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Will Our Debt Doom Us to Collapse Like Civilizations in the Past?; China Confidence; Politics in the Way of Education

Aired September 15, 2012 - 09:30   ET

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


CHRISTINE ROMANS, HOST: How does this turn into this?

Historians tell us the Romans, like many civilizations before and after, collapsed under the weight of too much debt. An overextended military, debilitating partisanship and fiscal irresponsibility drove the Roman Empire into the ground.

Does any of that sound familiar?

The U.S. currently has $16 trillion in debt, up from less than $1 trillion in 1980. Driving that debt, tax cuts for the rich, two expensive wars in the Middle East and prolific spending to blunt an economic downturn.

Meanwhile in Washington, a Congress that goes back to work to do nothing. On top of what we already owe, there's another $20 trillion to $50 trillion the government will need to fulfill its promises on Social Security and Medicare as the baby boomers retire.

(BEGIN VIDEO CLIP)

FORMER GOV. MITT ROMNEY, R-MASS., PRESIDENTIAL CANDIDATE: I don't think it's just for the next generation for us to pass on massive debts that we've amassed.

(END VIDEO CLIP)

ROMANS: And that's not all. At the end of the year automatic spending cuts as part of the fiscal cliff could send the U.S. tumbling back into a recession, a recession that's preventable if our government would act. It begs the question, are we Rome before the fall?

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Our problems can be solved. Our challenges can be met.

(END VIDEO CLIP)

ROMANS: Voters will decide in November who they trust to fix what ails America, but let's put the election cycle aside for a minute.

As U.S. comptroller, General David Walker spent a decade overseeing how the federal government spends your tax dollars, today he's the CEO of the Comeback America initiative. David, in 2007, rather, you wrote a piece for the "Financial Times," warning America that she risks the fate of Rome. It's a piece as widely quoted as it is terrifying.

Five years later the U.S. is withdrawing out of two expensive wars. Is that enough to fix the problems you laid out?

DAVID WALKER, U.S. COMPTROLLER GENERAL: No, Christine. I said three things. One, that we have three similarities to Rome: decline in values, decline in political civility, overconfident and overextended military around the world and fiscal irresponsibility.

The values and the political problem is worse. We're drawing out of the Middle East. We're out of Iraq. We're going to be coming out of Afghanistan. That's better, but we're still overconfident and overextended, and our fiscal situation is much worse.

ROMANS: All right. University of California editor (inaudible) Economics Peter Navarro is the director of this new documentary film called "Death by China."

Peter, is America doing to itself what I guess every enemy of a country would dream it could do?

PETER NAVARRO, PROFESSOR OF ECONOMICS, U.C. IRVINE: Christine, I don't see this as Rome before the fall but we do have a lot of Neros fiddling. What I see is more of a scenario right after the Wall Street crash in 1929.

If you look at what was happening around the globe then, we basically had a collapse of the international monetary system as they abandoned the gold standard.

Now we have Europe in chaos and the euro about to implode. We have a budding trade war around the globe, and basically we have a very rapid militarization of a totalitarian power and of course, in Europe Germany now is basically the dominant force. Once again, it's a very unstable equilibrium for our economy.

ROMANS: What do we do, Peter Navarro, what do we do right now to make sure we stay dominant in this new global economy?

NAVARRO: The central fact of our economic life, Christine, is that prior to 2001 we grew at a rate of 3.5 percent GDP. Since that time, we've grown at a rate of 1.6 percent. The loss of two percentage GDP points basically is 2 million a jobs a year not created, 20 million over the period. That's what we need right now, to put people back to work.

And if you look at the drag on the GDP over that period of time it's basically two things related, the trade deficit, which costs us much of that and the loss of domestic investment offshore. If we basically balance our trade and we get back to manufacturing things here, get 25 percent of our workforce working in manufacturing like Germany does, we will be a great power again. ROMANS: You know, David Walker, I don't hear anybody talking about that on the campaign trail. I hear about them talking about you know, restoring manufacturing, but intricacies of how to do that are something that you don't hear because I think you have four-year election cycles for the president.

You have -- every two years you've got people running for something around here. We don't have a long-term strategy, David.

WALKER: Well, the fact is, Christine, Monday will be the 225th anniversary of the signing of the Constitution, and while we've been in business that long, we still don't have a strategic plan. We don't have a budget, and we don't have performance metrics, outcome-based metrics, to understand how we're doing, are we getting better or worse and how do we compare to others?

That's fundamental. It's Management 101, and, you know, we're living on our past reputation. We need to start taking steps to help create a better future, and we need to hear more from these candidates about substance and solutions on all these issues we're talking about. We're hearing too much sloganeering and mud-slinging.

ROMANS: Well, it's bumper sticker politics, you know, at a time when we have really, really crushing issues.

