Adair Turner of the UK Financial Services Authority gave a very good speech on the causes and implications of the financial crisis yesterday in Washington. The event was hosted by National Journal and the Economic Club of America. Video here for National Journal subscribers. Transcript here.

The speech drew on a new FSA discussion paper, prepared for a conference in London on Monday: well worth reading. I think I have already recommended this earlier discussion paper, which I still think gives one of the best overviews of the entire shambles.

This morning I took part in an event organized by Georgetown Law and the Aspen Institute: a conversation with Ken Feinberg, special master for executive compensation at firms receiving assistance under the TARP, followed by a panel discussion on some of the issues he raised, featuring Mike Oxley, Chris Brummer, John Olson and Nell Minow. Following last week’s announcements on pay, the session was very well-timed.

Perhaps it is stating the obvious, but Feinberg is an extremely impressive man, with a remarkable appetite for difficult assignments. This may be his hardest job yet. I thought his comments were interesting. If you have a couple of hours to spare, you can watch video of the entire event here.

In a new column for National Journal I ask what needs to happen before this problem is taken seriously.

The public debt stands at nearly $8 trillion and within 10 years, according to Congressional Budget Office projections, it will be more than $14 trillion. Getting to that second figure in one piece depends on two things. Some optimistic economic assumptions need to hold, and investors need to be willing to lend the government another $6 trillion. Taking either of these things for granted would be foolish.

Almost everybody in Washington agrees that the fiscal outlook is scary. Almost everybody says that something must be done. But the options for confronting the problem come down to spending cuts or tax increases, and as soon as you mention either, an embarrassed silence descends.

The politicians are not as worried as they say they are. And the same is true of the public. If you believe the polls, voters are more anxious about public borrowing than their politicians are — but not so worried as to welcome a rise in taxes (their own taxes, I mean) or cuts in Social Security or Medicare. They may be nervous about policies that would add to the fiscal problem — hence their hesitation over health care reform — but meaningful subtractions from the problem are a different matter.

Can anything be done? We have been here before. Washington has a time-honored procedure for such cases. Rather than thinking about entitlement reform or tax reform, it thinks about process reform.

And I go on to argue that process reform–despite the risk that it will degenerate into mere displacement activity–is not to be despised. In the past it has been a qualified success. Better that than having to deal with an otherwise unavoidable train wreck. You can read the whole column here.

Further to the previous post, this column by Ross Douthat is on the same page regarding the financial consequences of health reform. He advocates a more limited form of universal access–to coverage with a very high, income-related deductible, or so-called catastrophic insurance. As he says, this has been proposed by Martin Feldstein and Brad DeLong, conservative and liberal respectively, so the idea has cross-party appeal.

There’s certainly a lot to be said for this approach. Feldstein and DeLong differ in important ways (DeLong wants to shut down private health insurance altogether) but they agree that the taxpayer should pay for healthcare expenses above a high threshold, and that the tax deduction for employer-provided insurance (which costs more than $200 billion a year) should be abolished to pay for it. Either of their plans would strengthen the individual incentives to economise up to the threshold. I only wonder if a deductible as high as they envisage (15% of gross income; DeLong favors an income-tax increase of 5 percentage points on top of that) could be made to stick.

I think this FT leader is very good. First it says that public money underwrites the bonuses banks are getting ready to hand out. That is a familiar point but one that deserves to be emphasised. Then it puts its finger on something mentioned less often. These huge bonus pools are diverting funds that could be used to build capital, which the industry as a whole urgently needs to do.

The problem is not limited to the bonuses on which political debate has unhelpfully focused. It is widely agreed that variable pay must be designed to discourage risks to the economy. But current plans for regulating pay will not limit the total amount bankers extract from profits, which could instead be added to capital.

In principle, other planned regulation – strong insolvency regimes and risk-sensitive capital requirements – can limit banks’ profits from risks underwritten by others. But it will take years before these are credibly enforced.

Yes. At the present rate of progress, in fact, one wonders if they will ever be credibly enforced. In any event, regulation of the overall level of bankers’ pay, not just its design with respect to risk-taking, is evidently going to be needed–something I never expected to say.

