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President Obama's Latest Financial Proposal; Will the President's Plan Work?; Should Any Class Get to Keep the Bush Tax Cuts?; Can the Right Incentive Plan Help Business Bring the Economy Back?
Aired September 11, 2010 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: President Obama has massive new plan to jump start the economy. Will it work? Welcome to YOUR $$$$$.
I'm Ali Velshi. Christine Romans is off this week.
Here is what the president has proposed this past week -- $50 billion in infrastructure spending money that is meant to be spent on high- speed rail, improving runways at airports, building roads, the type of thing where you see construction money going right to construction companies and workers; $100 billion in the extension of an existing tax credits to companies who invest money in research and development; and $200 billion as a new tax credit to companies who build physical plants, buildings, or invest in equipment.
Let's go right to Diane Swonk, she is the chief economist at Mesirow Financial. Diane, this is $350 billion in commitments, putting aside whether this can even get through Congress before the midterm elections, is this too little too late, or could this actually work?
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Well, the problem is that the lag times, particularly on infrastructure projects, are so long that it won't do anything before the end of the year or even in early 2011; maybe we will see something by the end of 2011.
But remember, much of the stimulus that was earmarked for infrastructure has not yet been spent, and in fact only $18 billion of $93 billion was actually spent. So we still have a lot of the kind of money in the pipeline, and to add insult to injury to the deficit at this stage of the game when it is not going to help anytime soon brings up how difficult it is to make that decision right now.
VELSHI: Economist Peter Morici is a professor at the University of Maryland.
There have been a lot of discussion, Peter, in the last week; the White House really has been determined to make sure people don't call this another stimulus. It's a lot of money, but is it a stimulus plan or is it not?
PROF. PETER MORICI, SCHOOL OF BUSINESS, UNIVERSITY OF MARYLAND: It's not much of a stimulus plan in fact, but basically it's a political move and they're wanting to change the name on what they do. But you know the infrastructure spending is $8 billion each year for six years, not $50 billion all at once. The R&D tax credit is merely an extension of something that is already in place, and the history of investment tax credits is simply not very good, and the math on it is very much against small businesses.
It's doubtful they'll be spending money, and they're the ones that need it most because they can't get credit from the banks. The big guys are sitting on $2 trillion. This is a political move, not good economics.
VELSHI: Let's talk to Mark Preston; he is our senior political editor at CNN.
Mark, are Democrats getting behind the president on the economy heading into the midterm? I know there's been some debate amongst Democrats just this past week about whether or not they want to support this $350 billion that the president has announced.
MARK PRESTON, CNN SENIOR POLITICAL EDITOR: I mean, look, Democrats here in Washington, Ali, understand the fact that this isn't going to work. And what they're trying to tell their constituents back home is that this is a long-term plan. We even heard the president say that in an interview this week.
The economy is in shambles, Democrats are in a lot of trouble, and we're see some Democrats who are not backing the president, including Mark Fritz (ph) out in Pennsylvania, he is a Democrat that won a special election, Ali. Right now, he has come out against it; he says he doesn't want to see any more spending. There is a lot of concern about the deficit; Republicans have been very successful pushing that point Ali.
VELSHI: Diane, a little later in the show we are going to talk about tax cuts, it they are made, which ones are the most effective to make and whether they should be made right now. But it does seem this is all going to push right back around in to the discussion of extending the Bush tax cuts that are set to expire at the end of this year. And maybe cutting taxes elsewhere. At this point in our economy, where we've got a sputtering recovery, and we have a big, big deficit and a growing debt, are tax cuts the right thing to be talking about right now?
SWONK: Actually, that's one of the things I actually am in favor of, extending the tax cuts. You don't want to add insult to injury to an economy that is already very fragile, into the head winds of what are going to be major tax increases at the state and local level.
Although not all tax cuts are equal, and that is something to be debated, I'm not sure we can get that granular at this stage of the game, given the risk to the economy. This is something the government can do, it is important to just sort of stem the tide of the head winds that we face going into 2011.
VELSHI: Some news that we got on Friday, and that is that Austan Goolsbee is replacing Christine Romer as the chairman of the White House Council of Economic Advisors, now, Goolsbee has advised Obama since the 2008 campaign, he is certainly not new to the operation that is where he works. He's just being put into a new job.
What we understand is that Tim Geithner, Larry Summers they are sticking around, most of the senior members of the economic team are sticking around. Peter the president is staying within his inner circle to replace Christine Romer, are you surprised, what do we have to learn from us and Goolsbee is it going to change anything for us?
