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CNN IN THE MONEY
Social Security Heads Into Generational Storm; Interview with Clyde Prestowitz;
Aired May 23, 2004 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ANNOUNCER: From New York City, America's financial capitol, this is IN THE MONEY.
JACK CAFFERTY, HOST: Welcome to the program. I'm Jack Cafferty. Coming up on today's edition of IN THE MONEY:
Bear right: if you think of George W. Bush as a conservative, some conservatives want to prove you're wrong. Find out why they don't see the president as one of their own.
Plus, they do: as gay marriage walks down the aisle in Massachusetts, we'll talk a look at the potential profits of the change in law, there.
And the kids will get the check: more Americans are aging, today's young are covering the costs, see why one economist calls it the coming generational storm.`
Joining me today are co-conspirators on IN THE MONEY, CNN correspondent, Susan Lisovicz and "Fortune" magazine editor-at-large, Andy Serwer.
Interest rates have rattled the bond market, the prospect of higher rates. We've got a fed meeting coming up next week. The man who's run the fed for a good long while, just got nominated for another term. How afraid should people be about rising interest rates, given the level that they're going to start rising from?
ANDY SERWER, "FORTUNE" EDITOR-AT-LARGE: Well, I think people should always be afraid of rising interest rates. I mean it's always a bugaboo and you never know what's out there. The devil you know is worse than the one you don't, but this is really interesting stuff, Jack, because Greenspan is winding up his career and this is his last big hurray. Can he keep his hands on the wheel and keep the economy going straight while he presides over an interest-rake hike?
SUSAN LISOVICZ, CNN CORRESPONDENT: Yeah, and the Federal Reserve is very sensitive to the fact that it's ahead of the curve -- you know, there were critics saying, "well, you should have seen the bust in the dot-coms coming," and so now with inflation, you really see the fears in the stock market. It was really funny on Thursday morning, right before the opening bell, I was talking to an analyst who said "you don't know what to root for anymore. It's almost like good economic news is bad." And sure enough, we got these signs on Thursday, all showing signs of cooling, the market didn't know what to do, basically closed unchanged.
CAFFERTY: It's interesting, everybody's waiting three years to come out of a recession and see signs of an economic recovery. The minute we get it, stocks sell off and bonds start to panic, because it's like -- well, the economy's going to get better, now interest rates are going to rise, and that always tends to depress stock prices.
SERWER: And people -- remember in '84 because that's when the fed had to hike rates a lot and it really created a lot of problems in Mexico, Orange County, Kidder Peabody, all sorts of things. And we hope that the fed won't have to raise so sharply and so quickly. I don't think they'll have to this time.
LISOVICZ: No, and they've said, even this week a few -- this past week a few fed speakers were use terms like "more gradual process" to reassure everyone.
CAFFERTY: All right. Other people say just go ahead and pull the trigger, and get it done with, the markets adjust. Anyway, more to come on that.
President Bush is, of course, no one's idea of a liberal, nay- nay, but to many conservatives he's nobody idea of a conservative anymore, either, compassionate or otherwise. For a look at where the president and traditional conservatives part ways, we're joined by Clyde Prestowitz, who served in the Reagan administration and is the founder and president of Economic Strategy Institution in Washington.
Clyde, nice to have you with us. Thanks for joining us.
CLYDE PRESTOWITZ, FMR. REAGAN ADMIN. OFFICIAL: Good to be here, thank you.
CAFFERTY: How is the definition of the word "conservative" changed?
PRESTOWITZ: Well you know, in the old days conservatives were for small government, balanced budgets, individual rights, and very skeptical about foreign adventures. Today that's been turned on its head. We have a bigger government than we've ever had. We've got, as you just pointed out earlier, endless red ink. The PATRIOT Act is the biggest attack on individual rights since we interred Japanese in concentration camps during the Second World War and we're lost on a romantic adventure to democratize the Middle East. So, there's nothing conservative about it.
LISOVICZ: So you're saying, Clyde, that the current President Bush is the definition of a neoconservative, as opposed to Classic Coke, a classic conservative. What then matters between the battle between neoconservatives and conservatives? Are you trying to get something on the platform at the GOP Convention? Are you trying to replace certain people in the White House? What's going on? PRESTOWITZ: Well, I think that all of these matter. Obviously the war in Iraq is an overwhelmingly important issue, and how to deal with that is going to be at the front of the line, but the economic issues, as you just pointed out, with the previous segment on the coming generational bust, the economic issue is absolutely critical, and we've got to somehow get control over the budget and get control over the red ink that's coming down the road at us.
