Honoring Gramlich part 2: Stabilization policy and federal systems

May 30, 2014 1:20:51
Kaltura Video

Michael S. Barr, Gerald A. Carlino, James Hines and moderator Byron Lutz hold a panel on stabilization policy at the "Honoring Ned Gramlich and the Importance of Policy Research" conference. May, 2014.


[ Group Discussion ]

>> OK. Thank you. I hate to interrupt all these conversations. It sounds like every--seems like everybody is so glad to see so many different people from so many different circles. But the time for our next panel, this panel is on Stabilization Policies and Federal Systems. The panel would be chaired by Byron Lutz. One of our own. A Senior Economist in the Fiscal Analysis Section of the Research Division here at the Board. I won't say very much about Byron because as people have been saying the bios are available. But I will say Bryon's research spans a range of issues in public finance, urban economics and labor economics, and something that's not in the bio, Byron is also the Board's top experts on state and local expenditures and tax policy. Byron, I'll now hand it over to you.

>> All right. So I want to start by saying how pleased am I to be here today, although I only was able to interact with Ned on a handful of occasions and passing. I certainly been greatly influenced by his work early on in my graduate school career. I came across some of Ned's work on intergovernmental grants. And my engagement with work was one of the key things that led me to ultimately specialize in the area of state and local public finance. And similarly when I first got here to the Board and was getting up to speed with my policy responsibilities, I found the series of Brookings Papers that Ned had written from the late '70s to the early '90s to be among the absolute, most valuable sources out there on the topic of the connection between the macroeconomy on one hand and state and local governments on the other. And then just to set another example. Just this week while working on a project on how state taxes mitigate income and inequality, I found myself consulting a number of Ned's pieces including one of the ones that Sheldon referenced in the first panel. So the topic of this panel is stabilization policy within federal systems. Stabilization is almost everyone here surely knows. They're just policies which aim to dampen business cycle, induce fluctuations and income, employment, and other economic outcomes. Within the context of a Federal system like we have in the US with multiple layers of government, the question very naturally arises as to what the appropriate role of the different layers of government is. And this is particularly interesting as regard to fiscal stimulus changes in government spending taxation and transfers. Ned had quite a large body of work in this area, which at least in my mind can be broken up into two broad sets. The first look at the possibility that the federal government [inaudible]--income down to states and locality in the form of grants during times of fiscal stress in the hope that the states and localities would use this income to mitigate expenditure cuts or put off tax increases. I think it's fair to say that the results of this agenda led Ned to be somewhat skeptical of this approach. The other agenda look at the possibility that states might be able to act completely independently with their own resources as agents for stabilization. And Ned argued in the series of article starting in the mid-'80s that states could in fact do this. And as the panelists will discuss today, this put him pretty sharply odds with the conventional wisdom in the field of public finance. So, I'll now move to doing introductions. I'll follow the lead of others by keeping this extremely brief. Our first panelist is going--excuse me--is going to be Jim Hines who teaches at the University of Michigan in both the Economics Department and the Law School. His work has focused on taxation where he's worked on a truly wide range of topics. I think it's safe to say there's almost no corner of the field that he's not touched. Our next panelist will be Gerry Carlino who is a Senior Economic Advisor and Economist at the Philadelphia Federal Reserve. Most of Gerry's work has focused on issues of regional and urban economics. Gerry is the associate editor of several journals. And recently he's been working on an agenda on intergovernmental aspects of business cycle stabilization which is what he'll be talking about today. Our final panelist is Michael Barr who like Jim teaches at the University of Michigan, in the Ford School and the Law School. He's served in a number of capacities in the federal government, most recently as the assistant secretary for financial institutions. And his research is mostly focused on financial services and financial regulations. Before I pass this off to the panelists, I'll give quick overview of where the panel is going. So Jim is going to start us off with some big picture discussion of subnational fiscal stabilization within the US. Gerry is then going to hone in on this topic a bit more and provide some detail through the lens of work his been doing with Bob Inman. And then Michael will broaden things out for us to finish both geographically by bringing in some discussion of the European Union as well as by bringing in discussion of the monetary policy and banking aspects of stabilization. So Jim, if you'd like to start.

