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Budget Cut Showdown; Fixing the Fiscal Mess; Threat of a Shutdown; The Consumption Economy; Facebook CEO's New Project
Aired February 23, 2013 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
ALI VELSHI, CNN ANCHOR: An economy poised to soar is now under attack from its own government.
I'm Ali Velshi. This is YOUR MONEY.
Your political leaders are punishing themselves for gross inaction. And they're doing it the only way they know how, by targeting you.
(BEGIN VIDEOTAPE)
VELSHI (voice-over): Four government spending cuts take effect March 1st. It's what Washington has been calling the sequester. It's a stupid name for a stupid thing.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: These cuts are not smart. They are not fair. They will hurt our economy. They will add hundreds of thousands of Americans to the unemployment rolls. This is not an abstraction. People will lose their jobs.
VELSHI: You've heard the big numbers. $1.2 trillion in cuts over 10 years. $85 billion this year. That's 13 percent cuts to Defense, nine percent to everything else.
REP. JOHN BOEHNER (R), HOUSE SPEAKER: We're weeks away from the president's sequester, and the president laid out no plan to eliminate the sequester and the harmful cuts that will come as a result.
VELSHI: The forced budget cuts were created during the 2011 debt ceiling debacle. They were passed by Congress and signed by the White House. A worst-case scenario that would be so bad it would force lawmakers to make a deal. Now it's become a poisoned pill that the nation may have to swallow beginning March 1st. And if it happens, 70,000 children kicked off Head Start programs, putting more than 14,000 teaching and staff jobs at risk.
Fewer inspections for things like horse meat in your burgers, cuts to mental health programs mean almost 400,000 seriously mentally ill people will go untreated. Homeland security drawdowns would result in longer wait times at airports and scaled-back cybersecurity would mean more vulnerability to attacks from hackers in China and at home threatening our infrastructure.
Furloughs and layoffs would affect more than 800,000 workers in the Defense industry at the same time that North Korea is testing a nuclear bomb. Cuts at the IRS would mean fewer tax return reviews and longer waits to get refunds. And more than 100,000 people would be thrown out of emergency housing and onto the streets.
One way or another, everyone is going to feel this, while Washington continues to play the blame game.
SEN. CHARLES SCHUMER (D), NEW YORK: The bottom line is very simple. The Republicans have proposed devastating cuts.
SEN. MITCH MCCONNELL (R), MINORITY LEADER: Washington Democrats have gotten used to Republicans bailing them out for their own lack of responsibility.
(END VIDEOTAPE)
VELSHI: Now that we're clear at what is -- about what is at stake, let's figure out whether this is really going to happen.
John King is CNN's chief national correspondent.
John, what is the likelihood of this sequester, these forced budget cuts, going into effect starting Friday?
JOHN KING, CNN CHIEF NATIONAL CORRESPONDENT: Ali, there's no serious negotiations. So at the moment it looks like these will go in. And you heard the president, he not only wants a bigger deal, to have some deficit reduction, a long-term plan, but he also said if we can't get that by March 1st -- and we're not going to get that by March 1st -- we should do something temporary so that these cuts don't take effect.
But, look, there are some Democrats who politically, including people in the White House. We see the president making these public appeals but his own people say privately, they think in the short term at least they have the political upper hand and they think it would help them, meaning it would hurt the Republican Party's image, it would hurt Republicans in Congress heading into the 2014 cycle to have this happen.
So, both parties, both sides, if you will, are playing some short-term political calculations. Republicans think, look, we've tried to get cuts out of the president, we just gave him some tax increases in the last one of these mini crises, and our only leverage, our only leverage is to get these cuts.
They also think, Ali, that some of these predictions are more sky is falling rhetoric and that federal managers will be forced to make tough choices and they won't have the most sensitive services cut, but they'll cut some other things.
So it's a game of chicken right now but at the moment there are no serious negotiations to have some sort of a temporary agreement.
VELSHI: Stand by.
Jeanne Sahadi is a senior writer with CNNMoney. Jeanne, you've written a brilliant article that everybody should read, it's on CNNMoney.com, in which you describe the cuts -- I call them a stupid name for a stupid thing. You say quite simply, because you're more measured than I am. You say the cuts are bad policy and you give three specific reasons why. Tell me about them.
JEANNE SAHADI, SENIOR WRITER, CNNMONEY: It's not the magnitude of the cuts that's the problem, it's the fact that they're indiscriminate. The good will be cut with the bad. The efficient program, the essential services, things we really need and like will be cut equally, in equal measure with those things that are, you know, bloated programs, that are duplicative, that have, you know, lazy workers. Same -- they're treated evenly.