SERWER: Hey Clyde, I'm interested in a couple personal rights issues, that being abortion and gay rights, gay marriage. Wouldn't a real conservative be for gay marriage or at least not care, because it would be up to an individual and the government shouldn't tell a gay person what to do? And wouldn't a true conservative be pro-choice, after words -- after all, it's a choice of a person -- an individual?
PRESTOWITZ: Well, I think that a real conservative would be concerned about discrimination, whether they would be for gay marriage or not, I think conservatives could disagree on that, but they would certainly be against discrimination, you know, among any citizens, and I think in terms of abortion, the issue there is more one of not conservative versus liberal, but more one of a -- you know, what do you mean by choice? I mean, people have the choice whether or not to engage in acts that create children, and nobody's denying them that choice, but then the issue is what do you do about the consequences?
CAFFERTY: Let me ask you a question about the election and the conversation we're having here. There were signs, this past week, of divisions within the Republican Party. Not everybody, particularly now that the president's poll numbers have dropped some, are ready to sign off -- you know, categorically on everything his's doing. Can the President Bush be reelected if the differences within the "conservative," in quotation, population in this country, continue to diverge -- if those two conservatives, the neocons and the conservatives, continues to differ? What are the political implications, or is there a big enough deal there for him to worry about?
PRESTOWITZ: Well, at the moment I'm not sure that it's big enough for him to worry about, but because the election is likely to be very close, and because there clearly has been some erosion among traditional conservatives, I think it's obviously something that could have an impact on the election.
LISOVICZ: You know, Clyde I'm just curious, have we been seeing sort of the drama of this debate play out in the White House, right now between, say, Dick Cheney, who might be an example of a neoconservative, and Secretary of State Colin Powell, who might be a traditional conservative? I'm just curious, what's your view on that?
PRESTOWITZ: Well, I mean, clearly there's enormous tension between Powell and Cheney and Powell and Rumsfeld. I'm not sure I would calle Cheney a neoconservative. I mean, I think people like Doug Fife and Paul Wolfowitz, clearly neoconservative. Cheney/Rumsfeld I thing more of as kind of hard-line nationals, but clearly there's an enormous tension and difference between the State Department and other major parts of the government. It's not just the State Department, there's enormous tensions between the professional CIA, for example, and some of the officials that you mentioned.
PRESTOWITZ: Please, sorry...
SERWER: Oh, I'm sorry to interrupt you again. Quick last question here, about the war in Iraq, interesting you make the point that a real conservative might not be for that. What would be a scenario where a true conservative would be for an incursion overseas?
PRESTOWITZ: I think the test -- historically the test has always been are the vital interests of the United States at risk? And I think everyone pretty much agrees that the war in Iraq was a war of choice. Now, I happen to have sported the war in Iraq, but it was a war of choice, and I think that many traditional conservatives would argue that the United States, as John Adams said 200 years ago, the United States does not go abroad to slay dragons.
CAFFERTY: Interesting stuff. Clyde Prestowitz, thank you for joining us on IN THE MONEY. It's a pleasure having you here.
PRESTOWITZ: Nice to be with you. Thank you.
CAFFERTY: All right, former Reagan administration official, president of the Economic Strategy Institute. Still ahead on IN THE MONEY, as we continue: Times change, so does business. Find out who's profiting from the new market in gay marriage.
Plus history lessons: We'll speak with a 9/11 widow about this week's hearings in New York City and what those attacks can teach us today.
And dollars to doughnuts: Find out why investors are turning up the temperature on Krispy Kreme.
PepsiCo can do more than quench your thirst. The company's FritoLay division is the world's No. 1 snack maker. Just one reason why PepsiCo tops this year's "Fortune" 500 food consumer products category. FritoLay snacks like Doritos and Lay's potato chips, claims more than half of the U.S. market and bring in nearly 50 percent of PepsiCo's sales, although rival Coca-Cola still dominates the soft drink arena, PepsiCo's strong sales of Diet Pepsi and Sierra Mist have boosted the company's market share to its highest level in more than 10 years. And it's more health-conscious consumers reach for noncarbonated drinks, PepsiCo's Aquafina, Tropicana, and Gatorade brands stand ready to satisfy.
