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The Economy Election; Paying A Fair Share; Inequality in America; 21st Century Jobs; Solving All the Problems
Aired February 26, 2012 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, HOST: You know it, gas prices up more than 10 percent since the start of the year. It's not even March. So what, if anything, can the president do about it?
I'm Ali Velshi, welcome to YOUR MONEY.
At a time, when the national average you pay at the pump could be headed toward $5 a gallon, Republican presidential contender Newt Gingrich says opening up more land to oil drilling would drive prices down to $2.50 a gallon and do a whole lot more good for the economy.
(BEGIN VIDEO CLIP)
NEWT GINGRICH (R), PRESIDENTIAL CANDIDATE: The energy issue is enormous. An enormous flow, which would drive down prices to $2.50 a gallon would help us balance the budget and we create millions of jobs.
(END VIDEO CLIP)
VELSHI: President Obama disagrees.
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: You can bet that since it's an election year, they're already dusting off their three-point plan for $2 gas. And I'll save you the suspense. Step one is to drill and step two is to drill and then step three is to keep drilling.
(END VIDEO CLIP)
VELSHI: So how much can the president, for that matter Congress, really control? Stephen Moore is an editorial writer for the "Wall Street Journal." Chrystia Freeland is editor of "Thomson Reuters Digital."
Stephen, Newt Gingrich says $2.50 a gallon. President Obama laughs it off as insincere election speak because I guess if the president could do something to get gas to $2.50 a gallon, he might have done it.
We know the problems Americans are paying. They're paying more to fill up their cars and trucks. What part does a president or Washington play in the solution? STEPHEN MOORE, EDITORIAL WRITER, "THE WALL STREET JOURNAL": Well, Ali, I know this is going to absolutely shock you, but I agree with Newt Gingrich on this one.
Look, I think -- look, in the short term the president can't do much about the price of oil and gas at the pump. You know, this is a result of a lot of the disruptions that are going on in the Middle East.
But it is also true what Newt Gingrich and some of the president's critics are saying, that this is a president who's been very hostile to domestic oil and gas development. A good example being the reduction in permits to do offshore drilling.
We also saw what happened with the Keystone pipeline. If you want to see the chickens come home to roost, that's reflected partly in higher gas prices.
And then, of course, yesterday when the president gave his talk about high oil and gas prices, he said he wanted to actually increase the tax on the oil and gas companies, which is not going to lead to more development.
VELSHI: But he also said, and we've done the research that show that production has increased under this president. Demand for oil in the United States has been flat. So what's the problem? What's the mathematical problem?
MOORE: OK. That's a really good point, Ali, and it is true that our oil and gas development is way up. Way up in the last five years. The issue is, though, that most of those permits were done at the end of the Bush administration.
And the problem that the oil and gas industry have is that actually the Obama administration has really put a crimp on this. Remember, when Barack Obama ran for president in 2008, Ali, he told us, he said his energy policies would naturally mean that gas prices will be higher, so he's delivered exactly what he promised.
VELSHI: I'm skeptical that he even has that influence, whether it's down or up.
VELSHI: -- on gas prices, but it's an interesting discussion. A look back at recent history will show a couple of different approaches by presidents have been tried to curb rising gas prices.
President Nixon put price controls on gas in the early '70s. That didn't work. The result as you all remember or at least those of you old enough to remember, long lines, closed gas stations because of a lack of supply. Recently, President George W. Bush tried to appeal to the Saudis and other large oil producers to increase their output and lower prices in 2008.
That didn't work either. The Saudis say oil will be $100 a barrel and they'll work hard to keep it there. So, Chrystia, is it time for Americans to accept that there are no short-term solutions to keeping gas prices low? I don't know what the long term holds, but there's nothing we can do about it now?
CHRYSTIA FREELAND, EDITOR, "THOMSON REUTERS DIGITAL": There are no short-term solutions, I absolutely agree with you and I think people get it, right?
People understand that the oil market is an international market. It's a function of international market forces and not something the U.S. president personally controls. Having said that, I agree with Stephen that right now the key thing, which is driving the current spike in gas prices is the standoff with Iran.
If the president had sort of a magic button that he could press to solve the standoff with Iran, then I think we would see gas prices in the very short term fall. That is what is driving the fear in international oil markets right now.
VELSHI: Stephen, let me ask you this, because there's a sense when these things happen, people get irate. Gas prices have increased 12 cents a gallon across the board in the last week or so.
And then, you know, who we start looking for, right? We're looking for the speculators. Those are the culprits. And I tweeted out, I said, we don't seem to mind speculators when they drive the prices of our homes up when we need to sell them.
