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Recovery Summer?; Jobs Continue to Vanish; Bush Tax Cuts; Tweet This; Sweet Success; Wall Street's Massive Lobby; Pinball Law
Aired August 8, 2010 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JESSICA YELLIN, CNN ANCHOR: It was supposed to be recovery summer, but jobs continue to vanish. What can be done to get Americans back to work?
Welcome to the YOUR $$$$$. I'm Jessica Yellin. Ali Velshi and Christine Romans are off this week.
Stephen Moore is editorial writer for the "Wall Street Journal." And Stephen, I want to get right to it. Let's take a look at the chart of the last six months. After some steady gains, we're headed in the wrong direction again, shedding 131,000 jobs just last month.
OK, let's start with the number at the top, the unemployment rate. It held steady at 9.5 percent in July. Question to you is, will it get worse before you think it gets better?
STEPHEN MOORE, EDITORIAL WRITER, "WALL STREET JOURNAL": You know, I think the employment situation is going to get a little better over the next few months. We're starting to see a bit of a construction and manufacturing recovery, which is good news. But you know, these numbers are so bad, though, that we've had in the last three months. It looked in the spring, remember, like we were going to see a nice --
YELLIN: Green shoots.
MOORE: -- robust recovery. And now, all of a sudden, we're seeing a big dip. And so this is a discouraging development. We're just seeing a kind of mediocre, at best, recovery, when we should be really -- usually, when you have a deep recession, you just boom out of it and you get really strong growth. That hasn't happened.
YELLIN: OK, a lot of stops and starts. I want to bring in Rutgers University professor William Rodgers. He's former chief economist with the Department of Labor. Bill, thanks for being with us. The big number is 131,000 jobs lost in July. But if you did deeper into the report, could the headlines actually be misleading?
WILLIAM RODGERS, FMR. CHIEF ECONOMIST, U.S. DEPT. OF LABOR: Yes, and I -- exactly, that if you focus on the private sector job market, which Stephen was talking about, or digging (ph) into, we added jobs about a little more than 70,000, and it looks like we're, hopefully -- you know, one data point doesn't make a trend, but hopefully, we have kind of come out of that June hull (ph), where we only added 31,000 jobs. And I agree with Stephen that I -- that my sense is we will continue to improve over the next few months and into the remaining part of the year.
MOORE: But you know what's a little bit discouraging about these numbers? I mean, the professor is right, we did see private sector job growth, which is a good thing. But say 70,000 to 75,000 jobs -- we need about a quarter million new jobs a month for the next three years --
YELLIN: Well --
MOORE: -- just to get down to 8 percent unemployment --
YELLIN: Here's the --
RODGERS: Stephen, you're correct. That was going to be one of my other points, is, you know, you need to get 150,000 per month just to begin to, right (ph), absorb --
RODGERS: -- be able to absorb those who have graduated from high school, who've graduated from college --
RODGERS: -- who have moved to the United States and --
YELLIN: Look, let me ask this. We've seen -- to Stephen. We've seen gains on Wall Street, profits up. Why aren't companies hiring?
MOORE: You know, they are -- you're right, they're hoarding cash. By some estimates, companies are sitting on about a trillion dollars of cash. I personally think it's because the Obama and congressional agenda has been very anti-business. Firms are very afraid about the new costs of "Obama care." The tax increases --
YELLIN: But a lot of it --
MOORE: -- that are coming I think have a negative effect on --
YELLIN: A lot of it was uncertainty --
MOORE: -- investment. Right.
YELLIN: -- about congressional action.
YELLIN: Now that financial reform's done --
YELLIN: -- do you think that could lead to some clarity?
MOORE: No. YELLIN: In hiring?
MOORE: It did lead to clarity, but not in the direction that most firms wanted to see. I mean, it adds new costs to investment firms, just like "Obama care" adds new costs to hiring workers. And the tax increases next year, if they come, I think will really hurt hiring, too.
RODGERS: Yes, the --
YELLIN: Bill, do you think --
RODGERS: That's interesting answer, but I think people have moved from the uncertainty concern, and we're looking at this report to see if it was going to be sending any more messages about deflation, that there's a large concern that, you know, we are potentially moving into that deflationary period that Japan has experienced where you have (INAUDIBLE) but it triggered also or was connected to very stagnant, very weak job creation.
And if you look at this report, I think answering that question of, Does it have deflationary sort of pieces in it, I would have to say no. Again, the job creation is not where it we need it to be, but it is (INAUDIBLE) an upward trend. Also, we saw wages begin to rise -- or rose over -- over the year. So --
YELLIN: OK, so Bill, can you -- can you give us some good news? Do the job losses are signs of recovery's being held back or do they point to another recession?
RODGERS: I think --
YELLIN: Please tell us not another recession!
RODGERS: I'm in the camp that I think they -- they were -- they report -- they're connecting us back to coming out of this hull (ph). Like, in the past, I've talked kind of there's this two-step economy, that prior to this year, we were kind of one step forward, two steps back, and in the first part of the quarter of the year, we began to sort of go in that two steps forward, one step back.