They address the smallest part of the budget. They address discretionary spending primarily. There's a little bit of mandatory spending but it's basically just a third of the budget and that third has already been cut pretty much a lot over the next decade. Not that it can't be cut more, but the manner in which it's being cut is ridiculous.
And lastly, it's -- even though it's going to reduce deficits, it does absolutely nothing to reduce our debt problem because the debt problem is more in the mandatory piece of the budget, and most of that is protected.
VELSHI: This is Medicare, Social Security, and things like that.
SAHADI: Medicare and Social Security. And it's not that those programs are problematic, it's that we're getting so old so fast and there are so many of us.
VELSHI: Right.
SAHADI: And it's that healthcare costs while they have slowed are still growing too fast for us to afford them and cover all the people we've promised to cover to the extent we've promised to cover them.
VELSHI: So, John, let's just get to the bottom of this because you mentioned that there are people who say that there's a sky is falling scenario. And frankly, I laid out a pretty senior scenario at the top of the show about what could happen. There's a possibility that some of those things could not happen. A lot of business people say if I had a business and I was told I had to cut 10 percent across the board, I'd find a way to do it.
The fact is we're not really having a discussion about a more effective way to do it.
KING: No, we're not. And again, this is allegedly part of an attempt to get a big deficit reduction grand bargain. Right? They haven't been able to get that grand bargain so they keep doing it in tiny little pieces, in tiny little sometimes very petty, partisan showdowns. But the biggest issue here, Ali, to get a budget deficit grand bargain is a trust deficit. There's a dysfunctional relationship between a Democratic president and the Republican speaker of the House. The speaker of the House has his own internal problems in the Republican Party right now. And what the president -- what the president is asking Republicans is to twice in six weeks agree to tax increases. That is not going to happen.
VELSHI: Right.
KING: And so their failure to deal with this six months ago, a year ago, 18 months ago, two years ago, and to build trust in the relationship along the way is why we have this moment of truth right now. And I think most Americans, who've had to make their own tough choices the past several years in a tough economy, look at Washington and say, why do I even have to ask myself the question, who's telling the truth, how tough will these cuts be?
VELSHI: Yes.
KING: Why can't you people -- this is the most basic job they're elected to do and they can't do it.
VELSHI: Yes. All right, well, Jeanne Sahadi is a senior writer on CNNMoney.
Please, for those of you who want to understand this well, go to CNNMoney and read her writing on this. It's great.
John king is CNN chief national correspondent. John, always good to see you.
Coming up next, these forced spending cuts start on Friday. Time as John said is running out to make a deal in Washington. I'm going to do my best Monty Hall impression and show you what's behind doors number one, two, and three.
And later, every week I ask you to follow me on Facebook but in my desperation for followers I've turned to the original Facebook friend, Mark Zuckerberg. My conversation with him later in the show.
(COMMERCIAL BREAK)
VELSHI: I don't want you to think I'm that old but remember the game show "Let's Make a Deal"?
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: It's time for "Let's Make a Deal."
(END VIDEO CLIP)
VELSHI: All right. Well, a game show is what we've got going on in Washington these days when it comes to the fight over spending cuts, although frankly it looks more like let's not make a deal. Allow me to channel Monty Hall for a moment. I'm going to show you what's behind doors number one, two, and three. First, door number one, we've got the forced spending cuts, a stupid thing known in Washington by its stupid name, the sequester. This is $85 billion in cuts over the next seven months. They take effect Friday, March 1st, unless our elected leaders come up with a plan to replace them. We're talking about automatic spending cuts between 9 and 13 percent to every federal agency including defense.
Let's go to the next one. Door number two, behind door number two is the Democratic alternative proposal. Senate Democrats have offered to replace those forced spending cuts, the sequester. I'll tell you up front, this is another waste of time with zero chance of passing. They're calling for $55 billion in spending cuts, $55 billion in new revenue. Most of that new revenue would come from a tax on millionaires, the so-called Buffett rule.
Didn't we just impose tax hikes on the richest Americans? I'm sure you all know how easy that was to get. We already drank from that trough. The Democrats, by the way, would delay any spending cuts until to 2014 so we can have this fight all over again at the end of the year and not actually figure out an answer to it.
Finally, a look behind door number three. We've got Simpson- Bowles version 2.0. This is an updated plan, a new plan by the team that was headed by Democratic businessman Erskine Bowles and former Republican Senator Allan Simpson who chaired President Obama's bipartisan fiscal commission back in 2010.
Remember the plan that got thrown under the bus? Well, the new plan highlights cuts to the deficit of $2.4 trillion over the next decade. It gets there by raising $600 billion in new tax revenue, cutting $600 billion from Medicare and Medicaid, and $1.2 trillion over 10 years in additional spending cuts.
