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What Is Fair for Your Taxes?; Protecting the Tax Pledge; Revved Up Detroit; Gas Prices Blame Game; Gas Prices Blame Game; China's Slowdown; View from the Top
Aired April 21, 2012 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: Lights. Camera. Action. It's "Your Money." From Los Angeles, I'm Ali Velshi. Thank you for joining us. Los Angeles means Hollywood, and that, of course, means movies, and when I think of movies, I think of popcorn, not just to eat but to explain this whole debate about whether taxes in the U.S. are fair. Now, I'm talking about federal personal income tax. The folks at the Urban Brookings Tax Policy Center helped us put this together.
Now, these different groups of popcorn represent your income level, so the bigger the bag, the bigger the income level of the group we're talking about. I want to use the popcorn to demonstrate how much of the total pie, how much of the total tax revenue is generated by each group.
So let's start over here by the little one. These are people who earn less than $30,000.00 a year. That, by the way, is about 44.8% of all households in the United States. They don't pay a lot in income tax. In fact, generally speaking, they get back 4.8%, so I'm going to put a few kernels into their pot, because they're not paying taxes.
Now, let's look at another group here. This bag represents people who earn between $30,000.00 and $100,000.00 a year, and that's about 40% of households in the United States. This group represents a contribution of 18%. So 18% of the total personal tax revenues come from here, so I'm going to put about two handfuls of popcorn into the bowl to represent the taxes that this group pays.
This bag here represents people who earn between $100,000.00 and $1 million a year, $100,000.00 to $1 million a year. That's about 15% of U.S. households. Guess what? This group contributes more than 60% to the total pie, so I'm going to add that in. That's about six handfuls, so we've got three, four, five, six and a few extras. OK, that's how much this group -- so people who earn between $100,000.00 and $1 million put that much into the total pot.
Now let's talk about the group that President Obama is referring to when he talks about the Buffett Rule, people who earn more than $1 million a year. Right now this group contributes 25% to the total tax revenue, so we'll give it about two and a half scoops. They, by the way, pay an average tax rate -- you've probably heard this -- of about 20%.
So, when you look at the amount that groups contribute to total personal income tax revenues in the United States, you'll see the lowest-income Americans don't generally contribute. About 45% of Americans pay no income tax and are actually net recipients of income tax or federal monies. This group, $30,000.00 to $100,000.00, contribues 18%. People who'll be earning between $100,000.00 and $1 million contribute 63% and people earning over $1 million contribute about 24%.
Let's take this discussion a little bit further. Will Cain is a CNN contributor with a bit of a conservative bent, good friend of mine. Will Cain, good to see you. Will, the rich contribute an awful lot of popcorn, as we just saw, but a new CNN Opinion Research Corp. poll finds that nearly 7 in 10 Americans believe that the tax system benefits the rich and is unfair to ordinary workers.
Now, that certainly seems to be behind President Obama's push to raise taxes on millionaires through this Buffett Rule. You say that that has more to do with envy and less to do with sensible tax policy.
WILL CAIN, CNN CONTRIBUTOR: I do say that. I say it for a couple of reasons. I love the popcorn display. This is what I would say. I'd build upon that to say consider this. The top 1% of income earners in our country, which would encompass your last bowl, the bowl of the richest among us and some of the other bowl next to it, pay about 36% of total income taxes, while the top 10%, which would be your last bowl, the richest bowl, and most of the next bowl, pay 70% of total income taxes.
So, what is fair, Ali? What is fair? For them to pay 100%? I think this definition of fairness at some point gets really hard to define.
VELSHI: Well, let's talk about it for a second. I mean, there's a real discussion about should we be talking about the tax code as being fair or being efficient? What's your sense of, if we're all agreeing that we don't love this tax code, what should it represent? Should the rich pay more or should everybody pay the same amount? What's your thought?
CAIN: Well, I think first of all for me -- and I don't think this is that subjective of an interpretation. What is fair is this. When you have that poll that shows how many people think the tax code unfairly benefits the rich, well, the statistics kind of fly in the face of that. But one thing we know the tax code does is it's so complex, so riddled with exceptions and exemptions that it becomes like Swiss cheese.
And who does that benefit? Well, we want to say the rich, but it really benefits those that are connected, those that have lobbyists, those that have tax accountants and lawyers. That's where you can make a more fair tax code, by simplifying it, for making it something that so many of us understand.
But my complaint is -- and your reference to the Buffett Rule of President Obama, that doesn't solve any of those problems. It just makes it more complex for some arbitrary definition of fairness that, yes, I think is based on some semblance of envy, for playing to the cheap seats, for telling people, "Hey, we'll get this solved. We'll just play to the rich guys." VELSHI: Let's ask this. One of the reasons the president picked that $1 million and above is that people at that level of wealth -- and they don't have to earn that much money -- if they earn even less than that, make a lot of their money through investments, through dividends, through capital gains, which people who are at lower income levels generally can't participate in.
