long. We set up Blackstone in 1985, and it’s a fairly diversified business that on one side of the business, there’s quite a lot of advisory work to corporations. When companies get into trouble, we do a lot of restructuring work. We manage money for people of a more or less conventional type to what we call our alternative assets management business. I guess our business . . . our biggest business is the private equity business in buyouts and real estate, where we essentially get money from investors in very large quantities. Our current fund will be over $20 billion. Our real estate fund will be, I don’t know, eight or nine. . . $10 billion. I think they’re respectively about the biggest. And we go out and buy properties that we think are undervalued. And there’s been a lot of talk in the press these days about private equity and all of the excesses that allegedly . . . In fact, I think a pretty good case could be made that private equity investments contribute importantly to the economy. Let me tell you why. When we buy a business, we don’t buy businesses that are overvalued by definition. We buy businesses that are undervalued. And why are they undervalued? Well technically they haven’t been doing as well as others in the industry have done. So in those cases, we’re very different than many public companies. A public company’s CEO today is under extraordinary short-term pressure. You’ve got the market analysts wanting quarter-by-quarter earnings guidance. And if the poor guy misses his earnings by a few pennies per share, then stock falls. And it creates a kind of a “short-termitis” disease where important decisions for the long term are often set aside in favor of the short term. Well in our business, we’re not terribly interested in the short term. We’re interested in what the businesses are going to be worth four, five, ten years ago when we’re out selling. And the only reason they’re gonna be worth a lot more today is if they’ve been fixed and they’re growing. So if you look at the typical private equity investment we make – and I suspect others are very much like that – to be sure they do some restructuring early on and reduce unnecessary costs. But the vast majority of the time we invest much more in ________ in the future, in development, in research; because what we’re interested in is doing those things that are going to make the companies five years from now go faster so they’ll be worth more than what we paid for them. So I don’t think it’s too fanciful to make the case that many private equity investors improve productivity in this country, improve countries, and provide jobs.

Transcript:

Peter G. Peterson

Originally I was brought up in the middle of Nebraska in a small, rural town – 1,733 to Boston

and 1,733 to San Francisco.

Very profoundly. My parents were Greek immigrants. They came here without a penny,

without a word of English and a third grade education. And they moved out to mid-

Nebraska because that’s where their relatives were. My father took a job no one else would

take – washing dishes on the caboose of a Union Pacific railroad that was being built.

It was steaming hot there, which I guess is the reason no one wanted to take the job. And he

ate on the caboose, and slept on the caboose. He saved up virtually everything he

made, which he turned into the inevitable Greek restaurant – 24 hours a day,

seven days a week for 25 years.

Probably. The firstborn son psychologically, as we all know, has certain advantages and certain problems. In my case I was treated like a prince, and I had the great advantage during the first three years or so of probably their developing a pretty healthy sense of self-esteem and affection. I ran into . . . We ran into a tragedy, however, when I was four. My one-year old sister died suddenly from Croup, a form of pneumonia I guess. And she was my mother’s attempt to be born again, you might say, through her daughter. Because these Greek wives lived very tough lives, given how their husbands were working. And when she lost her beloved daughter, she went into very deep mourning. And I, as a child who normally . . . I think we think of ourselves as the center of the solar system. Everything revolves around us. We’re responsible for everything and so forth. I guess I wondered why, as my mother withdrew into the deepest, deepest depression psychologically, what I did to cause her to abandon me. And added to my complexities I guess you’d say, I formed a pattern of having to achieve and having to be perfect so I could somehow regain her affection and her attention. And that’s had some good points and that’s had some bad points, because trying to achieve perfection can be productive; and it also can be a very destructive process for a while. So she had quite an impact on me.

