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YOUR BOTTOM LINE
One America, Two Economies?
Aired March 9, 2013 - 09:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: The Dow is hitting record highs. Job creation surged last month but many of you tell me you're not feeling any more secure. Are we one America with two economies? Good morning, everyone. I'm Christine Romans.
Maybe you celebrated the week when the Dow soared to all-time highs but not everyone did. About 53 percent of Americans are invested in the market through the 401(k) or mutual funds. That means a lot of you are left out of the best opportunity for wealth creation right now. Yes, the jobs market is improving. The U.S. economy added 236,000 jobs last month. The unemployment rate fell to 7.7 percent. That's the lowest since December 2008.
But 4.8 million Americans have been out of work for six months or longer. Eight million of you are working part time because you can't find a good full-time job. And the kind of jobs we are adding, well, they're not the same quality as jobs we lost. Median household income is falling and expiration of the payroll tax holiday is squeezing middle class paychecks further. At the same time, the prices for gas, groceries and yes, college ballooned.
So this recovery may not be working for everyone. For those that can afford a house or making money off this record setting stock run, they are doing a lot better than most. It begs the question. Are we one America with two economies?
Former "The New York Times" columnist Bob Herbert is a senior fellow at Demos and Will Cain is a conservative CNN contributor. Will, are we an investor class and a working class in America? Two Americas, two different economies.
WILL CAIN, CNN CONTRIBUTOR: No. We're one America. United by a rising standard of living. You're asking two separate questions, I feel like. One, is the current economic recovery robust enough? Is it good? Is it benefiting everyone? And the answer to that is no. It seems kind of myopic when you ask, are we two Americas? That kind of leads inevitably conversations about inequality and what I would say is yes, we have inequality. Yes, inequality is rising. Yes, capitalism is causing that inequality but that's a completely meaningless measure of how well we're doing over the long run. Everyone is getting more wealthy day by day. Everyone's standard of living is rising.
ROMANS: You thought you buy the consumption argument. But it's like you measure inequality through consumption and not through wages. CAIN: I measure the standard of living so while you may point out that the middle class has a greater gap or even poor have a greater gap to the wealthy and middle class has more food options than Louis XIV. Fifteen years ago, this was a luxury item. Everyone has this now.
ROMANS: So my wages aren't rising but I do have a flip phone. So hey that's great. We'll argue about this.
Look, I'm just saying. I want to show a clip from something that went viral this week on YouTube. It shows how people think wealth is distributed in this country versus how wealth is actually distributed.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: This isn't even close to the reality. Here is the actual distribution of wealth in America. The poorest Americans don't even register.
(END VIDEO CLIP)
ROMANS: So the video then goes onto explain that poorest Americans don't even register on this chart. The middle class is barely distinguishable from the poor. The richest Americans are off the chart. If we really are two economies, what are the long-term ramifications and do you buy Will's argument that our standards of living are rising even as that inequality of who controls the wealth in America is also rising?
BOB HERBERT, SENIOR FELLOW, DEMOS: Do we remember the great recession and its aftermath? Standards of living are collapsing for a lot of people in this country. I go around and I speak on college campuses and I say to kids, is this the kind of country that you want? The kind of society you want? A society in which a small number, a small percentage of the population is doing extremely well and nearly everyone else is either struggling to stay afloat or absolutely sinking.
I'll give you an example. If you take college graduates, four-year degree, say from 2006 until now, only a little more than half of those kids even have a full-time job at all and many of those jobs are jobs that don't require a college education. So that's why so many kids are moving back home with their parents. When I was 22, 23 years old, if I was moving back into my family home, I would not have considered my standard of living to be rising.
CAIN: This video which did go viral and what Bob is saying now forces you to constantly evaluate yourself compared to someone else. And it presupposes -- there's some kind of a static pile of money that the wealthy got to it first and they're hogging it. That's nonsense. Wealth isn't static. That's my entire point. It grows. It grows with everyone. Can it do better for the poor? And then am I sympathetic to the poor. The answer is absolutely yes. But it's not because you need to take from someone else that did really well. We need to figure out how to rise this.