MORICI: Nothing is going to change, Summers is the point man on economics and Goolsbee is merely a communicator. That's what he does well; they won't look at him for new ideas. This president like the editor who said in the "New York Times" when he picks his editorial board wants a liberal agenda. Goolsbee will paint this as pro business till after the election, but until there's a change in the political side, that is, the people that advise the president politically, there won't be changes in what this administration does.
VELSHI: Mark, what do you think? What's the buzz in Washington about Austan Goolsbee?
PRESTON: I think Peter is absolutely right. We're not going to see a change in economic policy. I mean these are all the same guys that got the president elected; they're following through on the economic policies.
What's amazing, Ali is that for the president's approval rating, which is now about 50 percent in the CNN Opinion Research Corp, polled by the forces, has dipped below that, the president hasn't done anything he didn't tell people he was going to do when he was on the campaign trail back in 2007/2008.
The problem for the president right now Ali is the fact that the economy is in the tank, and we have a lot of people unemployed, so economic policies are not going to change.
VELSHI: You hit on something very interesting. Diane, the president, no one is going to go in and suggest he lied about anything or didn't keep promises. He has kept all his promises, it didn't work the way they wanted to work or hasn't worked as effectively or as quickly as they would have liked it to have worked.
In other words, if this economy had started to show a more robust recovery this particular summer, things would be a lot better for the Democrats heading into this midterm election.
SWONK: No question about it. Back to 1992, it's the economy, stupid. It doesn't matter which party you're in. The bottom line is at the end of the day whoever is sitting in the presidential seat gets the blame for the economy and has to take responsibility for fixing it. Whether or not they can or not is another issue.
I think it's unfair to say that all of what has been done so far and I'm taking everything from the Fed, the TARP, the Treasury to the stimulus has not done anything. The bottom line is the best we could do is stem the blood-letting. What we over promised and what this president over promised I think in hope that the economy would recovery is that we can actually get the private sector moving faster and get the economy moving faster on its own and that just has not happened.
VELSHI: All right. Good discussion. Everybody stay right there.
Coming up next, one party has an edge going into November's midterm elections. That's not political analysts who are saying it. It's you, the American voter. I'll show you when we come back.
VELSHI: So if you've been following this midterm campaign the way we have here at CNN, you'll have heard that Democrats like to say that the Republicans are the party of no when it comes to this economy, "no" might be enough to score the Republicans some major victories in November.
Let's take a look at the most recent CNN Opinion Research Corp poll about where things stand.
First of all, when it comes to the economy, the question, which party can do a better job with the economic? Republicans garnering 46 percent of our respondents, 43 percent are saying the Democrats on taxes. Forty-six percent say Republicans are better at it than the 43 percent who say Democrats are.
And on the deficit, again the Republicans have the edge, 46 percent say they can do a better job, 40 percent saying the Democrats can do a better job.
Mark Preston is our senior political editor. With Democrats controlling Congress, controlling the White House, unemployment remaining high, so much not good right now, Mark, do Republicans just benefit simply by not being the party in power right now? Not being the people you can blame?
PRESTON: You know, Ali, if Republicans take back the House of Representatives and come close to taking back the Senate; it is not going to be because they have offered any great ideas. Now, I'm sure my Republican friends will be very upset when they see this and they'll be calling me, but the fact of the matter is they haven't put out any comprehensive plan, and if you look at those numbers it seems to be doing them well.
Now I will tell you, Ali, in the next couple of weeks Republicans say they are going to release a new quote, unquote, and contract with America, something similar to 1994 when Newt Gingrich put out that policy blue print. So we should see some more concrete plans, certainly economic plans, but right now they seem to be doing pretty well without offering very much.
VELSHI: Peter, I want to ask you this, sometimes your views could be categorized at some points as conservative, but I think you're an open-minded guy who looks at whatever the right thing is to look at. What can Republicans do better about putting forward an economic plan, or do they not need to? Is it better to just keep your powder dry and let this play out?
MORICI: Well, keeping the powder dry will get them some seats, but it might not get them a majority. I don't know that they can really win this thing without a plan. What could they really do that would help? Well it is what President Obama hasn't done that he's promised, and that is to fix the trade deficit with China. That's the only thing that is really going to turn this economy around and do something for the regional banks, which still suffer despite the TARP money.
But you know just saying we're going to cut taxes and deregulate, which is what I expect in that plan is not going to help. They will promise to do something about the health care bill, but there's little they can do with Obama in the White House is they won't have a veto through Congress.
VELSHI: Diane let's talk about hiring; obviously this is the one area that's very, very important to the economy. We had an unemployment number for the month of August, which though was bad, had some hope in it that we grew private sector jobs, even though we lost an awful lot of government jobs.
And then we saw the first-time jobless benefit numbers on Thursday for last week, and they were actually substantially better than people had expected, 451,000 people filed for unemployment benefits, that was fewer than we expected, still more than we would have liked.