>> Thanks. For me as well it's a real pleasure to be here today. Of course, I knew Ned and really admired him. I met Ned in the mid-1980s and would see him, oh, you know, every two years or so at conferences and things like that. And I realized--actually just today in thinking about I realize, for me, Ned was my image of what a Michigan professor was like. You know, I join--I've been now 17 years on the Michigan faculty and honestly Ned still my image of what a Michigan professor, you know, should aspire to be like, really terrific guy. I think we all agree on that. My topic is fiscal stabilization through state government. And one of the issues that animated a lot of Ned's thinking was how should fiscal responsibilities be shared within a federalist system like the United States. He had a visio and the vision was that national fiscal policy should be directed in the long run toward thinking about, you know, adjusting the nation's savings rate, that the Federal Reserve, of course, through monetary policy had the primary function of stabilization over the business cycle. But that state and local government, state government in particular, would have responsibility for stabilizing local cycles that can vary across the country. It was this third thing that was, you know, uniquely Ned's. And I think it's safe to say we haven't really tried this one very well. And that is going to be my topic for this morning. Indeed, we didn't really try the first one very well either. And that the federal government hasn't I think done what the federal government would like to do in terms of encouraging US saving. Of course the Federal Reserve is going, you know, human service in trying to stabilize the business cycle but it's sometimes hard for the Fed acting alone in that way. And the challenge is that state governments have really not at all pick up the baton that Ned tossed in their direction. So, the--really why is that? It's because--and I'll get back to this at the end as well. Ned's vision was one optimizing governments. And as our previous panel illustrated that--those are necessarily the governments that we have. So, what has been the recent US experience? Well, you know, you had this episode. This started in 2007 and then heated up after that. And the federal government did a significant expansion of government spending and in contraction in government tax receipts. So there was--you know, and incredibly heavy fiscal stimulus in the federal government for the crush of 2008 and its aftermath. But state governments did not. To the extent that state governments did anything counter-cyclical during that period. It was basically because they got transfers from the federal government to, you know, do things like pay on employment insurance and stuff like--various welfare programs. But the state governments were hamstrung during the crisis. And the reason they were hamstrung is that their revenues fell dramatically because they rely to an every increasing extent to an income taxes at the state level. And the--Here's the thing about income taxes, they tax income. And so when income goes up, you get a lot of revenue and when income goes down, you get a lot less revenue. This is even more true if you tax corporate income which is more pro-cyclical than individual income. But it's true as well of individual income. There are a lot of reasons to want to have income taxes. Don't get me wrong. But one of the challenges of income taxation is that it goes--the receipts to go up and down over the cycle. And what happened in the crush of 2008 is that state receipts fell because incomes fell. And when receipts fell, expenditures fell. So the state and local sector, you know, in the middle of the crisis is firing teachers and, you know, other state employees at the same time that you got jobs crisis going on in the country and absence of aggregate demand and a lot of other reasons to want to not cut state expenditures. But nonetheless, that's what happened. So, here's what the pattern looks like. This is--This schedule kind of takes us from World War II until now--until pretty recently. And the upper--The solid line is the federal government. These are expenditures as a fraction of GDP. The dotted line on the bottom is the state and local sector. And the shaded bars are NBER defined recession periods. What you see in this is that in general both of these low size show expenditures going up--or what kind of looks like going up a bit as a fraction of GDP during recessions. That's mostly because GDP is falling during recession. And if you take a ratio, you know, and GDPs in the denominator then of course the thing is going to start look up a little bit. But it's also deliberate policy. I mean there's great big spike up over there in the right, which is--that's the stimulus. You know, that's 2009 and that's--you know, that's what the federal government did in order to combat the recession. So, what you see is that the federal government is a much more sharply counter-cyclical agent than our state governments. And the reason is that state governments--it's not true that they run balanced budgets. It's--There're days when I very much wished they would run balance budgets, you know, compared to what they do. But they're much more balanced than the federal government is. They've much--they've given themselves much less discretion to, you know, vary over the cycle and as a results it's very--it has proved very difficult for states to fight recessions in their own locations. There's nothing is--Gramlich work--Gramlich's work points out. There's nothing intrinsic about that. There are a lot of reasons to think it would be a good idea for states to expand spending if, you know, state economic conditions weak in order to try to stimulate them. And like--And conversely, in a boom, not expend--spending as much. It's just hasn't been the practice. That's the issue what we're seeing the data is that the practice not what would be a better practice. There is this separate piece which is--if you break states down, larger states tend to be more pro-cyclical than smaller states. Larger in terms of population, I mean like California for example. This graph is plotting the income sensitivity of tax collections of different states. And the horizontal axis is the state's population. So the states to the right are big states, you know, California, Texas, New York, Florida, et cetera. And the ones to the left are, you know, the Delaware's and the South Dakota of the world. And as we say in social science what you see here is an upward sloping line. You just have to look at it correctly. So, what that is telling you this upward sloping line is that bigger states have more income sensitivity of their tax collections. When state income rises, tax collections going up, but that's must--that's very true for California. By the way, the reason it's very true for California, California relies super heavily on income taxes. The top California tax--state tax rate is 13 percent currently. And California collects, you know, pennies from its property taxes, even though the property is terribly valuable there. But, you know, since Prop 13, they just haven't used property taxes. So you have strong income sensitivity of tax collections which isn't necessarily all bad except that it is bad when you have this, which is this is the income sensitivity of state expenditures. And you'll notice you sees roughly the same pattern now with the big states are, you know, spending--having much greater income sensitivity. So there we have California in the upper right again. When incomes go up in California, the state government spends a lot. When incomes go down, the state government cuts its spending a lot. That's exactly the opposite pattern of the one that Ned was urging--you know, urge in many very cogent and thoughtful pieces. Why does this happen? Well, you know, in Sacramento, they do what they want to do. And it's very difficult for some places to resist spending when money is available. And the only way you can cut spending is when it isn't available which is when--you know, when you're in recession or incomes fall. That's not--you know, it would be lovely if that pattern corresponded to prudent financial planning, but it doesn't as a general matter. Correspond of prudent financial planning. So part of the reason California was running chronic deficits was that you had enormous spending increases in late 1990s when you have the .com bubble and tax revenues, you know, suddenly rose. Spending proved they caught it, you know, or had slower growth in the 2000s although it's easier to increase spending it turns out than to cut it. And you just had this constant ratcheting up of state expenditures every time incomes grew in California. And so you have this irony of the richest state in the country, you know, whining up in the greatest debt, kind of like the lottery winners, you know, who wind up in debt at the end of everything because they can't control themselves. And this--Some of the--especially the big states seemed to be in that situation. You might have though that the big states like the Californias of the world or New Yorks would be more like the federal government. I mean the California is the size of many countries. But it's--What is happened in our system is that the states have relied on the federal government to do the counter-cyclical work for them. And instead just kind of give in to the passions of the moment with their pro-cyclical policies. I believe that this is related to a phenomenon that Ned is the first one to write about which is something known as the flypaper effect. Ned is certainly the first author to have written down the phrase, "the flypaper effect". The flypaper effect for the two or three of you in the room who haven't worked on it is the phenomenon that money sticks where it hits. And what--It was first observed in the context of intergovernmental grants which is that--when states would received grants from the federal government you would increase their expenditures, maybe not one for one but very close to one for one, in a way that define neoclassical logic. It since been, you know, observed in many other context as well and there's controversy about it as Byron Lutz alluded to, he's got an important paper on this subject so do others. Ned was doing a paper on intergovernmental grants year--you know, 40 years ago. And had a conversation with Arthur Okun who was then at Brookings in which he was trying to describe this grant phenomenon. And according to Ned, Okun said, "What do you mean the stuff comes in and then it just sticks. You know, they take the money and then they spend it right away." He goes, "Yes." And Okun apparently said, "It's like flypaper." Which some of you will remember what flypaper is. You know, before we had screened windows, you know, there were those smelly strips of paper that hung from the ceiling and insects would get stuck on them, the insect stick there and it's likewise the expenditure stick. It was frankly the phrase that wind up sticking which is Ned coined as the flypaper effect. And then 2014 still we call it the flypaper effect. This is going on in the big states and it's a big problem from the standpoint of counter-cyclical policy and almost surely from the standpoint of wise policy. Well, why has this been happening? As I mentioned it's--part of what is happened for American states is that they've relied to an ever increasing extent to an income taxes. And the reason you've been relying on income tax is that states have not been relying on property taxes. Property taxes used to constitute a much higher fraction of state and local finance. But what happened--starting in the 1970s is you had anti-property tax movement which is part of an--a more broad anti-tax movement. But there was anti-property tax movement in which have many states including by the way Michigan but, you know, California prominently Massachusetts, many states have property tax limitations. And so the gap has been filled with income taxes, which is fine if--I mean, it's not entirely fine because there are lot of attractive features of property taxes. But it would be better if you could control yourself with the income tax revenues. But states, alas, have not done so. One of the consequences of income tax reliance is you have much more income tax volatility over the cycle and there's been some terrific work by Nathan Seegert is at Utah about this. Here is a plot of the deviations from trend of state and local tax collections. And what you see when you--and this is over the years, you know, starting in 1950. What you see is that the amplitude of this cycle has, of course, revenues go up and down with the business cycle. But there's the thing, they're going up and down a lot more over time than they were before. That's what--That's what we're seeing here. These are in percentage deviations or the--yeah. If you ask, is it true of all of 50 states? No, it's not true of all 50 states, just 45 of them. So 45 state--the shade state--the lightly shaded states which included Michigan have not seen dramatic increases in the volatility of their tax collections but 45 have. So, where does that leave us? I think it is fair to say that as empirical matter states have not handled revenue volatility very well. We rely more on income--states had relied more in income taxes which doesn't have to necessarily be bad from a cyclical standpoint. In fact there are some attractive features of income taxes from a cyclical standpoint because it's an automatic tax cut, you know, when incomes decline. The trouble is that states have not been capable of controlling their spending very well. And in particular, what counter-cyclical policy requires is that you control yourself in the booms. When things are going well, you kind of take it easy. Yes, you can have spending but a lot, but not--you know, not as much as revenues are rising. And that's been the challenge for state governments. The politics has just not worked that way. That is not what Ned Gramlich had in mind. What Ned Gramlich stood for was prudent, wise, forward-looking policy, and we would do well to pay heed to what he suggested.

