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MS. BOONE: We'll get started. I want to welcome you all to our annual afternoon of conversation, and start by thanking the Oracle Brass Quintet for launching us and for Alan Fletcher to lend us this facility. (Applause) MS. BOONE: Every year, this afternoon marks the end of the first half of the Aspen Ideas Festival and the open of the second half of the Aspen Idea's Festival. I'd like to extend a very warm thank you to all the pass holders who supported us for the last 3 days. I hope you had a wonderful time. We certainly did. Thank you very much. (Applause) MS. BOONE: And to those of you that are about to start, we welcome you. We've had a robust week. In the next few days you're going to learn a lot about world affairs, arts and culture, design and sustainability, the arts, but also have some very intriguing conversations about the next economy, global health, a new subject for us, the topic of play, which I think will be both fun and very interesting. And finally, a dedicated series of conversations on Latin America, and we will have a major session on Saturday afternoon with nine former presidents of Latin American regions following a big reception there and Ballet Folklrico from the Aspen Santa Fe Ballet. So I think you're really in for a treat for the next several days. We'll get to everything over the course of this afternoon. We have a very big afternoon. I would only suggest we're not going to take major breaks between sessions. If you find a time that you need to leave, I ask you to do it quietly, and we'll keep going. We'll have short breaks between sessions, but you can't take breaks and we expect people to come and go as they need to. And without further ado, it is my great honor and pleasure to introduce to you our CEO and President, Walter Isaacson and the head of the Bill and Melinda Gates Foundation, Bill Gates. (Applause) MR. ISAACSON: Thank you very much, Kitty Boone. It's always a pleasure to be at the Idea's Festival, because Kitty does all the work and I get to sit up here. Thanks to Kitty, please. (Applause) MR. ISAACSON: And to David Bradley, our partner in all of this, of the Atlantic. David Bradley, thank you very much. (Applause) MR. ISAACSON: Welcome, Bill, to Aspen. It's nice to have you here for the first time, Bill Gates. (Applause) MR. ISAACSON: So this festival started with some pretty downbeat talks from Niall Ferguson and others. I'm going to ask you to uplift us a bit as if you were the preachers we sometimes have in this revival tent. Tell us what you're optimistic about. MR. GATES: Well, I'm optimistic about most things. If you avoid getting close to U.S. politics, that helps to be more optimistic. If you look at the last 50 years, what's happened in the world in terms of health, education, women's rights, almost any metric you can pick, in fact every metric that goes to, in what's called the human development index, there have been unbelievable improvement. One of my favorites is the under-5 childhood death number, which back in 1960 over 20 million children died. Now the number of kids in that group, because of increased population, is up about 40 percent, but the number who died is under 8 million. So you have almost a factor of three reduction in the rate of death, and vaccinations explain about two-thirds of that. So you know, we can look and see things that kind of scare us. But you know, take literacy in Africa, 1960 about 10 percent; today about 50 percent. We're making progress. It's tough in many areas. It sometimes deals like it won't happen. But whether its advances in medical sciences, advances in information technology, advances in energy-type systems, there's a lot to be optimistic about if you look at it the right way. MR. ISAACSON: What about education in the United States? Is that going in the right direction? MR. GATES: No. It's -- that's a very tough problem. Since 1970, a lot of resources were put into this system, that is, teacher salaries particularly because a very generous pension piece were increased to be well above the average. They were below the average. They were increased to be well above the average, and the number of adults was more than doubled. So that is the adult-student ratio was increased by a factor of two. MR. ISAACSON: Does that mean that teacher-student ratio was increased? MR. GATES: No. A lot of those, that new headcount, some went into the classroom -- that is, average class size today is lower than it was back then. But a lot of it went into special needs education where you have judicially mandated very resource-intensive activities. Some of it went into counselors. Some of it went into security guards. There's often arguments about which parts of that are -- have merit and which parts that don't. It is one when you take charter schools; they get a much, much higher percentage of their adults in the classroom teaching than compared to typical schools. MR. ISAACSON: What could we do to improve K-12 education in America the best? MR. GATES: Well, today if you're motivated to learn, if you really, really, really want to learn, this is an amazing time for everyone. Because if you have access to Wikipedia, if you have access to the latest information on the web, there's a new website that I've just been using with my kids recently called Khan Academy, K-h-a-n, just one guy doing some unbelievable 15-minute tutorials. There is great college lectures out on AcademicEarth.org. So if you're motivated, now you can go to the very best lectures. The average quality of the lecture on Academic Earth is greater than any individual university, because it brings together 50 different universities. And it brings together the best teachers, the best MIT teachers who -- the video was acquired through OpenCourseWare the best at Stanford, the best at Berkeley. And it's just a phenomenal thing. And then you can get online, you know, talk to other people about what you agree with, what you're confused about. You can hire a tutor who will generally come from India for about $28 an hour, straighten you out on any of your scientific misunderstanding. So the learning empowerments at one level is showing the potential that every student will be able to go up and assess their skills; understand, okay, what part of math am I confused in. So there is great promise if we use technology well, but more importantly is to take the very best practices. Take the great teachers and the great environments for teaching that have been created, and learn what's there and spread that out to the rest of the system. There is a very small part of the system, which is high-performance charter schools, that prove that for less than what we spend on average for students in the public school system that you can get over 90 percent of the kids to go to a 4-year college, you know, have incredible learning in any metric you want, creativity -- they can add, they