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CNN IN THE MONEY

Inflation is the Economy's Newest Fear; Volatility in U.S. Markets Affects the World

Aired June 17, 2006 - 13:00   ET

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


ANDY SERWER, "FORTUNE" MAGAZINE: Coming up on IN THE MONEY, what goes on here doesn't just stay here. See how turbulence in the U.S. Economy is making waves around the world.
Plus, heavy eaters. With KFC in a suit over trans fat, we'll look at whose responsibility your diet is.

And the summer jobless -- find out if those unpaid internships are any better than a gig flipping burgers.

All that and more after a quick check of the headlines.

FREDRICKA WHITFIELD, CNN ANCHOR: Now in the news, the U.S. Military says there is an all out search for two U.S. Soldiers in Iraq missing since last night. They disappeared after a skirmish at a checkpoint outside Baghdad. Another soldier was killed in the incident.

Woefully unprepared -- the federal government says most American states and cities are nowhere near ready for a major catastrophe. Only 10 states, including Florida, Tennessee, Maryland and Texas, make the grade.

Later today, we expect to find out when NASA plans to launch the Space Shuttle Discovery. Right now Discovery is undergoing a flight readiness review at Kennedy Space Center. The next window for launch is between July 1st and the 9th.

We'll update the top stories at the bottom of the hour.

IN THE MONEY begins right now.

ANNOUNCER: From New York City, America's financial capital, this is IN THE MONEY.

SERWER: Welcome to IN THE MONEY.

I'm Andy Serwer sitting in for Jack Cafferty.

Coming up on today's program, a world of pain -- jitters of interest rates have had U.S. Investors bailing out of the stock market. See how that's having repercussions around the globe.

Plus, maybe your meal ought to come with a waiver. KFC is getting sued over trans fats in its chicken. we'll look at whether what you put in your mouth is your responsibility or somebody else's. And Coffee Making 101 -- internships are supposed to give college kids valuable work experience. We'll hear from an author who says they're fake jobs with a lousy payoff.

Joining me today, a couple of IN THE MONEY veterans, Jennifer Westhoven and Allen Wastler.

So the big news in big business, I guess, is that Bill Gates is going to be stepping aside from his day to day responsibilities at Microsoft starting in July of 2008.

I mean are you giving enough advance warning here, for goodness sake?

JENNIFER WESTHOVEN, CNN CORRESPONDENT: I know. For a good two weeks he has to give two year's notice.

SERWER: So, what does it mean for the company, though, Allen?

ALLEN WASTLER, CNN MONEY.COM: you know what? He's been taking a back seat role for a number of years now, doing the deep thought kind of thing. And Ballmer has really been calling the day to day shots.

So I don't think, you know, operationally, it means a whole lot for the company. It's more like a mythic sort of oh, our great leader is going off forever more. And talk about media over reaction, ourselves included. I mean it's not that big a deal. Two years and yet everybody in the media is going oh, Bill Gates is taking a back seat.

I think there's a little bit of an over reaction and I don't really think it's going to amount to a whole bunch.

WESTHOVEN: It's certainly a blueprint for an orderly transition that Wall Street really likes -- baby steps over years. And, also, he's not even leaving. He says he plans to be one of the biggest stockholders forever. He's planning to stay for a long time.

So he's always going to have -- be the geeky face of Microsoft.

SERWER: Well, the richest guy in the world has a lot of work to do at his charity, his philanthropy, the Bill and Melinda Gates Foundation, giving away all those billions of dollars. But it is interesting when you have one of these iconic leaders like a Gates or a Michael Dell or Howard Schultz at Starbucks moving back from the company they helped create. So it'll be interesting to see.

Wall Street has had a tough time this week figuring out whether to reach for the anti-depressants or the party hats. Inflation fears have been hammering the Dow and slamming markets around the world. But a speech by Fed Chief Ben Bernanke late in the week lit a fuse under a stock market rebound. And whether the bulls stick around or not, we're not in this alone.

For a look at Wall Street's global impact, we're joined by Scott Wren. He's the senior equities strategist at A.G. Edwards & Sons.

Scott, welcome to the program.

I'm interested to...

SCOTT WREN, A.G. EDWARDS & SONS: Thanks, guys.

SERWER: You're welcome.

I'm interested to get your take on Bernanke. Isn't it really the case here that Wall Street and the new Fed chief are really just learning how to dance with each other? Isn't that some of this?

WREN: Well, you know, I think that's definitely the story. And I think Bernanke, in the end, and really, probably not too far down the road, he's going to be, you know, much like Alan Greenspan. I think he is going to do a good job.

But certainly here, the initial few months, I think, really, a month-and-a-half ago or so, I think there was a pretty good message, a pretty -- a concise message saying that hey, we're near the end of these rate hikes. We had several other Fed governors who were talking about that.

But then really clearly, over the last three or four weeks, I think there's been a concerted effort by not only Bernanke, but a multitude of other Fed governors to come out and talk a little bit tougher, just to make sure that the market understands that, you know, they are going to fight inflation. And I think the market, you know, certainly the bond market believes it, otherwise we'd see these yields in the 10-Year-Note a lot higher than, you know, 5, a little bit over 5. so...

WESTHOVEN: Hi, Scott.

Jennifer Westhoven.