HERBERT: It's not about comparing - ROMANS: It's the middle class. It's about the middle class is moving far more to have more in common with the poor than the top one percent.
HERBERT: But I also disagree with this idea that it's about comparing yourself to someone else. If you take these youngsters that I'm talking about, forget comparisons with the people who are rich. These are kids who can't afford to get married, can't afford to have that first child, can't afford to make that down payment on that first home. It's not about a comparison. It's about their quality of life.
ROMANS: Let's not talk about kids for a minute. Let's take about - let's take a postwar perspective about productivity and earnings. Companies raking in huge profits and he productivity gains are unbelievable. The gap between hourly compensation and productivity is the biggest it has been in decades. Will, so will this help capitalism works, right? So your wages are basically static for my lifetime but the productivity of companies they can do so much more with so much less.
CAIN: Well, Bob and I had this debate in the past. I don't think we actually disagree. When you take a look at the post-World War II economy, what you're looking at is essentially a transitional economy. That transitional economy from an agriculture-based economy to a full industrial economy had a full spectrum of jobs, from blue collar to white collar. We're transitioning out of that. And what we have to do is learn to educate people for a new economy. That's the whole point here. You cannot remain stuck in the past. It wasn't ideal and it won't remain.
ROMANS: There was a Fed report this week of the beige book report, not to get too wonky but it noted that there were shortages of skilled workers in a bunch of different districts in the United States. The problem is workers feel like they get up to speeds on skills, they think they invest in those skills and the economy changes faster than they can keep up with their skills.
HERBERT: There are some shortages of skilled workers. But if you filled all of those shortages tomorrow, we would still have an employment crisis in this country. So we shouldn't get diverted onto that track. The problem is that we do not have an economy that works for the vast majority of Americans. We have an economy that works only for a favored few. We need to have a conversation. We need to figure out how to remake this economy into one that benefits nearly or that benefits everyone.
CAIN: Bob is reengineering it in reverse. You cannot engineer economies. That's absurd. That's what 300 million people are doing on a daily basis. You can adapt people within the economy.
HERBERT: And so we have seen how well the free market has worked. Trickled down, have you heard that one?
CAIN: (INAUDIBLE) who is going to re-engineer this economy. He must be awesome. ROMANS: All right. We'll leave it there. Because I know that we can continue this argument. Thanks so much. Nice to see both of you. Have a great weekend, you guys. Coming up, at the same time the stock market hitting record highs, we're talking about raising the minimum wage. Is now the time? Two American economies. Is raising the minimum wage really the answer for anybody left behind?
ROMANS: Less than a month ago President Obama called on Congress to raise the minimum wage during his "State of the Union" address. This week Iowa Senator Tom Harkin introduced the legislation.
(BEGIN VIDEO CLIP)
SEN. TOM HARKIN (D), IOWA: The harsh truth is that the minimum wage has become a poverty wage. A poverty wage. For tens of millions of workers and yet again their families. This shouldn't happen in the richest nation on earth.
(END VIDEO CLIP)
ROMANS: Harkin's bill would gradually raise the minimum wage from $7.25 an hour to 10.10 an hour, higher than the president's $9 an hour proposal. It would also tie the minimum wage to inflation. Harkin says it would give 30 million Americans a raise.
Here's what we know. 3.8 million hourly workers earn at or below minimum wage. 49 percent are adult women. About 24 percent, about a quarter of them are teenagers. 59 percent have a high school diploma or less. Seven percent have a bachelor's degree or higher. Conservatives say raising the minimum wage is a job killer. Progressives say it lifts families out of poverty. The problem is you can't find studies to support just about any position. So much conflicting research on this.
Don Peoples is the CEO of the Peoples Corporation and member of President Obama's national finance committee. Michael Saltsman is a research fellow at the Employment Policies Institute. I'll start with Don. You're a businessman. You say raising the minimum wage won't hurt job creation. Is it a risk worth taking in this economy?