SERWER: No matter how you feel about same-sex marriage, the bottom line is that it's good for the bottom line. Small companies are tweaking the usual wedding paraphernalia to match the needs of gay couples and that's turning out to be a smart business move.
Jason Tanz has been looking into some of those entrepreneurial ideas. He's a senior editor at "Fortune Small Business."
JASON TANZ, "FORTUNE SMALL BUSINESS": Thanks.
SERWER: Let me ask you about this business. I mean, how big is it? Is it really out there growing?
TANZ: Oh sure, it's growing. I don't think we know quite yet how big it's going to be, you know, this is sort of just started, but it's a very attractive market. You know, the homosexual population, as a group, the average individual discretionary income is 35 percent higher than the average American.
SERWER: No kids, is that why?
TANZ: Well yeah, I think that's one of the reasons why.
It's one of the reasons, I can tell you that from experience.
TANZ: Yeah, right.
SERWER: That's because you have kids.
CAFFERTY: I have four of them. Yeah.
TANZ: Right, right, yeah. That's good. So, the fact of the matter is it's an attractive market. If you are in the wedding business, you kind of be silly not to try to capitalize on it.
CAFFERTY: But right now it's only in the state of Massachusetts, where this is legal, and there's a lot of debate about whether gay couples from outside the state can go there, whether the marriages will be recognized elsewhere. I mean, sociologically speaking, don't we have a long way to go before we start worrying about the capitalism of all this?
TANZ: Well, yes and no. I mean it's true that, so far legalistically speaking, it's relatively limited, but the interest is growing, and you're -- I think you're also seeing more civil ceremonies -- I'm sorry, commitment ceremonies, as well. So, even in places where marriage is not technically legal, they are -- you're seeing more of an interest in throwing his kinds of lavish ceremonies.
LISOVICZ: I am a devoted reader of the "Sunday Style" section of the "New York Times" and for the last couple of years there have been these commitment ceremonies that are side-by-side with your traditional weddings. But, you know, I was really just impressed because America is a nation of entrepreneurs, the clever marketing devices that are out there now with the growing tendency to legitimatize and recognize these unions. Why don't you tell us about a few? TANZ: Sure. Well, there are a few that we found. There's a company called "Jamie Lynn," it's a big accessories company, and they make cake toppers, and one of their new offerings is a sort of same- sex cake topper couple. And what they've done, because they didn't want to offend any of their potential customers, instead of marketing these as same-sex cake toppers, they have sort of a mix and match option -- you know, with different ethnicities and different genders, so it makes it possible for them to have these things.
SERWER: It's a big country, right?
TANZ: Right, yeah, exactly. Another one is -- there's a company called "I Do, Too" which caters to the non-traditional brides. You know, pregnant brides, women who are getting married for the second time and they've stated -- they've just started making tuxedos for the -- for lesbian couples, so it's sort of a women's tuxedo.
LISOVICZ: Tailored to a woman's body.
TANZ: Right, yeah, exactly. There's a company called "eInvite.com" which recently launched sort of an offshoot called "OutVite.com" and these are...
LISOVICZ: Very clever.
TANZ: Yeah, it's very clever...
CAFFERTY: That's good stuff.
TANZ: These are specifically themed -- you know, there will be a picture of two gown, a picture of two tuxedos on the invitation so it clearly denotes the...
LISOVICZ: You get the message.
TANZ: Yeah, right.
SERWER: What about big companies, Jason. Are there any big companies -- you know, getting involved -- you know, about same-sex cruises...
TANZ: Yeah sure.
SERWER: ...things like that?
TANZ: Right. Well, I mean you are seeing the industry as a whole welcome this with open arms. I mean you're starting to see a lot of same-sex wedding expos that are going on, in which -- you know, convention has are packed with vendors that are marketing specifically towards gay clients who come in, or gay wedding planners who come in as well -- I'm sorry, wedding planners who are marketing towards gay couples.
SERWER: Who may or may not be gay.
TANZ: Who may or may not be gay, right. SERWER: Be clear.
Right -- hyphen in gay weddings. Right, yes.
LISOVICZ: Is there any backlash, though? I mean, you mentioned the subtlety in some of the marketing techniques. Is that something that you see with all of these businesses?