If you're a working stiff in this country, your money that you earn goes toward consumption. It goes toward what you do on a daily basis. So there's some sense that you can't get into the place in life where you can benefit from a lower tax rate. Is that fair?
CAIN: I think you have to answer this question to find out whether or not that's fair. What's the purpose of the tax code? Is the purpose of the tax code to raise revenue for the government to pay for its expenditures? I think most people say yes. Is the purpose of the tax code to influence behavior? It certainly has become that, right? We have a child tax credit.
VELSHI: You disagree with that?
CAIN: To some degree, Ali, but then when you start talking about capital gains, you have to have a really honest debate about do we want to incentivize investment? Has investment in things like venture capital and start-up businesses been a good thing for this country?
I have to be honest, from my perspective. If I say yes and therefore capital gains should be lower than income taxes, then you open yourself up to logical consistency. And therefore you say, well, should we incentivize homeownership? Should we incentivize having children? And then you --
VELSHI: But we do.
CAIN: That's right. And then you get back to this riddled tax code.
VELSHI: And let's talk about the fact that we do incentivize homeownership, and here's an example. We spend a lot of money encouraging homeownership by saying if you get a mortgage, you can deduct the interest that you pay from your taxes. And what that does is create a homeownership culture that says it's better to own a home than rent a home.
And guess what? The United States doesn't have a higher rate of homeownership than, let's say, Canada or Germany, countries that don't offer that sort of thing. But at the same time, we want -- we need certain industries to be here, so should we not use the tax code to say if you invest in this industry, if you put money into this industry, we'll encourage that by allowing you a bit of a tax break?
CAIN: I don't like that, because I don't think the tax code should be a tool of social engineering, but I think that's at least an honest debate to have. When you talk about capital gains, you can talk about whether or not you want to incentivize investment.
But the problem right now and where you began talking about the capital gains tax is that it unfairly benefits the rich, and the capital gains tax is not about that. It's not about playing favoritism, and if you start seeing the tax code, overall it's this tool for morality, this tool for evening the playing field, this tool for creating what you think might be fair. Then you're having a conversation that has no real end. That's a rabbit hole you go down.
I think fair is simple, and then if you want to have an honest debate about what you do and do not incentivize, that's OK to have. It's a complex one, and capital gains is the beginning of that conversation.
VELSHI: Let me ask this to you one different way, OK? If you are a wage earner, you pay a certain rate of tax. If your money, if your wealth, if the money you derive comes from the fact that you have more money and hence you can invest it and you get capital gains and you get dividends from your stock, something that the lower wage earners can't do, you pay less money on that income.
Tell me why the average person watching this should think that's equitable. Or, are you saying equitable's got nothing to do with it?
CAIN: I would say this. The reason that would be equitable -- and, listen, the reason I would defend capital gains to some extent as equitable is this. You've already paid taxes on your income that you've earned through a wage at some point. Now you're talking about the amount of money you've taken and placed into an investment, some productive use in society, which then usually gets taxed again at some corporate rate.
And then, finally, it creates some hopeful profit that you would then pay another tax on, and we as a society said let's treat that differently than income. So, I'd say I'd take some exception to saying it's unequitable, that it's inequitable, because you pay taxes on it numerous times, and we're trying to incentivize investment.
Now, I've been honest with you in this conversation. I realize that opens you up to using the tax code for all sorts of social engineering, but I don't think the capital gains tax rate is just some symptom of rich guys getting an inequitable benefit the poorer people don't get.
VELSHI: Square this out for me politically, because the fact is you saw those numbers. You saw the number of people who approve of the idea that the rich, people earning more than $1 million a year, should pay higher taxes. An overwhelming number of Democrats support that.
TEXT: Favor a 30 Percent Tax Rate for Millionaires; Democrats 90%; Independents 69%; Republicans 53%
VELSHI: A very large majority of independents and even a majority of Republicans support that idea. This is a winning idea for President Obama and a losing idea for Mitt Romney.
CAIN: Well, great. So, politics plays to the cheap seats. It plays to the popularity, and if you think that soaking the rich wasn't popular, as the French revolutionaries; it worked out for them. Soaking the rich has always been popular, but that does not mean it's right, so I'm not here to tell you what's the best thing to do politically. I'm telling you the best thing to do that is right.
VELSHI: Will, always good to see you, my friend. Thanks so much.
CAIN: Thank you, Ali.
VELSHI: Will Cain is a CNN commentator. Hey, Grover Norquist -- whether you love him or you fear him, you cannot deny his influences on your taxes, so what does he think about President Obama's focus on fairness?
