(00:00:00) Thank you Greta six minutes past eleven o'clock in time for today's Minnesota meeting off we go now to the Minneapolis Marriott City Center Hotel in Downtown, Minneapolis. Good afternoon. Good afternoon. I'm Gary Stern president of the Federal Reserve Bank of Minneapolis and a board member of the Minnesota meeting. It's a great pleasure to welcome all of you to today's Minnesota meeting members of Minnesota meeting represent. This communities leaders from business government Academia in the professions. This is our 17th year in the marketplace of ideas. I would also like to welcome our radio audience throughout the Upper Midwest who are hearing this address on the midday program of Minnesota Public Radio. Broadcasts of Minnesota meeting are supported by Oppenheimer wolf and Donnelly with offices in Minneapolis. St. Paul and at www.iowadnr.gov cam providing legal services to businesses around the world. It's a special honor for me to introduce today's speaker The Honorable Janet Yellen chair of the president's Council of economic advisers before taking this prominent job at this press as the president's senior advisor on economic issues at the White House in February 1997. Dr. Yellin served as a member of the Board of Governors of the Federal Reserve System for three years. I had a wonderful opportunity to work with Janet during those years and I continue to be a great admirer both of her an analytic abilities and of her personal objectivity integrity and sense of humor. Before coming to Washington full-time doctor Yellen was the Bernard T. Rocca professor of international business and trade at the University of California. Berkeley's Haas School of Business. She has also taught at Harvard. Dr. Yellen is here today to talk about the worldwide economic ramifications of our aging societies America and the entire West are becoming much older in 1950 those 65 and older made up only eight percent of the u.s. Population today. That number is 13 percent and by the year 2030 a full one fifth of our population will be elderly President Clinton has put Social Security reform at the Forefront of his domestic agenda. But as a nation we continue to look the other way as America and our trading partners grow older nevertheless, the Emma economic ramifications of these demographic Trends will be significant some would argue even disastrous if we don't make changes now, the first step is to have a real dialogue about work and retirement and the responsibilities of Our Generation to our children. I can't think of a better person to lead that discussion then days speaker following today's address. Dr. Yellen will take questions from the audience Jane mrazek and Gloria mcclenahan of the Minnesota meeting will move among you with microphones to manage the QA. It is now my great pleasure to present to you. Dr. Janet Yellen. (00:03:35) Gary thank you very much for that generous introduction. It's my pleasure to join you today a predecessor of mine on the Council of economic advisers warned me that on many days see a members feel like those little steel balls in pinball machines bouncing back and forth from one short deadline project to the next forced to switch directions rapidly and with little warning I certainly understand what he meant crises requiring immediate attention. They're rarely in short supply even so a substantial portion of the administration's economic agenda relates to longer-term issues that will be critical to the performance of the United States and the world economy's not next week. Not next year but instead decades and even further in the future. We've been able to elevate the priority of these longer-term issues because the fundamentals of the US economy are extremely sound indeed. I believe the nation's economy is now the strongest it has been in a generation real growth and job creation have been robust unemployment is at its lowest rate since 1969 and inflation. Is it about its lowest rate since 1964, the current economic expansion is now become the longest peacetime expansion on record and the records have been kept since 1854 in addition the federal budget his now moves strongly into Surplus 69 billion dollars in 1998. The largest is a share of GDP since Seven and surpluses of about four and a half trillion dollars are now projected over the next 15 years. It's in good Economic Times Like These that we have the luxury and the resources to anticipate problems ahead and prepare for them moreover. The cost of addressing longer term problems is usually lower when one has the foresight and the discipline to act early rather than procrastinating the most important issue on our long-term policy agenda relates to the dramatic aging of the US population. And as you know, the president has put forward a number of principles for Social Security and Medicare reform and his proposed a specific framework for using projected budget surpluses to help achieve reform. He's also presented related ideas for enhancing private saving and pensions and I will discuss some of those proposals later in my talk. But I'd like to begin with the bigger picture. So I'll start by describing the fundamental demographic challenge that demographic change poses for our nation and indeed for the rest of the developed world. Then I'll explain the types of actions that we need to take now and in the coming years these actions go beyond reforming Social Security and Medicare and Beyond the government all together, they represent a difficult, but I think it's Shiva Bowl set of changes in our society that will prepare us for the coming age. Wave. The most striking measure of the Aging of the United States is the falling ratio of employed workers to retirees in 1960. There