And actually, this is not unprecedented. If you look back at the 2001 recovery, the 1991-92 recovery, we began to -- we came out gangbusters for the first quarter, so after the recession (ph) ended. But then we hit this hull (ph) where we kind of took a step back. And in moving forward, I think that will be moving in the positive direction.
YELLIN: Stephen, I'm sure this is your favorite part of your job. Give us a prediction, when will --
MOORE: Yes, right!
MOORE: We economists have been so right!
YELLIN: Look at the crystal ball.
MOORE: Look, I think Bill is mostly right. I think that we are going to see a pick-up in jobs in the fall. And I think it'll be, you know, a healthy recovery. The one positive sign in the economy is that interest rates are so low right now, and that's the one thing that really is stimulating the economy, is those low interest rates. But the real question is, can we sustain this expansion? Can it be the robust kind of expansion we need to put 14.5 million Americans who are out of work into jobs?
RODGERS: Well, it's not even --
YELLIN: So briefly --
RODGERS: It's not even just the 14.5 million, it's also those nine million Americans who are working part-time --
RODGERS: -- but want to work full-time --
RODGERS: -- and another two to three million Americans who've basically given up searching but they are ready and available to work.
YELLIN: All right. Well, let's hope the positive stuff happens in the next few months.
MOORE: I hope so!
YELLIN: Thanks to both of you, Stephen and Bill. We appreciate it.
RODGERS: Thank you.
YELLIN: And now the countdown is on, less than three months to the hotly contested mid-term elections, and wait until you see parties more Americans believe can fix this economy.
YELLIN: Unemployment stands at 9.5 percent. With the mid-term election on the way, voters are looking to Washington for some answers. Peter Morici is a professor at the University of Maryland School of Business, and Paul Steinhauser is CNN deputy political director here at this office, and sort of my boss!
So Paul, first of all, give us the lowdown. Which -- which party do voters think is more capable of handling the economy?
PAUL STEINHAUSER, CNN DEPUTY POLITICAL DIR.: Our latest poll -- we did it about two weeks ago, a national survey, and it indicates that by a slight, slight majority, more people think the Republicans can do a better job than the Democrats when it comes to resurrecting the economy. And among independents, which are very crucial voters, of course, swing voters, again, the Republicans have a slight lead, Jessica.
YELLIN: The Republicans have a slight lead. Right now, Peter, the Democrats are bringing the House back to vote on a $26 billion bill to fund states for schools and teachers, some other services, health-related. Do you think this is stimulus by another name?
PETER MORICI, PROF., UNIV. OF MARYLAND SCHOOL OF BUSINESS: Oh, it certainly is stimulus by another name, and it won't have much of an effect. It's not very much money. You know, the president already has a $1.6 trillion deficit. That's as much as you can possibly inject in the economy.
YELLIN: And yet -- let's go back to politics a little bit because I'm interested in finding out what voters in the polling -- what voters think are the most important issues going forward.
STEINHAUSER: Well, it's all about jobs. The economy, of course, as we all know, has been issue number one since this recession started back in December of '07. But we asked specifically -- we asked what was more important right now, deficit reduction, which is getting a lot of talk lately, or job creation. And our poll suggests that 74 percent said creating jobs, only 1 out of 4 said deficit reduction. And independent voters and even Republican voters also were pretty much in line with the overall sample, Jessica.
YELLIN: That's also meaningful in this tax debate coming up because as much as everybody talks about voters want deficit reduction, they still want taxes to be low even before they want deficit reduction. Isn't that an overriding concern, low taxes?
MORICI: Well, absolutely, and the president's health care reforms tax middle class Americans in ways that are difficult to put a handle on. They're raising premiums all over the place. They're raising the cost of medical instruments. And of course, he's already raised taxes on high-income individuals through that health care reform.
YELLIN: Now, they would argue that you're getting a lot of savings (INAUDIBLE) the benefits that come through and some of the other measures that are going to be passed on to states, you'll see savings in other areas.
MORICI: Well, the bottom line is people's premiums are going up. Their co-pays are going up. And employers are shopping around for discount plans, which will cut their access to the doctors they like. Health care is getting more expensive. Obama increased demand but he didn't increase supply. Simple economics. YELLIN: This is going to be one of those very difficult issues for the White House to argue in the next couple of months, as they try to, going forward, convince Americans they should vote on health care reform as a plus.
Paul, why don't we look at some of the states and some of the fights that are going on out there. Do you have examples that give us a sense of what the battleground states look like?
STEINHAUSER: Yes. We were just talking about how jobs is the number one issue. Take a look at Nevada.
STEINHAUSER: It's got the highest unemployment rate, we know, in the country right now for the last couple of months. Well, there's a marquee Senate race there. The Senate majority leader, Harry Reid, is battling for his political life against Sharron Angle, the Republican challengers.
Take a listen to how jobs are really becoming part of the ads out there. Take a listen.
(BEGIN VIDEO CLIP)
UNIDENTIFIED FEMALE: Harry Reid says he does for more Nevada. He's done more for unemployment!
UNIDENTIFIED FEMALE: We were at 4.4 percent. Now we're at 14 percent.
(END VIDEO CLIP)
STEINHAUSER: Smart move there by Sharron Angle. I would keep reminding everybody in Nevada about that high unemployment level.