I mean, just ahead of us, David Walker, the fiscal cliff. This fiscal cliff is something that will mean people will lose their jobs. People -- middle class people will get smacked by the AMT. People will see smaller paychecks and higher tax bills and you will see a recession. Factories will close. That is a certainty if Congress doesn't do its job. I mean, that's congressional malpractice.

WALKER: Look, we have a political system today that's dominated by special interests and career politicians, who may or may not have had a real job in their life, but once they get elected they don't, and their primary concern is keeping their job rather than doing their job.

ROMANS: All right. Don't move, because we're going to talk with both of you about the thing -- the one thing that we could do right now to make sure we don't go over that cliff, and to make sure that this is America's century again.

Coming up, if the United States is Rome before the fall, the which nation stands to be the next Roman Empire?

UNIDENTIFIED MALE: You can't talk about jobs without saying the word China.

ROMANS: The presidential candidates aren't talking much about China. We will.

(COMMERCIAL BREAK)

ROMANS: What if I told you just about every dollar you spend at the mall this weekend will go to China? In return, you'll get low prices on all that stuff you buy -- the toys, the clothes, the phone. You'll be bringing that stuff home to a house you might have borrowed money to buy. Mortgage rates are at 40-year lows partly because China is buying up U.S. debt.

And when your kids compete for the jobs of the future, consider this. China claims it's graduating more than 500,000 engineering students every single year. That's nearly six times as many as we graduate in the U.S.

The next president of the United States will deal with a China confident that this century belongs to the Chinese.

(BEGIN VIDEOTAPE)

ROMANS (voice-over): The clothes on your back, the food you eat, the phone in your pocket, all from one place. China is on everyone's lips, except the candidates.

UNIDENTIFIED MALE: These are very complicated issues, and they can't be reduced to sound bites.

ROMANS : Mitt Romney has this sound bite, raising the ire of the Chinese.

ROMNEY: Day one I'm going to label China a currency manipulator.

ROMANS : China pegs its currency to the U.S. dollar, making Chinese goods even cheaper and U.S. goods more expensive.

And where does President Obama stand?

UNIDENTIFIED MALE: President Obama doesn't want to talk about this issue because Candidate Obama, starting in 2007, talked about China's currency manipulation and how the Bush administration hadn't done anything about it.

And what has this president done about it?

UNIDENTIFIED MALE: He's done nothing about it.

ROMANS : American officials have a long list of complaints about China. Intellectual property theft, human rights violations, subsidizing Chinese factories, making friends with nations hostile to the U.S., all the while lending us money so the U.S. can run huge deficits.

UNIDENTIFIED MALE: They don't say very much as candidates. If they do say something, they are going to be tough on China, they are going to be tigers, but when they become president, they become pussycats.

DENNIS SHEA, CHAIRMAN, U.S.-CHINA ECON. AND SECURITY REVIEW COMMISSION: Both candidates have positioned themselves as taking a more assertive position towards China.

ROMANS : Mr. Obama touts success.

OBAMA: People. we've brought trade cases against China at nearly twice the rate as the last administration.

ROMANS : Most recently, the administration, with the Europeans and Japan, complained to the WTO that China is restricting the sale of rare earth minerals.

China controls 98 percent of this market, used to make technology for our missile defense systems, wind turbines and your smartphone.

No question China's rise led to cheap goods for U.S. consumers, but there was a cost. According to the left-leaning Economic Policy Institute, between 2001 and 2010, the swelling trade gap with China eliminated or displaced 2.8 million American jobs.

What you're not hearing on the campaign trail will be the first item on the president's desk.

JON HUNTSMAN (R), FORMER PRESIDENTIAL CANDIDATE: You've got to figure out how to make the relationship work. In the old days, it was less difficult because China was just another one of our relationships out there. Today it is the relationship.

(END VIDEO CLIP)

ROMANS: Let's bring Peter Navarro and David Walker back in.

Peter, let's assume China's rise has been very good for the American consumer.

But what about the American worker? Can these two candidates talk about restoring American jobs without talking about China?

NAVARRO: No, they can't and, Christine, that's why I'm here, in Ohio. I'm going to be here for the whole month of September with the "Death by China" film, doing town hall events.

And the message is simply that the best jobs program is trade reform with China. It's not more government stimulus. And my goal, Christine, is to get both candidates to make very specific promises about how to crack down on China's unfair trade practices.

I was in Mansfield this week. It's a microcosm of our problem. I went to a steel mill. Half of that steel mill, a few years ago, was shut down and shipped off to China, and that's the problem we have in cities like Mansfield.

I was at Wright State University, a couple hundred students trying to find jobs when they graduate, and a gentleman in the front row during the town hall event tells me about he worked for a semiconductor company here in Ohio, same damn thing. They took the whole -- basically company and shipped it off to China. We need our presidential candidates to stand up on this.