were about five workers for every retiree today. There are three and a half workers per retiree and in only 30 years time that ratio will be 221 and still falling. The sources of the decliner clear one factor is a reduction in birth rates compared to the post-war Baby Boom era. The second factor is increasing longevity. When the Social Security Act was passed in 1935 the life expectancy of a 65 year old American was about 13 years today. It's 18 years, and it's still Rising. It's third factor is earlier retirements in 1950. The average age for first receiving Social Security retirement benefits was 68 today. It's 63 before we bemoan the economic challenges that are posed by these changes. It's worth emphasizing that they're mainly positive changes for our society declining birth rates, for example, primarily reflect evolving personal preferences combined with broader opportunities for women. The Marked increase in life expectancy during the century has resulted from important advances in the field of medicine and in public health and that's produced a wonderful improvement in our lives. Evaluating the third factor. I mentioned the trend toward earlier retirement is more complex on the one hand. We should be grateful that Rising incomes have enabled people to enjoy more Leisure at the end of life as well as shorter work days and work weeks throughout their lives, but on the other hand public policy may be inadvertently encouraging people to retire earlier earlier than they otherwise would and these implicit incentives need to be reconsidered and I'll return to that issue in a minute. Let me make two other observations about the Aging of the u.s. Population first. We are joined in this demographic transition by virtually all of the other developed countries and indeed most of them will experience more dramatic changes and more quickly in their demographic compositions than we will. My second observation is the rising elderly dependency ratio in the United States somewhat overstates the demographic challenge we face. People are generally dependent on the working population at both ends of their lives when they're old to be sure but also when they're very young and although elderly dependency will reach in unprecedented level in The Next Century the drop in fertility rates since the baby boom his substantially diminished youth dependency this decline in youth dependency will offset part of the burden of rising elderly dependency, at least from the point of view of the nation as a whole having said that from the point of view of the government. This offset is much smaller because the government Bears relatively less responsibility for the well-being of the young than of the elderly. The economic effects of the age wave can be seen on three levels first social security and Medicare programs on which most people's attention is now focused second the overall government budget of which those programs are apart and third the nation's long-term economic Outlook, and I'd like to address each of those in turn beginning with Social Security. The most commonly used yardstick to mention to measure the financial soundness of the social security system is the 75-year Actuarial balance. The Social Security actuaries project that the current balance in the trust fund together with projected revenues over the next 75 years will be insufficient to fund the benefits promised under current law. By 2014 tax receipts are expected to fall short of benefits. By 2022 the shortfall is expected to exceed trust fund interest earnings, which means the trust fund will begin to decline in by 2030 for the trust fund is expected to be depleted. After that time contributions would still be sufficient to fund about 70% of current law benefits. Now, of course, these are forecasts and future taxes and benefits depend on a whole host of Economic and demographic factors that can't be perfectly predicted. So the actual problem may turn out to be smaller or larger than we now believe nevertheless the intermediate projections of the actuaries imply that the imbalance during the next 75 years amounts to a bit over two percent. Taxable payroll were about 1% of GDP. The Medicare system faces bigger problems even with the Improvement in the financial Outlook that was reported last month. The 75-year actual Actuarial imbalance in Medicare is now about one and a half percent of payroll somewhat smaller in absolute terms than the Social Security imbalance, but a much larger proportion of the current payroll taxes that are dedicated to the program. The trust fund is now projected to be insolvent by 2015 that is actually a marked improvement from last year's estimate of 2008, but it's still only a decade and a half away moreover the long-term Medicare spending projections assume that the cost of covered Health Services will grow much more slowly in the future than over the past several decades. So the scenario implicitly incorporates either significant structural reform of the program were some changes in the basic dynamics of US Health Care spending. We can also see the effects of the age wave in the long-term projections of the total or overall government budget. Social Security and Medicare outlays are expected to rise from less than 7% of GDP today to nearly 12 percent of GDP by 2050 and to continue Rising beyond that in addition federal spending in the Medicaid Program is expected to rise from one and a quarter percent of GDP today to 5% of GDP by 2050. Now most people think of Medicaid is financing health care for low-income disproportionately young people, but it is also the major public support for long-term care for the elderly. Funding of Nursing Home Care Home Health Care and related Services