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YOUR MONEY

Can Romney Win Ohio?; State Of The Unions; The Blame Game; Taking Stock Of Your Finances; Europe's Crisis, America's Problem; Billion Dollar Money Train

Aired June 10, 2012 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


ALI VELSHI, CNN ANCHOR: Create jobs, or lose yours. President Obama is trying to survive a hiring slowdown in the United States that could leave him jobless in November.

Welcome to YOUR MONEY. I'm Ali Velshi. Job growth is slowing down in America, but in the battleground states that are expected to decide the wrought come of the presidential election, it's a different story.

Christine Romans, host of "YOUR BOTTOM LINE," she's got the story of the battleground states -- Christine.

CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Hello, Ali. We'll be looking at all seven of these battleground states and how the employment rate compares today with when the president took office.

And in two of the seven swing states, Nevada and Florida, the unemployment rate is higher than the national average. In Nevada and Colorado, the unemployment rate is still above what it was when President Obama stepped into the White House.

But in the rest of the battleground states, it's pretty interesting. The jobs markets are improving. They had been improving since when the president -- president went into office, and they're still improving, Iowa, Virginia, New Hampshire, all have pretty low unemployment levels.

When you look at these, 5 percent in Iowa, New Hampshire 5 percent, Virginia 5.6 percent and in Ohio with 18 electoral votes, much more than Iowa and Virginia combined, you've seen a significant drop in the unemployment rate from 8.6 percent to 7.4 percent over the year -- Ali.

VELSHI: They went from 48th in the nation to much higher than that. It's a very interesting story, Ohio, because big auto manufacturing, big manufacturing base, and this is one of those places where Mitt Romney had said, don't have that auto bailout. My feeling is nobody wins without Ohio, and Mitt Romney's going to have an uphill battle there.

ROMANS: We'll let's take a look at Ohio in particular because, this right here, this showing you the population centers of Ohio. See in some of these areas are where the president did pretty well last time. This is the polling that we've got right now. The most recent polling for this presidential race, you've got Obama with 48 percent, Romney with 42 percent. So even though the unemployment rate has been coming down there you've got auto bailout issue which could be very, very critical, you still have President Obama with a six-point lead over Mitt Romney.

So, no question, no question, even though the unemployment rate is improving in Ohio, this is still going to be a very important swing state for the president.

VELSHI: All right, Christine, thank you.

We're joined by Republican Governor John Kasich of Ohio who is taking time between the presentation so he's come out in the hall and just to talk to us.

Governor, thanks for being with us. Listen, I don't see how voters in Ohio, many of whom are autoworkers, union members, manufacturing workers, alienated by Governor Romney's opposition to the auto bailout are going to hand your state to Governor Romney.

And without Ohio, we know this, without Ohio, most people don't get to the White House. Why am I wrong about this?

GOVERNOR JOHN KASICH (R), OHIO: Well, I think Ohio's going to be very close. There isn't any question about it. The fact of the matter is, Ohio has grown now about 73,000 jobs, and we're really pleased with the growth with the auto industry.

But it's been about a net of about 700 jobs grown out of 73,000. So I think what's happening in our state is people are somewhat more optimistic. Our credit ratings are up. We have surpluses in our budget. Jobs are being created.

I think the issue's going to be who can make the best argument to help Ohio to continue to be successful and get the wind at our back. And I think that's what Americans are worried.

I'll tell you what I'm worried about is that we have the wind in our face because of uncertainty in our state that's being brought to us from Washington.

VELSHI: Well, I tell you, this "Fortune" magazine article, which refers to you as a Republican governor with an Obama-like jobs plan. You believe that there's a role for government to play in creating jobs and overcoming these headwinds.

KASICH: Well, look, I mean, don't read too much into things that are written in other publications. Let me just tell you this, we offer incentives to companies when it's appropriate. But that's not what gets companies into Ohio.

What really is the bottom line is we have now created an atmosphere with lower taxes, balanced budgets, streamlined regulations and that's what businesses are looking for. They are looking to go somewhere where they can have confidence they can have certainty. And that's what happens in Ohio, by cutting taxes, balancing budgets, running surpluses, and streamlining regulations. That's what's really helped us. Now at times it's necessary for us to offer some incentives, but every state in America does that.

But that's not why we're the number one growing state in the Midwest and number six in the country coming from 48. It's because we have followed a policy of making government work better, of lowering taxes, of balancing those budgets, and getting our credit upgraded so businesses feel more comfortable in Ohio.

VELSHI: What's your sense, though, on the manufacturing front, because it continues to be a big problem? What is -- what has to happen to bring these? Is it high oil prices? Is it wage controls? Is it the kind of thing that happened in Wisconsin? What has to happen?

