I got a note from Taylor that he asked me to read to the crowd. So it says, "Dear Mel, if you have the opportunity, please relay this message to my friends at Bogleheads 10. My first visit to the Vanguard campus was during our second Boglehead reunion in June 2001.

I will never forget the thrill of meeting and listening to Mr. Bogleheads and meeting face-to-face with individual forum Bogleheads whom I had come to know and respect. It's an honor for all of us to be part of Mr. Bogleheads' great crusade to give ordinary investors a fair shake. Savor the moment.

I know that someday each of you will look back on this occasion as three of the most memorable days of your life. Best wishes, Taylor." And now, this is a special part of the program that started probably five or six years ago. We call it the Farside Chat, and there's nothing organized about it.

Bill and Jack are going to ramble in any fashion and talk about any subject they want, just about any subject they want. That's an inside joke. So anyway, I'll get out of the way. I'll turn it over to Bill and Jack. I'm going to start off with just a real, real softball here for Jack, which has to do with the fact that a lot of you folks are coming here for the first time, something like 40% of people are coming here for the first time, and I think it would be worthwhile for those people to hear.

It's always a story that, you know, you may have heard it before, it's worth hearing again, of how the Bogleheads and Jack got together and how it more or less got started from Jack's perspective. It was, I guess, 10 or 11 years ago, and when I was speaking at a conference in Florida, and this wonderful gentleman came up and chatted with me, and that turned out to be Taylor Larimer.

And we talked about this and that, we got acquainted, and I gave a speech that was so anchored to the investment salesmen that were at this conference that the guy running the conference walked off the head table, and all I was doing was telling him the truth. In any event, with that as the beginning, we struck up a wonderful friendship, and I got to know his wife, his lovely wife, Pat, and it became greater and greater than we had.

I was speaking down in Florida then, again, another year, I think a year later, and he said, "Why don't we get the Bogleheads that are down there at this, maybe, company's conference, and we'll go all get together." So, I come down, get off the elevator, and there is a sign saying, as it was called then, "Vanguard Diehards, meet here." And I thought, "Wow, this is getting a little out of hand." So, we went over to Taylor's lovely condominium over on Biscayne Bay, and just had a nice evening together.

I think there were about 15 of us, I can't remember, not huge, and we just had a great time together. I typed out a little note to all the rest of the diehards, and we went on from there, getting more and more formal each time. I should tell you, I think this is okay to tell you, that, and this is very much related to it, what went on at Vanguard last night was really, I thought, incredibly wonderful.

They turned out a wonderful group of people, a fine panel, some of these guys, the guy that, Rick Giannone, Giannone who runs our ETF effort, our newly expanded ETF effort. I went over to apologize to him for causing him so much trouble. And he said, "Basically, you're who we talk about all the time.

You have the way of doing it right, and we want to do it that same right way." So I was very relieved by that. And I also said, "How long have you been here, Rick?" And he said, "20 years." And I said, "Oh, Lordy, I just can't believe that you're going to be at Vanguard in 20 years, and I don't think I've ever met you before." I just hate that when it happens.

I always talk to people in the lunch line, that sort of thing, at the galley, and I'm like, "You know what? If there's a woman, I give them a kiss, and they go, "Lordy, I love that." He said, "No, we didn't meet." He said, "You talked to us on my first day here." So that was a nice part of it for me, and I know the guys that are doing the foundation.

And I thought Rebecca Katz, who used to be kind of a shy, introverted person, was the most wonderful emcee. She was a superwoman, and she's been kind of a nice ally of mine for many, many years. But when the idea of Vogelheads, you can't die hard, came to Vogelheads, I guess, under the influence of Taylor, and perhaps Mel, and it was not, in a little difficult political time at Vanguard, it was not really all that welcome a designation.

And the very first time, this is a funny story, I think, the very first time we had a meeting in Valley 4, somebody's farm out there, do you remember that? Anybody remember that? And so I invited everybody over to Vanguard on a Saturday to spend a half a day in the office, and I was told, "You wouldn't be allowed on the campus." Wow.

And an article appeared in the paper saying you were all coming to Philadelphia, and I was accused, they changed their mind quickly, and I was accused of blackmail for planning the article, but I hadn't planned the article. But in any event, we then got to a more welcoming stage last year, and I'm not so good on the little things that mean a lot in these kind of meetings, so they stepped up their act last year, a nice little formal program with photographs, a whole lot of staff around there to help you out, and a wonderful panel, and I gather they gave you like little goodie bags or something like that.

I don't know that, they didn't give me one. No, I had to leave early, I promised that he'd let me go for dinner by seven, and we finally aided aid, I think, but in any event, it's now you're really getting enrolled. Everybody loves to have you there. They put on a real show for you last night, and I was really immensely proud of all those people representing us out there, not only on the stage, and introducing our emcee, of course, I mentioned, but also the people that had their little ETF booth, foundation booth, and investment advisory, and so on down the line.