Diane Swonk is the chief economist at Mesirow Financial. Alice Rivlin was a member of the president's debt commission and is a senior fellow at the Brookings Institution. Michael Tanner is a senior fellow at the Cato Institute.
Welcome to all of you. Thank you for being here.
Hey, Michael, let me start with you. You say we should not fear door number one. That is the forced budget cuts, what some people know as the sequester, as it stands, which will go into place on Friday if we don't do anything. Why?
MICHAEL TANNER, SENIOR FELLOW, CATO INSTITUTE: Well, let's remember that first of all these are cuts only in the Washington sense that any reduction from future planned increases in spending is a cut. The reality is even if the sequester goes into effect, the federal government will spend more every year. By 2022 it will spend $2 trillion more than it is spending today.
We're talking about cuts that are 2.4 percent of total federal spending. Now if the federal government can't cut three cents out of every dollar without throwing us into the dark ages, then clearly we're doing something wrong.
VELSHI: All right, Alice Rivlin. Simpson-Bowles, I mentioned that, they're at it again. Listen to this.
(BEGIN VIDEO CLIP)
ERSKINE BOWLES, CO-FOUNDER, CAMPAIGN TO FIX THE DEBT: To get this done we're going to have to -- this was clear at the end of last year. We're going to have to push both sides out of their comfort zone. The Republicans are going to have to accept more revenue. The Democrats are going to have to set for cuts in our healthcare spending. That's the only way we can reach a compromise that really makes sense and solves our long-term deficit problem.
(END VIDEO CLIP)
VELSHI: Alice, that's Erskine Bowles, you know him well.
ALICE RIVLIN, FORMER MEMBER, PRESIDENT'S DEBT COMMISSION: Right.
VELSHI: Simpson-Bowles 2.0 proposes $2.4 trillion in deficit reduction versus the $1.5 trillion that the president is looking for. It also requires tax increases. Does this new plan have any chance of going anywhere?
RIVLIN: Well, what has a chance of going somewhere if the president and the Congress can get back together is some version of a grand bargain, and a grand bargain means we have to slow the growth of the entitlements, especially Medicare and Medicaid. We have to put Social Security back on a firm foundation. And we have to reform our tax code so it raises some more revenue.
That's basically what Erskine Bowles and Allan Simpson are saying, it's what Pete Domenici and I said in our report. It's what the president and Speaker Boehner were working on and came very close to.
We need to do that and stop fooling around with this counterproductive thing called the sequester, which is bad macro policy, it would reduce employment when we don't want to, and it is a stupid, dumb -- what can I say -- way to cut near-term spending across the board, program by program, whether it's good or not.
VELSHI: Diane, let's pretend we live in a world where we just have the three doors that I showed you. If you could just choose behind door number one, door two, the Democratic proposal, or door number three, Simpson-Bowles version 2.0, which one makes the most sense to an economist?
DIANE SWONK, CHIEF ECONOMIST, MESIROW FINANCIAL: Oh, come on, it's easy. Door number three. I mean I used to watch "Let's Make a Deal" and I take door number three on this one.
(LAUGHTER)
VELSHI: Regardless. OK. SWONK: Actually knowing what's behind it. It does show my age, as well, but I agree with Alice. I mean, this is -- you know, Alice is the queen of budgets here. She really is the one who is incredible on this. And I think it's really important to understand that this is a stupid way to cut budgets. This is dumb. And we shouldn't be playing baseball with -- involving the U.S. economy and most of us living in that sphere -- political baseball -- on this level.
This is just, again, a repeated mistake of how dysfunctional our government is rather than functional. And going towards door three would not only show that our government is functional but actually show the world that we can lead in this arena rather than lag.
VELSHI: All right, so what do you like -- Michael, you like door number one, which is what they call the sequester, the forced budget cuts as they stand, Alice and Diane prefer door number three, which is Simpson-Bowles version 2.0.
Three of you, stay where you are. Coming up, what if I told you there's another possibility, a mystery door number four. What might that look like? We'll peek behind the mystery door when we come back.
You're watching YOUR MONEY.
(COMMERCIAL BREAK)
VELSHI: In Washington, our elected leaders are playing "Let's Make a Deal" or more accurately as I'm calling it "Let's Not make a Deal" as the Friday deadline for forced budget cuts approaches.
The Democrats have offered an alternative to replace those cuts but it just delays them further and also calls for $55 billion in new taxes, which is politically going to be hard to achieve. I will probably grow hair before that plan goes anywhere in Congress.
And then there's door number three. Simpson-Bowles version 2.0. It has new taxes and cuts to those precious entitlement programs. Basically something for both parties to hate. Maybe just maybe none of these is the answer. Maybe there's a door number four.
Let's continue our conversation with Alice Rivlin, Diane Swonk, Michael Tanner.