KASICH: No, I mean -- first of all, we've got to get a little certainty out of Washington. You can't be turning around telling people you're going raise their taxes. We've got this huge amount of debt and it's created uncertainty in everything.

But you know, look, we embrace manufacturing in Ohio and not just auto manufacturing, though we love it we embrace the making of pipes and pumps for the energy industry, unmanned vehicles, the ability to build them.

It's diversified. That's the key to it. We can use our location, we're within 600 miles of 60 percent of the country and we're a place where businesses can be safe.

So all in costs, Ohio's starting to win. We're starting to get some companies come from other countries. And in some companies come from other countries and invest in our state.

VELSHI: You're not as troubled by unemployment numbers as some Republicans would like everybody to be.

KASICH: I'm very upset about the unemployment numbers because it means that people are out of work. Look, our unemployment has come down. We have created the 73,000 jobs, whatever it is, but 73,000, like 300, but that's not good enough for us.

We -- our unemployment is way too high. We need to continue to bring it down because when people are out of work it hurts families. So I'm extremely unhappy with where the unemployment is, but we're making progress.

We were the 48th job creating state in America and now we're number six. There's reason to feel good, but not feel great because there's too many families out of work in our state and our country.

VELSHI: Governor, I know you've got to run to another commitment. Thanks for taking some time to talk to us. Governor John Kasich, Republican --

KASICH: I'm glad to talk to you. God bless you. Thank you.

VELSHI: All right, well, coming up next. We're just talking about it. A big win for Wisconsin Governor Scott Walker in the state's recall vote, but who was the biggest loser in this thing? We'll take a look.

Later, it doesn't matter where you live, you are still paying for New York's latest and most expensive subway line to be built. Just what goes into building a subway? I went underground to find out.

(COMMERCIAL BREAK)

VELSHI: Republican Governor Scott Walker wasn't the only winner in Tuesday's recall election. In Wisconsin, budget busting Republicans and Tea Party pundits claimed victory over both the labor movement and the Democratic Party.

AFL-CIO President Richard Trumka says not so fast. He joins me now. Richard, we remember -- good to see you. We remember those images of the state capitol a little more than a year ago.

Union members and their supporters camping out refusing to leave, Democratic state senators hiding out, across state lines to delay a vote on collective bargaining.

How and why did Governor Scott Walker win this recall that those protesters wanted?

RICHARD TRUMKA, PRESIDENT, AFL-CIO: Well, I really would like to say he survived the recall because, remember, this is a recall process. He's only the third governor to go through this very humiliating process.

And after spending over $50 million, after losing control of the Senate, after having his favor ability ratings permanently lowered after having the worst job creation record in the whole United States, he's dead last, he gets to serve out the next couple of years of his term.

He would have been better off trying to work with us and create jobs rather than destroy everything as he did. If you looked at governor Kasich, who was on a little while ago with you, after he stopped making war on his employees, the state started to move ahead a little bit.

So I think that's what Governor Walker should now do, look at ways to work with us to create jobs rather than making war on his employees.

VELSHI: Sounds reasonable. Let's bring in Stephen Moore, editorial writer with the "Wall Street Journal." Stephen, you say that Governor Walker's victory is clearly a black eye for unions who were supposed to mobilize all of these voters to come out and see him defeated.

What do you think about what Richard said? Should he move on and actually try to deal with them or do you think that these unions need to -- STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": This was a tough week for the unions. Look, not only, by the way, did they lose in Wisconsin.

By the way, Richard is right that the Republicans spent a lot of money to try to make sure that Walker survived, but the unions spent a bunch of on money, too.

But also don't leave out California, in San Diego and San Jose, voters voted for, you know, cutting back on some of these pensions because the pension issue, public employee pension, it's one of the biggest issues in the country in terms of the finances of state and local government.

So I think this was a tough week for unions and I would say to Richard Trumka, sir, you know, there's an old saying. When you shoot at the king, you better kill him.

And I think the reason this was a bad week is that now Scott Walker has survived and a lot of other governors around the country are saying you can take on the public employee unions and you can live to tell about it.

TRUMKA: You know, Ali, it's sort of amazing. When we beat John Kkasich in Ohio with 62 percent of the public vote nobody said that was the end of the Republican Party.

What we said at that time is, now John Kasich, after we beat him, John Kasich ought to come together and work with us to create jobs. We sent these politicians to go into office to create jobs.

Scott Walker actually deceived the American public in Wisconsin when he first said that this attack on workers was about an economic reform because it wasn't.

Those workers, when they saw real problem, every single time have been willing to pitch in, to give something back when it's a real problem. When it isn't a real problem, we will fight to have fair treatment, just like every other American. That's the American way and that's what we look forward to.

