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The Curse of Cheap Money; Heading over a Cliff; The Blame Game
Aired July 8, 2012 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: An economic storm is headed our way. I've given you the proof but you're demanding to know how we got here in the first place.
I'm Ali Velshi. Welcome to YOUR MONEY.
And as long as your politicians don't tell you the truth about our economy, I will. Slowdowns in Europe and Asia are creating economic headwinds that are strong enough to blow us into another recession. That's where we are today but I'm so caught up in avoiding this recession that some of you think I'm not paying enough attention to how we got here and you may be right, because we've got limited time and we need solutions and right now those solutions, many of them, lie with Congress.
But there are causes and there are many of them. A simple answer would be the cleanest, the most convenient. It's out-of-control deficits or it's stimulus. It's Barack Obama or George W. Bush, but it's just not that simple, it's not that satisfying.
One cause, however, does stand out amongst many. Cheap and ample credit. For years the ability of almost every working American to access more credit than they should have been able to, masked the underlying fact that lower and middle class incomes were not rising. People felt, and in many cases actually were wealthier than their salaries or their socioeconomic status would suggest. Getting a loan and buying a house, often more house than you needed or would have even expected to buy, made you feel wealthier.
As more people bought those houses, your net worth increased. You borrowed against that house, maybe. Maybe you put your kids through college with the money. Maybe you bought another house or you financed a small business. Maybe there wasn't even a house involved. Maybe you did all of those things on low interest credit cards or other kinds of loans, but it doesn't really matter because generally economies were strong and you had a job, even if the job wasn't getting much better and your wage generally wasn't growing, you were, for all intents and purposes, getting more prosperous.
And because of that you weren't complaining. Cheap and ample credit masked a lot of problems, the most serious of which was that income inequality was growing. But until the house got blown down, there was no class war, there was no 99 percent, there were no protesters in the streets. Politicians and policymakers didn't have to address the underlying reasons for the trend. Seriously, why fix someone -- something that no one thought was broken. Easy credit means that while India was focused on educating workers, the U.S. was falling behind. While China was building world- class infrastructure, the U.S. was crumbling. While Germany was establishing itself as the factory floor of the western world, the U.S. was losing ground.
We already had a consumption-based economy. We just made it bigger. People felt good. They kept up with and in some cases overtook the Jones'.
Economist Raghuram Rajan is a distinguished professor of finance at the University of Chicago, he's a former chief economist with the International Monetary Fund, and he blames politicians for making easy credit available to their constituents thereby masking that growing income disparity. That's the inequality debate you hear so much about these days.
Raghu, thank you for joining us. Tough cutbacks have not worked in Europe. We've got unemployment in the Eurozone of more than 11 percent. Much higher in some countries. And many argue that the solution is more government spending. The point of which is to create employment enabling consumers to spend more and continue to access credit so that Europe can consume its way out of this recession.
What, if anything, is wrong with that thesis whether it's in Europe or in America?
RAGHURAM RAJAN, PROF. OF FINANCE, UNIV. OF CHICAGO'S BOOTH SCHOOL OF BUSINESS: Well, the idea behind that thesis is that somehow short-term spending will resolve the problems of the recession, and then we'll get back to normal growth. What I've been arguing is that there was no normal growth before the recession. It was -- a lot of it was fueled by spending, whether by households in the case of the United States, or by governments in the case of, say, Greece, or by banks in the case of Ireland.
So there was a lot of debt fueled spending which was the basis for growth. So governments can sort of spend to substitute for that for a short while but then you come back to the old question, how do we generate sustainable growth? And for that you have to have real jobs with real incomes. Not fake jobs created by debt.
VELSHI: All right, so let's bring Chrystia Freeland into this. She's the editor of Thompson Reuters Digital.
Chrystia, good to see you. Lots of analogies for us to use here. So stick with me while I continue the storm idea. When the weather is good, you don't have to worry about whether or not you have holes in your roof. So the weather being good here is this cheap and easy credit. Right? You didn't have to worry about the fact that there were underlying problems.
But Raghu says you have to have solutions that create long-term growth. Wasn't there the potential for long-term growth with this easy and ample credit? Didn't it -- didn't it create enough wealth that put some kids through school? It gave people some sense of wealth? Shouldn't that have contributed to ongoing growth?
CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Sure. And it -- and it could have been and some of it was, and some of that money was invested in real valuable things. I think, you know, the parents who took out a home equity loan to put their kid through college and now are struggling to pay back that debt, they still have a kid who went to college and that's a great thing.
In Europe actually, the infrastructure is terrific and a lot of that government spending that Raghu was talking about was infrastructure spending.