But Harry Reid is trying to paint Angle, who's a tea -- lot of tea party support, as somebody outside the mainstream who doesn't think jobs is even her job.
Take a listen to his ad.
(BEGIN VIDEO CLIP)
SHARRON ANGLE (R), NEVADA SENATE CANDIDATE: People ask me, What are you going to do to develop jobs in your state? Well, that's not my job as a U.S. senator.
UNIDENTIFIED MALE: Twenty-two thousand jobs on the line. Sharron Angle, just too extreme.
(END VIDEO CLIP)
STEINHAUSER: I think you're going to hear a lot more of that between now and November 2nd, which is election day.
YELLIN: And they're tied in that race right now, the latest polling. Don't they seem to be neck and neck?
STEINHAUSER: Yes, polls suggest that it's pretty much dead even. And jobs not just in Nevada but also elsewhere in the country. Wherever the high unemployment rate exists, you're going to hear about jobs.
YELLIN: Now, Peter, President Obama clearly inherited this economy, but unemployment remains very high right now. Is it -- you're probably going to say it is fair to blame him for the current unemployment rate.
MORICI: Well, unemployment's certainly gone up a lot since President Obama took over, and he's gotten everything he wanted -- you know, this huge stimulus package, $800 billion worth, a $1.6 trillion deficit, rock bottom interest rates and easy credit to the banks from the Fed, bank reform, but yet businesses don't want to invest because they're fearful of his regulatory hand, and many folks have quit looking for jobs altogether because they're plain discouraged.
YELLIN: Well, Paul, what are -- what are the Republicans liabilities here? How can Democrats run against this economy and say, really, it's not their fault?
STEINHAUSER: It's tough because even though polls suggest that Americans still blame the previous administration for getting us into this mess, it's more and more every day becoming Barack Obama's economy. You've heard the line, though, from Democrats in Congress that, We don't want to go back. We don't want to go back to the failed policies of the Republicans who controlled Congress and of the -- President Bush.
But Jessica, I know you're talking to a lot of people in the White House. What are you hearing specifically about what they're doing?
YELLIN: Well, they're trying to frame this as Republicans who are with the tax -- with the big corporate interests on Wall Street reform, that Republicans stand for BP, with all those Republicans who came out saying, You shouldn't put your heel on the -- your boot on the throat of BP, and that Democrats stand for the little guy and are trying to do protecting the consumer.
But I don't know how much that's penetrating. Their message doesn't necessarily seem to be cutting through yet. And I'm wondering if you can think -- I asked Paul the question -- are there Republican liabilities?
MORICI: Oh, absolutely. The Republicans are defending tax cuts for the wealthy. And think about the things they're saying. It sounds like Bush redux. They have no new ideas. And where's the new spokesperson? There's no new leader. There's no new Newt Gingrich out there.
YELLIN: You mean for the Republican Party.
MORICI: For the Republicans. Exactly. They're basically saying, Bring back the old regime. Well, who wants the days of the 2008 crisis back again?
YELLIN: Republicans seem to think, though, that they're in a better position if they just argue against the current path, than proposing a whole new outline. We're not hearing another, for example, "Contract for America." Is that a winning strategy?
STEINHAUSER: Well, let's go back to 2006. It wasn't the economy then, it was the Iraq war and the Bush administration, and the Democrats, to a large extent, were "the party of no," saying no to everything the Bush administration and the Republicans in Congress were doing. They were somewhat successful. They won back Congress. So maybe that playbook will work again in 2010, when the economy now, of course, the top issue.
YELLIN: I was asking somebody to guess how many seats Democrats will lose in the House of Representatives, and they say unemployment times three.
STEINHAUSER: Oh, that's --
YELLIN: Or unemployment times four. Could it be that simple?
MORICI: Actually, unemployment times three gets pretty close. That would be 30. My view is 25 to 30 seats is a victory for the Democrats, given the size of the majority they have and conditions as they are. I don't think the Republicans can break through that because they're advocating the policies of the past. They're not really advocating anything that's new. They don't have a champion or a leader. It's just say no. Americans want solutions, they don't want complainers. And Republicans these days are complainers.
YELLIN: Oh! I think some people take issue with that, but we'll stay -- you're going to stay and talk for our next segment. Paul, thanks for joining us. A pleasure to have this discussion.
Coming up: There are those who want to raise the retirement age, but how do you do that with unemployment so high? Both sides of that argument are up next.
YELLIN: For the first time in nearly three decades, Social Security will pay out more benefits than it receives in payroll taxes this year. Peter Morici joins us again, and I want to ask you about the full -- the retirement age and the change in it. Retirement age right now is 66, up from 65 a decade ago. It's scheduled to increase to 67 in 2022. Is this a smart move when unemployment's hovering around 10 percent?
MORICI: Well, unemployment's a near-term problem, and it's very difficult to get people to work longer when there aren't any jobs. But once we solve that riddle, then we have to ask people to work longer, or simply, there won't be enough money to pay the pensions. We'll run out of money, whether it's the federal Social Security or the state pensions for teachers. Seventy's a good number.