Well I’m a huge believer in dumb luck. I think dumb luck beats smart planning much more often than we would like to admit. People have incorrectly praised my quite varied career, including government service and public service. And if I could explain how I got into going into Washington and President Nixon’s White House, and later to his cabinet, I was working at 39th South Purcell in Chicago. I used to walk to the railroad stations. It’s a lot cheaper. And one day I noticed that 19th South Purcell, there was a University of Chicago graduate school. Well I’d been playing to Northwestern where I’d done my undergraduate work, but it was all the way across Chicago. And since it was night school, it would have taken me 20-30 minutes to get over there and 20-30 minutes to get back. So I said, you know, “Maybe I ought to go to the University of Chicago. It’s supposed to be a pretty good place.” So that’s where I went, to the University of Chicago. It had nothing to do with career planning or anything of the sort. It was there that I made some of the best friends that I have on the faculty – Milton Freedman, George Steigler, George Schultz. And George later, you’ll recall, became a very senior figure in the Nixon administration. He became Secretary of Labor, Office of Management and Budget, Secretary of Treasury; and then later in the Reagan administration Secretary of State. And George and I had worked very closely together at the University of Chicago, and I had taught there for about four or five years part-time at night. So one day he called me and said, “President Nixon wants to see you tomorrow.” So I go to Washington, I end up in the Oval Office, and the president pointed out to me that he thought economics was gonna become terribly important at the vortex of foreign policy. He and Henry Kissinger, my good friend, had a very complicated relationship. For some reason he felt he needed to tell me that Henry didn’t know a damn thing about economics. And what was worse, he didn’t know what he didn’t know. So he went and set up a new council counterpart of the National Security Council, and I was to head it. Well this wasn’t anything I had planned or anything. And I look back on that. I’ve been immensely grateful for my public service opportunity. Some of the most exciting experiences of broadening I ever had. It has led to my being involved with some great non-profit organizations. I just stepped down after 22 years as Chairman of the Council on Foreign Relations. I’m the Founding Chairman of the so-called Peterson Institute for International Economics. I’m one of the founders of the Concord Coalition. And I doubt very much I would have done those things if I hadn’t gone to Washington. And I doubt I’d gone to Washington if I hadn’t had . . . if I didn’t happen to have an office at 39th South Purcell in South Chicago, and didn’t happen to have a downtown school at 19th and South Purcell. So never, never underestimate the role of luck in life. And I think the trick . . . I’ve forgotten who the councilman was in New York who once said, “I’ve seen my opportunities and I took ‘em.” I think it’s important when you do have something that luck thrusts upon you to somehow be made in such a way psychologically that, as Paul Tilley said once, “If you’re comfortable with ambiguity, that’s what you need when you’re in a rapidly changing world.” So I say dumb luck and taking advantage of your opportunities will often lead to more interesting places than long term, smart career planning.

Recorded On: 7/26/07

Transcript:

The fact that we consume 25% of the world’s own oil with less than five percent of the people and over four times the gasoline per capita than our European friends do. And now we’re in for a . . . in a fairly reckless way $300 and something billion dollars a year in oil, much of it from some of the most unsafe and unfriendly sources in the world; not to mention what we’re adding to our debt.

Recorded On: 7/26/07

Transcript:

I have faith that one has been brought into this world for a reason. None of us would claim to understand that we don’t. And we have faith about various theories about how we came here. But then somehow, we’re lucky to be here for however long we are. And while we’re here, it makes eminent good sense to try in your infinitely small way to make this world a somewhat difference place, and a somewhat different better place than it would have been without you. And that involves helping society. It involves helping people. It involves a lot of things that’s involved with making the world a little bit better in your own small way. Now some people might call that faith. Why do you believe that? Is it because you’re gonna go to heaven? Or is it because . . . It just makes very good sense to be a good, productive, empathetic, sympathetic human being – a helpful human being.

Recorded On: 7/26/07

Transcript:

I think a good life is one where you do put a fair amount of your time in making your community, and your country, and the people in it just a little bit better than they otherwise would have been. They’re sharing some of your good fortune. But the reason I’ve had such dumb luck in life and not taking yourself too seriously, I think it’s very important to appreciate that those of us who have risen to whatever levels I’ve risen to . . . It can be very easy to arrive at the comfortable conclusion that the reason I got here is that I am brilliant, and I am innovative, and I am a terrific builder and I’m this, that and the other thing. It’s a little harder to say, “You know, it’s some damn good luck I had somewhere along the line.” If some other people had had it, they may have done a lot better than they had done. So I think a good life has a lot to do with sharing what you have with the society at large.

Recorded On: 7/26/07

Transcript:

I am planning to take my bounty from Blackstone going public, a lot of it – and it’s quite a windfall – and set up what would turn out to be a very large foundation. And because I’ve been boring people relentlessly for the last 20, 30 years about some of these problems, I’m going to take a number of these problems that are what I call undeniable and unsustainable, and yet politically untouchable because of the political culture we now live in where it’s considered almost politically terminal to ever ask anybody to give up anything, or to pay for anything. And you know, “I want more, and more, and more, and I want it now.” And to take these issues which I think are a serious threat to America’s future, and take those issues where there’s a huge gap between what we should be doing, and what we could be doing, and what are or are not doing, and figure out how at the margin, a major foundation might be able to make a difference.