[ Applause ]

>> Great. Thank you, Jim. I would add one comment. I'd very much agree with Jim that the states have not picked up the baton of acting stabilization agents. It is worth noting though that they've at least made some attempts in this direction. At the time when Ned started writing about this topic, only 10 states had rainy day funds, which is one of the principle mechanisms by which you would engage in stabilization policy as a state government. Now, 46 states have them. And the reserve funds in those rainy day accounts record levels by a wide margin as of 2008. They were simply swamped by a shock that was massively larger than ever anticipated. Of course, it's a very open question as Jim alluded to whether state politically could even build up reserves in those accounts large enough to withstand such as shock. But it is interesting to note. They've at least made some movements institutionally to try to do it. So up next, we have Gerry.

>> Thank you.

[ Inaudible Discussion ]

>> Oh yeah.

>> Thank you. Thanks. OK. So I did not have the pleasure of knowing Ned. Clearly it was my loss. However, he has had a deep--I owe him a deep intellectual gratitude for--as I think you'll see in the presentation that I'm going to give today. So, as Jim as already pointed that, states have plenty of tools to engage in counter-cyclical fiscal policy. And indeed Ned was a proponent of states using their--these instruments to counter the business cycles. So, why don't we do this? Why aren't states engaging in counter-cyclical fiscal policies? And there's conventional view on this. And the conventional view is that only national government should engage stabilization policy and this goes back to Wally Oates in 1972 and there certainly four main reasons for not engaging in fiscal policy. The first is that the states are open economies. So they import and export a lot. And any stimulus would be sort of exported to other states. So there's high spill overs involved. The president of the state don't get the full benefits of any fiscal policy. If that isn't enough even if there are more spill overs there would be--any demand for new jobs that was created as part of the fiscal policies would be deluded by the entry of other workers from other states and other countries. So that the benefits of the policy would not--would not really accrue to state residents. The third point is that states face constitutional and statutory balanced budget requirements, which makes it the difficult for them to run deficits. And then finally, the future tax costs are the responsibility of the deficit creating states while the benefit accrued to all members of the union. And by the way, this issue is not only important for you as states but it's also important for countries that are in monetary union such as the EU. So, now, knowing Ned, you probably not surprised that he called this the old taboo against state fiscal policy. And Ned challenged the conventional view and he pointed out that, look, it's pretty much just assumed that these import and export propensities are large. They may not be that large. We don't know. His also pointed out why would workers migrate if the shocks are temporary. Workers migrate across states if they see one state has a longer [inaudible] advantages than another state but certainly they're going to migrate because of a short-term fiscal policy move. Yes, there are balanced budget requirements but they differ across states. And they largely refer to capital budgets, right. So that state routinely ran deficits on their capital account. For example, they can borrow through their capital account to finance and construction of roads. Another point is that many states already engaged in some form stabilizations through their insurance trust funds and I would probably [inaudible] the highway trust funds as well. So, Ned conducted very nice simulation exercise. And where he finds that it's often for states to alter their expenditure or tax rates in response to shock by anywhere from 10 percent to 40 percent depending on the size of the state. Larger states would do more--towards the 40 percent, smaller states on the other direction. Importantly, he noted that this response is higher if the federal government is willing to bear the costs to some of these states' debt. OK. Now, following in the guiding light of Ned, Bob Inman and I--sorry. Bob Inman and I looked at the ability of state deficits to influence states employment growth and population growth over roughly 40-year period. We used an--all encompassing definition of a deficit and we call it own-state deficit because we remove the federal transfers from the--to get that the real--to get the affects of the state deficit along. So what we looked at is expenditures in the state-less, you know, all states sources of--what we're looking at expenditures less revenue from all state funds which include the general fund, capital fund, insurance trust fund and pension funds. So we have a very broad definition of expenditures in revenue. So our analysis uses panel of states over a long period of time and we find for a representative state a deficit around $390 per person increases job growth about 1.2 percent which turns out to be about 34,000 jobs. So yes, states can stimulate your economies. However, we also find there are large spill overs. If we do a cost-benefit analysis what we find it costs about $72,000 for a state--for the typical state to create one job. Bob Inman who got a back of the envelope calculation says that, you know, an average job is $45,000. So certainly this doesn't work. The numbers don't work. However, if we include the positive spill over effects to neighboring states, the collective tax per job falls to $44,000 which is more favorable in terms of the cost-benefit analysis suggesting that some sort of coordinated policy among neighboring states might be a way to go. But given this--given the significance spill overs that we find each day has an incentive to free ride. And if that's case, state officials will under provide job creation policies for their residents. If so, then this is an argument for centralizing stabilization policy. But if we centralize stabilization policy, it seems reasonable less, what's the role for states, if the federal government is coordinating fiscal policies. And the argument there would be is that, states have a lot of localize knowledge of their own economies. In addition, if the federal government wants to spend a lot of money and want to spend it in a hurry, it really needs to--it really state government to help out. So, in this view, states as AR [phonetic] agents of the federal government. However, state have their own agendas, and there's often a disconnect between central government and tensions and state responses. And this is especially true during times of deep recessions. Because of this concern, Ned studied the response of states to a national effort to stimulate the economy during the 1975 recession. And what Ned fund was that it didn't have much of an effect on the aggregate economy, because, you know, he gave the money to the states and they save it, they didn't spend it. Sure, they'll eventually spend it but they spend it after the recession is over. Again, following Ned's lead, Bob and I recently look at data on grants and aid from the federal government to state government for a--the period 1960 to 2010, and we, again, confirmed Ned's findings. I see, this is on the next slide. So we find that, an aggregate income multiplier for federal aid to states of only 40 cents for every dollar of aid, federal transfers are, again, saved and only--slowly spent in future years. So what are we to do? Well, what Bob and I find is that in contrast, [inaudible] aid is targeted for welfare services, which is only paid when spent, we find a bigger bank per buck associated with welfare aid. The multipliers associated with increase welfare aid are as large 2.3. And these are statistically and economically significant even after three years. So welfare aid is a stronger, and has a stronger and larger lasting impact on the private economy that does project A or general fiscal relief to state and local governments. So, what are the implications for our finding for the American Recovery and Reinvestment Act? So we applied our estimates to evaluate the relative performance of ARRA, [inaudible] policies as a stimuli for GDP growth during the past recession. And what we find is the most effective of the individual policies is direct tax relief to households and firms. The least effective are direct federal purchase and transfers to states in form of project date, the shovel ready projects. The majority of the impact of welfare aid is somewhere in between. So, in a simulation exercise, we reallocated the ARA money to the most effective policies which result in about a 30 percent improvement in GDP growth relative to GDP growth under the original mix. So, in some, we would argue that Ned was right, state governments can stimulate their own economies. But there are important positive spill overs across states. As a consequence, coordinated policies will be preferred. Finding programs and institutions that best facilitate this coordination is an important next step. Now, that's pretty much a summary of that. Thank you.