represents a significant share of current Medicaid spending in spending in these areas is expected to grow rapidly is the population ages. Now despite these increasing outlays. The federal budget is actually now projected to remain in Surplus until the 2050s in the natural question is how could that be possible that we continue to project surpluses as long as 2050? Well one critical factor is the assumption that we maintain a very tight constraint on discretionary spending. If We Hold discretionary spending constant in real dollars then as both the population and real income per capita grow over time discretionary spending will become a smaller share of total national income but reaching that objective may prove difficult as the current levels of defense and non-defense discretionary spending represented this time their smallest shares of GDP in 35 years. Another key factor in this forecast of persistent surpluses is the sharp projected drop in interest payments on the federal debt. The projections that I've been describing assume no change in current tax or spending programs. That means they assume that the projected surpluses are realized that those funds are used to pay off existing debt held by the public and if we can achieve that that's a process that creates a virtuous cycle the pay down of debt reduces future interest burden which in turn increases the size of future surpluses enables more debt to be paid down. The political challenge to achieving that outcome though is to resist the temptation to dissipate the surpluses now and I will have more to say about that in a few minutes. Before turning to appropriate responses to the coming age wave. We need to recognize that demographic change has important implications not only for government programs in the government budget, but also for the economy more generally considered the sources of our total national income national income depends on three basic factors, our accumulated savings or Capital second the number of workers in their education training and skills and third the technology and management with which we combine labor and capital to generate output. The fundamental economic challenge posed by aging is that a smaller share of our population is going to be in the workforce. And in that situation maintaining a high level of national income requires us to compensate for having fewer workers by having workers who were more highly skilled and by having a greater amount of accumulated savings or capital for them to work with to make them more productive. I will come back and discuss some concrete policies steps to raise savings and also some steps that could encourage people to remain in the workforce longer, but I want to emphasize now that if we can boost the size of the total economic pie, that's gross domestic product in The Next Century. That's what we need to enable us to meet the retirement costs of the baby boom generation without unduly burdening future workers a larger total pie. So far, I've merely describe the demographic transformation we face and it's likely effects on the government budget in the economy and that brings us to the critical question, which is how should we respond to the age wave and what can we do now fundamentally, there are only two ways to deal with this challenge first, we can make structural changes in our economy and in government programs to reduce the burden in an older population will impose possible changes of this sort would include improving the efficiency of our Healthcare System and not discouraging work by older people who want to keep working. The second way we can deal with this challenge is to set aside more resources today to meet the future burden and that means raising saving by households and by the government so the total National wealth and income will be higher significantly higher the size of the economic pie would be higher in the future. I think it's clear we can best respond to the age Wave by pursuing both of these approaches. If we don't save more now than the structural changes that will be required down the road could be severe. That's an option that would impose to larger burden on future workers and retirees. At the same time if we make no structural changes, then the amount of extra saving that's required is extremely large and that option would impose to larger burden on current workers. So fairness to all generations requires us to strike a balance between higher saving and structural reforms. I want to emphasize that both of these responses to our aging population need to begin now, Clearly we can't wait to raise our national saving until the Baby Boomers have retired just as individuals and families save for retirement while they're working. So the nation must Bolter bolster its savings before the need for those savings is upon us and structural reforms should also begin now many reforms take time to implement and even those that could be put in place immediately what to be imposed gradually and with substantial lead time. So people can make adjustments in their own planning. Well, let me now turn to the president's proposal proposals using the framework in his State of the Union Address is my God. Begin by saying something about social security than turn to Medicare and conclude with something about the tax code over a year ago the president insisted that the projected budget surplus is and remember they're four and a half trillion dollars over the next 15 years should not be used for new spending or tax cuts until we address Social Security's long-term funding problems. I think it's fair to say that this position has proven quite popular indeed. It should come as no surprise that Americans are eager to fix Social Security