To my knowledge, I had very little to do with where I was born and who my parents were. So that gives me a sense of profound gratitude for my good luck, and the fact that I was born and brought up here in the way I was brought up. And it’s very important for us private citizens to give back not only of our money and our philanthropic, but of ourselves. And my own theory about giving back – at least it’s the model that I somehow came to – is it’s great if you can make your giving back of your human capital, and your passions, and the things you care about, and tie that with your philanthropic financial capital so there’s a fusion between you as a person and your passions in what you want to change or do and your money.

I have faith that one has been brought into this world for a reason. None of us would claim to understand that we don’t. And we have faith about various theories about how we came here. But then somehow, we’re lucky to be here for however long we are. And while we’re here, it makes eminent good sense to try in your infinitely small way to make this world a somewhat difference place, and a somewhat different better place than it would have been without you. And that involves helping society. It involves helping people. It involves a lot of things that’s involved with making the world a little bit better in your own small way. Now some people might call that faith. Why do you believe that? Is it because you’re gonna go to heaven? Or is it because . . . It just makes very good sense to be a good, productive, empathetic, sympathetic human being – a helpful human being.

It can be very easy to arrive at the comfortable conclusion that the reason I got here is that I am brilliant, and I am innovative, and I am a terrific builder and I’m this, that and the other thing. It’s a little harder to say, “You know, it’s some damn good luck I had somewhere along the line.” If some other people had had it, they may have done a lot better than they had done. So I think a good life has a lot to do with sharing what you have with the society at large. I’ve chosen to do it more in the public policy, foreign policy way. Others do it perhaps more admirably, I don’t know, by spending a great deal of their time and money helping poor children. And with my wife’s influence, we do give certainly a fair amount to them. And I’m happy to finance a research institute at Sesame Workshop named after her. And what I think is a very important project, which is the world of new devices is just changing almost hourly with cell phones, and iPhones, and iPods. Keep in mind I was brought up in a world where Dick Tracy, the detective, had a wrist radio. That was considered space-aged stuff. And now look at the world we have. And there is nothing more important, in my opinion, than getting our high school graduation levels up and making American young people competitive, and getting at them when they’re very young. And every study has demonstrated that. Why I’m very proud to . . . what my wife does what she does and has done. But we’re supporting, for example, in a rather major way how do you use these little devices? Cell phones, iPods, Playstation portable . . . this, that and the other thing to help educate these kids? Because the idea that they’re gonna spend their entire time on these devices playing entertainment games . . . when if we were really imaginative, we could figure out how to use that preoccupation with these gadgets to educate them. It’s a very worthy cause, and I’m devoting a lot of money, and she’s devoting a lot of time to that.

Recorded On: 7/26/07

Transcript:

I never forget asking Ed _______. He and I _____ novelist once. “Ed, what do you think a neurosis is?” And Ed said, “It’s the endless repetition of an obsolete experience or feeling.” And the trouble with these drives we get children is they’re often come about for some emotional reason having to do with gaining our parents’ love, or respect, or something. And because it’s not the real thing . . . The real thing is just to be spontaneously loved, not to have to go through this enormous process. It’s _____. It’s artificial, and you keep repeating it, and repeating it, and repeating it because it isn’t real somehow. So I think that’s true in life. I think sometimes when you develop these neurotic patterns, you keep repeating these earlier patterns often to either no end at all, or to an end that has very little to do with the end you’re really after. So I think it’s important . . . We’re all strangers to our own conscious to try to go back and understand how much of what we’re doing started decades and decades ago for reasons or motivations that have very little to do with today. And how much of that is relevant, and how much is excessive? I think it’s a very important lesson to learn in life.

Transcript:

Well you could say I have a profound conflict of interest here, because I’m in the . . . I’m the fat cat by every conceivable standard – physical and financial, and literally. It’s clear, I think, that the incomes are less equal than they’ve been in some period of time. And I’m not one that gets terribly exercised at discussions of raising revenues. While I think the big, big, big action that’s required is reduce the spending and reduce some of these benefits, particularly for people like me that don’t need them, it’s quite possible that there’s gonna be some increases in taxes – quite possibly. And then the discussion would be what’s the fair way to increase taxes. It certainly isn’t on the poor. And you know, let’s figure out whether the best way is to tax the Pete Petersons more on their marginal rates, or to try to affect private equity firms, which is the big debate going on now, or what. But I would be very surprised, because politically what’s going on is the Democrats quite understandably are looking at these huge incomes that some of us at the top make, and the fact that the middle-income classes have enjoyed relatively small increases in real income. And their healthcare costs are very high, and college education costs a lot of money. And it would be hard for me not to be sympathetic and empathetic to their condition. However, longer term, the way to fix that . . . the best way to fix it is for this country to save and invest more, and not to depend on the rest of the world and borrow our money from it. So I think there is a high correlation long term between what we can do to increase the incomes of the average person, and how we attack some of these public issues like Social Security; like Medicare; like healthcare costs out of control; like our energy gluttony at the present time; like the fact that half of our kids in the major cities only graduate from high school and we’re trying to compete with China and India that not only have much lower labor costs, but have much higher graduation of mathematical and physical scientists and so forth. We’re living in a very much more competitive world economy whether we like it or not. And the best way, in my view, of increasing the welfare of the average worker is to make this economy stronger.