Is there something going on in terms of private sector hiring that might be a bright spot?
SWONK: The only bright spot you can really find in private sector hiring is actually where the myth is. That large corporations who have a lot of money aren't hiring. They actually are hiring faster than they are firing.
Its small businesses that are the backbone that Peter mentioned earlier, the backbone of hiring in the U.S. that has sort of taken it on the chin. They saw bigger cuts in firing and they also have not stepped up to the plate and hired again. And that is where we are really missing a lot. I also think it's important we have not talked at all about foreclosures and foreclosures laws. In Illinois it takes 18 months for a bank to foreclose on you. I know a divorce judge that actually said to the person getting a divorce, instead of a short sale, why don't you let your home fall into foreclosure?
I mean that's just obscene and it is really adding insult to injury to -- I think I used that word a lot, but what's happening to the U.S. economy, to the housing market, which is one of the key issues that added to the depth and duration of the great depression, and it certainly one of the factors and major headwind for the U.S. economy right now.
VELSHI: Peter, you ask a lot of people about what's the thing that is going to turn the economy around or what has to happen. And lots of people talk about jobs. You're a regular on this show. You say something, it's often that we have to look at this trade deficit and sometimes it is not as easy to talk about the trade deficit because everyone of our viewers understands jobs and job losses. The trade deficit is a little bit trickier, that is the difference between what we sell to other countries, what we export and what we import.
This week we got numbers on the trade deficits that were surprisingly better than what we thought as well. What's your take on that?
MORICI: Well, a lot of that was a big boost in commercial aviation sales, Boeing essentially, and that is very uneven. They go right back down next month.
But more than that, imports are falling off not because American companies are becoming more competitive and selling more, but because Americans are spending less. It's another leading indicator that the third quarter could be pretty poor in terms of economic growth and could even turn negative, though none of us are quite forecasting that yet.
VELSHI: Mark let me ask you this in these polls that we are looking at hold and they have been fairly steady recently. Is President Obama going to be forced to embrace Republican economic policies if they control the House and the Senate?
PRESTON: Some say Clinton did and in many ways he did in his second term in office. You know, when the Republican wave swept through in '94. President Obama has really got to be looking forward to 2012, Ali. He's on the ticket in 2012. He has to run for reelection. There might be some kind of shift correction so to speak in order to embrace some policies, but if Republicans do take back Congress, Ali, he's not going to get much through, anyway. I mean he needs as much help as he can for Congress to get things through.
Look, he barely got the health care bill through, and that's when he held a Democrat majority. So it will be interesting to see what happens over the next couple of years, whether or not Democrats hold on to Congress or not hold on to Congress, but we certainly won't see as many initiatives, as many proposals passing through Congress moving forward.
VELSHI: OK. Good discussion. We'll keep following this obviously all the way through the mid terms and beyond.
Diane Swonk, thanks very much for being with us. Mark and Peter, stick around. I want to talk about taxes when we come back.
We all talk so much about what can happen with taxes, what should happen with taxes to corporations, to small businesses, to you. We're putting aside the politics for a few moments and we are going to explain what you need to know about the future of your taxes when I come back.
VELSHI: We try to do this as much as possible on this show. Let's strip away the politics and the debate that surrounds tax cuts and look at how they actually work or how they're supposed to work in theory.
I want to start with small businesses. Let's put this up here. I've used a pizza shop as an example of a small business. Let's say this small business got a tax cut. There are two ways in which that money can make its way into the economy, benefit the economy.
The top line there is that they can hire more people with the money that save in paying taxes, those people end up having more money in their pockets, they end up spending and that's how that cycle of prosperity starts.
Here is the other way they could do it, instead of hiring people, they might buy things, they might build a new restaurant, a new pizza joint, and that might use construction workers or they might buy stuff for the restaurant, new ovens and things like that, that will keep some retailer or wholesaler or even manufacturer in money.
Those people will end up hiring more people, those people will have more money to spend and as a result, that stimulates the economy. That's, in theory, how that might work. I'm going to go through a few other ones but first, I want to bring in Professor Rosanne Altshuler, and she is an economics professor at Rutgers University.
This is the one, Rosanne, that people talk about we need a tax break for small businesses, to really lead spending and hiring because traditionally in this country small businesses have been the engine of job growth, do you think in theory something like that would work.
PROF. ROSANNE ALTSHULER, ECONOMICS DEPARTMENT, RUTGERS UNIVERSITY: In theory, I think something like this would work. The problem is right now the problem with the economy is a weakness in demand. People aren't spending money. There's no demand for the products.
