>> SCHMIDT: It's great to be here. Thank you, guys. My concern is we are generating an infinite
amount of debt. We seem to be, sort of, you know, the initial intervention has done whatever
it was going to do with all of its imperfections, and I want to know what's going to happen.
>> WALTER: Are you talking about a government debt, a corporate debt, a personal debt?
>> SCHMIDT: There were--but most corporate debt is going down.
>> WALTER: Right. >> SCHMIDT: Because corporations are hoarding
cash. But the fact of the matter is that if you look at math, I just don't understand
what the new model is. Is it a capitalistic model, or is it a different model?
>> WALTER: In terms of what...? >> SCHMIDT: By the way, I'd like to be in
one of those too big to fail companies, the ones were you know, they just kind of get--they
bail you out whenever you screw up. >> WALTER: Yeah. You will be. But do you think
it's because the government is taking on far too much debt out coming out of this crisis?
>> SCHMIDT: I think it's because it's the difference between politics and business.
>> WALTER: Right. >> SCHMIDT: And the logic of politics, every
president ultimately has this logic around, "Well, I'll pass this bill because it roughly
has these economics" but then in fact those are not the economics that it comes in. The
process, the logic of entitlement programs, the logic of the way the government works,
and the more I am involved in business, the more I think--couldn't we like run the government
a little bit more rationally? >> WALTER: But do you know, you were a big
supporter of Obama... >> SCHMIDT: And remain still.
>> WALTER: You were [INDISTINCT], very much so in the beginning. You're on that council
of John Dore's [ph] and yourself or whatever. And yet, partly because of the way the government
is, you and everybody else on that council couldn't really go into government. And if
I may guess, of the top presidential appointments, the number of people who have actually run
a business is approximately zero, right? Is that part of the problem?
>> SCHMIDT: Well, first, I'm not sure I agree with the one, the line of questioning because
of the implication. The Obama administration is full of incredibly smart people, all right?
>> WALTER: That may be the problem. >> SCHMIDT: Well, you know, smart people can
be a problem, I guess. The fact of the matter is that in terms of experience and insight
and strategic reasoning is among the best we've ever had, and I say that as a strong
supporter. The problem is, again, I'm just trying to understand what is the strategy
here, right? It seems as though we're--if you look at the base case, we've now established
the following principle. We're going to have deficits beyond the eye can see. Large increases
in government spending and this is true in many countries not just in the United States.
And a relatively low growth, and by the way, we have a weak dollar strategy; we just don't
call at that. So how do we fix that? My answer is private sector investment, private sector
growth which is always in my view how you grow out of these things. And so, you know,
refer to the mathematicians and academics who understands this much better than I, can
the current hole we've dug ourselves into begotten out of with any reasonable growth
rate from the sum of all the economics, and that's an interesting economic debate. But
the problem before us will be solved, not by what government does, but rather by what
private actors and innovation does and I would tell you that America--I'm speaking as a proud
American--has a huge future ahead of ourselves in essentially high-tech manufacturing jobs,
scientific investment, and all the global things that we normally do. And I can go on
and on about that if you're interested. But the fact of the matter that's our future and
we should be honest about it. >> ERIC: Uh-hmm. But in fact the government
has gone into a kind of a weird private equity mode. We are witnessing the biggest leveraged
buyouts of all time in which the federal government uses leverage to buy a whole bunch of failing
companies. I don't know if the president realizes he's running a private equity partnership,
but he is on a massive scale. Just as Ben Bernanke is running the biggest hedge fund
in human history, and I share your concerns. Well, by the way congratulations on making
it onto the platform. I like a man who fulfills his obligations despite the airlines.
>> WALTER: Thank you. Let's thank Eric for--if I weren't here, I would've gone right to the
hotel and ordered a drink. Thank you, Eric. >> ERIC: But you raised a question, Eric,
which the one troubles me the most. How far do the unintended consequences of massive
deficit spending, how far do these consequences impede the process you described? I totally
agree, the only way out of this is, is technological innovation which the U.S. traditionally excels
at, and entrepreneurial application of new ideas. But what if we've embarked in a course
of fiscal extravagance that ultimately makes that less easy than it used to be? What if
it turns out that we're no longer the best place to innovate because of amounting debt
burden that ultimately leads to heavier taxation and diminished incentives for entrepreneurs?
>> SCHMIDT: I think you're a little, a little too negative on that. I mean the American
educational system is, is just phenomenal, especially at the college and graduate school
level. The production rate of... >> ERIC: The high school level?
>> WALTER: Wait, wait, hold on. We don't want to get into this.
>> SCHMIDT: And by the way if we would just let all those people come to our country and
keep them here, rather than kicking them out after we educate them that would be helpful.