can subtract. By every metric it's a phenomenal experience, and the most deprived inner city kids are the ones that it's aimed at and it works well for. MR. ISAACSON: Should we have competition in education so that there'd be charter schools competing with the school monopoly? MR. GATES: I'm a big believer in charter, but even a huge -- I keynoted the National Charter Association meeting which was a couple weeks ago in Chicago. Charter today, high-performance charter at 2 percent. The best you could imagine over a 15-year period is going up to be about 10 percent, and so you're going to have almost 90 percent of the students in public schools. And so you have to believe that changing the personnel system, using online technology, and spreading best practices from charter into those schools, that's where you get the dramatic change. And so yes, we should keep growing charters. We have to shut -- there are some low-performing charters that need to be shut down, which actually messes up the overall statistics from the charter movement. We need -- people like KIPP, though, should grow as fast as they can. They have 88 now; they'll have 105 next year. So they are doing very good work there. But the heart and soul of this issue is going to be about how teachers are encouraged to improve, how they're told what they're good at, given positive feedback for helping other teachers learn to do what they do well. That's the management challenge, the personnel challenge of taking great teachers and having more of them. That's the big win. MR. ISAACSON: You're about to address the American Federation of Teachers which is one of the two big unions, probably the more reform-oriented of the two big unions. Between us -- we won't tell anybody -- what are you going to say to them? (Laughter) MR. GATES: Well, yeah, the American Federation of Teachers, which is -- the president is Randi Weingarten -- has reached out and gotten involved in a number of these reform efforts. So our foundation has four districts where both the district and the union has agreed to really measure the teachers and give them feedback and where they're short in terms of keeping the classroom calm or helping the student who is behind, or helping the one that's ahead, really have ways that -- you pick the dimension that they -- someone else is better at, and you give them a way of transferring that knowledge. So in the four districts, the -- two of those are AFT districts. And so I'll praise the union leader who took the part of the contract that said you have to notify somebody weeks in advance if you're going to come in the classroom, you can only be in the classroom a certain period of time. And now we're changing that to saying, hey, there is a webcam in there that's taking all video and if you have a part where you think you didn't do a good job, you just remember what time that was, show it to another teacher, get some advice. You think you did something particularly well, show that to another teacher and that should go into a library of best practices. So teachers all over the country are looking at teaching various concepts or dealing with various problems, and they'll see who is the best and learn from it. So it's -- it requires a pretty radical change to say that the evaluation system is not going to be capricious on high overhead. What you have by default in America is an evaluation system where all you have to know is how many years have you been in the job and do you have a master's degree, and then you know the salary. There is no other factor that has to do with how well your kids are doing. And the data shows that the top quartile of teachers gives you about 2 years of learning in a year, and the bottom quartile gives you close to zero years of learning in a year. So the variance is mind-blowing. I mean it's like a factor of 50 difference between the very best and the not the best in terms of how much learning -- MR. ISAACSON: Well, so why don't we get rid of the worst? MR. GATES: There are -- once you really evaluate people and give them a chance to improve -- all personnel systems that are in most areas do include that if you've been given enough chances, it might not be a profession that's a match for you. We tend not to emphasize that, because the big win isn't the 5 or 10 percent who may not belong there. The big win is taking and transferring -- for the people who really do belong, they have a few things that are not doing as well. That's where you get the improved achievement, not so much the piece about the bottom. But the piece about the bottom is there. That's part of the -- a natural personnel system that you would have some of that with appropriate safeguards. MR. ISAACSON: In your campus tour, you talked about -- this past year to college students -- about doing something in life that really matters. How do you get more young people into believing that teaching, for example, is a noble profession, other things? MR. GATES: Well, certainly we're in a period right now where the demand by even the most -- the students with the greatest opportunities to go into Teach for America, which is the only real clear path for them if they're not going to get a teacher certificate. The demand exceeds the number of positions. And so it's stunning to see that, you know, at Harvard, at Yale, at all these top schools you had somewhere between 10 and 18 percent of the class applying for Teach for America, and often about out of 4 of those there was enough capacity to let them in. To compound that, not ly is it a finite number, but in many states over the next 2 years, there are going be a significant number of teacher layoffs, anywhere up to about 6 percent of the acher workforce to be laid off in some states. The way the rules work, it's not based who the best teacher is, it's based on who has the most seniority. And so you have lot of young teachers who come in -- not just TFA, but young teachers in general, put re time into the classroom. And by year 3 they're getting better results on average an the veteran teacher is, who's vesting in. So it's -- you have big variance there, d so this fiscal situation is going to make things a lot tougher. And some people o went into the profession are going to find themselves at least temporarily not ving a job there. Overwhelmingly, we need more young people and very talented young ople to go into teaching. Part of the reason the U.S. had better teaching in the past s because of the deep injustice that women didn't have equal opportunity. And so you t very talented women going into teaching. Well, now it's far, far better that they t to pick any profession, and most professions they're now -- the majority -- a very w left that's not the case in, but it means that teaching actually has to get serious out identifying best practices and spreading those around. You can't rely as much on tural talent as you did in the past. MR. ISAACSON: How can