(BEGIN VIDEO CLIP)
GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX REFORM: They can't play to economic growth. They can't play to job creation. They can't speak to a stable dollar, so they say let's distract you with shiny things, which is fairness, which is an unending conversation, in which everybody -- like sex, everybody can have their own opinion on the subject.
(END VIDEO CLIP)
VELSHI: Whoa, did he just say sex? Coming up next more with that man, who has Republicans, including Mitt Romney, pledging to never raise taxes.
VELSHI: All right. Today when we talked about taxes, the debate in Washington has started to center around what is fair, but it's also important to remember the real point of taxes. The way they started, income taxes, was to pay for things. Fairness wasn't central to the discussion when taxes were invented. Christine Romans has a look at what you get for your tax dollars.
CHRISTINE ROMANS, CNN REPORTER: The government took $2.3 trillion of your money in fiscal year 2011, so what are you getting for all that tax money? Well, for starters, it's not enough. The federal government spent $3.6 trillion, meaning they had to borrow $1.3 trillion. Don't worry. If you pay taxes, you'll be paying the interest.
But again, where did all that money go? Let's start with Medicare, Medicaid, and the Children's Health Insurance Program. That's the biggest slice of the pie, the blue right here.
TEXT: Medicare, Medicaid, and CHIP -- 21%
ROMANS: Social Security claimed one-fifth of the total budget. That's yellow right up there.
TEXT: Social Security -- 20%
ROMANS: The wars in Afghanistan and Iraq cost $159 billion last year, about a fifth of the total spent on defense. Now, spending on safety- net programs designed to keep Americans out of poverty actually dropped last year, and the interest on our debt, that amounted to about 6%. That's the purple wedge there, six cents of every dollar.
TEXT: Interest on Debt -- 6%
ROMANS: Now, the remaining 19% was split among infrastructure, science, medical research, education, benefits, also for retired federal employees, veterans. That's how your tax dollars are spent. Ali?
VELSHI: Well, thanks, Christine. Listen, if you're waiting for tax reform, don't hold your breath? Why? Lots of reasons, of course, but it might just be because one of the most powerful fiscal-conservative voices in this country won't allow any room for compromise. And he's not an elected official.
His name is Grover Norquist. He's the president of Americans for Tax Reform, and that's a group which has secured pledges to never raise taxes from likely Republican presidential candidate Mitt Romney, as well as almost all the Republicans elected in Congress. Now, he warns those who break the pledge will pay a political price. Grover and I sat down to discuss his new book, "Debacle, Obama's War on Jobs and Growth and What We Can Do Now to Regain Our Future." But first, I wanted to know where Grover Norquist stands on all this talk of tax fairness.
NORQUIST: You get into a lot of the impetus to impose the income tax, the personal income tax in the United States. It was imposed on people's incomes in today's dollars for over $10 million a year. It was just going to hit the few, and I would argue that the reason why left-of-center politicians who want the government to get bigger play to fairness is that they can't play to economic growth.
They can't play to job creation. They can't speak to a stable dollar, so they say let's distract you with shiny things, which is fairness, which is an unending conversation, which like sex everybody can have their own opinion on the subject. There's no right and wrong on fairness.
VELSHI: Brand-new poll, CNN Opinion Research Corp. poll taken April 13 to 15, favoring a 30% tax for the very wealthy, millionaires, the Buffett Rule.
TEXT: Favor a 30 Percent Tax Rate for Millionaires; Democrats 90%; Independents 69%; Republicans 53%
VELSHI: 90% of Democrats support the idea. 69% of independents and even a majority of Republican-registered voters who are polled -- and, as you know, these polls tend to be very accurate. More than half of registered Republicans actually support the idea. Why? If it's so logical to you that it shouldn't happen, why do so many people support it?
NORQUIST: Well, the polls looked like that in Washington State at the beginning of the campaign to impose an income tax on the rich. As they had a conversation, the numbers flipped from 2 to 1 for it to 2 to 1 against it. So, yes, that poll, but you take other polls -- Scott Rasmussen has done an entire book on polling on taxes. And at first glance, some of the questions he asks look like that and you go, "Oh, that's disappointing." Then you ask the second question. If they raise taxes on rich people, are they coming after you next? 75% yes.
VELSHI: That's a little bit of fear-mongering.
NORQUIST: No, it's history.
VELSHI: Where does the logic that that would be the case? Let's move on.
NORQUIST: The alternate minimum tax, the personal income tax.
VELSHI: That's right. There are people who point to you as the man behind the inability of elected officials to soften their positions and negotiate and compromise in order to get deals done, because they're worried about what'll happen because they signed your pledge. In fact, recently a few of them said they no longer feel bound by your pledge because it no longer lets them get work done. So if we're back into this mixed scenario after November, are you going to loosen the reins a little bit and let stuff get done?