[ Applause ]

>> Great. Thank you Gerry. Michael Barr will now conclude.

[ Pause ]

>> Like the other speakers I want to say what an honor and privilege it is to be here today with you. Ned was an extraordinary individual and a wonderful mentor and friend and I feel honored to have the chance to work with him on a number of issues starting in the 1990s around the subprime--what was--in the early '90s, we've had already thought of this as the subprime mortgage crisis. And Ned was also a wonderful in welcoming me into the Michigan family when I moved out in the government into teaching at Michigan and so I'm just deeply honored to be able to say, even a few words on this event in his honor. What I want to focus on, today, consistent with the other panelist is fiscal and financial and monitory stabilization policies. I want to do that around the fulcrum of the 2008 financial crisis. And bring in a little bit of the comparative perspective by also examining the European Union. And I want to make three basic points, the first is, financial monetary and fiscal policy before 2008 was not so great. The second point is that in response to the financial crisis, policy was mostly in the right direction but not enough. And the third point is that in awake of--sorry, in the US and not in Europe. And the third point in awake of the financial crisis, policydirection is again mostly in the right direction, but not enough. So, the basic story that you've heard with respect to Ned's work and--is the starting point for this conversation here is that, sub-national stabilization policy can be a useful compliment to primary role of the federal government which is using monetary policy to stabilize across cycles with caveat in Ned's work that becomes important in this instance unless the contraction is severe and extended. Because the primary concern with fiscal stabilization policy at the national level is the lag time to recognize that one should have one into the lag and implementing at any meaningful way. So, in the lead up through the financial crisis, we had the opposite of a counter-cyclical policy. We have a pro-cyclical policy. Relatively pro-cyclical monetary policy although one can debate extremely pro-cyclical regulatory policy and highly pro-cyclical fiscal policies. So, just on regulatory side, massive increase in leverage in the system, huge increase in leverage in the financial system, an increase in leverage in the household sector, and that set a boom that was problematic. And this is just a look at cross country and you can see, there's a bunch of variation but the general trend for countries, they got themselves into trouble was an increased in leverages, it's just looking cross-sectionally in significant increase in household leverage. And fiscally, lots of countries, very view countries using the boom to engage in sound fiscal policies, most countries with again some variation using this time to rack up massive and unsustainable debt that left them in a weak position to respond to financial crisis when it actually hit. Similarly again looking cross-sectionally at the increase in the financial sector, big increases in the financial sector relative to GDP in all these countries and that is impart a regulatory problem. And, again, looking now at the US only but looking at leverage in the large US banking organizations. You can see relative decline in the amount of equity cushions held by these institutions in the lead up to the financial crisis. So instead of using a period of rising acid values and rising health in the economy to build larger cushions in the event of a downturn, the opposite was occurring, the system was getting much more leverage. And you could show that a worst picture for the increase in leverage in the shadow banking systems if you look at the financial sector as a whole, the decline relative decline and equity positions on a risk adjusted basis is much worst. Another way of looking at this is loan-to-value ratios, and you can see loan to rep--value ratios are--instead of becoming more protective as acids values are rising in this period, and lead up to the financial crisis, loan-to-value ratios are deteriorating. One important--But no only aspect, but one important aspect of the story is of course the rise of the subprime mortgage lending that--was it relatively low, levels in the late '90s but exploded in 2003, '04, '05, and '06. Until people realize that home price is good, flatten or maybe even go down. And then they did. And that obviously was the triggering events for an asset implosion in the housing sector that led to an asset implosion across the financial sector that led to massive liquidity runs and the near collapse of the financial system. And, I mean--I want to--I'm going to make some impolite in politic remarks. There was a debate about this in the '90s and the 2000s and some people were frankly wrong about it, and other people were right about it, and Ned was right, Ned was right. And Ned was right really early. Ned was right in the 1990s when most people have never heard of a subprime mortgage loan. Ned was worried about it and fighting about it and trying to change policy about it. And, he was a real honest to goodness hero on this issue. And under appreciated for his role in calling out the enormous abuses that were taking place in the marketplace and saying that, federal policy had to address them and fix them. And I think we would all have been extraordinarily better off if his voice had been heeded in a much more rigorous way by policy makers. So, that was a lead up to the crisis. What about the crisis response? The crisis response on a monetary--the level of monetary policy was extraordinary and rapid, and massively effective in a ways that Ned's theory would suggest. And enormous creativity by this institution and its leaders and developing those policies under, I think, extraordinary circumstances. Circumstances that had not--the country I haven't seen it 80 years. And that emergency liquidity and monetary policy had a huge rule in stabilizing the financial sector, stabilizing economy and on helping the health of the economy overall. And there was also at the same time something that I think Ned would not have predicted which was a reasonably rapid fiscal response. And, in the fall of 2008, in the spring of 2009 and then subsequently the federal government was able to act relatively quickly in dispersing extraordinary sums of money in ways that helped stabilized the financial system and the economy. The TARP funds that were dispersed largely through the financial sector, and then the massive used of fiscal stimulus, first in the Recovery Act, and then in a series of subsequent smaller steps that put lots of funds into the economy relatively quickly, and obviously, there are two basics problems with this chart. And one is that the amount and level of funding was--didn't keep going up for long enough to be as effective as people, I think now think it would have been. So, about 1.4 trillion and stimulus funds over the period, 2009 to 2013, and maybe double that would have been a lot better, obviously, enormous political opposition to this day, bought to what was already done and to the idea of doing more. And the second based [inaudible] problem with this pictures