technology help us with acher assessment? MR. GATES: Well, the -- in an area like math, the most raightforward assessment is to take the math scores of the kids coming in and the th scores of the kids going out and say did they improve. And we can correlate that th other metrics. If you go to the students and you just ask them two questions -- es your teacher use class time well, and when you're confused does your teacher help u out -- if you ask those two questions, you get a result that correlates perfectly the test results. And the students know who the good teachers are. It's different an who they like. There's a lot of the good teachers they don't like, but they're not dding about what's going to happen when you go into that room, whether anything teresting -- if the class is going to be calmed down, if you're not paying attention the teacher will notice they're not paying attention. And that when you visit a arter school, that I encourage everyone to do, that's what you see that's just so enomenal is the teacher is really tracking everybody in the room. And it's not that ey're small class sizes. There is 30 to 35 people in that room. They've learned the chnique which is not a natural thing. You know the book, Work Hard. Be Nice about ve Levin and Mike Feinberg, talks about how they had to learn how to be great achers. There wasn't anything that showed them, and they found some exemplars and ok different pieces of what they'd done. Well now, the high-performance charters are ing that in a systematic way. They're bringing the teachers in. They do team aching with huge numbers of students and make that work. So it can be done. We also ke the webcam results. We take -- we survey the parents. We survey the other achers. All of these indicators line up. And so for reading, math, you know, you've t very strong data that are constant. And we think the teachers who are involved in ese things will be willing to tell the other teachers, hey, this was not high erhead, it worked well, it helped me identify where I needed to improve. Yes, a few achers may not have measured up to this, but you know, we care about educating the ds, so this is good system. That's the goal. If we don't get the teachers out of the ur districts evangelizing this measurement system -- which does use webcams and ectronic surveys and things like that -- but if we don't get them evangelizing it, en we're had, because you can't change this without bringing teachers as a whole ong and being -- a majority being enthusiastic about what you're up to. MR. ISAACSON: o you worry about the criticisms of teaching to the test or is your assessment system at you're advocating more sophisticated than that or should we, in my opinion, teach the test? People should learn to read and do math. MR. GATES: Well, 80 percent of e things that are called teaching to the test are actually just fine. There are very treme things where you'll learn about how multiple choice is done a funny way. So u can get really, really narrow stuff that's teaching to the test. But to be honest, 's hard to be creative if you can't add or subtract. It's hard to be creative if you n't read a complex sentence and understand what it means. And so yes, that's not the ly thing that counts. But the -- you know, if you go into those charter schools and u look at how they're encouraging kids to do projects and how they're learning to rk together, you won't see any misalignment of, okay, here is a class that's creative t that can't add and here is a class that can add but they're not creative. If the ass is engaged, there is a certain culture of connecting with that teacher, they will arn how to add, and they will learn how to do projects together. MR. ISAACSON: Why we still have textbooks and when we can get rid of them? MR. GATES: Well, textbooks e -- textbooks in the U.S. are particularly maligned, because what's happened is ey've been designed by a committee and the incentive is to change them because the xtbook guys don't like competing with the used textbooks. And the person on the mmittee who wants to add something thinks, you know, we don't teach arc tangent ough or we don't teach pie graphs enough. And so the textbooks just keep getting gger and bigger. An American math textbook is three times larger than an Asian xtbook. And we re-teach concepts many, many times poorly, as opposed to teaching a dest number of concepts a few times. And it's stunning that there'd be this systemic fference. We have 50 states, but they all fell into this trap of committee-based -- mmittee-designed textbooks, and the Asians did not fall into that trap. And so there this common curriculum you sometimes hear about. There will be textbooks for that at'll be online and free. You still have a problem. You can't assume everyone has electronic device. You know, our foundation was involved in putting personal mputers into every library, but even that -- that's not perfect universal access. In e next 3 or 4 years, some evolution of the Netbook or iPad or phone will be adequate r engaging in that textbook in an interactive way. And the price will come down ough that you can do that for well less than you spend buying the textbooks, and yet at you get is a lot better than that. Beyond the textbooks, you need lf-assessment. You know, the one key thing in math is that people progress at fferent speeds. And people need to be reinforced of -- okay, you got this piece, you n move on. And -- or if you get further up and you're doing story problems, you need agnosis that says look, the reason you're messing this up is not because of anything the story problem; you just keep taking two minuses and getting a negative number. you know, long division or turning an improper fraction into an integer and a action you've got that messed up. And so, self-assessment software is a big part of is where any student can sit down and try things out. And that is happening, whether 's stuff that we're funding, Race to the Top -- money is funding. The contrast, what ppens today, where you graduate from high school and then you take -- when you go to mmunity college you take this test that the majority of minority students fail, you t stuck in remedial math and the majority of the people get stuck there never get a gree. So they've wasted money. They've been humiliated. They spent a lot of time, d they get nothing out of it. That's because it's completely opaque. You aren't ld which part is wrong. The test is this black box that neither you or your teacher ew about afterwards, and you didn't know about beforehand. Our view is you should be le to go online, spend 15 minutes and know exactly what result you're going to get d know which areas you need to go in and work on and everybody should have free cess to that. MR. ISAACSON: What are you funding at the Gates Foundation in ementary and secondary education that you're particularly excited about now? MR. TES: Well, most of it falls