So if I'm a business person, yes, if the price of investing goes down, then I'm going to consider investing, but I'm not necessarily going to invest if I don't think I'm going to be able to sell what I make.
VELSHI: If you're not going to sell more pizza, or more people are not going to come into your restaurant, the availability, the money may not be the decision maker.
Jeanne Sahadi, senior writer for CNNMoney.com also follows tax issues very closely for CNNMoney.com. There are a couple of issues here, Jeanne, many small businesses in this country who have to go the banks the way you and I might to get a loan are struggling to get loans from those banks, that sort of factors into this as well?
JEANNE SAHADI, SENIOR WRITER, CNNMONEY.COM: It's hard for me to make a capital investment if I don't have the money and I am likely to need a loan to do that unless I am sitting on a lot of cash in which case this recession hasn't hurt me very much. So that's a problem.
There is a small business lending bill that the Senate is hoping to take up next week. There's been a lot of stalling on it. President Obama is pushing for it, it would encourage community banks to boost lending to small businesses, and we'll see how it goes. VELSHI: All right. Let's talk a little bit and there aren't a lot of people getting out on the streets and fighting for bigger tax breaks to corporations, but there are people who point out that those are important. Let's see how this would play out theoretically in terms of large corporations.
Let's take a company that manufactures medical equipment as an example. Let's put this up on the wall and I can show it to you.
That company then gets a tax break, and there are two ways in which that makes its way into the economy. The top line is they spend on stuff. Just like the pizza place, they might build new plants, they might buy more stuff.
The companies that benefit from that hire more people and those people spend money, creating more demand and goosing the economy a little bit more like the pizza place. They can just hire more people if they're spending less money on taxes, and those people can go out and spend.
Rosanne, let me start with you. There are many corporations in this country right now which are hoarding cash. They've got lots of money. But because of what you just said about the small business not expanding unless they think there's more demand, that is the same story for corporate American, is it not?
ALTSHULER: We've got exactly the same story they're hoarding cash they are not sure that they want to invest, in fact they might even have equipment that is just sitting around doing nothing, it is just idle. Even though in theory, lowering the after tax cost of investment in a machine or any type of equipment should stimulate investment.
Again, at the end of the line, I have to decide, do I want to do this? Another question is the timing of this. Do I want to do this now? The provisions that Obama is talking about, the expensing provision, would expiring at the end of 2011. So that gives me a lot of time to think about when I want to do this investment. So what I might do is say you know what I'm still not sure, I'm going to wait a little bit, and then when I see things going better, I'm going to investment and I'm going to get this nice tax break.
VELSHI: Of the $350 billion that President Obama announced this past week, $100 billion would be for an extension of a tax credit for people who engage in research and development, companies that do and $200 billion would be if you buy plant and equipment or you build more plant, and as you say, the economy is still going to dictate whether those companies make those purchases.
OK. Let's talk about tax cuts for us, average Americans. How does that money flow through the economy and hopefully encourage spending and hiring? The good news by the way is this is the one everybody thinks should stay in place, the extension of the tax cuts for the middle class.
Pretty obvious, that graphic didn't need to be too complicated, did it, Jeanne? SAHADI: No, it's pretty clear. I don't have a lot of money. If you raise my taxes I'll have even less. If you keep my tax cuts in place, I know that I can continue to spend as I've been doing. It's not like if they keep the tax cuts we are going to see a big change; in fact, it will be status quo as we have been having for the last several years.
VELSHI: Right, because we're using the word "tax cuts" but in fact we're talking about keeping taxes where they are and not making them higher than they are.
SAHADI: Right. The taxes are scheduled to expire at a current law, so it's a tax cut relative to what current law would have it be. Go ahead. I'm sorry.
VELSHI: All right. Let me talk about and this is the one that is absolutely in contention, the top one or two, depending on how you want to do the math percent of Americans, wealthy Americans. Let's put that on the board, so the bottom line there is the same as everybody else, you give people a tax break they spend it.
The top line and that one is a little dangerous to the economy. You give wealthy people who don't need to spend all of their income on day to day needs a tax break. They may save it, but the middle one is where it gets interesting. Maybe they'll invest it, maybe they'll invest it in a start-up business which pays a better return than a long-established company, and that start up business then is in business, they get to hire people. Those people that they hire then end up spending money. Rosanne, if it were to work that would be lovely.
ALTSHULER: That would be lovely. The question here is what kind of bang for the buck you get when you give wealthy people more money. As you said, a lot of them are going to save it. Let's say they save it and that goes into investments, I can't guarantee to you that they're going to invest in U.S. companies.
VELSHI: Right and you can't guarantee that any of us will these days. Because the world is our oyster and we know that growth in other places is often stronger than it is going to be in U.S.
