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Interview with Paul Ryan; Fixing the Economy; The Economy Election; Prenup for a Mortgage; Finance For Good?; Battling For Michigan; Manufacturing In The U.S.

Aired April 14, 2012 - 13:00   ET


ALI VELSHI, CNN ANCHOR: Republicans and Democrats agree on at least one thing, fix the economy or you might face a middle class that loses any incentive to work hard.

I'm Ali Velshi, welcome to YOUR MONEY.

President Obama warns that the system is unfair. Republicans counter that the left wants to punish success.


GOV. CHRIS CHRISTIE (R), NEW JERSEY: The American people no longer believe that this is a place where only their willingness to work hard and to act with honor and integrity and ingenuity determines their success in life. Then we'll have a bunch of people sitting on a couch waiting for the next government check.


VELSHI: That's New Jersey's governor, Chris Christie. He's endorsed Governor Mitt Romney for president. Who knows, the two could be running together against President Obama in the fall if Romney taps Christie to be his vice presidential candidate.

Threats to hard work is hardly a new issue for President Obama either. It was a central theme in the Kansas speech the president used to lay out his economic agenda at the end of last year. Listen.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: For most Americans the basic bargain that made this country great has eroded. Long before the recession hit, hard work stopped paying off for too many people. Fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success.


VELSHI: Now the president is referring to the wealthy when he talks about those precious few who are seeing the benefits of this economy.

Stephen Moore is an editorial writer for the "Wall Street Journal."

Stephen, good to see you. I know you're not going to side with the president here. But give me a sense of what specifically the government does that punishes success and discourages hard work from a conservative perspective.

STEPHEN MOORE, EDITOR WRITER, THE WALL STREET JOURNAL: Well, Ali, let me start by sounding a note of optimism, which is I think that Chris Christie and Barack Obama are wrong here. I think the great American dream is still alive in America. We saw a great story this week, one of my favorite stories in a long time, Instagram. These two kids start a company, you know, two year out of their garage, two years later they sell it for a billion dollars. I mean it can happen here in America and it's a great story.

And look, yes, this has been a tough recession obviously. We're seeing, you know, declines in real incomes, people are being pinched by this high gas and food prices. But I do believe, we've lived through this before, Ali. I mean that's the point I want to make. We've lived through this in the 1930s. I remember in the 1970s people said the middle class is dead and we always come back. And so I just want to make that point about optimism.

VELSHI: OK. Fair enough.

MOORE: I think it's important.

VELSHI: So what's the thing that we say does -- you know, punishes success and doesn't reward hard work? What would -- what would conservatives like to see changed?

MOORE: You know, here's the problem I have with the president's message. I think this idea of the Buffett Rule, and tax the rich, this idea that all we have to do is get the middle class ahead is to soak the rich and to sock it to the rich. I think that's just the wrong message of success. We need a tax system that tries to make poor people rich, not to make rich people poor.

And I think sometimes the president misses that when we have vibrant employers, that -- when this is a country that if you get successful that the government take -- doesn't take half of your money away from you.

I don't think the American people share this kind of envy of the rich that the president and a lot of Democrats do.

VELSHI: All right. Hold on there.

Chrystia Freeland is the editor of Thomson Reuters Digital.

Chrystia, do you agree that the economic system we have in the United States today fails to reward hard work and punishes success?

CHRYSTIA FREELAND, EDITOR THOMSON REUTERS DIGITAL: No, I don't. I actually -- I mean agree with Stephen about one thing. I think America today is a tremendous center for innovation.

VELSHI: Right.

FREELAND: And America actually is terrifically good at both sort of fostering that innovation and rewarding it.

VELSHI: But for some reason we're not --

FREELAND: Instagram -- and Instagram is a great example of that. But what I think is missing, Ali, and I don't think this is actually a fault of politicians. I think this is about the structure of the global economy. It's about the technology revolution, it's about globalization. The hard reality is those middle class jobs, the jobs for people who are not going to become billionaires --

VELSHI: Right.

FREELAND: -- in 12 months off of an IPO, those jobs are vanishing.

VELSHI: Right.

FREELAND: They are being hollowed oats.

VELSHI: These are people with basic education, the kind of education that 25 years ago would have guaranteed you a good job for life. That's becoming harder.

FREELAND: Yes. And we can all see that in our daily lives. I mean, think about it, travel agents. We don't need them anymore because we have the Internet.

VELSHI: Right.

FREELAND: People don't have so many secretarial positions. We saw it recently in the retail sales employment numbers. Sales are up but jobs are down.

VELSHI: Right.

FREELAND: Why is it? We're buying online. I think that that is a great trend. I believe in technology, all of us love it.

VELSHI: But what do you do with the -- what do you do with the people who don't have work?

FREELAND: But we have to be realistic and honest about the fact that we all encounter in our daily lives that those good, solid jobs for someone who -- yes, Chris Christie does want to work really hard. They are not there. Either you're a generous IPO person and you're doing fantastically well or you are struggling to get by at the bottom.

