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Scandals Occupy White House; Interview with Former Senator Olympia Snowe; Bangladesh Factory Disaster Stirs Criticism of American Retailers
Aired May 19, 2013 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
CHRISTINE ROMANS, CNN ANCHOR: The president probably wishes he was talking about your job, your money, your prosperity, but he's not.
I'm Christine Romans. This is YOUR MONEY. President Obama wants to steer the conversation toward his policy goals, but the smell of scandal is getting stronger in Washington.
(BEGIN VIDEOTAPE)
ROMANS (voice-over): The White House, knocked off message by a rash of bad headlines. The IRS allegedly targets conservative groups. The government spying on AP reporters, new details about the deadly raid in Benghazi. Conservatives seize the moment.
REP. JOHN BOEHNER, (R) HOUSE SPEAKER: My question is who is going to jail over this scandal?
REP. ERIC CANTOR, (R) VIRGINIA: We have got to restore the trust in government.
SEN. ORRIN HATCH, (R) UTAH: I have never seen anything quite like this except in the past during the Nixon years.
ROMANS (voice-over): The Watergate scandal forced President Nixon to resign, but do these rise to that level? Let's review. President Clinton had two scandals, Whitewater and Monica Lewinski. Warren Harding had the Teapot Dome, pervasive corruption and oil money.
And Franklin Pierce and Ulysses S. Grant were arrested while in office.
Yes, it was a bad week for the White House politically, maybe the worst of Obama's second term. But will it derail his legacy? After all, he promised to help us prosper.
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We believe that America's prosperity must rest upon the broad shoulders of a rising middle class. We know that America thrives when every person can find independence and pride in their work, when the wages of honest labor liberate families from the brink of hardship.
ROMANS: But this White House is stuck in crisis management, not legacy building for now.
(END VIDEOTAPE)
ROMANS: Greg Valliere is the chief political strategist at Potomac Research Group.
Ron Brownstein is a CNN senior political analyst and editorial director of "The National Journal".
Gentlemen, welcome to the program.
Greg, it is not very often I get to say Teapot Dome scandal on television. We're trying to put this in perspective, really trying to put this really into perspective. You say these scandals could push Democrats away from the president this summer. Put it in perspective for me. How does it hurt our economic recovery, or does it matter?
GREG VALLIERE, CHIEF POLITICAL STRATEGIST, POTOMAC RESEARCH GROUP: I think it is going to hurt Barack Obama's ability to spin a pretty good story with the economy improving, with the budget deficit plunging, I think that would be a slight negative for him.
As you mentioned at the beginning, I think that one thing that is a little bit like Watergate is that Republicans started to flee from Richard Nixon. I am going to be watching Democrats in the next few weeks to see if they start to peel away from Barack Obama.
VAN SUSTEREN: Ron, what's the move here for Republicans? How much political capital do these scandals build for Republicans, and how does this affect other reforms like immigration that the president is pushing for?
RON BROWNSTEIN, CNN SENIOR POLITICAL ANALYST: Right. It's very much of a two-edged sword, I think, for Republicans. On the one hand there is no question that this confluence of scandals, particularly the IRS issue, is going to help them mobilize their base for 2014.
But historically, if you look back, particularly at the Clinton years, the effect of scandal is to empower the hard line in each party. Obama is going to find it tougher I think to make deals that may alienate some of the congressional Democrats while he needs them to defend them against the Republicans.
And on the other side you're going to see the voices get louder inside the GOP who say, the president is bleeding. We don't want to throw him any lifelines with any agreements. And that could be a shortsighted view for the Republicans because it makes it harder to get immigration. The net for them may not be a positive by 2016.
ROMANS: And I want to talk about the Obama economy. This is what it looks like now. The labor force participation rate 63.3 percent, the lowest since 79. Income is up just 2 percent in the past year, 5 percent over the past two years, big blah. Overall the economy grew just 2.5 percent in the first three months of the year.
But deficit's dropping, plunged 32 percent in the first half of the fiscal year. Housing is improving. Prices are rising in most areas. Consumer confidence we just learned late this week is almost at a 6-year high. Stocks, I don't have to tell you, most of those people in Washington have a 401(k) so they're very well aware what's happening in the stock market.
So here is my question.
Ron, I want Ron to answer this. Here you've got Republicans who can be focusing on other things and not the things going in the president's direction.
BROWNSTEIN: Right, absolutely. It gives them an opportunity to kind of take the political offensive and, as I said, to mobilize their base. But there is an opportunity cost. There is a desire in the public to see things get done, particularly on the deficit, the debt, economic growth, those kinds of issues. And to the extent they are seen as focusing solely on this, there is cost.