Thank you both for giving us some sort of politics-free explanations of what we're talking about right now. Professor Rosanne Altshuler is with Rutgers University Department of Economics. Jeanne Sahadi, senior writer at CNNMoney.com, she specializes in this kind of stuff. So if you want to know more about it go to CNNMoney.com.
All right. Coming up next, let's put the politics back into this discussion for a minute. Because that is the way the real world works. What this fight over taxes could mean to the Capitol Hill power struggle and to you, when we come back.
VELSHI: Sometimes it is a silly thing to do to take the politics out of a discussion that is really all about politics. But we laid out how tax cuts are supposed to work, at least in theory. So where do Democrats and Republicans stand on this issue? How is it going to affect midterm elections?
Peter Morici is a professor at the University Of Maryland School Of Business. Mark Preston is our CNN senior political editor.
Mark, we're heading into these midterm elections. Who's scoring more points on the tax cut debate right now?
MARK PRESTON, CNN SENIOR POLITICAL EDITOR: Clearly the Republicans are right now. Because at a time when we have unemployment near 10 percent, Ali, in some states it's 10, 11, 12, 13 percent, on economic issues Republicans are going to win and when you talk about as Republicans are saying that we are take away these tax cuts that is going to hurt Democrats, and Democrats are very concerned about that heading into November.
VELSHI: All right. One of the biggest points in this debate is those tax cuts. Letting the Bush tax cuts expire, specifically for the rich, because nobody is arguing at the moment that they should expire for the middle class. There's an argument, make sense of it for me in a minute. But let's listen to the president talk about these tax cuts, for cutting the tax cuts for the rich. Listen to this.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE U.S: Those claim that our approach would some how be bad for growth, bad for small businesses. Let me remind you that with those tax rates in place under President Clinton, this country created 22 million jobs and raised incomes and had the largest surplus in our history.
(END VIDEO CLIP)
VELSHI: So, Peter, I think the president scores a couple points by making that particular analogy, saying that we're going back to the tax rates that were in place under President Clinton, when those were very prosperous times, except he wasn't dealing with the greatest financial crisis since the great depression, so spell this out for me. Is it OK what the president is saying? Is it really going to hurt us, to eliminate those tax breaks, in other words to increase the rate of taxes that the richest in America pay?
PROFESSOR PETER MORICI, UNIV. OF MARYLAND BUSINESS SCHOOL: First of all, it's not the people that are making 2, 3 and 4 million a year that I am worried about. It's all those small businesses where they netted $250,000, $500,000, where two people work together, a husband and wife and have a large capital investment in that business; it's also their retirement to asset.
Repealing those tax cuts for folks, for families above $250,000, raises to above 50 percent the taxes on 50 percent of the small business income in America. Mr. Obama, this is not the 1990s and the high-tech boom. This is a tough economy; raising those taxes on those small businesses would negate anything else that he would want to do. VELSHI: Mark, this really comes down to whether or not you think raising taxes or eliminating those Bush tax cuts is going to be worse for or better for the economy. And again, one of the difficulties we have seen in the campaign particularly in the last week is that President Obama and people running for election this midterm are not necessarily on the same page about this. I'm talking about Democrats.
PRESTON: No and they're not. That's because President Obama doesn't play the same in every state and every district across the country. Certainly in the more conservative districts, perhaps in the south maybe a little bit out west, you're going to have Democrats who will not agree with President Obama's plan. Look, at this point it's almost every man for himself. Ali, you are heading into November. You have Democrats who are to mean to get reelected and if they need to cut the president loose, if they need to criticize him, they are going to criticize him.
VELSHI: But Republicans don't suffer from that same problem at the moment, Mark.
PRESTON: No, because they're not in power. So they can just sit back, and it goes back to what we were talking about earlier where Republicans don't have to offer a lot of explanations. They can just let Democrats keep on talking, talking and hope that the voters don't like what they're hearing from Democrats.
VELSHI: Peter, one of the things I love about having you on the show is that you're not given to hyperbole. One of the things that we've been hearing about is increasing taxes or decreases taxes and what it does to the economy, and lots of people point back to Ronald Reagan cutting taxes. Ronald Reagan had a lot more room to cut taxes than we do right now. In other words he cut taxes from a very, very high nominal rate to a substantially lower nominal rate. The bottom line is we can't do that again. So give me some perspective on what raising or lowering taxes has done at a critical juncture in the U.S., in the economy at some point in the U.S.
MORICI: Well, during the Bush period, he inherited a recession as well. Certainly not as severe and cutting taxes did get the economy growing again, but critically he cut taxes on a more or less permanent basis. Granted they'll expire at the end of this year. President Obama is offering some temporary credits that would help small businesses and big businesses, you know expense capital equipment. Temporary measures don't work. They have to be permanent.