of course that the same time the federal money was flying out the door there was significant state and local retrenchment. As both our earlier speakers are pointing out, same local governments are firing, school teachers and police officers, and fire fighters and construction workers when we needed to have more police officers and fire fighters and school teachers, and construction workers. And that was a significant drag and still is on the ability of these fiscal measures to be helpful. In Europe, just by point of comparison, so why is Europe kind of interesting because Europe has not for all of it, but for most of it, a centralized monetary authority. And it has a bunch of things that we call nations that have their own independent fiscal policy. So it'd be interesting to see whether sub-national, in this case, sub-super-national policies could be used to offset the effects of a financial crisis or to get ready for harder times by prepare an earlier times building up rainy day funds. And all like--And as with the sad experience that we discussed earlier that turns out not to be have been the strategy employed in Europe. Again, consistent with Ned's theory but contrary to what Ned would have wanted. So, first on monetary policy just, you know, comparing the central authority in Europe with respect to monetary policy in part because it is something of a kludge that it is built together out of a set of a political compromises among the member states, acted more impartly because of ideology, acted more slowly in responding to financial crisis than the federal reserve did. And that was a problem for Europe in terms of its ability to grow. And you can see also even though there are some significant movement, there are also even after significant decline, eventual decline in interest rates and a gradual increase in the balance sheet of DCB some mistakes that end up causing Europe a lot as a premature tightening for example in 2011, significant drag for their system. Again, some of that, some of that was a matter of ideology or choice and some of the matter of political--the political structure of the DCB, but as a matter of choice, at least until Mario Draghi came in, in the end of 2011, there was a significant belief in the ECB that the right answer from a fiscal policy perspective was austerity and the right answer from a monetary policy perspective was maybe more muted that would have been helpful. There was also a problem in response the crisis would respect to financial policies. So, the US benefited from a quite early, quite transparent series of stress test that resulted in private sector capital racing for financial firms and Europe had less successful set of stress test in part because there is less regard to the test, there were less transparent. And the inputs into the stressing included things that people knew were demonstrably false at the time that they were included, nobody ever can default on sudden death. You guys aren't laughing. I thought that was funny. I'm not as you can see beneath begging from my last. I have to do it around the dinner table with my kids. I have to do it in the classroom. Fiscal policy at the same time is again from the fiscal side, you would think that sub-super-national units that is the nation states would use the opportunity of a severe set of recessions to engage in expansionary fiscal policy, but most of the states either would not or could not do that. Some of them would not do that because they believe from an ideological perspective that austerity was the morally correct response profligacy. And some of them because profligate in the past that they couldn't actually plausibly spend in the wake of the financial crisis. And so, you know, thinking about the first category Germany, the second category Greece. And you can see them on that spread. So what about the future, I think the lessons of this financial crisis and tell us a few things. First in terms of stabilization policy, there are actually might have to be a roll for everybody. Monetary policy, fiscal policy at the federal level, and importantly and additionally paying attention to financial regulatory policy, and then lead up to the aftermath of a financial crisis is absolutely critical. So, all kinds of measures that are counter-cyclical capital measures, for example, or counter-cyclical LTV measures efforts to bolster the resiliency of the financial system in advance of the recessionary period are absolutely critical. And second still an important role for sub-natural or sub-super-natural policies that is--as yet, largely unrealized and which there is, I think a significant opportunity for better work. Second, thinking about had a measure this problem, not just in terms of price stability and unemployment but also in terms of the brittleness or lack of brittleness of the financial sector that is an explicit focus on systemic risk as being an important factor and thinking about policy monetary fiscal and financial policy. And third, the basic point, that in advance of a crisis is the right way of thinking about policy and building up buffers and during the middle of the crisis acting fast and massively would be better than acting slowly and intermittently. Thank you very much.

[ Applause ]

>> All right. Thank you, Michael. I'll start by offering the panelists an opportunity to adding further remarks they like or to respond to each other.

>> I agree.

>> OK. Well, before--did you--Gerry? OK. Well, before I open it up to the audience then I'll take my prerogative as the moderator to offer a couple of comments. The first thing--the first item is closely related to some of Jim's discussion, it involves the stabilization at the state and local government level. I think one of the really--really important but under appreciated fact about the last cycle was the difference cyclical dynamics of the state and local sectors tax basis. As Jim discussed state taxes which are mostly sales and income taxes were extremely elastic to the cycle, and simply plunged following the financial crisis. In contrast, property taxes which are almost all at the local level and it constitute about one-third of total state and local collections tend to instead follow the market value of real-estate with a significant lag of a couple years, this is because property tax assessments are log and most states had some type of capital limitation on growth in the tax which induces lags. So these different cyclical dynamics created an interesting situation where in 2008 and '09, state taxes simply fell to the floor. But at the same time, property taxes continue to rise an excess of 5 percent. The situation then reversed itself in 2011 where state taxes were rebounding quite strongly and property taxes had started falling like quite a bit. So the cyclical dynamics vary inadvertently I think led to quite a bit a stabilization of the total tax revenue stream to the state and local sector. And this in inevitably gave the sector quite a bit more breathing room that it would have otherwise, it's important to note though that it's not clear how relevant this will be in the future because lacking the important housing market element of a downturn, you might not get the same dynamics.

>> We could arrange for another, you know, housing downturn.