Politically, your numbers, it is a fascinating sub-current here, which is that the groups at the core of this new Obama coalition, minorities and young people, are actually having the toughest time in this economy.
You kind of wonder how long they can levitate above that in the Democratic Party. If things don't get better for those groups by 2016, can they hold the overwhelming levels of support that they've seen in the last few elections?
ROMANS: Let me ask you, Greg, the debt ceiling fight during the summer of 2011, it actually makes me sick to my stomach remembering about it, and it cost America its AAA credit rating. So here we go again. Treasury is now using, quote, "extraordinary measures" to help the country pay its bills.
How does this play out? We have seen this movie before, Greg. How does it play out this time?
VALLIERE: We don't have to fight the fight probably until November. I think the chance of another downgrade is pretty remote because of the spectacular progress on the deficit. Here is the interesting angle to me. It is not that Obama's agenda is in tatters. It was in tatters a month ago after he lost the background check vote in the Senate.
I think what may happen is the things he doesn't want may get shoved down his throat, Keystone Pipeline, and maybe another sequester. In November to get a debt ceiling he may have to accept sequester for 2014.
ROMANS: All right, Ron Brownstein, Greg Valliere, slowly healing jobs market and a plunging deficit mean there is a lot of other things, scandal things they're talking about in Washington. If we weren't talking about those things, I can assure you Democrats would be talking about the other two. Thanks, guys.
Coming up, forget the president's legacy. A former senator, Olympia Snowe, is worried about the entire U.S. political system.
(COMMERCIAL BREAK)
ROMANS: Partisanship and the inability of our elected leaders to put our prosperity ahead of their politics paralyzed Washington, and that paralysis brought us debt debacles, sequesters, fiscal cliffs.
It has gotten so bad the Olympia Snowe, a three0term U.S. senator from Maine, decided last year she could serve no more.
She has a new book "Fighting for Common Ground," it's a memoir of her career as a moderate Republican in Washington, and it's an indictment of today's hyperpartisanship in Congress.
When I sat down with her recently, I asked her point-blank, what is wrong with these people in Washington?
(BEGIN VIDEOTAPE)
OLYMPIA SNOWE, FORMER U.S. SENATOR: We're a can-do country, and the failure in Washington now is to talk about the politics, the next election, and nothing but the policies advancing this country's interests over the political interests of the next election or one's political position.
ROMANS: Are we going to see moderates become extinct?
SNOWE: Well, it is moving in that direction. I hope not. I hope that there is some way that we can avert it. I have encouraged people to get involved, speak up.
Just as those who have fanned the flames of polarization, they can use the social media to organize, to protest, to demand that people are held accountable and to do their jobs in Washington and come up with results.
ROMANS: You talk about the socially conservative wing of your party that has really swayed Republicans.
SNOWE: It is true. And I think that the unfortunate dimension of the Republican Party today has been one of intolerance of the diverse views within the party.
I don't know how the party expands if, one, they don't change their positions and their views on issues that will appeal to a broader segment of the population. But if you're not tolerant of individuals who have different views within the party, how can you appeal to those outside of the party?
ROMANS: There are actually people who say bipartisanship is a bad thing.
SNOWE: Biggest economy in the world, the greatest nation on Earth, and we can't manage to pass a budget in the United States Congress. In the Senate we're in the fourth year. We finally -- the Senate passed a budget this year, budget resolution, but the House and Senate haven't gotten together. And it is required by law.
ROMANS: Our Congress is breaking the law?
SNOWE: Budget resolutions are supposed to pass and become law by April 15th.
ROMANS: The only leadership we really have is the Fed chairman, and he is pumping $85 billion a month into the economy.
Is he doing the right thing?
SNOWE: I don't think he has any choice. There is disagreement about whether or not he should be doing that because they worry about the implications.
ROMANS: But he doesn't have another choice.
SNOWE: He doesn't because there is no fiscal policy. There is no budget. There is no management in Congress, and the president, there is no debt reduction plan. He has begged Congress. He has argued, because he doesn't want to be in this position.
To have zero interest rates for this long and into 2014, and he has said he doesn't feel comfortable drawing down -- I mean, raising interest rates or pulling out for purchasing these bonds on a monthly basis because of the unemployment rate. He understands the only way it can turn around is for Congress to collaborate and to get it done. There is no other way and there is no other choice.
(END VIDEOTAPE)
ROMANS: Coming up most U.S. retailers probably hope you will forget Reshma, the teenaged girl trapped for 17 days in the collapsed factory building in Bangladesh.
(BEGIN VIDEO CLIP)
RESHMA, SURVIVOR OF SAVAR DISASTER (via translator): Suddenly, I heard the call to prayer and then I heard sounds, I heard the sounds of voices, and I wondered, where is the sound coming from?