So it's reached kind of a full fruition where you're really integral to this community, and you should have been all along. I mean, you represent who Vanguard is. We don't usually get 150, or 60, or 70, whatever it is, people in one place, the stockholders that are basically our mission in life, so it's just been a wonderful thing, and knowing Taylor from the very beginning was wonderful.

I actually wrote him, I tried to stay in touch with him a little bit, I never know exactly how his health is, but I wrote him about a week ago, telling him how we miss seeing him here, and he wrote me back, I think it must have been the same day, or maybe it was just a coincidence that he wrote me at about that time.

So that was a beautiful part of the whole thing. So I very, very much appreciate, I don't want to make this too long, Bill, but I so much appreciate your being with me, and supporting me, and when we're out in Denver, I don't know how many of you remember Denver, I got you all invited to the Financial Analysts Federation meetings, and the first question they asked me after I was speaking out there, the first question they asked me is, "Who are the Vogelheads?" How can I join them?

So you're doing a great job, your fellow investors, and I'm just thrilled to be with you, and I'm sorry, by the way, I hope this mic is, I'm using it a little bit better than yesterday's, I don't like those things, but in any event, so it's onward and upward, and I'm proud to be part of you, and I never would have thought that my name as a borrower would be copyrighted.

A couple of years ago, we moved, and as one's want to do, one goes through a bunch of things one has to go through in order to move, and one of them was a pile of letters, and this goes back to about, it was a letter that went back to about 1990, before I had done any writing, and it was in response to a really whiny letter I had written to Jack about why there wasn't an international bond fund, and the letter was two and a half pages, single spaced, telling me why I was wrong, and that's Jack, I mean, how many corporate chairmen are going to give that sort of response to a corporate customer, a very small and unknown one, so that's why Vanguard is what Vanguard is today.

I thought I might start with something that we perennially talk about, which is the age equals bonds rule, which is when might you want to deviate that, and from that, perhaps we'll segue into what alternate strategies you might consider or might not consider for someone who is retired and concerned about longevity, a 70-year-old person not working, who perhaps needs a 5 or 6 or a 4% drawdown, does age equals bonds work for that person, or are there other strategies, more better-than-usable strategies that they might consider?

First of all, as I've tried to say, the age equals bonds is a wonderful way to begin, a wonderful kind of framework for what you think for the simple reason that when you're young, as was discussed a little bit yesterday, that when you're young, you depend on human capital for your wealth, and when you're older, you depend on investment capital for your wealth when you're retired, and so the reality is that you've got to think a lot more about income when you're older.

When you mentioned, Bill, something about 5 or 6% withdrawal rate, that's just almost no matter how old you are, that's just excessive, and I'm starting to wonder a little bit whether in the environment that seems most likely in the years ahead, that even 4% might be a little high, maybe 3.5%, and there's risk in all this whenever you're taking money out, so you want to be very careful of it.

That's the basis of it. To me, no strategies that go beyond the basic public markets that give you the greatest chance of reaching your goals, but the public markets are things, as I mentioned in one of those late slides yesterday, the one thing you can't control is return. You can control time, you can control cost, you can control risk, but you can never control return, and so I don't know what other options there are out there.

In a way, I don't pride myself on my great consistency. I'm fairly consistent, but I don't think overbearingly so, but even as I say, beware of reaching for yield, I was telling you that you ought to think about reaching for a little yield, because if you're in the bond index, because the Treasury bonds have so dominated the industry, the index, that was not the case when the bond was formed way back in 1986, and the yield is pathetic 2.3, not pathetic in this market, but not particularly attractive would be 2.3%, so I think you can go into corporates, which can give you as much as 4.5 or 5 investment grade corporates according to the data, and so we have to have, it's pretty easy to do the math, they have to have a 2 or 3% default rate to get you down to the Treasury level, and you make a judgment, can the default rate be that high?