>> Downturn.

>> Yeah.

>> OK. Well--

>> So, we could study it better.

>> Yeah. I'm not sure that would pass the cause-benefit analysis but it would be interesting for those of us in this room, I imagine, certainly. My second observation concerned some of Gerry and Bob's work. I think it's important to note that Gerry and Bob's work is part of a really growing--in generally, very well done literature on the possibility of state and local--grants to state and local governments affecting or increasing overall economic activity. On the phase of this literature might be viewed as a little distressing because it comes to very different conclusions, we have a number of papers including Gerry's, also work by John Taylor, and as well as some of Ned's work from the earlier period would simply suggest that this is not a great strategy for spring overall economic growth. On the other hand, by this point, there are about 10 papers which find very much the opposite which suggest that it is very effective. The interesting thing about the dichotomy here is it all the papers had find the large effect, a very narrowly targeted at looking at the current episode following the financial crisis. And then one case, during the great depression which is a period--you know, these were periods of immense fiscal stress and economic slack. Whereas the papers that do not find much of an affect tend to take a much longer view and doing analysis over a period which was not overall characterized by fiscal stress or economic slack. And I think these contrasting results actually make a lot of sense. For one reason, states and local governments maybe much more willing to spend grant and come immediately during a severe fiscal crisis, simply because, during a severe fiscal crisis, your reserve funds have been depleted. And you choice is, if you don't spend the grant income, you're going to have to cut very political sensitive things like firing teachers. Whereas doing good economic times, the stakes are just much lower. And I think in the context of today's perceiving, it's very interesting to note that Ned himself in a 1979 American Economic Review article made this exact caveat to some of this own work which had concluded the grants aren't that effective. The second point here is that even--if the money is spent by state and local governments. That spending impact in the economy or the multiplier may very well be larger during periods of extreme economic slack with high unemployment and low capacity utilization. There might be just less scope for the crowd out of private activity that might mitigate the effect during normal times. So this is all just a long winded way of saying that I think when we think about the ability of grants and state and local governments spur economic activity and assess the literature just really important to think about the context of the time in which they're deployed. And I'm certainly not the first to make this observation. Valerie Ramey has a very nice paper that makes the same observation. So at this point, I'd like to open it up to the floor.

[ Noise ]

>> Thanks. I think there's a link between my discussion about poverty programs and this section which I hadn't thought about before. It's been a popular mantra among Republicans to block grant food stamps and Medicaid. And I've always thought that was a horrible idea for distributional reasons that they figured out a way to spend it on something, others. But the stabilization affects would be dreadful because we got a huge stabilization affect from the automatic increase in food stamps and in fact the expansion of food stamps and Medicaid grants to the states. So I think there's--I've always thought about it. It's a terrible idea on distributional issues, you give to the states and it will be a lot less antipoverty effective and the panel says, it would also worst on stabilization basis.

>> I think this is the point we're all suppose to say yes.

>> Hi, my name is Jack Grimlock [assumed spelling]. I'm here to ask a question. I was just wondering about how and times of like across the board economic growth what there is for states to do to make themselves more attractive to businesses without moving towards like unnecessary or bad pro-cyclical fiscal policy.

>> Bad policy doesn't make you attractive to business. You know, I think good policies do. You know, the issue is, you know, it sort--it's a great question. And it a little bit puts the finger I think on a lot of the issues that have risen throughout the morning which is, you know, we've talked about how states are in different positions than the federal government. There is this open question whether states make better decisions than the federal government. And it's an open question. This is something people have debated for centuries, you know, whether federalism is a good thing or a bad thing, how much you want to have of it. And it's a great thing to talk about because we don't know the answer. You know, we have different situations. States to some degree experiment and to some degree, they do really dumb things, you know, but the same would be true the federal government. And there is this, again, I think entirely unresolved question of which one you want to rely on more and, you know, how much digression you want to give the different levels of government completely unresolved. On the question of how you get--how you make things more attracted business. Well, I mean, there's a lot of reasons I think pro-business policies will do that. And there's plenty of evidence of that too. But I think most of us think with less evidence to be sure that the most effective of the pro-business policies are sustainable ones which tend to look a lot like kind of smart policies generally. You know, that you want to live within your means and plan for the future and take care of your population, and do the things that kind of everybody would want you to do.

>> Let me say invest in infrastructure and education. That's--My reading of the literature confirms that. Is--It's not just taxes, it's what you get for your tax dollars and spending on infrastructure and educations. You know, really powerful.

>> And I think it's worth noting in the context of these comments and infrastructure that states and local investment and the infrastructure has simply collapse over the last six-year. It currently spans a full one-third where it stood around 2000--it has fall, excuse me, by one-thirds since around 2005.

>> I agree that infrastructure is probably pretty important. I do think it's hard to find powerful evidence of that. It doesn't mean it's not true. It, you know, may very well be true. I think it's hard to find powerful evidence of it.

[ Pause ]

[ Inaudible Remark ]

>> I'm curious if enough work has been done on the rainy day funds of the 45 states that have adapted them to make them meaningful and anything other than political illusions.

>> I don't know the answer to it. Sorry.

>> You know, I'll offer. There actually hasn't been as much work on this as you might hope. Brian Knight has a couple of papers, which generally suggest that they are effective at, you know, serving as a stabilization device. You know, in a number of states there are aspects to the stabilization funds which limit their usefulness. A couple of states have caps on how large they can grow and obviously we're moving these caps. I also believe that there are some evidence that rule based rainy day funds, you know, which when tax revenues grew by a certain percent, some of it has to go on to the rainy day funds have been a bit more effective. But I think this is a topic that actually needs a fair bit more work.

>> All right.

>> So this--this is picking up on Jack's question and it hadn't occurred to me quite this way before. So states, unlike the federal government--the federal government when the economy is running hot wants to cool it off. It doesn't like inflation. Someone [inaudible] remembered inflation. And--But state governments when the economy is running hot, something very unusual cases are saying, wow, this is great. Employment is increasing, property values are going up, life is good. And with the exemption of few municipalities, sometimes we don't like growth. Governors are pretty much always like growth. So they--they have an asymmetric notion of what to do in the business cycle. In hard times, they want to spend more money for all sorts of good reasons including keeping the school teachers employed and maybe stimulating the economy. And in good times, they wan to--they don't want to spend more money but they--they still want to do things that will--will cause the state--the state to grow. And so there really is on the--if you want to think of states as agents of counter-cyclical policy except for rainy day funds, it's very difficult--I think it's hard to think of what's going to make states want to be contractionary on the upside.

