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Debt Ceiling Debate Repercussions: Credit Downgrade, Markets Tank, Job Disintegration; Panel Offers Solutions, Analysis
Aired August 6, 2011 - 09:30 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, HOST: Most Americans don't want to see cuts in Social Security and Medicare, but does that leave education firmly in the crosshairs?
Good morning everyone. I'm Christine Romans.
Will protecting programs meant for grandma and grandpa leave Washington no choice but to cut spending for your kids' future?
Plus, find out what issue compelled Matt Damon to get off the movie set and march side by side with America's teachers.
And, a man whose own career comeback story was so inspiring, they made it into a movie. He's here with some timely advice for you on how to permanently improve your career prospects no matter how bad this economy gets.
The debt ceiling deal is done. So what does this mean for you, what do these cuts mean for you? Don Peebles is chairman of the Peebles Corporation. It's a real estate developer. He is also a member of President Obama's National Finance Committee.
The Economic Policy Institute estimates that the debt ceiling deal will cost America 1.8 million jobs by 2012. Now most of those are expected to be government jobs.
Don, you're an employer. Do you think that we're going to see job loss as the nation tries to tighten its belt? Something like this, the debt ceiling deal, make you as an employer have to higher fewer people?
DON PEEBLES, PEEBLES CORPORATION: I don't think it helped me- makes me have to hire fewer people, but what it does do is it gives us a little more stability. The irony here, though, is the debt ceiling has been increased 74 times in my lifetime.
PEEBLES: And I'm 51. More than once a year, 10 times since 2001. So not a lot of impact here other than all drama around it, and further instability. The big challenge here is for the average American, they're not going to see much of an impact because Social Security is not getting touched nor Medicaid and Medicare. Those are the drivers of our budget deficits where we can't control them. ROMANS: We'll talk a little bit more about those as we go on.
Diane Lim Rogers is chief economist at the Concord Coalition.
Some of the cuts in this debt deal were going to come from loans to graduate students. Diane, when the job market finally turns around, will we have a workforce that's educated and ready to compete if we're starting to pull back some of the subsidies to get middle- class kids into college?
DIANE LIM ROGERS, CONCORD COALITION: Pretty troubling that the areas of budget cutting that Congress and the president managed to do happened to be those that will most adversely effect our younger people. They are the ones that will be stuck with the bills later on. It would be nice if we at least set aside enough resources for them to get a good education.
ROMANS: But you know, Diane, you've studied this for so long. You know, talking about fiscal austerity, paying for the life we can afford, not the life we think in this country we want to live. I mean it is clear that we are in a period now, an American family should understand, we're in a period now where we can't pay for all the things our government has promised.
ROGERS: That's right. We can't. And unfortunately, Congress did not really demonstrate, or the administration, that we're ready to confront those tough choices. As Don mentioned, the biggest pressure on the federal budget are the entitlement programs, the payments to Medicare and Social Security, and the great mismatch between revenues and those spending programs. But we didn't touch those this time around. And Congress and the president haven't set up a great mechanism to force them to confront those choices the next round either.
ROMANS: Sacred cows, taxes on the Republican side, and then those entitlement programs on the Democratic side.
I want to bring in former "New York Times" columnist Bob Herbert. He is now a Demos Distinguished Senior Fellow.
Social Security safe, at least for now, but Medicare providers could face some cuts. Bob, neither the Tea Party nor President Obama seemed thrilled with the overall compromise, neither are our other two guests.
In terms of the American people who are the wins? Who gets hurt by this deal?
BOB HERBERT, FMR. COLUMNIST, "THE NEW YORK TIMES": There are no winners here. The real problem in this country right now is that we have an economy that is flat-lining and we are not creating jobs. This debt ceiling deal, which came after a completely manufactured crisis, will do nothing about-to strengthen the economy, and ultimately it also won't bring down the deficit.
ROMANS: What is everyone so -- what did we do it for? HERBERT: So a lot of people are going to be hurt.
I don't know why the politicians did it. I presume they had their reasons. They felt that they were boxed in. They were pressured by the Tea Party. They couldn't come to any kind of agreements. But you should not have had an argument about the budget at the same time that you were talking about raising the debt ceiling.
ROMANS: And I think we all agree on that.
Diane, tell me, explain to me, in not economist terms, because you also wrote a blog called Economist Mom, I know you can, you speak all these languages, tell me specifically, what American families should know about what this debt deal means for their personal finances and for the opportunities for their kids?
ROGERS: Well, I think the first thing is that just because we avoided default doesn't mean that the U.S. government reassured global investors that U.S. Treasuries are a safe investment. What that means first of all is, interest rates are going to rise. The rates that the federal government pays on its borrowing is considered the risk-free rate of interest. All the other interest rates us ordinary folk have to pay for our car loans, mortgages, our student loans, are going to have to go up.