But, you know, to continue your weather analogy, Ali, I think that we are going through a period of economic climate change, global warming if you will, that the environment has changed profoundly and it was -- it's been changing for the past couple of decades we just didn't really notice because this easy credit masked what was going on.
But we now have to retool our economies and that we as North America and Western Europe to deal with this new environment in which, as you were pointing out, the middle-class jobs that we were accustomed to in the post-war era are not there. Even people who have jobs are getting paid much less.
That is the story of Detroit and the car sector. And to me, that is the most pressing economic problem right now. I don't see any politicians on the left or on the right really facing up to this directly. Everyone is focusing more on OK, here's what I'll do right now, and it's going to fix things right away.
VELSHI: Because it's -- it's like -- Raghu, it's like saying -- telling -- it's like talking to Martians, I mean, at this point, we know how this economy works. We buy things, that creates jobs, we get rich, we buy more things. What other type of economy could America develop? What could it turn into?
RAJAN: Well, it could be a knowledge economy, it could be a service- based economy. We could actually have high-tech manufacturing. There are all these possibilities. But what we must start with is by recognizing the old jobs are no longer there and there's no point hankering after them. The guy who used to add up the left-hand side of a ledger and the right-hand side of a ledger, he's been replaced by a computer.
The guy who used to do low-skill manufacturing just managed the machine and oil it frequently, that job is no longer there. It's gone to China long back. In fact China has gone much further ahead. The new jobs are in, you know, high-tech welding, in nursing, in high-tech nursing, where you manage the machines, in medical technologies.
I mean those are the jobs we have to prepare people for. Those have reasonable incomes still. The problem, of course, is this is not a fix which is going to take place in six months. It's a fix that takes many years. It's a fix which requires telling kids, you know, you're not going to get much by just doing a liberal arts degree. You have to get the skills that allow you to get the jobs that have been created. I'm -- I was talking to a professor yesterday, he says nobody does computer science in his college anymore. It's too hard. But that's where the jobs are sometimes.
RAJAN: So we need to figure out a way of getting people the right way.
VELSHI: And let's take us to that discussion in a minute. Because everything you are suggesting is sound and it's deliberate. It doesn't play to an angry electorate in the months before an election.
So when we come back we're going to talk a little more about how we translate what you're talking about into something that gets interesting to Americans and lets them vote in a way that is in their self-interest and in the country's self-interest.
Plus I'm going to tell you the three things that Congress needs to do right now to try and fix this economy in time to head off the coming economic storm.
You're watching YOUR MONEY.
VELSHI: OK. We're back with Raghu Rajan and with Chrystia Freeland.
Raghu, you've just made some great suggestions about how we fix our economy and guess what, none of them are short-term. So I suspect if you were running for office you wouldn't get a few votes.
Chrystia, how do we take those ideas and plant them into this weird environment that we're in, that people want fast answers, to get us out of this hole now?
FREELAND: Well, I don't blame people for wanting fast answers because a lot of people are suffering and, as you pointed out, Ali, they've been living in this beautiful illusion. So people aren't expecting to have suffered. But I think what really politicians need to be talking about is a few things.
First of all, this is a time for national investment. Raghu was speaking about education. He's right. That doesn't come for free. It's not free for the students who need to be educated, it's not free for the government. But what is America doing right now? Firing teachers. And the great American public university system is actually weakening.
So I think that that is really a central infrastructure, I think absolutely essential. I mean look at what's happened with these storms in the northeast. You know, Washington, D.C., with no power.
FREELAND: This is supposed to be the capital of the greatest country on earth. So -- and that's an opportunity also for jobs. And the third thing is someone is going to have to pay for it. I think Americans have lived with this illusion that you can have investment in your economy and nobody has to pay taxes. It doesn't work that way.
VELSHI: Raghu, let's talk about this for a second because a lot of people who align themselves with the thesis that you have laid out very clearly here, also tend to be conservative in saying stop with the short-term spending, we've got to cut our debts and deficits and then it doesn't finish the sentence with the investments that we need.
You know people will say, we are saddling our grandchildren with unsustainable debt. There is a certain amount of debt that's OK to -- to give to your grandchildren because in exchange for that they're getting the things that Chrystia just outlined, great infrastructure development, a world that will be more competitive in the next generation.
How do you square that that circle?
RAJAN: Well, first, the benefits. We are creating more capabilities for the future, and second, I think as, if not more important, we're creating a more stable political and social structure. If you have these levels of inequality which persist and you have people who think they have no opportunity in the future you're going to get social conflict of a kind we've not seen in the United States. So this is -- this is important both from the economic perspective but also political.
FREELAND: And --
RAJAN: Now clearly you need -- sorry.