Why is it, and I got some excellent tweets, I got some excellent responses. People talk about their home as an investment. They want it to appreciate.
They don't really care if the gas in their tank appreciates. It won't be there long enough. Give me the distinction here. Are there some speculators and some faces we can be mad at?
MOORE: Yes, but speculators make decisions about what the future price is going to be of oil, gas, homes or anything. Sometimes they make the right speculative decision. Sometimes they make the wrong one.
Look, I think this is kind of a false way to look at this issue. It is true, as Chrystia said, that in the short term the disruptions in Iran and the Middle East are the problem.
But you know what, let me give you one example. We have been arguing about drilling in Alaska for 30 years and always the argument has been, well, in the short term that's not going to help our oil development and our natural gas. Well, look, if we'd done this 30 years ago, we'd have the gas now.
Here's another interesting point I love Chrystia's response too. If we have $4 gasoline, Chrystia, that's all the more reason we should be drilling. It may not drive down the price of gasoline, but every -- this is where I think the Republicans are right.
Every single barrel of oil we can drill in the United States, Ali, is one less barrel we have to get from countries like Venezuela and Iran and countries that are hostile to us. So more drilling I think is just good for the U.S. economy in terms of our balance of trade deficit.
FREELAND: How about countries like Canada? I mean, I think that even really nailed it when you mentioned the Keystone pipeline. I think that right now in the White House, that is the decision that they are most ruing.
If you want to talk about something that was in the president's control, he made a choice about saying that that pipeline couldn't go ahead.
I think that that makes him fair game for the Republicans on this issue. I think they can say, sure, that might not affect the price right now, but that was an anti-fossil fuel move.
VELSHI: And on the show we like to think about short term, medium term and long-term things so I think that's a valid discussion. In the immediate term, however, these rising gas prices, we have talked for several weeks on this show, you both here.
We have talked about this economy that's not just showing green shoots. It's actually planting roots as being a recovering economy and we've talked about the things that could have offset it.
This wasn't one we talked about. We were not expecting this to happen. Stephen, are you concerned that this increase in gas prices could actually slow things down?
MOORE: Yes, I do, I am concerned. You know, it's interesting, I gave a talk recently to some restaurant owners, people that own companies like Denny's and Applebee's.
And they said every time gas goes up 10 or 15 cents a gallon, they see that in the sales of their stores next week because so many Americans are living paycheck to paycheck. If it costs $10 more to fill up your tank, that's $10 less they spend on other places in the economy.
Let's not forget one other thing. We haven't mentioned maybe the most important factor of al in terms of high gas prices and that is the fed policy of a very loose monetary policy, a low dollar, which means that gas costs more.
VELSHI: Right -- you're right --
MOORE: That's a big issue.
VELSHI: Right, except that's not actually happening at the moment because the dollar hasn't actually weakened.
FREELAND: Exactly. I mean, you can be worried, Stephen, about the fed policy, but it is definitely not connected with the price of oil right now. It's Iran. It's driven by the fact that already the tensions with Iran are high and Ali has spoken about speculators. It is very reasonable for people in the oil market right now to be worried that that conflict would escalate and that could have huge repercussions on the oil market.
MOORE: Well, I totally agree, but look, all commodity prices are going up now. Gold prices are going up, precious metals and oil and gas. By the way, there's a political element to this too. If you're Barack Obama, you have to be very worried about it, think about it. Jimmy Carter lost the election in part because of high gasoline prices in 1980.
VELSHI: I think we are all -- we all realize that there is nothing more powerful than the price of gas. You look at it every day. Everybody knows what they pay for it. It could be a bigger political weapon or ace in the hole than any of us think. Stephen, always a pleasure to see you. Thanks so much. Chrystia, good to see you as well.
Coming up next, mention corporate America these days and many Americans will get pretty fired up. Now President Obama wants to make a major change to the way corporations pay taxes. Is his solution the right one? Will it be enough to silence the critics? We'll tackle it all next on YOUR MONEY.
VELSHI: It is the issue that gets so many Americans fired up, taxes and the issue of paying a fair share. President Obama's new plan is all about corporate tax reform, and he promises a solution for a system he calls, quote, "outdated, unfair and inefficient."
The president claims his tax plan will reward companies that create jobs in America. But can a tax code really be used to create jobs? Well, a lot to get to, so let's take a look at the plan.