into this teacher measurement and improvement activity, d that's a very big, big process. MR. ISAACSON: Have fun explaining it out to the T one more time, you know. MR. GATES: Well, the AFT isn't monolithic. You know, it there's a lot of teachers, and every teacher there wants to teach well. And if they ach well, they want the student in the next grade that they put so much energy into, continue to have a good educational experience. And when you contrast that to -- s, you know, maybe in terms of what they want in pensions or job protection or things ke that, things have -- you know, that's been overemphasized. It's not like we have me magic measurement system that they know about and they know is good and they're jecting that. The status quo is very attractive. The system works. You know what ur salary is going to be. If you stick around long enough, you're paid very, very ll because the pension is so much more generous than it is in other sectors of the onomy. It's understandable that getting people to take risk and do these new things, ey're going to be conservative about that. And particularly at a time when these ate budgets are so messed up and the way that money is allocated to various things thin education is not very rational to date. MR. ISAACSON: Why's that? MR. GATES: ll, the -- as you cut budgets, at the time you actually cut them, you can't negotiate the pension thing. You can't go back and say okay, the special needs ing, you know, maybe we need (inaudible). Those things are untouchable, and so what u can touch is -- are things like the length of the school year. Hawaii cut had the one of the shortest school years in the nation and this nation has the shortest hool year of any country, even the Asian countries and the rich countries. And we're ing in the wrong direction. The good charters, almost uniformly, have long school ys. You know, the extreme is the boarding school where you have that sort of 24-hour vironment that you are creating -- MR. ISAACSON: Well, should school days be till 00 or 7:00 p.m. and school years be 11 months? MR. GATES: You don't have to go that r. KIPP is -- the school day is about an 8-1/2-hour day, and they go every other turday and they go 3 weeks in the summer. And of course the teachers are working nger hours, because they make themselves uniformly available to the students ter-hours. So it's a very -- the commitment of those teachers and their equivalent in n-charter schools -- because lot of those people in that top quartile are not only turals, but the energy and devotion they are putting in is pretty phenomenal as well. nd one thing -- you imagine that if you raise the average up, they would feel more warded and maybe even feel better and do even more of that. MR. ISAACSON: Do you ink that -- you talked about this pension that's very generous for teachers. And it nd of kicks in, not right away, but after 15 years or something. And then you talked out state budgets. Do we have a huge unaccounted-for pension-overhang problem that's ing to hurt our budgets? MR. GATES: Absolutely, it's pretty mind-blowing. The book there was a book written about it about 8 years ago called Why America Slept. And erica is continuing to sleep. It's partly because the way that state budgets are esented is so fraudulent. There is a thing called the Governmental Accounting andards Board that allows you not to take full pension cost, not to take retiree alth care benefits. So whenever something is free, it gets overused. And so proving the pensions of the people already retired never shows up on the state dget. Letting people retire early, have more overtime factored into the retirement ing, all these things come from the fact that -- when the person who says yes to ose things, the government person, it doesn't feel any pain at all because there is number that ever shows up. So we need a lot more transparency about this which will bad news, and at a time when state budgets are already very bad. And then maybe 'll be more rational about it. I mean it's like when stock options were free and ople were saying, oh, we would use them even if they cost a lot, because they are so gical; no. In fact, when the true cost was accounted for, they were still used, but ey were used about a fifth as much as they were before they were in this accounting mbo that they looked free. And now, pension payments to government employees, lots that looked free. And we messed up long enough that we have a huge overhang here. also -- you get some imbalance between the people who don't vest in and do vest in cause the -- how big that discontinuity is. MR. ISAACSON: But in terms of a big erall economic issue, didn't we get a wakeup call from Greece, and for that matter, lifornia and Illinois now, and isn't there something radical we're going to have to to get these numbers aligned? MR. GATES: No, we didn't get a wakeup call. The keup call -- unfortunately, there's only two types of wakeup calls. One is a society at has a lot of centrist politicians who are very intelligent, who are looking at ese long-term trade offs and involving people in those discussions. That's one way at you do the stuff. The other is called the bond vigilantes -- when your debt rates ike up and they are acting like, hey, there's some doubt you're going to repay your bt. Why was Clinton able to balance the budget in the '90s? Well, medical cost ren't as out of control as they were. Some of these pension things hadn't come ong. You didn't have the Reagan tax cuts, but you did have the bond rates saying, y, action should be taken here, and people said, okay, maybe we need to do something. or a variety of macro economic factors, the U.S. Treasury rates are super, super low day. So it looks really free to continue federal deficit spending and state deficit ending, which is nominally a balanced budget. But only accounting fraud allows you to etend it's balanced. There's 49 states having a constitution other than -- erybody, but Vermont -- has to balance their budget. And so no, the Greek thing did t cause good information to be put together. I mean, tell me what the projection for e California budget 5 years from now is. They're not required to do it. There is st nothing that forces these type analysis, and so you don't get these discussions. d you look at how many levers does a governor have to pull when all of a sudden he ts news his budgets are out of balance. You know, Schwarzenegger tried to lay off ison guards. The court wouldn't let him do that. He tried all sorts of things that e really inefficient. And it's the same thing for school districts. When they want cut their budget, they cut certain programs. They'll cut buying software, not the nd of software Microsoft does, but educational software. They'll cut some good ertime programs. They'll cut things that are very effective, because you've gotten to point where you can't trade anything else off. Local governments will