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YOUR BOTTOM LINE

Betting on This Recovery; The Jobless Generation; Interview with Bill Gates; The $16.4 Trillion Debt Problem

Aired February 2, 2013 - 09:30   ET

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


CHRISTINE ROMANS, HOST: The market is soaring. But do you feel richer?

Good morning, everyone. I'm Christine Romans.

2013 could be a boom year for the economy. So, how do you capitalize? Start with understanding that today -- "Smart is the New Rich."

And who better to have on than the smartest, richest man in the U.S., Bill Gates? You'll hear from him in a moment.

Plus, media mogul Arianna Huffington on the best ways to empower entrepreneurs to create jobs.

But, first, the soaring stock market. Does that mean the economic recovery is real or is something else going on here?

(BEGIN VIDEOTAPE)

ROMANS (voice-over): Looming budget cuts.

REP. PAUL RYAN (R), WISCONSIN: We can't keep spending money we simply do not have.

ROMANS: Tax uncertainty.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The deficit is still too high.

ROMANS: Gridlock over how to fix it. If it weren't for politicians in Washington, 2013 could be a boom year.

Take a step back. Your home, your investments, your job -- the three ways most people build wealth are all set to take off.

Home prices rose 5.5 percent in November, biggest jump in six years. Stocks are at five-year highs, near records. The Dow is up 800 points in just four weeks. Jobs are coming back.

Things are looking bright in 2013, but to capitalize, you'll have to get ready. And get smart, because "Smart is the New Rich".

(END VIDEOTAPE)

ROMANS: Company price -- profits are up. Home prices are up, markets are way up.

Zanny Minton Beddoes is the economics editor at "The Economist".

Zanny, why is this market up? I mean, end of last week, I see GDP actually shrank in the end of 2012 but markets are near records. Why?

ZANNY MINTON BEDDOES, ECONOMICS EDITOR, THE ECONOMIST: You know, I think three different things are going on.

The first is that we are seeing signs of strength in the economy, notwithstanding the weak GDP figures. There was a lot of temporary stuff going on there. But if you look at computer spending, if you look at business investment, if you look housing in particular, you're seeing signs of strength.

Secondly, interest rates are extremely low and the Fed has said it will keep them low for a long time. That is helping to fuel the rally. That is helping to push people back into stocks and rightly so.

And the third is I think the kind of fear of serious uncertainty, falling off the fiscal cliff has now gone. We haven't solved the fiscal problems and we've only put off a few of them. But that sense of real fear that was there for a lot of 2012 has lifted.

And you put those three things together, you can explain some of what's been happening in the markets.

ROMANS: Robert Shiller is also with us. He's professor of economics at Yale University and the author of finance and the good society.

Robert, you successfully predicted more than one stock market crash. You predicted the collapse in the housing market before 2008. You're also the co-creator of the Case Shiller Index. That's the leading measure now of the U.S. housing market.

I want to show your index over the last year. It looks good. People are saying the housing recovery could lift the entire economy. You're not completely convinced.

Why?

ROBERT SHILLER, PROFESSOR, YALE UNIVERSITY: Well, in terms of the housing market, it's been down now for six years. And this is a -- has a lot of momentum in the housing market. It seems like some people are -- I don't mean to be too negative. You asked why I'm not jumping on to the bandwagon. It's because there's been a decline in home ownership rates. People are not so excited about home ownership now, renting starting to look better.

The economy -- you know all about the -- the European and the world economy, all these things are kind of risk factors. So, I don't -- I'm not too optimistic

It might go up. It's not a disaster I'm predicting.

ROMANS: Yes, it's been five, six years of really horrible housing news. So a little bit of recovery, those green shoots as they call them in housing doesn't necessarily mean the whole garden is growing wildly.

And people are still -- people do still have too much debt.

Zanny, what do you think about the housing recovery? Is it enough to power an economic recovery in 2013 or is housing still just too small overall size of the economy now?

BEDDOES: Well, you know, in matters of housing, I will always refer to Professor Shiller.

But I think my view is that it has been horrible for such a long time and there has been a huge, enormous adjustment in U.S. house prices. So, I'm reasonably confident that this turnaround we're seeing is now for real.

Now, are we going to see a repeat of the early 2000s when we saw that absolute real estate bubble? I don't think so. And certainly I hope not, because that's not what we want. But I do think that housing will contribute to growth and I think it's going to put construction. I think it will help consumer confidence. I think it's going to be a bright spot in the economy this year.

But I think there are dark shadows. And the most important of those, as you mentioned earlier, is really Washington. And what happens in Washington and how much they cut spending and how fast they do it.

ROMANS: Let me ask you, Robert, about the Fed.