The president wants to reduce the corporate tax rate to 28 percent from 35 percent. Manufacturers, by the way, would get an even lower rate than that. The corporate tax rate one of the highest in the world at 35 percent.
Now, they say they can pay for the plan by eliminating dozens of loopholes that many businesses currently use to pay a rate that is far lower than 35 percent. But a number of analysts are skeptical that this can be done without adding to the deficit.
Now, the administration also proposes a new minimum tax rate on foreign profits of U.S. multinational companies in an attempt to discourage those companies from moving jobs and money abroad.
Whether it is President Obama's plan or another, it is vital that we understand what corporate tax reform will mean to the U.S. economy, and specifically to job creation.
I've got a panel here who will help you understand exactly what's at stake. Jean Sahadi is a senior writer at CNN Money. Steven Chipman is the CEO of Grant Thornton, one of the largest and most important accounting firms, meaning if anyone knows exactly what companies are looking for when it comes to taxes, he is the man.
Christine Romans, of course, the host of CNN's "YOUR BOTTOM LINE." Christine, let's start with you. We got a lot of questions to answer so I want to start with jobs.
One of the president's stated jobs in corporate tax reform. Most people don't care how big it is and how complicated it is, we have accountants for this, but he wants it to help create jobs. Give me the link there.
CHRISTINE ROMANS, CNN BUSINESS CORRESPONDENT: Well, the interesting thing is the Republicans say the tax code is preventing the creation of jobs and the president says fixing the tax code will help create jobs. They disagree on how to do it. That's what's interesting.
I mean, everyone agrees that the corporate tax rate should be lower. The advertised 35 percent rate is onerous. You don't want to be up there, among the most expensive countries in the world for your tax rate.
But the fact of the matter is a very complicated tax code and very crack attorneys and you know, lawyers are able to lower the tax burden for companies. And in fact, according to the Congressional Budget Office, last year American companies paid 12.1 percent of their profit in taxes, the lowest in 40 years. So they're not among the highest if you look at that single statistic.
VELSHI: All right, so you know, Harvard Business School conducted this remarkable study of U.S. competitiveness. What they did is they surveyed 10,000 of their alumni, business leaders from around the world. Let me show you what they came up with.
This pie chart here illustrates the idea of what comes in the way of creating jobs in the United States. What did those 10,000 respondents say? As you can see, the tax code came in third behind regulation and talent.
Specifically the respondents cited not only the high corporate tax rate, which we're talking about, but also the sheer complexity and uncertainty of the U.S. tax code. This is where Steven comes in.
When these respondents were asked for suggestions on how to improve the tax code, the answer could be summed up in one word, simplify. Steven, we -- I don't do my own tax returns.
I understand that it's complex and it's never occurred to me that it needs to be simple enough for me to understand because if it were, it wouldn't be much of a code.
Is that the answer? Is complexity the problem? Is uncertainty the problem? Are loopholes the problem? What's the problem?
STEPHEN CHIPMAN, CEO, GRANT THORNTON: Yes, yes and yes, Ali. It is complex. As you know I've been very fortunate to travel and work in Europe and Asia and the United States.
There is no doubt as I operated in those different jurisdictions that the United States has one of the most complex tax codes in all major industrialized countries and one of the highest rates, as Christine pointed out.
The average industrialized country rate is 25 percent versus our 35 percent. Complexity adds an additional level of concern for businesses and then there's this uncertainty piece. There are a lot of components within our tax code that are not permanent.
So businesses are never quite sure whether they're going to get those deductions or not. That leads them to being cautious about investing and, therefore, ultimately creating job opportunities.
VELSHI: So in an economy like this where we've been talking for months now about how it feels like it's getting stronger, it's getting better. A business leader might say this is a great time to build a factory or start a new product line. You're saying the uncertainty about what might happen, particularly out of Washington?
CHIPMAN: When I travel and talk to many -- many of our clients are dynamic, mid-size, middle market type companies in the United States. It's the uncertainty that's causing them to hold back on investments. One of the big uncertainties is the tax code. VELSHI: Jeanne, let's talk about this. You point out the last time the United States embarked on tax reform was 1988 or something like that?
JEANNE SAHADI, SENIOR WRITER, CNNMONEY: It's '86.
VELSHI: All right, 25 years ago. The clock actually starts for tax reform today and it's vital that we do something about this. What's your take on the discussion?
SAHADI: Well, you know in, 1986 that's when they passed tax reform. But they actually started the process a few years before that. They dedicated groups at the Treasury to come up with different proposals for lawmakers to consider.