VELSHI: Can I ask you why? Because I know a lot of people have made that point.
MORICI: Sure, look at cash for clunkers. A personal decision, we gave people a subsidy to buy cars but temporarily, so it boosted car sales temporarily, then they tanked. The whole history of investment tax credits going back to the Kennedy administration is they accelerate temporarily investment and then it falls off like a stone.
What's more, businesses will not hire an investment if they don't see customers coming around the corner, and they simply don't see that now.
VELSHI: All right. Mark, the president invoking President Clinton and what happened under his administration with the same tax rates. He's up against comparisons that are made like Peter just made to President Bush cutting taxes, he is up against comparisons to Ronald Regan, what does President Obama have to learn from the mistakes and the missteps of former presidents?
PRESTON: Well look. I mean what President Obama has to do right now is really appeal to a very small group of voters across the nation right now to help Democrats. Ali, this election is not going to be won -- look, Democrats might not be as enthused about the election. He needs to try to get those Democrats out. The Republicans are enthused; they are going to come out. It's that small sliver, that middle of the road voter, those undecided that need to come out. And when you are talking about economic policy and small business owners probably by and large are undecided voters Ali.
VELSHI: All right. Good discussion, thanks very much to you guys. Mark Preston and Peter Morici we will continue our conversation with you. Obviously we have a lot to talk about.
The great immigration debate, it all comes down to money. While some people say the battle over immigration is actually hurting our economy.
VELSHI: You may think that this issue of immigration is sort of a U.S.-centered debate and shouldn't really affect anything else. But there's a school of thought that if the continued battle and vitriol about immigration and, by the way, this newfound Islam-phobia in this country could actually hurt our economy.
Earlier in the week I spoke with Richard Florida, he is the author of "The Great Reset." We took a closer look at why.
(BEGIN VIDEO CLIP)
VELSHI (voice over): Tap into a conversation that you've been having lately. It's in your book, but this idea that our fear, our fear of immigration, our -- this growing phobia of immigrants and what appears to be a negative impact on our economy is actually going to make America less competitive in the years ahead. A controversial thesis, tell me about it
RICHARD FLORIDA, AUTHOR, "THE GREAT RESET:" Well immigrants have powered our economy since its inception. From the birth of the sea industry with Andrew Carnegie (ph) a Scotsman, to the rise of semiconductors with a guy from Hungry named Andy Grove to the birth of those silicone valley companies. Half of which the googles, the Yahoo! s, the companies that power the U.S. economies were founded by an immigrant to the fact that half of all our science and technology PhD's come from foreign countries.
The U.S. is a high tech country in large measure because it has been open to the best and brightest throughout the world, and closing the door on immigration or even mounting anti-immigrant sentiment is not good for the economy, because people who go out with talent will stay home or they will go elsewhere and start those companies that we need to provide the jobs for Americans.
VELSHI: One of the places that you have talked about them going is where you are right now, you are in Toronto. And you have talked about the fact that Canada and listen lets not sugar coat it, it is not that everybody in Canada thinks that there are no issues with immigration. But Canada has developed a different view of immigrants, you argue as more welcoming.
FLORIDA: Well I just looked at the data, you know people are yelling and screaming about this in Arizona, and 15 percent of the work force in the population is immigrants. In the United States, the city with the highest percentage of immigrants is Miami; it is about 35 percent, in Toronto or Vancouver, virtually half the people are immigrants or what we call in Canada new Canadians. And I think yes, there are problems here in Canada, but the problem is, should the immigrant who's driving a cab, but has a degree in dentistry or law or health care, should they be able to use their skills fully and build the economy.
And I will tell you, what's really interesting, over in Vancouver, which has an equal percentage of immigrants and have been attracting immigrants from Asia over the past 20 years, when Microsoft had to build a new laboratory it said we can't get the skilled people in the Seattle area, they put that new lab in Vancouver, not because the people needed it more in Vancouver, because they could bring people from Asia, from India, from Europe, get them the visas and the work permits they need and put them to work, making that high tech software. Jobs that should have been or could have been in Seattle ended up in Vancouver as a result of restrictions on immigrants in the U.S. It's not a good thing for the U.S. economy.
VELSHI: There is a very emotional discussion going on in America, which may or may not be tied to the type of sentiment we have about immigrants, and it is the growing sentiment we have about Muslims in America. Do you foresee in your data driven world evidence of that that hurts us in any way?
FLORIDA: I think so. What I found is where there's prejudice or discrimination or a backlash against any ethnic group or immigrant group, it chills the climate for immigrants to come to the United States. I think that climate has been chilling now ever since 9/11. So what I'm finding is a lot of talented people who would have come to the United States from India, from China, are deciding to stay home, or they're going where they're being welcome, whether it's Australia or New Zealand, or they are coming up to Toronto or Vancouver, where they feel more welcome.