Alice, I will start with you. Are there -- you worked on a committee put together -- a commission put together by the president that did things slightly differently than Simpson-Bowles. Are there alternatives? You said a version of Simpson-Bowles to door number four that could be palatable to both sides that might actually get done?
RIVLIN: Well, I was on Simpson-Bowles. So I think that's basically the right thing. But the point is you need to do two things at once. What is driving federal spending are, as you look ahead, are the increases in Medicare and Medicaid and Social Security. That's because we're getting older and because medical care costs are rising faster than the economy can grow. So we need to slow the growth of those benefit programs. But we can't do it all on the benefit side. We can't absorb that many older people and their healthcare without some tax increases. Fortunately, we could reform the tax code, make it fairer and simpler, which is what Simpson-Bowles proposed, and still raise some more revenue.
So I think door number four is any version of the grand bargain. Simpson-Bowles is a good one. It isn't the only way you can do this, but the two essential elements are the tax reform and the entitlement reform.
VELSHI: Michael, let me ask you about that, though. I mean, Alice Rivlin has been in government, she knows how to run budget, she knows all of these thing, and she's still talking about a grand bargain. The reality is we heard about that grand bargain, we heard it talked about in 2011 for the budget. We heard it again during the fiscal cliff drama a couple of months ago. Has that opportunity come and gone?
TANNER: Well, the problem with these grand bargains is they always involve tax increases today and promises that someday, way off in the future, we'll cut spending. The reality is of course the tax cuts are immediate and -- or tax hikes are immediate and permanent and the spending cuts are ephemeral and way off in the future.
VELSHI: But, Michael, let me stop you. That's -- now we're talking -- this is like the criticism of stimulus. Right? The fact that it didn't work the way some people wanted it to work doesn't mean that in concept it can't work. So why can't we have a grand bargain that actually says tax cults today or not, increases today, but they come in over five years or 10 years? Why couldn't we just actually make a big deal rather than just not trust that we'll never be able to make a deal?
TANNER: Well, we could have a unicorn hunt, too.
(LAUGHTER)
The reality is the politics, is that nobody ever wants to cut spending. We have not cut spending. The fact is that for all the president talks about $1.5 trillion in spending cults that he's made so far, we are spending more this year than we did in his first budget. The reality is --
RIVLIN: Michael, let's --
TANNER: -- spending is going up.
VELSHI: Alice, unicorn hunt or not?
SWONK: That's nice.
RIVLIN: I'm for -- I'm for the unicorn because I think we can do it. It isn't a question of doing something now and something later. You have to change the law on both the entitlements and the tax code.
SWONK: Right.
RIVLIN: And we tend to observe laws. For example, when we changed the Social Security law in 1983 and raised the retirement age, we abided by it, nobody noticed really. The retirement age is still going up in accordance with that 1983 law. It will happen.
VELSHI: Diane?
SWONK: You know, I have to agree. I -- with Alice. I'm on Alice's side here. I think that, you know, reforms to the tax code are critical at increasing the efficiency of the U.S. economy as well. We know the corporate tax code is a mess. The business roundtable has shown up at the White House and supported corporate tax reforms with the president. So there clearly is bipartisan support in that arena.
We know the tax code doesn't work. I do think that's important. And we know that the bulk of the problem is in entitlements. And frankly, you know, why can't we get into some things eating around the edges even, even more marginally in the near term like slowing down the pace of Social Security growth or means testing if wealthy people don't need Social Security, then they don't get it.
I mean, these are the things that are pragmatic approaches that don't hurt the economy up front. We don't want to add too much pain.
VELSHI: Right.
SWONK: We've seen what that -- what that means in Europe. We want to avoid the European experience and we actually do have a little bit of time. But there's no -- there's no time like the present to make the plans for the future.
VELSHI: Michael, you're outnumbered, but I hope that won't stop you from coming and playing "Let's Make a Deal" on YOUR MONEY again.
Michael Tanner is the senior fellow at the Cato Institute, Diane Swonk is the chief economist at Mesirow Financial, and Alice Rivlin is a former debt commission member and a senior fellow at the Brookings Institution.
Coming up next, the next big hurdle. Jeanne Sahadi talked about this. President Obama hasn't submitted a new budget so Congress will have to vote on another resolution to continue the existing budget or face a government shutdown at the end of March.
Can't get anything done in Washington.
And Mark Zuckerberg is worth $12 billion, but some questions are even too big for him.
(BEGIN VIDEO CLIP)
MARK ZUCKERBERG, CEO, FACEBOOK: You're asking questions that are a bit above my pay grade, I think.
(END VIDEO CLIP) VELSHI: After building the world's biggest social network, Facebook's founder has a new quest.