And I think that makes America and actually all of the western world right now in a really difficult place because our democracies are built on a robust middle class.

VELSHI: All right.

MOORE: And you know what -- can I --

VELSHI: Go ahead, Stephen. MOORE: -- make a point about this that I think is important? I think the area where the president is just wrong factually is what he says that, you know, over the last 20 or 30 years the middle class has not made gains. And it's just factually wrong. I was looking at the census data on this, Ali. If you look at the middle class, the people between the 40th and 60th percentile, people who make maybe between $40,000 and $75,000 a year, over the last 30 years especially in the '80s and '90s, under Reagan and Clinton, a Republican and Democrat, there were big gains for the middle class and there are a lot of jobs.

Chrystia, as you know, we create -- we became a job creation factory around the world with about 30 to 40 million new jobs. So the formula does work. I do think we've gotten off track in the last five years. What I'm saying is I really think this economy is prepped for a big expansion that will benefit the middle class but I just don't think raising taxes on the wealthy is the way to do it.

VELSHI: Chrystia?

FREELAND: I just disagree. And I think anybody in the middle class will tell you their lives are rough. What we have seen -- what particularly worries me is the job numbers. And what we have seen in the recovery from the past three recessions is the employment number resets at a lower level. We are seeing higher levels of structural joblessness in the economy.

I don't think this is forever. But I think it is lying to people to say it's easy and that something hasn't changed. It has changed. And, you know, as a society people need to respond to that.

VELSHI: Stephen, what would -- what would be the counter to the things that you're criticizing the Obama administration for either doing or suggesting? What -- and I think I know where you'd go with this. But what would be the thing that does incentivize hard work, that does reward success and that ultimately will create jobs for this very set of people that we are disagreeing about right now, the middle class.

MOORE: I think what we need is a lot more saving and investment in this country. I think there's been way too much orientation toward spend, spend, spend, and not building the building blocks of a growing, long-term prosperous economy which is investment and saving. And I do think it's a mistake, you know, to double or triple the capital gains tax and the dividend tax, the money that's injected into the economy that creates these new businesses.

And, Chrystia, look, I'm not saying that the middle class isn't struggling right now, you're exactly right. This has been a very, very difficult recession for middle class families. What I'm saying is that with the right amount of skills and the right amount of new companies that are developing -- you know, we're seeing a huge renaissance in manufacturing right now. It's great to see.

Now it's true manufacturing doesn't employ as many people as it used to. But I just -- call me an optimist. But I just think that we are prepped for a really big expansion that's going to benefit all income groups. But it can't be this kind of redistribution. We have to grow the economy. And the key word here is competitiveness. I wish everything that Washington did was oriented towards how do we make America number one.

VELSHI: OK. So you say competitiveness. You've talked about redistribution. We're going to talk about those of things, we're also going to talk about manufacturing, a key point you brought up.

Chrystia and Stephen, stay where you are. Paul Ryan is the House Budget chairman. He's the guru behind the current Republican economic or at least tax agenda. Is he ready to sit down in a room with President Obama and work out a deal?


REP. PAUL RYAN (R), WISCONSIN: Work with President Mitt Romney and I'd like to work with a Senate that's run by Mitch McConnell.

VELSHI: Can you choose -- can you choose somebody who's in office right now?


VELSHI: Ryan is also rumored to be at the top of Mitt Romney's vice presidential list. I asked him whether he's ready to take up the job next.


VELSHI: Paul Ryan is the Republican chairman of the House Budget Committee, seems like the architect of the GOP's economic agenda these days. If Governor Mitt Romney has a shortlist for potential vice presidential running mates Ryan would likely be near the top. In an election expected to be decided based on the economy one could understand why Romney might choose someone like Ryan but would Ryan accept if he were asked?


RYAN: You know you have to give that serious consideration and thought. I literally have not done that. I'm pretty busy doing my day job as chairman of the Budget Committee.


VELSHI: Let's give it some thought. Because people have been talking about it.

RYAN: Yes, but it's not my decision to make, it's somebody else's decision to offer it. It's a good deal of time for now. And if someone says I should consider it, then I'll consider but until they don't I don't see the point of spending a lot of time thinking about it.

VELSHI: But you're open to it. RYAN: You know I just don't know. I had to get -- I'd had to give it a much more serious thought. My wife and I would have to sit down and think it through, and I just haven't done any of that.

VELSHI: Could you and the president sit in a room like this or a Starbucks or a room we provide, and hammer out a budget, notwithstanding all the outside concerns.

RYAN: I would love to try. I would love to try. The president has given us four budgets and he has never once attempted to do that. I mean usually you have to get an invitation from the White House to do such a thing. I've always wanted to do that, I've always wanted to try.

When I first put budgets out, I -- maybe I was naive. I thought if I put this budget plan out then others will put their plans on the table.