(END VIDEO CLIP)
ROMANS (voice-over): Question, will you remember her face the next time you shop for clothes?
(COMMERCIAL BREAK)
ROMANS: I want to introduce you to a woman named Reshma. Maybe you've heard her speak already; maybe you've already heard her story. But we're not going to forget it here.
Last week recovery workers pulled the 19-year-old woman from the rubble of a collapsed garment factory in Bangladesh. She had been buried underneath that debris for 17 days. Cracks in the building had previously been detected, but Reshma says no one told her it was unsafe.
(BEGIN VIDEO CLIP)
RESHMA: No one told me. Everyone was looking to see which parts are cracked so I went in and I see there is a wall where a little is cracked. The managers said this is just water damage and you guys can work.
(END VIDEO CLIP)
ROMANS: More than 1,100 people were killed when that building, home to five different garment factories, crumbled to ground, burying those people alive. They died making clothes for brands that are very likely hanging in your closet.
Americans have short memories, and retailers know that. That's why we're going to remember Reshma, because U.S. companies have an opportunity here. They can make garment producing in Bangladesh safer and they are balking.
More than two dozen European clothing companies have agreed to a new five-year legally binding safety agreement that requires independent inspections and safety upgrades. Only two American companies have signed on, Abercrombie & Fitch and PVH, the maker of Calvin Klein, Tommy Hilfiger and Izod. The rest are saying, no thanks.
Wal-Mart says it is hiring its own inspectors and will make those results public. Companies like Wal-Mart don't want to lose control of their supply chain. They don't want to lost control of the inspection process.
But I am here to tell you they already have. Wal-Mart just found out that a year ago a supplier used one of the factories inside that collapsed building to produce jeans. Before this devastating collapse it had no idea production ever happened there.
And this is not the first time Wal-Mart has been caught unaware. Gap has a different reason for not signing on. It's worried about its legal exposure. Gap doesn't want to end up dragged into court and potentially liable if there is another preventable tragedy in Bangladesh.
Other companies aren't offering much reason at all for not signing on. Here is the statement we got from Sears, quote, "Sears intends to continue participating in discussions on the accord as updates are made and more information is available but is not prepared to sign the current proposal as it is written today."
This goes on like this for 18 more words before ending with this. "Meanwhile we will continue ongoing efforts to work collaboratively with other brands and retailers to improve working conditions in Bangladesh," 71 words in all to essentially say it is status quo for Sears in Bangladesh.
We invited all of these companies to come to talk to us on camera, Sears, Wal-Mart, Target, J.C. Penney, Gap. All declined or didn't respond to our request. The National Retail Federation declined as well.
So let's bring in Dana Telsey and Dara Ward.
Dana is the CEO of Telsey Advisory Group. She has been covering retailers and their business for years.
Dara is a professor of environmental and labor policy at University of California, Berkeley.
Dana, let's look at these numbers, multibillion dollar businesses who have made a ton of money chasing the cheapest labor in a race to the bottom. Look at some of the profit numbers.
Wal-Mart made $17 billion last year. Target made $3 billion. Gap more than $1 billion. How can a company that made, in Wal-Mart's case, $17 billion last year, that knows everything about me at the point of purchase, know exactly what I am doing, how can they not know where their jeans are being stitched?
DANA TELSEY, CEO, TELSEY ADVISORY GROUP: I think one of the things that happens with these companies, they're very large companies. They are subcontracting out some of the garments that they make, and it could go from an agent to a subcontractor.
Certainly the agents, there is lots of legal issues and lots of legal stipulations in the contract about worker safety. But even saying that, worker safety can be enhanced by all.
ROMANS: How can Wal-Mart or Sears or any of these companies, how can they say we will do our own inspections if they don't even know where their stuff is being made? That's what I don't understand.
TELSEY: Because what's happening now is sometimes if this happened, it was through one of the agents, they take it back themselves. There are higher costs to do it themselves or put the inspections in themselves. But they do value -- and it's very important to them -- the safety of the workers that the garments are being produced at.
ROMANS: A lot of people now, Dara, are asking do they value the safety of the workers more or less than they value the very low input costs of making that garment?
When I buy something, when American consumers, Dara, buy something, I think you assume it's not being made with slave labor. The European trade commissioner said this is slave labor in Bangladesh.
Do American consumers, Dara, do they make the assumption or do they not care?
DARA O'ROURKE, ENVIRONMENTAL AND LABOR POLICY PROFESSOR: No, I think American consumers do care when they learn, when they know, when these types of tragedies occur and it becomes kind of front and center and it connects us from the stylish, quality, low price garments we think we're buying with the reality of these supply chains and the reality of Bangladesh, which, as you point out, lowest apparel wages in the world, horrendous conditions, building conditions, infrastructure conditions, that when they see it, I think they are shocked and I think they really do care.