NORQUIST: Well, that was the question people were asking a year ago, but all of 2011 we had just that discussion, and some people said, "We can't get spending reduced unless we give the Democrats tax increases." And some of us were old enough to remember 1982 and 1990. If you put tax increases on the table, the spending -- promises of spending would actually evaporate, disappear.
'82, taxes went up. Spending didn't go down $3.00. They went up $2.00 for every $1.00 of tax increase. '90, spending didn't go down $2.00 for every $1.00 of tax -- it went up. So in both cases, you not only didn't get as much spending restraint as you were promised. You got none. You got negative spending restraint.
So, what happened to 2011? $2.5 trillion in spending restraint over the next decade. You have to police that, as you would any agreement, and not a single dollar in tax increases.
VELSHI: In 2008, Gov. Mitt Romney said if you bail out the auto industry, you could kiss it goodbye. But I spoke with the man behind the bailout this week and found out what he thinks more than three years later.
(BEGIN VIDEO CLIP)
STEVEN RATTNER, ADVISER, PRESIDENTIAL AUTO INDUSTRY TAX FORCE: They were fundamentally wrong, and Mitt Romney, in saying that there was some private-sector alternative, was fundamentally wrong.
(END VIDEO CLIP)
VELSHI: Will Romney's words cost him a key battleground state in November? That's next on "Your Money."
VELSHI: When President Obama took office in 2009, the American auto industry was losing billions of dollars a year. GM alone lost almost $31 billion in 2008. Now, this week I spoke with Steven Rattner. He was the man the president picked to be the czar that would save the auto industry.
RATTNER: When I took the job, I wasn't at all sure we had a solution to it, but I finally convinced myself I couldn't make it any worse, and therefore I'd give it a try. And I did satisfy myself pretty early on that there was an important role for U.S. domestic auto industry.
VELSHI: It's pretty incredible, really, when you see where it is today, obviously Ford leading that pack in terms of being in better shape, but they were in better shape then anyway. But to see what the American carmakers have managed to come up with in the last few years with the government's help, it's kind of impressive.
RATTNER: It's sad but true that it took a crisis that the changes that were instituted, partly at the government's behest, partly at the companies' themselves, were only possible because of the crisis and because we, the president, was able to say to every constituency we all have to sacrifice. So the UAW sacrificed, the creditors, the suppliers. It wasn't possible a couple years ago. It took this kind of a crisis for it to work.
VELSHI: With the benefit of time, what would you have done differently in those deals?
RATTNER: I don't think there's a lot we would've done differently. I have said publicly that even a little more sacrifice by the stakeholders might've been a good thing. I wish we'd had a quicker or clearer management plan for General Motors than having several different CEOs, but, by and large, I would say modestly this has really worked out as well as we'd ever imagined.
VELSHI: Rattner says it took a crisis to turn this industry around. I want to show you just how bad it was and remarkably how good it is now with all of the Big Three automakers profitable. Let's start with the bottom line. General Motors lost $31 billion in 2008.
TEXT: GM 2008 -- down $30.9B billion; 2011 -- up $7.6B billion
VELSHI: Look at 2011. They're up $7.6 billion.
TEXT: Ford 2008 -- down $14.7B; 2011 -- up $20.2B
VELSHI: In 2008, down $14.7 billion, 2011 up $20.2 billion.
TEXT: Chrysler 2006 -- down $660M; 2011 up $183M
VELSHI: And look at Crysler. The 2006 numbers, down $660 million. We don't have 2008 numbers because Crysler paid a private equity firm to take the debt off its hands, but look at 2011, up $183 million, not anywhere close to their competitors but in the right direction. That's the bottom line, but let's also take a look at the number of employees, because that was part of the president's calculus too. Look at how many jobs would've been lost.
TEXT: Putting the Wheels Back On, Jobs at Stake; GM 2008 -- 243K; Ford 2008 -- 213K; Crysler 2006 -- 61K
VELSHI: In 2008, 243,000 people were employed by General Motors. Ford employed 213,000 people and Crysler -- again, we don't have numbers for 2008, but in 2006 they employed nearly 81,000 people. In choosing to bail out the auto industry, the president had half a million jobs at stake.
And that's only the automakers. It doesn't include suppliers or dealerships or all those businesses that exist to supply those towns that make cars. Now, there were plenty of critics about the auto bailout, including Gov. Mitt Romney, who argued that a structured bankruptcy could've achieved the same result without the massive cost to the U.S. government. So I asked Steven Rattner about that.
(BEGIN VIDEO CLIP)
RATTNER: They were fundamentally wrong, and Mitt Romney, in saying that there were some private-sector alternative, was fundamentally wrong. There were only really two choices for these companies. One was some version of what we did. It didn't have to be exactly like this, but essentially what we did.
The other was letting these companies liquidate, because without the government, they would have liquidated. There was no private capital. They would've closed their doors. They would've fired their workers and they would've gone out of business.