Bernanke has said that he wants inflation to be around 2 percent. He doesn't want it to be higher than that.

Is that riding inflation too hard?

I mean even Alan Greenspan himself only got inflation under 3 percent in five out of his 18 years.

Is Bernanke someone who is willing to risk a recession to fight inflation?

WREN: Well, you know, I would say no. And I think, you know, I am a believer that -- that we should have some sort of an inflation target. But I think it needs to be a flexible target.

I think the Fed realizes that, you know, we've got a lot of rate hikes in the pipelines that really aren't reflected in current economic data. We are going to slow down. We're expecting a substantial slowdown in the economy.

So, I think that, you know, 2 percent is -- is -- sounds like an inflexible number, but for us, you know, core CPI, we're at, you know, 2 to 2.5 here for the -- for a long period of time. I don't think that's out of control and I think that the word the Fed has done in terms of rate hikes over the last year are going to help in terms of inflation and bring that core rate down a bit over the next 12 months or so.

WASTLER: Scott, Allen Wastler here.

Explain to me the reaction of gold and bond markets here, because usually when you hear a lot of talk of inflation, as we did this week -- inflation, inflation, inflation -- you see people bail into gold, you know, as a hedge, and you also see them bail out of bonds because they don't want the fixed cost issues.

So explain to me why those markets haven't reacted in the typical way.

WREN: Well, you know, Allen, I think, you know, for me, bond traders are a pretty smart bunch. And I think you can -- you can look at that 10-Year-Note, you know, as I mentioned, and if the bond market really felt that there was going to be a lot of inflation, these yields would be a lot higher.

In terms of gold and really commodities in general, I think you've seen, you know, a ton of speculative money flow in very late in the game and a lot of interest here, really, in the last six, six months or so that wasn't in early, you know, when gold was at $300 or $350 or anything like that.

I think it's very unusual when you've got every major central bank in the world either hiking interest rates or talking about it, for gold and other commodity prices to move up the way that they have.

So for us, it's no surprise that we've seen this sudden turnaround. And that's not to say that commodity prices aren't going to jump back up here to some level. They're going to be very volatile. But, you know, these central banks around the world, they're hiking rates to slow global warming. We think they're going to be successful and we think that, you know, the commodity price speculative bubble is -- is really over.

SERWER: Hey, Scott, we're starting to hear a really ugly, scary word on Wall Street being bandied about, and that's stagflation, when the economy is stagnant and interest rates go up. We saw that in the 1970s, with dire consequences.

What do you think the chances of that occurring today are?

WREN: Well, you know, when we look at -- when we look at inflation here in the Equity Strategy Group at A.G. Edwards, we're mainly concentrating on what wage pressure, what the labor market is doing, because really, when you look at it, commodity prices, as far as total inputs for the economy, you know, probably, by our calculations, anyway, are less than 10 percent, whereas labor costs are about 70 percent.

So what you really have to pay attention to in terms of inflation is wage pressure. And I think right now we've got a global glut of cheap labor. That's not going to go away any time soon. Real wages, really, in the U.S. for most of the last two years, have been declining. Now we're back to the flat line and I think you're going to see some positive real wage gains this year. But only very modest gains.

So for us, this year we're looking at about a 3 1/2 percent GDP. I think next year we're expecting a blow trend year, maybe about 2.6 or something like that, but with modest inflation.

So for us, I think stagflation, at this point of the cycle, always comes up. I mean you're just waiting for people to use that word. But in this particular scenario -- and I think, you know, the '70s were a heck of a lot different than what we're seeing now -- we're not expecting stagflation, we're expecting modest inflation and sustainable, modest, non-inflationary earnings in economic global warming.

WESTHOVEN: Scott, thank you so much.

We've certainly got Wall Street, people in the bond market, everybody hanging on every piece of data these days to try to figure out what's going on in the Fed chairman's head.

So thanks for letting us sort that out a bit.

WREN: All right, thanks, guys.

WESTHOVEN: When we come back, union blues. The UAW is spending millions on a come back campaign. Find out why a win for the unions could be a win for the middle class.

And also ahead, a wing and a prayer -- a new lawsuit is targeting KFC over trans fats. We'll look at who's to blame for the stuff you put in your body.

And crib notes all grown up. See how technology is making it easier for college kids to cheat. Brainstorm is ahead.

(COMMERCIAL BREAK)

WESTHOVEN: 16.1 million American workers are members of a labor union and the number is dwindling. It has been since the '70s. Now, that may say something about how well you're doing, according to our next guest. He says the strength of unions is closely tied to the strength of the middle class.

Richard Levins is the author of the soon-to-be-released book, "Middle class Union-Made."

He's also professor emeritus of applied economics at the University of Minnesota.

Welcome to the program.

My first question here, you know, on the Lou Dobbs show, they talk a lot about the assault on the middle class.

You say that when unions are doing well, the middle class is doing well.

Can you tell us a little bit about the history here.

RICHARD LEVINS, AUTHOR, "MIDDLE CLASS UNION-MADE," PROFESSOR EMERITUS, UNIVERSITY OF MINNESOTA: Yes, thanks for the chance to be here today.