Recorded On: 7/26/07

Transcript:

When I think of young people today, I think of what we’re leaving them 10, 15, 20 years from now. You remind me of that old joke from a philosophy class where the professor asks the students which is worse – ignorance or apathy. And some poor kid from back of the class says, “I don’t know and I don’t care.” Well I think it’s an interesting question. Is there an exciting way that we could get the young people of this country aware, and their parents? Because I refuse to believe that parents have suddenly become cold and indifferent to their own kids and grandkids. I think they’ve been deceived, and misinformed, and disinformed and so forth. So we have a political system today, for example, where the elderly are unbelievably well represented. The American Association for Retired Persons has 38 million dues paying members. They write more. They lobby more. They call more. And by and large, it’s not too unfair to say a lot of their programs are “We want more”, even though by any reasonable standard – as I say some of these challenges are unsustainable – we’re not going to be able to meet the promises that we’ve made. For example, in about 20 years or so . . . 25 years, I’m looking at you, your payroll taxes are scheduled to go from 15 to 30% or more, which would be a huge, huge burden on you, on the economy, on your future and so forth. So on one hand we have this culture of our ethic of “shared sacrifice” being a kind of a dirty word – not wanting to give up anything – we have political organizations who are dominant in representing one age group. And the young people who are all about the future are somehow being slipped this huge check – hidden check, I might add – for our free lunch, and nobody seems to be doing anything about it.

Recorded On: 7/26/07

Transcript:

And there’s been a lot of talk in the press these days about private equity and all of the excesses that allegedly . . . In fact, I think a pretty good case could be made that private equity investments contribute importantly to the economy. Let me tell you why. When we buy a business, we don’t buy businesses that are overvalued by definition. We buy businesses that are undervalued. And why are they undervalued? Well technically they haven’t been doing as well as others in the industry have done. So in those cases, we’re very different than many public companies. A public company’s CEO today is under extraordinary short-term pressure. You’ve got the market analysts wanting quarter-by-quarter earnings guidance. And if the poor guy misses his earnings by a few pennies per share, then stock falls. And it creates a kind of a “short-termitis” disease where important decisions for the long term are often set aside in favor of the short term. Well in our business, we’re not terribly interested in the short term. We’re interested in what the businesses are going to be worth four, five, ten years ago when we’re out selling. And the only reason they’re gonna be worth a lot more today is if they’ve been fixed and they’re growing. So if you look at the typical private equity investment we make – and I suspect others are very much like that – to be sure they do some restructuring early on and reduce unnecessary costs. But the vast majority of the time we invest much more in ________ in the future, in development, in research; because what we’re interested in is doing those things that are going to make the companies five years from now go faster so they’ll be worth more than what we paid for them. So I don’t think it’s too fanciful to make the case that many private equity investors improve productivity in this country, improve countries, and provide jobs.

Transcript:

Sure. I do a lot of traveling around the world, and in government I got to know other governments as well. It’s a remarkable country with regard to its absence of barriers, its resilience, its responsiveness. Just think of it. When my father started his restaurant in the 1920s, the restaurant was petitioned by the Ku Klux Klan saying, “Don’t eat with the Greek.” There were no blacks there, so I guess they figured the Greeks were the next most desirable target. Now we go from a situation like that to where . . . If anybody’s been prejudiced against me because I was Greek, I’ve been unaware of it. I worked in the 1960s with . . . when I was CEO of a company called ________ with Martin Luther King. And I went through the tragic division of races among the . . . of the ‘60s where blacks were formally and most often informally blocked from all kinds of participation in American life – business, social, political. And I look today to Barack Obama, and I think it’s quite possible today that a black could be elected President of the United States. And that’s taken place in a remarkably short period of time. So this is a country with limitless frontiers and very few barriers. And if you work hard, and you study hard, and you’ve got good luck, you can do very well in this country.