(END VIDEO CLIP)
VELSHI: Nowhere in America is car manufacturing more important than in Michigan, a battleground state that could decide the next president. Let's bring in Jim Acosta. He's CNN's national political correspondent. Jim, the president bailed out the auto industry. It's very popular in Michigan, and he's not afraid to take a jab at his likely GOP rival, Gov. Mitt Romney, who was against the bailout very clearly but still has deep roots in Michigan. His father, George, was governor of the state. He was born there. How's this playing out in Michigan?
JIM ACOSTA, CNN NATIONAL POLITICAL CORRESPONDENT: Well, Ali, it was surprising to see the president go to Michigan this early on. If the president loses Michigan, which, as you said, is a battleground state -- but it is really sort of a leaning Democrat state -- then things don't look too well for the president come this November. But it was not surprising in reaching out to those voters in Michigan that the president would highlight the fact that he supported the bailout and that his likely opponent, Mitt Romney, did not. As a matter of fact, back in November of 2008, the former Massachusetts governor wrote an op-ed in The New York Times entitled "Let Detroit Go Bankrupt," in which he voiced his opposition to the bailout, saying it would basically wipe out the American automotive industry.
TEXT: "If General Motors, Ford and Crysler get the bailout...you can kiss the American automotive industry goodbye. It won't go overnight, but its demise will be virtually guaranteed." - Mitt Romney, November 18, 2008 New York Times Op-Ed
ACOSTA: So while the president didn't mention Mitt Romney by name during an appearance in Dearborn, Mich., earlier this week, it was really no secret who he was talking about.
VELSHI: Jim Acosta, good to see you. Thank you, my friend.
ACOSTA: Good to see you.
VELSHI: Jim Acosta reporting for us. Coming up next, Republicans blame President Obama for high gas prices. So this week the president pointed his finger at Wall Street, and I'll tell you why his argument doesn't hold up. And, Congressman Dennis Kucinich joins us.
(BEGIN VIDEO CLIP)
REP. DENNIS KUCINICH (D), OHIO: It's time to get serious about the rising price of gasoline, and it's time to get serious about investing in the future energy needs of this nation.
(END VIDEO CLIP)
VELSHI: I'm going to guess that Congressman Kucinich is going to try to prove me wrong on this connection between oil and speculation and gas prices. That's all coming up next on "Your Money."
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT, UNITED STATES OF AMERICA: We cannot afford a situation where some speculators can reap millions while millions of American families get the short end of the stick. That's not the way the market should work.
(END VIDEO CLIP)
VELSHI: So this week, President Obama announced that he's going after speculators in the oil markets who may be manipulating prices.
TEXT: Curbing Oil Speculators, President Obama's Proposals for Oil Markets; Boost market oversight and surveillance; Increase fines on manipulators; Raise margin requirements for trades VELSHI: The president is proposing a plan that would boost oversight of trading in oil futures, increased fines on people found guilty of manipulating the price of oil, and raise the margin requirement for trading oil. In other words, traders would have to put more money down to make a trade so they've got more skin in the game, and that might discourage people from speculating as much as they do.
Now, the president is right to want to rein in the oil markets, but he's wrong to suggest that somehow doing so is going to lower the price of gasoline. To be fair, the president isn't claiming that prices would drop overnight if these changes were made, but I'd be surprised if these proposals have any impact at all on gas prices.
Congressman Dennis Kucinich of Ohio disagrees with me and he agrees with the president on this. He joins me now. Congressman, always a pleasure to talk to you, and one never really suspects a political motive behind the things you say, so I'm happy to have you here challenging me, but draw me a line, please, between cutting manipulative speculation out of the oil market and lowering gas prices in America.
KUCINICH: Well, we know, Ali, that there is a speculative premium. I mean, a few days ago I listened to your report and you said that as much as $10.00 to $20.00 of, let's say, $100.00 base for a barrel of oil, could be connected to speculation. Now, I had Senator Coburn in front of a committee that I'm on. He said it could be between $15.00 and $18.00. But let's use your numbers.
There is a speculative premium; no one denies that. The question is what impact does it have on a gallon of gas? Now, 72% of the price of a barrel of oil is related to cost of crude, and if you take 20% as the top amount that might be subject to speculation, that could easily be translated into saying as much as 14% of the cost of oil could be directly connected to speculation, and that translates to a higher price at the pump. So, there is a connection between speculation and the cost of gasoline.
VELSHI: Sure, there is. Let me put it to you this way. You come from a state heavily, heavily hit by the housing crisis. Can't you make the same argument for a house? There's an amount of a house that's connected to the cost of the land and the building materials in that house, and some of it's speculation. I mean, we're not at odds on the fact that there's a speculative premium in oil.
KUCINICH: It's not the same thing.
VELSHI: There's always going to be one.