You know, the middle class is losing its voice. They're not strong enough anymore to keep -- take care of themselves. Look what they're up against. We've heard that the wages that they make are, at best, holding steady; probably going down. We all know what's going on with prices for energy, prices for medical, prices for education and college tuition. You name it, they're on the squeeze.

And how are they getting by? They're getting by with massive debt. The savings load -- the savings rate now is less than 0.

How can they possibly deal with that as individuals?

In the past, we've had unions that were strong enough and when there was a little extra to be made out there, the unions would make sure some of that came back to the middle class in terms of solid wages and benefits.

We're losing that now. We're losing that to ownership society and trickle down economics, things that may benefit the very wealthy, but the evidence is very clear are not helping the middle class.

SERWER: Now, Richard, unions are weak right now, as you're suggesting. But isn't it partly true that they're weak because of their own policies -- shooting themselves in the foot?

Look at what's going on at G.M. they asked for too much over too many decades and now they're in a bind.

LEVINS: I think it's a mistake to blame the unions for wanting decent wages and benefits for themselves. I'd much prefer focus on how the very wealthy have worked every bit as hard, and more successfully, at making sure the economy was very good for them.

A result of this, we have what's called an income distribution that's split between the very wealthy and the rest of us that's now approximately what it was in 1929. and we all know what happened shortly after 1929. the economy fell apart.

You can't have this rich and poor kind of economy forever and expect it to do well.

WASTLER: Professor, I'd like to talk to you a little bit more about the ownership society. I mean we hear that from the government a lot these days, that the country is making a transformation.

LEVINS: Sure. Very much.

WASTLER: And, you know, lots of people, I mean, if you've got your E*Trade or Ameritrade account, hey, you can be part of that ownership society right now, no matter what your income level, really.

Doesn't that sort of negate the need for a kind of union representation, the labor market representation?

LEVINS: Not at all. It makes it stronger. I mean what is an ownership society? For most of us, myself included, it's a society in which you give up on the idea that your earnings are going to be worth very much. You say well, I can't earn my way out of this, but what I can do is get on the other side. Whoever is employing me is going to be more profitable so if I own part of that, I'll be on the other side to pick up some of the difference.

There's obvious difficulties in that. Number one, there's only so many shares of these corporations to go around, so when I want one, I've got to bid them up way above their value. Anybody that doesn't understand that might look at what's going on in housing right now. We've got everybody trying to turn housing into an investment. Is that really helping anybody? Or is it increasing debt load?

We don't want to be part of those people who have to borrow money to get in the ownership society. That's a formula for disaster.

WESTHOVEN: With the big split that's been going on in big labor, there are a lot of analysts, writers, headlines that are sort of starting to write the obituary on labor unions in America.

What do you say to that and what do you think the unions can do to make themselves have more powerful conversations when it comes to their bargaining with management?

LEVINS: Well, first off, I think the unions and the middle class are tracking in their fortunes. I'm hoping very much that that will be reversed and I'm hoping the way that will happen is by starting to associate more carefully the unions having a voice and the middle class having a voice.

The middle class can do all they want in politics, but that game is pretty much over right now. You know, in the middle class, they get a little extra money, what do they buy? A new car or a toaster. But when the very wealthy get a little extra money, they're going to buy a congressperson. And that makes it very difficult on that end.

So we come over here to the other side. You do have a voice in the marketplace, just like you do in politics. I want to see the middle class use it. I want them to take back what power they have and become the central point of maintaining our entire economy, so everyone benefits.

SERWER: A quick last question, Richard.

LEVINS: Sure.

SERWER: You mentioned earlier that the economic disparity in this country is the greatest it's been since 1929. I hear that a lot.

What evidence do you have? What numbers are you pointing to?

LEVINS: There was a study in 1999-2000. Of course, I haven't got it right here in front of me. It's referenced in my book. And, you know, it's -- depending on how you measure it, it's going to be the top 1 percent, the top 1/10 of 1 percent. But virtually everything you read now is talking about income disparity growing, income disparity being higher in the U.S. Than it is in other developed countries.

None of this is good for the middle class and, in the long run, not good for the U.S. Economy.

WASTLER: Professor, we're out of time, but thank you so much for joining us.

LEVINS: Well, thank you.

It's been very nice to be with you.

WASTLER: Professor Richard Levins, author of "Middle class Union-Made."

OK, now it's time for this week's Look Ahead.

Some key economic reports out this week.

On Tuesday, housing starts and building permits come out. We should get a clearer picture of what's going on in the housing market.

On Friday, we'll get the May report for durable goods orders. that will give us a pretty clear picture of U.S. Manufacturing.

And if economic reports aren't enough to look forward to, here's something for you. Friday is also the 8th annual "Take Your Dog To Work Day," sponsored by Pet Sitters International.

SERWER: Aw, that's fun.

WASTLER: Participating employers will allow workers to bring in well mannered dogs...

SERWER: Uh-oh.

WASTLER: ... to promote local pet adoptions and responsible pet ownership.

WESTHOVEN: I don't think we'd let them in.

SERWER: We'll manage.

WASTLER: And for more on dogs and bears and bulls and all of the wildlife, you can always log onto cnnmoney.com and check it out.

Now, coming up after the break, the Front Page and the Back Story.

We'll look at how Wall Street is reacting to investor pressure on the Tribune Company.