ROMANS: It's not just the factory floor for sort of unskilled manufacturing. You've seen the semiconductor equipment market move over there.

(CROSSTALK)

NAVARRO: Not at all.

ROMANS: And I've profiled people as well and managers of those plants who've been -- with college degrees who are still in this country, who can't find work, so that's very clear.

You know, David, I want to ask you this. You know, China has high speed rail lines all over the country. It has seven of the world's 10 longest bridges. It has a massive smart grid buildout and more broadband users of the U.S., Canada and Mexico combined.

They are using, David, the piles of cash we send them to buy their stuff. They are using it to build out their economy, to stimulate their economy.

America doesn't have that cash, David, but we do have these rock bottom interest rates. Doesn't it make sense for the U.S. to borrow money now at low rates to build out our infrastructure and invest so our economy can grow and we can dig ourselves out of debt eventually?

WALKER: Christine, there's no question that we ought to be investing more in infrastructure, alternative energy, et cetera, but we need to have a plan to be able to do so. We need to do it in an intelligent fashion.

The stimulus program was poorly designed, ineffectively implemented. The U.S. doesn't have a critical infrastructure plan. It doesn't have an energy plan. It doesn't have an environmental plan. We're flying blind.

Look, China's a problem, but let's face it. The World Trade Organization has not been effective. It is a lag indicator. We need free trade, but we need fair trade. And while China might be the most acute example, it's not the only example.

Last thing. You're right that China is buying a lot of our debt, but what's happening and why we have low interest rates right now is because the Federal Reserve is buying two-thirds or move of our debt. We are self-dealing in our own debt. It is a Ponzi scheme, and it is not sustainable over time.

ROMANS: Oh, geez, that's a terrifying thought. And I think there are those who would argue with you, saying that it's the Fed is keeping us in the game until we can get the economy growing enough, David, so that we can get back on our own feet, but point taken.

WALKER: Short-term gain, I agree. Short-term gain, increased risk of long-term pain. The real problem is not the Fed. It's that the Congress and the executive branch are not doing their job.

ROMANS: Peter Navarro, last word to you. One thing this government, either the president or Congress or both could do today, to make sure that the U.S. stays on top.

NAVARRO: Brand China a currency manipulator. Obama has the ability to do that. Whoever gets in the White House in January needs to do that. It's the Gordian knot that needs to be cut in order to deal with the structural imbalances and get our manufacturing base back at 25 percent of our women and men making things again, not 9 percent.

ROMANS: Peter Navarro, thank you so much

David Walker, nice to see both of you. Have a great weekend.

UNIDENTIFIED MALE: Good to see you.

ROMANS: Coming up.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALES: What do we want?

UNIDENTIFIED FEMALES: A fair contract?

UNIDENTIFIED FEMALES: When do we want it?

UNIDENTIFIED FEMALES: Now.

ROMANS (voice-over): Teachers on strike in a town run by the Democrats. What it means for real education reform.

(MUSIC PLAYING)

(COMMERCIAL BREAK)

ROMANS: China and India are churning out three-quarters of a million engineers every year. Rising powers know the best guarantor of a vibrant middle class is an educated populace.

In America, the birthplace of the middle class, students in the third largest public school district couldn't even go to school last week. Politics in the way of education.

(BEGIN VIDEO CLIP)

RAHM EMANUEL (D), MAYOR OF CHICAGO: This was a strike of choice. And it's the wrong choice for the children.

JAY REHAK, EXEC. BOARD MEMBER, CHICAGO TEACHERS' UNION: He came in and disrespected the teachers in this city. We had a contract from the previous mayor, which he aggregated, he basically said you're not going to get the raise that we were actually contractually given.

(END VIDEO CLIP)

ROMANS: Essentially a bunch of educated people can't fix a problem and 350,000 Chicago students trying to get an education pay the price.

Whitney Tilson is a noted value investor and co-founder of Democrats for Education Reform.

Welcome to the program. WHITNEY TILSON, CO-FOUNDER, DEMOCRATS FOR EDUCATION REFORM: Thanks for having me.

ROMANS: You're known as a value investor, so let's talk about where there's value in the public school system. You've got a situation where SAT scores have not budged in the United States since the 1970s and the national test scores have really stagnated as well.

Where do we find what's going right in education?

Right. Well, even worse is not only have we stagnated, but we're spending twice as much money per pupil on an inflation-adjusted basis as we did about 40 years ago, when, I would argue, we probably had the best system of --

(CROSSTALK)

ROMANS: We're not getting more -- we're not getting more for the investment.