We haven't done that, so we're not going to see any tax reform this year. We may see a lot of conversations about it. Treasury Secretary Geithner said this week I'm going t talk with the top tax writers in the House and Senate.
We're going to get this ball rolling. The ball could be rolling for a few years. Some people don't expect they'll be reformed before 2014.
VELSHI: Stephen, let me ask you this. Why is the tax code so complicated? You've worked in other places. You led the company's practice in China. You've been in other places. Can tax reform be efficient? Can it even be pro growth tax code without it being as complicated as the U.S. tax code is?
CHIPMAN: Absolutely. Obviously, I spent a lot of time in Hongkong, as you know, and they have a very simple tax system. I think it's certainly very proactive in helping businesses with the certainty issue and also their ability to invest and create jobs.
What is the challenge for us in the United States and frankly, has been the politization of our tax code and that gets to these loopholes and deductions issue, which the administration is trying to address in some of there recommendations.
ROMANS: You know, some of these loopholes and deductions are good things. You know, some of these things you put in there because you want to incentivize a company to buy that extra real estate for a factory.
CHIPMAN: Or research and development.
ROMANS: Research and development or because maybe that's the thing that will tip them over the edge to invest in a new facility. But I think when you're talking about the certainty of that, a lot of these things are temporary.
So you don't know if they're going to be able to do it again. It's so -- three different companies in three different industries could have completely different tax landscapes. It's very, very difficult.
SAHADI: Temporary is a very funny word because the R & D credit has been on the books for 30 years, but they just keep renewing it over and over and over again. It's sort of a waste of time and energy because everybody wants to keep it, but they don't want to project the cost out.
VELSHI: But there's a particular conservative critique that says whether you make potato chips or microchips, the government shouldn't tax you differently.
VELSHI: We do use the tax code to influence behavior --
SAHADI: In individual companies.
VELSHI: Is that sound?
SAHADI: I think maybe up to a point it is. I would ask someone smarter than me that question. But I do think you could still favor some behaviors that you think is good for the country, good for the economy without the tax code we've got.
VELSHI: Is the way the U.S. does it the right approach?
CHIPMAN: I think what the U.S. needs to do is focus on global competitiveness with their tax code. And today we don't have a tax code that is globally competitive. It needs to be simpler.
We need to reduce the corporate tax rate. We have a business community -- we did a recent survey of financial executives, not surprisingly, 87 percent thought the corporate tax rate was too high, 70 percent thought it should be at 25 percent or lower to make us more competitive globally.
ROMANS: But at 25 percent, a lot of companies would have to pay higher taxes. You have to broaden out the base of companies paying taxes, wouldn't you?
SAHADI: If you want to pay for it, you have to take away all the tax breaks.
CHIPMAN: I would say there are two issues here. There's the political issue, which is the revenue balancing, the revenue equation and then the business issue.
Frankly, the businesses say let the politicians sort out how to deal with the revenue shall you. We want to be competitive. Right now we are not competitive globally and we believe we need these changes in order for that to occur.
VELSHI: And ultimately that global competitiveness will create jobs because we're competing on a global stage. Stephen, great to have you here. Come and visit us whenever you're in town. It's a little snowy in Chicago this weekend.
ROMANS: You're in the right place.
VELSHI: Christine, always a pleasure. Remember you can catch Christine's show at 9:30 a.m. on Saturdays and Jeanne, always a pleasure to see you. Thank you so much.
All right, what's the cause of growing inequality in this country? You heard the arguments that the source of the problem is economic, but could it actually be a matter of morals?
Plus meet the man who I believe is one of the smartest in the world. Where does he go for the next great idea? I'll explain coming up on YOUR MONEY.
VELSHI: Is the United States still the land of opportunity? Many argue that it is, increasingly becoming the land of opportunity for only some.
Over the past century, the top 1 percent of earners have seen their wages soar, while the middle class wages have been relatively stagnant. What's the cause of this growing divide in the United States?
Is it a lack of opportunity? Is it capitalism out of control? Charles Murray says it's a decline in American values and American culture.
Charles is a scholar at the American Enterprise Institute. He makes his case in a new book called "Coming Apart, The State Of White America 1960-2010." Charles, welcome to the show.
CHARLES MURRAY, AUTHOR, "COMING APART": Thank you.
VELSHI: Inequality no doubt affects people of all races in America. You chose to narrow your study to white Americans. Why?
MURRAY: Concentrate my readers' minds because when you talk about these problems, a lot of times people say, well, that problem is really focused in the black community or the Latino community. If it's just non-Latino whites you get rid of all those complications.