America is a tremendous draw for the kind of people who want to create the kind of future
that that I think a lot of people talked about and I think it's possible. The fact of the
matter is we're not going to have a lot of high volume, low wage jobs. There are going
to be other ways, welcome to globalization. But what we will have, is we'll have the--completely
new industries, build and invented here; most obviously involving the ones in energy, and
I'm not just talking about green energy, I'm talking about rebuilding energy in general,
right? And that's something which America can exceed at. So I think there is a path
there and then everybody else will say, "Oh, look, we'll I had that idea too." We should
focus our effort on the people who will grow things rather than the people who will just
consume the existing pieces of the pie. I'm interested in making the pie bigger.
>> WALTER: Did you--let me, one of the discussions we had here was whether the American capitalist
system in the past 20 years became too dominated by the world of finance in creating complex
instruments and everybody taking Neil's course at Harvard who is a smart mathematician instead
of going in any other company except Google which is the only one that could compete,
would rather have gone to Wall Street and created a hedge fund instrument. Do you think
that there's a way to get, or should we try to get more productive people into the part
of the economy that's not just financial instruments, whether it be Google or Pepsi?
>> SCHMIDT: Why would that question be any different 50 years ago than today?
>> WALTER: Because the financial sector was much smaller as a percentage of GDP 50 years
ago. >> SCHMIDT: So was my industry, it didn't
exist. >> No, no, there is a difference here. Fifty
years ago it did not have the complexity we have today. You did not have the inter-dependence;
we had a much more predictable environment. And 50 years ago, we didn't have Google, precisely
because we didn't have Google. All right, we didn't have massive, you know, jumps in
economic variables and we didn't have overefficiency that comes from globalization; and overefficiency
makes things run smoother, very cheap, except when you got a problem, you got a problem.
So, 50 years ago, we had a different world. We can't, I mean, I'm sorry, you're a historian,
Neil, but sometimes it's good, but sometimes we forget, sorry. I know, it's good to be
historian if you go very, very, very, very far and, or if you're as good as you, you're
the best in the world. >> Thank you. You're the best mathematician.
>> Yeah, but you can't go... >> I'm the best risk engineer.
>> But you can't go, but you can't go take data points, say that's how it was in the
Depression, that's how it was 50 years ago. The world I so different mostly because of
you guys. >> WALTER: Let me raise, pick up on a point...
Go ahead, Eric. Go ahead. >> SCHMIDT: I'm still not sure, it's always
been the case that the best and the brightest have been attracted to high quality finance
jobs, and I think they--it wasn't, it was also true in the 50, in the 50s, in the 60s,
and so forth. >> WALTER: Not that much.
>> What I mean, before my generation, I went to business school, before my generation,
nobody want the finance, they went to consulting, smart people.
>> SCHMIDT: But that's the same, from my perspective it is the same.
>> ERIC: But 50 years ago... >> WALTER: All right. There's something we
should try to change. >> SCHMIDT: The point is, the point is--here's
why, here's why it's the same because there's a category of people who spend their time
worrying about the allocation of money, structure of businesses and so forth and so on. And
then there's a set of people who are running, running companies, inventing new things, doing
research, what have you? I'm not so worried about the siphoning off. You had a situation
were you had artificial incentives that caused people to want to come on the margin here;
but in fairness to those people, had they come to Silicon Valley in 1999, they would
have received a far greater payoff during our little bubble, so who we are to criticize
the Wall Street folks for having their bubble; it was just a bigger bubble.
>> WALTER: Do you think though that Google creates something that's more real than somebody
on Wall Street creating a financial instrument? >> SCHMIDT: To be honest not really...
>> WALTER: Okay. >> SCHMIDT: That Google--when I walked into
the company, I said, you, people pay you for this thing, these little ads? I mean, again,
you know, I'm from the, you know, the big iron school of manufacturing. So, in a knowledge
economy, you do have very important sectors. It may very well be that the markets misallocated
capital to themselves, fundamentally because of the agency problem of ownership. A simple
diagnostics, diagnostic of what we went through is the incentives drove the behavior, and
it's easy to understand this if you think about the people who own companies, right,
who had a lot to lose, behaved differently than people who owned just a little bit of
the company in the form of stock options. And so you had different assumption of risk
and so forth. The system would have corrected had it had a greater ownership culture and
less of an agency culture. And, again, one of comments is that it's easy to criticize
Wall Street on that. But, in fact, the system won't--a single actor who is a prince can't
revise their compensation because their competitors have to act in unison and it's illegal for
everybody to plot together, that's called antitrust. So at some point, if we want to
address the compensation issue which in my view is the root of a lot of these issues,
you'd have to go through some form of government action or consensus.