The answer is of course it can, and what are the probabilities that it'll be that high? I think very low, and as always, in Pascal's famous wager about the existence of God, you've got to consider not only the probabilities, but the consequences to you, and another variation on this, and someone said maybe one of the Vogelheads, I'm not very consistent here, but I say you want to take Social Security into account, of course you want to take Social Security into account, Social Security, as long as it functions, which I think will honestly be a long time, and if it fails, you still are going to be getting 80% or something of what was promised, I don't expect that to happen, and you have a great inflation-proof bond portfolio that doesn't fluctuate in value, and goes up pretty much year after year, even with a little bit of inflation, so if that's your bond account, and you have say, a typical Social Security account for someone who ran 65, has had a reasonably successful at least working career, this could probably have a capitalized value, I think the number's around $300,000, give or take, so if you're 100% in equities, you're 50/50, and that income stream, and this is really what we ought to be thinking about, there's so much that we've, I think, kind of lost sight of in this world, and as we look at total return, but what you spend, what do you care about in a bank about total return, if dividend income keeps going up, and up, and up, and up, and up, as it typically does every year, although I quickly add, probabilities and consequences, that in 2008, the dividend yield in the S&P Index went down, I believe it was 23%, something in that range, the largest decline, one of the three largest declines ever had in history, so you want to be very careful with it, as long as the income comes along, when you're retired, that check comes in, the Social Security check comes in, and you shouldn't worry about capital fluctuations, so I don't see going outside the public financial markets, to try and do better, it's a little bit like if you're starting to lose, a little bit like you're going to the worst races, and you lose everything that you've got except 100 bucks or something, through the first, I don't know how many races they had, let's say 11, so on the 12th race, the last race, you take that $100, and bet it on a long shot, to recoup, that is not a good strategy, so, is that responsive?

Yeah, I think it gets fairly deeply into the issue, what I'm thinking of, are people like Steve Bode, and Rob Arnott, who've written long and hard, Moshe Volefsky as well, who say that really, when you're retired, conventional asset allocation goes out the window, and what you really ought to be looking at is de-feasing your living expenses, and so, to my way of thinking, there are three things that can do that, and you've already mentioned one of them, Social Security, and you're right, the return on the public markets is not great, but the return on deferring your Social Security from '66 until '70 is 8% per year, so that's certainly one strategy, now that's got a problem, which is that the federal government could means test Social Security when it needs to have an inflation behind the eight ball, so there's a risk to that, even with Social Security, TIPS are an excellent strategy, but they have the risk the federal government could rejigger the inflation formula, so there's still a risk there, and then finally, you know, you can get an inflation-adjusted variable ability, the problem with those is twofold, number one is the companies can go belly up, I wouldn't want to bet on the survival of any company in the current financial system, any insurance company, and in a systemic event, you know, the usual thing, the state guarantees, the state insurance funds would be a speed bump, so that really doesn't help you, and then finally, the insurance riders that you buy with a lot of variable annuities really have some limitations, the one that Vanguard has, I think, has like a 3% inflation cap, which isn't going to do you a lot of good if we have hyperinflation, so I think what the rational person might do is to consider some combination of those three things in retirement, and of course, you know, really, I guess the other issue is if you're someone, a real go-ahead, and you wind up at age 70 with more money than you know what to do with, and that you can possibly spend, which is a problem I think I'm afraid a lot of you are going to have, then you have, you know, this large pile of assets on top of it, which really, you're not investing it for you, you're investing it for whoever your beneficiaries are, whether it's your relatives or charitable, or you want to give the government money, you know, I say that, I don't say that in jest, I don't mind paying taxes to the government, I'm sorry, sorry, sorry.

Sorry Warren. Yeah, all right, well, you know, the other comment I thought I would make is, you know, you threw out yesterday, Jack, that really, you know, it's just professional money managers out there trading with other professional money managers, you were just making the group of your careers rich, which is certainly true, but I think there's something that's even more profound going on here, is we have now reached the point where it's not people trading with other people, it's computers trading with other computers.

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I think it's a good thing to do. Okay, well, I'll throw just a small bomb out, just a tiny one, which is that I've spent some time the past year or two thinking about TIPS. They're a fascinating asset class, and they became even more fascinating in '08-'09 when they underwent just a larger decline in capital price than I think anybody had ever thought possible.

I think Long-TIPS fell something like 25% between the top and the bottom of the market in '08. And they're a fascinating asset class because they demonstrate that they're very risky in the short term, and yet they are absolutely riskless in real terms in the long term if you hold them until maturity.

So they're only riskless when they're held until maturity. So they are the perfect asset class to defuse or to offset your liabilities at given stages. So the ideal strategy, if you're going to offset your liabilities, your future liabilities with TIPS, is to buy a ladder, a five-year ladder, one-year intervals, whatever you want to do.

It's quite possible to do. I think there's still a gap between '29 and '32, but you'll be able to do that soon enough. Maybe that's gone now. I don't know. But at any rate, in principle, it's practical. So my suggestion is that you should never invest in a TIPS fund for at least two reasons.

Number one is you can generally buy TIPS cheaper, even than the cheapest TIPS fund. And secondly, you might need the money at some point. And if you need the money at a point where TIPS are having the kinds of liquidity problems they had in '08, '09, your TIPS fund is going to have to take a haircut if you're going to need that money out.

So I think they're a fascinating asset class in any number of ways. I think the proper way to use them is not in a fund, but in a ladder. I want to ask you a question. Kathleen Ryan wrote in a comment and a question about whether you were born in 1929 and how that affected you.