VELSHI: All right, your book has generated a fair amount of criticism, but before we discuss that, I want to really understand the argument that you are making.
You write that over the past 50 years, the white working class has lost touch with values that intrinsic to the American dream. Things like marriage, industriousness, ties to religion.
Tell me -- draw the line here between those things and the growing divide between the rich and the working class.
MURRAY: Well, what I'm really arguing is we've seen a divergence of classes that's unprecedented in American history. You go back to 1960. You mentioned marriage. That's the most obvious example.
Over 80 percent of whites in the working class were married ages 30 to 49. Same with the upper middle class. You go to 2010, you're down to 48 percent in the white working class as compared to about 84 percent in the upper middle class.
That's a divergence on a central cultural institution, and that spills over into all kinds of other effects.
VELSHI: All right, you also make the case that members of the white upper class are increasingly, I don't know, segregating themselves, secluding themselves from other classes. You talk about something called super zip codes, the very rich areas.
You say 50 years ago, rich people and poor people weren't as separated as they are these days. They would drink the same beer. They probably eat the same types of things for breakfast.
You say today the upper class is losing touch with everybody else in society. Give me some examples.
MURRAY: Download a "Madmen" episode and take a look at the home that Don Draper lives in. He's a big-time executive in an advertising agency. The kitchen he is in is tiny by comparison with what somebody who's wealthy lives in today.
The whole home is nothing like we're used to seeing among the upper class today. There are also, however, a lot more systematic ways of making that point. Ali, here's a good example.
In the elite neighborhoods in the 1960s, places like north shore of Chicago and the upper east side and so forth, you only had about a quarter of the people with college degrees and you only had a median income of about $84,000.
That's in today's dollars. So what we called elite neighborhoods in those days still had a whole lot of diversity in them. You go to the same neighborhoods today. All of those numbers have shifted radically upwards.
VELSHI: You know, the interesting point that I saw in the book is that you make the argument that 50 years ago, you could have what we would think of as a working class job that doesn't pay a whole lot of money.
And yet you still felt like part of the American fabric, whereas that same working class job today might result in you feeling like you and your family have been left out under the thumb of the richest in America.
MURRAY: Well, more than that, you today don't have you and your family in a lot of cases with this. It's you alone. Remember, I talked about marriage? One-third of all white males ages 30 to 49 in the working class have never been married.
There was something that existed in 1960, and this isn't nostalgia, that doesn't exist anymore. If you were a guy and you held a job, you were a respectable member of the community, whereas if you didn't hold a job you were a bum.
And today, there are increasing numbers of the white working class who think it's more respectable to live off their girl friends or to live off their mothers or live off their sisters than to hold a job that they consider demeaning. That's a big cultural shift and the problems that it presents are that it's tearing apart the civic culture that used to unite us.
ALI VELSHI, CNN ANCHOR: What's the solution, Charles?
MURRAY: A cultural shift in attitudes. It's not anything that you can say to the government here's the five-point plan that will solve everything. We have to start a conversation, and that's what the book is trying to do.
The good news here is that the United States has a history of doing that kind of thing, with the civil rights revolution being a really good example, where over a period of about a decade, we had a change in our attitude toward race relations.
The same thing I think is possible now. The problems I'm talking about in this book seem to resonate. They may be ideas whose time has come.
VELSHI: Charles, you wanted to start a conversation, you certainly did. Charles Murray's book drew all sorts of reaction, some of it downright strong. Thanks, Charles, for joining us. We appreciate the time that you've taken to explain some of the provocative ideas in the book.
We're going to talk about why our next guest thinks that some of those conclusions may not actually hit the nail on the head. That's coming up next on YOUR MONEY.
VELSHI: Welcome back to YOUR MONEY.
We just spoke with author Charles Murray who makes the case that over the past 50 years America's common civic culture has unravelled and the divide between rich and poor in America has increased as a result of that.
Murray's book called "Coming Apart" has its share of critics, but probably none as prolific with criticism as David Frum. David is a CNN contributor and a writer for "The Daily Beast" and like Charles Murray, he's a conservative.
To be clear, Charles Murray declined to be interviewed on air with you, David. You have written, count them, one, two, three, four, five, a five-part critique of Charles' work. You even wrote that you and Charles may have some negative history.
DAVID FRUM, CNN CONTRIBUTOR: Yes.
VELSHI: Is this -- is there anything personal in this?
FRUM: I hope not. As I pointed out at the beginning of those things, Charles and I had a long history. It went bad in way that say I certainly regret.