KUCINICH: It's not the same thing. As a matter of fact, though, I will take your argument about how the lack of discipline in markets with respect to credit default swaps actually ended up damaging the housing market in the United States, because there was no regulation. Now, the question that the president raises is will increased regulation of the oil companies lessen their speculative fervor? That's certainly the hope. But the command of the Futures Trading Commission this week, Ali, put a new rule down that effectively gave the oil companies the ability to retain their ability to deal with derivatives without having to comply with the derivative dealer rules. So there is a little bit of a contradiction here that needs to be explored by those who have a little bit more knowledge in this than I do. But if we want to get the command of the Futures Trading Commission back in the game of protecting consumers, we certainly should be zeroing in on what market mechanisms enable speculators to be able to profit.
VELSHI: So, Congressman, look. There's always been speculation. There's no question about this, and we have in this country for 15 or 20 or 25 years whittled away at important regulation. We have no disagreement on this and we have no disagreement with the president on the fact that these rules that he wants to impose are probably good. They are necessary and probably good, but let me ask you this.
I think the word speculation is misused in this whole discussion, because we have speculation anywhere that there's a market. We're looking at manipulative speculators, right, people big enough and nefarious enough to affect the market for only their own gain in a way that is damaging to others. How do you find those people? Who are those people? Who are we targeting? Who's this boogeyman?
KUCINICH: You know, Ali, you come up with an interesting assessment, and that is there's manipulation, which is one category of trying to affect the laws of supply and demand, and the other one is speculation, which in a sense capitalizes on some actions by government.
For example, the government hints that it's going to attack Iran. Prices go up. Speculators then say, "Well, we're going to guess that the price down the road of oil's going to go up." They help drive the price of oil up now. It's not related to what it's going to be in the future.
It's we're really paying a premium on it now, so the government does have a role in tampering speculation by being a little bit more cautious in its predictions about when it's going to take military action that might in some way interfere with the laws of supply and demand. I'll grant you that.
Now, with respect to manipulation, there is manipulation going on, where we see the current trading environment being able to jack up the price without regard to the laws of supply and demand. And that, I think, is what's happened right now, because you have lower demand, as I think you pointed out a couple of days ago, but we do have higher prices.
So, in that particular mathematical equation between low demand and high prices, that's where you have the room for manipulation.
VELSHI: Let me ask you this, Congressman. By the way, I always appreciate someone who takes on my argument by watching my own reports and holding them against me. I respect you for that. Let's talk about housing for a second. When we look at everything that went wrong in housing, right, we look at the fact that valuations were done incorrectly. Forms were filled out incorrectly. Disclosures were wrong. People misled clients. Clients were able to get mortgages without disclosures. There were a whole lot of things that were wrong and we realized we needed to regulate this better, but we never wanted those regulations -- we never designed them to make the prices of houses go up or down.
Isn't there something wrong with the president working on better regulating the oil-trading industry with an actual aim to making the price go down? Isn't that sort of relative -- just an interference with markets?
KUCINICH: Well, prices should conform to the laws of supply and demand. If the laws of supply and demand are being adversely affected by speculation or manipulation, it's certainly an appropriate role for government to look at that. Now, if we're talking about housing, we saw the Fed look the other way while speculation was going on by banks with their credit default swaps and other exotic instruments.
The fact of the matter is that the price of housing was being bet to go higher and higher, yet the American people at that time weren't really seeing any direct benefit unless they happened to sell their home at the moment which many could not. So, what happened was when the price of housing collapsed, people lost their highest investment.
Now, everyone has to have a roof over their head. Not everyone's using a particular type of car. We have to do something about stopping the speculation in the markets, and we also have to look at the role of the Federal Reserve here, because the Fed's looked the other way. They were cops on the beat, looked the other way while the prices in housing were going up.
And, frankly, their dollar policies have not really contributed to price stability in oil markets. This is another issue that really hasn't been getting much discussion.
VELSHI: Well, we'll discuss that here, because you're absolutely right about that. That has perhaps as much to it that there's a dollar premium in oil as well. Representative Kucinich, always a pleasure to talk to you. Thanks very much for having a good, hearty conversation with me about speculation in oil.
KUCINICH: Thank you, Ali.
VELSHI: It's always a pleasure. Dennis Kucinich, Democratic representative from Ohio. All right, still to come, China's economic growth is slowing down. Should Americans applaud or panic? What does it mean for the global economy, the U.S. markets and for your money? Coming up next.
VELSHI: The International Monetary Fund said this week that the outlook for the global economy has improved but warned that there are still major risks that policymakers have to address. Good news for the U.S., the IMF raised its growth outlook. But for Europe things still remain bleak. Even emerging economies, the largest, of course, being China have cooled.
CNN's Eunice Yoon takes us inside China's economy.