But it raises another question in my mind, which is that certainly the Depression affected you. It affected me fairly directly as well. My parents grew up right in the middle. My father started his law practice in 1926, if you can imagine, small family law practice. So I learned from my parents about the Depression and what it mean.

An enormous amount of that rubbed off on me as well. And then we entered this age of unbridled prosperity. People took on debt. The sky was the limit. And then in '08, '09, a lot of people found out that it's not all beer and pizza. And so the question I have for you is that do you think anything fundamental changed about the temperament of investors, people in general in '08, '09?

Yes, I do. And I think it is kind of the tragedy of American finance, and that is we can teach and teach and teach and teach. But finally, people learn from their own experience. And the great trick in life is to learn from the experience of others. Not so easy to do.

So I think they learn more about risk in the market. We had this incredible consecutive decades of 17% stock returns. And people kind of, as they would say, a phrase I don't really use, have that baked into their expectations. That's absolutely absurd. And this gets a little bit to eventually they're going to look at things, I believe, with the same kind that Bill will call the Gordon model, very close to what I call the Vogel model, modestly enough, which is given that yield plus earnings growth, plus or minus PE change is what determines returns.

And that's not unpredictable, as I mentioned yesterday, over the long run. I want to quickly add, however, because someone asked me about this, and I guess I failed to make it clear, which is pretty disgraceful on my part, and that is those were all nominal returns. So if you're looking at 3.5% in bonds and 7% in stocks, you're looking at real returns.

I was sort of vaguely assuming, and you don't have to assume anything to do those numbers, but you've got to say, what's the inflation rate going to be? And I was vaguely assuming 2 or 3%. I don't think we can do much better than that. I think 2% looks like a better bet now, as you heard a little bit last night.

I was using 3%, so that gives you a nominal return on stocks of 4% before expenses, before investor behavior, which, as we all know, particularly in ETS, there is between fund returns and investor returns, which I showed you yesterday. I just showed you the ETS side. The fund investors are suffering the same disease, but just in a milder form, and God knows what those people that went with Bill Berkowitz at Farrell, who's down 30% this year, that's a pretty handy drop in a year where the market is, I guess that's at the close yesterday.

S&P, anyway, is down about 2%. That's a 28% gap, and those kind of things can happen. People pour their money into the winners. As Bill said, one of the things I was reading, two words explain why the mistakes you make by following past performance. The first word is Bill, and the second word is Miller.

So, behavior is a big problem. Let me just ask Bill about this. We all talk about behavioral problems among investors. There are books written about it, erudite scholarly books. That's the kind of thing I do, which shows you mutual fund behavior. But in final analysis, Bill, why is behavior a problem?

Because your bad behavior is inevitably offset by somebody else's good behavior. There's no way around it. Yeah, that's exactly the case. For every winner, there is a loser. What I like to say is that investing is an operation in which wealth is transferred to people who have a plan and can stick to it from those who don't and can't, and the people who let their behavior ...

I mean, my behavior, you admitted yourself that you feel the same impulses. Certainly so do I, and I imagine everybody else in this audience does, unless you suffer from severe Asperger's, probably does too. And by the way, I happen to believe that Asperger's, mild Asperger's, is probably a very ...

is an enormous advantage in any professional investor. If you read Michael Lewis's book, The Big Short, one of the people there, who happened to be an unsuccessful neurologist, as you Jack knows, was very successful exactly for that reason. He could feel other people's emotions. So it's a continuum, and Bill Sharpe puts it another way.

He describes convex and concave investors, people who follow momentum followers and rebalancers. And Bill believes that they're exactly balanced off in each other, but his central insight is that in a world that is dominated by momentum players, rebalancers, who are hopefully the kinds of people who are in this audience, will profit.

And I think that it's fairly clear what world we live in. We live in a world that's dominated by emotional people who are all in momentum. That's not to cast aspersions on people who've raised the momentum factor, like your son, who do a very good job of it, but most people don't do it as well as your son does.

I happen to think the Vogel model is greatly superior to the Gordon model, which is one of the reasons why I come here every year. I know what the first two terms are before I get here, and so I wait with bated breath and you tell me what the third term is, which is the change in P.E.

And God damn it, you've been right. Would you mind repeating that? You came here during the very first ones, and you basically predicted a nominal return of zero, and everybody gasped. I think it was, I don't know, 2002 or something like that, or 2003. And everybody gasped, and you were, of course, right.

So yesterday, you came in and you said that it's minus 1%, and it's a small quibble. I expected you to tell me that it was zero or even slightly positive. So why are you saying minus 1%? Why do you think the market is still overvalued? Well, the minus 1%, I think, was what my formula would have shown for the decade beginning January 1, 2000, and ending December 31, 1999.