VELSHI: Right.

RYAN: Then we'll start debating each other's plans, and then we'll get to an emerging consensus. The problem is, we put our plan out there and nobody followed suit. And now what we found is the president decided not to put out a plan to solve the problem. The Senate hasn't passed a budget over 1000 days. They waited for Republicans to offer solutions and then they just simply attacked it.

VELSHI: Right.

RYAN: For election purposes. So --

VELSHI: But a lot of the things that you have said --

RYAN: I just don't see -- I don't see that kind of leadership from this president. If we were going to get this kind of leadership from this president, we would have gotten it by now.

VELSHI: Ultimately you almost got to deal with this before that. So if you have to choose --

RYAN: Well, I don't think that's right. I don't think the president is -- if the president wanted to have a budget agreement --

VELSHI: Right.

RYAN: Then he would have given us a budget that attempts to solve the problem. And Harry Reid would be passing budgets. Harry Reid has decided --


VELSHI: Who would you most -- we said we can put you in a room and you guys have three days to work it out.

RYAN: I don't know. VELSHI: Who on the other side would you most like to work with? Because -- well, I'll try to get and done. Ill try and get you that person.

RYAN: I would like to work with President Mitt Romney and I'd like to work with a Senate that's run by Mitch McConnell.

VELSHI: Can you choose -- can you choose somebody who's in office right now? On the Democratic side? I'm asking you, who on the Democratic side do you think has the wherewithal --

RYAN: Yes, see, to me it's not about the people or the party.

VELSHI: Right.

RYAN: With the best ideas to save and strengthen this country and these problems, Medicare and things like that.


VELSHI: OK. So when a smart guy like Paul Ryan can't or won't name a single Democrat that he would like to get in a room with right now and hash out a budget deal it really gives you a sense of how toxic the tone is in Washington right now.

Stephen Moore and Chrystia Freeland are back.

Stephen, I have to say, and I have a lot of respect for Paul Ryan, I was disappointed. On this show we love to go beyond politics but no matter what I asked I could not get beyond it. With Paul Ryan. I could not get him to reach across the aisle and show me where there was room for compromise because that is what we need.

So forget right or left for a moment. As a country, it's a shame that the U.S. cannot accomplish anything big because we're so divided.

MOORE: I agree with that. But I think you have to be fair here. And I think the press has not been enough on this -- their story that Paul Ryan talked about. The fact is that the president did present a budget, as you know in February, Ali. It was brought to vote in the House and the Senate. It got zero votes in the House and zero votes in the Senate.

Even Nancy Pelosi wouldn't vote for that budget. In the meantime in the Senate which is still run by the Democrats, Harry Reid, it's true, as Paul Ryan just said in your interview. For three years there's been no Senate budget. So, you know, I talk to Paul Ryan a lot. I really admire the guy.

I think he's got a fair point to say, look, we put our cards on the table. We've told the American people what it is we want to do with Medicare and Medicare, Social Security, the tax code. The Democrats haven't done it. So when you ask Paul Ryan, well, you know, are you willing to negotiate, negotiate with what?

VELSHI: Well, Chrystia, everybody points to the debt ceiling showdown last summer. We were all involved in this covering it. And they wonder how close President Obama and House Speaker John Boehner really came to achieving a grand bargain. But to Stephen's point, what blame does President Obama hold for doing things like this? Or presenting budgets and ideas that he knows are nonstarters and then you've got Paul Ryan presenting deals that we know are nonstarters.

So everybody has got good points, as Stephen says, and they're all nonstarters. What do we do about this?

FREELAND: So I think first Americans need to have an election because I actually don't think that this is a technocratic issue at the moment. I don't think that if you just had a group of smart economists in a room they could come up with a solution that would suit everybody.

VELSHI: Right.

FREELAND: I think that this is now a profoundly ideological question.


FREELAND: You can have left-wing governments with big welfare states that have balanced budget, let's talk about Germany or Sweden or even our own Canada that has, you know, generous welfare states.

VELSHI: Right.

FREELAND: And have a very balanced fiscally disciplined rating. And you can have right-wing countries with much smaller states that also have balanced budgets. So balancing your budget isn't a left or right thing.

VELSHI: Right.

FREELAND: And the left and the right have different approaches. And really Americans are going to decide, it's really simple. Pay higher taxes and you can have more government support for the elderly, for children, for education for infrastructure. If you don't want to pay taxes, you're not going to be able to have that.

VELSHI: Stephen, can we present that stark an argument to the voters and have them actually make that decision --

MOORE: Yes, I --

VELSHI: -- so that come December or January we can actually start getting deals done?

MOORE: Yes, I think so. I mean Chrystia is right. She and I are agreeing way too much today.

VELSHI: It's very weird, let me tell you.