And later, kids who'd give anything to work for nothing. See if internships are worth a college student's time.

Plus, fire your mouse. Have some fun-on your work computer for a change with some office paint ball. Our fun-side of the week is coming up.

(COMMERCIAL BREAK)

SERWER: It's not often that one company makes the headlines in the business section, the sports section and the front page of a New York tabloid, but that's what Tribune Company did this week. Big investors calling for a break up of Tribune's newspaper and TV holdings. And that made the business section.

Rumors that the Tribune may sell the Chicago Cubs made the sports page. And when the New York "Post" reported that Rudy Giuliani was interested in buying the team, things really got hot.

Giuliani has since denied any interest in such a deal, but the Tribune's future is still a hot topic and it's the focus of this week's Street Talk.

You know, this is a newspaper company of the old school and it's obviously in a very tough situation. It has a lot of other businesses -- TV -- and it's also gotten into the Internet and free newspapers. But those two businesses, the Internet and free newspapers, have been eating this company's lunch, eroding it, and now you have these groups trying to get value out of this company.

WASTLER: Yes, they're sort of banging each other around. But I kind of view the whole situation as like people picking up deck chairs on the Titanic and hitting each other with them.

SERWER: Harsh.

WASTLER: I mean the newspaper business is not going anywhere. It's a dying industry. This is the Internet guy saying this now.

SERWER: Yes. There you go.

WASTLER: But it seems to me that's their fundamental problem.

Now, all of the uproar was over a stock buyback program that, you know, the management put forward. And one of the largest shareholders said no, no, no, no stock buy-back.

WESTHOVEN: Well...

WASTLER: Do something else.

WESTHOVEN: Well, that's maybe because a stock buy-back doesn't do anything. It rearranges the numbers. it doesn't mean that you're changing your business. You're not affecting real change here, you're just doing a simple mathematical equation. So you're really saying business as usual, and that's a separate argument whether or not that's OK.

SERWER: And I think what CEOs are starting to learn here is that you put all these businesses together, you put together TV networks, TV stations, the Internet, the Chicago Cubs and what do you get? You get kind of a big mess. And the sum of the parts is not wroth more than the parts themselves.

I think that's what we're learning. You're seeing all these big companies that get put together during bull markets. Time Warner, our parent company, no exception. Viacom. And now, when times are a little bit tougher, you take them apart to get the real value.

WESTHOVEN: So you're saying they really haven't been able to do that cross platform stuff that they talked about?

SERWER: And there's even a worse word, Jen. Synergy.

WESTHOVEN: Oh, yes.

WASTLER: Synergy.

SERWER: You knew that was coming.

WASTLER: Synergy. Synergy (UNINTELLIGIBLE).

SERWER: So, you know, I think that this is a story that's going to continue for these media companies. We're going to see them broken apart and when the next big bull market comes, well, maybe they'll put them back together again.

WASTLER: They'll get by.

SERWER: But that'll be -- that'll be years down the road.

All right, coming up on IN THE MONEY, open mouth, engage brain -- a big fast food chain is getting sued over trans fats. See if what you eat is a restaurant's business or yours.

Also ahead, anybody need some dry cleaning picked up? Yes. Internships are supposed to give college kids valuable work experience. We'll get to one author's view on what that promise is worth.

And surreal-estate. Allen Wastler is going to tell us about one idea for a new kind of land grab.

(COMMERCIAL BREAK)

WHITFIELD: Hello, I'm Fredericka Whitfield in Atlanta. Our top stories.

One day after an insurgent attack killed an American soldier in Iraq, the search continues for two other Americans missing. All three soldiers were manning a traffic checkpoint near Yusufiya when the attack occurred. U.S. Commanders say they'll use every means at their disposal in the search for the two missing soldiers.

The death toll in Baghdad violence today has risen to 35 despite a widely publicized security crack down in the city. Attacks have been taking place all day, including this one at a crowded market.

Go or no go -- NASA is expected to announce today whether the Shuttle Discovery will launch on July 1st. Mission managers are meeting and we will bring you their decision as soon as we hear it.

Coming up at the top of the hour, the U.S. Has to beat Italy today to stay in the World Cup.

Our Richard Quest is in Turin, Italy to see how Italian fans feel about that.

Now back to more of IN THE MONEY.

SERWER: Could that bucket of chicken at KFC be killing you?

Some argue it is. A health advocacy group filed suit against the fast food chain this week, seeking to stop the company from frying foods in oils containing trans fat.

KFC calls the suit "frivolous" and completely without merit.

But our next guest says you could be in for a Kentucky fried coronary if the company does not change its ways.

Joining us now is Michael Jacobsen, co-founder and executive director of the Center for Science in the Public Interest.

Welcome to the program, Michael.

MICHAEL JACOBSON, CENTER FOR SCIENCE IN THE PUBLIC INTEREST: Thanks for having me on.

SERWER: I want to read to you part of a statement from KFC, where they say: "Our products are safe to eat and meet or exceed government regulations. We take health and safety issues very seriously. We provide a variety of menu choices and nutrition information, including trans fat values at our Web site and our restaurants so consumers can make informed choices before they purchase our product."

Choices being the operative word here, Michael.

Can't people just simply decide what to eat and what not to eat and not go out and sue fast food companies?