>> We have to wake up one day and realize not everyday is Christmas. You know--And that's the--that's the challenge. It's not, you know, because when tax revenues are rolling, you know, you feel like everyday is Christmas. And I think the answer is you need better politics. Now, you know, I don't know to get you that.

>> I had [inaudible] at least maybe a tinny glamour of hope. California who's been one of the worst offenders in this, actually has behaved relatively well over the last few years. And there's some sense that at least temporarily that they've, you know, learned the lesson that they need to save during the relatively good times.

>> But even Cali--I agree with you. I agree with Byron on that. But even California, you know, the elephant--the fiscal elephant in the California room is they're not taxing property. They should be taxing their property. They have enormously valuable property and the politics are whatever they are. And so they don't and it's crazy. This--

>> Maybe they're anticipating the coast is going to fall under the sea.

>> That must be it. That must be it.

>> It's really properly priced now.

>> And they have--they should have hired gas taxes.

>> Yeah. I would just add on to Jim's comment. Proposition 13 has been a huge problem for California as far as managing their finances by pushing, you know, the collections for the state as a whole, at the state and local level unto very volatile bases. I would add one thing that was really interesting to me over this last downturn. You made the comment that even in contractionary times they want to be stimulative. I think one thing I learned just sort of anecdotally was that is not always the case. I recently had the opportunity to interact with about 30 budget directors on the executive side of the state governments. And I asked all of them why they weren't engaging in more infrastructure spending given that they're--they are not subject to balance budget restrictions in their capital budgets. And down to the last individual the answer was as simple, we are in a period of austerity and it is not appropriate for us to be engaging and borrowing and spending. So I think there is--I'm not sure they're always seeking to be expansionary at all times, which was surprising to me.

>> I think--I think Byron is right and I think it's part of the reason that there's also so much hostility across the country to fiscal stimulus. You know, if you talk--if you talk to a normal human being, they would say, when times are tight, you tighten your belt, tough it out. And I think people translate that to the state level and they translate it to the national level and people end up being four things that are exactly backwards from what we should be doing at the state at the national level.

>> Hi. Andy Macsom [assumed spelling] from--I work at Census Bureau. And we're hanging out one day and billion dollars dropped on us from the ARRA, it's a go hire a hundred thousand people. And so we had a hundred--so we all of--you know, suddenly we spend a lot of money and that was one impact of the ARRA. [Inaudible] bless us with about 150 pages of rules that came with the money which was tracking spending. But also one of the rules was spend it as fast as you can. Another agency in commerce with whom I also work at some grant were called Broadband grants, it went out to different agencies mostly other states and they were told to spend money over a certain period of time. That lasted about two years and still going on as a matter of fact. Gerry, I was interested what you said about the Recovery Act money, I'm also interested in the comments you had about the stimuli effect or anti--you know, cyclical effect of spending this money. And then you also hear about infrastructure. If you spend money on infrastructure it's going to come actually slower than if you spend it on what we did at census which was immediate jobs. Is there a balance? And also Byron, according to your little glamour of hope of comment, you consider that they way they pass, the congress, pass ARRA was actually a recognition of some kind of need [inaudible]--more robust and a cyclical activity. Sorry to mush a whole bunch of questions in but that's--

>> So you want to? Yes, so in our research, my research with Bob shows is that--I guess the point of what I'm saying today is that states can engage in their own fiscal not going to have a big effect because of these large spill overs. The best thing that the federal government can do is they--is to use states as agents. The best policies are those that get money credit constrained households because they spend it. And who are [inaudible] these constrained households, you know, poor people. So the programs, the matching aid programs, you would think in theory we're going to have the biggest bank per buck. And our evidence says that that's the case. So that's the message of--I think the bottom line of the--of the work that I've done with Bob. I don't if I address this part of your question.

>> I would address one part of the question about the infrastructure. I--You know, I think you're right about the long lags to infrastructure spending. I think virtually everybody who has looked at this has concluded that. The C--All of the CVOs working on this has found very long lags on this. I think, you know, perhaps a little bit perversely in the current downturn because the weakness in economic activity extended much longer than what's expected. This may have not been as big of a design flaw as it might have been.

>> Plus at the end you get infrastructure.

>> Yeah. Yeah. Which is an investment as opposed to consumption, it has very different applications for growth and--

>> Yeah. But that's not useful for short-run stabilization.

>> Right.

>> That's the problem.

>> And the money is fungible.

>> That's the other issue.

>> Yes. There--Yes.

>> I would agree with that.

[ Inaudible Remark ]

>> Oh, OK.

>> Just a couple of--couple of points. In this country we tend to get recessions every six year and 2015 is a sixth year just a random observation. I also want to recognize Harvey Galper who was a partner in crime with--with Ned and early work on state and local finance and person who was doing this the special analysis in NOB at the time we read those things. I would recommend the issue of the stabilization funds in states dependent on severance taxes like Wyoming who got killed in '83 when he spent all the money from their boom and it went away. And then this last boom they saved it did. Now they're spending from that. So that's a really important thing. But--But what I observed in the stimulus with so much of the Medicaid money was retroactive. Almost a quarter of it went out the first--Medicaid money went out the first month. I just went to the balance of the states, did the stimulating, [inaudible] didn't saved program. And what I also saw despite the ongoing local tax revenues was that a lot of teachers got laid off by local governments because states cut back on transfers to local governments. And in the future, whether it'd be next year or the future should the federal government pay some attention to investment and education in terms of the stimulus program.

>> There was education money but really didn't go to education.

>> I'm going to answer first because I know nothing about it except you have to be right.

>> I'd offer a couple observations. One is just the general observations to just because certain elements of state and local government spending fell does not constitute evidence. My opinion at least that the stimulus was ineffective. The shock to this, the sectors tax pays simply had no historical precedent making it extremely difficult to recover the counter-factual expenditures. You know, expenditures may simply have fallen less. I would also ask for the observation as far as the Medicaid, I agree that in large part that was just general aid to the states. That because it was temporally--it was a matching grant. But because it was explicitly temporary, it's unlikely they made programmatic changes in response to something that's only going to last around two years. And that effectively converts that into just general aid. However, there is some really strong evidence by one of my colleagues here, [inaudible] that that did spur additional spending in other areas of the state budgets. And that actually contributed to increased employment in the general economy across the states. As far as the severance payments, it's certainly the case that in a number of states in the recent years, those have been widely important over the last number of years, both Texas and Alaska have been sitting on rainy day funds that have exceeded 50 percent of their annual budgets.