MOORE: But I -- I think that that's -- this election, Ali, is going to be a voter referendum on these very issues. Now I may not have put it quite the way Chrystia did. Look, I think that the big government more taxes model is the Greece model that I think hasn't worked very well. And I think that the model, you know, of more free enterprise is sort of the Hong Kong model.

But we can debate about this. But Chrystia is exactly right. This is for the voters to decide. And whoever wins this election, is obviously going to have an upper hand in terms of what direction we go in with this budget come January.

COOPER: The problem, of course, is that the -- the options are never as clear as what Chrystia described. It's not -- it's not an all-the- way to the right or all-the-way to the left. The problem we may have is that in November we may end up with a government that is as split as it is today.


MOORE: That's true.

VELSHI: All right.


FREELAND: But can I --

MOORE: That'd be the worst of all outcomes.

FREELAND: But I do think, you know, one thing that I think is an important point Ali, and that Stephen and I -- and I really do agree on, is there's this sort of centrist fantasy that there's a pure mathematically technocratic solution.

VELSHI: Right.

FREELAND: There isn't. And it's not just about a toxic environment and people not being nice to each other. I think that America is genuinely ideologically divided about the kind of country it want to be. And I actually welcome the election campaign. I think that it's great to have that open debate.

VELSHI: You two have just gone all weird on me.


Chrystia Freeland, editor on Thomson Reuters, always a pleasure to see you. Stephen Moore from the "Wall Street Journal," always a pleasure to see you as well.

Hey, coming up next a solution for the housing market that could make underwater mortgages a thing of the past. We'll talk to the most brilliant economist who successfully predicted our rough past and what we'll find out what he says is in store for our future. Stay with us.

(COMMERCIAL BREAK) VELSHI: Take a look at this. In 1987, this housing index was created, the Case-Shiller index. It was created to track changes in home prices in the top 20 metropolitan areas in the United States. It is still one of the leading economic indicators used by economists.

In 2000 this book, "Irrational Exuberance" came out. It predicted a bubble in the stock market during the height of the dotcom boom. It turned out to be a prophecy. In 2005 an updated version was released predicting another bubble, this time in the housing market. It, too, turned out to be a prophecy.

Skip ahead to 2012, this book is released arguing that the economy will not advance without the creation of new financial products. Sounds laughable, sounds like a tough sell particularly to a public which still blames the financial sector and financial innovation for the crisis of 2008. Is this book going to turn out to be a prophecy as well?

Let's turn to the man behind it, Robert Shiller, economics professor at Yale University, the man behind the Case-Schiller index, the name behind the -- S&P Case-Shiller, the PE ratios, this is your new book. I can't believe it. You're telling us that we should innovate more in terms of finance.

ROBERT SHILLER, ECONOMICS PROFESSOR, YALE UNIVERSITY: I think that should be our response to "Occupy Wall Street." They want to fix something, right?

VELSHI: Right.

SHILLER: OK. If a car is broken you bring in a mechanic. You've got to bring in people who study finance. They are looking kind of bad now because people think it's just evil. It's not evil. It's something that can be fixed.

VELSHI: One of the things that you recommended, the great thing about the book is you have very, very specific ideas, some of which seem attainable and some seem like pie in the sky. One of them my producer refers to as a prenup for mortgages.


VELSHI: Tell me what you're talking about.

SHILLER: Well, right now we have over 11 million Americans who are under water on their mortgage. The home price fell. Their mortgage balance didn't fall. So they're ruined, right? That's a part of our -- major part of our crisis. They don't spend when they are in that state. That didn't have to happen. We want to give them workouts now that --

VELSHI: Right.

SHILLER: But we don't have an arrangement for that.

(CROSSTALK) VELSHI: And so the workout is generally seeing if the bank will make some kind of deal to cut the amount of money they are owed.

SHILLER: Well, ideally, that's what it would be because -- but that's not happening very much.

VELSHI: Right.

SHILLER: And I think -- well, if want that to happen, the thing to think about now it's let's plan for it now for the next time.

VELSHI: Which is why we think about it as a prenup. Let's give an example, if a husband and wife go into a bank, they want to buy a house, they go to apply for a mortgage. There's basically it's an insurance product that they would buy that says in the event that -- you finish the sentence. How does it work?

SHILLER: Well, I think it be tied both to home prices into the economy, the unemployment rate. So if home prices fall we will reduce your mortgage balance automatically to keep you in positive territory.

VELSHI: In fact, the whole concept of a mortgage was the idea that you're taking money from people who have lots of it and don't have enough places to put it or things to do wit and giving it to people who can use it to find a house. Because we'd all have to be 80 years old to buy a house or most of us if we didn't have this concept of mortgages.

SHILLER: Right. Right. Mortgages are really important. We don't reflect on that. Young people when they have kids that's when they want the house but they don't have money saved up yet. So finance has improved our life.

It used, you know, to be, you know, before we had mortgages you had to live with your parents. And that wasn't good. There were frictions. People have now is they find it much better, man and wife and the little kids in their own cure little house, that's the way to live.