JACOBSON: Well, I have a couple of answers to that.

At KFC, which I think makes probably the most harmful fast food in the country, people don't have a choice. Every piece of fried chicken is loaded with trans fat. If they gave people a choice between chicken fried with trans fat or without trans fat and told people about that, then people would have a choice.

But first -- the trans fat is a toxic substance. It simply shouldn't be in our food supply. The World Health Organization, the National Academy of Sciences, everybody says get rid of this terrible fat.

The trans fat occurs when liquid vegetable oil is turned into partially hydrogenated vegetable oil. It's something we should stay away from.

WESTHOVEN: Now, I just want to ask, how -- how really bad is trans fat for you? Can you talk a little bit about some of the data behind this? Because it does seem like this is something that's just starting to come up in sort of the American mind of what we should be thinking about in terms of our health.

JACOBSON: It's a relatively new issue. Before 1990, nobody had any concerns about trans fat or partially hydrogenated oil. But in 1990, a study was done showing that it increases the bad cholesterol in our blood and decreases the good cholesterol.

And since 1990, there's been a flood of research demonstrating that, without a doubt, trans fat is bad. It is the worst fat for us. It's probably four times as bad as regular saturated fat that's found in meat and dairy products. And that's why the Institute of Medicine of the National Academy of Sciences said we should consume as little as possible.

And to show you how much trans fat is in a KFC meal, the government advisory committee is saying try to consume less than two grams a day. A three piece extra crispy combo dinner at KFC gives you 15 grams. That's a whole week's worth in one meal. And as far as giving out nutrition information, there is no nutrition information at most KFCs. One we went to had a 1996 poster that did not list trans fat. To say people should study a poster or go to the Web site is a joke.

This stuff shouldn't be in our foods. As long as the Food and Drug Administration doesn't act, companies should act voluntarily, responsibly, like Wendy's, just last week, said it was getting rid of trans fat. KFC didn't do anything, so it's time to bring Colonel Sanders to court.

WASTLER: Michael, I agree with u. You know, trans fat is bad and all of that. But, you know, boy, it tastes so good. And when I'm going to a KFC, baby, you know, I want the chicken up there and that's my choice. I understand about all of the trans fat, but if I want to go ahead and put that delicious drumstick in my mouth and chew it down, that's my choice. And suits like this are actually trying to regulate, through litigation -- which seems to me an odd way to go about it if you're issue is with the FDA, take it to the FDA. It's my choice to go to the KFC and have the meal.

I mean what's wrong with that?

JACOBSON: We have gone to the FDA. But the fact is this is an anti-regulatory administration and we're not getting any action there. So as -- and if you know, if you understand that trans fat is causing tens of thousands of heart attack deaths per year -- tens of thousands -- we're not -- this is no tiny problem. You then -- and you still want to eat it, go ahead.

Now, Denmark has banned partially hydrogenated oil. If you go to KFC there, you won't get it. You'll get a safer chicken. And when I talk to people in Denmark, they say there's been no difference in the taste of the foods. There's no difference in the cost. People can still chow down on their greasy fries or their greasy fried chicken and they'll be healthier.

SERWER: Michael, just quickly, you've been making war against the fast food companies for many years.

can you talk about some of your other battles?

JACOBSON: Well, one of our battles was to get nutrition labeling. And back in 1990, we got a law passed that has led to the nutrition facts label, which is very useful to millions of people. And in 1993, we began an effort to get nutrition -- to get trans fat listed on nutrition labels. Trans fat went on the labels this past January and that spurred many packaged food companies to get rid of the partially hydrogenated oil and the trans fat -- Frito-Lay, ConAgra, Quaker, Tyson, a bunch of companies are doing that.

But there is no labeling at restaurants. So it's been harder to get the restaurant industry to improve the nutritional quality of its foods. And I'm glad to see Wendy's, Chili's, now the Cheesecake Factory -- they're getting rid of the partially hydrogenated oil. People can go to the restaurants, enjoy the foods, but be a little healthier when they leave.

WASTLER: Mike Jacobson, thank you so much for coming and talking to us about this.

Good luck on your battles.

JACOBSON: Thanks a lot.

WASTLER: That was Michael Jacobson.

He's the executive director for the Center for Science in the Public Interest.

And there's more to come here on IN THE MONEY. Up next, the shallow end of the labor pool. Internships are pretty much part of the deal for college kids these days. Find out if they're getting anything out of them.

And outsourcing the tough questions -- some students are using high tech lifelines during big tests. Find out what campus professors are doing to stop them.

(COMMERCIAL BREAK)

WASTLER: Our next guest has compared unpaid interns to illegal immigrants. Why not, she argues? Both groups of unpaid workers may be keeping salaries down. But what's worse, she says, is debt-laden students are forced to pay for class credit for the privilege to work for free.

Joining us now is "Village Voice" columnist Anya Kamenetz, author of "Generation Debt: Why Now Is A Terrible Time To Be Young."

Anya, welcome.

ANYA KAMENETZ, AUTHOR, "GENERATION DEBT": Good to be here.

WASTLER: I was an intern. You were an intern. Most everybody I know has been an intern.

What's wrong with being an intern?

Go ahead, lay out your argument for us.