DON PEOPLES, CEO, THE PEOPLES CORPORATION: Absolutely it is. I think we have to have Americans who are willing to work and work hard to be paid a living wage and a happier more secure worker is a better worker and less turnover is much better for business as well and they'll spend more money in the economy.
ROMANS: How do you know that small businesses are just going to turn around and raise their prices?
PEOPLES: You know what? I have run a small business. I think we, the better we pay people in reason, the more productive they are. I have run a small business for 30 years and different types of businesses and I found that to be the case across the board. Minimum wage is not a job killer. Increasing the minimum wage is a good thing for the country, in reason.
ROMANS: You know, Michael you say that a higher minimum wage hasn't been shown to reduce poverty. But what about the moral argument that we're the richest country in the world as Tom Harkin said and it's the right thing to do.
MICHAEL SALTSMAN, RESEARCH FELLOW, EMPLOYMENT POLICIES INSTITUTE: Well, it's the right thing to do. I mean, intentions are great. But I think you have to look at the evidence. And the evidence shows that if you look at the 28 states for instance that raised their minimum wages between 2003 and 2007 and yet economists from Cornell and American University, top notch universities looked at the states and see there was no associated reduction in poverty rates. So I mean, you know, we need to talk about what, how will businesses are actually going to react to this? You know, Don mentioned that you could pay workers more and you get less turnover.
But the thing is if that's such a good idea, government doesn't need to mandate that. Businesses are going to do that on their own. When you talk about the kind of businesses that hire minimum wage employees, we're talking about restaurants and grocery stores that have two or three percent profit margins. So they can't just absorb it. And raising prices especially in an economy like this could mean less sales. So they look for other options and that means providing the same product with less service and that means fewer employees.
ROMANS: You know, I want to bring in something that Christina Roemer, the former chairwoman of the president's Council of Economic Advisers wrote this week in "The New York Times." She says that there are better ways to help the poor. This is what she wrote, you guys, "A more generous earned income tax credit would provide more support for the working poor and would be pro-business at the same time and pre- kindergarten education which the president proposes to make universal has been shown in rigorous studies to strengthen families and reduce poverty and crime."
She calls hike in the minimum wage a half measure. Don, I'm going to give that one to you. Because there are some economists who say, "Well, I wish everyone earned more money but there are better ways if you are talking about a poverty reduction program, there are better ways to do it than this."
PEOPLES: Well, I agree there are better ways and there are more ways to be more effective. But this is one step in the right direction. You know, there is a role for the government. It negotiates for people who can't negotiate for themselves. When I hire a lawyer, they're free to negotiate. The average worker, the hourly worker is not. I think that we need to look at education and other areas to lift people out of poverty, of course. But a living wage is important in this country.
ROMANS: Michael, what do you think, I mean, it's part of a suite of tools that we need to help the poorest workers in America.
SALTSMAN: Well, I think when you have, Christina Roemer, who used to be one of the top economists for President Obama saying that the minimum wage is not an effective way to reduce poverty. I think we need to pay attention to that. I think she's absolutely right on the earned income tax credit. I mean one of the things that hasn't been mentioned in this debate is say for a single parent family with two children, the minimum wage for them is already above $9 an hour because of the earned tax credit and many states it's already above $10 an hour. And so I would much prefer President Obama using his bully pulpit to say strengthen the EIT stand at the federal level than having (INAUDIBLE) in raising the minimum wage, which is not going to reduce poverty and it is going to reduce employment, not economy wide but for groups like teens who have seen unemployment over be over 20 percent for more than four years.
ROMANS: Yes, the EIT, of course, the earned income tax credit. Just final, I just one or two word answer from both of you. Do you think it's likely we could see the minimum wage - the president in his second term, Michael, you first, do you think he can get it through?
SALTSMAN: It's tough to do it in two words. I'm not sure they want to get it through. I think they want to use it as an electoral issues going into the midterm elections. So I think we'll continue to hear about it.
ROMANS: What do you think, Don?