VELSHI: Now we tend to think that the idea that your bank would resell your mortgage so that they could get money and make loans to other people and resell it and bundle it and that whole term securitization of the mortgage.


VELSHI: Turning the mortgage into a security. I would say that if you ask nine out of 10 people, explain securitization ask them whether it was the cause of the financial crisis, they would think that it was. And yet once again in your book you're saying securitization may be the answer to some of our problems.

SHILLER: Right. Securitization spreads the investment risk over the whole world ultimately. And it makes mortgages more available. So I mean if people want -- young couples like a cute little house, wherever they want it, or a nice condominium somewhere, it's all made more available by these kinds of products. VELSHI: So what went wrong? Why did that cause so many of the problems that we had?

SHILLER: Well, I think the real problem was an error in predicting home prices. People thought they could only go up. And so they constructed instruments that didn't take any account of the possibility of a decline. Me colleagues and I working with the Chicago Mercantile Exchange started a futures market for single family home prices in 10 U.S. cities in 2006. And it started warning of this debacle soon after we found it.

VELSHI: Right.

SHILLER: But no one painted, you know, people -- it's not really going well yet. We have to get -- this is -- this is Democratizing Wall Street.

VELSHI: Right.

SHILLER: This is bringing the risk management potential of Wall Street down to the home that we own. Once we do that we wouldn't have -- if we had done that, the primary cause of the crisis.

VELSHI: Would you buy a house right now?

SHILLER: I would put it this way. If I were this couple with a young child, definitely. I don't know which way home prices -- with our S&P Case-Shiller, they're still going down but -- and I think they might. So I wouldn't buy a home as just a generic investment.

VELSHI: Right.

SHILLER: If you know --

VELSHI: If you know you're going to live there, you've got the right credit.

SHILLER: Or if you know something about the property you could still invest a home, but just routinely buying a house as an investment, I don't think it's a great idea right now.

VELSHI: All right. Stay right there. Stick around. You're no apologist for Wall Street sins but you say that financial capitalism is still the way forward. We're going to find out a little bit more about that when we come back. Stay with us. You're watching YOUR MONEY.


VELSHI: We all remember Gordon Gekko's famous line, greed is good, from the movie "Wall Street," not much has changed in the last two decades between the original movie and the sequel.


UNIDENTIFIED MALE: Subprimes are crap. The way you keep buying, I've got to worry about my grandchildren's college education.

UNIDENTIFIED MALE: We like insurance.

UNIDENTIFIED MALE: What's not to like, easy selling crack to kids on the school playground.

UNIDENTIFIED MALE: The default is a good idea, execution isn't.

UNIDENTIFIED MALE: Well, you know what they say. Fools make money, bears make money. Pigs, they get slaughtered.


VELSHI: Fools make money. Bears make money. Bulls make money, pigs get slaughtered. I was in that movie, by the way. CNN Contributor, Will Cain, was not, but he joins us now. Also back with us is economist, Bob Shiller.

The reason I've asked Will to join us, Bob, is because Will has had this conversation with us several times. In fact, Will, you have said the big problem with finance in this country is not finances that nobody understands finance.

It's a little bit different from what Bob has been saying. But in the movie, the character says it's not the problem with credit default swaps, it was the execution.

WILL CAIN, CNN CONTRIBUTOR: That's what Shia Labeouf cared he says, but the main character I think who's speaking for the director into the audience is Gordon Gekko suggesting, no, the concept of credit default swaps are a problem.

But I think you guys had a fascinating conversation today. You have to ask yourself is financial innovation really the villain in our economy. If that so, what about things like insurance and credit.

They have played valuable, valuable roles in human beings building wealth in diverse flying risks throughout history.

VELSHI: Because we see efforts to get out of the insurance pool world where people try and see, you know what? I don't like the way insurance treats us, we'll start our own pool.

Ultimately insurance remains the same concept, you have to pool resources. You have to diversify risk. You have to spread risk. What ultimately, Bob, you write this book.

You come from a clean perspective because nobody doubts your allegiances and alliances and you come out and say something that is entirely counter-intuitive.

The finance is there. We don't need to interrupt it. We don't need to get rid of it. We need to improve it.

ROBERT SHILLER, ECONOMICS PROFESSOR, YALE UNIVERSITY: Well, the thing is, finance is such a powerful technology. There's a theory. There's a mathematic. It enables some people to get really rich.

That kind of focuses our attention. There's a little anger or enmity at these people. But we have to get a look passed that and say, well, you know, it happens.

But look at what's happening around the world now. As more and more countries are getting financially sophisticated, look at the economic growth that's happening. It's a miracle.

Historians will look back at this time as a turning point in world history unless something disrupts this.

VELSHI: What is the thing -- I mean, you have a number of things in here that are directly related to finance and the improvement of the world, whether it's bonds for sort of social purposes, the new ways of looking at debt. Give us one example that our viewers can sort of chew on of something you'd like to change or see changed.