(COMMERCIAL BREAK)
VELSHI: So far we've been talking about the poor spending cuts known as the sequester. It's a stupid name, but there's a good reason we're talking about it. As you can see on this calendar, the sequester deadline, those forced budget cuts, go into effect starting Friday. But a more important deadline may be the one on March 27th. That is when the so-called continuing resolution on the latest federal budget expires. If Congress doesn't vote for another continuing resolution, the U.S. government could shut down.
Now in a perfect world, the federal budget is laid out in February every year by the president, should be passed by mid-April every year, but Congress has gone close to four years without agreeing to a new budget. The last full budget was passed in April of 2009.
Under normal circumstances, the president submits the annual budget proposal to Congress in February for the fiscal year that starts on October 1st. Based on that, a budget resolution is written, deliberations and hearings take place, amendments are made, the complete budget is supposed to be passed by April the 15th.
But these are not normal times. When Congress doesn't pass a budget resolution, the previous year's resolution stays in effect. You need a so-called continuing resolution approved to do that. That continues funding for federal agencies at their existing levels. Now that way the government doesn't need to shut down just because your elected officials won't agree on a new annual budget.
Now there have been some political stunts to make it seem like budgets were being presented to Congress and failing in the past few years. Those budgets were put forward for an up-or-down vote without amendments.
That is not how budgets get passed in government or in business. It never has been, it probably never will be. There's supposed to be disagreement and back and forth between the sides. We've just taken all of that too far. We've become too uncompromising. Both sides have essentially given up on trying to do it the right way.
That doesn't really matter at this point because President Obama delayed submitting a new budget proposal to Congress this month by blaming the fiscal cliff battle in December for putting his team behind schedule. That means Congress has to choose to vote to extend another continuing resolution before March 27th or we face a government shutdown.
Now last week I talked to Senator Johnny Isakson, a Republican from Georgia, on this show. He said a government shutdown would be really a bad idea.
(BEGIN VIDEO CLIP)
SEN. JOHNNY ISAKSON (R), GEORGIA: Shutting the government down is a bad idea.
VELSHI: Yes.
ISAKSON: Defending the country is important. Making sure Social Security checks are delivered is important. But it's a better idea to run the country like it's supposed to be run. Do your responsibility. Appropriate money, make cuts where you have to. And if you have to change the tax code, change the tax code but do it in the context of the macro sense not the micro.
(END VIDEO CLIP)
VELSHI: Can't agree more.
Joining me now are David Gergen, he's CNN senior political analyst and professor of public service and director of the Center of Public Leadership at the Harvard Kennedy School, and Ron Brownstein, CNN senior political analyst and executive director at the "National Journal" magazine in Washington.
Gentlemen, good to see you. Ron --
RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Hi, Ali.
VELSHI: Could push President Obama to accept further spending cuts by threatening to shut down the government in the run-up to any upcoming deadlines. We've heard one leading Republican senator, Johnny Isakson, you just heard him say it's a very bad idea, but could we actually be headed down the road to a shutdown?
BROWNSTEIN: I think we are probably not heading down in that direction. There are certainly Republicans who have talked about that, but the consensus of sentiment seems to be moving on a different path, Ali.
You know, I think what Republicans are looking at more now is taking the sequester cuts and then codifying them in, as you know, a continuing resolution to extend the government funding through the rest of the year, and in effect daring the Democrats to shut down the government by refusing to accept those large cuts in both discretionary and defense spending.
VELSHI: David, you have served four U.S. presidents, including three Republicans -- Richard Nixon, Gerald Ford, and Ronald Reagan -- as well as an 18-month stint as counselor to Democratic President Bill Clinton. You left the Clinton administration before his showdown with Republicans in Congress that led to the last government shutdown in 1995-1996 when the public largely blamed then Speaker Newt Gingrich and the Republicans for that's -- for that fiasco.
Now let's assume Republicans don't want a repeat of that this time around. Is just the threat of the shutdown enough to weigh on the calculations made by both sides?
DAVID GERGEN, CNN SENIOR POLITICAL ANALYST: It may well be that the combination of the sequester and the -- and the continuing resolution, the shutdown, will force people back to the table. I think there's a good possibility of that. I agree with Ron Brownstein that we're very unlikely to have a shutdown.
But I would caution this, Ali. The -- you know, we've had 17 shutdowns since 1976. They're usually quite brief. They're blips on the screen. The one we had that you -- that you're recalling, '95- '96, was a much more serious shutdown. It was a showdown between President Clinton and Newt Gingrich and the president won.
But what was very important about that was it cleared the air. The shutdown and the collapse on the Republican side led to an era of bipartisanship that we really got some things done. President Clinton has been the first to say that. So shutdown can have a cleansing effect. And the hope is that the combination of sequester and the prospect of a shutdown will have a cleansing effect here now. Nothing else so far has. Maybe this will.