MOORE: Can I just say something about that? I think it's important. I want to address this to you, Richard. I don't think this is just about unions.

I think it's about public sector unions and the truth is. As you know, Richard, the public sector unions where all the growth of the union movement is, they're getting benefits and getting retirement and health care that's much higher than private sector unions and get and ordinary Americans get.

I think one of the reasons Scott Walker survived is for a lot of Wisconsin people, it was an issue of fairness. Why should the public employee unions be getting outsized benefits than are much higher than a plumber or someone else living next door to them that's also in the middle class? VELSHI: To be clear here -- I want to bring viewers up to speed on that -- unionization is -- there are more -- higher percentage of public sector workers are unionized than private sector workers. Take it away, Richard.

TRUMKA: You bet. But first of all, I think Stephen's absolutely wrong about the numbers. Public sector workers don't get more. When you look at that study after study, they get a fair shake.

But I can't believe it, of course, he's from the "Wall Street Journal." I can't believe when a CEO hits 380 times more than somebody that -- than the average worker.

Stephen's paper and himself cheer that and say that's economic, that's great capitalism, that's fair. Well, it isn't fair. They make too much. He doesn't say a word about that.

VELSHI: What do you say about that? What do you say about that?

TRUMKA: No, let me finish for a second, Ali, because what he said is un-American. What it used to be is we would look at somebody who doesn't have a pension and we would say, what do we have to do to get them a pension?

Stephen wants to stand America on its head and say, look they have a pension, let's take that pension away from them. He doesn't say that about CEOs -- about workers.

VELSHI: Stephen?

MOORE: You're putting words in my mouth. Look, I think workers should have a pension. I think it's just part of a fair pay package. The problem is, let me take Illinois, my home state, which has a pension crisis as well.

TRUMPA: Talk about Wisconsin.

MOORE: Well, let's talk about Illinois for a minute. In Illinois, you've got teachers retiring at age of 55, with 100,000 a year pensions. That's happening in America.

It's not affordable and taxpayers are saying we can't afford to give somebody 20 or 30 years with pensions/benefits that are sometimes twice as high as what the private sector worker is receiving.

TRUMKA: Stephen, here what I say to you. If there's a legitimate problem, we're willing to work to solve the problem. But everybody should solve the problem. You shouldn't be able to have 1 percent continue to haul away more money than a dump truck can haul away and say to working people, you need to sacrifice for less so that they can have more.

VELSHI: Here's something that we can (inaudible) onto here, Stephen. The fact is that there are many people in America who think it's not a fair deal. So you have said, Stephen, that you think unions contaminate everything they touch, maybe you're right, maybe you're wrong, but what do you do for people who think they're not getting a fair shake?

And Richard's words that the 1 percent are loading it on to a dump truck and running away with it. There are a lot of Americans who think so who were not union members.

MOORE: Look, I want a rising economy that helps all workers. To say take away from the top 1 percent, I don't think that's going to help the average American worker.

But you know, when it comes to the issue of unions, what I meant when I said that they contaminate things is look, think of the major unionized institutions, steel companies, auto companies, postal service, state and local governments.

These are all institutions that are going bankrupt. You have to really ask the question, are unions still relevant today? Are they still necessary?

And the private sector, Richard, as you know, only about 6 percent or 7 percent of workers are in unions. All of the growth of unions is in government.

VELSHI: Richard?

TRUMKA: Look, here's what I know. Whenever we had -- collective bargain is the cornerstone of a balanced economy. When we had 35 percent or 40 percent of the American workers getting in collective bargaining, the level of inequality in the country was going down. The level of wages for everyone was rising.

As collective bargaining went down, inequality went up and the 1 percent did really great. As far as -- let me give you just one example about how we over generalize.

You asked a U.S. steel worker to compete with a mill that was made in 1890 with a mill that was made in 1980. That was part of the world that they were competing in.

They were the most productive, the American worker is the most productive, and when we work together with our employers, nobody can beat us.

VELSHI: All right.

TRUMKA: You ought to be advocating workers and management getting together not making war on them.

MOORE: Richard, you and I agree. We need more capital investment for this country so we're creating jobs in the U.S.

VELSHI: On that note, with the two guys, a little guy from the "Wall Street Journal" and the guy from the AFL-CIO agreeing, I think this would be an excellent place to end this discussion, but it's always a pleasure to have both of you here.

Richard, thanks very much for joining us. Richard Trumka is the president of the AFL-CIO. We'll have you back again soon, Richard. Steven, stay right there.

Coming up next, President Obama calls it the do-nothing Congress. Senate Majority Leader Harry Reid agrees.