But what you just pointed out is this is a system that has been set up for the outsourcing of production and, quite frankly, the outsourcing of responsibility. This is not an accident that Wal-Mart doesn't know whether these factories are producing their goods.
This is part of a system of pushing down prices, speeding up delivery times so that the industry can drive what they call fast fashion. That is stylish products changing very quickly at reasonable quality but at low prices in the stores.
So this really is an industry problem driven by the brands and the retailers, and this really is a situation where the U.S. brands and retailers are shirking their responsibility.
ROMANS: Are they or, let me ask, because I have been very closely watching and no one is going on camera for me. I have been closely reading these long PR department written statements, policy statements that they have and this is a lot of we want to continue the ongoing dialog.
You know, many people, myself included, say that dialog should have happened before a bunch of people died, right? You should already have a grapple, an idea of what's happening in your factories.
But could it really be that Gap and Wal-Mart and others, maybe they don't like the European deal and there will be some sort of North American deal that will make things safer?
DARA: So the North American retailers came together and made an announcement this week which you probably already read, which was a four-page press release rather than a plan for safety in Bangladesh.
If one of my undergraduate students had turned that plan into me I would give it an F. It was so vague, noncommittal, and filled with self-congratulatory platitudes with no details about what they are actually going to do. It continues a program of voluntary self- monitoring with no binding, no enforceable agreements.
And this is what the Gap is saying. The code word is we don't want liability. The real thing is they don't want responsibility. They want flexibility, which is, again, what the American Apparel and Footwear Association said. That's the only thing that's clear in their press releases because they want flexibility.
They don't want to commit to the real solution, which is a binding and enforceable agreement that would involve them committing to contracts, not to cutting and running, not to voluntary auditing, which has failed over the last 10 years, but to them committing for the next five years to actually commit to improving conditions in Bangladesh. ROMANS: Let me bring Dana back in, because the issue here is do they have a responsibility? The responsibility is to the shareholders, these retailers, right? If there is a public outcry that's big enough, do shareholders start to say, hey, you have got to do a better job? You can't just let people subcontract and subcontract and subcontract; it's bad press.
TELSEY: I think you have seen retailers over the past few years and frankly even the past few decades enhance their operations, whether it comes from the systems side, whether it comes from labor and payroll costs.
ROMANS: By enhance their operations, do you mean make things better safety-wise?
TELSEY: I think they have done it in the U.S. I think the agents part of the business given how much so many of them use these subcontractors and agents, I think now it is going to come onto an even new level, and I think you will see retailers address the issue.
ROMANS: Do they know? Do the retailers know when they are signing the contracts, do they know that there is not a lot of transparency and so much corruption with the local governments? Do they close their eyes and hope for the best?
TELSEY: I think that's why you've seen diversification amongst production. I think you have seen retailers over the past few years, whether U.S., Mexico, Cambodia, Asia, you name tons of different countries that they diversified into, many of the different annual reports and talks and discussions that these CEOs talk about is here is how we diversified our sourcing.
And in order that, they can be able to know more about what is being produced in each country so they're not solely dependent.
ROMANS: Bottom line, does the American consumer pull back? It's an insatiable appetite for cheap clothes.
TELSEY: Bottom line, they don't pull back. If there is something new that they to want wear, they'll keep buying it.
ROMANS: All right. Thanks so much to both of you. Have a great weekend.
Up next, this aging bull keeps running, but how much farther does the market have to go? We'll ask two of the top money minds next.
(COMMERCIAL BREAK)
ROMANS: Did you buy stocks on March 9, 2009? I'm Christine Romans, this is YOUR MONEY.
Maybe you don't have that date marked in your calendar, but that was the start of a major, major rally. If you're smart or lucky and definitely solvent, you bought stocks back then and you're admiring the hefty returns right now.
The S&P 500 is up 145 percent from that date and hitting record after record high. If you're not in this market, you are missing out and if you are in, you're wondering if it's time to sell.
But what if you missed the entire rally? Can you still get in, or are you the sucker?
There still may be some room to run here. The current bull market is the fifth largest since 1928. If you compare it with the other four, it could -- could push even higher.
The bull market is in the 1940s is just a few percentage points higher. But look at 1982 to 1987, up 228 percent; 1948 to 1956, up 267 percent. And the king of all the bulls, 1987 to 2000, the S&P 500 surged 582 percent.
Now, the average span of the top five bull markets is around 2,300 days. That's about six and a half years. This current rally just over four years.