KAMENETZ: Well, I'll tell you this, so Professor Levins was talking about the increase in incredible inequality in our society, the decrease in social mobility. And in the situation that we have now, we have two thirds of students borrowing to pay for college. They are paying off $20,000 in student loans.

I don't think it's a great way to match talented people with jobs if you tell them that they have to be able to work for free and have a mom and dad willing to bankroll them in order to get their foot in the door in most competitive industries.

WESTHOVEN: Well, I don't know why you say that their mom or dad has to bankroll them. I took a semester off from school and saved a lot of money so that I could afford to go on an internship. I'm just -- I know you have an argument about why this is so great for the companies, but isn't it an invaluable lesson for kids? You get to be out there in the professional world.

I was just saying here I worked at a lobbying firm instead of slinging popcorn at the local movie theater.

KAMENETZ: Internships can be really a valuable experience. But the question is, is it a good idea on the aggregate that we're forcing young people to work for free in order to get that opportunity?

And, you know, I'm here to tell you that there are a lot of people who can't afford even to take that time off and work. I mean that's not an option that's open to everyone. Some people are already working full-time while they're in school just to be able to get pocket money.

So, the question is are companies committed to diversity in their hiring or are they trying to allow their positions to be filled by people that are living off trust funds?

SERWER: Anya, you know, in the magazine business and the TV business and journalism, internships are everywhere.

Why do they do it? Why do companies do it? Because they can.

So, what in god's name would convince these companies not to tap a free labor pool? How would you change this?

KAMENETZ: Well, it's a serious economic issue. I mean I calculated that, you know, unpaid interns contribute at least $124 million to the economy every year with the clerical labor that they're doing. But, you know, one question that I ask is what would it take? Maybe students need to stand up and say you know what? I'm going to take a paid internship and if you don't have a paid internship, then I'll go somewhere else.

And the fact is that about half of all internships are unpaid and none are paid -- about half of all internships are paid. And not only that, studies show that when companies design a paid internship, they invest more resources in that internship, they create a better experience for the interns.

So it ends up being a win-win situation.

WASTLER: Anya, I sign off on the internships for my department and I can tell you right now that if we had to pay, you know, interns, it wouldn't happen, not so much because of the economic cost of just paying them. You know, I'm all for that. But government regulations require that when you're paying somebody, you have to fill out about that much paperwork and it takes a couple of months for it to clear.

By the time all of that clears, the internship is over.

So isn't it really a more mutual thing of hey, they need to figure out whether or not they want to work in this environment, get it, we get a little bit of free labor?

What's wrong with that?

KAMENETZ: Well, a little bit of free labor here, a little bit of free labor there, you know, eventually you're staring right into the face of the Fear Labor Standards Act. And, as a matter of fact, federal law says that in order for it to be legal to not pay an intern, it must be true that that intern is not doing any work contributing to the employer's immediate benefit. And that doesn't sound like most internships that I know about.

So, you know, what am I saying? Maybe we need to have a lawsuit. Maybe we need to get it to the court, because obviously there's a wink and a nod going on and I believe that it's unfair advantage.

WESTHOVEN: OK, do you think it's possible at all that, you know, thousands of kids could somehow get together and have a class action lawsuit, an intern lawsuit?

KAMENETZ: I don't know, you said it.

SERWER: Let me ask you, though, Anya, I mean this says -- is this just a problem for rich kids? And why should we feel sorry for them?

There are no internships at factories. I mean if you're out there, you know, a middle class, a working class person, you're not looking for an internship. You're going to work. So you're talking about people from Ivy League universities whose parents bankroll them and get these jobs in these high end companies, in these ivory towers...

KAMENETZ: Well, that's exactly the problem.

SERWER: So, but why are we...

KAMENETZ: I mean that's exactly the problem.

SERWER: ... why should we feel sorry for people?

KAMENETZ: These -- that is exactly the problem. These days, you have to get a college degree to get into the middle class. And the kids that I'm talking about are middle class kids who are working hard while they're in college. They are ambitious. They want to climb up that social ladder. If you say that, you know, internships are only for the rich kids in the first place, I mean then you might as well just give up on social mobility.

I'm talking to young people who are coming out of working class backgrounds. They are going for those internships. They're grabbing at the brass ring. They want to be on Wall Street. They want to be on Congress. And if you say that they have to work for free to get their foot in the door, you know, that is a real problem for social mobility. It absolutely is a class issue. It's not an issue for the rich kids, it's an issue for the middle class and the working class.

WASTLER: Anya, we only have a few seconds left, but real quick, one part I really did like about your writings was pointing out the little scam colleges have where I'm taking care of their student, yet they're collecting money for it.

Lay that out a little bit for us.

KAMENETZ: Well, you're talking about class that ask you to pay tuition for credits. And it can be thousands of dollars of tuition over the summer. It's one professor signing one piece of paper saying this person did an internship and, you know, it's just one of those many scams.

Now, I'd like to see the colleges that are actually investing in some of their students who can't afford to do internships for free and giving them the money to do those internships. And that's a trend that I'd like to see more of.

SERWER: Anya Kamenetz, who is the author of "Generation Debt." It's all about interns. And I think we're going to be waiting for the intern class action lawsuit coming up.

Thank you very much for coming on the program.

KAMENETZ: Thanks for having me.