And the reason I think the market now may be a little bit overvalued is I do like the Shiller model. I know a lot of people do not. Ten-year average. I like two things about it, as I think I mentioned yesterday that are worth repeating. One, he uses reported earnings.

After all, those bad things that corporations don't include in operating earnings, so they're much lower than operating earnings. Year after year after year, the tune of billions and tens of billions of dollars of earnings for the S&P companies, and they're just plain overstated when you use operating earnings, but that's what we get.

So I like Shiller for using the correct earnings number. And then, you know, the market is full of big events, short-term events. So ten years seems like a more reasonable thing to do than looking at the past year. And of course, to make matters worse, so many people, Wall Street has this bullish bias, as everybody knows, and so they're looking at next year's earnings now.

Whatever they are, they have no idea what they are. But they're going to be bigger than this year's, of course, because your job is to predict something good. And if you don't, as Merrill Lynch people have found, and maybe so a lot of others, the economists that forecast declining markets in the coming year lose their jobs.

I mean, they literally do. It's not popular to be a bear on Wall Street. So Shiller gets over that by using a ten-year thing in the news forecast. And I think his number says the average for the last ten years is, I think, 17 or 18 times. And I think we're around, by where we are now, the average, I should say long-term average, is 17 or 18 times earnings.

And right now, I think it looks to me like we're around 20 or 21 times earnings. Now that's not, you can drive yourself nuts. That's as I probably got through yesterday. That's why I use a slide rule instead of a calculator to do these things. They'll keep me from precision, where precision is not varied in anything that we do.

We just don't know about the future. One of the classic jokes about economists is to ask, "How do you know that economists have a sense of humor?" And the answer is because they use decimal points. Well, my last sort of direct question to you is this. You do a lot of CNBC chat.

And the question I have is, we all have print journalists, I think, who we respect a great deal. I think there's some people on radio, particularly at NPR, who were spectacularly good. But you also talked to a lot of people on TV, and you didn't have very nice things to say about them.

And so the question is, is there anybody on television that you talk to who you have some respect for? Oh, absolutely. Jim Cramer. I guess the one that comes closest would be Tyler Matheson, who I've known for about 20 years, more than 20 years. And he wrote some great stuff in Money Magazine when he was an executive editor about the triumph of indexing, it was called.

He wrote that in, I think, 19-- well, I know exactly when now that I think of it. He wrote that way back in 1995, before I was going into the hospital for a heart transplant. And he said the last words were-- you remember these sometimes-- "You were right, Jack.

Indexing should be the core of all investors' portfolios," in 1995. And the world has changed radically in favor of that proposition ever since. He also, getting back to the forecasting thing, he said-- he interviewed me again after the heart transplant, which was about a year later, and he said-- what did he say?

Some proof that I actually had a heart now. Or I had a change of heart, I guess is what it was. He said, "What are your returns going to be from here?" This was in 1996, probably mid-year. I said, "I don't know." I thought about my little formula, and I said probably between 7% and 9% over the next decade.

And they turned out to be 8.3%. This is not a foolish exercise, and it's not always right. But you do know when P/Es are high, they're apt to go down; when they're low, as I mentioned yesterday, they're apt to go up. So the one thing we don't-- and I'll turn the tables a little bit on you, Bill, is-- and I should tell you a little inside story.

I wanted to be briefed on Bill's book, and so I have one signed copy beautifully inscribed by Bill, "In my office," quote. So when I got back there between our sessions yesterday, I looked up to see how Bill dealt with Armageddon. Is there any way of dealing with Armageddon, really?

And Kevin had stolen my book. He says he only borrowed it. But we retrieved it, but I still didn't have to look. So let me ask you, is there really-- I think we live in an extraordinarily fragile world, and we take for granted pretty much, because we're Americans, as Woodrow Wilson said, the only idealistic nation on Earth.

We take for granted kind of a similarity to the future, to what it's like today in many, many ways. We don't really realize how much, for example, technology has changed the world, because we live with it every day, and each day changes a little bit, and when you get 10 years ago, it's different.

And it says a lot of things about our economy, because technology is only at the beginning, I think, of its impact on us. It hasn't impacted me much, because I'm not smart enough. My grandchildren help me when I'm in trouble. And so is there really a way of dealing with Armageddon when we're at a stage in the world's history that is, I think, remarkably different and remarkably more difficult than we have had for a long time?

Certainly different. Can goods and ammo? The answer, that translates down to no. There really is not. I mean, one of the joys of being a student of economic history is that it enables you to look at what's happening in the financial markets and place it in its historical context.

You know, hard-to-recognize bubbles. You can do a pretty good job. Hard-to-recognize real panics, inappropriate panics, but again, you can be right most of the time. But the real frightening thing about knowing some economic history is that you also realize there are circumstances in which you are utterly helpless. If you were a citizen of Hungary during the post-World War II period, or in Germany during the early Weimar Republic, there was nothing you could do.