How much credit does the fed get for keeping interest rates so low? Or is housing recovering because the job market is not a disaster anymore? The job market is slowly healing. People now have confidence again that they can move, buy a home, that they're going to have the income to pay for it.

SHILLER: Yes. Well, the housing recovery is something that happened suddenly in 2012. It was declining before that. So I don't know that we can credit the Fed for having done that. Though, of course, they did this purchase, mortgage purchase -- mortgage security purchase program, which has probably added confidence.

I don't know. I think that other psychological factors are -- one of them is we're through the election. We have a sense of new beginning.

It's right. We've been going on in kind of a weak economy for an awfully long time. People change their minds. You know, animal spirit comes back.

I think we might be in an up housing market. I just don't think it's secure yet.

ROMANS: All right. Really smart conversation to start your Saturday morning.

Robert Shiller and Zanny Minton Beddoes, nice to see both of you. Have a great weekend.

BEDDOES: Thank you.

ROMANS: Arianna Huffington is next with the biggest problem Washington isn't addressing about jobs.

(COMMERCIAL BREAK)

ROMANS: We learned something about the job market this week. We learned that it's modestly improving.

We learned there are 157,000 net new jobs created in the economy in January. We know the unemployment is about 7.9 percent, up just slightly. And we know that when you look at the trend since this president took office, we have reversed those horrible months of massive job loss and we've slowly been improving, 28 months in a row of positive job creation.

We also know the end of last year was slightly stronger than we had expected. November and December jobs numbers revised up.

When you look at the sectors, there's some hiring because of housing and recovery from superstorm Sandy. So, construction jobs were added. Health care jobs, always a predictable performer in this economy, health care jobs as well, and retail jobs, defying expectations and holding in there.

The youth unemployment rate is now 16.8 percent for young workers. It's always slightly above the rate for everyone else because younger workers don't have the experience or the skills that the employers are looking for.

But since the recession hit, that gap has grown, jumping to a 6.5 percent difference in January of 2006, to more than 10 percent in 2013. That's a lot of people not saving for retirement, not paying taxes, not getting a start in the economy. A third of the U.S. population is under 24 years old.

I'm joined by Arianna Huffington. She's the president and editor-in-chief of Huffington Post Media Group.

Arianna, what are the risks for the economy if so many young people are not working?

ARIANNA HUFFINGTON, EDITOR IN CHIEF, HUFFINGTON POST MEDIA GROUP: I think the risks are really serious. They call it the scouring effect. When you graduate from college and you don't get a job or have just graduated, another daughter, a junior in college, and a lot of their friends are deeply concerned about the fact that over half of them, over half of those who graduated last year are either unemployed or underemployed. That's unprecedented over the last decade. It had never been so high.

We are talking about over a million students. And on top of it, Christine, that's really what is so tragic. They're burdened with massive debts. Over a trillion dollars is now the college loan debt. It's higher than credit card debt.

ROMANS: Without the resources like some families have, to weather it out, wait for a good job or connections of a network to get into a good job or a good company, you've got these kids taking part- time jobs, jobs that maybe don't require a college education and they're being sidelined in the service industry. They're losing that first rung on the ladder.

Is it the lost generation?

HUFFINGTON: Well, it's actually worse than that because it is we who have failed them. We have failed them.

And you see now, as you look around, the whole debate after the election has not been jobs. Remember, during the campaign it was jobs, jobs, jobs but now it's gun safety, a very important issue.

ROMANS: Yes.

HUFFINGTON: It's getting out of Afghanistan, an important issue. It's immigration, an important issue.

But jobs is a critical issue and the numbers we saw this week -- yes, they're a little better. But the bottom line is that if they continue at that rate, it's going to take us seven years for us to get to precession job numbers. Seven years.

And so, I really think that we can't just sit idly by the sidelines.

ROMANS: What should we do?

HUFFINGTON: I really think what's happening, you see young people themselves trying to create jobs themselves, you know, start- ups. We launched a prize competition called job raising and the Skoll Foundation has contributed $250,000, and different non-for-profits competing for the most innovative job creation idea.

And we have the community adding additional money, raising additional $200,000 through crowd raise, because, you know, people feel that it's not enough now to just lobby the government to do something. What can we do?

ROMANS: I know.

HUFFINGTON: There's a lot that's happening (INAUDIBLE), for example, provide education for young people and years of training. So, it's easy for them to get a job.

ROMANS: I think that every university should have mandatory entrepreneurial classes for all kids because this is a start of generation. You know, they're going to need to know some of these skills. And, you know, young people, in this country, when they're finding a job, Arianna, they're seeing lower wages once they do find a job.