TANZ: Well, most people don't seem that concerned about it. I mean we did speak to some people who specifically, mostly people who run venues, who said -- you know, chapels and things like that -- who said you know, what, either personally I don't appreciate this and I'm not going to support this, or we're worried about our more traditional customers -- you know, blacklisting us, basically, for doing this, so we're not going to do it. But that has been the minority from what we've seen.
CAFFERTY: Interesting story and it's going to get bigger as more and more states move toward at least addressing the question of what to do about a gay marriage.
Appreciate you being on the program.
TANZ: Thank you.
Jason Tanz, a senior editor for "Fortune Small Business."
Still ahead on IN THE MONEY as we continue: Sugar rush: Investors putting Krispy Kreme on the defensive. Well tell you why they've got the knives out for a former Wall Street star. My how the stock has come down.
And later, school's in session: The September 11th attacks had security lessons for America. See who's been doing their homework and who perhaps has not.
And grandma and the big bad wolf: America's aging, the young are paying the tab. Find on if Uncle Sam's going to put the bite on you, eventually -- again, maybe we should say.
LISOVICZ: Now let's look at the week's top stories in our "Money Minute." Gas price hikes are taking their toll on American business. The big three car makers are worrying about SUV sales. GM, Ford and Chrysler are now offering rebates for their biggest and least fuel efficient models.
And Continental Airlines became the first major carrier to raise fares due to higher gas prices. The airline says it also may have to lay off workers and trim wages.
The Pentagon suspended nearly $160 million in payments to Halliburton as questions remain over the company's bill for feeding U.S. troops. Government auditors say the company is billing system for all of its Iraq-related contract is quote, "inadequate." OK, which man in this picture has more power? You'll probably have a few more years to answer that question. If you're not sure, that's because President Bush nominated Alan Greenspan for another full term as Federal Reserve board chairman. The Senate is expected to quickly confirm the nomination for a fifth four-year term.
SERWER: All right. For years the doughnut chain Krispy Kreme could do no wrong as the company just kept growing and its earnings kept beating the street. But Krispy Kreme came out with a profit warning last week, and now shareholders who believe the company mislead them about its financial health, are suing the company.
Krispy Kreme shares are now down almost 60 percent from where they were last August. That makes Krispy Kreme our "Stock of the Week." And first, a mea culpa from this reporter, here, who wrote a cover story in "Fortune" magazine...
LISOVICZ: And we were all fortunate to read it.
SERWER: ...saying how this was an amazing brand. I still is an amazing, and -- but one thing that I guess I didn't fully grasp is the power of this low-carb, no-carb, no-carb, carb-free society. But, I should say a lot of the people who are suing the company suggest that there's more to it than just low-carb that's hitting the company. They bought a bread company, they're a little aggressive at expanding, so it's unclear exactly how much of their troubles just have to do about the carbs and maybe just because they got a little ahead of themselves.
LISOVICZ: Well, it's a seen -- that we've seen many times with hot retailers, like for instance McDonald's, right? As part of its restructuring, it's not opening any new stores. Gap, remember all the problems? Gap had two-and-a-half of declining compster (PH) sales. Benetton, remember there was a Benetton on every block. You expand too quickly and you don't think long-term and that's one of the problems that Krispy Kreme has. It's great that shareholders are activists, but you know, these are the kind of blips that come with retail.
CAFFERTY: So, how come there's a Starbucks on every corner in America?
SERWER: Well, you know, it's interesting you bring that up, because -- listen, I want to talk about that, because that's a company I've written about, too. And there's a big difference. It's fundamental. Starbucks, you can go to every single day. I happen to go there twice a day. Krispy Kreme -- if you go into Krispy Kreme everyday, you've got a problem. I mean that's too much. You know?
CAFFERTY: Yeah, too much sugar.
SERWER: And so it's really a matter of frequency and how often you can go there. And one more note about Krispy Kreme. Their earnings are going to be coming on Tuesday, so that'll a big day for this company and they're going to do a whole conference call to see if they can handle the first crisis -- the first crisis, really, in the company's storied history.
CAFFERTY: Let me ask you this, I mean, you know, earnings warnings aside, they make great doughnuts.
SERWER: They sure do.
CAFFERTY: I mean, they make really good doughnuts. Now, do you buy the stock on this big dip with the idea they're going to get their expansion plans figured out and they're going to tap into overseas markets and they're not going to quit making these great- great- tasting doughnuts any time soon?