Secondly, if we don't get our really big spending pressures and our lack of revenue in order, it's going to squeeze out the rest of federal spending. So that interest will end up eating up more and more of the federal budget, less left over for discretionary spending. And it's hard to cut discretionary spending very substantially because it's just not that big of a part of our budget.
ROMANS: It's a very small part of the budget and includes very important things like food inspectors, things like education grants, it includes a lot of things that are the services that when we think of government services, that's a little part of the budget that's the part that we feel.
ROMANS: So this is why I keep saying doing this deal is so important for everyone to really study and for policymakers to pay close attention to how they're going to do this cost cutting because it's clearly something that's going to affect a lot of American families.
Don't move. We will continue to talk about this. Whether you're 18 or 88, we're going to tell you which generation will pay the most for this debt deal that's next.
ROMANS: So that debt ceiling debate was the latest example of how politically divided the nation is right now. You know it's doubtful you could get 85 percent of voters to agree on anything, unless you ask them about their Social Security and Medicare. A recent CNN/ORC poll shows 84 percent of Americans oppose cutting spending on Social Security. Even more, 87 percent, opposed cuts to Medicare.
Back with us are Bob Herbert, Don Peebles, Diane Lim Rogers.
Bob, with America's debt more than $14 trillion and counting major cuts are coming. If we can't touch programs that are most beneficial to seniors, like Social Security, Medicare, then aren't we subsidizing one generation, Bob, by protecting money from one, and we have to take from the other?
HERBERT: It may seem like that, but ultimately I think not. What I fear is happening is that this generation is just getting left behind. Not because of Medicare and Social Security, but because we haven't put in place an economy in which they can thrive.
So there's not employment out there, college kids are moving back with their parents after they graduate. If you really wanted to do something about this-about the long-term future of these young people, you need to set up an economy in which they could be employed, but you would need to get a handle on health care costs. And I think that the way to do that would be to provide, for example, Medicare for everyone. These are complex issues. We can't get political agreements on it. I think the kids will get left behind primarily because of the economy, not because of entitlement programs.
ROMANS: Interesting. Because a lot of these kids when I talk to them they don't expect much of these safety nets to be there for them. Even if they are out there sort of rallying to keep all of them and prevent cuts. It is that many kids aren't counting on it.
Diane, the term "sandwich generation" refers to folks simultaneously caring for their children and their parents. It's really the first generation where we've had that. Are we seeing a version of this playing out in Washington,. where taxpayers are funding programs for the elderly, and the interest on the debt that comes from paying for the stuff we can't afford?
ROGERS: Yeah. Very much so. I think that Bob's right that it's not just entitlements spending that's the concern. The concern is, are we going to encourage a strong economy for our children at the same time. But it's both parts of the equation. Our debt is unsustainable because both because we've made commitments that are unaffordable, and because we're not growing our economy fast enough.
ROMANS: All right. All of this is sort of a jobs thing. People kept telling me when reporting on this debt deal, it was never a jobs deal. This is always a debt deal. Longer term, those big deficits can hurt jobs. But this is all about debt right now and raising the debt ceiling.
Don, as a business, America seems to be in crisis mode dealing with budget problems at the last minute. What needs to change to make sure America is starting to create jobs again? PEEBLES: Stability and also this discussion about tax increases. That's a big issue for small, medium-sized businesses. Because entrepreneurs, like me, pay taxes at the personal income level. All of our income from our businesses --
ROMANS: You're against tax increases.
PEEBLES: Absolutely. But I'm for tax incentives. I'm for incentivizing further investments in job creating activities.
ROMANS: What about tax reform?
PEEBLES: I think there should be some tax reform. I don't think the American people should subsidize certain expenditures.
ROMANS: Do you think three to five years from now still working under this tax code or do you think we could possibly have something simpler, fairer, easier to understand, that gets rid of loopholes, and raises tax revenue at the federal level. Wouldn't that be a dream, everybody?
PEEBLES: Oh, I think it should be. I think we should have a flat tax. I tell Steve Forbes this all the time. A flat tax proposal that he made a couple decades ago is really the way to go. Then everybody is paying the same rate, we can get rid of all these deductions, we can put all these accountants out of business, and have these politicians working on bigger issues than keep talking our taxes.
ROMANS: Bob Herbert, from Demos, really nice to se you. Don Peebles, Peebles Corporation, Diane Lim Rogers, from the Concord Coalition. Thank you so much, everybody.
Find out what has Matt Damon so fired up that he's heading from the movie set to Washington to march side by side with some pretty angry teachers.