FREELAND: Following off from Raghu's point on this inequality that I think most Americans still believe they live in a society that has the most opportunity of any country on earth. That is just not the case anymore. Social mobility is breaking down because of these high levels of inequality and that political stability that Raghu is talking about which is so important I think is also going to be threatened.
VELSHI: Right. And we've started to see bits of that on the surface with the protests that we've seen, with the idea that people have segmented themselves into different parts of the economy.
Raghu, continue with your thought.
RAJAN: Well, so that said, this is an investment we need to make, but we need to be clever about it. There's no point making the investment and getting away from the innovative economy we've had. There are parts of the economy which are doing quite well. Let's sustain that. Which means let's not do this on the backs of taxing the rich at the rates we used to tax in the past, 91 percent of marginal income.
Yes, by all means, increase taxes a little bit, but make sure the tax system works better. So tax reform across the board makes sense. Broadening the base, increasing taxes a little at the top, but don't make all the spending go to the people at the top which sort of creates a whole set of new problems that we don't want to -- don't want to deal with.
At the same time, there's a lot of room for cleaning up the way we spend, making it more effective. It's not true that every education worker that we have is useful. It is not true that every teacher that we hire is doing a good job in the classroom. So we need to get more money for the dollar that we spend and so spending reform has to accompany tax reform. And that I think would put us on a more even keel.
VELSHI: Chrystia, what's the disconnect then? Because in listening to Raghu it just sounds so obvious, and if he were running I'd want to vote for him. Why can't we have that discussion translate into our elections?
FREELAND: I'm going to vote for Raghu, too. I think two reasons. One, people are scared and at a time when people are scared if your message is blood, sweat, tears and higher taxes they are not very receptive. But I think the second point is what Raghu said which is really essential, that if what you're talking about is some government investment in things like education and infrastructure, people are saying, wait a minute, I have seen the private sector become much more efficient, driven by technology, you know, my iPhone is a miracle, I expect real responsiveness and efficiency.
I don't see government delivering that. And so why should I trust the government to be a smart spender? I think that the government has missed out on the technology revolution and until it does, people are not going to have faith.
VELSHI: Right. Why should I trust my government to be a good spender, a smart spender, is what is so operative in this discussion.
All right, Raghu, great to see you. Thanks very much for sharing this conversation with us. We'd love to have you back.
Chrystia, as always, a pleasure to have you here.
All right, I keep telling you about this impending storm. We've told you about the fiscal cliff that we're on the edge of. Europe is by no means stable and we're seeing slowdowns in giants like India and China.
Coming up next, we'll talk to someone who's putting millions of dollars to work for his clients during this uncertain time and we'll ask him what you should consider investing in right now.
Plus, two legends of Congress, both disgusted by today's dangerous levels of partisanship. I'm asking them to name names of who's willing to reach across the aisle for the good of the country right now.
VELSHI: Wall Street, like Congress, has a history of not acting until it's too late. You may not have that luxury yourself. Just remember what happened in 2008 when you looked up and half your 401(k) was wiped out in a matter of weeks. We know the American consumer is feeling the fear and when consumers stop spending, businesses stop hiring, add to that a slowdown in emerging -- economies like China and India, even the biggest global companies like McDonald's and Nike and Ford start taking it on the chin.
Consumer cyclical stocks, the canaries in the coalmine for recessions and recovery, are the first to react to the shifting economic winds and they are where my next guest says you should put your money if you think things will get better. If you don't then don't.
Jim Awad is the managing director of Zephyr Management. He joins me now.
Jim, good to see you. Thank you so much.
JIM AWAD, MANAGING DIRECTOR, ZEPHYR MANAGEMENT: Thank you. Always my pleasure.
VELSHI: Two things to remember. First of all, that first one, consumer cyclical stocks and generally smaller companies tend to react because they're nimble, they can react into and out of a recession. So if you think things are getting better you want to be in these companies?
AWAD: Well, you can make that case. Yes, they are more nimble. But the stock market tends to move in a risk on/risk off trade.
AWAD: And so when the market gets scared and risk is off in a recession --
AWAD: -- they -- investors typically sell those companies and go to bigger, more conservative companies with dividends and a global footprint. So you have to remember that.
VELSHI: OK. So we think from the evidence around us that something is going on that could slow things down in this economy. We've seen manufacturing numbers weaken, we've seen consumer confidence weaken. At the same time you've got other things going on. Housing is not weakening, interest rates remain low.
What is the bet that my viewers should make?
AWAD: Well, what they should -- they should be aware of the risks that China is slowing down, India is slowing down. Europe is a real mess. The United States, while it's still growing, the rate of growth is decelerating. So you're in a low-growth environment where a lot could go wrong and if it doesn't go wrong, the growth is going to be so slow, it's going to feel like a recession even if you're not in one.