because it is an extremely successful social program for almost 60 years social security has provided Americans with income Security in retirement and protection against loss of family income due to disability or death Social Security retirement benefits are indexed for inflation and they provide a lifetime annuity. That's a package that is difficult. If not impossible to obtain and private markets. In fact less than half of all individuals aged 65 and older received any private pension in 1994 as a result Social Security benefits are the largest source of income for two-thirds of those in this age group and they are the only source of income for 18% of those over 65. The system has enjoyed dramatic success in reducing the poverty rate among retirees. The elderly poverty rate has fallen from 35% in 1959 to 11% in 1996. Also Social Security is more than just a pension plan. It's a family protection plan and nearly one in three beneficiaries are not retirees for an average wage earner who dies and leaves the spouse into children the survivor benefits and Social Security or equivalent to a three hundred thousand dollar life insurance policy and one in six twenty year olds will die before retirement age social security also provides disability protection and three in 10 20 year olds will become disabled for some period prior to retirement. The president has proposed that 62 percent of the projected budget surpluses over the next 15 years should be devoted to Social Security. Most of the additional funds would be used to purchase treasury bonds, which are the same assets that the social security system invests in now and has held since its Inception. A fifth of the funds would be invested in equity in an index of private-sector equities, which would allow a higher expected rate of return. Together the transfer of new money and investment in equities Woodbridge more than half of Social Security's long-term funding Gap, but achieving full Actuarial balance would require some tough choices about structural reform and the president is called for a bipartisan process to make these choices and I note that this is a proposal that involves the kind of combination. I mentioned of additional savings combined with structural reform. When considering possible structural reforms one choice would be to encourage later retirement as I mentioned before the increasing share of Life spent in retirement may be partly a reaction to public policies that encourage people to leave work before they otherwise would for example the combination of social security benefit and tax rules provides an incentive to retire early even though a person's benefit is adjusted somewhat to reflect retirement before or after 65. (00:27:53) The (00:27:53) president is therefore proposed eliminating the earnings test which reduces Social Security benefits paid to people who are still in the workforce. Examining proposals to raise the so-called normal retirement age, which now stands at 65 should also be part of a public debate. In 1983 Social Security reforms put into place then set in motion a gradual increase in the retirement age to 67 the first step of which is scheduled to occur next year and the last step in 2022 a majority of the members of the Social Security advisory Council which issued a report in 1996 recommended in acceleration of that plant increase and further increases thereafter to match the expected increase in longevity. But we'll we should consider these proposals in the interest of fairness. We will also have to look closely at the likely impact of any changes in this area on those Americans in physically demanding jobs or with disabilities. In his State of the Union Address the president proposed devoting another 15% of the projected surpluses to Medicare. He explained that as with Social Security resolving medicare's long-term funding problem will also require a combination of additional resources and structural reform. Unfortunately, the national bipartisan Commission on the future of Medicare which held its final meeting last month failed to reach consensus, the president believes that that commission did very valuable work but doesn't support the proposal that was offered by Senator bro and his colleagues and for that reason the president has asked his advisors to draft a plan for Medicare reform that will meet a number of objectives. First it should modernize Medicare and make it more competitive. By adopting the best management and clinical practices from the private sector we can keep spending growth in line while maintaining high quality search Services second Medicare should continue to provide a guaranteed set of benefits without excessive costs new cost to beneficiaries. Third we should use savings from these reforms to help fund a prescription drug benefit. Why because prescription drugs are a standard element of most health insurance plans for working Americans, but many been Medicare beneficiary beneficiaries have no coverage for their medications or inadequate or very expensive coverage and lastly the president proposed that we should dedicate part of the projected surpluses as General Revenue transfers to Medicare why because structural reforms alone cannot meet the demographic demographic and health challenges of The Next Century, but reforms combined with additional funding can do so The President also proposed dedicating another 12% of the budget surpluses to a new system of universal savings accounts dubbed USA accounts. The motivation for these accounts is straightforward Social Security was never intended to be more than one leg of a three-legged retirement stool with the other legs consisting of private pensions and household saving so long with