(BEGIN VIDEO CLIP)

SENATOR HARRY REID (D), MAJORITY LEADER: We can no longer go through this every bill, filibusters on bills that they agree with, it's just a waste of time to prevent us from getting things done.

(END VIDEO CLIP)

VELSHI: So why can't Congress get anything done? Anyone who says blame the Republicans is going to have to answer to Stephen Moore, next on YOUR MONEY.

(COMMERCIAL BREAK)

VELSHI: You find yourself asking, what happened to moderates in the United States? Where have they all gone? The American public is more polarized than at any point in the last 25 years.

That is according to a new research -- a new survey by the Pew Research Center. It's the 2012 values survey. Americans are more divided along political lines than they are by race, religion or gender.

No surprise then that such a fiercely divided electorate has elected a Congress that seems to pride itself on making no attempts at bipartisan solutions.

Norm Orstein is a resident scholar at the Conservative American Enterprise. He describes himself as a centrist. His new book is titled "It's Even Worse Than It Looks, How The American Constitutional System Collide With The New Politics Of Extremism."

Stephen Moore is back with us as well. He calls himself a conservative and I believe he is. Norm, it takes two sides to compromise. You say congressional Republicans deserve the blame in the highly partisan environment, why?

NORM ORNSTEIN, CO-AUTHOR, "IT'S EVEN WORSE THAN IT LOOKS": That's right, Ali although, I have to say it's not 100 percent in that direction, but at this point, it's 80/20.

If you look at the response of the last three years, we've had basically a congressional party, a Republican Party, that's operated as a parliamentary minority uniting against everything including ideas they have supported in the past because they're now promoted by the other side.

That's different from what we've seen before. It's different from the way Democrats reacted when George Bush became president and it's metastasizing out as the survey shows to the country.

VELSHI: And we're trying to get to the bottom of why. Stephen, watch this exchange between Republican Speaker of the House John Boehner and Leslie Stahl on "60 Minutes."

This was taped shortly after the 2010 midterm elections when voters elected a wave of Tea Party candidates to Congress. Listen.

(BEGIN VIDEO CLIP)

REPRESENTATIVE JOHN BOEHNER (R), HOUSE SPEAKER: I'm not going to compromise on my principles nor am I going compromise the will of the American people.

UNIDENTIFIED FEMALE: You're saying I want common ground, but I'm not going to compromise. I don't understand that. I really don't.

BOEHNER: When you say the word compromise, a lot of Americans look up and go, they're going to sell me out. So finding common ground, I think, makes more sense.

UNIDENTIFIED FEMALE: You're afraid of the word.

BOEHNER: I reject the word.

(END VIDEO CLIP)

VELSHI: Wow, you know, Stephine, you were with me last week when we spoke to Amy Gutman, the president of the University of Pennsylvania who's written a book called the "Spirit of Compromise."

And like Norm says, we have lost just fabric. So you as a conservative can't -- it doesn't go hand in hand because you're conservative you don't want to compromise. Why is Boehner saying that? We've heard that from Bobby Jindal. We've heard it from lots of Republican leaders.

MOORE: Well, first of all, look, with all due respect, I do reject Norm's thesis here that look it takes two to tango if you have compromise both sides have to compromise.

On the issues that he's talked about, the big ones, the stimulus plan, the $830 billion, there was nothing in there, Norm, as you know that Republicans would want. Obama just dropped it in their lap --

ORNSTEIN: Almost 40 percent was tax cuts, Stephen.

MOORE: Yes, but those were not the kind of tax cuts that Republicans want.

ORNSTEIN: One came from Chuck Grassley.

MOORE: But the other one was Obama care, and the same thing. Those were the two issues that by the way, Barack Obama passed through the House and Senate without one single Republican vote and you're saying it the Republicans that are being partisan. Now look, I do think there's room, Ali, in Washington for common ground. I think they can get together on fixing this entitlement crisis that everyone knows happened, whether a liberal, conservative, everybody knows we have to do something about Medicare, Medicaid, and Social Security.

I also think we can get together and we could get a deal between Republicans and Democrats on fixing the tax code so it's --

VELSHI: Everybody talks about it. Norm, last week when we had Amy Gutman on, she referred to the Simpson-Bowles Commission. Americans looking for compromise on tackling America's debt and deficit and took hope in that bipartisan Simpson-Bowles Commission.

And that faded away, when President Obama refused to back his own commission's recommendations. Other presidents have faced opposition from Congress before. How much of this Republican, Democratic not getting together, not doing the tango thing, how much of it needs to be reflected on the president?