But in the time since that happened, I've written positively about other things he has done and I continue to regard his first book "Losing Ground" as a very important statement.
And I was looking forward to this book, to "Coming Apart" because the issues of income inequality are very important for conservatives to address. For a long time the conservative answer habit isn't happening, it's just not a fact.
"Coming Apart" is important in the internal conservative debate as an acknowledgement that something until now conservatives have denied really is a fact so it does open the way to positive thought about an important question and so that's a welcome development and I wanted to welcome it.
VELSHI: And it's useful that you say that because when people are watching this and saying why are you having a conversation with two conservatives about income inequality it is an important debate.
If I had this conversation with liberals, it would take on a different tone. What is your biggest problem with Charles Murray's argument that he puts forward in the book?
FRUM: Well, Charles Murray -- it's important in the conservative world because it acknowledges something that is big and true. But that's not new.
Outside the conservative world, it's not new to acknowledge that the labor force participation of working class white males has been declining or that out of marriage birth rates among the white working class have been rising. That point has been made many, many times over the past decade. That is not the new part of the book. The problem with the book is it takes very familiar points about the declining attachment to the workforce, rising rates of out of wedlock birth, and then having the last round of denial having failed, it now closes our eyes to the next round of questions.
Why are these things happening? What's different now? Charles cites 1960. What's also different now between 1910 because between 1910 and 1960, a lot of positive changes came to the working class America. Since 1970 a lot of negative changes have come to working class America. Can we think about that, please?
And the statement, well, there's a cultural change, that really is a way of not answering the question of, you know, bringing out some kind of magic machine that causes us to avoid having to face what is really going on.
VELSHI: Do you buy the argument that cultural change may have something to do with a circumstance, a situation that we're in that many of us try and find economic causes and solutions to?
FRUM: But why did the cultural change occur? Where do cultural changes come from? Is it spontaneous? As Charles Murray points out, the new culture is much less adaptive. People lead harder and worse lives, they earn less money.
So it would seem irrational to change your culture in a way that leads you to a less happy and unfulfilling life. Why did happen? To write the story in a way that completely ignores economic changes.
And to write the story also in a way that misdirects us about who are the winners in our society, because one of the things that the book does in its emphasis on culture is suggests that the kind of people who are the big winners are the people that drive Volvos and listen to NPR.
That's really not true. The big winners are much higher up the economic ladder. And again, by misdirecting us in that way, the book occludes an argument that it is important to have and conservatives need to join.
VELSHI: Let me ask you this, in your critique, your well researched and laid-out critique, you do seem to accept the picture that he paints of the difference between white America in 1960 and white America now in terms of the difference between the very rich and the works class.
FRUM: There's a lot of truth to that. Now, it has to be stated more precisely. Everyone who's worked with this material knows this. I wrote a book about the history of the 1970s, 12 years ago that made a lot of these points. These changes are not -- this isn't news from the frontier.
The question is why. What is different? What is happening? And one of the things I see in one of the pieces I wrote on "The Daily Beast" is this is a little bit like somebody pointing out, hey, it's a lot better for people to live in houses than in tents.
And then visiting a town and say, gee, two weeks ago everybody in this town lived in a house and now they live in a tent and that's terrible. Well, the answer is, yes, there's a hurricane that passed through two weeks ago that's why.
And then to answer it I'm not interested in studying weather, I'm interested in studying housing. There has been a hurricane that has swept through the economy of the United States, that has changed the way work is compensate compensated, that has changed the valuation of male labor, but for everybody.
And it's touched very much the bottom third of the society, really the bottom 80 percent of the society. To tell this story without -- to talk about why have people's attitudes toward work changed without talking about the price of their work?
To ask why has marriage changed without talking about the relative value of the labor of men and women, I think you're missing something very important. Conservatives want to join this discussion in a useful way. We have to start by absorbing the main facts.
VELSHI: Well, there's a big book called "Coming Apart" by Charles Murray and a companion edition by David Frum, a five part critique by David Frum, two prolific conservatives discussing probably one of the intractable and most pressing issues of our time.
FRUM: I'm sorry we couldn't discuss it together.
VELSHI: Well, life is long. We might have another opportunity. David, good to see you as always. David Frum is a CNN contributor and a writer with "The Daily Beast."
Coming up, a solution on how to fix the skills gap in this country. That's next on YOUR MONEY.
VELSHI: The U.S. lost 8.7 million jobs as a result of the recession. When it comes to jobs, we get the problem. We need more of them.