EUNICE YOON, CNN INTERNATIONAL CORRESPONDENT (voice-over): Weaving through the crowds at an employment fair in Beijing, Lan Chunmeng is looking to land a job, not just any job.
"I'm considering the company, the possibility of promotion, if the job is relevant to my major and has regular hours," she says. "I cherish my personal time."
Gone are to days of the docile Chinese worker. Job seekers here are demanding more even as the economy slows down.
China's economy grew by 8.1 percent in the first quarter. That's the lowest rate in nearly three years. The slowdown has yet to worry the candidates at this jobs market but it's already spooking investors concerned about a possible hard landing here after years of double- digit growth.
The government has been on the campaign to cool the world's second largest economy, tightening lending to rein in rising prices.
(On camera): Everyone is watching the housing price in China. People are worried that the market is a bubble and could come crashing down.
(Voice-over): Chinese real estate is a key driver of global growth. Accounting for about a fifth of China's economy. Helping to lift prices of the world's steel, cement and other materials. Lending restrictions and other measures are having an effect in more than half of the cities tracked by the government like Chengdu where home prices are down 9 percent from a year ago.
And property agents resorted to giving away beamers to get customers to buy new apartments.
"People are excited and are coming because of our BMW giveaway," this agent says. "After all, it is the BMW."
Their fears of weakening real estate market could burden the nation's banks with bad debt and limit Beijing's ability to stimulate its economy at a time when manufacturers are seeing fewer orders from Europe and struggling global growth. However, factory workers like Li Xuefeng remain optimistic.
"We already have a house," she says. "I'm thinking of buying a car." One of the many Chinese joining the country's consumer class.
Eunice Yoon, CNN, Beijing.
(END VIDEOTAPE) VELSHI: For more on China I'm joined by Peter Navarro. He's a professor of economics and public policy at UC Irvine. He's also the author of "Death by China."
Peter, good to see you. Thank you for joining us.
PETER NAVARRO, AUTHOR, "DEATH BY CHINA": Great to see you out here in my home turf.
VELSHI: Thank you. It's great to be here. Listen, let's talk about this for a second. When China's economic growth slows down, markets here react badly. We -- investors don't like that. They feel that with slower growth in other parts of the world, we depend on India, we depend on China to keep on chugging faster. So do we gain or lose from China slowing down a little bit?
NAVARRO: Ali, we lose. What it tells us when China is slowing down is that China continues to have the structural problem that is killing our own economy. That structural problem, Ali, is that it's heavily export dependent.
NAVARRO: In order for China to grow it basically over the last 10 years has flooded the United States and Europe with illegally subsidized -- exports.
VELSHI: When you say illegally subsidized exports, what do you mean by that?
NAVARRO: Run them down. China manipulates its currency, which acts as a tariff on our exports in China and the --
VELSHI: Wait. It keeps it lower than it should.
VELSHI: It doesn't let it float freely which means --
NAVARRO: Stuff cheap at Wal-Mart.
NAVARRO: Stuff cheap at Wal-Mart.
NAVARRO: They engage in illegal export subsidies so when they send something here, they give the producer an extra amount of money. So if a company in Akron, Ohio, is trying to compete with something in Chengdu, they can't do that.
VELSHI: Got it. NAVARRO: So we lose jobs there. They steal our intellectual property, which lowers their cost so a pharmaceutical or our automotive firm here can't compete fairly.
VELSHI: You're conveniently missing one point.
VELSHI: And that is there is one other beneficiary to everything else that China has been doing.
NAVARRO: The consumer.
VELSHI: The consumer.
NAVARRO: Of course.
VELSHI: Our stuff --
NAVARRO: Of course.
VELSHI: -- is cheap because of all those things that you talk about.
NAVARRO: And here's what every consumer needs to understand when they walk into a Wal-Mart. OK? The stuff is cheap in -- at Wal-Mart but there are consequences. When people go into Wal-Mart, pick up a good and says made in China, they have to think I'm going to lose my job or my friend's going to lose their job if I keep buying this cheap artificially subsidized goods.
If I buy that good, that money is going to go to fund what is essentially a very rapid military buildup. If I basically keep buying that cheap stuff, we won't have anything in our community --
VELSHI: What can you do to convince people? Because they're not making those decisions. Particularly in a tough economic environment they are making he decision to buy the least expensive products that they can buy.
NAVARRO: I think there's a reason we have elections, Ali. And my hope is that 2012 will define this issues because we've tried everything else in terms of getting the economy going with Keynesian stuff, fiscal policy, (INAUDIBLE), all this, I believe that the best jobs program in America is trade reform with China.
VELSHI: Peter, always a pleasure to see you. Thank you.
NAVARRO: Great to see you.
VELSHI: All right. Peter Navarro is the -- is a professor at UC Irvine and the author of "Death by China."