ORNSTEIN: Well, I think the president made a big mistake in not endorsing Simpson-Bowles in the "State of the Union" message a year and a half ago.

But let me mention a couple of things here, Ali. Allen Simpson himself, last week, said that he understands in a way what the president did because, as he said if he supported it, they would have opposed it.

When the president said, very positive things about the gang of six- plan in the Senate, and this shows it's not about conservatism. This is Tom Coburn, Saxby Chambliss, Mike Crapo, card-carrying conservatives supporting a plan that included revenues.

When he said that, a top aide to the Republican leader in the Senate wrote to "Politico" and said, well that kills it, if he's for it, we're against it. The health care plan that Stephen mentioned was the Republican alternative to the Clinton plan in 1993 endorsed by Orrin Hatch and Chuck Grassley.

They spent seven months while the administration stood by working on a compromise in the Senate and then Grassley said the leaders have told me I can't compromise unless 70 percent of the Republicans in the Senate are for it. The notion that Obama was not willing to compromise is nonsense.

VELSHI: We can all agree that there has not been enough compromise. There has not been enough of the stuff. But Stephen Moore, I'll give you the last word on this. It may take two to tango.

Why can't Republicans step up and say, we need to change this country, this isn't working the way it's working. You elect us and we're going to be all about compromise. That's not the message they're giving.

MOORE: Divisions between where this country should go, that's why this is an important election. By the way, Norm, when you talk about the health care bill, 30 more million were people put on Medicaid.

Do you think that was something that Republicans wanted to see? Explain this to me, how is it that if it's Republicans are the problem for gridlock in Washington, there have been 40 bills passed through the House, which is controlled by the Republicans and you know where they are now?

VELSHI: They're not the big stuff.

MOORE: They're in the graveyard of the United States Senate. They can't get through.

VELSHI: We all agree. The big stuff's not happening right here. That's -- and that's the big issue. Look, more is getting done in the Senate than in the House. There's no question.

MOORE: No, more is getting done in the House.

VELSHI: There's more compromise on big things happening in the Senate.

MOORE: But they can't pass anything out.

VELSHI: The country needs big things done. So we don't have a Republican platform that says, we'll bring that compromise in. In other words, I think Norm's right on that, I think Amy Gutman's right on that. It's not fashionable to run on a basis of a platform that says I'll compromise. Is that fair?

MOORE: Well, I think it is true that Barack Obama has been extremely polarizing and the Republicans I agree with Norm, the Republicans are more conservative than they have been on any time in 25 years, but it's also true, Norm, the Democrats are more liberal than they have been in 25 years.

VELSHI: All right, we'll leave it at that. Norm, we'll bring you back for the rest of the conversation because there's more of it to happen.

Norm Orstein is a resident scholar at the American Enterprise Institute and the co-author of a great book called, "It's Even Work Than It Looks, How the American Constitutional System Collided With the New Politics of Extremism."

Stephen Moore is an editorial writer with the "Wall Street Journal." Thank you, gentlemen.

Coming up, what is equal and what is fair? What is pornography? A Nobel Prize winning economist is here to explain.

Plus, the fear, the terror, what is happening to your money now? You've been following these markets? We'll show you how exactly to take advantage of what's going on while other people are running scared.

(COMMERCIAL BREAK) VELSHI: Taxes, debt, jobs, health care, it's almost impossible to talk about any of those issues without hearing about fairness and economic growth.

Something Nobel Prize winning economist Joseph Stiglitz has been talking and writing about for years. Now he's got a new book called "The Price Of Inequality, How Today's Divided Society And Tankers Our Future."

I sat down with him and CNN contributor, Will Cain, who is a conservative and insists that inequality isn't the dirty word most Americans think it is.

(BEGIN VIDEOTAPE)

WILL CAIN, CNN CONTRIBUTOR: Does the existence of economic inequality cause economic problems? Is it in and of itself a self-interest problem for the 1 percent?

What would you say to a critic like me, with all due respect you're focusing on the last 30 years alone. When you look at breadth of human history, inequality and capitalism walked hand in hand largely and capitalism almost with a total ignorance to relative wealth has raised everyone's wealth absolutely.

And I'm just worried about those who want to correct relative wealth. Were you threatened the system of absolute wealth?

JOSEPH STIGLIZT, NOBEL PRIZE WINNING ECONOMIST: Let me make it very clear, I'm not arguing that there should be no inequalities. You know, I'm not arguing that we want to completely equal society.

What I'm really arguing -- my real concern is what's happened in the last 30 years. The last 30 years, our inequalities have gotten out of bounds.

The fraction of the income, the share that goes to the upper 1 percent, has doubled. The fraction that's gone to the upper one-tenth of 1 percent has tripled. What I've argued those extremes of inequality --

CAIN: But what is the right ratio, Professor?