Transcript:

Well I’m a huge believer in dumb luck. I think dumb luck beats smart planning much more often than we would like to admit. People have incorrectly praised my quite varied career, including government service and public service. And if I could explain how I got into going into Washington and President Nixon’s White House, and later to his cabinet, I was working at 39th South Purcell in Chicago. I used to walk to the railroad stations. It’s a lot cheaper. And one day I noticed that 19th South Purcell, there was a University of Chicago graduate school. Well I’d been playing to Northwestern where I’d done my undergraduate work, but it was all the way across Chicago. And since it was night school, it would have taken me 20-30 minutes to get over there and 20-30 minutes to get back. So I said, you know, “Maybe I ought to go to the University of Chicago. It’s supposed to be a pretty good place.” So that’s where I went, to the University of Chicago. It had nothing to do with career planning or anything of the sort. It was there that I made some of the best friends that I have on the faculty – Milton Freedman, George Steigler, George Schultz. And George later, you’ll recall, became a very senior figure in the Nixon administration. He became Secretary of Labor, Office of Management and Budget, Secretary of Treasury; and then later in the Reagan administration Secretary of State. And George and I had worked very closely together at the University of Chicago, and I had taught there for about four or five years part-time at night. So one day he called me and said, “President Nixon wants to see you tomorrow.” So I go to Washington, I end up in the Oval Office, and the president pointed out to me that he thought economics was gonna become terribly important at the vortex of foreign policy. He and Henry Kissinger, my good friend, had a very complicated relationship. For some reason he felt he needed to tell me that Henry didn’t know a damn thing about economics. And what was worse, he didn’t know what he didn’t know. So he went and set up a new council counterpart of the National Security Council, and I was to head it. Well this wasn’t anything I had planned or anything. And I look back on that. I’ve been immensely grateful for my public service opportunity. Some of the most exciting experiences of broadening I ever had. It has led to my being involved with some great non-profit organizations. I just stepped down after 22 years as Chairman of the Council on Foreign Relations. I’m the Founding Chairman of the so-called Peterson Institute for International Economics. I’m one of the founders of the Concord Coalition. And I doubt very much I would have done those things if I hadn’t gone to Washington. And I doubt I’d gone to Washington if I hadn’t had . . . if I didn’t happen to have an office at 39th South Purcell in South Chicago, and didn’t happen to have a downtown school at 19th and South Purcell. So never, never underestimate the role of luck in life. And I think the trick . . . I’ve forgotten who the councilman was in New York who once said, “I’ve seen my opportunities and I took ‘em.” I think it’s important when you do have something that luck thrusts upon you to somehow be made in such a way psychologically that, as Paul Tilley said once, “If you’re comfortable with ambiguity, that’s what you need when you’re in a rapidly changing world.” So I say dumb luck and taking advantage of your opportunities will often lead to more interesting places than long term, smart career planning.

Recorded On: 7/26/07

Transcript:

We ran into a tragedy, however, when I was four. My one-year old sister died suddenly from Croup, a form of pneumonia I guess. And she was my mother’s attempt to be born again, you might say, through her daughter. Because these Greek wives lived very tough lives, given how their husbands were working. And when she lost her beloved daughter, she went into very deep mourning. And I, as a child who normally . . . I think we think of ourselves as the center of the solar system. Everything revolves around us. We’re responsible for everything and so forth. I guess I wondered why, as my mother withdrew into the deepest, deepest depression psychologically, what I did to cause her to abandon me. And added to my complexities I guess you’d say, I formed a pattern of having to achieve and having to be perfect so I could somehow regain her affection and her attention. And that’s had some good points and that’s had some bad points, because trying to achieve perfection can be productive; and it also can be a very destructive process for a while. So she had quite an impact on me.

Recorded On: 7/26/07

Transcript:

Well it sounds pompous to say this, but I suppose one might ask themselves the question, “In what way in what I’m doing and plan to do make this society, and this earth, and this community and the people in it just a touch better off than they otherwise would have been had I not been on this earth?”