>> North Dakota

>> Yeah, North Dakota is another [inaudible], you know. But that's very limited. It's only a handful of states that are very dependent on natural resource extraction.

>> And even in those cases as the Wyoming example illustrates, we're not going all the way. When you think about the problem during the--you know, during the really bad times, say, after the crash, the problem--you know the fiscal problem that we wound up in with, you know, this cutting expenditures and having difficulty even European nations for that matter having difficulty expanding, really the nature of the problem is what they were doing when the times were good. That's when the problem came in because they were not has spending resources when the times were good and therefore you didn't have them when the times were bad. You can trust what Wyoming or even Texas and Alaska are doing with what Norway has done. Norway has a lot of revenue from North Sea Oil and it helps that you know that it won't last forever in the North Sea. But what Norway has done is taking those ones put it into a thrust fund and only, you know, when it gets tons of revenue from taxing North Sea Oil, it only spending a tiny portion at any given year because it's, you know, basically taking the return from the trust fund instead of spending the flow of the income coming. And, you know, that's like, OK, they're Norwegian and they're looking forward. But because, you know, the culture was built up with long winters and so you got to be forward-looking. Why can't America do that too?

>> It's cold enough in Michigan to do that.

>> Not like Norway.

>> Who's there in the back?

[ Inaudible Remark ]

>> --the panelist can speak a little more to whether at the state level we can think of it more about automatic versus discretionary stabilization policy. So at the federal level, the automatic adjustments, particularly revenues, and also somebody mentioned food stamps. They're actually extremely important. It may dominate even--usually what we do on the discretionary basis. And the timing is actually just right, right. You get it. It happens automatically usually at the right point in the cycle. And so it quick two examples at the state level, but I hope you are expand on one. Can you talk about the sensitive of the tax collections with the fallen tax collections at the state level is actually counter-cyclical as what you're saying. But if you do toward adjustment on spending side you don't get that effect. And you could also argue that probably because the states you're talking about are once that affect--especial affected by capital gains taxes, you probably got the wrong people. So income is falling because they're probably not going to consume that much more one way or the other. But another example would be pension policy where we have this horrible tendency among actuaries that economists even at times to say, well, let's figure out what the expected return on the pension plan is. And all of the sudden the stock market booms and interest rates [inaudible] jee, the expected geometric mean rate of return has increased when we measure from 29 forward. When in fact the interest rates have fallen, the [inaudible] price has fallen. If we say in pension plans required that the assumed rate of return in the future fell when good times, if you know what I mean, and rose at bad times that would be counter-cyclical. So just curious whether there are several things like this we could think about on an automatic basis to take into account that the policy makers are still probably going to do a lot of the things that you're talking about they're going to do on a political basis no matter what.

>> I thought--I thought when you were making your pension point, I could see David Wilcock's lips moving. To me, I'll just say a word about pensions and I give it to Jim the tax. I totally agree with you. I mean there's a--it's not just a cyclical question for pensions, it's fundamental accounting problem. And it's all messed up in every state, in every locality and it needs to get fixed.

>> Yeah, completely agree. I mean the state pension funding situations in national tragedy that, you know, I think there's general agreement on that. The question is, you know, how do you--what do you do going forward? People have been talking about economic theories from the old days and I'm old enough to remember them too. And I was raised to something called the balance budget multiplier. And the balance budget multiplier for you young ones in the audience is a thing where if the government raises more money and spends the same amount of money that it raises, you nonetheless get a kit-based--the Keynesian stimulus to the economy because there's [inaudible] government expenditure than there is from individual incomes. And that's kind of what we've got going on at the state level. You're right Gene [assumed spelling] that the state tax collect--income tax collections decline to--as, you know, when incomes flagged during recessions. But the problem is that spending declines, too. And so you kind of get the balance budget multiplier going in the wrong direction during the recessions and then in the wrong direction during the booms. And so that's--you know, to the extent that one still believes in the balance budget multiplier which, you know, I think is part of our thinking about counter-cyclical policy than we just have this problem. The pension, you know, this sort of gets back to the question from earlier about--when we think about state pensions, we think about state policy in general. There is this question of like how wise our institutions? Are they wise? Are they forward-looking? Can we rely on them? And the answers of course they're never perfectly wise and they're never perfectly forward-looking because it's the people and people are not. But is there a way that we can make them a little better so that we have fewer of these problems going forward. That I think is part of our challenge.

>> I would--On the pension question, I would--I would offer the observation that it's pretty clear that many states over the last five years have actually used their pension funds to engage in deficits spending. Many of them have cut back on their contribution because they're not required to make any level of contribution on an annual basis. And in this way we're able to, you know, mitigate the amount of expenditure reduction that had to do in the general budget or put off tax increases. It may have been beneficial in the short run but of course the bill will come due. It appears it's coming due not that far in the future. As far--

[ Inaudible Remarks ]

>> The one thing, if they were doing that in a downturn and then in the good time they were, you know, [inaudible] and they are legally required to do and bolstering, but they're not--none of them are doing that.

>> That's a very good point. In fact during the late '90s, many states instead of building up trust fund responded by increasing the benefits.

>> Right.

>> Which didn't, you know, cause the trust funds not to build up enough.

>> And we had criminal versions of these in Detroit where people were giving out benefits they weren't even owed when the thrust fund went up because the economy is doing better. So it's just horrible policy in both good and bad times.

>> To respond to your automatic stabilizer questions, so these are changes in state spending in taxes which occur automatically with no action of state policy makers. I do have some work and that was my colleague Gwen Fallet [assumed spelling] which shows that, you know, conditional on the size of the state and local sector relative to the federal sector that the automatic stabilizers at the state and local level are much smaller than at the federal level. They're only equal to about one-third. So they're not unimportant but they're-they're fairly much dwarfed by those at the federal level.

[ Pause ]

>> If we have no more questions then you'll only miss five minutes of lunch. Before--OK--

[ Applause ]

So one small matter. Someone left a BlackBerry, the phone number is 267-844-0300, on of the chairs.

>> I left it here on purposes. So I won't be sitting up here [inaudible].

>> Trust experiment.

>> OK. We'll resume--

>> Who's going to steal a BlackBerry?

[ Laughter ]

>> Excellent point. We'll resume for our keynote speaker at 1:00 o'clock. Thank you.

[ Inaudible Discussions ]

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