Jim Rogers is chairman of Rogers Holdings and author of "Street Smarts: Adventures on the Road and in the Markets."
Jeremy Siegel is professor of finance at University of Pennsylvania's Wharton School.
Gentlemen, nice to see you both of you this weekend. Thank you. I'm so thrilled to have both of you here for your opinion on what's happening.
Jim, what are the markets telling us? The other markets, gold, bonds, the dollar -- are stocks the only place investors have to put their money right now?
JIM ROGERS, ROGERS HOLDINGS: Well, no, they're not the only place but that's where everybody is going.
ROMANS: Why?
ROGERS: Because it's fun. It's exciting, you know, Jeremy Siegel will tell you the market's going to go through the roof.
ROMANS: Do you believe it?
ROGERS: I'm skeptical. I'm not skeptical it's going to happen because what's happening that's causing it is staggering amounts of money printing.
ROMANS: The Fed.
ROGERS: Yes, yes. I'm not at all skeptical it's going to happen. I just worry about why it's happening.
ROMANS: So, why it's happening you say is because the Fed. The Fed is pumping money, $85 billion a month into the market. It's finding its way into the stock market. ROGERS: Not just the Fed, the Japanese Central Bank has said they'll print unlimited amounts of money, and the English said, we can do that, too, and the Europeans said, we can do it, too. This is the first time in world history that every central bank is printing money and debasing the currency. This cannot end well.
ROMANS: You're predicting danger ahead.
And, Jeremy Siegel, you know, you've talked a lot about the market, 16,000, I think is your goal for your target for the end of the year.
But let me show you, Professor, who is in and who's out, just 52 percent of Americans say they're invested here. That's in a 401(k). The mutual fund, individual stocks, any exposure at all, that's the lowest level ever recorded.
So if the market's going to keep going higher, should people get in right now or are they suckers?
JEREMY SIEGEL, FINANCE PROFESSOR, UNIVERSITY OF PENNSYLVANIA: Well, my feeling is this bull market is not over and, Jim, I'm not going to say that stock market's going to go through the roof. My projection by the end of the year is 16,000 to 17,000, and even higher next year.
But relative to historical valuations, that's not through the roof, it's nothing like 1999, which was crazy. We are at half the price-earnings ratio we were then.
And, Christine, you quoted figures in terms of bull markets. This is still young and still nowhere near the average appreciation. It's fundamentals. It's earnings and what else you have to invest in that are the most important determinants.
And I do not believe that Q.E. is the only reason why people are moving into stocks. I think they're moving into stocks because the opportunities elsewhere are not attractive.
ROGERS: But, Jeremy, are you suggesting that the Japanese and the Federal Reserve and the Europeans and the English weren't printing all this money, this would be happening anyway?
SIEGEL: I mean, my feeling is that we would still be in a bull market, yes, I actually do because of valuations. Now, if we were at the level we were in 1999, I would say yes, it's just the printing of money. This is crazy valuation.
But, Jim, look at the price-to-earnings ratio and tell me, they are historically out of line with what we have experienced in the past. You can't. They are not.
ROGERS: You are right that we are not in a bubble. We're certainly not in any kind of bubble stage. Technically, stocks could go a lot higher.
But what if they stop printing money? Jeremy, the Japanese stock market is up 60 percent in seven months. That's not normal.
ROMANS: Let me jump in. So, Professor Siegel, what happens when the Fed starts to signal strongly that it's going to unwind its historic stimulus in the market? We heard that earlier this week.
Go ahead.
SIEGEL: First of all, so many people are convinced it's like only the Fed, it's only Q.E. I have no doubt that when they announce they're going to taper it off or stop, stop printing, there's going to be a short-term reaction in the market, which I think is a great buying opportunity because I think fundamentals are what are driving this market going forward.
ROMANS: Let me ask you both about jobs because something in the stock discussion that I get a lot from people is, it doesn't matter because half of Americans aren't invested and it doesn't matter because companies aren't using their profits or their flush corporate balance sheets to actually create jobs.
Jim, without a solid middle class job creation, can this, you know, recovery of stocks continue?
ROGERS: Christine, yes, that's bullish. The fact that's not happening yet, that would make Jeremy's case. That is still to come.
If you told me everybody has a job and companies are spending staggering amounts of money, et cetera, et cetera, and the market's up much, much higher, then you'd have to be worried. What you just said is yet to come, that makes Jeremy's case.
I hate to hear her helping you, Jeremy, but she helped you a lot.
ROMANS: The job component of it. The job angle is missing, isn't it?
SIEGEL: You know, we have what, 7.5 percent unemployment, that still means 92.5 percent if I did my subtraction right of the people are employed.