I want to show you this statistic. Young college grads are earning $10,000 a year less than they would have in 2005. So, it's almost as if once they get their foot in, they're not enjoying what generation X would have enjoyed.

HUFFINGTON: Really, the -- ultimately, what it means is that the American dream is not alive and well, because the American dream, that I have been very happy to benefit from, has been about doing everything you can, working hard, playing by the rules and then doing better than your parents were doing. And we don't see that. We see more and more college graduates returning home to live with their parents, which I'm very happy with myself, of course.

(LAUGHTER)

HUFFINGTON: I'm Greek and I love having my kids living with me. But it was not the way that it was intended to be.

ROMANS: When you say even among all different kinds of groups of Americans, we're moving back in because of high housing cost, because of high child care costs. So that's I guess, that is -- can be an upside.

But, you know, this is so much of this is so discouraging. Take me out 20 years from now. You know, how have we fixed this? In your perfect, perfect world, how will this be fixed in 20 years?

HUFFINGTON: I think in my perfect world, it's going to be all of us doing our part. Like can you hire one more person? We just, for example, hired four paid interns from Europe. What can we do as employers? Even if it is one additional person, how can we support young people to create their own start-ups through mentoring, through advice?

It's not going to be the same way we created jobs in the past. It's going to be a whole new start-up generation.

ROMANS: I have high hopes for so many of them because they're wired from the day they were born. You know, we learned how to use technology. They know how to use technology in the workforce. They have different expectations for the workforce.

So, I'm hoping -- I'm hoping that will be something that will really help that group.

Thank you so much, Arianna.

HUFFINGTON: Thank you, Christine. Good to see you.

ROMANS: All right. Coming up, does America's most successful college dropout have a case of "do as I say, not as I do"?

(BEGIN VIDEO CLIP)

BILL GATES, CHAIRMAN, MICROSOFT: More of this economic cycle, unemployment will be determined by educational achievement.

(END VIDEO CLIP)

ROMANS: Bill Gates is on a mission to fix this country's education system. That's next.

(COMMERCIAL BREAK)

ROMANS: In 1995, Bill Gates famously called for a computer on every desk and in every home. Today, he has a different vision, an education for every child. Bill Gates transformed Microsoft from the dorm-room start-up to the largest software company. Company success made him America's richest man. According to "Forbes", he's worth $65 billion and that's after giving $28 billion away.

Now, America's most successful college dropout is investing in America's schools. And there's no doubt that America's schools need fixing. Just one in four of America's high school graduates meets college readiness benchmarks in reading, writing, math and science.

The Bill and Melinda Gates Foundation has spent $5 billion on education so far. The latest initiative, evaluating the performance of America's 3 million teachers and then using the data to develop professional development system that worked. The goal? To increase high school graduation rates and get America's students into college.

(BEGIN VIDEO CLIP)

GATES: The number of jobs for high school dropouts or people that only have high school education, that's going down. And so, more in this economic cycle, unemployment will be determined by educational achievement.

United States universities are still, by far, the best in the world. The research that comes out of there, the graduate students are phenomenal. A lot of those students are foreign born and get sent back. They're not allowed to work here in the United States.

And that's still kind of a sliver. The bulk of our universities need to improve because they have higher dropout rates than other nations. And our K-through-12 system has a higher dropout rate than others do, as well.

So because it's so central to equal opportunity and central to our economic future, we've got to improve our education system. Others, people ahead of us in the pieces besides the top universities.

ROMANS: Do better teachers make better students?

GATES: Oh, absolutely. They -- if our teachers were all as good as the top cortile, we'd be, by far, the best in the world.

And our teachers get the least feedback of any system in the world -- 95 percent never hear "you're good at this," "you're not good at this." You should go and watch how another teacher handles this problem.

ROMANS: How are we doing in fixing that? I mean, I know we're talking about measuring teacher standards - teachers in different cities and different states, their master teacher program in some school districts. Are we getting better?

GATES: There's only a few programs like that. And those all got started just in the last five or six years when the No Child Left Behind data made it clear that we were failing, particularly in the inner cities.

So we need to step up the amount we're doing that. A lot of people when it came to measurement thought it could just be the test scores. And so, they made that the measure.

Well, it doesn't really tell you as a teacher what you need to improve. It's kind of just a raw measure.

And so, what we've shown through a lot of research we've gotten involved with is that you've got to have observations in the classroom where you look at how the teacher engages students. You've got to have student surveys. And then combine that with careful use of test scores to not just rank but to be very clear about what part of the practice they improve -- need to improve.

(END VIDEOTAPE)

ROMANS: You can check out more with Bill Gates on this week's "FAREED ZAKARIA GPS." "FAREED ZAKARIA GPS" airs every weekend, Sunday at 10:00 and at 1:00 p.m. Eastern.