TILSON: Exactly. We're spending twice as much. And it's not that the system has gotten worse. It's not that we're getting worse outcomes. They're getting very slightly better, despite a massive increase in spending that is bankrupting many states and cities.

And finally, even Democrats, who traditionally are sort of beholden to the teachers' unions, are saying, stop, the system isn't working; the status quo isn't working from a budgetary perspective, but most importantly, for the kids and for our nation, and say we have to do things differently. And that is an enormous threat to the entrenched status quo in many of our big cities.

ROMANS: You look at Chicago. This is the president's hometown, essentially. It is Arne Duncan's old school district. He's now the Secretary of Education. It's Rahm Emanuel, the president's former chief of staff.

But the unions, these aren't GOP barbarians at the gate. These are their friends and the people they support. Does that mean there could be a breakthrough in education in your view?

TILSON: I think so. I think the fact that it is now Democrats that are really taking the lead and trying to shake up the existing status quo -- this is no longer Scott Walker in Wisconsin, trying to break unions. These are Democrats who believe in unionization, as I do.

ROMANS: You believe in unionization?

TILSON: Absolutely. I think -- but I don't believe in unions that become so powerful and so arrogant, frankly, and that they take over the system, run it for the benefit of their members and millions of kids aren't getting education. They need to have any chance in life.

ROMANS: I'll tell you what they say about you. Teachers' unions say that you are among the millionaires and billionaires, dilettantes, if you will, and you know, trying to talk about education reform, they're looking at -- taking a private sector mindset on the public sector teaching. It's just different results for teachers is different. Why do you disagree with that?

TILSON: Well, I would say it's just a very self-serving argument. They want all reformers to go away and say, hey, this system is working great for us. And if you look at what are the trends for the adults in the system over the last 40 years, more jobs, higher pay, better benefits, greater job security.

See, the inefficiency that's at work here is the adults are very well organized. They vote and they, in many places, co-opt the people on the other side of the bargaining table, the school boards and the politicians who ultimately run the system. So there's not a real debate like there should be between the -- on both sides of the table.

And so the people who normally would be on the other side of the table, people with money and power, have effectively opted out of the system. They send their kids to private school.

And so you have a horrible market inefficiency, where the most vulnerable people in our society are the ones who are served worst by a school system. And they don't really have the power to take on the most powerful interest group in the United States, the teachers' unions.

ROMANS: Do you agree -- I mean, one thing I think about the teachers is a lot of teachers hear this debate around them and they become defensive. You can be critical of the public school education system the way it is today and not be critical of all teachers.

TILSON: No, not at all.

ROMANS: 3.2 million teachers; not everyone is the same.

TILSON: Not at all. I mean, the teachers' union there, their talking point to their members and externally is this that this is an attack on teachers, and it's not. It's an attack on the behavior of the unions that seem to have -- you know, job number one for the unions is protecting all teachers, even the ones who aren't getting the job done.

And talk to any good teacher and they'll tell you the worst thing for them is having colleagues who aren't getting the job done, who aren't even showing up for work some day, who are -- the previous year's teacher doesn't prepare the students to do the next year's work.

So we reformers celebrate teaching, we celebrate teachers, and we think teachers should be treated like professionals. And unfortunately, the teachers' unions have in many ways sort of become like the longshoremen's union, where they claim that all teachers are the same and you shouldn't evaluate us and therefore everything should be driven by seniority and that's crazy.

ROMANS: It's interesting, because Arne Duncan, the Education Secretary, was here last week and he was saying that the unions have been helpful in parts of reform. TILSON: Sure.

ROMANS: I'm sure that's -- you know, he's been working with them a lot.

So Whitney Tilson, very nice to meet you.

TILSON: My pleasure.

ROMANS: Thanks for coming on again. And we'll talk about it some more.

Coming up, it was bread and circuses for ancient Rome's underclass. We've got 46 million Americans on food stamps. Why the decline of the middle class is another warning sign.

(COMMERCIAL BREAK)

ROMANS: I've been asking whether the U.S. is Rome before the fall. I don't think Rome is burning yet, but I do smell faint whiffs of smoke, 46 million Americans on food stamps, 46 million people in poverty, median household income down two years in a row. And the Economic Policy Institute says the wealthy are 288 times richer than the middle.

I'm not saying I know how to fix it in one move, not even in four years. But this economy is not working for everyone. We don't have to follow in Rome's path, but avoiding the fate of fallen empires requires leadership.

Congress came back to work last week after five weeks off and what are our elected representatives doing? Barely anything.

History has a way of repeating itself. Let's hope not this time. Do you believe the United States could be Rome before the fall? How would you fix this economy and how long do you think it will take? Tell me at ChristineRomansCNN on Facebook or via Twitter @ChristineRomans. Let's keep the conversation going.

Back now to "CNN SATURDAY" for the latest headlines. Have a great day.