VELSHI: David and Ron, thanks very much for joining us. We -- I suspect I'll be seeing a lot more of you two guys in the coming week.
BROWNSTEIN: Thank you.
VELSHI: All right, imagine if you don't think of the taxes that you pay as a waste but rather as -- as Ron said, as an investment for which you get a return. Far from being a burden on your proverbial grandchildren, the taxes you pay could actually end up making them money. I'll explain it, put my theory to the test with Fareed Zakaria, next.
(COMMERCIAL BREAK)
VELSHI: Budgets, debt ceilings, government shutdowns, everything we've been talking about during this show comes down to the way government spends its money or your money and the way it spends the money has changed drastically over the last 50 year, and that is part of the problem.
Entitlement programs have risen from being one-third to two- thirds of government spending since the 1960s. Today about half of American households receive some kind of government benefit in the form of Medicare, Medicaid, Social Security, unemployment insurance, and other transfer payments.
Transfer payments. That's a term that economists use to describe money that's moved by government from one taxpayer to another citizen in a way that fuels consumption. There's a reason it's become all about consumption, by the way. To help our economy keep moving, people have to buy the products and services that businesses provide.
Right now the U.S. government uses taxes to take money from people who got more of it and put it in the hands of people who have less of it so more people spend, thereby fuelling the economy. People with lower incomes tend to spend any incremental money they get in a manner that is more beneficial to the economy than rich people do. That's a fact. In the short term, it's economically sensible to put money in the hands of less wealthy Americans, but with a structurally weak economy, with an aging population, and when we can't create enough jobs for people who need them, more and more money is being transferred from the rich to the poor.
It's gone from millions of dollars to trillions of dollars in the last 50 years. The government is spending less and less of its income, your money, on so-called investments and more on transfer payments for consumption.
Now what if we turned the clock back somehow to a time when most tax dollars went toward investments, things like infrastructure, education, and research? If we invested half as much as we spent on transfer payments we would have a world-class infrastructure that would bring companies and jobs back to America.
Fareed Zakaria is the host of CNN's "FAREED ZAKARIA: GPS."
Fareed, Medicare, Medicaid, Social Security, they make up more than 40 percent of the federal budget right now. Compare that with 2 percent spent on education, 3 percent on transportation infrastructure. We're focusing a lot on older generations. And I'm not making the argument that we shouldn't be. But how do we make this switch back to a country that invests in the future?
FAREED ZAKARIA, HOST, FAREED ZAKARIA GPS: You laid the issues out brilliantly, Ali. And the issue is not that there's something inherently bad in doing what we're doing. First of all, it creates a safety net, it creates a fair and decent society. Secondly, as you said, it does have economic value. Poorer people, middle-class people, tend to spend more and therefore fuel the economy. Rich people tend to save and invest that money.
But the problem is because it has become such a large share of the pie, we are not investing. If you look at the big problem we face in the United States over the last 30 year, it has been -- not a rise in taxes, you know, none of those issues, regulation. It has been a dramatic deficit in investment.
Our spending on infrastructure as a percentage of GDP is down. Our spending on science is down. Our spending on technology is down. So figuring out how to rebalance this is the key. The good news is we don't need that much money for investment. We're spending trillions as you say on consumption, on transfer payments. If we could move some of that money into education, science, infrastructure, it would have a big bang.
VELSHI: In the context of the current debate we're having, some people focused on waste and mismanagement in government. But, in fact, this is the bigger long-term issue. We've got an older population, an aging population, and we need to somehow figure out a way to balance this out.
It's become politically charged to have this conversation. So when I say -- when people say I don't want to run up bills that my grandchildren are going to end up pay, what's the best counterargument?
ZAKARIA: I think what people have to understand is that there are two kinds of spending as you point out. If you're running up a bill by building bridges that will last 150 years and fuel economic activity, imagine the -- you know, what the interstate highway system did to this country. Those -- running up bills like that, borrowing the money from the Chinese, that's all fine because that pays off tenfold over the long run.
VELSHI: What about the argument that we don't want government making those decisions, it will just end up being pork, they'll just end up giving it to their district or, what a lot of Republicans say, this is just code for feeding the unions?
ZAKARIA: Take a look at what infrastructure has done to the U.S. economy. Take a look at how it's been built. By and large, America has actually done pretty well on that front. If you look at the Defense Department and the way it has funded research, the kind of research that produced the Internet.
You know, the odd thing about this talk about American government is look at the stimulus bill. We had this huge stimulus bill. We have this huge stimulus bill. There haven't been in scandals associated with it. One, Solyndra, which was actually a case where the Chinese lowered the prices on their solar energy, therefore driving our guys out of business.