strengthening Social Security. We need to increase private pension coverage and household savings. USC accounts would substantially boost saving especially for lower and middle-income Americans who do less saving than higher-income Americans and receive much smaller incentives through the tax code. The treasury Department has estimated that almost two-thirds of all tax expenditures on pension plans now go to families with incomes over $100,000 in contrast the USA proposal would provide most of its benefits to the bulk of the population workers in their spouses and low and moderate-income households would receive an automatic government contribution of three hundred dollars into their USA accounts. And in addition voluntary individual contributions would be matched by further government contributions at a rate declining with income. I'd like to conclude by discussing the most important macroeconomic effect of the president's State of the Union proposal, which is to dramatically increase National saving. Nationals saving has risen sharply since 1992 when it fell to a paltry 3.1 percent of gross domestic product. Its lowest in the entire post war period in 1998. It had more than doubled 26.6% The Improvement was accounted for totally by the elimination of the federal budget deficit as private saving actually declined and at the present time the personal saving rate is actually eradicated in is effectively reached zero. Keeping the national saving rate high should be a central priority for fiscal policy in the coming decades and the president's proposal meets this objective first the transfers to Social Security and Medicare would allow the government to pay off. Most of its outstanding debt with publicly held debt projected to fall from 44 percent of GDP today to about seven percent in 2014. That would represent the smallest burden of government debt on our economy since the United States entered World War One In addition some of the surpluses would be used to purchase equities which would represent government assets. Both the bond BuyBacks and the equity purchases would make room in private portfolios for more productive capital and that extra Capital would increase private investment. Keep interest rates lower drive them lower fuel economically growth and raise future national income moreover. The USA accounts could be thought of as a tax cut which is highly likely to add to personal saving. So altogether the president's framework would devote almost 90% of those projected four and a half trillion of budget surpluses to increasing National saving. Compared to a policy that dissipates those surpluses on current spending or tax cuts. The president's proposal would substantially boost the size of the economic Pie when the baby boom retires. Well, let me end on an optimistic note the age wave represents an important challenge to our government to our economy and to the nation, but I believe the challenge can be met we have the creativity and we have the resources to make the necessary adjustments in our public policy and in our lives and that will enable workers and retirees to enjoy higher standards of living in The Next Century than we enjoyed today achieving that goal though will be much easier if we take action now, let me stop there and I'd be happy to take questions. Thank you. Dr. Yellin for our radio audience. You are listening to dr. Janet Yellen, who's the chair of the president's Council of economic advisers speaking to the Minnesota meeting on the station's of Minnesota Public Radio. We have a first question here from Richfield poem who's a senior vice president from Midwest Financial managers. Rich. (00:37:18) Thank you very much. Thank you Doctor yelling for your comments are very interesting. My first question is do you think Congress would have a better sensitivity to the current and future needs of Social Security and Medicare if they themselves had the same benefit and health care plan is public citizens. (00:37:43) Well, I think they do enjoy more generous benefits than under Social Security and Medicare at the present time. But I think that Congress has sensitivity to the need to address the issues of Social Security and Medicare reform and more than that to make sure that surpluses are saved at least a substantial portion of surpluses or saved. I think that sensitivity has increased and of course the administration and Congress have not yet reached agreement on a plan we have critical differences about precisely how much of the Surplus should be saved how we should address structural reforms and the use of those surpluses for Social Security and Medicare, but I think the discussion that we've had over the last year about the age wave. The need to address it and the need to maintain fiscal discipline where we have made enormous strides in improving fiscal discipline from 1992 when the deficit was 290 billion dollars and expected to virtually explode without action taken. We have taken tough painful steps to improve fiscal discipline, and I think it's recognized now, at least I am hopeful that it is recognized that these emerging surpluses represent an opportunity to build on that record to help address these challenges. Thank you. Our next question is from Mike Eckert whose with sit mutual (00:39:30) funds. Thank you. As a member of the baby boom generation younger member and an employee of a mutual fund company. I have a dual interest in your thoughts on the possibility of allowing individuals to invest their social security contributions and perhaps some of their existing balance at their discretion for their retirement. Well, the (00:39:57) president has proposed as I mentioned a system of USA accounts, which could be thought of as a