All right, did you know that doctors in China are using 3G smart phones to treat eye disorders in children? Coming up next my conversation with the CEO of the world's leader in 3G and next generation mobile technologies Paul Jacobs of Qualcomm.
VELSHI: If you own a phone, pretty much everybody does, it's probably got a Qualcomm chip in it. This year Qualcomm will bring the Snapdragon S4 chip to the market. It's going to drive your TV, notebook, tablet, just about any high-tech mobile device that comes out in the future. In China, two-thirds of all Internet users access the Web via their mobile phone. That's about as many people as live in the United States.
I spoke with Qualcomm's CEO Paul Jacobs who says the biggest growth is in the emerging markets.
(BEGIN VIDEO CLIP)
PAUL JACOBS, CEO, QUALCOMM: People are talking about a billion smart phones shipped by 2014. Roughly half of those are going to go into emerging markets. We're focused on both the high end and the low end of the market. And we're seeing the countries like China and India grow very rapidly demand smart phones and we're building chips for those.
(END VIDEO CLIP)
VELSHI: Qualcomm reported record financial results for its second quarter this week, but said filling new orders is presenting a challenge because of shortages of machinery to build those chips in Taiwan. I asked him if the slowdown we're seeing in Europe, and India and even China, the economic slowdown is having an impact on sales.
(BEGIN VIDEO CLIP)
JACOBS: People don't see phones anymore as a luxury, they really see it as a staple, and therefore it's a little less sensitive to economic downturns or slowdowns. We are seeing very strong growth in both China and India. And India has been a little later in getting its 3G, and now 4G networks online. But these are now happening. So we are seeing strong growth.
And what happened for Qualcomm in India in particular is we used to sell at the very low end of the market and now we're able to sell across the entire tier. So higher end and lower end devices. So it's really opened up a lot of the market to us. And China also has been very strong. What's happened there is that the operators are really competing with each other to get people on to mobile broadband.
And as we know in many of these markets, the phone is the only way people are getting on to the Internet besides having to go to an Internet cafe. So it's really changing people's lives dramatically.
(END VIDEO CLIP)
VELSHI: Changing the world for good is a big part of the Qualcomm foundation. That's part of Qualcomm. And why it's part of the $10 million X PRIZE competition. The X PRIZE seeks to tackle the world's grand challenges by incentivizing innovation through its competitions.
I asked Jacobs about his vision to bring health care to the palm of your hand.
(BEGIN VIDEO CLIP)
JACOBS: There's a lot of companies out there that are building these different kinds of sensors that can monitor different things about your body. What we're doing with the X PRIZE Foundation is to get them to pull this all together, so that teams come together from around the world, and compete to build a little box that you can hold, and might talk to different kinds of devices, sensors that you might have on you, or take samples of blood, or spit or things like that, and diagnose diseases. And do it so that somebody, say, a lightly trained health professional in the emerging market could diagnose people, or even a consumer in a developed market might be able to diagnose themselves.
(END VIDEO CLIP)
VELSHI: Paul Jacobs is just one of those people participating in the Visioneering conference for the next X PRIZE. It's a fascinating gathering of technologists, entrepreneurs and big-idea people. All assembled to identify the next big grand challenge that can and should be tackled. It's also why I'm in Los Angeles. I'm excited to be a part of it.
And next week I'll tell you more about a new era in private space travel that's already under way, thanks in part to the folks at the X PRIZE Foundation. You know you'll know that in 2004 they awarded $10 million to the makers of Spaceship 1, the first privately manned aircraft.
I'll have more on what vision they come up with in next week's show.
All right, coming up next on YOUR MONEY, my "Close Call," and those I have to thank for it.
VELSHI: Part of my job as the chief business correspondent at CNN is keeping the airlines honest about fees and fares and customer service. Sometimes we forget that what they do is to get us from place to place safely.
I fly more than most people I know, and on Thursday I had my second emergency landing. It was a tough one, it was a flight Delta 1063 from JFK to LAX and within moments of that flight taking off, it looked like we had a bird strike and the pilot had to turn around and bring that plane safely in.
I want to just give a shout out to the crew on Delta 1063, the pilot and co-pilot and those flight attendants who kept everybody on that -- on that flight safe and comfortable, and I want to give a shout out to air crews that do that every single day. Every time they take up one of those planes and land it, they're doing us a service. So while we sill have some complaints about them losing our baggage and charging us extra money and all sorts of things, delayed flights, they keep us safe. And they move a lot of us around. So thanks for that.
And thank you for joining the conversation this week on YOUR MONEY. You can watch us every Saturday at 1:00 p.m. Eastern and Sunday at 3:00 p.m. You can stay connected to us 24/7 on Twitter. My handle is @AliVelshi. The show handle is @CNNYourmoney.
You know I read every single one of your tweets, and even respond to some of them. Have yourselves a great weekend.