AWAD: So it's a low-return environment.
VELSHI: You think big companies right now are a place to be, multinationals?
AWAD: To the extend you want to be invested you can make the case in a low-return environment, corporations with a global footprint and good dividends and good balance sheets are -- many of them have dividends of 3 percent or more.
AWAD: Are a better place to be than cash which pays nothing and bonds which pay very little. So if you're willing to look out a few years and not necessarily a few months, it's likely over a longer periods of time you'll do better in properly chosen equities than in cash.
VELSHI: Let's talk about Microsoft. We've got a -- we've got a screen up on Microsoft. You're sort of thinking that the stuff that Microsoft does continues regardless of whether there's a slowdown.
AWAD: Right. Well, you have a huge installed base and so you have recurring revenues.
AWAD: Even in slower times businesses spend to upgrade technology at a lower cost so they can be more productive. You've got a fortress balance sheet, a 3 percent dividend, and a global footprint so they're benefiting from the recovery in the United States and they will benefit from the long-term growth in the emerging markets so absolutely Microsoft fits the bill.
VELSHI: Let's talk about McDonald's.
AWAD: Well --
VELSHI: This is a company that continues to expand.
AWAD: Yes, McDonald's is similar for different reasons. Again it's got a global footprint. When things get slower around the world, people instead of going to restaurants, especially in developed markets like the United States and Europe, instead of going to fancy restaurants they'll go to a McDonald's.
AWAD: And then in the emerging markets as the growing middle class gets money, they -- instead of eating at home --
VELSHI: They're going to McDonald's.
AWAD: They will go to a McDonald's. And again you have a good dividend and a fair valuation.
VELSHI: Do you like Nike? They came out with something that sounded like a bit of a lower guidance. They were saying that their sales in the east are not going to be as strong as they expected.
AWAD: Yes, well, look, Nike is a good long-term growth story but I would -- I would put it as a little bit less attractive than McDonald's or Microsoft because it's a higher growth/higher risk/lower dividend but it definitely is a good global franchise. It's just more volatile than where I would steer people in the short term.
VELSHI: There are two kinds of things people buy. There are things that are discretionary that you won't buy if there's a slowdown and the things you've got to buy all the time, toothpaste and ketchup and, you know, things like that. So you like Proctor & Gamble.
AWAD: Procter & Gamble fits the bill again in the United States if things get slower. People are going to continue to have to buy the staples. And again, in the long term, in the emerging markets people who couldn't afford these staples in the past as the middle class is created will start to buy them. So again a good balance sheet. That's the type of company with a dividend that you want to own.
VELSHI: But this is all sort of defensive.
AWAD: You have to have very low expectations if you can make 5 percent a year.
AWAD: In the environment that we're in you're doing just fine.
VELSHI: Jim, always a pleasure to see you.
Jim Awad is the managing director of Zephyr Management.
Well, I continue to tell you of an impending economic storm and I continue to tell you that there's little you can do about it except pressure your members of Congress and cast an informed ballot. But there are some things you can do. More personal things to protect your investments. Rebalance your portfolio. These are issues that Christine Romans and I have spent a lot of time studying and writing about in our book "How to Speak Money." There are three chapters dedicated to these issues that can help you make better financial decisions.
Well, coming up next, I've told you repeatedly that Congress has to act now. I've told you how the partisan bickering designed to win elections is driving our economy to the brink.
But when we come back I'm going to tell you the three things Congress can do now to protect you and the economy.
And it's that my way or the highway ideology in Congress that's left one of its longest-serving senators so frustrated she's decided to walk away. Republican Senator Olympia Snowe joins us when we return.
VELSHI: I have been telling you about the economic storm that is making its way to our shores from Europe where the debt crisis blowback could hit America at hurricane strength. From Asia where growth engines like China and India are stalling in the wake of fewer exports to the west. And from Washington, where scorched earth partisan politics could push America over a fiscal cliff if Congress doesn't act. Legislation needs to be passed now.
To head off a series of tax increases and spending cuts that are mandated to take effect on January 1st because Congress couldn't come up with a proper deal to raise the nation's debt limit last year. So that's the ridiculous compromise they came up with. If Congress doesn't act before the elections, it may be too late to fight off the economic storm.
You heard it from Mohammed el-Arian, a 30 percent chance of a recession he says. So frankly after listening to me saying this endlessly even I am starting to think I'm full of hot air. So I'm going to give you three specific things that Congress can and must do now to address the coming economic storm.
First, head off that so-called sequester, the $1 trillion of automatic across-the-board spending cuts that are mandated by Congress. The ridiculously named sequester legislation was passed as part of last August's debt ceiling extension which followed, as you recall, but would like to forget, intense partisan blackmail by both sides that nearly shut the government down and led to a downgrade of the United States' credit rating. A stupid name for a stupid thing that could hurl the U.S. head-long back into recession, so solve it, Congress.