PEOPLES: Well, I think he'll get it through. I think that there's enough support in the Congress to get it through and he'll get it through pretty quickly.
ROMANS: All right. Michael Saltsman, Don People, nice to see both of you. Thank you. Have a great weekend, guys.
The cost of tuition is going up. A college diploma doesn't guarantee a good job anymore. I'll tell you why none of that matters right after this.
ROMANS: How many times have you heard this lecture from me that you need to get a college education? You need to make sure your kid gets a college education. I've been telling you to look at public colleges for the cost reason, right? If you've been listening, more than 70 percent of college students attend a public school. Enrollment is up more than 30 percent just in the last decade but look, the costs are going up fast. The average tuition at public universities rose more than eight percent last year. That's a record. It's up 44 percent since 2002. I don't think anybody is saving 44 percent more. The reason support from states and local communities is shrinking and now that support is at the lowest level in 25 years.
Schools have turned to higher tuition and fees to make up the difference. That means you pay for it. At the same time the diploma isn't worth what it once was, right?. Getting a degree still, of course, helps your chances of getting a job. It's not necessarily the job you thought you were going to get. More than one third of college graduate who have a job are working in jobs that don't require more than a high school diploma. But a college degree, I'm going to tell you this, with great certainty, it is still worth it. Without a college degree you cannot compete. You're not going to be able to compete and you probably know by now it's a buyer's market for employers. They have got a lot of bright kids to choose from.
Scott Gerber is the founder of the Young Entrepreneur Council and author of "Never Get a Real Job." Now you say the liberal arts colleges in particular are failing students. Why do you think kids are graduating with four-year degree liberal arts and they're just not ready here?
SCOTT GERBER, FOUNDER, YOUNG ENTREPRENEUR COUNCIL: There's a huge skills gap in America. There's no question. So you have a lot of students that are graduating in majors that maybe 10 or 20 years ago were very viable but today they're just not. An English major today is not getting the same quality of graduation to employment that their predecessors did.
ROMANS: We have the highest paid English major, English degree holder is someone who writes for technical material for STEM, science, technology, engineering and math.
GERBER: The reality is we need to put start putting more practical parts of education into the liberal arts system. So that if you literally come out with an English major, you know how to start a tutoring service whether that was your dream or not.
ROMANS: So this is the entrepreneurship part of it, right?
ROMANS: Because a lot and I've said before that I think every college should have required entrepreneurship. I mean when I went to college, you were required to take a library course, right. Think how things have changed.
GERBER: How far we've come. Exactly.
ROMANS: So what about an entrepreneurship course because you are not necessarily going to get that employer who is going to hire you for 30 years or invest in your training.
GERBER: One hundred percent. So the first thing is to say that in YC's national survey with buzz marketing what we found is over 50 percent of young people never ever received any entrepreneurship education courses period. Yet over 90 percent sad this is something that we found to be viable. So there was no access. That's a huge problem.
ROMANS: So here's something that we do in this country. We give people as much student aid as they can possibly hold for whatever major they're going to have, right? In Florida, the Governor Rick Scott is actually proposing freezing tuition for some of the in demand majors, science, technology, engineering, math. And they're letting tuition rise, public school education rise for all of the other ones. Should we, the government be doing more to steer people in places that the American economy needs?
GERBER: I certainly think that there are some element to that that we should take on, right.
So for example, if we know there's a better ROI in certain fields than others -
ROMANS: Return on investment.
GERBER: Exactly. But we actually - we should say OK, well for the economy and for the good of the culture in general we should start to educate people about the advantages of having these incentives to go towards them, to go towards chemical engineering, to go towards entrepreneurship versus some of the majors like journalism and others that frankly just aren't as viable.
ROMANS: What was your major?
GERBER: I was a film student.
GERBER: That's the irony. I'm not a business guy and here I am as an entrepreneur.
ROMANS: I was French and journalism and here I am singing the praises of STEM. Scott Gerber, it's nice to talk to you today.
GERBER: Thank you.