ROMANS: A massive teacher march in Washington last weekend featured some real star power. Actor Matt Damon showed up to show his support.
(BEGIN VIDEO CLIP)
MATT DAMON, ACTOR, ACTIVIST: I don't know where I would be today if my teachers' job security was based on how I performed on some standardized test.
(END VIDEO CLIP)
ROMANS: Matt's mom Nancy Carlsson-Paige is a childhood development expert and professor at Leslie University and she joined her son, actually he joined her at the protest, and she joins us now.
Nancy, he told a story-welcome to the program. NANCY CARLSSON-PAIGE, PROFESSOR OF EDUCATION, LESLIE UNIVERSITY: Thank you.
ROMANS: Told a really funny story about how in 1970s you marched in and said my son is not going to take this test. And you yanked him out of there. You know, you told the principal that's not what's going to happen. Why did you do that?
CARLSSON-PAIGE: I've never been a fan of standardized tests. And you know, sometimes children remember things with more drama than really happened.
ROMANS: My mom says the same thing?
CARLSSON-PAIGE: In that case, it was a terrific principal of that school, actually who gave the option. And I didn't really march in, but I certainly said, No, I don't want Matt to have standardized tests. I don't think they tell you anything. You know, testing has a place in education, but the place it has is to inform teachers about how to work with children. What they understand, what they don't. And how they understand it so you can develop curriculum base on what you learned from the test. They're being used these days to evaluate teachers. Their very jobs are hinging on them, and their bonuses, and their schools survival. It's a whole wrong-headed way of using tests for evaluation of someone versus for information.
ROMANS: I want to bring in Bill Bennett now. He is a CNN contributor. He is the former Education secretary as well.
Bill, you believe in standardized testing. And that they should be used, right, for evaluating what a job a teacher -- how well a teacher is teaching the material. But you also agree this model should be revised?
BILL BENNETT, CNN CONTRIBUTOR: Yeah. I also believe in Jason Bourne, I just want to say that for the record.
Big fan. You know who I'm talking about?
ROMANS: Oh, yeah.
BENNETT: Standardized tests have their place. There are too many tests I think, I might, agree with Nancy on that. We test too often. But there are important uses for tests.
Yes, they're useful for teachers so they can diagnose understand where their students deficiencies are, but they are also very useful for parents and they are useful for the public. After all, you're paying this bill, we're paying for these schools. We need to have some sense of how our students are performing. And when many of them are performing as dismally as they are in international competitions, and other competitions, we have a right to ask for improvement. You have to be able to measure. You can overdo it. But without measurement we're in the dark. ROMANS: I want to look at the confidence in public schools. We have a recent poll from Gallup. And both of you, this has been trending lower and lower. We're at 34 percent in terms of "a great deal", or "quite a lot of confidence" in our public schools. Question to both of you.
Nancy, you first, are teachers tests, schools, who's to blame?
CARLSSON-PAIGE: Well, you're saying there's not a lot of confidence in public schools. I don't see how people could have confidence in public schools when there's an entire national climate that is full of messages that schools are failing, that schools have to be closed, that teachers are to blame for bad education, that we don't do well on international tests. There's so much of a climate of blaming teachers and blaming schools, I don't see who could possibly have confidence in them.
But, actually, I think the more that schools are dis-embedded from communities, the more that there is this creeping privatization of schools, and they are taken out of local control, then the more disconnected people feel. And the less can confident that their schools are doing what they want them to do, and less able to have a voice in affecting what happens.
ROMANS: You know, Bill, to watch that trend line just moving lower and lower. And I'll tell you, it seems to always dip exactly when we're at the worst in the economy. I'll point that out as well. But you'd like to see more than 34 percent of people thinking that they have a great deal of confidence in their public school system. There must be some other choice than leaving the school system altogether, and finding an alternative, isn't there?
BENNETT: Yeah. Pessimism follows pessimism. When you have a situation like we have today, there tends to be a decline, Christine, in confidence, in many institutions, government, public schools, public institutions, and the like.
But some of this is justified, because of performance factors. We've been increasing spending dramatically over the past 30 years and performance has been flat. I, too, think schools should be part of communities. But I don't want it all to be under local control. I think parental control is important, but I do think states, which have an important responsibility to fund education, have a right in outcomes. And should, in certain circumstances, close down schools. I visited a school in Baltimore when I was secretary of Education, where not a single child was reading at grade level. That hurts public confidence, you bet.
ROMANS: Before I let you goes, Nancy, I have to tell you, I'm the mother of three sons, five years old, three years old, and one year old. Just between the two of us, tell me what I can do to raise a Matt Damon, what's your advice?