Second, all right, we've grown to look at another debt ceiling extension early next year. So what say we all get together ahead of time and act on it before the election, before Washington gets tempted to take America back to the brink a second time.
And finally, third, negotiate another agreement on whether to extend the Bush-era tax cuts and adjust the alternative minimum tax to avoid slapping Americans with a higher tax bill next year.
These are three simple things that Congress can do now, three things Washington needs to do, before the elections to avoid falling over that fiscal cliff in January. If politicians and Congress put off the work that needs to be done, let them be held accountable for the next recession.
Joining me now, Norm Ornstein, a resident scholar at the conservative American Enterprise Institute. He describes himself as a centrist, and his new book, it's titled, "It's Even Worse than It Looks: How the American Constitutional System Collided with the New Politics of Extremism."
Plus CNN's political director Mark Preston and CNN's conservative contributor Will Cain.
Do they call you that? I keep adding that.
WILL CAIN, CNN CONTRIBUTOR: I don't -- I'll let you describe me. Whatever you want.
VELSHI: You're conservative. He describes himself as a conservative and he says that two parties working together to achieve a solution has created today's problems.
CAIN: That's true.
VELSHI: I don't even understand what you're talking about.
CAIN: That's what I'm talking about is in historical perspective. I know we have Norm join us in a few minutes here, that I'm sure will thoroughly rebut what I have to say. But what I am saying to you is this combination of Democrats and Republicans seeking low taxes and high spending has created everything from Social Security to Medicare to "No Child Left Behind," and I don't think we look at these across the board and go, you know, pump our fists good job, Congress.
So, yes, now we are in a terrible situation, Ali. Yes, we are looking at a fiscal cliff and I'm going to take a pin and go over to your big post-it note and put yes, get these three things done.
CAIN: Before you just put bipartisan up on Mount Rush realize that what got us here in the first place.
VELSHI: I'm not objecting to whether it's partisanship or bipartisanship that got us here. I just think these three things need to --
CAIN: Got it done. Got it done.
VELSHI: Something is stopping it from getting done.
Mark Preston, why can some congressmen not fall on their sword and do the right thing if that's what it takes to help the economies -- the economy ? Would voters really turn on someone who has the guts to say, this is the best thing to do for the future of this country and your job and our economy, regardless of party agenda and partisanship?
MARK PRESTON, CNN SENIOR POLITICAL EDITOR: Ali, let's look at the macro level. When you're talking about getting things done on Capitol Hill everything is done through the parties. It's -- and quite frankly what we've seen on the Republican side as we've seen the rise of the Tea Party, which has had an enormous amount of influence over how House Republican leaders approach legislation and approach how they do things, but at the same side on the Democratic side you had the liberals who are really pushing hard on the agenda.
What you're talking about are the folks who are in the middle, these blue dog Democrats, these folks who try to build bridges, folks that perhaps, Will was saying, that might be the problem because they are trying to chart some kind of middle course. But the bottom line is, it is so poisonous right now on Capitol Hill, Alia.
And I hate to say this to you, this is not going to get fixed until after the election and if we think things are bad now politically wait until after Election Day when they have to deal with all these major issues. VELSHI: And that's my concern. That if you are so adamant as Stephen Moore was that this isn't going to get done beforehand but somehow after the election there'll be more impetus, the only thing we'll have after the election are more deadlines.
Norm, in addition to all the issues I mentioned you're predicting one of those possible government shutdowns over spending bills in October because House Republicans are going to try and keep every dime for defense, they're going to double down on domestic discretionary cuts.
I mean I don't -- my head will explode if we can't even deal with the problems we've got and now we might face a shutdown?
NORM ORNSTEIN, RESIDENT SCHOLAR, AMERICAN ENTERPRISE INSTITUTE: You know, Stephen Moore said it's always darkest just before the dawn. I'll remind you of what John McCain often says, it's always darkest just before it turns completely black.
ORNSTEIN: But the fact is that the deal that was worked out to avoid the last debt limit and remember, it was really the House Republicans, not John Boehner, who warned them that they had to get something done, but others in the leadership who held the debt limit hostage the last time, now it's Boehner who's threatening to do it with the next debt limit but the deal that they reached that included these sequesters if they couldn't do the other actions, now you have the House Republicans saying never mind that deal, we're not even going for it for the spending bills for the fiscal year that begins October 1. We're going to renege on the defense part and double down on the domestic side.