VELSHI: Yes.
ZAKARIA: But by and large this stuff has not been as pork filled as people make it out to be. And the crucial issue is -- you know, there's a certain amount of waste in the private sector, as well. There is going to be waste. I don't pretend otherwise. But what is the alternative? Are we not going to modernize our energy grid? Are we not going to modernize our air traffic control? Are we not -- you know, the issue here is almost one of deferred maintenance.
VELSHI: Right.
ZAKARIA: If you leave your boiler and it's leaking at home, that is not fiscally prudent, because one day it will explode. And guess what, the bill will be much higher. When these bridges in America start crumbling, and they are beginning to crumble, the bill will be much higher and we're still going to have to pay it.
VELSHI: Great one. Great conversation. Thank you.
Fareed is the host of "FAREED ZAKARIA: GPS."
OK. Apple has sold more than 300 million of these so far, the iPhone. But it's getting crushed by Google and its stock price is getting hammered. Has Apple lost its cool? Is Google the next Apple? I'll debate that next with my good friend Richard Quest.
(COMMERCIAL BREAK) VELSHI: Do you know what this is? Of course you do. Apple has sold more than 300 million iPhones since it introduced them back in -- believe it or not -- 2007. But this may be less familiar. Even so, Google's Android operating system has been crushing the iPhone lately.
Google says one million new Android devices are activated each day. Handset makers shipped 160 million of them last quarter. Apple just shipped 48 million phones that operate on its operating system.
Google is winning the stock price war as well. In the last year, Google's stock price is up around 30 percent. That's the green line. While Apple is down more than 10 percent.
I want to bring in my good friend Richard Quest for a little "Q&A."
Today's question, Richard, interpret it as broadly as you like, Google or Apple? And in keeping with today's theme, I have a special bell you can see here on the iPhone.
So, control room, when I ring this, give me 60 seconds on the clock. There we go.
Apple is bumping into unrealistic expectations that couldn't continue forever, Richard. If Apple has one talent, it is showing us the next big thing before we even knew we wanted it and then making buckets, buckets of money on it.
It's ancient history now, but back in the '90s, Richard, when -- you remember, I wasn't born yet -- investors had left Apple for dead. The company roared back to life, brought us all sorts of things we did not know we needed, the iPod, the iPhone, iTunes. History shows that all of it will probably take -- you know, it will gain speed again if they come up with one new product. Maybe it's the Apple wristwatch that will turn the doubters into believers.
But at the same time, Apple is reaching out to budget consumers with products like the iPad Mini. That sets it up, Richard, for growth in places like China, which have a growing middle class. Meanwhile Google seems to be following Apple in the innovation department. It's got plenty of products like YouTube, Gmail, Chrome browser, the Android operating system.
But the money all comes from ads. And I'm not sure how sustainable that is, Richard.
RICHARD QUEST, HOST, CNN'S QUEST MEANS BUSINESS: No. no.
If the entire object of Ali's diatribe was just to list the products, then we're all much better informed. But we're here to talk that share price. And you have to remember a share price is the reflection of the company, not only its earnings, but investor beliefs for future growth. And here it's all on the downside for Apple.
Apple has a stench about it. Nobody can quite say what or why, but there's a feeling that there's something nasty at the back of the fringe that needs to be rooted out. Google, on the other hand, which doesn't have that same fierce competition that, say, Apple has from Android. Google has competitors of its own but it still remains the industry standard on surge. It still has many core markets that it's holding on to, much tighter than Apple in its own domain.
The share price, I repeat, Ali, is a reflection of earnings and investor sentiment. And if you look at that share price now, it's not surprising they're going whoop in opposite directions.
VELSHI: Topping $800 a share for the first time this past week.
QUEST: Whoa. And, and, and, and brokerage analysts suggesting it could hit 1,000.
VELSHI: Yes. Wow.
QUEST: But remember, markets are not like a Swiss clock. They overshoot one way.
VELSHI: Yes.
QUEST: And then the other. So look for speculation and bubbles.
VELSHI: Yes. We should look -- that advice spreads to the broader market, as well.
Richard, always a pleasure to see you. You must say, my bell is quite nice, isn't it?
All right. Apple, Google and Facebook are rivals, but now some of the biggest names in tech are teaming up to fight disease. My interview with Mark Zuckerberg is next on YOUR MONEY."
(COMMERCIAL BREAK)
VELSHI: Mark Zuckerberg took Facebook from dorm room startup to the world's largest social network. Facebook made him rich and he became one of the world's youngest billionaires at the age of 23. Now even after Facebook's rocky ideal last year, Zuckerberg is worth around $12 billion. But he's not sitting on his money. Last year Mark and his wife Priscilla Chan gave away 500 million bucks. That makes him America's second most generous donor behind Warren Buffett.