YELLIN: OK, well, let's bring in Chrystia Freeland, global editor-at-large for Reuters. And Chrystia, your view on this? On one hand, many budget and debt experts suggest that raising retirement age to fix Social Security is a good idea. But how do you do that when we're hearing millions of jobs lost will never even come back?
CHRYSTIA FREELAND, GLOBAL EDITOR-AT-LARGE, REUTERS: Well, I'm with Peter on this one. You know, I think that you have to remember that raising the retirement age is a long-term plan. And it's always tempting to imagine that future economic conditions will be exactly the same as the ones right now. That's not the case. I think that anyone who thinks that they can predict what the shape of the economy will be in 2022 is someone who has a crystal ball that I certainly don't possess.
What we can predict is demographics. And we know a couple of things. We know that people are living a lot longer. And we have to remember that when you think about retirement, and where the retirement age was set now, the idea wasn't that for maybe some people now, half of your adult life, you weren't working. We're living longer, and so we're going to have to work longer, too.
And that's actually what we're seeing. I mean, just think, this week we've seen someone who is 92 years old buying "Newsweek." We have an 80-year-old congressman, you know, josting (ph) with the president about how he's not ready to retire, either. So we're living longer. I don't think it's unreasonable at all to expect people to work a little longer.
YELLIN: Well, I don't know if Sidney Harman (ph), the gazillionaire who just bought "Newsweek," is representative of most Americans, but he certainly is --
FREELAND: He's not -- he's not --
FREELAND: -- worried about his Social Security, that's for sure. But --
YELLIN: That's for sure!
FREELAND: -- he's a vigorous guy, right?
YELLIN: He certainly is. Peter, one thing we can predict is that the Social Security trust fund is scheduled to run out of cash by 2037. It's going to be broke.
MORICI: And it's going to be very difficult to change that unless the economy grows more rapidly.
YELLIN: How can we fund Social Security without raising taxes? MORICI: Well, we're simply going to have to get the economy growing more rapidly, and maybe President Obama needs to back off his hyper-regulatory posture. You know, he's not just imposing regulations on Wall Street to clean up the financial mess there, he's regulating health care, he's regulating the automobile industry, he's regulating all manner of manufacturing through his cap-and-trade. I mean, I -- I came back yesterday from a meeting at the National Association of Manufacturers. You expect them to complain, but I've never heard complaining about this -- about -- at this level.
YELLIN: Chrystia, can I put that to you? Because one of the things I've heard from White House officials, administration officials, is they're correcting for years when there wasn't much regulation and they're sort of tightening the screws, so industry is complaining, but it's not really anything that government shouldn't be doing, it's what they need to be doing.
FREELAND: Yes. I would actually just like to push back on Peter's comments in two ways. I think he's absolutely right that business is complaining. But I think -- you know, we have just gone through the worst financial crisis since the Great Depression. It's hard to argue that crisis happened because there was too much regulation, and I think it's a truth universally acknowledged it happened because there was too little regulation.
Likewise, America has just suffered the consequences of the worst oil spill ever. Again, was that regulation that was being enforced too strictly or was that regulators asleep on the job, partly because of a deregulatory environment?
For sure, business doesn't like the fact that government is regulating a little bit more tightly, and it's true that there is a cost of higher regulation. An analogy I like to use is with a speed limit it. It's definitely the case that if there were no speed limit, a lot of us would get to our destinations more quickly and we would drive faster. But we pay the price in car crashes. American has just had some really big car crashes, so I think people need to be really careful right now saying, Oh, no, regulation is dangerous. We've just suffered really severe consequences from not enough regulation.
YELLIN: Are you going to disagree with that?
MORICI: I absolutely disagree! Wall Street was already heavy regulated. All we've done is rearrange those regulations. We haven't dealt with the problem correctly. Moreover --
FREELAND: Actually, Peter, Wall Street wasn't --
MORICI: Hold on a second!
FREELAND: Wall Street wasn't effectively regulated!
MORICI: Verizon was complaining -- FREELAND: What -- what -- where were -- where were the regulations on leverage? Where were the regulators who had the courage to come in --
MORICI: There were regulations on leverage --
FREELAND: No, but they --
MORICI: They hit -- they hit --
MORICI: Hold on a second!
MORICI: OK, can I give you a specific example? Can I give you a specific example? We created the Accounting Standards Board after the last debacle, during the Clinton years, a Democrat, and the crisis was essentially an accounting crisis. CitiGroup and others hid their bad assets on structured investment vehicles and convinced Secretary Snowe they would create no problems --
YELLIN: Is that an argument against regulation or against --
MORICI: No! It's about doing it --
MORICI: It's about doing it properly!
MORICI: And the problem here is that Obama thinks that increasing regulation, as opposed to retuning it, is the issue. You know, chairman of Verizon, a company that's accustomed to dealing with the government, that's very wont to complain, has complained about the very negative environment Obama has created for making a profit.
FREELAND: Well, there are all sorts of reasons --
YELLIN: Verizon had nothing to do with the financial crisis!
YELLIN: There are all sorts of reasons why they're complaining about the Obama administration and --
MORICI: But they're complaining in a way about this administration --
YELLIN: You haven't heard --
MORICI: -- that they didn't do during the Clinton administration!