That doesn't bode well for any kind of a deal before the election. The fact is in the Senate you are seeing some bipartisan action and attempt to try and find that golden mean, the broader deal, the larger deal, the grand bargain that we've talked about, and it has to include inevitably over the long run more revenues and a significant slowdown in the growth of spending including in the big entitlements, if you have however, 90 percent of the Republicans in the Senate and 237 out of 242 in the House.
ORNSTEIN: Who've taken the Norquist pledge, that doesn't bode well either.
ORNSTEIN: So, you know, I'm nervous and I -- but I think Mark is right, the likelihood of things getting done before the election remain exceedingly slim.
VELSHI: But things -- you just brought up the Norquist pledge.
Will, let me bring you in on this. The Norquist pledge, Grover Norquist, Americans for Tax Reform, a pledge that has been signed by virtually every Republican in the House which says you will not support any net new tax increases which means if you need emergency short-term spending because your economy is going down the tank again, you risk Grover Norquist and his people campaigning against you.
Why is that acceptable in our -- in our dynamic economy and our democracy? Why can't we tell people stop with the pledges, go in there and make the necessary deals that have to be done?
I'm not asking you as a conservative. I'm saying this is something liberals and conservatives need to do. Democrats and Republicans got to move on this.
CAIN: The reason I think guys like Grover put that pledge out there and another -- politicians follow that pledges, because where I started this. Because the historical perspective is that you give a dollar to the government it finds a dollar place in spending. It find ways to spend that dollar.
Grover, I would assume, I don't want to speak for him and his guys, look, we've got to cut off the spigot, we've got to cut off the funding of government. But you are right, it doesn't allow for basically emergencies. And we've arrived at two emergencies you point out, one is the fiscal deliver and the other is the one you're not talking about that Norm just alluded to, and that is the long-term debt and deficit problem. Right?
CAIN: And by the way, both of those problems are working in opposite of each other.
CAIN: So we have to, yes, perhaps, let go of some of our historical perspective to make some concessions on those emergencies and get action on those emergency in the short term, but he's not wrong on the long term. Long term is, we've got some lessons to learn about governance, bipartisanship and the concept of getting things done.
VELSHI: Mark Preston --
ORNSTEIN: Ali --
ORNSTEIN: Just let me add a couple of things. First, the Norquist pledge actually is against any gross tax increases. You've had a few Republicans who said I can't stick with the pledge anymore because to get tax reform the kind we've talked about before you need to raise taxes on some so you could lower taxes on others and that violates the pledge.
ORNSTEIN: But the other thing is something that Bruce Bartlett, an economist for Ronald Reagan and many others have said, which is history tells us that when you get fiscal discipline is when you actually raise revenues and couple that with spending cuts. When you cut revenues it has had no effect on the spending and that's a good part of the reason why we've ended up in the mess we're in after all of those tax cuts at the beginning of the last decade.
VELSHI: Mark, later on the show we're going to talk to Olympia Snowe. We are dredging up everybody we can find who once walked roughly in the middle of the road. Do you come across those on your -- on your travels now while we're looking at a campaign?
PRESTON: Look, Ali, let me just say, I spent six years on Capitol Hill as a newspaper reporter. I spent a lot of time with the likes of Olympia Snowe, Tom Daschle, Trent Lott, and it's amazing. Nowadays Trent Lott would be considered a centrist. They wouldn't think he's conservative enough.
What's happened in Congress, things have gotten so polarized at this point you're seeing the likes of Olympia Snowe say, enough is enough, I'm leaving. We saw that with Evan Bayh, a Democrat from Indiana, he left Congress.
What's going on on Capitol Hill is bipartisan is not a bad word, it's actually a very good word. What's a bad word is punting and that's what you see from the leaders on Capitol Hill. Keep punting the ball down. We'll deal with it later. We'll deal with it later. And that's where we stand right now, Ali.
VELSHI: All right. Mark, Norm, Will, great to have a great conversation with all three of you. Thanks so much.
ORNSTEIN: Thanks, Ali.
VELSHI: And coming up next, intense partisanship and the my-way-or- highway ideology in Congress has left one of its strongest serving senators so frustrated she has decided not to seek another term. As promised, Republican Senator Olympia Snowe when we return.
VELSHI: After three terms in the Senate more than three decades in Washington Republican senator, Olympia Snowe, shocked the beltway earlier this year when she said she would not seek a fourth term come November. Her reasons, intense polarization and partisanship that are crippling our political processes.
Senator Snowe joins me now from Washington.
Senator, thank you for being with us. You've got a reputation for being a practical politician who's willing to cross lines to get things done. You said in an opinion that you wrote, when you announced that you weren't running, I'm going to read this to our viewers so they know.