The Bureau of Labor statistics projects that the U.S. economy will add more than 20 million new jobs between 2010 and 2029. What type of jobs are being created? Many of the fastest growing occupations fall into the low wage, low skill category.
Richard Florida is a professor at the University of Toronto's Rotman School of Management. He's also a senior editor at the "Atlantic." Richard, welcome back to the show.
You say the only solution is to turn low-wage jobs into higher wage jobs, which sounds like a great solution. How do you do such a thing?
RICHARD FLORIDA, PROFESSOR, ROTMAN SCHOOL OF MANAGEMENT, UNIVERSITY OF TORONTO: Well, you know, Ali, of those 20 million jobs we're going to create according to the U.S. Labor Department out to 2020, which is a good thing, it's going to replace many of the jobs we lost, but half of those jobs are what we call low wage, low skill service jobs.
They're in personal and home health care, the people who take care of us and our aging parents or take care of our kids. They're in retail sales. They're in food service and preparation. And the conversation in America is twofold right now.
We have to create more knowledge jobs and give our people more skills and education on the one hand, the president is doing that, and we have to upscale and upgrade and bring back manufacturing jobs. If we do all of that, all of those things, we'll end up creating eight or nine million good jobs.
FLORIDA: Then we have 10 million bad jobs. So it seems to me the other side of the jobs problem that the president is not talking about, the Congress isn't talking about, our business leaders isn't talking about is how to make those low wage, low skill jobs good jobs. Here I think the solution is very simple.
VELSHI: Tell me. Tell me. I'm wondering what you do because we still need home health care aides. We still need people to serve food and to do these things, so what do you do?
FLORIDA: Well, if you look at what makes a good job in America, and we did this, my research team at the University of Toronto and me, we dug into the numbers that the Bureau of Labor statistics provide.
And look at what are the skills, what are the basic skills that a worker needs to do to get those wages up. So for those knowledge jobs that we talk about, those professional jobs, those technical jobs that pay 70 grand or more a year, the good jobs, we know that if you add more knowledge skill, cognitive skill, wages go up.
If you add more what we call social intelligence skill, team building, leadership, the ability to work well with others to develop others, wages go up. You know what?
When we look at the data, those same two skills, you add more analytical skill, you add more social intelligence skill to a service job, the wages in that job go up steeper and faster than they do for a knowledge job.
VELSHI: But ultimately, don't we have to control how much those wages go up? Otherwise, we end up paying too much for things that we assume that we pay less for?
FLORIDA: Well, I think this is the false dilemma in American life. You know, in the 1920s when my dad worked in a factory, he had a terrible job, he made low wages. It took nine people, my grandmother and grandfather and seven siblings to make a family wage. We made manufacturing jobs didn't jobs in this country. How did we do it? We allowed people to form unions, we allowed productivity but we paid more for our cars. What did Henry Ford say? We have to enable the people who make the cards to buy the cars. We pay more for the car, their wages go up.
If we want to be a civil society, a just society, and I believe a productive and growing society, if we want to stoke that fire of demand and get demand up that's going to allow America to grow and prosper again, yes, we're all going to have to pay a little more for that person who prepares our food and takes care of us in a restaurant, who takes care of our lawn.
You know what? The way I phrase it, I hope folks listening in or viewing this get it, who would you rather pay more, a person who builds your car who's likely making those components in China, or the person who takes care of your children or your ailing parent or the person who prepares your food?
I think we as Americans have to be prepared to pay a little bit more for the services we get. It's going to benefit service workers. It's going to create more demand. It's going to drive our economy forward.
VELSHI: Those are the intellectual underpinnings that we use when we talk about why minimum wages should be higher than they are. It's a good argument and we hope people will tweet some responses to your comments and this discussion.
Richard, always good to see you, thank you very much. Richard Florida is a professor at the University of Toronto's Rotman School of Management and a senior editor at the "Atlantic."
Well, do you ever feel like you're not necessarily reaching your highest potential? Coming up next, the man I tweeted was one of the smartest in the world. He'll tell you why he thinks the next solution to one of the world's most pressing issues could actually come from you.
VELSHI: What if no problem either manmade or natural was too big for us to solve. Peter Diamandis firmly believes that this is true. He's the chairman and founder of the X-Prize Foundation. He's also the co- author of a new book "Abundance, The Future is Greater Than You Think." It's nice to have an optimist on the show. You believe every problem can be solved.
PETER DIAMANDIS, CHAIRMAN AND FOUNDER, X PRIZE FOUNDATION: Yes. Given the right people, the right technology and right capital, we're living in a day and age where small teams are more empowered than governments and large corporations were 20 and 30 years ago to attack these problems.