SHILLER: Well, yes, one thing, I think government should not rely exclusively on debt for their financing. They should issue something like shares or equity, a share in the GDP. This sounds very strange, never been tried. We could just sell claims on a trillionth of the U.S. GDP.

VELSHI: So in the same way that a company reports four times a year. We GDP updates --

SHILLER: It happens to be quarterly.

VELSHI: It happens to be quarterly and you would get a return based on what your economy is doing. The idea is getting people more involved in the successes and failures of finances as opposed removed from it except as victims.

CAIN: Well, the inherent attention you're going to have in that is what you started with in asking me, people fundamentally don't understand finance much less complicated financial products.

If you look at much of the anger towards the finance industry, it's focused on as you played in the clip, credit default swaps or collateralized debt obligations, things that sound very complicated.

But if you accept the premise that hundreds of years ago that farmers could diversify their risk with a derivative on their crops, bad weather, I can't sell my crop.

If that's a valuable tool for the economy why isn't it valuable to diversify the risk of more complicated things like bonds? If diversifying risk is a valuable thing for the economy --

VELSHI: You have clearly thought about this a lot. Why is this not successful? Is it because the people, the perpetrators of finance don't care to explain this to people or they want to keep it within those realms of people who are very studied and know these things?

Why has there not been greater success in explaining to people how these things have diversified risk and helped people?

CAIN: Well, because they are complicated for one reason. The second is, I want to clarify, they didn't ride into the economy on the wings of angels. There are not, you know, universal goods on these products as well.

I think Bob has talked about it. But, you know, the concept of being able to buy, for example, a credit default swap on a company you own the bond of. You know that creates problems like, are your pushing the company towards bankruptcy.

It becomes theories like you want to avoid moral hazard, which I know Bob has talked about, buying fire insurance on your neighbor's home. There are legitimate complaints about finance.

But I don't think people understand enough to know that it's not the villain in our economy.

VELSHI: Bob, one of the things you talked about "Occupy Wall Street" to start off with this. There's a sense finance is not democratic. It flows up to the wealthiest and the smartest perhaps. You talk about democratizing finance. What do you mean by that?

SHILLER: I wanted to serve the people. When I said that in China, I suddenly realized that sounds communist. I'm not communist. It's universal. We are the people, we control the country. We ought to control the country.

All of these risk management institutions have to be broadened. You mentioned insurance on farmers' crop or weather insurance. That's something not proliferated as well as it should, especially outside of the U.S. People will die because their harm has a drought.

That can be insured. We're moving -- the World Bank, for example, is promoting that kind of thing. It's a slow process. People have to get more enlightened about it.

CAIN: So let's do exactly what you said, take that to someone who understands that in the audience. Bob just explained that a financial innovation tool such as farmers insurance could help people survive in countries like Africa. Do people understand that? That's a financial innovation that saves lives potentially.

VELSHI: Good discussion, guys. Good to see you as always. Bob, thanks for being with us. Robert Shiller is an Economics professor at Yale University. He's the author of several books, including this brand new one called "Finance and the Good Society."

Will Cain is a CNN contributor who unfortunately was not with me on Wall Street, too. Stick around. We've got a lot for you. Lots of the big screen for you, Will Cain. Stick around.

Politically you still have to stand behind "Made in the USA," but is that actually essential to this economy and this recovery? We all remember this scene from "I Love Lucy."

But this isn't the face of American manufacturing anymore. We'll tell you what it really looks like next on YOUR MONEY.


VELSHI: The future of manufacturing in America and how to bring jobs back or create them here in the United States is at the heart of the presidential race between President Obama and likely GOP nominee, Governor Mitt Romney.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES OF AMERICA: I think we've got to make sure that the next generation of manufacturing takes root not in Asia, not in Europe, takes root right here in the United States of America. Right here in Florida, in Detroit, in Pittsburgh, in Cleveland.

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: The way to get jobs to come back is to make this the most attractive place for manufacturing and for other employers. And how do you do that? Well, frankly, you look at what the president outlines for his proposals and then you do the opposite, all right, in most cases.


VELSHI: Nowhere in America is manufacturing as important as Michigan, a battleground state that could actually decide the next president.

Paul Steinhauser is CNN's political editor. Paul, the president bailed out the auto industry. That was very popular in Michigan. Mitt Romney was against the bailout, but he's got deep roots there.

His father, George, was the governor of Michigan. No Republican has won Michigan since President H.W. Bush did in 1988. Talk to me about Romney's chances there.

PAUL STEINHAUSER, CNN POLITICAL EDITOR: Yes, as you mentioned, he's got deep roots there. But the bailout, which didn't hurt him in the primary, Ali, a more conservative obviously electorate there, but it could hurt him in the general election against President Obama.

What does it look like right now on the battleground states? It looks pretty good close. Take a look at this. The most recent poll in Michigan, this is from, Epic MRA. It was earlier this month.