tax cut directed into savings accounts. But outside of the Social Security System the Social Security System currently has a substantial imbalance as I mentioned and we think it's critical that the current payroll tax, the 12.4% of payroll tax remain in the social security system to continue to fund that defined benefit, but we certainly have proposed a system of accounts at side of Social Security USA accounts that would supplement Social Security and give over a hundred million workers a chance to if they choose invest in equity and yield the higher returns that Equity can generate The issue of managing a system of a hundred million plus accounts is very complicated. And at least at the outset. I think it's important that investment choices be limited. The president has proposed an approach in which at least at the outset there would be an arrangement the possibility for Americans to invest in a relatively small number of choices including Equity Fund similar to the current Thrift Savings Plan that's offered to US Government Federal Employees. But certainly we would be eager for discussions in the possibility of having some of those Investments ultimately managed by the private sector and that's a discussion that we would look forward to having so certainly investments in equity can play and in Individual saving account structure could play an important role in helping Americans prepare for the age wave. We would like to see it at side of Social Security. Thank you. Dr. Yellen. We have a next question from Brian Anderson who's chairman of a company called sights on service? (00:42:16) Yes, I'm just wondering to what extent did the projected budget surpluses take into account reduced consumer spending as a result of the age wave. (00:42:28) That's an important question. The projected long-term surpluses do we assume that there will be slower growth in what we call potential GDP the natural growth rate of the economy. As our population ages at the moment. We're the projections that the administration makes assume that GDP has the potential to grow around two and a half percent a year about a percent of that comes from population and labor force growth the remaining percentage and a half roughly comes from productivity growth of faster pace of output per worker, but as the population ages labor force growth of Course will slow and that does drive down over time the rate at which the pie is increasing and so yes, the projections do take account of the impact of an aging population in making the pie expand at a slower rate than we've been accustomed to in recent years. And if we go back to the earlier part of the post-war period the growth rate in our economy was higher than it is today for the same reason. Thank you. Our next question is from James Gibson whose with distributive program (00:44:04) systems. Dr. Yellin, I really have a problem with the use of the term Surplus the way it's being used is there I mean could President Clinton take a leadership and redefining this so that it makes more sense when we talk about the unified budget surplus is a very few confusing concept. We talked about four point five trillion dollars of surplus. We're really not talking about Surplus we're talking about I guess the only way they could explain this, you know, we're talking about combination if we're looking at a corporation would be talking about the combination of profit and the increase in their pension fund and reporting that to the stockholders as profit doesn't make any (00:44:47) sense. Well over 15 years the Surplus the total Surplus the difference between all of the monies the revenues coming into the federal government and outlays are as I mentioned projected to be around four and a half. Alien, it is common though to divide that up into two pieces the so-called on budget surplus and the off budget surplus at the moment. All of the Surplus is that we enjoy in the overall federal budget is due to the fact that social security system is taking in more in Revenue now than it needs to pay out and benefits and that's of course not an accident. It was the conscious result of the 1983 Social Security reform that sought to build up a trust fund precisely in order to be able to have a fund and the interest on a fund to be able to finance Social Security benefits down the road knowing that there would be an aging population. Over 15 years out of that foreign half trillion dollars the Congressional budget office estimates that about two point nine trillion of that Surplus is is the accumulated Surplus is off budget surpluses of Social Security. But at this point where we have even abstracting from Social Security almost detained in objective that would have been considered Unthinkable even as goal in 1993 in that is that the remainder of the federal budget at the present time excluding surpluses in Social Security is almost balanced the Congressional budget office estimates that in the year 2000 the so-called on budget surplus will be a small deficit - five billion dollars and that too is expected to Grow enormously over the next 15 years. So even if we focused purely on the part of the federal budget unrelated to Social Security the Congressional budget office forecasts, 1.7 billion trillion dollars of surplus has totally outside of Social Security and we need to have a debate about what to do with that as well. Should it go for tax cuts? The president has suggested using a substantial share of that also for Medicare and to fund USA accounts. Thank you. Dr. Yellen, we have time for a couple of quick questions. We have a question now from former Congressman Tim Penny, who is the co-chair of the Humphrey Institute policy Forum. (00:47:49) Thank you. I'm tempted