Also, with these times of crises, what I call these great resets, these are times when the global flow of ambitious people shifts. One of the things that really benefited the United States in the last crisis in 1930s, we attracted all of the Jewish-Americans who helped build our technology industries, the people like Albert Einstein or also Europeans like Fritz Lang who helped build our Hollywood industry. So this is the worst time to have an anti Islamic sentiment or anti immigrant sentiment in general because it's going to hurt the economy at the time we need job creation most.
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VELSHI: Very interesting stuff. Richard Florida's book called "The Great Reset." Worth picking up and reading. Richard Florida is a very encircle fellow.
Listen, imagine this. President of the United States calls you up, sends a message to you, asking you to help fix an American auto giant, and now imagine saying no to that? My conversation with the man who did just that and why he did it, coming up next.
VELSHI: President Obama's former auto czar Steven Ratner (ph) just wrote a book, and in it he confirms that he asked Carlos Ghosn, who is the CEO of both Renault and Nissan to leave those auto makers and run and try to revive General Motors. Ghosn he says not only declined, but actually resurrected an old suggestion that General Motors become part of the Renault/Nissan alliance. Now despite recent struggles with his companies Ghosn has been approached to run Ford, Chrysler, even Fiat, but he has shunned those offers preferring to stay focused on the system that he built at Renault and Nissan. I spoke to Ghosn earlier this week.
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VELSHI (voice over): Let's start with the obvious question. If this is true, what Steven Ratner (ph) says in his book, first of all, is it true? And if it is, why did you say no?
CARLOS GHOSN, CEO, RENAULT-NISSAN: It is true. First I proposed again what I believe in that General Motors should join the alliance and he said that he would not see this happening, but on the contrary, he proposed for me to take the job as CEO of General Motors and I declined. I declined for a very simple reason as you know at the moment as we still are in one of the worst downturns that the auto industry has faced in history, and I felt that you know I can't quit. I am responsible for Nissan and Renault, particularly whenever you're in the middle of the storm, you're in charge, you have to deliver, and you have to get the company out of the storm, so it was not the time to leave my present responsibilities.
VELSHI: Tell me what you think, then, because you have been invited in the past to join Ford and run it, you have been invited to join Chrysler, now Chrysler is owned by Fiat, you have been invited to join that and now we find out you were invited to join and run General Motors. What is the state of the auto industry in the United States?
GHOSN: Well, I think it's recovering slowly, but surely. I think we are much better today than we were obviously two years ago. The recovery is not as strong as we would like it to be, but I think it's steadily getting there. I think this year the industry is going to be around 11.5 million cars, so it's up compared to last year, and another year of growth. So I'm reasonably optimistic on the fact that we're getting out of the crisis.
VELSHI: Let's talk about the Leaf, because we're expecting to see this now end of this year, beginning of next year. Do you think this is a real corner that we're turning with the Leaf and the Chevy Volt into electric cars? Do you think that we're going to be in a world a few years down the road where there's a mass market for electric cars and everybody is driving them, plugging them in wherever we go?
GHOSN: I think it will take a long time, Ali. Our forecast is in ten years 10 percent of the global sales globally will be made by zero emission cars, which are electric car for the movement. Because it requires a lot of investment, the technology is going to have to continue to develop a lot, but there is today a strong, spontaneous demand for the electric car. We're going to start do mass market the Leaf in December in the United States and in Japan. We have already a lot of fund-raisers, we are very optimistic. It's going to be a long road for this technology to be a dominant technology. We're talking about 20 or 30 years.
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VELSHI: Listen, the reason I like talking about the automotive industry, it's such a major part of American culture, it is a major part of the American economy. So where is it headed? Joining us from Yonkers, New York, Mike Quincy, he is the auto specialist for "Consumer Reports." Mike good to see you as always.
Where do we stand now in terms of the health of the U.S. auto industry? You know compare this to a year and a half ago when we really all thought it could fall of a cliff.
MIKE QUINCY, AUTO SPECIALIST, "CONSUMER REPORTS:" Right, I mean you had the cash for clunkers last year, which certainly helped stimulate sales and clear out inventory, but after the bankruptcy proceedings with General Motors and Chrysler, I think you saw all of Detroit cutting overhead, getting leaner, being real tight about production and I think that has trickled down to the dealer level where you don't see acres and acres of cars that the dealers can't sell, and so the auto makers have to put up all these incentives and that cuts into their profit margins. So I think Detroit is getting better at making more money selling fewer cars.