SERWER: Sticking with the college theme here, technology in the classroom. Gone are the days of cheat sheets and crib notes. Students are turning to a new high tech device to cut corners in the classroom. New studies show an increase in college cheating. Three out of four students say they've done it.

Kareen Wynter has the story.

(BEGIN VIDEO TAPE)

KAREEN WYNTER, CNN CORRESPONDENT: Some call it the best kept secret on college campuses across the country. It's a new high tech twist on an age old practice -- cheating.

LAURA GORDON, UCLA STUDENT: It's pretty common.

WYNTER: UCLA students Laura Gordon and Katie Nelson have seen it firsthand.

KATIE NELSON, UCLA STUDENT: It pissed me off.

WYNTER: Students sneak in portable e-mail gadgets, like these popular Sidekicks, to ace exams, jamming class notes on a tiny screen that fits in the palm of your hand.

UNIDENTIFIED MALE: A lot of people like keep it in their lap.

GORDON: You can see they're - they're looking at it and like just writing what they had on the e-mail.

WYNTER: With just a few discreet clicks...

JUSTIN SMITH, UNLV STUDENT PROCTOR: You can actually just be sitting here with a pencil in hand looking like you're pondering on the question, and underneath the desk you can just be texting away.

WYNTER: This student proctor at the University of Nevada, Las Vegas showed us some of the devices tech cheats are using -- camera cell phones, calculators, BlackBerries.

SMITH: It's just a button click away from sending it to a friend who's maybe sitting with the textbook and can text message you the answer back.

WYNTER: With students using Sidekicks, BlackBerries and other handheld devices to cut corners in the classroom, some academic experts are wondering what's next and if they'll ever be able to keep up with technology.

Ronald Yasman, a dean at UNLV, says they cracked down on college cheats by implementing a new proctoring policy where trained students monitor exams. That change was triggered after a student used a cell phone to copy and transmit a test question to another classmate, who texted back the answer.

RONALD YASMAN, UNLV DEAN: This level of sophistication really concerns me. It's -- because they are so smart.

WYNTER: Yasman says they've had more than 100 cases of academic dishonesty so far this year, many involving electronic devices. Experts say it's not just high tech gadgets that's aiding the cheaters.

JOHN BARRIE, TURN IT IN: You have students using the Internet like an eight billion page searchable, cut and pasteable encyclopedia. I think you have students listening to their parents who are telling them, look, do whatever it takes to get into Harvard and to get into Stanford.

YASMAN: High tech or not, educators say the lessons for cheaters remain the same -- they'll eventually get caught.

Kareen Wynter, CNN, Los Angeles.

(END VIDEO TAPE)

SERWER: Coming up next on IN THE MONEY, living space -- science genius Stephen Hawking has an idea that would take sprawl to a whole new dimension. We'll take a closer look.

And it's time to hear from you, as we read some of your e-mails from the past week. You can send us an e-mail right now, too. We're at inthemoney@cnn.com.

(COMMERCIAL BREAK)

(BEGIN VIDEO TAPE)

SERWER: Are real estate prices and suburban sprawl getting you down? I understand that. Well, maybe you think you should be living somewhere else, like on another planet. A man who many think is the world's smartest human being thinks it's not just a crazy idea and one of cnn.com's smartest humans has more on all of that -- Allen, that would be you.

What up with that?

WASTLER: I kind of argue where that bar is, but it's good anyway.

SERWER: it's a good thing.

WASTLER: Stephen Hawking, you know Stephen Hawking, right?

SERWER: Yes.

WESTHOVEN: Sure.

WASTLER: I mean, arguably the world's smartest man, you know, tragically bound to a wheelchair. But he did a conference this week. And he's like a rock star in the science community, you know. So people came and listened to it.

And basically the thrust of his talk was humanity should be reaching out to the stars right now because he thinks that there is a risk of some sort of global disaster, be it manmade or natural, and that we need to start, you know, offloading on the Earth.

Right now he said he thinks that would could make a moon base in 20 years...

SERWER: Yes.

WASTLER: A Mars base in 40 years and in 100 years...

WESTHOVEN: We can't even get the Freedom Tower up.

SERWER: Yes.

WASTLER: I just -- but -- and immediately people started taking the speech and just, you know, the left was saying oh, this is you supporting Bush's little go to space program.

SERWER: Oh, interesting.

WASTLER: And the right immediately jumped on it and was like oh, feeding into the leftist fears about global warming, are we, and tearing it apart.

And so a lot of people think this is pie in the sky stuff.

My proposal, and he's not an economist -- he should be -- the only way you get somebody to go somewhere else is put an economic incentive on it. So if you want this to happen...

WESTHOVEN: Oh, no.

WASTLER: ... that's what we should be talking about.

WESTHOVEN: Are you selling real estate on the moon?

SERWER: Yes. How is it going to work?

WASTLER: Real estate on the -- I don't know, OK?

SERWER: OK.

WASTLER: You're a smart guy, you figure it out.

SERWER: Well, I -- you know.

WASTLER: I'm just saying we have to, you know, like some sort of tax-free holiday in space or anything you develop in space...

SERWER: Why?

WASTLER: ... maybe you don't pay taxes on that on the Earth. So if you invent something really cool up there...

SERWER: Well...