shut parks at saves tiny amounts of money. They'll reduce -- (tape interruption). Your tools at are left are really very inefficient, very poor. You're in trouble, but you -- rrent -- our current course and speed will get us to that point sometime in the next cade. MR. ISAACSON: The overall structure of that conversation would have to be how you allocate resources in a sensible way. MR. GATES: That's what government is all out, yeah. MR. ISAACSON: Talk about -- let's do some allocation of resources. The oportion of GDP that goes to health care, is that over-allocated? MR. GATES: Well, e U.S. spent 17 percent of GDP on health care, and you drop down to number two, which Switzerland at 12 percent. And so you say, will that -- hey, what do we get for at. Well, we get nothing. The health outcomes, which are complicated to compare, t the health outcomes are basically slightly worse both in terms of averages and the equity. The -- our bottom quartile is very ugly compared to all other rich countries' ttom quartile. Our upper quartile is somewhat better, but that's how you get the equity. So we're spending at a huge rate, which, if it wasn't increasing faster than flation, it's increasing as a percentage of the economy, then okay, you can probably ford it. But as it continues to grow, it squeezes unless people say, yes, I would ke to be taxed a lot more. And most states have these super majorities that are quired to do that, and you know, it's not like -- I mean it's not clearly a good ing either. But unless -- so as long as you're dealing with a finite amount, as the dical cost goes up -- and that shows up both in state budgets' so-called state dicaid spending and it shows up in the federal budget as Medicare and they are part Medicaid. It squeezes out everything else. So right now what you see is it's ueezing higher education. You're raising tuitions at the University of California at e -- as rapidly as they can, and so the access that used to be available to the ddle class or whatever is just rapidly going away. That's a tradeoff society is king because of very, very high medical costs and a lack of willingness to say, you ow, is spending $1 million on that last 3 months of life for that patient, would it better not to lay off the -- those 10 teachers and to make that trade off in medical st. But that's called the death panel, and you're not supposed to have that scussion. So you, of course, were making -- MR. ISAACSON: But that's just an teresting thing you just said. What you just -- the last 3 months in life for one rson is something because we have an added discussion of how to allocate that money. means we lay off three teachers to do so. I mean, in other words we haven't had -- . GATES: That's right. Society is making -- MR. ISAACSON: -- this type of location -- exactly. MR. GATES: We're making that tradeoff because of huge medical sts that are not examined to see which ones actually have no benefit whatsoever. MR. AACSON: Well, they -- MR. GATES: And because of pension generosity, we will be ying off over 100,000 teachers which -- you know, I'm very much against that. And e whole AFT will agree with me on that. MR. ISAACSON: How would you -- I mean, what it that causes us to spend 17 percent of GDP and Switzerland to spend 12? What's e differential? MR. GATES: Yeah, I've read a bunch of books on that. It's mplicated. I have a bunch of experts that come educate me. It's a variety of ings. You know, the last year of life we're not particularly good at. Diabetes is a ge problem in the society that it is not -- because of obesity which is not as much some of those other societies. One of the things that jumps out -- and I'm not -- n't claim to be an expert on this, and I'm trying to learn enough to understand what uld cause innovation to reduce this what has been an inexorable rise, how do you get novation on your side to reduce those costs which I think can be done. But one atistic that jumps out is we have three times as many specialists as we have general actitioners. And no one else' system has anything like that. That is unique to the ited States, and it's because it's a rigged market. That is the reimbursement rates ve been set -- the pattern set by the government through Medicare and your -- it was rational decision to become a specialist. But what that means if you're a patient, u have lots of doctors who are coming in and doing little pieces of things. Whereas Germany, which is the best, there are 1:1 ratio specialist to GP, that GP is having do a lot and really manage your care. So both in terms of quality and cost, it's a ch superior system, and it's hard -- MR. ISAACSON: Will we get there better if we ve from a fee-for-service system to a health maintenance system? MR. GATES: solutely. If you look at what effectively the other countries are doing that gets e incentives aligned properly, it's effectively you have somebody who's got the -- it s to look at the long-term cost of somebody's sickness. And so they are incented to vest upfront in preventative care and the relationship with that patient. And there not some artificial thing where the sicker your patient is, the more money you make. mean in Medicare if you can get your asthmatics to have acute episodes, you get ch. And if you teach them how to take their medicine and how to do the right things, u go to the poorhouse. MR. ISAACSON: Right. MR. GATES: So it's an odd sort of the stem that we've designed. Now, if you're in an HMO like the Kaiser Permanente, it's e opposite. And so you say, well, let's look at the data on asthmatics that are in at HMO versus who are not, and you see exactly what you'd expect, a very dramatic fference. But forcing people into an HMO, I'm told, is politically very difficult. t that would be a huge mode change in terms of the incentive system, you know, maybe t a doable one. But if there's any clear lesson from the European systems, it's ving that alignment of interests. MR. ISAACSON: Speaking of allocation of society's sources, I think you said it on your campus tour at least at Harvard, that the location of IQ points of our society to Wall Street financial instruments was higher an it needed to be, and that some of those IQ points should go into other fields. MR. TES: Yeah. Well, if you say, okay, one portion of society's IQ goes into studying eat teachers and documenting what those great teachers do and how you would spread ose practices, you know, what is effectively the R&D component in education, it's out as close to nil, as you can imagine. And yet, what's the most important thing in rms of having a society that has both got equality of opportunity and is competitive th other countries? It's education. And so it's just mind-blowing misallocation. u know, my favorite vineyard is that guy Salman Khan. He was a hedge fund guy making ts of money, and he quit to do these little web videos. And so we've moved, I'd say, out 160 IQ points from the hedge fund