STIGLITZ: There's no precise ratio, but you can tell, the debate, what is pornography, hard to write a definition.

CAIN: I don't want you defining that for me, I trust you.

VELSHI: Let me bring in an example from the book which may help us focus this. You talk about Mitt Romney, and you used him as an example, but of the wealth that he gains, rent wealth in most cases.

He can't spend nearly the proportion of the wealth he gains even for his various homes and his lifestyle. And what you're saying is somehow that degree of inequality deprives those who do spend a larger proportion of their income from spending it and creating greater economic growth.

STIGLITZ: The way I put it is, is we know the following, those at the top save a lot.

VELSHI: Got it.

STIGLITZ: Those at the bottom can't. They're living --

VELSHI: But those at the bottom stimulate our economy more? Is that the --

STIGLITZ: Those at the bottom are spending money, consumption, which is part of the engine of economic growth. Now, what happens is that when you take money from the bottom and you transfer it to the top through predator lending, the growth in inequality, however it originates what that does is weaken the total demand.

VELSHI: Right.

STIGLITZ: Now that's where there are alternative outcomes, alternative ways of dealing with this problem, one that has often been taken and one that the U.S. took the fed said, OK, we need to stimulate the economy, how are they going to do it?

They created a bubble. They had a lapse in regulations, low interest rates, that created a bubble, and it worked for a while. But that's the point. It only worked for a while. So it created this bubble.

The economy seemed to be doing well but of course, when the bubble broke, it left the legacy of debt, a legacy of excess capacity in real estate, something that we are going to take a very long time to recover from.

And that's the kind of example of the mechanism by which inequality leads to weaker economic performance.

VELSHI: So can you buy that concept, though, that -- I don't know what the number is, what the right amount of equality or inequality is in terms of money.

But at some point, there are some people who just don't use as much of their money in a way that generates economic activity.

CAIN: If were simple as resource allocation, what's gone wrong with education? We probably won't disagree that education is a large source of whatever inequality we have. We have thrown money to education, largely to no advance. I would say we have to find a more creative solution than simply wealth transfer.

VELSHI: But many people will say, why don't we take this problem that you've identified with too much money in the top 1 percent, the top 1 percent of 1 percent, and make it easy for them to invest that money through tax cuts or incentives?

STIGLITZ: The real problem is the reason they're not investing is nobody will buy their products. You don't go and invest unless you can sell. If you have more, better foundation, the private sector can build on that foundation.

The problem is that we have been under investing in that foundation. So we've gotten out of balance. Now, why is that happening? One of the reasons it's happened the interaction between economic inequality and political inequality.

You know, we're supposed to have a government that reflects one person, one vote. But if you look at the actual outcomes of our political process, it's better described as one dollar, one vote, or closer to that.

VELSHI: It's a great conversation. Thank you.

CAIN: Is my Nobel Prize on the way?

(END VIDEOTAPE)

VELSHI: Will, thank you for joining us. I'm waiting for my Nobel Prize as well. I think I'll grow hair before that happens. Professor Stiglitz will be back in a bit to talk about why we here in the United states should be worried about the economic problems in Europe.

Coming up next, if you're terrified of the stock market, don't run. We'll tell you what steps to take to protect your money right now.

What's it like to be on board a 210-ton drilling machine underneath the streets of Manhattan. I rode along to see what it takes to build a subway.

(COMMERCIAL BREAK)

VELSHI: You are forgiven if you've been hiding from the markets lately. Look at it, fear, uncertainty, bargains. Stock prices, take a look from the beginning of the year, some people say it's low, some people say it's cheap.

But before you buy any stocks you want to make sure your financial house is in order. Bruce Sellery is the co-host of "Million Dollar Neighborhood" on the Oprah Winfrey Network. Bruce, good to see you, my friend.

BRUCE SELLERY, CO-HOST, OWN'S "MILLION DOLLAR NEIGHBORHOOD": Great to see you.

VELSHI: Nothing panics you?

SELLERY: Nothing.

VELSHI: So I want to tell our viewers why they shouldn't panic. First of all, how do my viewers know -- my rough guess is about half of you out there invest in stocks, probably a lot of them are in 401(k)s or an IRA or maybe pension fund. In other words, not directly investing and some low double digit percentage of viewers have a trading account and buy and sell things.

SELLERY: Yes. VELSHI: Should you or should you not, an economy where your wages are stagnant, house is stagnant, it could be the only way you could get rich.

SELLERY: Yes. No, no, no, no. Buy a lottery ticket instead, there's your answer. For most people they shouldn't be in individual stocks. Why? They're going to lose.