to follow up on this trust fund business and because we either have to raise taxes cut spending or borrow money to honor the trust fund into the future, but I'll set that aside and instead ask about the Medicare commission which recently completed its work without getting the supermajority vote that it needed to make a recommendation official you indicated an interest on the part of the president to put this issue back on the front burner, but given the demographic trends that you highlighted earlier that we're going from five workers per retiree at the start of Medicare 30 years ago to workers per retiree 30 years from now, how can you realistically control the cost of this program and avoid future onerous tax increases without doing something like raising the contribution rate for wealthy seniors or raising the retirement age? Well, I agree (00:48:45) with you that this is a major challenge. This is a part of The federal budget that is going to increase substantially and it's hard to Envision that with that some new resources. It will be possible to implement enough structural reforms to solve this program this problem. That's one reason that the president has really insisted that some of these surpluses must be used to fund Medicare but even recognizing that more money is needed structural reforms can be put into place that will make this a more efficient program and we should put in place those structural reforms as I emphasized. Both things need to be part of a solution and that's why the president is asked his advisors to put together a proposal that would include both structural reforms to make the Medicare. Program cheaper more efficient more cost effective that is extremely important still it can't do the entire job. So structural reforms and money you're needed and we hope in the near future for the president to have following his promise very specific proposals to put forward that will include structural reforms. Thank you. Dr. Yellen, we have time for one last quick question from Henry Montgomery with planners Financial Services. (00:50:24) Thank you. I'm told that we've never had as much capitalism in the world as we have today and varying degrees varying sophistication and it's affected our own economy greatly. So I'm wondering if our current Surplus is a result actually of clear Congressional Prudence or a booming economy. Despite a surprised Congress. And if that's the case, how long can we expect them to remain surprised? (00:51:01) Well, we certainly are enjoying a booming economy and surpluses and I would say there are three factors if you break it down that explain those surpluses first and foremost, I would point to and I think this is demonstrable when the numbers the tough choices that were made back in 1993 when Congress passed a package that both controlled spending and also resulted in tax increases for top four top income households. That's an important piece of it the strong economy. Of course, it is also played a role. So the fact that the economy has done well and continues to do. Well that's explains part of why we're enjoying a surplus back in 1993. Our economy was operating not at its capacity, but we'll below capacity. Now we're operating I would say at what we used to call Full Employment and some might argue even Beyond it. But that is not the only reason for it. The third thing is that in a sense. We've had what economists in my operation referred to as technical surprises and the technical surprise is that our tax system without any change in tax rates is yielding more tax revenue than we would have thought it would yield back in 1993 or indeed as recently as a year or two ago part of the reason for that I think is that there is so-called bracket creep that people are moving into higher income brackets because they are doing well in this economy. The stock market is doing well. But also people as their incomes increase are paying more in income taxes, and that's part of all three. Things I think are contributing but when you sort it through I think still under realistic or even conservative assumptions, which it's our job to provide. We can look forward to substantial surpluses will into the future if we can control as I suggested the spending side and continue to maintain these surpluses. So we pay down the debt and get the interest benefits (00:53:28) Janet Yellen who is chair of the Council of economic advisers speaking at today's Minnesota meeting at the Minneapolis Marriott City Center in downtown Minneapolis broadcasted Minnesota meeting are supported by Oppenheimer wolf and Donnelly LLP with offices in Minneapolis. St. Paul and at www.lawnsbyles.com. Will you dla w.com providing legal services to businesses around the world? That does it for our midday program Gary eichten here. Thanks for joining us will be rebroadcasting Miss yellan, speech at 9:00 tonight. And then tomorrow here on midday our update on the war in Kosovo. And then over the noon hour. We'll be talking with Senate. Hopeful Minnesota Congressman David Minge your chance to call in news headlines are next and then Ray Suarez will be along with today's edition of Talk of the Nation. (00:54:19) I'm Lorna Benson. Be sure to tune in for the next All Things Considered for all the day's top stories plus insightful conversations and commentary. It's all things considered weekdays at 3:00 on Minnesota Public Radio. KN o WF M 91.1 (00:54:36) You're listening to Minnesota Public Radio. We have some light Ray now 54 degrees at Kinder wfm 91.1 Minneapolis. And st. Paul light rain is possible all afternoon with a high reaching the mid 60's at least in theory clearing Skies tonight with a low overnight low around 47 tomorrow with a high in the middle 60s.