Now Zuckerberg is a new quest. He's teamed up with some of the biggest names in tech like Google founder, Sergey Brin, Apple chairman Art Levinson, and venture capitalist Yuri Milner to launch the Breakthrough Prize in Life Sciences.
Now the foundation aims to recognize excellence in curing disease and extending human life. This week it awarded 11 scientists $3 million each, almost three times as much as the $1.1 million Nobel Prize.
I spoke to him and Anne Wojcicki, who's the founder of the genetics testing company 23andMe and the wife of Google co-founder Sergey Brin. I asked Zuckerberg why the world needs another prize. (BEGIN VIDEOTAPE)
ZUCKERBERG: Society has a lot of heroes for a lot of different things, but we don't have enough heroes who are scientists and researchers and engineers. And these people are just doing great work. And, you know, what we're trying do is we're just trying to set up this institution and do what we can from the sidelines of that work to reward and recognize the amazing stuff that all these folks are doing to cure diseases and expand our understanding of humanity. And improve all these people's lives in different ways.
So we feel like that if we can recognize that work that it can inspire a lot more folks to do similar folks, as well.
VELSHI: And, Anne, when we -- when you announced the first round of winners I have to say of them I probably could identify or recognize two or three of the things that they're noted for doing. They are working on highly specific things. This isn't the 50 years later rewarding somebody for finding a cure to cancer. These are incremental improvements that really changing people's lives.
ANNE WOJCICKI, CO-FOUNDER, 23ANDME: Yes. And I think that's a really important distinction about this prize and what we want to the encourage, is that we want to encourage people to take risks, make major breakthroughs and then be rewarded in the near term after that. So for some of these individuals, their discoveries were relative recent and they've done recent things that have been really significant. And we really want to get people, you know, in this -- in the life sciences to actually think big, take risks and then -- and then recognize that there's a major reward that could come their way.
VELSHI: How much can we extend life and how much should we extend life in your opinion?
ZUCKERBERG: You know, you're asking questions that are a bit above my pay grade, I think, but --
(LAUGHTER)
VELSHI: I'm not sure there are a lot of people in the world above your pay grade.
ZUCKERBERG: But the -- the --
(LAUGHTER)
VELSHI: Just saying.
ZUCKERBERG: You know, the work that these folks are doing, I mean, they're each taking big risks and taking on these big projects, but each of these is a step forward for humanity. Right? So, I mean, these questions about where we're going to be in 10 and 20 years, they're important. But I can guarantee you that people who are sick or who might have these issues want the cures that these folks are working on on building. And in order to get more of the best people and the smartest people who are going through school today to work on these problems, to help cure these diseases, I really hope that the work that we're doing here today can just be an institution, a signal that --
(CROSSTALK)
VELSHI: You talked about like the Nobel Prize or things -- it's a thing. People talk about the Breakthrough Prize, somebody got awarded.
ZUCKERBERG: Yes, I mean, I just --
VELSHI: That's a big deal.
ZUCKERBERG: You know, this prize isn't really about the people who are winning it today.
VELSHI: Right.
ZUCKERBERG: It's about the college and grad students who were, you know, in the lab trying to figure out what they should be researching.
VELSHI: Yes.
ZUCKERBERG: It's about younger kids who are still trying to figure out what they want to be when they grow up.
VELSHI: So you've got -- you've got Anne and you got Sergey from Google, you've got Art Levinson from Apple, chairman of Apple. You've got -- you've got Yuri Milner on this -- on this group that have has financed a lot of companies that you might actually think of as competitors.
This is sort of a face of the new technology. You're not all people who normally work together certainly in business. You're kind of competitors.
ZUCKERBERG: Yes, I think all these companies actually work together a little bit more than people think. But the big thing here is that, you know, science and technology are very closely related. And you know when you're building these information technology companies, the market rewards you and you can make a lot of money.
But lot of these folks who are doing just such extraordinary work in science don't have the same opportunity, and because of that, I think it would just be a shame if a lot of folks who were growing up, trying to figure out what they want do now, don't choose to go into such critical work because of that. So if by having these prizes we can give an incentive and can kind of make some of these folks a little more well-known as figures that some younger students want to grow up to be like, then we're doing our job here.
(END VIDEOTAPE) VELSHI: Thank you for joining the conversation this week on YOUR MONEY. We're here every Saturday at 1:00 p.m. Eastern and Sunday at 3:00 p.m. and weekdays at 3:30 p.m. Eastern. Find me on Facebook at Facebook.com/alivelshi. Tweet me, my handle is @alivelshi.
Have a great weekend.