YELLIN: Well, you know, this was supposed to be a discussion about raising the retirement age, but we can see where the passion is. This is exactly what I hear on the campaign trail, too, a lot of concern about the business environment.
Thanks to both of you for joining us.
MORICI: Take care.
YELLIN: And next -- thanks, Chrystia. Next, understanding the Bush tax cuts set to expire at the end of the year. We're breaking down the proposals on the table and what each one could mean for your tax bill.
YELLIN: Extending the Bush tax cuts. The consensus is that for most American, it's a question of when, not if. CNN's senior correspondent Allan Chernoff joins us with a look on where this developing story stands. Hey, Allan.
ALLAN CHERNOFF, CNN CORRESPONDENT: Hi, Jessica. Last week on this program, we presented a story pointing out that income tax rates after the end of the year are due to revert to the higher levels that existed before Congress cut taxes in 2001 and 2003. We featured a family that is concerned about paying higher taxes. Our discussion after the story put their worries into context. We pointed out that Congress intends to spare most Americans any tax increase. But the story aired on CNN afterwards without that context. That was a mistake, and we regret that.
Here's where the tax debate stands. Democratic and Republican leaders in Congress agree the middle class should not have to pay higher income tax rates. But there's disagreement on whether families earning $250,000 or more should have to pay higher taxes. Today, such a family earning a quarter of a million dollars a year is in the 33 percent marginal tax rate. That rate is due to rise to 36 percent.
Should that rate rise or not? That is the hurdle that Democrats and Republicans will have to overcome if they are to agree on a bill that will hold down middle class taxes. The Senate Finance Comment intends to take up the issue on September 13th, after returning from its summer break.
For more detail on this debate and implications for tax planning, go to CNNmoney.com, where I've posted a detailed article -- Jessica.
YELLIN: All right, Allan, thank you. That is going to be a fierce political debate here in Washington, D.C --.
YELLIN: -- and the debate boils down to stimulating the economy by keeping taxes low or reining in the deficit by bringing in more tax revenues.
To discuss more of this, Raj Date is chairman and executive director of Cambridge Winter Inc., Stephen Moore, an editorial writer at the "Wall Street Journal."
Gentlemen, thanks to both of you for being with us. Let me ask you first, Stephen. Treasury Secretary Timothy Geithner said this week the tax cuts for the rich would be a $700 billion mistake, do you agree?
STEPHEN MOORE, EDITORIAL WRITER, WALL STREET JOURNAL: I think the single most important thing that we could do to revitalize this economy, and we, you know, this week, we've saw another lousy jobs reports so we're not creating the jobs that all of us hoped for is to keep tax rates low.
There's no -- no country in the world that is raising tax rates right now. It's a competitive global environment and I think that the evidence is that those tax rate reductions had a very stimulative effect on investment and jobs.
So I don't think that even if you're kinjin (ph), I'm a supply side economist, but even if you're a kinjin, nobody believes it is a great idea to raise taxes in a recession or at least a weak recovery.
YELLIN: OK, Raj, I know you don't only disagree with what, you even disagree with some Democrats are saying. What's your view on the tax rate?
RAJ DATE, CHAIRMAN AND EXECUTIVE DIRECTOR, CAMBRIDGE WINTER INC.: Yes, I wish I could agree because I like tax cuts as much as (inaudible), but I'm afraid I don't.
I find that the idea of extending any of these cuts is simultaneously inefficient from the point of view of delivering stimulus and it's unfortunately quite irresponsible.
The basic problem here is that none of these tax cuts are paid for. This is a three-year, a $3.7 trillion hit to the debt. Let us say the debt will increase by $3 trillion or $3.7 trillion.
It's essentially like giving ourselves a giant after tax pay raise and charging it all on our kids.
YELLIN: But, do you agree - I mean, you have to admit, the Republicans in Congress want to pay for everything except when it comes to taxes. They say they don't need an offset for these. Is there some hypocrisy there, Stephen?
MOORE: Well, look, I'm for stimulating the economy. I think that the most important thing right now is to get Americans back to work.
You are not going to get businesses to hire again if you're going to impose a big tax increase on businesses and when you're looking at the capital gains, dividend and the income tax rates, who are those wealthy people?
We know half of the income, Jessica, comes from business owners and business owners have to do the hiring. If you take more of their money, they're not going to have enough money left over to hire more.
YELLIN: What convinces you that extending the tax cuts for the richest will lead to more hiring?
MOORE: Because it's worked every time. We saw a big burst of employment back in 2003 after we did the tax cuts. Of course, in the 1960s and 1980s when Reagan cut tax.
Remember the last time, when on a giant economic crisis, Reagan got us out of that crisis precisely by cutting tax rates to get businesses to hire again.
YELLIN: Raj, do you agree it works every time cutting taxes leads to more hiring?
DATE: Unfortunately (inaudible) of the deep decline in the Reagan (inaudible)is the ability to crank down monetary (inaudible) that is to say bring interest rates much lower, which obviously we did and that worked.
MOORE: It was both things. It was the reduction and inflation, you're right, and the reduction in tax rates and those things together I think created this big -- this boom in the economy.
DATE: Yes, and of course, we can't do that now with effectively interest rates at zero per fed policy. There is nowhere lower to go.