Or Zimbabwe, more recently. There was nothing you could do about gazillion percent inflation. Bonds actually disappeared. I think the value of stocks in Weimar Germany declined by 99 percent. And that's, there's just nothing you can do about it. And that's also why I believe that when you start working with these portfolio, these Monte Carlo simulators, these retirement simulators that tell you that there's a 95 percent survival rate of your portfolio in a period of 30 or 40 years of retirement, that's fiction.

There's no such thing as a 95 percent survival rate of any society over a 40-year period. Because that implies survival of a thousand years. That doesn't happen in history. And so, no. And the other answer, I guess, and it's sort of a mincing sort of thing to say, is that sometimes as an author, particularly when you're not of jack stature, you don't have as much control over your book as you'd like.

Well, I do know, I mean, I thought you were going to say something about gold would be a kind of refuge, but I do know a very highly placed Wall Street, or one of the veterans, one of the really best people in Wall Street's history, I'll remove all doubt by saying this one happens not to be Paul Volcker, but he's really worried that the United States is going to go bankrupt.

And he wants to do something in gold, and maybe he's already done it, he didn't quite make that clear to me. But he said he's worried about leaving it in the bank, because when the bank fails, he won't be able to get his hands on it. And that's probably a good definition other than Hungary from Armageddon.

And also, Bill, there are things in your wonderful work about the birth of plenty, showing that the world went from infinity to about, I guess the number is 1750 or something, without any measurable progress in the way it lived. And then we went into this era of steady growth for years and years, right up to today, and continuing certainly into the tomorrows, a few tomorrows ahead at least.

Is there any chance that that's going to change? Is that upscale growth of the world economy built into the way we live today? And the other related question is, which I spent a little time on in my book, The Battle for the Soul of Capitalism. The American Empire looks to me in many ways like the Roman Empire.

And at the very beginning of the book I quote Gibbon, and what he said about the fall of the Roman Empire at the beginning, and I just changed a half a dozen words and it sounded exactly like America, which is another, I have to tell you this funny story.

And I said that to the Yale University Press. I said, "No, I want that note of the original Gibbon's words on the same page as the footnote." And they said, "At Yale University Press, footnotes are placed in the rear of the book." And I said, "Well, in that case, I guess I'll just have to find another publisher." So the footnote is right there where you can see it.

But I do observe, and this is true, much as we don't want to hold the idea in our mind for very long, no empire has ever lasted forever. That's life, that's history, that's human nature, the whole lot of reasons go into that. So comment on those things, would you?

Well, two questions. Number one is, since 1820 approximately, per capita GDP in the world has grown in a real sense, in real terms, by about 2% per year, which basically means by the rule of 72 that on average the life of the child is about twice as prosperous as the life of the parent.

And I know that seems like a dubious proposition in this particular year and the past couple of years, but it's a function of technological advance. And I don't think that the current economic difficulties that we have have slowed down technological advance one single bit. I'm reasonably optimistic, at least in the short term.

But if you do the math, 2% real growth over millennia leads to an impossible degree of wealth, everybody will be worth a spear of gold several light years in diameter. So we're in Turanova, I don't think that anyone knows the answer to that question since we've only been in this regime for the past 200 years or so.

The obvious answer seems to be that we'll experience some catastrophe. We'll put a stop to that or at least level it out. But interestingly, I did have the opportunity once to sit down at lunch with Bill Baumol, who's a very famous economist and who's thought very deeply about these kinds of issues, particularly about the relationship between technology and growth.

And he just smiled at me and said, "Of course we're going to become that wealthy because technology will continue to advance and there's nothing that's going to stop that." So you can, at least one very smart person who's thought about that very deeply has made exactly that case. Now, Jack's second question is relating the decay of our society to the decay of the Roman Empire.

First of all, I think that our institutions are better than Rome's. Certainly we're going to lose our place in the world as the leader of the world's economy. I mean, in 1945, we produced half the world's industrial output and it's been going down since. It's actually leveled off over the past couple of decades at around pretty close to 20%.

It's not decreased that much in percentage terms. But eventually, you know, we have to get swapped by other developed countries, particularly those in Asia. That's not necessarily a bad thing. Our piece of the pie will still -- the slice of the pie will decrease, but we'll still have the actual size of the pie is going to increase.

And the nation to think about is Britain. I mean, Britain went in 1900 from ruling the waves, the world's greatest economic and military power, to right now it's basically an open-air theme park with a nuclear deterrent. And yet, would you rather be a citizen of the UK now or in the year 1900?