It's like showing up at the big spender table in Vegas, having not spent years playing poker in the basement with your buddies. It's a tough game.

Now a couple of exceptions, if you've got 5 percent of your portfolio and you want to kind of roll the dice, have a great time, you have an employer in which stock is part of your comp or you're working with a professional with a track record, OK. But for most people they shouldn't be playing the individual stocks.

VELSHI: Right, and 5 percent is a magic number. Because if you divide your investments into chunks of 5 percent that means you've got 20 percent of something generally and no one turn is going to really affect you. If you bought Facebook and it didn't do well, it was 5 percent of your portfolio.

SELLERY: It was kind of fun. It gave you a way to watch the news in a different way because you had skin in the game.

VELSHI: But you don't believe people shouldn't be invested. You don't believe people should be buying individual stocks.

SELLERY: Exactly and so, you know, exchange traded funds, low fee mutual funds, all those kinds of things. They should be in the market not in a way they can get a really brutal haircut, unlike yours, fantastic.

VELSHI: My haircut.

SELLERY: But you can get a brutal haircut on stocks that doesn't look as fantastic.

VELSHI: All right, there are places that you should invest first. In other words, if you got a tax advantage account, obviously your 401(k) or your IRA, in some cases companies match that? It's kind of free money.

SELLERY: And people have no clue, right? Like you sit there in the HR meeting and you're like I think I hear music. No one pays attention.

VELSHI: Right, right.

SELLERY: And the company match can make a significant difference in the whole game. But here's something you should invest in before that stuff, paying off your credit card debt.

VELSHI: Right. You're not going likely to get 15 percent or 19 percent in the stock market.

SELLERY: You're not. So pay that off. You don't have to pay that interest. That is a guaranteed return.

VELSHI: Something you've written in a book, which stands out to me is that if you're investing because somebody tells you to invest for retirement, there's no passion for that. If you picture what that money is for, you tell me --

SELLERY: If you picture what your money is for, people talk about retirement, what are you doing? Are you traveling, golfing, hanging out with your grandkids, what are you doing?

Because retirement is actually not an activity, it's a life stage so what's the activity that has you jazzed about it and motivated? So you do the right things.

The first step of all of this, which people are also oblivious to is earning more than you spend which sounds boring as mom and apple pie.

But if I talk to viewers directly in their kitchens I would see a significant percentage of them who did not have that actually on track, earning more than you spend.

VELSHI: This is kind of what you do, this show, "Million Dollar Neighborhood, give me the 30-second version.

SELLERY: Hundred families in a town, we work with them for 10 weeks to increase collective net worth by 1 million. And it was astounding, first of all to see the community come together for this challenge.

But also the places they saw hidden money, money they didn't know they had. Some made huge changes, some made small changes. But the progress in getting a handle on their money was spectacular.

VELSHI: All right, Bruce is actually a lot more fun than he comes across by telling you not to spend money you don't have to not have credit bills and that stuff. Always a pleasure to see you.

Bruce Sellery is the co-host of the Oprah Winfrey Network's "Million Dollar Neighborhood," a financial journalist and a good friend of mine.

All right, coming up next, Nobel Prize winning economist, Joseph Stiglitz is back. He calls Europe austerity a suicide pact. Better pay attention because what happens in Europe is going to hit you no matter where you live here in the United States.

(COMMERCIAL BREAK)

VELSHI: By now we know that Europe's crisis is America's problem.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: Because matters to us because Europe is our largest economic trading partner. If there's less demand for our products in places like Paris or Madrid, it could mean less businesses or less business for manufacturers in places like Pittsburgh or Milwaukee.

(END VIDEO CLIP)

VELSHI: It's president talking to America on Friday about the concerns that European crisis will slow things down in America. It all comes down to the viability of the currency, the euro, comparing the euro to the dollar is like comparing apples to oranges.

First and foremost, the United States has a currency that binds more than 310 million people together. Not so in Europe. While the European Union is made up of 27 states, not all of them use the euro, only 17, the ones in red, are in the eurozone.

Since the 19th Century, use of the dollar in the United States has grown organically alongside America, the rest of America's economic growth and it's grown into the world's biggest economy, the world's most important currency and we had time to address hiccups in the currency overtime.

By comparison, the euro's been around since 1999, 13 years. In the United States, federal and state financial institutions work in tandem. We have one commercial banks system, one central bank with the power to print money.

One treasury with the power to issue bonds, one federal government that collects taxes and redistributes them according to need in effect subsidizing some states. In the United States, similar labor rules across 50 states with the same length of workweek, roughly the same benefits and the same retirement age.