And ultimately all of the newest billion dollar companies coming out of nowhere are touching hundreds of millions if not billions of lives started by a couple guys. VELSHI: So in a way where you either have to have been either a massive scientist or government, you're now saying that largely technology enables lots of people to do things.
DIAMANDIS: Just think about it today. Literally, any of us have access to tremendous hundreds or thousands of CPU hours on the cloud. Used to be something only the chairman of MIT's Computer Science Department had access to.
We have access to artificial intelligence, robotics, materials distributed manufacturing. These are things that the democratization of the ability to touch a billion lives changed the world that gives me the greatest hope for the future.
VELSHI: So you -- with the X Prize, you give incentives to solve problems. And you find this very interesting because this democratization has meant that some of the people who have come up with interesting solutions to some of the big problems of the world would not have been in place to do that 20 or 30 years ago.
DIAMANDIS: Exactly. In fact, a lot of the large companies and a lot of the biggest thinkers are really invested in keeping the solutions the way they are, keeping the situation because they're the expert in the way it is.
But a real breakthrough comes from a right angle and it's disruptive and it was a crazy idea. So a lot of the teams that we're seeing winning our large X Prize competitions are really -- come out of no place.
People with a great idea, they're passionate about solving it and that are idea is so disruptive and different that it's a break through idea.
VELSHI: You had this one X challenge to clean up oil from water as a result of the Gulf oil spill.
DIAMANDIS: The Wendy Schmidt Oil Clean Up competition. We had a team that came out of no place that met in a Las Vegas tattoo parlor. These guys built a scale model in their pool of this oil clean up facility and the first time they tested it, doubled the existing capability that had been the standard for the last 20 years.
VELSHI: So you're married to the idea that people can -- you bring people together who have money with people who have great ideas, and you want to solve the world's problems. And after examining all of these problems, you still come out as being optimistic.
And something you write about is that the poorest of the poor, the bottom billion people in the world, are poised to become what you call the rising billion. What does that mean?
DIAMANDIS: Well, it means that in 2010, we had 2 billion people online connect on the internet. By 2020, we're going to have 5 billion. Three billion new minds are coming online. What are these people going to consume, create, desire? They represent literally tens of trillions of dollars of purchasing power being injected in to the economy per year. And I write about that in "Abundance" and in fact one of the things that I want to offer out to the viewers is that you can download the first chapter of this book for free on abundance the book.com.
And it really gives you a vision of how technology is turning that which was scarce into that which is now abundant.
VELSHI: The implications for the economy are significant here, but you are somebody who's dedicated to education. You're a co-founder of Singularity University.
When I talk to you about the education system, how you would fix it, I though your answer was interesting. You're not interested in fixing the educational system.
DIAMANDIS: I'm not. The educational system today is a 150-year-old version of what worked last century. Now it's time to reinvent it. The tools and technologies coming online through artificial intelligence and literally the web and the ability to interconnect anyone of us with the smartest people on the subjects should give us a new basis for education.
VELSHI: You're talking about these YouTube lessons.
DIAMANDIS: You can go home, learn what you want. When you come to school, it's about trying things. It's about applications. It's not about sitting in the back of the room and listening to a sage on the stage. It's time to reinvent how we educate our kids because we can.
VELSHI: Peter, a great conversation, a great book. You've done soe great work. You're going to be a regular on the show. We're going to introduce new ways of thinking to our audience who is very eager to hear about some of these things.
Peter Diamandis is the chairman and founder of the X Prize foundation and the co-author of "Abundance, The Future Is Greater Than You Think."
Well, this conversation doesn't end here. We're going to continue to talk with Peter. We want you to send us your ideas. Tweet me @alivelshi or the show @cnnyourmoney. We'll get the best ones on the show.
We'll pass them on to Peter and get his take on some of these breakthroughs that could change the world. We'll be right back.
VELSHI: We want to bring you the smartest hour on YOUR MONEY every single week. We're here Saturdays 1:00 p.m. Eastern, Sundays at 3:00. Plus you can see me every weekday on "WORLD BUSINESS TODAY" 9:00 a.m. Eastern.
And when you're not watching TV, let's continue to educate ourselves on money. Check out my new book with Christine Romans "How to Speak Money, the Step by step Guide to Understanding the Language of Money." You can get it on Amazon.com or Barnes&Noble.com. You can stay connected to us 24/7 on Twitter. My handle is @alivelshi, the show handle is @CNNyourmoney. Have a great weekend.