I shudder to think what it would be like to be an ordinary person in the UK in 1900. I mean, you had a society in which something like 20 to 25% of people were so unemployed that they were in domestic service. All right, that's not the kind of society I want to live in.

So, I'm reasonably optimistic, I suppose. Well, I'm always optimistic, but I'm just trying to think a little bit more about the hardships that we may endure out there. I worry terribly about this unusual unemployment situation. It is unusual, much longer term unemployed, long-term unemployed. That's over a year, say, and unemployment benefits running out, which we don't quite know what to do with all our fiscal problems come into this.

So, I'm a worrier, but I'm still well aware of the fact that when anybody else in the face of this globe wants to get out of their own country, there's only one country they really want to go to. And immigration has been a huge part of the American ethic, the American history, the American, I don't know, values, American hope, American entrepreneurship, all that kind of thing.

And you see an awful lot of it still in small ways. You know, look around your town. You know, I used to think these were hardware stores that were selling nails, but it turns out they're another kind of nail thing you're starting out. And so, I still see the good side, but I worry a lot about whether our institutions, which are the best in the world, and our property rights are the best in the world.

There's no question about that. And we have more stability than just about anybody else in the world. But you start to fracture the society, what's going on in whatever, Occupy Wall Street is, I think, not a trivial event. It's sending a message out there. And I worry most about whether, and I'd be interested in your comment on this bill, particularly, and what I see really worries me about America more than in a way anything else, is bigness.

Corporations merge with each other, and they get bigger and bigger and bigger. And this includes Vanguard. You know, I mentioned yesterday, our market share was, I think, the biggest in history, in mutual funds, in industry history, 16, 17%, whatever it was, and it's not going to go down. But we don't have the same kind of problems that typical big companies do.

But they merge, they merge for accounting reasons, they merge for power reasons, they merge for compensation reasons, and corporate America is a vital part of our nation's progress. And yet, you see the management's being, in many respects, corporate management being, in many respects, divorced from the interest of their shareholders.

And the shareholders, of course, I mentioned yesterday, what I call the double agency society, don't care because they're not direct shareholders. They've got their own agents, and the mutual fund agents aren't doing their job, and nothing is going to happen very good until we can restore some sense of fiduciary duty to our society, and I mentioned that yesterday.

But I think that's absolutely crucial to resolve these problems. They are not going to resolve themselves. There's an old saying, which you're all familiar with, "We get the government we deserve." Man, if that were ever true, it's true today. You know, I'll answer that question as best I can until I see mail waving frantically at me.

Basically, I couldn't agree with you more. I mean, if I were to step back and say, "What were the real risks that we face now?" And it's always, you know, you never see the truck that's going to hit you, but the truck that I see that I think is going to hit us is two things.

One thing you've already mentioned, which is that we have a system, a financial system, which is derivative-based, which is lightning-fast, is extraordinarily complex and linked. And if you're a systems analyst, when you say complex and linked, what that equals is Three Mile Island. You have a system that can very quickly spin out of control, and I think what we saw in May of '10 with the flash crash was just the tiniest taste of what we could see if things go seriously and unexpectedly haywire.

You know, the other thing is that we've, you know, the tarp, I think, was the right thing to do. I think that I shudder to think what would have happened if they hadn't bailed out the financial system. But at the same time, what do we have now? We have something that's even worse.

We have, you know, instead of having N large banks, we now have N minus 2 large banks. And so too big to fail has gotten a whole lot worse. I think the tarp was the right thing to do. I think that in retrospect, politically, the correct thing to have done would have been to send Elizabeth Warren out in late 2008, go to the banks, and say, "What part of we're bailing you out don't you understand?" And then seize the banks because they were insolvent, including Goldman.

They were all insolvent. And that would have avoided the political problem that we have right now, which are people who are angry at all the big bonuses and the fact that Wall Street is fatter and more profitable than ever we should have done to the whole system when we did the AI chip.

Jack, what do you think about that? I agree with you. The financial system is right at the root of all this. We treated it much too graciously. In this troubled asset repurchase program, I believe it's correct to say that no troubled asset has ever been repurchased. The bank stock gave the banks capital, but aren't I correct?

We didn't buy any of those mortgage bonds or collateral debt obligations from the banks. So tarp, I'm always amused when people mention it. I'm also struck by the fact, as you're all reading in today's and yesterday's papers, that we have a simple proposition. I wanted to have, bring back Glass-Steagall.

I actually wrote about that in 2005, the act that separated investment banking from deposit banking or commercial banking. And I said, bring back Glass-Steagall. And that wasn't even going to be on the agenda, but we did get the Volcker Rule that said banks could not essentially trade for their own accounts.

Now we're implementing that rule. And the implementation paper is 298 pages long. And there are probably six lobbyists in Washington per page. And one can only imagine what comes out of this, in this vague act to try and put some meat in the bones. I'm not optimistic that we'll achieve the objectives for Volcker 1.