LISOVICZ: I'm going to defer this to Andy.
SERWER: Well, I would wait and see a little bit here, because it's was a very expensive -- very, very, very expensive stock and now it's only a very expensive stock, so I would wait until after Tuesday. Could be a good time to buy after that.
LISOVICZ: I think you need to revisit company hq.
SERWER: Yeah all right. We'll see. Do another taste test.
Just ahead on IN THE MONEY, this week the 9/11 hearings focused on New York City's reaction to the attacks. We'll speak with a widow of one of the victims and get her take on the commission's performance so far.
And retirement's perfect storm: Find out which side of the fast food counter you'll be on when you hit 65. Stick around.
CAFFERTY: The 9/11 Commission heard new testimony this week here in New York City, and a lot of it came down to this: people talking to each other about people who are not talking to each other. The panel asked about everything from police and fire radios with communication trouble to police and fire departments with communication trouble.
And some relatives of the victims didn't like the answers they heard. We're joined on IN THE MONEY now by Monica Gabrielle who lost her husband on September 11 at the World Trade Center. She's on the Family Steering Committee of the independent 9/11 Commission, and she's co-chair of the Skyscraper Safety Campaign.
Monica, nice to have you with us, thanks for joining us.
MONICA GABRIELLE, 9/11 WIDOW: Hi, Jack, nice to be here.
CAFFERTY: You have said you were disappointed in the testimony here in New York City over those two days. What bothered you most?
GABRIELLE: Let me clarify some of the misconceptions that might be out there. Number one, yes, we absolutely do blame the terrorists. They started this horrific event and we'd like nothing better than them being brought to justice. Once you acknowledge that, you then have to step away from the issue and ask, what happened? And then you have to look at failures.
When we come to New York City, there were clear problems prior to 9/11, including the communications systems issues with the fire department, the fire and police department, Port Authority, fire and police and all these issues at the incident command structure, all these things were already a problem.
What we were treated to instead was a torturous recount of 9/11 on the first day, which we were willing to go through in order to address the issues. And it just didn't happen. I mean, there were many questions that could have been answered, and quite honestly, the mayor has the ultimate responsibility to ensure that these things are fixed and working.
And Mayor Rudy Giuliani was -- his administration was in power prior to 9/11, and should have had these issues repaired. We don't detract from the fact that he was a -- doing a wonderful job of keeping the city calm. This is not about the brave men and women who ran into, toward those buildings on the morning of 9/11. This is about the honor of those men, and protecting those -- that continue to run into buildings to save us in an emergency, to make sure they have 100 percent capability of communicating. And...
SERWER: But Monica, excuse me, what is it exactly, then, that made you unhappy, and what is it that you wanted to hear?
GABRIELLE: I really wanted to hear Mayor Rudy Giuliani and his administration answer the questions about what was known prior to 9/11? What intelligence was given to them from the Joint Terrorism Task Force, the go-to al Qaeda agency in New York, which encompassed FBI and New York City police personnel, and what happened to those threats, the level of threats the summer of 2001.
Why wasn't the radio issue ever addressed? There were communication problems for long time, for many administrations. It has yet to be addressed. Why was there no coordinated incident command structure or plan?
You know, yes, it was horrific. Yes, it was unbelievably destructive and all those things. But we expect those people that we elect into power, and those who they then surround themselves with, to think outside the box, to worst-case scenarios and be prepared; most especially after the '93 bombing, and the other threats that were thwarted before 9/11.
LISOVICZ: Monica, certainly a lot of your work, all the time and the grief that you've had to endure is not only to address what went wrong prior to 9/11, but to make sure it doesn't happen again. And that is the question, what is the situation of the radios, for instance, in New York City, that this vastly populated island where you have so many major figures, so many people gathering on a daily basis? Do you know the answer to that, and do the fire departments and the police departments now work together?
GABRIELLE: Absolutely. The radio communications issue is still not fixed, which is just unacceptable almost three years later from that most horrific event. The communications between agencies is still in question. The incident command structure, although, I think the city is -- and Mayor Bloomberg are trying, it is certainly not something that seems to be workable. It needs to really be fine tuned and honed in.