So my fear would be that we basically signal a lack of discipline to the markets and be singling a lack of fiscal discipline because it is a lack of fiscal discipline.
MOORE: But, as you know, honest issue and you mentioned Republican hypocrisy, but what about the Democrats? I mean, this week they advanced two new gigantic spending bills.
A small business loan program, which I think will have no effect and also another big $30 billion aid package to the states not paid for. For the $30 billion we are giving aid to the states, we could extend --
YELLIN: No, they have paid for that now. They have paid for it by redirecting food stamp money and closing some tax loop holes.
MOORE: Well, which bill are you talking about?
YELLIN: The $26 billion for teachers and police.
MOORE: Well, last week, we had a $30 billion unemployment extension bill that wasn't paid for. I mean, we got a trillion and a half dollars of spending that has not been paid for.
Now for the Democrats say, my gosh, we can't afford to keep tax rates. By the way, we're not talking about cutting taxes, we are talking about keeping rates where they are right now and not raising them in January.
YELLIN: -- you go ahead.
DATE: I agree with the spirit of what you are saying. There's just a (two) order of (magnitude) problem. A $30 billion arguably ineffective spending program is 1 percent the size of a $3 trillion hit to the budget over 10 years.
MOORE: The first year, I mean, Tim Geithner said the first year impact of extending those tax cuts, and I'd like to see at least one year extension throughout this recession would cost about $30 billion.
So instead of extending unemployment insurance, why don't we do tax cuts to people so we can actually put people in jobs.
YELLIN: This is the debate we are going to see play out for the next few months. Hopefully before the end of the year they'll resolve this before the tax cuts actually expire, but who know.
Gentlemen, thanks for being with us. Raj and Stephen, great.
And who do you follow on twitter who should be following you? We're talking to the man who invested Twitter next.
YELLIN: Not even five years ago, Twitter was something a bird did. It was not a worldwide internet sensation or a must-used business tool.
It makes you wonder who came up with this game changer, and what he has planned next. Jack Dorsey is co-founder of Twitter, and he joins us from San Francisco.
Jack, thanks for being with us and first question time to give it up, who are your three favorite people to follow on Twitter?
JACK DORSEY, CO-FOUNDER, TWITTER: Well, I would have to say that my favorite person to follow on Twitter is, of course, my mother, she was one of our first users.
DORSEY: And she updates constantly she is awesome.
YELLIN: All about you?
DORSEY: No, not about me. Mostly about my brothers who are often times in trouble.
YELLIN: OK, the other two?
DORSEY: The other two would have to be my employees of the company. It is a great way to really get a sense of how everyone is feeling in their workday and get this social awareness of how people are approaching the day so that we can work together effectively.
And my third would have to Alyssa Monar (ph). She provides a lot of great interesting links and she's just been awesome with the service and really push it forward I think.
YELLIN: I love that and expect -- you can also follow us at CNN. We're all on Twitter too. OK, well, let's talk about some serious stuff. We love it.
Twitter did start as a social networking site, but it's become very important in business world. Did you ever imagine that businesses would use it as a marketing tool?
DORSEY: Well, we never really saw it as a social network site. We saw it more as a utility that allowed for communication to happen in real time from any device to any device.
So someone could pull out their cell phone and immediately send what they were experiencing around them or what was happening or what they found interesting on the web.
We were really surprised by how companies came through it and government organizations used the service to not only promote and market their services and products or brands, but also used it as a way to reach back and engage their customers.
We saw a lot of companies early on like Comcast, JetBlue and Whole Foods who are actually performing a customer service function in real time and fixing customer issues and addressing customer issues immediately. And often times change the perception of those customers within one or two tweets.
YELLIN: And those are big businesses -- how are start-ups in small businesses using Twitter to get a leg up?
DORSEY: Well, I think that's been the most interesting thing as we have a number of small businesses that are using Twitter and using the same technology that Jeff Lou (ph) and that Whole Foods is using to keep their customers engaged.
We have a number of cafes and businesses here in San Francisco and there's a number of them in New York and all over the country and all over the world who are using it to display what they're currently serving in their cafes, or to offer coupons or to tell people of events coming up in the store or new products and services, but they are using it for customer service.
I think the biggest thing is that all these small businesses can immediately engage and really get their customers excited about the businesses in their neighborhoods and where they are going and what is happening within that particular area.
YELLIN: Right, it is allows for a two-way conversation, back and forth. OK, Twitter revolutionized marketing, but you're focused on the next big thing or at least what you think it will be and it is about payment. Will you explain what you are working on?
DORSEY: Absolutely, so we noticed that no one in the United States anymore is carrying cash. No one is carry checkbooks anymore. They're all carrying these little plastic cards. They're credit cards, pre-paid cards and gift cards and debit cards and they are using these things to spend and purchase everywhere. But it's really, really difficult to actually accept payments off of these cards.
You need to get a merchant account, which a four-week process. You need to pay all these fees. If you owed me $50, or if I wanted to buy something off of Craigslist from you, I wouldn't be able to use my credit card.
So we've created a new company called "Square," which is this little, tiny credit card reader, which plugs into your mobile phone or into your iPod or your iPad or android phone and it allows anyone to immediately from anywhere swipe a credit card and receive payments from those cards.