VELSHI: Right. You know, we can put aside what it means for the industry and for dealers and for workers, which is an important part of it, but in some ways, America's going to benefit because we're seeing different cars. Cars that we didn't see, cars that make it more interesting to drive a more fuel efficient car.
QUINCY: Yes, I think that as Mr. Ghosn pointed out it's going to be a long time before you see mass produced electric cars, but when you see something like the Volt coming out, Ford is talking about their electric Focus that's going to be out soon as well. It's at least a step in the right direction, but when you just consider the basic internal combustion engine, there are still a lot of efficiencies that the automakers can gleam from there.
VELSHI: A couple of years ago when you and I would talk about hybrid electric cars, we talked about electric cars, but the reality was we were talking about that compared to largely a fleet of not so efficient gas vehicles, where as now, that debate gets dulled a little bit by the fact that there are cool, European-style small highly efficient cars coming to our market.
QUINCY: "Consumer Reports" is right in the middle of testing a few of them, one of them is the Ford Fiesta, and this is basically very much of a European designed car that has done very well in Europe and now it's over here in the United States. We haven't finished our test yet, but it looks very promising. Because it is a much more engaging to drive then a lot of the smaller American built cars in the past 30 years and it has a real style. I think the only thing you need though is the price of gas to go up a lot higher before people are standing in line to buy American --
VELSHI: This is what I wanted to ask you, I always do this I always remember something on TV that I should of remember earlier so my producers could deal with it. But I was watching the Nissan Leaf commercial; I don't know if you have seen it with the polar bear who was out there getting weathered out of its environment. Are people buying these more fuel efficient cars because of the threat of higher gas prices? Is it an economic decision or has it become cooler to do so and are we more interested in the environment?
QUINCY: The sales numbers recently show that more people are going back to SUVs, crossovers, pickup truck sales are up. I think when gas is relatively cheap in the United States, and again, we're nowhere near the fuel prices that they have in Europe and Japan, but when gas is cheaper in the United States, Americans tend to buy bigger vehicles. And I think that Detroit is hedging their bets by producing better small cars, like the Chevy Cruise is coming out which is one of their better small cars. But until the price of gas goes up I don't think you're going to see a lot of people buying. I think America has a short-term memory.
VELSHI: Very short. That's right. Mike good to see you as always. Michael Quincy is the automotive content specialist at "Consumer Reports."
So you want to see what's coming up next? Happy thoughts, happy thoughts about the economy when there's so much negative talk. We are going to tell you about it next.
VELSHI: As we often try and bring you on this TV show, we give you some diversity about opinion about the economy. Not all is doom and gloom when it comes to the economy right now. So, I want to leave you with some positive thoughts about it. Every week we get a new report on the number of people who claimed for first time unemployment benefits the previous week. This week's number was lower than expected. 451,000. We need to get below 450,000, hopefully below 400. Before it really starts to feel better, that's still high, but it is the lowest number we have seen since July that is a relief because that number had been picking up.
Then there's the trade deficit. The difference between what we import and what we buy from other countries, what we export. Usually, we import a lot more than we export. The U.S. trade deficit dropped sharply last month again, unexpectedly due largely to the fact that we are exporting record numbers of goods. Now as Peter Morici pointed out, not everything about that number is good either, but it's an indicator, at least in the right direction.
One of those goods that we export by the way, farming products, things that we farm here in America, there are developing economies like Brazil and China who are buying more of what we grow. In fact, China is set to become the second biggest buyer of goods produced on American farms. Canada is the biggest buyer by the way.
Then there are mergers and acquisitions. We've seen an up tick in the number of companies buying other companies and the dollar value. That's important. It's a sign that some people, particularly the people who run those big companies think that the ones that they are buying are trading for less money than they're worth. That they are a bargain right now and they are going to become more valuable later. So that is an interesting sign.
And we keep talking about the fact that manufacturing is down in America, but in the last month, in August, manufacturing was actually up. Not manufacturing jobs, although there was an increase in temporary work at manufacturing facilities, but manufacturing is up and that should follow when you compare that with the trade deficit. We are exporting more, we are making a little bit more, there should be some jobs showing up in that sector at some point. So all these little bright spots as we call them indicate that maybe just maybe things aren't all that bad. There are still a lot of problems in this economy. I just want you to have the full story.
That wraps it up for us this show. But our conversation continues on facebook and twitter, @Ali Velshi and @Christine Romans. Go to my facebook page at facebook.com/alivelshicnn. We really want your comments. I read every last one of them. Make sure you join us every week for YOUR MONEY, Saturdays at 1:00 pm Eastern and Sundays at 3:00. You can also logon 24/7 to CNNMONEY.com. Have a great weekend.