An excellent column by Henry Aaron and Isabel Sawhill.

So here is what we propose: Congress should enact a value-added tax, the equivalent of a broad-based sales tax on all goods and services. It should take effect only after unemployment has fallen to a predetermined level or in, say, five years, whichever comes first. Congress should link revenue from the new tax and other sources directly to public health-care spending through a newly created health-care trust fund. The trust fund would pay for all federal health-care spending. This framework would mean that Americans would get the health care they are willing to pay for. If spending outpaces projections, Congress will have to choose between raising taxes and finding ways to slow the growth of spending.

By balancing revenue and health-care spending, such a reform would help solve America’s long-term fiscal problems. In the near term, it would also support and sustain the economic recovery. Consumers would be encouraged to buy now, before the tax takes effect. And by showing financial markets that Congress is determined to put our fiscal household in order, it would help keep interest rates low and encourage investment. The trust fund mechanism would strengthen incentives to institute reforms that will actually bend the health-care cost curve, because measures to slow the growth of health-care spending would avoid unpopular future tax increases that would otherwise be necessary.

This is a good idea.

Last year, by the way, I praised a book by Zeke Emanuel which makes the same points while laying out a basic blueprint for healthcare reform. Healthcare, Guaranteed is still the best thing I’ve read on the conjoined issues of tax reform and healthcare reform. The policy in the works is not going to be like this, needless to say, but the country might get there in the end. For the reasons Aaron and Sawhill say, it had better. Unfortunately Emanuel has been silent on the subject since going on to the White House payroll (where he has faced a lot of brainless criticism on the “death panels” issue). I think he would be more valuable educating the public than advising the president.

My new column for National Journal looks at the Senate’s climate-change bill [the link to the article expires in two weeks].

Carol Browner, the top White House adviser on energy and the environment, recently told a conference hosted by our sister magazine The Atlantic that the president was unlikely to sign a climate-change law before the next big international meeting on the subject, in Copenhagen in December. “That’s not going to happen,” she said. The American negotiators should have a bill to work from — quite likely more than one — but no new law. This will be an embarrassment. It will hamper the Obama administration’s efforts to claim global leadership on the issue.

But for those who seek effective curbs on carbon emissions, the news is not all bad. It matters more to get the right kind of agreement — one around which global cooperation on carbon abatement can work — than it does to meet the December deadline. And it may be that the United States is inching, after all, toward the kind of measure that could serve this purpose.

Later I refer to a paper for Brookings by Adele Morris, Warwick McKibbin and Peter Wilcoxen. This advocates a “carbon price collar”–a very good idea that Kerry-Boxer has now taken up. If you follow this issue, the paper by Morris et al is essential reading. You can find it here.

This was the second day of a conference organised by The Atlantic, the Aspen Institute and the Newseum.

David Leonhardt’s interview with Alan Greenspan was interesting. (Megan McArdle’s write-up is here, along with a video.) Greenspan emphasised the need for higher capital requirements in banking and finance. He was also asked to name the issue that we would one day come to see as today’s biggest neglected economic-policy problem. Public debt, he said. Asked how we solve that problem, he said with higher taxes–they will be needed even if control of spending can be tightened–and a VAT would be the best way to raise them. He is right on all those counts, in my view. What’s striking, though, is that as a matter of practical politics the conversation about restoring fiscal balance has not even started. In the end, of course, the country will have to confront this question. But when and how will the inevitable present itself? What kind of further crisis will it take to get this subject on the table?

In another session, political strategists Steve Schmidt and Bob Shrum discussed, among other things, the prospects for next year’s elections. (See Marc Ambinder’s write-up.) Whether and how far the Republicans make progress will depend on the strength of the recovery, they noted. If the economy surges back, the administration and the Democrats might do quite well, said Shrum. At the moment, most economists seem to be expecting a fairly tepid expansion, with unemployment still higher than 10 percent on election day–but not all. The column I mentioned in my previous post mentions a paper by Michael Mussa of the Peterson Institute. This argues, and quite persuasively, I think, that the recovery will be a lot stronger than that, with unemployment falling to less than 9 percent by the end of 2010. Democrats seeking uplift should read it.