There you go right there. You can see a four-point advantage for the president according to this poll, but that's within the sampling error basically dead even.

Go to the next number and this is interesting. Michigan are seemed to be a little more optimistic now a days than they were about a year ago when it comes to whether their state is going the right direction or the wrong track.

One of the reasons why, Ali, I think you're seeing that turnaround, unemployment in Michigan down 8.8 percent now. It was in double digit last year, still higher than the national average. You mentioned the bailouts. We're talking about that. Really, listen, Obama, Romney, it's a stark contrast when it comes to the roll of manufacturing.

The president, of course, believing that the government should have a bigger role. Mitt Romney, of course, believing that basically the best role for government is hands off. Let the private sector deal with things. That will improve the economy -- Ali.

VELSHI: Unfortunately for Mitt Romney, the auto bailout ended up being more valuable than he would have guessed it would when he was opposing it. Paul, good to see you. Thanks as always.

Paul Steinhauser joining us with that. Let's bring in Will Cain. He's back. He's a CNN contributor. Scott Paul joins us now as well. He's the executive director at the Alliance for American Manufacturing. Let's take a look at how the United States compares to the rest of the world when it comes to manufacturing as a share of GDP.

China has established itself as the world's factory floor. They produce everything from clothing to computers. One-third of all of China's economic output comes from manufacturing.

Germany, 21 percent, the country has found its niche in high-end manufacturing. China's trying to get out of some of the lowest end of its manufacturing, but it's still there.

The U.S. is a distant third with 13 percent, 13 percent of the U.S. economy coming from manufacturing. Scott, are policy failures to blame for the U.S. losing this race or some would argue it's policy successes?

We earn more money. As a result, it's not economical to build some of the things that other countries build.

SCOTT PAUL, EXECUTIVE DIRECTOR, ALLIANCE FOR AMERICAN MANUFACTURING: I don't think that's the case, Ali. I do think it's policy at fault. I think too much of our economic policy has been focused on the financial sector and the latest, greatest thing like the tech bubble in the '90s, housing bubbles.

We've chased these bubbles. Other economies have shown the steadier path to growth and sustainability. We can actually learn a lot from Germany. We shouldn't become Germany, but listen to this, Ali.

Manufacturing workers in Germany make an average of $48 an hour compared to $32 in the United States. There's heavy trade union involvement. But what Germany has in place that we don't is a system of patient capital, a system of vocational training and reinvestment into that high-end manufacturing so that they can keep manufacturing steady.

They have a trade surplus with the rest of the world. They have balanced trade with China. They have high wages. There is a way to do it if you focus your economic policy on manufacturing. That's something this country hasn't done since the end of World War II.

We were right and free in the '50s and '60s without competition and it caught up with us in a hurry, but we've got to get back into the game. I'm glad to see the president talking about it. I'm glad to see Mitt Romney talking about it as well.

VELSHI: I'm glad to see you reminding our viewers that this is not -- this administration, this is not last administration. This is the administration before them. This is lots of administrations in the United States not having a manufacturing policy.

Will, whether or not you think we should have had one, there's an interesting point that you make that I think it's fair to show viewers. You say the U.S. isn't falling behind. We're falling behind perhaps on the number of jobs, the number of people we employ in manufacturing.

But take a look at manufacturing output. In 1990, the U.S. manufacturing output was $2.79 trillion. In 2007, it was $5.25 trillion. It's dipped since then. In 2010, it was $4.83 trillion, the trajectory is higher. So we're probably heading back up to our high point. Talk to me about this.

CAIN: Well, the problem that chart presents for many people like Scott, but I'm not suggesting Scott made this argument. I can't speak to that, is they inevitably end up lamenting the fact that manufacturing hasn't been accompanied by this huge job growth.

Well, then you end up arguing for things like protectionist measures, keeping manufacturing here, and keeping us in some kind of a stagnant level of productivity output to maintain the number of jobs we have.

That's just not the way progress works. One other thing, in the short-term, the U.S. is doing pretty good. We're bringing manufacturing back and although, manufacturing follows cheap labor to China and Vietnam, manufacturers coming back to the U.S. for other reasons.

We've got a huge source of cheap natural gas right now and companies moving back to take advantage of that.

VELSHI: And natural gas is cheap, so you can run your factories cheaply. Oil is expensive so it doesn't pay to necessarily make things to other places and ship them back to the United States.

So both of these weird energy structures, Scott, is working in favor of the United States, but how do you argue Will's point that we're actually manufacturing more with fewer workers?

PAUL: Well, there's no doubt that we've seen productivity gains. We've seen automation gains. We've seen those in every decade, but it was really only in the last decade in the 2000s where we saw a third of all manufacturing employment disappear.

We basically had the same number of manufacturing jobs in this country in 1999 as we did in 1965. The difference has actually been China. We have an enormous trade deficit with China. It was $290 billion last year.