>> WALTER: Let me switch to something else we were talking about earlier which is the
role of the corporation in doing more than just maximizing its shareholder value, but,
trying to be a corporation with a purpose. Google is very much that way. Its initial
public offering warned investors it was going to be that way. Do you see that as an essential
part of what Google is and what American corporations should be?
>> SCHMIDT: Well, I hope so. There's nothing in Google that's unique to Google in terms
of the notion of purpose. People want to work for a reason and working as a, just as a salary
person or just for a boss who's rough on them, doesn't work very well. They want to work
for a spirit or a goal. It's much easier to manage people when they have an overarching
principle. It's, many institutions not just Google have these universities for example
have them which I highlighted before. So, I would hope that Google establishes a model
for sort of the modern, sort of way a corporation should work. And while it's absolutely true
under theory of the firm, the goal of the CEO and the goal of the board is to maximize
shareholder returns in the form of profiteering if you will, that's not really how corporations
should be run. CEOs, speaking as one have many constituencies; local communities, governments,
politicians so forth and so on. And, you'd be foolish to just try to maximize short term
returns, and we argue that we get better long term returns by doing all the other things
because we get the better people, we get a better brand, we're more innovative, all those
sorts of things. But the other reason that we, that we've just taken a position, a corporation
should be more than simply a shareholder vehicle. >> There was something...
The fact that our K-12 education system used to be the best in the world; used to graduate
the most; used to have the highest scores. It is somewhere between 17th and 20th depending
on the metrics you now use. And worse yet, it's a two-tiered education system where our
kids probably do just fine getting an education, but the gap between those born in good zip
codes and those born in bad is widening. Is that the major investment we should be making
in order to have an economy in the 21st century that succeeds the way our capitalist model
did in the 20th? And I'm going to ask, I know Andrew and I were talking about it earlier,
so I'm going to get someone on the panel to talk about it too.
>> SCHMIDT: It's--this again is not a new subject. There was a big crisis if you remember
in the mid-80s about this question about secondary school education. And the criticism I would
offer is I haven't heard very many new ideas in 25 years.
>> WALTER: Is that because there's a monopoly generally in public education?
>> SCHMIDT: Well, there, it depends on your sort of political view, you know, if you like
this structure, that structure. Let me just observe that in most of the other worlds I
live in, there have been tremendous innovations or at least ideas that sound credible. There
are a couple in education--obviously charter schools and those sorts of things that come
up, but those are actually relatively old ideas. And I would offer that with the information
revolution, Google being an example of it, you would think that education would have
changed radically, right? Every one of you now has access to your mobile device and I
would guess that everyone here has a mobile device on you--have access, to essentially
the entire knowledge of the world with enough keystrokes. So, why is that not radically
changing education, you know, at every level at an age appropriate, when it's appropriate
for people to learn. And I see relatively little evidence of that. So that tells you
something about the education system that is, that is based on heuristics as opposed
to measurements, or maybe it's a monopoly, or maybe it's under led, or maybe there's
not enough competition, or maybe there's not enough investment. I mean, these are all plausible,
but I've observed that we're not making fundamental, we're not going to fundamentally address this
until you got a new idea that really scales, and I haven't heard it yet. I am so glad I'm
on the other side of you, Walter. >> WALTER: I'm protecting you, Eric, as usual.
>> SCHMIDT: Thank you. I'm actually an optimist on this, and I would observe that the--we
faced the largest financial crisis since World War II, the Depression. And we got through
it in many cases very, very quickly and did so in a pretty impressive way. For people
who are still unemployed that's not a very good message because they don't see it yet,
it's clearly coming. The results that happened in September, the financial resources from
many companies indicated sort of the ending of the recession and the government is beginning
to say that. So I think there are reasons to believe that the underlying economic structures
are kicking in and kicking in in a really good way. So, as an optimist, my view is that
we will sort this out, that people will get back how--welcome--to how you really create
wealth in a society and it's really created by small business, large business, new business,
innovation. I would also tell you that although we complain an awful lot in the United States,
you'd much rather have our problems than, for example, Britain's problems economically
right now, you look at debt to equity and so forth. So from our perspective, I think,
we're pretty well positioned. We have a historic culture of innovation. We move quickly. We
focus ourselves as a country pretty well. And my guess is that the government will continue
in its current behavior as it did 20 years ago, 30 years ago and 40 years ago, and that
our opportunity as citizens is sort of do the best we can, knowing that this is how
our political system works and it's not going to change that much, to go and actually make
the world a better place. And I think that's, that's what all of us should try to, as the
opportunities come to us over the next few years.