And these are the issues that should have been discussed at the hearings here in New York. This is what we owe all those men and women who died. Orio Palmer, Chief Orio Palmer, that brave man made it to the 70th floor and was in the process of hopefully helping my husband. The last person my husband potentially saw was that man and the last thought was, gee, I'm getting out of here. It didn't happen. It could have been different. The destruction and death might have been minimized.
CAFFERTY: Realistically, though, and I don't mean to play devil's advocate, but two commercial airliners flying at multi- hundreds of miles an hour, slamming into the Twin Towers of the World Trade Center, is it not realistic to expect that there would have been hundreds if not thousands of casualties in an event like that even if we had had the greatest radio technology on the planet? I mean, something that horrendous -- I just wonder if there's room in the middle of the argument for that point?
GABRIELLE: Absolutely. What -- there would have definitely been death and destruction. What we were looking for were ways to minimize it should it happen again. Do not forget that one thing that came out of those hearings which everyone should be concerned about is that if something happens again, and you're above, say, the 50th floor, and the staircases, the egress means are taken out, you're trapped. The reality is that they're telling you you're going to die.
That's unacceptable. We have to find ways to ensure the safety of people in the city, whether it be first responders going into emergencies with the proper communications, whether it's a city having a workable incident command structure, where there is a person that delegates responsibility and authority and tells people what to do and where to go. We have to have evacuation procedures in place to get out of buildings. These are clear results of the findings that we ourselves have discovered through the horrible events.
CAFFERTY: All right. Monica, I appreciate you coming on the program and sharing your thoughts with us. Thank you for being here.
GABRIELLE: Thank you for having me.
CAFFERTY: All right, Monica Gabrielle, lost her husband September 11. She is on the Family Steering Committee of the 9/11 Commission and co-chair of the Skyscraper Safety Campaign.
Up next, as we continue on IN THE MONEY: the grey tide. The country is getting older, I know this, I'm part of the problem. The young are picking up the tab, that's a good thing for me. Find out what -- I don't mean to make light of this. But it's all going to come crashing down at some point. Find out if you are going to be giving or getting as we continue. And don't just sit there muttering about the stuff we do here, tell us what you think, or don't, about the stories we're covering and showing you. Our e-mail address is firstname.lastname@example.org. We shall return.
LISOVICZ: There are millions of American Baby Boomers out there stuck in that zone between hip and hip replacement. As our population ages more and more, money tilts in their direction with programs like Medicare, and generations to come get stuck with their bill. All the gory details are in a new book called "The Coming Generational Storm." And we're joined now by its author, Laurence Kotlikoff, who is also an economics professor at Boston University.
LAURENCE KOTLIKOFF, "THE COMING GENERATIONAL STORM": Thank you.
LISOVICZ: What a grim read. You talk about...
KOTLIKOFF: It's a fun read, come on.
LISOVICZ: Oh, it's sad, it's sad, because I think I'm going to have to work until I'm about 90, actually. And that's really one of the sad realities, isn't it? That there are so many of us that are going to be getting older, you say it's like a giant pyramid scheme, but you need more workers to be coming in at the bottom to keep the scheme going?
KOTLIKOFF: Yes, we have 77 million Baby Boomers who are going to start collecting Social Security benefits in just four years. By 2030 we're going to have twice the number of old people and only 18 percent more workers. And in 50 years we're going to have enough people over 85 to fill up all of Los Angeles, Chicago, and New York City. We're going to have enough people over 100 to fill up all of Washington, D.C.
SERWER: Hey Laurence, we've seen this for years, we're looking at this thing 100 miles away, we see it coming, we see it coming, we see it coming, what can we do about this, we know it's there?
KOTLIKOFF: Well, our book lays out two very practical, straightforward plans for reforming Social Security and Medicare and Medicaid. They're not simple, they're not, you know, painless, but they are very important and we need to undertake them right away. We also talk in the book about what individuals can do on a personal level to try and -- to deal with what's coming.
CAFFERTY: And what are the ideas? I'm particularly interested in Social Security, which has been described variously as a cruel joke and a myth. There is no trust fund, there is no lockbox. The money that's taken out of my paycheck and yours goes into the general fund and the politicians spend it on anything they want. When it's time to pay the Social Security benefits, the Treasury Department prints a check and sends it out, but there is no batch of money sitting out there for any of us in our old age. And some have suggested that's why no politician is ever going to sign off on the idea of privatizing Social Security because all of a sudden they'd lose this huge income stream from all of us that pay in these FICA deductions on our checks every couple of weeks. True or false?