ROMANS: "The Bottom Line" here is you got to go to college, right? Our bottom line is you got to go to college and you got to really amp it up on your way up. All right. Up next, how did this little refrigerator, that one right there, end up causing all of this? Find out after the break.
ROMANS: So, the rush in the U.S. housing market is hard to argue against. New home sales surged in January, up 29 percent from a year ago.
Prices are rising. That's right. Home prices are rising. The S&P Case- Shiller Index shows home prices rose 7.3 percent overall last year.
Meanwhile, existing housing inventory is drying up. Nationwide, the amount of top tier properties listed on Zillow.com saw a 20.5 percent decrease year over year in February. That maybe part of the reason remodeling activity is making a comeback.
But if you are buying, selling or staying put, you need to be smart if you're spending more money in your home.
ROMANS (voice-over): How did this --
MEGAN AYLWARD, HOMEOWNER: This is the refrigerator.
ROMANS: -- start with this?
AYLWARD: We have four children and the refrigerator was 18 cubic feet and it was hideous. And what started with a little refrigerator turned into a family room and laundry room and another bathroom and upstairs, the bedroom that's being expanded.
ROMANS: As the housing market has bounced back, homeowners like Megan are feeling good about putting money into their home. In 2012, home renovation spending hit the highest level in six years.
AYLWARD: When we figured out what the addition was going to cost, my husband said maybe we should just move. So, this summer we looked at everything in town. Anything I could afford, mine was better. Anything I loved, I couldn't afford.
ROMANS (on camera): The decision to move or renovate is never easy and it's never cheap. And not all pay the same returns.
And did you know most renovations don't return your entire investment?
Here's some of the better renovations -- building an attic bedroom, a minor kitchen remodel or upgrading to vinyl siding. Those return more than 70 percent of your cost.
On the other hand, look at backup generators, sunroom additions, a home office remodel, those only recoup about half of what they cost when it comes time to sell.
SAL ALFANO, EDITORIAL DIRECTOR, REMODELING MAGAZINE: Kitchens and baths are still attractive rooms. They are the rooms that buyers look at and pay a lot of attention to and an upgrade in one of those rooms can make a big difference in resale value of the house.
ROMANS (voice-lover): If you are planning to sell, focus on basics.
ALFANO: Anything that has to do with the systems of the house. The mechanical systems, HVAC, heating, air conditioning, good roofing, good siding, good windows, all of that is taken for granted. If those need upgrading, those are things you want to do those first.
ROMANS: If you are planning to stay, focus on things that improve your quality of life.
TONY DONATO, DEFINO REALTORS: Long-term goal over short-term goal is important. If you plan to be here for 20 to 30 years, then basically just put the improvements in that make you enjoy your home.
ROMANS: No matter what your intention, remodeling is disruptive, so brace for chaos.
AYLWARD: It's hideous, not convenient at all. But I keep saying eye on the prize. Like when it's done, it's going to be fantastic. It will -- you do what you got to do.
(END VIDEOTAPE) ROMANS: So, the Dow hit a record high this week but do you feel any richer? Find you the on Facebook and Twitter. Our handle is @CNNBottomline, my handle is @ChristineRomans.
Then join me again right here back at 1:00 p.m. Eastern for "YOUR MONEY" today where Ali Velshi finds out if Rudy Giuliani, is he ready to make another run for the White House.
(BEGIN VIDEO CLIP)
RUDY GIULIANI, FORMER NYC MAYOR: I did try it once and it didn't work.
ALI VELSHI, CNN CHIEF BUSINESS CORRESPONDENT: That's history. What's the future?
GIULIANI: I was moderate on social issues.
VELSHI: You haven't changed on that front.
GIULIANI: I haven't changed at all. If anything, I probably have become even somewhat more moderate. So --
VELSHI: Isn't that likely -- if Republican Party stands a chance to win --
GUILIANI: You want to know what I think?
(END VIDEO CLIP)
ROMANS: What does he think? You're going to have to tune in.
"CNN SATURDAY MORNING" continues now.