And he's pretty much the same way. He's very discouraged. I ran into him the other day. And I said, are you still going to Washington a lot, Paul? And he said, only when I need a photo op. And let me, are we getting toward the end? Yeah, could I have a couple, just to say a couple things?

One, it's always great to be with Bill. He brings a great intellectual stature and a great knowledge of history. His books, I commend every one of them to you, from I guess the first book was The Four Pillars, was it? Intellectual Mass Analog. Oh yeah, Intellectual Mass Analog, which was the one you wrote those nice things about me.

Oh, well. That's a good place to begin. But just being associated with Bill is the highlight of my life, honestly. And I wish I had his writing talent and historical grasp, but the Lord bestows his blessings unevenly. But I do want to say something. We've been talking about data, and I've shown you charts, and we're talking economics, we're talking markets, we're talking the financial system, things of that nature.

And I think that what I've done in that area has been correct and good and helpful, and I do get letters almost every day. But I want to just close by saying that if I've ever been able to do anything, it's to keep being who I grew up as.

A friend of mine said to me the other day, "You're exactly the same kid I knew at Princeton." I took that as the highest compliment I've ever had. And part of that, therefore, which gives me some satisfaction, I'll never be fully satisfied with my career, goes back to the start of Bill's letter, the letter I wrote to Bill, and that is, "I've always liked to stay in touch with the actual investors who are here, you guys who are paying my compensation, and you guys who are supporting my name and reputation, you guys who are trusting Vanguard and trusting me too, and we can shake hands, we can look each other in the eye." And that part of a big company is far more important to me than some number like 1.6 trillion, or 1.6 quintillion, I don't know.

But I do want to close with two letters that will amuse you, because part of that practice I've had, just trying to treat people as individuals and not as part of great big groups, are two other letters which I thought about when Bill talked about the letter I wrote to him.

They're really two amusing anecdotes, and it's so funny that little things you do at the time, just because it's the right thing to do, come back to be very helpful to you. And one of them, I got a letter from a Latino down in Florida, and he wanted to know some fairly obscure investment question, and I'd never heard of him before.

He wasn't anybody, and I wrote him a two-page answer to his question, because it was the right thing to do. And he turned out to be Humberto Cruz, the financial editor of the Miami, one of the Miami, one of the, it sounds like Fort Lauderdale, I guess, times. And so he's always said nice things about me.

That letter really paid off. And even better, we had a kind of catastrophic experience with my former employer in the go-go era. We started a really stupid fund, and gave it a stupid name, and it was very much an aggressive go-go fund, and it blew up. It was originally called Trustees Equity Fund, and of all the people it was not suitable for, it was Trustees.

But in any event, it was hot, and it came and went, and was never heard from again. I got a letter from a doctor in Boston, and he said I had ruined his father's life. It was inexcusable. He was kind of a suess, and in many respects he was actually right.

It was a disgrace. His father was retired down in Arizona, and I wrote him a two-page letter, which he has never forgotten. How do I know he's never forgotten it? He turned out to be the cardiologist that recommended I get a heart transplant. Roman the Sanctus by name. So you don't need too many of those things to keep you going.

So thank you all for being great human beings. It's just been marvelous. I'm going to stay until around 10.30, which I've got to do something for British TV. They're coming down to see Bill Graham, and they're going to throw me in at the end, I think. So I have to leave here at 10 o'clock, but I'll look forward to being with your experts panel, and maybe I can even learn a little bit more.

But thank you all for your support. >> Jack, on behalf of the Parliament, I really want to thank you for spending this time. It's been a real treat to have you for a couple of days. And as a memento of this occasion, I'd like to present you with a replica of the love statue that is in Love Park in Philadelphia right across from the Art Museum.

And we want it to be a memento of this occasion, but also to represent the love of your bow heads. >> And since it's a little too heavy to carry around, we would like to also give you the lapel pin version of it that you can wear, and know that you have your bow heads with you in your fight.

>> Well, thank you so much. >> First, I want to thank Mel for his leadership of all this. He's done an unbelievably great job in keeping all this going, and thank you for that. I know everybody here thanks you too. I do want to say that each year you've been kind enough to give me a little memento, and I'm not sure I really deserve it, but they are all over my mantelpiece, and this will go up with the next one that Liberty Bell, you gave me.

I can't remember if it was last year or two years ago. Liberty Bell inscribed, and then somebody gave me a bugle years ago, and that's in a nice little frame, and that's hanging above my mantelpiece. So they mean a lot to me, and they remind me of you, and they keep me going day after day.

So thanks. Sure, it's a little trinket, but it's a memory of just another great occasion. So thank you all again, and thank you Mel. (applause) (music) you