KOTLIKOFF: Well, true. The overall picture, if you take all the programs, Social Security, Medicare, Medicaid, all the government spending, all the government taxes, according to the actual -- actually, the U.S. Treasury, we're sitting here facing a $51 trillion fiscal gap.
In other words, we need $51 trillion today to deal with what's coming without having to raise taxes or cut spending. And that's an astronomically large number. We would have to raise taxes immediately, federal income taxes by 78 percent today, and keep them 78 percent higher for the rest of time to come up with 51 trillion bucks.
So the country's flat broke. We need to do very radical and difficult reform of Social Security and Medicare and Medicaid. Now on Social Security, what we propose is to pay off what we owe with a federal retail sales tax and to put everybody into an individual account by taking 8 percentage points of their payroll tax and having those funds be contributed to individual accounts and they would be invested in a global stock market and bond market fund of all the securities that are on sale throughout the world. So it would be a fully diversified portfolio you'd be holding.
LISOVICZ: OK, so...
KOTLIKOFF: So the idea is pay off what you owe, and then put people into a sensible, straightforward, individual fully funded account system.
LISOVICZ: OK. And for Medicaid and Medicare, a voucher to buy health insurance for that year, and it could be vastly different for people of different ages and different health?
KOTLIKOFF: Exactly. In our scheme, everybody would get a voucher, the government would keep tabs on the total amount vouchers in the sense it would cap how much total expenditure would occur under these programs. But then if you're -- the specific voucher that you get would depend on your health status. So if you're 85 and you have pancreatic cancer, you get an $85,000, maybe an $82,000 voucher. If you're perfectly healthy, you might get a $7000 voucher, so the insurance companies would not be able to pick off the healthy and leave the sick to fend for themselves. That's not how it would work. So it's a new idea...
SERWER: Sorry, quick last question here, you had some ideas about investing today in terms of this problem.
KOTLIKOFF: Yes, we have to realize that our government is so behind the eight ball on what's happening here and setting us up for an even bigger disaster than would otherwise occur by cutting taxes and raising spending, and it's not just this administration, previous ones as well, that we need to worry about the government printing money like crazy to pay these bills, generating huge amounts of inflation, indeed hyperinflation, and interest rates going sky high.
So we've got to be very careful about what we invest in. We want to stay away from long-term bonds that are going to be paid back in watered down dollars. We want to think about our taxes being raised and be careful about putting money into a retirement account where you take the money out and then you're -- all of a sudden you're going to be hit with sky high taxes. So there is lots of very practical investing advice in the book.
CAFFERTY: All right, Laurence, we're going to have to leave it there. I appreciate you sharing your thoughts with us. Scary stuff. Laurence Kotlikoff, Larry's book is called "The Coming Generational Storm." He's a professor at Boston University. Thank you for being with us.
KOTLIKOFF: My pleasure.
CAFFERTY: All right. Coming up next on IN THE MONEY, "Shrek 2" is already a hit but it may not be enough to make Dreamworks a dream stock for all investors. We're going to take a look at that.
And send us your thoughts and we'll actually listen. Well, I won't, but somebody will. Our e-mail address is email@example.com.
CAFFERTY: Usually when the Hollywood money types pin their hopes on an ogre, it's means they've hired a new video chief. But these days it's the fortunes of the animated character "Shrek" making Tinseltown and Wall Street sit up and take notice big time.
Web master Allen Wastler has more on that and a delightful "Fun Site of the Week," "Shrek 2" going to make big money.
ALLEN WASTER, MONEY.COM: It's looking like -- going into the weekend, they did like a little release beforehand, got some good cash off that. Now they're going to go big honking release over the weekend, over 4000 theaters it's going to be in.
Of course, the company behind "Shrek" is Dreamworks, it's been privately held, and everybody has been sort of going, hmm, making a lot of movies there, when are you going to like hit Wall Street and start like giving us a piece of the action, maybe do a little IPO and start selling stock.
And a lot of people think "Shrek 2," if it's a big hit, that might be just the platform they want.
LISOVICZ: Good timing.