ROMANS: No, unless they dropped out of the labor market. Unless they dropped out of the labor market or they're underemployed or temporary jobs of the 19 percent of the jobs, I mean, it's not exactly rosy out there.
SIEGEL: I'm not saying it's rosy out there, I'm not saying we have -- don't have further to go and I still think we're underutilized.
But I think we're getting there and I think that actually through the second half of this year, and first half of next year, we're going to see better than expected GDP growth, 3 percent to 4 percent. We haven't seen that in a long time and that's going to help the unemployment figures, and also, as you say, once more people are drawn into the economy, I think that will further boost the stock market.
ROMANS: Last question to Jim Rogers, you invest all over the world. You actually moved to Asia.
Is America still the best place to make your fortune in the world?
ROGERS: It's a wonderful place to live and a wonderful place to make your fortune. I happened to think there are better places. We're the largest debtor nation in world history, so we have the wind in our face.
In Asia, the largest creditor nations are China, Korea, Japan, Taiwan, Hong Kong, Singapore. The money is in Asia. If you want the wind at your back, you might think about Asia. But this is certainly a wonderful place.
ROMANS: There you go. Thanks, guys. Nice to see you.
ROGERS: Thank you.
ROMANS: All right. The IRS, A.P. phone records, Benghazi, ObamaCare, that's what's been dominating the president's agenda this week. So, what's get left out? I'll tell you, right after this.
(COMMERCIAL BREAK)
ROMANS: President Obama knocked off message this week and that message was supposed to be --
(BEGIN VIDEO CLIP)
BARACK OBAMA, PRESIDENT OF THE UNITED STATES: New jobs and new opportunities for the middle class. American jobs. More jobs. Jobs. Jobs.
(END VIDEO CLIP)
ROMANS: Twelve million net new jobs in four years. That's what President Obama promised during the campaign. That works out to 250,000 jobs a month.
Now, to keep his promise at this point in his second term, the economy should have created 750,000 jobs. We're at 635,000, more than half of those were created just in February alone.
I want to bring in Robert Reich. Robert was the Secretary of Labor under President Clinton. Today, he's the professor of public policy at the University of California-Berkeley. He's also the author of "Beyond Outraged: What Has Gone Wrong with Our Economy and Our Democracy and How to Fix It."
Welcome to the program.
ROBERT REICH, FORMER LABOR SECRETARY: Hi, Christine.
ROMANS: Nice to see you.
You know, over the last three months, the economy has, on average, added 212,000 jobs. But the jobs recovery, I mean, I think it's fair to say it's been choppy and this week, first time unemployment claims jumped by 32,000. So it shows layoffs picking up just a little bit in the most recent week.
Do you think the president can meet that target of 12 million jobs in four years?
REICH: I think it's going to be very difficult to meet that target both because the job situation is still very bad and also because the headwinds on the economy coming from a Europe that is shrinking, a Japan that is basically still a basket case, China's growth is also slowing -- a world economy is not exactly cooperating.
And then, on top of that, you've got the sequester in Washington that is also a drag on the economy.
Given all these drags, it's going to be very hard to get that many jobs.
ROMANS: You know, as part of the fiscal cliff, Americans saw their payroll taxes jump. And it works to about $1,000 less for typical household making $50,000 a year. And a new study from the New York Fed finds the rise in payroll taxes is going to cause families to cut their spending by an average of $720 this year.
You know, there's the fiscal cliff. There's also that payroll tax holiday that went away. You've been a long time proponent of exempting the first $15,000 of income from the payroll tax.
Do you think that that could generate jobs growth?
REICH: Yes, it could generate jobs growth. Certainly, we could make up the difference if you lose some money, the federal government loses some money by exempting the first $15,000 for Social Security, you just lift the lid on the percentage of or the amount of money subjected to Social Security taxes.
And that would be not only good for the economy, but it also would be a move in the direction of helping the middle class.
You know, one of the hidden issues here, Christine, is that not only do we have a very slow jobs recovery but most of the jobs being created pay less than the jobs that were lost in the Great Recession.
So the quality of jobs is a problem as well.
ROMANS: And that's -- when you talk about the changing of those payroll tax holiday, the payroll withholdings. It's so interesting because it would mean that people who make more money would pay a little bit more out of their paycheck, people above $106,000 or whatever in income would pay more but middle class workers would have less taken out of their paycheck, bottom line.
REICH: Yes, that's right. People who earned a little bit, you know, at the top of the earnings scale would pay a little bit more but remember everybody -- according to this proposal -- everybody's first $15,000 of income would be exempt from Social Security taxes. So, even if you're earning $112,000 or $115,000, you probably are going to be paying less overall in Social Security taxes. It's only people over $200,000 - $250,000 a year that would end up paying more.