Recorded On: 7/26/07

Transcript:

Well it’s interesting you should ask that question. You’ll be sorry you asked it. I am planning to take my bounty from Blackstone going public, a lot of it – and it’s quite a windfall – and set up what would turn out to be a very large foundation. And because I’ve been boring people relentlessly for the last 20, 30 years about some of these problems, I’m going to take a number of these problems that are what I call undeniable and unsustainable, and yet politically untouchable because of the political culture we now live in where it’s considered almost politically terminal to ever ask anybody to give up anything, or to pay for anything. And you know, “I want more, and more, and more, and I want it now.” And to take these issues which I think are a serious threat to America’s future, and take those issues where there’s a huge gap between what we should be doing, and what we could be doing, and what are or are not doing, and figure out how at the margin, a major foundation might be able to make a difference. For example, looking at you you’re a very young person, certainly by my standards. When I think of young people today, I think of what we’re leaving them 10, 15, 20 years from now. You remind me of that old joke from a philosophy class where the professor asks the students which is worse – ignorance or apathy. And some poor kid from back of the class says, “I don’t know and I don’t care.” Well I think it’s an interesting question. Is there an exciting way that we could get the young people of this country aware, and their parents? Because I refuse to believe that parents have suddenly become cold and indifferent to their own kids and grandkids. I think they’ve been deceived, and misinformed, and disinformed and so forth. So we have a political system today, for example, where the elderly are unbelievably well represented. The American Association for Retired Persons has 38 million dues paying members. They write more. They lobby more. They call more. And by and large, it’s not too unfair to say a lot of their programs are “We want more”, even though by any reasonable standard – as I say some of these challenges are unsustainable – we’re not going to be able to meet the promises that we’ve made. For example, in about 20 years or so . . . 25 years, I’m looking at you, your payroll taxes are scheduled to go from 15 to 30% or more, which would be a huge, huge burden on you, on the economy, on your future and so forth. So on one hand we have this culture of our ethic of “shared sacrifice” being a kind of a dirty word – not wanting to give up anything – we have political organizations who are dominant in representing one age group. And the young people who are all about the future are somehow being slipped this huge check – hidden check, I might add – for our free lunch, and nobody seems to be doing anything about it. So I would like to gather together the student and the young leaders of this country, and take a day or two and say . . . try to give you the biggest, best rundown I can in half a dozen areas of the economy and fiscally, and what the world looks like. And I want you to contemplate that – because it’s not my future. It’s yours. I’m 81years old. Lord knows I don’t need anything more – and ask you, “What are the best ways to do something about it?” And should we have an American Association of Young People and Their Parents, for example? Because until this democracy gets educated and gets informed – which is the first requirement – and then get active and motivated, not much is gonna happen on these problems unless there’s a huge crisis. Then it will be a very costly crisis when it hits. So that’s a long-winded answer how I feel about the economy. I’m much more concerned about the long-term picture than I am about the next year, or two, or three.

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Well nobody likes to be called a pessimist, you know? And I know politically, if you don’t . . . if you’re not an optimist, you don’t win you know? I think there has to be something in between that’s called realism on the one hand. And on the other hand, as a certain appreciation for this country’s historic qualities which I would call great resilience, great responsiveness, great flexibility, a lot of entrepreneurialism, a lot of labor mobility. We make changes in this country a lot easier than many other countries. And in an innovative, fast changing world that is an enormous advantage, and I never want us to forget it. At the same time there are all these problems I’ve been talking about. And they’re not manufactured. The fact that we make promises that aren’t recorded anywhere of $40 trillion in today’s dollars to pay Social Security and Medicare benefits, and we haven’t provided the money . . . or that your taxes are gonna have to more than double, that isn’t Pete Peterson manufacturing it. That’s the Social Security Administration’s own numbers. The fact that we consume 25% of the world’s own oil with less than five percent of the people and over four times the gasoline per capita than our European friends do. And now we’re in for a . . . in a fairly reckless way $300 and something billion dollars a year in oil, much of it from some of the most unsafe and unfriendly sources in the world; not to mention what we’re adding to our debt. And you look around and you look at the proposals that people are making. And if I hear one more comprehensive energy plan, I think I’m gonna scream because they’re not comprehensive at all. They keep pretending as though if you just produce a lot of ethanol, suddenly we’re not going to have an energy problem. What they don’t tell us is it takes an enormous amount of energy to produce the ethanol in the first place, and the net increase and energy output is very, very small. No one wants to hear the fact that it’s gonna take many, many years to create these alternative energy sources. In the mean side, a realist would say, I think, “We have to solve this problem because it’s a very serious problem. It has global warming implications. We’re gonna have to solve this problem on the demand side . . . on the consumption side.” And hey folks, there are only a few ways to do this. Do we think it’s an accident that Europe has a $3.80 gasoline tax and we have a $0.38 gasoline tax? We could have a carbon tax, an energy tax. And we could rebate the money in other ways, but we could try to reduce consumption. Does it bother us that the mileage standards on automobiles abroad are, I think, at least 10 miles higher than ours? Does that possibly have something to do with our consumption? Does it bother us that France gets 80% of electricity now from nuclear and we haven’t built a nuclear plant in years? Does that bother anybody that that’s not part of a comprehensive energy plan or what? So you can call this pessimism. You can call it anything you want. I think there are certain realities out there that we’d better address. And there’s no reason we can’t address them. We’ve done it before and we can do it again. But we first have to say, “Hey, it’s a problem,” and not call anybody that points out the problem some kind of pessimist.