"For change to occur our leaders must understand that there's not only strength in compromise, courage in conciliation and honor in consensus building but also a political reward for following these tenants. The reward will only be real if the people demonstrate their desire for politicians to come together after the planks in their respective party platforms do not prevail."
Are things more partisan than they were when you first entered that building?
SEN. OLYMPIA SNOW (R), MAINE: Without a question. Since I entered the Senate and most especially since I served in the U.S. House of Representatives when I was elected in 1979, but I came to the Senate in 1995, and there's been dramatic change and it's grown, you know, exponentially worse and most especially over the last few years, where you're seeing very little of the legislative process working in a way that it should that allows for openness and transparency and accountability, to see what we're doing, how we craft legislation, allowing amendments to be offered, working through the committee process first, reporting the bills to the floor, having an open amendment process, so the public has a chance to see how these bills are fashioned and what the differences are in views.
But none of that is transpiring today in the Senate virtually speaking. So what you're having is up or down votes, either/or situations, cloture petitions, cloture votes, amendment freeze to fill so you can't offer amendments, so all of these procedural blocks are impeding the public's interest and the country's interests and that's --
VELSHI: Well, you're exactly right when you say that. This procedural stuff goes over our heads generally speaking. What we want to see is that there are veteran politicians or new politicians who somehow have the creativity to arrive at compromises that I -- we the voters have neither the time nor the inclination to arrive at. That you are going to be elected to go there and try and solve our myriad serious problems. Is there a sense amongst your colleagues that at this point in time, this very specific point in time, this inability to compromise could put us back into remarkable economic turmoil, largely because of what's going on around the world, but this really could do great damage?
SNOWE: You're absolutely right. And that's precisely my point and precisely my concern. And yes, many of my colleagues do realize that. I think the question is now, can they transcend that and overcome it? And to make the difference in the United States Senate to get something done. And that really is in the hands of the leadership. You know, that determines the agenda and what happens and what doesn't happen, how it comes about.
I mean, for example, Ali, the fact that, you know, we're postponing all of these key issues on the fiscal cliff, you know, until after the election. We have wasted all of this year, we wasted all of last year.
SNOWE: In the way we handled the debt ceiling, for example, we created the super committee, we knew that wasn't going to be a possibility they're going to achieve all these reforms in a short period of time with so few people, and then, of course, we've had no budget and now we're facing this monumental fiscal cliff at a time we're seeing international turmoil, let alone our own domestic economic turmoil that could paralyze because any one of them could trigger a financial crisis.
So all of that everybody recognizes. The question is it's not happening to change that. There's no --
SNOWE: There's no circumstance to change that here in the United States Senate unless you have the president and the leadership on both sides coming together and recognizing that we need to do this in a way that's going to build consensus. And the American people have to understand that too and they have to demand it of their elected officials.
VELSHI: And that's what I --
VELSHI: That's what I'm trying -- I mean I haven't been as articulate as you have been in just a few minutes. I've been for half an hour saying on this show that this is -- what we have to demand of Congress and that they act sooner rather than later before the election and all I've been told by those who are much smarter than I am about Congress is that I've got a better chance of growing hair on my bald head than of that happening.
So what I would like to do for my viewers over the course of the next few weeks is form a list of people who are like you willing to reach across party lines, willing to reach across ideologies, you have worked with these people directly for 30 years. Tell me who the best people to start that list with would be.
SNOWE: Well, there are a number. You know, there have been a number of people on both sides and, you know, probably give out names now but I would be glad to work with you on that question. Because I do think it is important. There are people who are willing to do that. But I think I would also suggest in starting with the leadership, I mean, because obviously that is very important in terms of what happens and doesn't happen. And secondly, is using the social media and the technology today to get the message out.
If we have used social media technology and how to vote, you know -- you know, either/or situations, whether it's conservative liberal, then we can also use that in a way to say, let's build consensus.
SNOWE: We demand consensus in the political process.
VELSHI: I know you're leaving the Senate. I hope that wisdom and that spirit of compromise stays after you're gone. I'll take you up on the offer to find those people in that building in the House and the Senate who can, who might just act earlier than the election and stave off this economic storm.
Senator Olympia Snowe, a pleasure to talk to you. Thank you.
SNOWE: Thank you.
VELSHI: The partisanship we see on Capitol Hill these days represents the failure of what I think of as the Shakespeare rule. "To thine self be true." That's Shakespeare by way of a man who served in Congress for 34 years.
Former Congressman Lee Hamilton on putting country before politics, that's next on YOUR MONEY.
VELSHI: You heard me say throughout the show that I am looking to highlight those members of Congress willing to reach across party lines. Willing to reach across ideologies for solutions to our economic problems. Some of you share my view. Others think I'm stark raving mad for suggesting it. And you in the second group might actually be right.
