the market started going down today when word came out that perhaps there could be a run on the greek banks which would make it difficult for greece to get out of the euro land. again, i'm putting it smack into the hands of greece but actually it was developing into a pretty fine day. all that means is that prices have to go lower continually to adjust for greece and spain and then italy. that's what's going on. not our companies. except for commodities. i'm jim cramer and i'll see you tomorrow! we need a real tax and budget deal now before the elections. if we don't, business, hiring and the economy could well go cold. you can see it in the stock market already. good evening, everyone. i'm larry kudlow. this is "the kudlow report." our top story tonight -- the president grades himself an incomplete on the economy with

2% growth, over 8% unemployment, a vanishing labor force and total debt that now equals our entire gdp, i'm going to grade him on a bell curve by giving him a d-minus. that's after 3 1/2 years, he'd be in danger of being thrown out of school. our panelists will weigh in. also tonight, team obama continues to call mitt romney a vampire capitalist. what kind of businessman is president obama? a crony capitalist playing with taxpayer money. not just solyndra or light squared but a program run by a vacation buddy the president has received a $5.9 million federal grant. plus, business and the economy needs a deal on taxes and spending and the debt limit. we need it now before the economy goes cold, before businesses stop hiring. i saw ronald reagan and tip o'neill make great deals. bill clinton and newt gingrich did it. chris christie in the new jersey democratic legislature did it.

so why can't this crowd in washington help save the country and do something the same way? house budget chair and political force to be reckoned with always, wisconsin congressman paul ryan will join me in just a few moments. but first up, president obama was asked to grade himself on the economy and he assigned himself an "i" for incomplete. >> i won't give this a letter grade. think it is still incomplete. we've still got work to do. i believe we've got to invest this things like education, making college affordable, science and technology, rebuilding our roads, rebuilding the country, that all those things can be done in a sensible way while we bring our deficits down in a balanced way. i think that everybody sitting on this couch is probably going to have to pay a little bit more in taxes so we don't have to raise taxes for middle class families. and that's a different view from what mr. romney believes. >> actually, that crowd, i'd tax them myself. anyway, no doubt an incomplete for any student over three

semesters would be ground for academic probation. but after three years? is it time for president obama to go? we've got former clinton white house aide keith boykin, steve moore of the wall street editorial board and you a thofr "return to prosperity," and we welcome arthur brooks, american enterprise institute president, author of "the road to freedom." arthur, you taught a lot of school before you came to run aei. >> i think if i were his academic advisor i would suggest he take the "f" and change his major. >> indeed. >> what's his major? economics. >> being president of the united states. obviously it is not going well. very least change programs dramatically. start doing some things that are thinking outside the bach in a different way than he has in the past. obviously policies aren't going well and evidence of that is the fact that he's changed his tune entirely. instead of saying that this is the -- set of policies that are

most practical that are going to help the country get back on track he's torqued the whole argument to start trying to make this moral case against the free enterprise system talking about nothing more than fairness and inequality -- >> what is it he said that's against the free enterprise system? give me one example where president obama has attacked free enterprise. >> effectively every time he says that in this country millionaires and billionaires don't pay their fair share and that's hurting our country -- >> that's anti-free enterprise? >> ronald reagan when taxes were 50% and richard nixon, we had a 70% top marginal tax rate, they were against free enterprise as well? >> effectively when they brought those rates down they were going in the right direction. >> reagan went in the right direction because, steve moore, reagan wanted to reward success. the reason president obama gets a d-minus and you're giving him an f, arthur burns, arthur burns, arthur burns -- is because obama wants to punish success. >> i think a d-minus is probably the right grade for barack obama

in terms of his handling of the economy. i'd give him a higher grade for his handling of foreign policy. we've had the shallowest most anemic recovery out of any recession since world war ii. the mortgage foreclosure crisis continues. we have $5 trillion of additional debt and jobs just aren't coming in anywhere near -- >> a quarter million new jobs added in the past two years, 26 consecutive months of private sector job growth. gm and criesly were bailed out and both having the most profitableable year ever. corporate profits are at record highs. dow has doubled. interest rates are at record lows. tell me how president obama has failed in the economy? just because of the unemployment rate? >> i'll adpree with you on the stock market. i think -- >> that's the best thing -- stocks double and profits doubled. >> i want to get to the issue you brought up, larry. i think that if barack obama were to take that tax increase off the table, keith, i know

you've got a pipeline in to barack obama. if he were to take that 2013 tax increase off the table it would be the as a matter of factest thing politically and economically -- >> you have a lot of obstacles. keith is right, there are 4 million new jobs. at the same time under the reagan recovery there were 9 1/2 million new jobs. the economy's growing at 2%. the reagan recovery was 6%. to me the dins was reagan encouraged entrepreneurship. reagan encouraged success. reagan encouraged risk taking and reagan understood the moral case that he made for free enterprise and free market capitalism. i think president obama has so dampened those animal spirits that he is holding back the economy. >> this is the key thing that you bring up. it is easy to say we are coming out of a recession. the key is what could we be doing if we had the right kind of policies. steve and i have been talking about this before. everybody looks back to the good old days in the 1950s. we had 4.5% growth and we had