category into the teaching many, many people in leveraged-way category. So you know, that was a good day, the day that his wife let m quit his job. Now, we need something like that, you know, in a very broad and amatic way to learn about education, the money we spent on education. When you go to state and say do you understand that your books are fraudulent, they -- first you'll et with the politician. And they'll say, well, here is the career bureaucrat, meet th them. They don't know any numbers. And then you'll say, come on, doesn't anyone re around know some numbers? So there'd be some 22-year-old who's being paid, like, 0,000 a year. Went to a great community college and he has a copy of Excel. And he sitting there trying to figure out the state budget. So -- and you know, he's been ld we have to cut $500 million in the next month. And so he's saying, well, what out this at-home care thing? Maybe I'll just zero that one out. So the IQ that's voted to these complex government tradeoff things is ridiculous. I mean -- pplause) MR. GATES: You know, if you gave me 3 years to cut the California budget as ch it needs to be cut, I'm not sure how well I do. But you know, at least you might aw on some people who know their domain and really look at what's going on and you'd tify people. If you're going to get rid of something, you know, they'd have 3 years' tice that okay, the amount we spent on some category is going to go down and you can epare for that. So it's a really -- the closer you get to it, the more you think, w. How has it worked so well for so long? Because it has. MR. ISAACSON: You and hn Doerr, I think, and some others have been now involved in energy, energy chnology, and trying to reduce carbon both through technology and maybe putting a ice on carbon. Tell us about that. MR. GATES: Well, energy is this super important d interesting thing in the economy. If you can bring the cost of energy down, it proves everything. It improves the cost of food, the cost of transport, the cost of ter, everything has got a gigantic energy component. So if you look at the progress civilization, it is about low-cost energy. That's the shift from human muscle mass d animal muscle mass to engines. So you know, first you start with coal, then you ve oil, you have natural gas, so the -- it's another industry. It's not as extreme education. It's another industry where the investment in R&D is very low. Now 're trying in our energy economy both to reduce the cost and to put a constraint on , which is zero CO2 emission, not, you know, 50 percent less or even 60 percent less. ffectively, we have to get to zero. And so the fact that we don't encourage market novation by having either the carbon tax or the regulations to do that, and we don't ve the government funding the basic research to give us the highest chance of making ese breakthroughs, it -- you know, it feels like a mistake. And in this case, it's a obal problem. It's not U.S. versus China or anything like that. This -- you know, e warming problem is global. In fact, the irony of it is that the huge negative fects will be in the tropical zones. Those of us in the temperate zones, increased 2 will probably improve agriculture output to some degree. We don't really know. 's within the level of uncertainty of whether it will only be slightly good to mewhat bad. In the tropical zones, it's going to be bad. It's just a question of w bad. The people who live there were the poorest, didn't cause the CO2 problem, and t they are the ones who are going to suffer from it. You know, this is a time where reign aid is being cut as all these budgets are being brought down. So the fact that 're not working on behalf of the poor to create -- innovate and fund the R&D for eaper energy and CO2-free is kind of disappointing. So John and I and some others id that the R&D should be up by about $11 billion a year, which would take it up to 6 billion, which would be about 1.5 percent of the amount spent on energy in the U.S. o we, you know, we went to Washington, D.C., and met with senators and the President d we had a nice binder for our report. (Laughter) MR. ISAACSON: I couldn't tell it tter than that -- MR. GATES: Well, no, who knows, who knows. Actually I should be nical. I don't know if it will have any effect. I think the R&D provisions of any ergy bill will probably be much, much better. The so-called House bill had been -- e extra money had been frittered off into various very specific technologies and her things. So hopefully, we'll get something better than that. That looked like it s headed towards -- MR. ISAACSON: A lot of what happens will happen in the private ctor. Tell me about what you're doing with Nathan Myhrvold, Vinod Khosla and some of ese pretty awesomely smart people. MR. GATES: Well, one great thing that has ppened is that the -- there has been more capital and IQ put in the energy innovation the last 6 or 7 years than was true before that. Vinod Khosla was among the first , you know, really get there. John Doerr and his group is now focused on that. A lot so-called Silicon Valley -- and I use that term very broadly -- that type of sk-taking is looking at neat, neat energy things. And there are inventors all over e world, including a lot in the U.S., but a lot in other countries as well. This is nderful. There are regulatory things and some basic science things having to do with terials that are -- also have to be done. So you can't just count on the innovation. good example of that is this nuclear company that Nathan and I have put time and ney into, called TerraPower, which has a whole different type of nuclear energy that oids some of the problems of the existing nuclear energy. And you need somebody o's willing to build the novel reactor. And the U.S. is not exactly the place where at decision would necessarily be made quickly or would be made in the affirmative. we're -- we've got this designed, which is brilliant people -- I guess so far are l based in the U.S. -- who are going around talking to various countries about would ey build one of these things. And if it -- you know, on paper this thing is a racle, it -- of course it emits zero CO2, and the electricity is cheaper than al-based electricity -- MR. ISAACSON: I'm sorry, how does it work? MR. GATES: Oh, 's -- when we burn uranium today, uranium has two different isotopes. One called 235 that's 0.7 percent of the uranium. So it's a tiny little piece. And you have to what's called enrichment to build that piece up; that's very expensive. And then u burn that, and then you get a bunch of ugly waste. What we do is we take all the anium, including the 99.3 percent, and we have this -- a type of reactor that can rn that. And we never open it up and we never move it around and we don't -- you ow, it sits there while the radioactive decay goes away. So the economics -- sentially the fuel is free, and you avoid the waste problem. We can even burn