Recorded On: 7/26/07

Transcript:

Well it’s a lot better than a lot of people thought it was gonna be. Let’s start with that. It is rather surprising to me in some ways that it’s done this well this long, because I was taught at the University of Chicago and Northwestern that it was terribly important for countries to have savings, and to invest a lot in the future. And that had a lot to do with how well they’re doing. Well America today has the lowest savings rate it has had in many, many years. At the national level, it’s fallen dramatically from 10, 11% of the GDP as we call it down to one or two. Personal savings rates stunningly have gone from nine percent of our disposable income to a minus one percent. And we’ve become very gifted, ardent, robust consumers and borrowers, and not savers. Now the big question is . . . We’ve become huge borrowers as a country with our very large deficit. We’ve become borrowers at the consumer level with very hard debt levels and a really lousy savings level. And the big question I have about the American economy is not today . . . but it’s how long we think we can continue, because we’ve got some huge challenges that are coming. There are 78 million baby boomers, plus the size of the current generation due to begin retiring next year. We have Social Security and Medicare that are programs that are . . . where we’ve made a lot of promises but we haven’t funded them. And we’ve grossly misled the American people with such euphemisms as the Social Security Trust Fund. I argue that it’s an oxymoron, and it shouldn’t be trusted and it’s not funded because the money has already been spent. We haven’t provided for those programs. We are getting to be fancy language; but if something called a “current account deficit”, which measures our deficits abroad, which is largely a trade deficit . . . It’s now twice as high a percentage of the economy than it’s ever been in American history. And we’re borrowing, borrowing, and borrowing and becoming _______ and I think destructively dependent on the long run on Chinese money, and Japanese money, and Asian money and so forth. And which they lend us this money. But you know it’s a funny thing about borrowing. You have to pay it back some time. And as a country, we can’t continue to borrow seven percent of the economy, which is what we’re borrowing now, for very many years without looking like a very different America than we have now. So I think the economy today is in pretty good shape; but it’s getting pretty turbulent now with housing. And housing is a wonderful example. I did quite a study about 18 months ago, and I was simply astonished at the number of people who bought homes no money down. It’s called “interest only”. And then I was astonished that even though mortgage rates at the lowest level in 30 years have averaged around 9.7% or something like that, and now they’re like six, people are not taking long term fixed mortgages. About half of them are taking what are called “adjustable rate mortgages”. Well one might say, “Gee, that’s fine if we have a lot of savings that we’ve stacked away, and if we aren’t borrowing very much for other purposes.” That isn’t true. We’re borrowing more _______ income than we have in many, many years. So now we’ve had this big blowout of the so-called “subprime mortgage” market. And today I hear in the press that housing prices are falling and so forth. What did we think was going to happen? How are these loans gonna get paid back? We don’t have any savings, and we’re already heavily borrowed. So my concerns about the economy of this country are much more in the future, and much more of our culture. We have become one of the biggest savers in the world. And saving, remember, is a metaphor for the future. We’ve become the biggest consumers and borrowers in the world, which is kind of another way of saying, “I want it all. I want it now, and I don’t want to give up anything.” And a kind of “to hell with the future.” Well I’m far more concerned with America’s economic future 10, 15, 20 years from now than I am with what happens over the next six months.

Recorded On: 7/26/07

Transcript:

I wish I knew the answer to that. Every once in a while I give a commencement address, and I suggest to the presidents of the universities that this is a multi-dimensional issue as to what’s happened to this country with regard to its . . . to a certain extent its loss of a sense of the future and taking responsibility for the future. My parents’ generation, the greatest generation, for example, fought the most costly war in history – costly in every sense of that word. They built international institutions – Marshall Plan and so forth, which was central to the world getting restored. They had G.I. Bill of Rights for all the returning veterans . . . went to college. They rebuilt the infrastructure of this country. But they didn’t ask me to pay for it. They paid for it because they were willing to invest in the future. And that meant saving, and that meant consuming less because you can’t have it all. You can’t have it all now and have something for the future. I tell these university audiences I think a careful study of your sociologist, of your social psychologist, of your political science, of your economists, of your historians . . . and say, “What was it during those early times where more Americans than I’m afraid today had a clear sense of the future and a responsibility for it?” And what led us to this notion “I’m gonna grab what I can”? And “The government owes me this and the government owes me that.” And kind of, “To hell with other people. To hell with the future. And to tell with who and how we’re gonna pay for all of this.” Now why did that come about? What led to this boomer mentality, you know, about, “I want it all. I gotta enjoy it.” I have a dear friend who is in the ________ medical profession. He’s kind of complaining that he’s not a millionaire or a multi-millionaire, whatever. And I said, “Well you know, one way people become millionaires is they save and they invest.” But he’s got to have his small airplane that he flies on the weekends. He points out to me it’s not a jet. And I said, “Well I understand. I don’t have a jet either.” And “Oh, I need to have fun because I work so hard all week. And I need a Porsche car,” and so forth. And that is the boomer mentality that we’re kind of dealing with here. And I don’t really know what led from saving and investing into the future to consuming and borrowing now. Did America get disenchanted by the Vietnam War that tore this country apart? You’re much too young to remember it, but it truly tore us apart. Did we get torn apart by the assassinations of presidents, and presidents’ brothers, and Martin Luther King, and riots in the streets? As I said, I was working on this problem in Chicago. It was a terrifying sight to see, and that somehow the bonds that unite us and heal us lead to the current situation. I’m not sure. But I’ve never seen a time when there was so much bitterness and partisanship, and paralysis as we have today in our government. I mean nothing. We went through important areas where the Republican leadership and the Democratic leadership are united for a much larger cause, namely the nation’s interest. We’ve had very little of that recently. So I’m _______. I don’t know what all the reasons are. I just know there’s been a really major shift. I think if I may, just to insult your medium, it’s entirely possible that television has had its impact. For example, I used to watch my children. ________ wasn’t television. And they’d turn on the TV and pound it into their heads. Here’s this toy they had to have. This is the dress they gotta have. And we’ve developed a kind of indulgent, instant gratification, consumption largess that has become part of our culture. And I don’t know all the reasons for it, but certainly the presence of such an effective medium . . . and television is probably one of the reasons for it.

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Well I think there are all kinds of faiths somehow. I have faith that one has been brought into this world for a reason. None of us would claim to understand that we don’t. And we have faith about various theories about how we came here. But then somehow, we’re lucky to be here for however long we are. And while we’re here, it makes eminent good sense to try in your infinitely small way to make this world a somewhat difference place, and a somewhat different better place than it would have been without you. And that involves helping society. It involves helping people. It involves a lot of things that’s involved with making the world a little bit better in your own small way. Now some people might call that faith. Why do you believe that? Is it because you’re gonna go to heaven? Or is it because . . . It just makes very good sense to be a good, productive, empathetic, sympathetic human being – a helpful human being. Now in my case, I was brought up in the Greek Orthodox Church, and it was all tied up with the difficult life that immigrant children had in this country. And I’m in no way suggesting my experience is unique. On the one hand you have your immigrant parents who are in a strange land, insecure, fearful to some extent, not feeling totally accepted. And they had children, and the children are kind of torn between two very powerful forces. They desire their parents to keep them in – in their society, with their customs, with their religions, with their holidays and so forth. And to marry girls, if you’re a boy, who are also of the same religion, and also of the same ethnic group. My mother for quite a long time had very nasty things to say about non-Greek girls, which had nothing to do with what they were. It had a lot to do with the fact that they weren’t Greek. And at some level you understand that. It’s totally understandable, and the religion is part of that. On the other hand, the children are brought up in America, and they will spend 98% of the time speaking English, learning English, learning American customs, learning what the society is all about out there, not in the small immigrant world. And the tension between those two worlds is not an easy one, at least it was not for me. I’m doing my memoirs now, and my life is the founder of Sesame Street – Sesame Workshop. So I know all about the Muppets, and which ones, and what they’re supposed to represent. But you remember Kermit the Frog does that song, “It’s Not Easy Being Green”. Well my first chapter in my book is gonna be, “It Wasn’t That Easy Being Greek”. It talks about the travails of a young child who was torn between these two groups and having different religions, and having these bearded priests and, you know, who looked different, and speak differently and so forth. And a lot of children, you know, wanna be accepted. They wanna be a part of their peer group and so forth. So that often makes them perhaps a little bit less whetted to their earlier religion than they ought to be. And that probably describes me.