Coming up --

(BEGIN VIDEO CLIP)

OBAMA: We must make hard choices to reduce the cost of health care and the size of our deficit.

(END VIDEO CLIP)

ROMANS: President Obama's second inaugural address only made on reference to America's $16.4 trillion debt. But liberal economist Paul Krugman says that's a good thing. I'll tell you why right after the break.

(COMMERCIAL BREAK)

ROMANS: Fifty-two thousand dollars. That's how much you owe to America's creditors. Last year, the U.S. government spent $3.8 trillion, roughly 2/3 of that came from tax revenue, mostly tax revenue. The rest was borrowed, $1.3 trillion. That shortfall is called the deficit.

When you add together all the annual deficits and the interest on them, you get the national debt. Today, that stands at $16.4 trillion and a whole lot of change. That comes out to $52,000 for every American man, woman, and child.

Economists agree the best way to bring down that number is to grow the economy. That means more tax revenue coming in and fewer people relying on the social safety net.

But new numbers show the economy isn't growing. The economy is shrinking. America's gross domestic product, its GDP, fell by an annual rate of 0.1 percent in the last quarter of last year. The last time that happened was during the recession.

Economics professor and unapologetic liberal, Paul Krugman, says the U.S. needs to wait for economic growth come back before even thinking about spending cuts.

(BEGIN VIDEOTAPE)

PAUL KRUGMAN, OP-ED COLUMNIST, THE NEW YORK TIMES: The power of the household analogy is very strong. Remember, we all -- a liberal- leaning congresswoman made fun of Boehner when he said, you know, families have to tighten their belts, the government has to tighten its, too. Oh, that's stupid. Three months later, Obama was saying the same thing.

ROMANS: The difference is, America owes itself, right? When you look at who owns our debt, we own our debt.

KRUGMAN: Yes, most of it. But some of it is overseas. The main thing is that the debt's in dollars. So, we can't run out of cash. We print the stuff.

ROMANS: Right.

KRUGMAN: And, Greece, the crucial thing is not so much that the debt is owned by non-Greece as that the debt is in euros. And that gives them just way less flexibility.

If you take a country like us, to me it's even hard to tell the story. You say, you know, supposed that we have a run on -- supposed that foreigners decide we're not reliable. How does that drive up interest rates? The Fed controls short-term interest rates. Long- term interest rates reflect expected short rates.

How is that supposed to happen? And the answer is actually it's not an easy story to tell.

ROMANS: Economics is (ph) politics. Right now, Washington is run by politics. So they are in a budget-cutting mode. They are in a spending, cutting spending mode. How do they do that and not hurt the economy?

KRUGMAN: Well --

ROMANS: Because they're going do it, right?

KRUGMAN: Big spending cuts in the near term look a lot less likely now than they did a couple of months ago. So people are --

ROMANS: That makes you happy?

KRUGMAN: That makes me happy. And, you know, the -- there's no imminent crisis that's being dealt with, even the 10-year outlook si not that bad on the budget. So we don't need to do this.

You know, eventually yes, there's all kinds of stuff. But this whole obsession with the deficit has actually been -- I'd say almost purely destructive because it has, in fact, led us to some short-term budget cuts that are harmful. It has not led to any resolution of long-term issues, which I don't think is possible in this political environment.

ROMANS: Is there any way now to create a bunch of jobs?

KRUGMAN: Oh --

ROMANS: How? How would you create jobs right now?

KRUGMAN: If we could do a slug of federal aid to state and local governments that would let them rehire school teachers they laid off and restart the road repair project they've put on ice, right there you could create over a million jobs directly and a half million more indirectly through the effects of demand. So, if we did that, within 18 months, the unemployment rate would be somewhere in the low sixes.

So, it's -- technically, economically it's the easiest thing in the world. Politically, we know it's not going happen. But it's all about the politics. It's not at all about economics.

(END VIDEOTAPE)

ROMANS: Let's keep the conversation going. You can find us on Facebook and Twitter. Our handle is @CNNbottomline, and my handle is @ChristineRomans.

And make sure you join me at 1:00 p.m. for "YOUR MONEY" where you're going to hear why Bill Gates is so frustrated with America's immigration policy.

(BEGIN VIDEO CLIP)

GATES: I'd love to see us solve illegal immigration, a tougher problem. The high-talent immigration has kind of been held hostage to that broader problem.

(END VIDEO CLIP)

ROMANS: Bill Gates at why America needs to open its gates or risk damaging this country's competitiveness. That comes your way at 1:00 p.m. Eastern.

"CNN SATURDAY MORNING" with Randi Kaye continues right now.