ROMANS: I have to ask you. You were former U.S. Labor Secretary, this is commencement season. I must ask you, you know that college graduates are enjoying an unemployment rate that's half the national average, 3.9 percent for college grads. But the unemployment rate for recent graduates is 13.5 percent. It's still so high.
Agree or disagree, college education today costs more and delivers less than any other time in history?
REICH: I would say that's probably right, but it still is a good deal. That is over the course of a lifetime college graduates are earning about 70 percent more than people who do not have a four-year college degree.
So, even though many young people are coming into a very bad jobs market, even though many of them have a lot of debts hanging over their shoulders, it's still over the long-term going to be a good deal for them.
ROMANS: All right. Robert Reich, so nice to see you again today. Thank you so much.
REICH: Thanks, Christine.
ROMANS: All right. Have a great weekend.
A final quiz for the class of 2013, 70 percent of you are graduating with some student debt.
Is the average amount owed: A, $15,000; B, $25,000 or, C, 35 grand? The answer, right after this.
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ROMANS: Thirty-five thousand two hundred dollars, that's how much the average graduate from the class of 2013 owes. Of course, not everyone graduates with debt, but most do. The same study from Fidelity Investments finds 70 percent of this year's graduating class will leave college with debt.
Fifty-four percent of those students say it will take them more than nine years to pay off the loans and 7 percent say they don't ever expect to pay those loans back.
Why? Rising costs -- college tuition and fees have jumped 1,120 percent -- 1,120 percent since 1978. That's compared with 601 percent for medical care and 244 percent for food. So, is the high cost of college worth it?
Well, not according to Bill Bennett, not in all cases. Bill was Secretary of Education under President Reagan. He's also the author of a new book called "Is College Worth It?" And, Bill, you and I have talked about this for so many years. You say the cost of college will keep rising as student aid continues to increase unchecked.
Does this mean we need to address rising tuition and financial aid rather than rethinking who should be going to college and what they should be majoring in?
WILLIAM BENNETT, FORMER EDUCATION SECRETARY: Well, I think it means thinking on both fronts and some people should go to college, by the way, about a third of those who start four-year colleges it makes a lot of sense for a number of different reasons.
But the availability of federal funds has continued to drive up prices. It's possible the prices would go up even if the federal funds didn't keep increasing because the colleges can get away with it. They can charge and charge and charge, and people will just keep paying it because they want their kids to get the degree because they believe it's a talisman, that it is magic.
But it isn't magic for a lot of people. For about a third of the people who go it is, for about two-thirds, it isn't.
Remember, about 45 percent of people who start four-year colleges don't finish. They don't finish at all. And many of them leave with debt and without a college degree.
ROMANS: Bill, about the quality of that education, and the cost and the quality. I mean, if you just look at it from a numbers standpoint, do you agree with the statement, that it costs more to get a degree today and that degree delivers less than at any other time in our lifetimes?
BENNETT: It all depends, what you're talking about and where. If you go into petroleum engineering at the University of Texas, it's going to pay off. If you get into Stanford, you should probably go.
If you go to a second level liberal arts college and major in philosophy, like I majored in philosophy, it may not make sense. You should go into it with your eyes open, but you're probably not going to get a great job, you may not get any job at all.
That's why in the book, "Is College Worth It?" we talk about various choices, various situations. But one thing for sure, the colleges have been taking in the money.
As you pointed out, the inflation numbers for tuition are extraordinary and they have been getting away with it and a lot of kids and their families have been cheated, particularly a lot of the poor kids, the kids at the bottom quintile of American society economically are now graduating from college in smaller numbers than they did 30 years ago.
ROMANS: Let me talk about student loan rates. They are set to double on July 1st. They're going to jump from 3.4 percent to 6.8 percent. Senator Elizabeth Warren is proposing a Student Loans Fairness Act. It would allow students to borrow money at the same rate as the nation's biggest banks.
Under her proposal, new student borrowers would be able to take out a Stafford loan at 0.75 percent.
You know, it makes sense. If the banks get to borrow super cheaply, why can't students?
Why do you think that proposal might not be as rosy as it looks on the surface?
BENNETT: Well, we need to look at all the ramifications and see who ends up subsidizing those loans. As you know, to date, the public has been subsidizing those loans. Who pays those loans back, too? Because there is a lot of provisions in there for student loan forgiveness.
We proposed 25 years ago the income contingent loan. And you graduate from college, if you owe money and you're going to a venture fund capitalist and you make a million dollars, you pay it all back.
If you go in at the lower edges of journalism, let's say, or a philosophy professor, you pay it back a small amount each year. I also think the colleges need to have skin in the game. If they advertise, if they charge these amounts, kids come, they don't graduate or they graduate and don't get jobs, I think the colleges need to give some of that money back.