WESTHOVEN: I've got a black hole I can sell you.

SERWER: Yes. Remember when they used to pay people or give people all kinds of incentives to settle in under populated states when we were growing in our history?

WASTLER: Exactly.

SERWER: So maybe it's not a crazy idea at all, right?

WASTLER: Exactly. And that's why people crossed oceans where people said there's monsters on the other side.

SERWER: Right.

WASTLER: No, but there's also...

SERWER: There's free land.

WASTLER: ... spices, free land, gold, all sorts of stuff.

SERWER: Right.

WASTLER: And that sends the...

WESTHOVEN: No air.

SERWER: ... sends the columnist (UNINTELLIGIBLE)...

WESTHOVEN: Sure.

SERWER: Forty acres and a mule on the moon then, huh?

WASTLER: Oh.

WESTHOVEN: And no air.

WASTLER: Debbie downer over here.

WESTHOVEN: A minor problem.

SERWER: What about that fun-side, Allen?

WASTLER: All right, I know we've all thought about this. Wouldn't it be nice just to be in the office and just like not shoot somebody, but paint ball them, you know, bang, bang, bang?

SERWER: Yes, it would be fine.

WASTLER: Well, you can simulate that on this fun-site right here. Look at that. It's going to pop up. You'll see a happy face. Nail it. Nail it. Faster. Ooh. Ooh. It didn't do it fast enough.

SERWER: Oh, I see.

WASTLER: Yes, now there's...

SERWER: I could while away the hours doing this.

WASTLER: Look at that there -- oh, definitely. And this is all part of my part to improve the U.S. Economy by...

WESTHOVEN: (UNINTELLIGIBLE).

WASTLER: ... by bringing those productivity numbers down...

SERWER: You've got to be quicker then, come on.

WASTLER: ... and increase the demand for labor.

WASTLER: Get that mouse going. Go, go, go, go. Get it, get it, get it.

Now it's important here, the point...

(CROSSTALK)

SERWER: ... anywhere?

WASTLER: No, no. Just the happy face.

WESTHOVEN: Yes, they should have (UNINTELLIGIBLE).

WASTLER: No, that would be the wrong message, Andy.

SERWER: Oh, I see.

WASTLER: The wrong message, OK?

SERWER: Understood.

WASTLER: There are lots of ways to while away your time, though.

WESTHOVEN: Thank you, Allen.

WASTLER: Sure thing.

WESTHOVEN: Now for this week's Life After Work story, Howard Cutter traveled the world throughout his long career in the computer business. Now that he's retired, he's pursuing his real passion right at home.

(BEGIN VIDEO TAPE)

HOWARD CUTTER, WOODWORKER: My business uniform.

VALERIE MORRIS, CNN CORRESPONDENT (voice-over): Seventy-two- year-old Howard Cutter spends the days of his retirement exactly as he hoped he would -- fine-tuning his craft as an accomplished woodworker. He built his dream workshop after a 37-year career with IBM.

CUTTER: So I began maybe 10 years before I retired to say what can I do if I could do whatever I wanted to do? And I'd always had a love of fine art and of design.

Once I got the notion that I was doing pretty well, I decided I was going to build something a little more difficult. I tackled a rocking chair, which turned out to be a real challenge. And from beginning to end, it took me about three years to finish it.

I started entering juried competitions and when I began to win ribbons, I started making things and putting them in several galleries. There's nothing that's quite as nice as when somebody sees something you've done and say I love it and can you do one like that for me?

Absolutely, I'm living my dream. It's a thrill to get up and come out here every day.

MORRIS: Valerie Morris, CNN, New York.

(END VIDEO TAPE)

WESTHOVEN: Our Life After Work story next week is really fun. A former teacher with a passion for diners. He has been to nearly 900 of them and he's writing about them in a series of books. His story next week.

We'll be right back with more IN THE MONEY.

(COMMERCIAL BREAK)

SERWER: Now it's time to read your answers to our question about what issue will drive you to the polls this November.

Richard in Alabama wrote: "My religious beliefs will drive me to vote. I believe that religion and politics should not be mixed, and that's just what the Republicans have been doing. I've been registered Republican for 32 years, but not anymore."

That's one man's meat.

Rick in Colorado Springs wrote: "Illegal immigration. Any senator or member of Congress, Republican or Democrat, who voted for amnesty of any kind, is fired."

And Greg in Fort Worth, Texas wrote: "I'll vote because I don't have to fear getting blown up by an IED when I drive to the polls. Thousands of Americans are risking their lives every day so we can vote."

Now, for next week's e-mail question of the week, what's your biggest obstacle to eating healthy -- time or money?

Send your answers to inthemoney@cnn.com.

And you should also visit our show page at cnn.com/inthemoney. That's where you'll find the address for our fun-side of the week.

Thanks for joining us for this edition of IN THE MONEY.

Thanks to "HEADLINE NEWS" correspondent Jennifer Westhoven and cnnmoney.com managing editor Allen Wastler.

We'll see you back here next week, Saturday at 1:00 and Sunday at 3:00.

See you then.

TO ORDER A VIDEO OF THIS TRANSCRIPT, PLEASE CALL 800-CNN-NEWS OR USE OUR SECURE ONLINE ORDER FORM LOCATED AT www.fdch.com

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