YELLIN: Jack Dorsey, the new product is called "Square" and we will definitely keep our eye on it. Thank you for joining us.
Up next, one of the most controversial companies in America makes a pledge to stay out of one of the most anticipated events of the year. They'll explain.
But first, it seems like there's a club for everything these days, book clubs, wine club, cheese of the month club, now enter the desert club. Here Ines Ferre with "The Turn Around."
UNIDENTIFIED MALE: You know, as far as making the decision to open a restaurant goes, it was not a wise decision. I think carefully about doing that.
INES FERRE, CNN CORRESPONDENT (voice-over): In the early 90s, when Don and Chika Tillman returned to New York City. He was working at the Jasmine Station; she, at a small investment bank.
UNIDENTIFIED MALE: She never had a passion for banking.
UNIDENTIFIED MALE: In a free moment, she would be reading the "New York Times" Wednesday dining out section to find out what is going on in the world of food.
CHIKA TILLMAN, CHEF/OWNER, CHIKALICIOUS: It is some kind of creation or kind of art or it is something like make people surprised, make people happy. Coconut sorbet.
FERRE: As a recording musician, Don was spending the couple's money producing his own projects.
DON TILLMAN, OWNER AND GENERAL MANAGER, CHIKALICIOUS: When Chika was looking on the sidelines, we thought, well, I'm kind of jealous. I want to spend some money too. So she decided to sign up for the French Culinary Institute.
CHIKA TILLMAN: That was fascinating. Everybody was moving like this.
DON TILLMAN: And she graduated tops in her class. So, you know, we'd been saving our duckies for the years and just decided to do it.
FERRE: The couple soon found out that a restaurant with just 20 seats means they were dealing with this dealing on profits or possibly not turning a profit at all.
DON TILLMAN: Enter the Desert Club, which our restaurant across the street. It is made specifically for catering events, weddings, food traffic and to go. And this is how we are able to profit as a business.
FERRE: By the end of the night, like every night, the sign goes up on the door as the line and the profits continue to grow. Ines Ferre, CNN, New York.
YELLIN: Time now for "The Ticker." We are rejoined by Reuters Global Editor-at-Large, Chrystia Freeland and joining her in New York, is "Rolling Stone" contributing editor, Matt Taibi and we are going to discuss this.
So far the financial industry has spent a whopping $251 million on lobbying according to the latest estimates from the Center for Responsive Politics.
And most of that money was shelled out ahead of final passage of the financial reform bill last month. Somehow I think we can expect more now that will be spent now that regulations are being written around Wall Street reform.
So first to you, Kristia, with banks paying so much money to try to influence lawmakers, how worried should we be?
CHRYSTIA FREELAND, GLOBAL EDITOR-AT-LARGE, REUTERS: Well, I'm actually going to quote Hillary Clinton. If you remember during the presidential campaign, she said something quite interesting and (inaudible) about lobbying, which was lobbying is an important part of the political system.
It's the way that vested interests explain how legislation is going to affect them and effectively argue their case. What I think is really important is that we, the press play our part and also that lawmakers play their part.
And they understand that when they are talking to bank lobbyists, these lobbyists are not telling sort of the received objective truth about some sort of, you know, mathematical formula. But the ideal financial reform legislation. They are speaking to their own case. So I think what's -
YELLIN: And they have to keep that in mind.
FREELAND: Right. They have to keep in mind that these guys are arguing points about laws that will either cost them money or help them make money. But I think -- not to believe that, you know, lobbying in itself is evil, we have to hear the point of view of business.
YELLIN: Matt, when I make the case to lawmakers or their staffs and say why are you guys huddling so much with financial experts and advocates for the finance industry. Look, we have to have their expertise. They know it better than anyone else. How will we regulate it without their knowledge? You say?
MATT TAIBBI, CONTRIBUTING EDITOR, ROLLING STONE: Well, I think there is a grain of truth to that, but I think that case has been extremely overblown in the last couple of years.
The one thing that we know absolutely for sure, in the wake of 2008 is that the people who are running Wall Street are absolutely not qualified to completely write the regulations. They've proven that beyond a shadow of a doubt. That we need a new set of eyes and some other input on all these questions.
The truth of the matter is that a lot of these issues, they're very heavily -- a lot of jargon involved and it is difficult for outsiders to grasp some of the stuff at first.
But when you scratch a surface and you go just a little bit deeper, it's really not all that complicated. It's not so complicated that an ordinary person can't get it. I think - so I think the idea that only Wall Street can regulate Wall Street is fallacious idea.
YELLIN: OK, well, one of the companies who's taken a big hit during this whole debate has been Goldman Sachs, fair or unfair. So now to clean up their image they're pledging to stay out of politics or at least out of political advertising.
The firm pledged this week that they would not spend any of their money on political ads and it's relevant this year because the Supreme Court ruling earlier this year gave corporations the power to donate totally unlimited amounts money to candidates for federal office.
Matt, we know well that you are one of Goldman Sachs' harshest critics, so were you surprised by the pledge to stay out of election ads?