According to a recent Gallup poll, Congress' approval rating stands at 17 percent. That is lower than Richard Nixon's approval rating during his impeachment. Even Congress is frustrated with Congress.
Lee Hamilton spent his 34 years in the House of Representatives actively working against partisanship as well. He is a true American statesman. Someone I admire a lot. He's worked on a number of bipartisan commissions including the 9/11 Commission, the Iraq Study Group, the Blue Ribbon Commission on America's nuclear future. He's the authors -- author of "How Congress Works and Why You Should Care."
Former Indiana Congressman Lee Hamilton joins me now.
Lee, welcome to the show. You say it has been years since Congress acted as if it took its responsibility seriously. What has changed?
LEE HAMILTON, FORMER U.S. DEMOCRATIC REPRESENTATIVE: Well, I think many things have changed. I think you're correct in your opening comments that excessive partisanship has really become the most prominent feature now. The distinguishing characteristic of our politics. And it comes about for a lot of reasons. There isn't any single reason for it. There isn't any single solution.
We have gerrymander districts, we have a media that politicians to express themselves immediately. We have congressional schedules that don't allow members to get to know one another. We have the intensity of our politics in the country has, over a period of decades, picked out very sharply. More is at stake. People are more interested in government doing something for them. And the country as a whole is divided more along partisan lines. So there are a lot of reasons for this excessive partisanship.
VELSHI: You've mentioned that you think we lost our political center which corresponds to the idea that we are losing our middle class. We are economically and politically going to different ends of the spectrum.
Tell me, it wasn't that long ago that you were in the midst of this whole thing and it was important to you to walk this middle ground, to put forward legislation that got support on both sides of the aisle and to reach across, as a Democrat, and get Republicans to support measures that you were interested in supporting.
You mentioned relationships. Talk to me about what's changed on that front.
HAMILTON: Well, I think members of the Congress don't really get to know one another very well. It's very hard to get mad at somebody that you know well. And the schedule today is such that members come in Monday night or Tuesday night. They have very intense schedules while they're in Washington. Leave Thursday and home on weekends.
They no longer mingle with their -- each other's families. They don't get to know one another's people. When they do meet, it's in the confrontational setting of the committee room or on the floor of the House. So I think that's an important factor. Not a sole factor by any means. But they have to make the schedule a little more family friendly, if you would. And let members of Congress get to know one another better.
VELSHI: Well, we like, we like to point the finger at partisan politicians who are making this worse but it is in fact voters who elect them. The American public is more polarized today than at any point in the last 25 years. This is a chart that the Pew Research Center put together measuring the percentage point difference between Republicans and Democrats, voters, on 48 questions about their values. And the results show that Americans are more divided, as you said, Lee, along political lines than by race, religion, or gender which is fascinating.
How much blame do you accord voters for this gridlock in Washington? And what can voters do to try and change this?
HAMILTON: Well, the old sign on Harry Truman's desk, "the buck stops here," is only half right. Ultimately the buck stops with the American voter. And we have to say to our friends in politics that, look, take your positions. Advocate them strongly. Say what you want to say. But at the end of the day, your responsibility is to make the country work. Your responsibility is not to put forward an ideological agenda.
Your responsibility is to work with your colleagues so that we can move this country forward towards a more perfect union. Now that can only be done if you take into account as best you can the points of view of many different people represented within the Congress. So I want to see members of Congress who come there not to push an ideological divide. Not saying I will not compromise but saying that my responsibility is to see that at the end of the day this country works.
I think that's the attitude that has to be the mindset, if you would, of members of Congress today.
VELSHI: Lee Hamilton, what a pleasure to talk to you again. Thanks very much for your -- for your wisdom and sharing it with our viewers.
HAMILTON: Nice to be with you. Thank you.
VELSHI: All right. You've heard my thesis. You've heard my guests. Now it's your turn. Tell me why I'm wrong. I'm ready to debate you. And I'll show you how to engage, next.
VELSHI: OK. I have given you three specific things that Congress can do and must do now to address the coming economic storm. First, head off that so-called sequester, the trillion-dollars of automatic across-the-board spending cuts that are mandated by Congress.
Second, get a debt ceiling extension in place before Washington gets tempted to take America back to the brink a second time.
And finally, third, negotiate another agreement on whether to extend the Bush era tax cuts and adjust the alternative minimum tax to avoid slapping Americans with a higher tax bill next year.
That's my to-do list for Congress. I'm ready to hear yours. Tweet me right now, @alivelshi. But you're better be ready to debate because I read them all and I love to write back.
Thanks for joining the conversation this week, on YOUR MONEY. We're here every Saturday, 1:00 p.m. Eastern, and Sunday, at 3:00 p.m. Have a great weekend.