CARLSSON-PAIGE: Well, the way that you raise a child who is like Matt Damon is to encourage him, or her, to think for themselves, to be creative, to have a thriving play environment, to have an environment that nurtures imagination. And to go to schools that also nurture those things.
And one of the problems with the high-stakes tests that we're talking about, where teachers are threatened and their jobs are threatened, of course they're going to do everything they can to survive, especially in an economy like this. But also, the tests are narrowing the curriculum. The arts are disappearing, the social curriculum is disappearing. Imagination and play, these are the things Matthew had as a child, that helped him become who he is. That's what he was saying in his speech. They're eroding out from under most children in the country today because of testing.
Nancy Carlsson-Paige, nice to meet you. Really appreciate it. And Bill Bennett, nice to talk to you again. Maybe we can have this conversation again. There's a lot of different directions we can go to continue to talk about how to make the public school experience better for everyone. And also how to appreciate out teachers and reward them the way they should be. Thanks, both of you.
The job isn't going to come to you in this market. So what does it take to be a successful entrepreneur? I'm going to talk with one you know, next.
ROMANS: Two top economists both from different sides of the aisle think this country might be headed for another recession.
Martin Feldstein, top adviser to Presidents Reagan and Bush during the 2000 election, said that the country faces a 50 percent chance of a new recession. Larry Summers, former Treasury secretary and director of President Obama's National Economic Council: He said, there's a one in three chance of another recession.
And, of course, you've seen all the dreadful news about jobs. I'm here to tell you, you can't wait for this economy to make it work for you. So we wanted to ask Chris Gardner how to make it work for yourself, make it work on your own. Gardner is a successful entrepreneur whose book "The Pursuit of Happyness" was the basis of the movie staring Will Smith, as well as the author of "Start Where You Are".
Chris, still feels like recession. I need some inspiration. How do you get over that?
CHRIS GARDNER, ENTREPRENEUR, AUTHOR, "START WHERE YOU ARE": Well, the first thing I want to share with you about those economists. I seem to recall a lot of them were reluctant to admit we were in a recession in the first place.
ROMANS: True. That is true.
GARDNER: At the very beginning.
ROMANS: And you know, I'll say something about Larry Summers said a one in three chance of a recession, I said, that means we've got a two-thirds chance we're not in a recession. I don't know, people are starting business all the time anyway. I mean, I talk to people who don't seem to care what's happening in the macro-economy if they've got a good idea right now and they are trying to figure out how to do it. Especially, Chris, if they don't have another job.
Talk to me about what it takes to start your own company, or to get out there and start hustling for contract work, or making it happen for yourself.
GARDNER: First of all, let me say this, I agree with you. You cannot wait for a perfect world in order to pursue something that you're truly passionate about. The truth of the matter is, 50 percent of all the companies in the Fortune 500 were started in either a bear market, or a recession. This is a fabulous time to be doing something, pursuing something that you're truly passionate about.
And one of the key components there, Christine, is recognizing that skills, talent, and expertise are transferable. Why not transfer those things into those opportunities that you're truly passionate about, as opposed to waiting for the economy to correct.
ROMANS: I think that's a pretty good the -- that's some really good advice, some inspiration. And I wanted -- some people, I hear, Chris, they say, I'm not the entrepreneur type or I'm too old. Or I really need to work for a company. But we found this, this week in "The Washington Post," an article about the myths about entrepreneurs.
Here are some of the myths. That tech entrepreneurs are in their 20s. That entrepreneurs are like top athletes. That they're born, not made. That college dropouts make better entrepreneurs. And all of these things actually are wrong. The average age of an entrepreneur is actually 40, start out, 40.
GARDNER: Let me say something about that.
ROMANS: These things are all-all of these things, anybody could be an entrepreneur, really.
GARDNER: Let me say one thing about that. I believe we're going to be a resurgence in the entrepreneurial spirit in this country, led by people who are with 50 years old, and older. Why do I believe that?
Because these people who are let go, and lost opportunities in corporate America, were let go in their prime. They bring something to the table that guys in their 20s don't bring, and that would be the three Rs. Basically, Rep, the Reputation and the Rolodex that you need to make something happen. So this next wave of entrepreneurial spirit in this country is going to be led by people who are 50 years old and older.
ROMANS: You call it the three Rs, I call it contacts and context. The people they know and how they know, how they fit into the overall picture, in the overall business, in the overall economy.
ROMANS: But very, very good. Chris Gardner, thanks so much for joining us today. Really nice to see you this weekend.
OK, that's going to wrap things up for us this morning. But this conversation continues online. You can send us an e-mail with your thoughts or questions to YourBottomLine@CNN.com. Please find me on Facebook and Twitter @ChristineRomans.
Back now to CNN SATURDAY for the latest stories making news. Have a great weekend everybody.