the ste from those other guys. So it's enough of the different reaction that the cost to ild it is a lot lower. Now, the problem is that it's new. And anything involving clear that's new, people are appropriately cautious. And so there's a few science estions, like, are there so many neutrons flying around that it messes the thing up? don't think so, but there'll be a tiny bit of risk until we actually build it. yway, I'd say it's one of about a thousand -- if we have a thousand ideas like rraPower, at least five of them would work. And so what we need is an environment ere you know that the regulatory environment -- you know, so you have a breakthrough carbon capture. Is the government willing to sequester what's a million times more an the nuclear waste underground for the long term? Very dangerous, very scary, icky thing. Why should you invent something that helps with that if you don't know if e government is really interested in supporting it? And in fact, we'd gave the clear waste where they agree to do a particular thing in the -- then they changed the nd, doesn't set a very good precedent because that amount of waste is miniscule, I an absolutely tiny compared to anything about so-called carbon sequestration. MR. AACSON: You know, from the 1870s to the 1890s we were very innovative and sk-taking in the age of invention there. And that happened toward the end of the th century. And you just keep saying we've become a little bit less driving towards sk-taking, driving towards innovation. What could we do to keep ourselves an novative and risk-taking society? MR. GATES: Well, there is a natural cycle in cieties. You know, what the U.S. did in the 1940s and '50s is unbelievable. The gineering projects were incredible. What Japan did for steelmaking, shipbuilding, ctory quality in the '70s and the first part of the '80s was unbelievable. That same rt of fervor of we have to take risks to move ahead, it exists in China today, and e world benefits immensely. Those Chinese advances, that cheap steel, the ingenuity, e quality of manufacturing, that was a wonderful gift to the world. There are dustries like really breakthrough energy things, biology things, software-related IT ings where the U.S. is by far the leader, by far. You know, we managed and even -- u know, even if we don't do things right, it takes a long time for that to erode ay. If you want to erode it away, you would raise tuition at the University of lifornia so we're -- contract. You would mess up immigration -- we're high IQ ople. What's the most important import into the United States? IQ. You know, this untry -- smart people from all over the world who wanted to come work here and mpanies like Intel, Google, Microsoft, Apple, you know, that is part. You know, 15 rcent of what you get is you get these bright people and you're creating jobs around em, and you know, paying lots of taxes; it's a great thing. So the -- if you want to ay strong, it's your basic education, it's your university system, it's your basic search, it's immigration. There are things like that that will maintain a relative rength. The U.S. in the next 20 years, is going to invent wonderful new medicines. ese trend lines, you know, are there a little, but you have to say what is your goal. your goal is the U.S. relative to everyone else, you don't care how many people are ing of Alzheimer's or anything, then 1946 is your year. And everything has been wnhill since then. You know, we had Europe in this war-torn stage, China was in this credible famine, and we really dominated everything. And heck, we're only 5 percent the population. It's amazing. You know, we spent over half the defense spending in e entire world, spent by this 5 percent. Now, is that impressive? Maybe. Maybe t. You know, medical expense -- some of it is spent well, some of it is spent orly. So we have huge advantages that we can renew. I'm not trying to paint a gative picture at all, but China's relative position, India's relative position -- 5 rcent of the world will not dominate innovation to quite the degree that it does day. And that's fine, you know. If somebody invents an Alzheimer's pill in China, d you know, one of us here gets to take that, you know, that's fine. And we'll all y, oh, made in China, okay, I'll take it. (Laughter) MR. GATES: Innovation -- you ow, if somebody invents a way you can get energy with no CO2 emission, and you know, 're not going to overheat the planet, it's okay. We should use that technology even it was done on an international basis. So living standards are going to get better; e place they will be the best for the perceivable future will be this country. The telligence about some of these trade-offs, and the fact that the status quo feels od enough, the status quo in terms of education -- sometimes ask people it's not -- t the data is not shoved into their face like the way that's waiting for Superman vie tries to shove in their face. We are more content with the status quo. And it ans that, you know, we can end up arguing about things that aren't really about the y long-term future things and not addressing some of the things that are. And if you t too close to that, you think, wow, you know, I wish some of those things were tter. But it's a very positive picture. MR. ISAACSON: You know, you talk about ina perhaps being the next engine of innovation and -- for Alzheimer pills or atever. You were in a discussion last night -- I think it was with Jim Steinberg, e deputy Secretary of State -- on the question of whether China's restriction on the ee flow of ideas, information, speech, and its restriction to freedom would constrain ina from being as innovative as the United States. MR. GATES: The -- any of those nstraints on political speech are bad. But they are not -- anybody who thinks that's lding China back in a significant way in terms of scientific innovation is wrong. In rms of the dialogue in universities and how they collaborate in various things, that not holding them back. And so they will innovate. They represent 20 percent of the obal population. And they are on their way to using 20 percent of the world's energy d having 20 percent of the world's ideas and having 20 percent of the world's litary budget. I mean it's outrageous that they should do this. But they are sort carrying their weight more and more in terms of everything good and everything bad. ey are -- you know, their energy usage is still a quarter per person of what it is in e United States. But they've got more people, so they manage to actually get ahead us. They're actually not ahead of us if you count the stuff they make for us. So 're still the biggest CO2 emitter in terms of all the nice little gadgets we use and erything. But if you build them for our gadgets, then they just passed us in terms of 2 emission. Anyway, it's a complex picture, but their innovation is full speed ahead d so much the better as long as we are also doing -- renewing the things that have pt us so far ahead. And you cannot say China will the engine of innovation in the xt 20 years. U.S. universities were built up over 50 years, and they are amazing and ite unique. And anything we do will only erode that in the second 10 years of the -year-period. So the U.S. will be the engine of innovation, not completely, but in a gh percentage sense in biotech, IT, software, even the physical science things that derlie what we need in terms of some of these energy breakthroughs. MR. ISAACSON: e question about your world of Microsoft. Are we moving away, after 30 years, from a sktop and PC-based information environment to one that's mobile or based on social tworks in which the PC will be left behind? MR. GATES: Well, the term PC, if you ew it as a very static thing on the desktop, then it was left behind when we got rtable PCs. If you view it as something that has a keyboard, then as we get the pen d voices input, then we'll leave it behind. So it's partly a matter of terminology. en I'm browsing the web on my TV and I'm using the same software and standards and aphics that were used out of the PC revolution, is that a PC or not a PC? I don't re so much about the term. The software magic that lets you find information, alyze information, all that that came out of the PC revolution has moved on to the one, which is a great thing. And, you know, what's the boundary between a phone and a ? Well, there is going to be all these devices in the middle that define easy tegorization. Because as screen technologies, you can roll it out in various ways, fold it; it really is going to create wonderful new devices. And almost every surface ll be a screen-type device and almost anywhere you go, between having the camera and ice input, you'll be interacting on that device. There'll still be pens. Pens, I ink, will surprise people in terms of the tablet-form factor. There'll be -- MR. AACSON: In other words, you'll have, instead of, like, an iPad, a pen-based input vice for a tablet PC -- a tablet device. MR. GATES: Yeah, we've had it; it's not en mainstreamed. So I'm predicting, once again, its arrival into the mainstream. MR. AACSON: You predicted this before. MR. GATES: Absolutely. And, you know, I'll ther be right some year, I'll be dead some year. (Laughter) MR. ISAACSON: But you y there's not that much of distinction between, say, a phone and a PC. One stinction is that the PC tends to be based on the openness of the web and searching formation like that, whereas mobile devices may be based more on apps that are a ttle more self-contained. Does that change things? MR. GATES: Well, apps on the PC e self-contained. There's lots of great apps on the PC; there's lots of great apps the phone. You have all sorts of things that are somewhat orthogonal. You have one versus PC, you have software that runs on multiple manufacturers' hardware like droid or Windows Mobile versus software that only runs on one hardware (inaudible). d you have many different things that are competing in the marketplace. And it's a ry healthy environment, because you've got some people who believe in the pen, some lieve who don't. Some people who believe in voice, some people who don't. Clearly, u know, dedicated devices like a dedicated music device or a dedicated mapping device a dedicated remote control device, they will cede over time to a general device. And if you can have an LCD that's as thin as a Kindle and has good battery life, if it ves your browsing, movies, color, and you know, therefore you can edit documents, mment documents, take notes, things like that, that will be better. In the hardware rizon of the next, even 6 years, we are going to get devices that will really call to question whether you want any specialized devices at all. If I can take a phone d roll the screen out to be 12 inches, yes, I'll still have the intelligent iteboard, I'll still have the TV in the home. But the current categorization, the ly way it really stays around is talking about distance -- holding it here, having it here, and having it further way down. There are user paradigm things about the stance and the size of things and the techniques of interaction that even though it n't be based literally on one code base, one hardware architecture, you're going to ve to have some adaptation for screen size and screen distance. MR. ISAACSON: Let me d by asking you to explain what you call -- you and Warren Buffet and John and hers, your challenge. MR. GATES: Yeah, the -- philanthropy in the United States is eater than in any other country. And so sort of in the spirit of saying okay, take a rength and renew it, you know, push it to new heights, Warren Buffet and I and linda got together and had several dinners with people of significant worth who were ing philanthropy and talked about why were they doing it, what did they learn, what d they like. And those dinners were amazing. And in fact, in the dinners it came up, sh, maybe other people should hear how we made it fun, how we avoided some bad ings, how it can have some huge impact is -- and be as fulfilling as whatever tivity created the wealth. And so we decided to create this thing called the Giving edge. We've called a few people up and we've had a very good response rate. John err and many other people have signed up to that. MR. ISAACSON: And Ann. MR. GATES: d Ann, sorry. Yeah, it's sort of a family decision. You know, it's like, you know, ur kids realize for the first time, at least half your money is not going to them, ich might be good for them. (Laughter) MR. GATES: I said that to somebody who was on e phone. He said his son was 6 months old. I said okay -- it didn't -- that didn't nvince him. But it -- so you know, we hope it's grouped, it'll grow in size. Right w, the largest states in the U.S. give 15 percent to charity, and you know, we think ere is room for that to be more. If people knew how much fun it was, what the impact s, they would both think about it at a younger age and use some of their talents wards it. They would involve some of their high talent associates in doing the work, d they would probably be drawn into giving more. And that's a wonderful thing. We're ing to do the same thing with some people in India where the expectation for people high wealth is not as established. And so it kind of hangs in the balance. And kewise in China we've got some people signed up to do -- it'll be more next year -- t to do a Giving Pledge equivalent there. So it's something we're trying, and every me we do these events, you know, I learn something about giving. I hear unbelievable ories about what people have done and how it's touched them. So for everyone volved in the thing, it's kind of a fun thing. This is not kind of a guilt-trip ing. Now, being called -- calling somebody and having him say -- no, I'm not good at at. But I'm getting better at it. Not many have said no. MR. ISAACSON: Bill, thank