We were not prepared to deal with that. We need to have a game plan on that. But here is where I will agree with Will, Ali and that is I think that manufacturing is in a renaissance right now.

We've seen 470,000 jobs added in manufacturing since the beginning of 2010. It played an outsized role in the recovery. I think it has a spill over effect other types of activity doesn't have.

I think that's reason enough to keep investing, even if, Will is right we're not going to see the return to factories with 20,000 people in them, I think we can see slow and steady growth in manufacturing. That will have a good impact on Main Street as well.

CAIN: I think that illustrates my point though, Scott, not yours. I think that illustrates the need for no policy emphasis on manufacturing. That manufacturing will come and go with the natural cycles of a market.

And when you put policy measures to try to manipulate that, you're kind of playing a game where you think you can control job growth and industry focus. I'm saying, China had its time.

It's going to head downhill from here for China. Most likely we'll see. United States might be one of the beneficiaries of that without any policy help.

VELSHI: Go ahead, Scott.

PAUL: I would say this to Will. I mean, unfortunately every country plays this game. They have a manufacturing policy. If we stand alone based on some theory rather than the real world, we're going to get left behind.

That is exactly what's happened to manufacturing. That's my point. We've not had a plan to deal with it. We focused our eggs in financial services and housing. If we put some of them back in manufacturing, we're going to see success.

VELSHI: Great conversation as always with the two of you.

The man behind the world's largest aluminium company is betting on the U.S. Up next, we'll hear why Alcoa's CEO thinks education is the key to our manufacturing industry's success.


VELSHI: So with more than 13 million Americans out of work, U.S. companies shouldn't have a hard time finding workers, except take a look at this.

In a recent survey from Deloitte, 25 percent of companies identified a shortage of qualified workers as the most significant challenge facing their organizations in the coming years.

I recently sat down with Klaus Kleinfeld. He leads Alcoa, one of the world's largest aluminium producers. He says the U.S. economy is making a comeback, but that we need to do a better job training our workers for the jobs of the future.


KLAUS KLEINFELD, CEO, ALCOA: Even from the perspective of a German I'm extremely optimistic and maybe even because of it, I continue to be super optimistic for a whole host of reasons.

First of all, the plant closures that we've announced on the smelting side, they affect two places here in the U.S. that with permanent shutdown. Those ones have been curtailed before, so there's no job effect involved in that.

If you look at our job growth that we had worldwide, the -- over the last 12 months, the majority of this was in the U.S. The 1,100 jobs we had created in the U.S., why, and where did we bring them? One example I gave you already.

I gave you two, but one I spelled out, the auto industry. You know, and the auto industry finally has come to innovation model. So finally, we have the U.S. automotive forms having an interest in motivation partially driven by legislation.

Partially driven by emission legislation, right, but that's good. Consumer demand comes with it. That drives the right behavior. The other example is the aerospace industry. The aerospace industry is huge in the U.S., huge.

It's a fundamental class in the U.S., very, very good. And the performance there is fascinating, right? So what I believe here is that you're going to see a lot of positive things happening.

One of the critical elements that it needs is a better education of the work force. And I'm not talking -- let me for a second exclude, I mean, the great PhDs, engineers, whatever everybody talks about.

I'm talking about the common laborer, I mean, the person on the shop floor.

VELSHI: And what's wrong with their education?

KLEINFELD: Well, nothing is wrong with their education, but you want to make sure that they keep up and continue to have a good employability. What we have put in place here in the U.S. is we've done, in many of our facilities, we have established corporations where are with the community colleges.

Where we basically offer programs that are compatible with work, so people work and they have time off where they can go to these courses and basically learn something new, get their skill levels up.


VELSHI: OK, I'm packing my bags and heading west to talk to some of the smartest people in the world. I'm going visioneering. I'll explain what that means, next.


VELSHI: Earlier this week, the U.S. Coast Guard responded to report of sheen in the Gulf of Mexico. So far so no one has been able to figure out where the oil came from. How do deal with oil spills, though, led one organization, the X Prize Foundation to trying to solve the problem of removing oil from sea water.

Last year, the X Prize, which offers large cash prices to solve major problem awarded a winning team for tripling the industry standard rate of removing oil from seawater.

Next weekend, I'll be heading west to Los Angeles for what the X Prize calls visioneering where I'll work with some of the smartest people in the world on developing contests to solve problems that governments and markets can't solve.

You'll get an inside look on a special YOUR MONEY from Los Angeles next week. Thanks for joining the conversation this week. We're here every Saturday 1:00 p.m. Eastern and Sunday at 3 p.m.

And make sure to check out my book with Christine Romans, "How To Speak Money," it's a step by step guide to understanding the language of money with everything you need to know.

Head to right now to get the book. You can stay connected to us 24/7 on Twitter. My handle is @alivelshi. The show handle is @cnnyourmoney. Have a great weekend.