TAIBBI: No, not surprised because it's, what it is that's a meaningless gesture. Goldman is excellent at those. Last year, they made a number of those public relations gestures. One wasn't so meaningless that they decided to forgo their fourth quarter bonuses, something like $5 billion, but they still got $16 billion in bonus last year, that was a PR move.
But Goldman already in the first half of this year has spent about as much in lobbying as they spent in all in 2009. And they're going to continue to spend a ton of money on lobbying behind closed doors to get those regulations changed the way they want them to be changed. The fact they're not going to advertise publicly in election campaigns, I don't think is so very meaningful. I think it's something Goldman is doing this year to try to improve their image at a time when their image has taken a big hit. So I don't think it's a big deal.
YELLIN: Chrystia, One thing Goldman could do is to decide not to let any of its employees donate to political candidates. You can't require them, but you can say please let's withhold from donating to political candidates. Is that something you'd like to see them take on?
FREELAND: Well, actually, no. I don't think that it's right for firms to restrict the political points of view of the people who work there. You know, let's imagine that someone is a Goldman banker who has a very strong pro-choice point of view and she wants to donate money to pro-choice candidates.
I don't think that Goldman should be restricting that, but I think again, the onus is on us and on voters to really watch who is donating money to politicians. And because we're operating now in a winner-take-all economy where people on Wall Street, people in Silicon Valley, big business has a law on money, those personal donations can add up and can really influence who wins, who loses.
YELLIN: All right. We're going to take a quick break. Both of you are staying with us.
Coming up next, why pinball, of all things, is the reason one business owner is being forced to close his doors for good. Really. You have to see this one to believe it.
YELLIN: Picture this -- an arcade filled with great retro games like classic pinball machines. Seems like a fun way to spend a hot summer day, right?
Maybe even bring out the kids? No, in one town it's actually illegal and one small business owner has been told to close his doors for good. Here's CNN's senior correspondent, Allan Chernoff.
ALLAN CHERNOFF, CNN SENIOR CORRESPONDENT (voice-over): Pinball, that fun, fast, all-American game, is actually against the law in this city.
Sixty miles north of New York City, Beacon prohibits any type of pinball or video arcade, even the vintage kind from the '50s and '60s. Fred Bobrow is owner of the retro arcade museum. Eighteen months after opening his doors, he says he was ordered to shut them.
FRED BOBROW, OWNER, RETRO ARCADE MUSEUM: It turns out that they were able to prevent me from operating by enforcing an Arcane law that bans pinballs in the town of -- in the town of Beacon. Pinball arcades, and the fine is $1,000 a day or jail.
CHERNOFF: Beacon isn't the only city to have outlawed pinball. Believe it or not, the game was banned from the early 1940s to the mid'70s in most of America's big cities, including New York, Los Angeles, and Chicago. Lawmakers believed pinball was a mafia-run racket and a waste of time for impressionable youth.
GEORGE MANSFIELD, COUNCILPERSON, CITY OF BEACON: Arcades in the '70s may have represented something, you know, maybe that a community wouldn't want on their main street or that would attract, you know, kids or whatever.
CHERNOFF: Many local officials insist Bobrow's Retro Arcade Museum is a good fit with Beacon and believe this unique business, part museum, part entertainment center, has the potential to draw visitors to the area. For the past two months, the Beacon City Council has been considering a change in the law.
STEVE GOLD, MAYON, CITY OF BEACON: The legislative process really does take its time, and councils really look very closely at all of the letters of the law and look ahead to the future. It's a process that can't be done quickly because we want to do it right rather than do it right away.
CHERNOFF: But movement to rewrite the law has been slow and could come too late to save this pinball wizard and his business.
BOBROW: The town is on their own time line that doesn't coincide with business. Business, you have to be open every day. I'm shutting this machine off.
CHERNOFF: Allan Chernoff, CNN.
YELLIN: Wow. The city has been holding workshops and public hearings on the matter, believe it or not. According to the mayor of Beacon is very close to revamping the law to allow the Retro Arcade Museum to reopen.
But the owner has lost eight weeks of income and is not sure how much longer he'll be able to hold on. I mean, unreal, Matt. Talk about bureaucracy versus business and the battleground is pinball arcades. I mean, how paternalistic can government get?
TAIBBI: Yes. Stories like that make we want to join the Tea Party, I have to say. I think, the government is going to tell us not to play pinball.
But I just got to say I want to be a city councilman in that town if I get to wear a sleeveless t-shirt to work. That's the best town I've ever heard of.
YELLIN: Chrystia, your take on this one?
FREELAND: Well, I was mad on this one. I have to say right now when people are so worried about the economy, when people are so worried about jobs, there's going to be very low tolerance for sort of knee jerk enforcement of laws that happen to be on the books, but don't make sense for community standards today. So I think governments and government officials have to be mindful of that.
Chrystia Freeland, Matt Taibbi, thanks to both of you for joining us.
And we thank you for spending this hour with us. You can join the running conversation on Facebook and Twitter at alivelshi and christineromans.
You can follow me at yellincnn. Ali is back next week and make sure you check out YOUR $$$$$ every week Saturdays at 1:00 p.m. Eastern and Sundays at 3:00. You can also logon 24/7 to cnnmoney.com. Have a great weekend.