ROMANS: Do you think the colleges are adapting to the new reality of the job market? Do you think they're still delivering --
BENNETT: Some are.
ROMANS: -- a product the way they did 20 years ago and it's not quite the same?
BENNETT: Some are. There is a big fight right now. You probably know about these MOOCs, massive open online courses. Big announcement, Georgia Tech using Udacity, company in Palo Alto, I'm on their advisory board, I should point out, is going to offer masters degree in computer technology for $6,000. It used to cost $40,000.
Here's a way to get costs and prices down, use the new technology and Georgia Tech I think was very smart to do this.
ROMANS: Yes, that's an interesting trend that will be a big gamechanger in education, I'm sure.
Bill Bennett, the philosophy major; Christine Romans, journalism and French -- let's just point out that liberal arts are the critical thinking, the innovation and the good judgment you need to balance out all those STEM people in the world, no question.
Bill Bennett, thank you so much.
BENNETT: Oh, man, Christine. You opened up a lot there. We'll come -- I want to come back and talk about --
ROMANS: You come back, you come back. All right. Thanks.
BENNETT: All right. Thank you.
College grads are entering a job market that's still struggling and with competition so intense, today's college grads need a battle plan.
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ROMANS (voice-over): After this, you may think you're done with this. But the homework has only begun.
The good news, the economy is recovering. Stock markets are on a tear, and companies are flush with cash.
The bad news is, they're still not hiring robustly and competition is intense among new college grads. One-third of recent grads surveyed said they were making no more than $25,000 a year. With tens of thousands of dollars in debt to pay off and a still- sluggish jobs market, was it all worth it?
DAVID GARTSIDE, MANAGING DIRECTOR, ACCENTURE: The long-term data says that investing in a degree is the right thing to do but you've got to treat it like an investment and treat it seriously. Really show interest and passion about the area you want to work in and start networking early. And the last thing is take every opportunity.
ROMANS (voice-over): Every opportunity because your dream job may not be attainable at first, and it's going to change with time. As the great Dr. Seuss once said, quoted again and again at commencement speeches --
UNIDENTIFIED FEMALE: "You have brains in your head, feet in your shoes -- "
UNIDENTIFIED FEMALE: "You can steer yourself any direction you choose."
ROMANS (voice-over): It's up to you to steer yourself, especially if you feel like all the student debt wasn't worth it.
AUSTAN GOOLSBEE, PROFESSOR, UC BOOTH SCHOOL OF BUSINESS: It doesn't take an advanced degree to figure out that people that have more skills and more education are doing better and surviving better in this comeback than are people who do not. I mean that screams out of the data.
ROMANS (voice-over): And what the data show is nearly two-thirds of recent college grads say they need more training in order to get that dream job. But fewer than half say they got it in their first job after graduation, meaning, plan your next two or three career moves now and figure how your first job out of college can help with those moves. Finally, start planning for retirement now. Does your company offer a 401(k) match? Take it. Start saving now and pay off your debt as soon as possible. Call it a battle plan for grads. Make your opening shot in the job market work for you.
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ROMANS: Up next, the haves and have-nots and the bull market run.
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ROMANS: The rich versus the rest, the 1 percent and the 99 percent. The stock market seems to be the dividing line between those two groups right now. Are you in? Or are you out?
This cartoon printed in "The Washington Post" this week illustrates this divide perfectly. There is a man on the ground down on his luck with a sign that says "I've been looking for work for five years." Meanwhile another man dressed in a suit smoking a cigar reading the paper leans over and said, "Hey, a better strategy would have been to buy stocks."
The front page of the paper he's holding says "Dow" with a big up arrow. Let's not forget we still have 7.5 percent unemployment in this country. The underemployment rate is almost double that.
It is easy to look back in hindsight and say, hey, you should have jumped in this market in 2009, but some of you were struggling just to survive, others of you are still struggling right now. The job is the most important thing for you, not the stock market rally.
Another example, Facebook's one-year anniversary as a public company this weekend. Remember all of that incredible hype? Retail investors dying to get in, thinking this was their chance to prosper? The little guy was going to get a piece of a big company and make their fortune, too?
Oh, yes, then the stock plunged and it is still down 30 percent from its initial offering price. You have every reason to be skeptical when people tell you the stock market is the only way to get rich in America. It is a reminder that in the stock market there are no guarantees and that we are living in one America with two economies.
Thanks for joining the conversation this week on YOUR MONEY. We're here every Saturday 9:30 am, 2:00 pm Eastern and on Sunday at 3:00.
Until then, you can find me on Facebook and on Twitter. My handle is @ChristineRomans.
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