Europe on the other hand is all over the place. France mandates a 35- hour workweek. Germans work more. Many argue that the Greeks don't really work all that much.

Germany cringes at the idea of subsidizing Greece, even if necessary and in order for the euro to work as intended, these E.U. countries would need to behave more like American states do.

Surrender some or all sovereignty to a more centralized union and that is a political decision not a financial one. While Europe dragging its heels has some very real consequences here in the United States, to break down exactly what's at stake, back to my conversation with Nobel Prize winning economist Joseph Stiglitz.

(BEGIN VIDEOTAPE)

STIGLITZ: There is a great deal of worry that the events in Europe are going to create a much larger group of poor people of recent equality. In Spain, one out of two people are unemployed, average unemployment rate now, 23 percent. We're approaching in Spain something that's akin to what we experienced in the United States, the great depression.

VELSHI: Yes. STIGLITZ: So they are, because of their wrong economic policies, particularly austerity and the lack of the rest of Europe to come to their assistance they are creating a problem.

VELSHI: You made clear in your book, no major economy in history in which austerity has worked?

STIGLITZ: That's right. You know, there are some small economies where government cuts back and that lowers demand, but something else steps in. Mostly, it's exports. So if you cut back on the government spending, but exports fill the gap then you can keep the economy growing.

VELSHI: The reason that doesn't work in Greece is because they don't is the ability to cut their currency low enough to make exports particularly attractive?

STIGLITZ: Exactly. And one other factor, their trading partners are also being weak.

VELSHI: Right.

STIGLITZ: When your neighbors are going into recession and right now a large part of the world is very weak. It's very hard to support your way to prosperity.

VELSHI: Should we be looking at Europe with real fear what it does for the U.S. economy?

STIGLITZ: Yes. You know, with globalization, we are one connected system. Europe is affecting Asia. Asia slow down and Europe slowdown will affect us. It affects us through two channels, one, less able to export.

A couple years ago, President Obama trying to see where we're going to recover said, we ought to do it through exports. But if everybody else is slowing down, it's going to be very difficult for us to export our way to growth.

The second part of the problem is financial sector. Our financial sectors are very interlinked. We saw that in the Lehman brother crisis. There's going to be a lot of financial turmoil, whether you fixed problems or not, there are -- I think no one thinks that it's going to be easy and there is going to be a lot of turmoil.

(END VIDEOTAPE)

VELSHI: Nobel Prize winning economist, Joseph Stiglizt.

All right, coming up next, I went a 100 feet below Manhattan to get a firsthand look at how to make one of the most expensive subway systems in the world. You don't want to miss it.

(COMMERCIAL BREAK)

VELSHI: Well, it's being called one of the biggest public works projects in American history at a cost of $4.5 billion and that is just for the first mile and a half.

I'm talking about New York's new Second Avenue subway line. It's a massive project putting thousands of engineers, urban miners and construction workers to work, as well as some massive pieces of machinery.

(BEGIN VIDEOTAPE)

VELSHI: Tell me the process. How does it start?

UNIDENTIFIED MALE: Drill the holes and then we put the equipment inside. We did that by blasting all the way down to about 80, 85 feet and the length was about 800 feet, three football fields.

We lowered in place a tunnel boring machine. This is one of the monsters that has a cutter at the head of it. It weighs about 210 tons, right?

And it's being operated with a trailer gear that is somewhere between 850 linear feet. That machine starts actually excavating and boring through. It will go from one end to the other.

When we are done, we pull the machine back, right? And we start the second tunnel by moving it over, and then we support it with rings. So it will actually be there.

VELSHI: Metal rings?

UNIDENTIFIED MALE: Metal rings. Yes. Big metal rings. You have to wait for the tunnel's end then after you do the caverns.

VELSHI: What are folks above ground not know about the stuff that it takes to do this?

UNIDENTIFIED MALE: Well, it's the toy. You've seen this equipment. We have drum drills to drill holes in the rock. And take away the material and man lifts to get up and recap the heights.

All those that you see, those are drill holes. This afternoon we will take those stakes out, load them with explosives and shoot it so all of this has been excavated by drilling and blasting.

When we open up an opening this large, we are going to have to support the rock. Machine is laying shot -- on the wall to provide initial support before the final liner goes on.

And after the (inaudible) so there is a sequence, providing a transportation link that will allow people to move, that will serve as the economy in the city.

(END VIDEOTAPE)

VELSHI: Thank you for joining us the conversation this week on YOUR MONEY. We're here every Saturday 1:00 p.m. Eastern and Sunday at 3:00 p.m. Eastern. Stay connected to us 24/7 on Twitter. My handle is @ali velshi. The show handle, @cnnyourmoney. Have a great weekend.