WASTLER: That they announce -- and they got another one coming out, "Shark Tales," in the fall, so they figure bracket it between two movies, get a lot of buzz, you can have a very successful IPO. Now the company itself hasn't said anything, they're saying, we don't really need money, but you never know, you know, they are sort of playing the field.
LISOVICZ: Well, they really don't when you think about Spielberg...
WASTLER: Yes, when you think about it, they're doing fine. But if they were to do an IPO -- and actually "Business Week" says they've already talked to some investment banks about maybe formulating a plan. If they were to do it, should you buy the stock?
Now, let's say they go public, who are they going to be a lot like? Pixar, right? Pixar has been five for five with its movies: the "Toy Story," "Monsters," "Bug's Life," and then "Nemo," of course. OK? Those were all fantastic movies, and yet if you look at stock in the first few years the company was out, it just languished, languished. Just lately it's been sort of poking up a little bit.
So could Dreamworks duplicate that? Well, look at history of Dreamworks movies. OK? Sure, they had "Shrek." But "Shrek" is far and away their biggest success, if you look -- they had a dud with "El Dorado," right? And then all the other ones, if you look at the production costs versus what they took in, yes, they made a little bit of money, but not like Pixar, you know? Pixar made huge amounts on each and every film. Therefore boom, therefore it's probably not going to be the same. You might want to stay away from it, general idea.
CAFFERTY: Let's go to the "Fun Site of the Week." I know that's a winner.
WASTLER: You're talking movies, got candy bars, right? Name that bar, Jack.
CAFFERTY: Name that bar?
WASTLER: I'm going to throw it up, OK? There you go, upper left.
CAFFERTY: P.J. Clark's?
LISOVICZ: It looks like sushi.
WASTLER: Upper left, that one, that one's easy.
CAFFERTY: That would be an Almond Joy.
WASTLER: Very good, Jack. Upper right?
CAFFERTY: That would be a Mounds.
WASTLER: Jack, you're killing me here.
CAFFERTY: I have such a sweet tooth. I don't know what the other ones are. WASTLER: Lower left.
SERWER: You know what that one is? That's a Cafferty, it's crunchy on the outside and marshmallow on the inside.
WASTLER: No, lower left is a Kit-Kat. All right? Bottom right, last one, come on. Something falling out of your hands?
SERWER: That's a Butterfinger.
LISOVICZ: That's a Butterfinger.
WASTLER: There you go.
WASTLER: Those were just four of the favorites. But you can go to our show page. You've got all the candy bars there. They've got many, many more.
LISOVICZ: I'm going straight to my vending machine.
CAFFERTY: All right. Before you reach for another candy bar of your own, send us an e-mail, firstname.lastname@example.org. You'll get a response without a caramel center. Thank you, Allen. Back after this.
CAFFERTY: Time now to get your answers to our question about whether higher gasoline prices are affecting your summer travel plans. Just about everybody who wrote in cracked wise which means our audience is intact.
Maggie (ph) wrote this: "I have no summer travel plans since I've been unemployed for four years and I have no money. Once a week I drive my SUV to buy groceries, so a tank of gas lasts me for two or three months. The last time I filled up, gas was $1.32 a gallon."
Dan (ph), wrote this: "I'm so depressed over the high cost of gas for my SUV, I may have to cut down on my Starbucks chocolate mocha latte mints and cell phone minutes. Even my vacation to Club Med may be cancelled because of fuel-related fare hikes."
And John (ph) in Vandalia (ph), Illinois wrote to us: "Gas prices aren't a big issue for me but my brother may not drive out to visit me this summer because of higher fuel prices. And that will end up saving me big bucks."
Time now for our e-mail question for this week, which is: "Is your city better prepared for a terrorist attack now than it was three years ago?" Send your responses to email@example.com. Also an invitation to visit our show page at money.com/inthemoney which is where you'll find the address of our "Fun Site of the Week" all about those candy bars. Thank you for joining us for this edition of IN THE MONEY. Thanks to the regular gang, CNN Financial correspondent Susan Lisovicz, "Fortune" magazine editor-at-large, Andy Serwer and Money.com managing editor Allen Wastler.
Join us next week on Saturday at 1:00 Eastern, Sunday at 3:00 Eastern. We'll be back and do it again. Or, if you prefer, you can watch Andy and me all week long on "AMERICAN MORNING" beginning at 7:00 Eastern time.
Wherever we see you next time, we'll look forward to it. In the meantime, thank you.
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