astronomically high tax rates and see, it didn't slow things down well. well, it did. this should have been our china time, 8% and 9% economic growth. when you do things right you get more. it is not enough to say the stock market is doing this or that or we have this many new jobs created or even that profits are really high. we should be doing much -- >> you've written -- let me pitch this to you. vanishing workforce. this surprises me. i just saw the number again today. 23 million people either unemployed, underemployed or left the workforce all together. that's a staggering number. why is that? to me, that shows he is not instilling confidence, "he" mr. obama. >> we have a global economic crisis, a global recession the president inherited. a lot of jobs are moving out, being outsourced. we have a policy that's being encouraged by mitt rom which isn't necessarily going to change things. he's encouraging the free market to go ahead and do whatever it is supposed to do. it is not necessarily goings to

create more jobs because the purpose of creating jobs is to create more profit. growth doesn't necessarily translate to jobs. >> 2% is not growth. 2% is stagnation. >> just giving him what corporate america wants is one recipe but it won't create more jobs. >> listen to what he said on "the view" today. we need more spending on education, we need more spending on infrastructure -- >> we have roads and bridges that are brare crumbling. >> we're cutting for budgets for schoolteachers -- >> i would tax those liberalsfy thought taxes would go to small start-up businesses. all i'm saying is, you're making the moral point and i want you to finish on the moral points so

people understand it from your book and your thinking. >> this is the key thing. the moral case for free enterprise is more important. we're talking about jobs and growth an opportunity that's coming along. what we need to think about is why we care about those things in the first place. we talk about earn success. real fairness that reward merit. >> that's it. president obama supports free market enterprise. welcome to the show, arthur brooks. up next on "dkudlow," ameria is falling off a fiscal cliff and no one in washington seems to want to make a deal. congressman paul ryan and i talk deals. free market capitalism is the best path to prosperity. you can still cut a deal using free market capitalism. i've seen it done before. i'm larry kudlow. we'll be right back.

america's falling off the fiscal cliff but no one in washington seems ready to make a deal. leaders in both parties gathered for a conference and discussed the country's fiscal health today, and in just a moment, house budget chairman paul ryan joins us exclusively. first up, cnbc's chief washington correspondent john

harwood joins us now with all the details. good evening, john. >> reporter: larry, it will be months before washington deals with the so-called fiscal cliff of expiring tax cuts, automatic spending cuts an the need to raise the debt limit. but today many of the biggest players in washington at least began talking about it at a fiscal summit sponsored by the foundation of former commerce secretary and wall street executive >> peter: son. treasury secretary tim geithner led off by repeating the administration's call for a balanced deficit reduction plan that would call on wealthy americans to pay more. >> this set of expiring tax measures and automatic spending cuts should be a very powerful incentive for people on both sides of the aisle to figure out a balanced package of deal with these kind of things. again, it is not -- it's not that complicated. we can do it without asking americans to bear an unacceptable burden, unacceptable pain for an economy still healing from a crisis. if you do it in a balanced way with the reforms spread across

the economy as a whole. >> but house speaker john boehner blasted president obama and the administration for refusing to accept needed spending cuts in the so-called grand bargain they tried to negotiate last year an boehner promised a hard line in the next battle over increasing the debt limit, a fight that in 2011 led to a downgrade of america's credit. >> when the time comes i will again insist. my simple principle of cuts and reforms greater than the debt limb increase. now this is the only avenue i see right now to force the elected leadership of this country to solve our structural fiscal imbalance. >> senate majority leader harry reid later accused boehner after return to brinksmanship and it was one more reminder that as former senator allan simpson noted today, washington could be headed for absolute chaos after the election. >> many thanks to john harwood for that report. so can we expect absolute chaos or is there going to be a grand bargain in washington? like deals we saw from ronald

reagan on taxes in 1981 and a reagan social security deal in 1983? i was there in the administration for both. what about the 1996 budget deal between newt gricingrich and bi champio clinton? we have an exclusive with house budget chairman paul ryan. welcome back to "the kudlow report," as always. now i know the party line is after the election. i'm here to suggest strongly to you, mr. ryan, that business is going to go cold, the economy is going to go cold and hiring is going to go cold unless you can get something done this summer to give a thaw and some certainty. where's the deal? what's on the table right now? we need a deal, paul ryan! >> larry, we can control what our own actions. so last week we brought to the floor a spending cut package which deals with this question. this summer we will bring to the floor a tax bill that deals with

this tax cliff. how republicans will actually legislate solutions to these problems that are occurring at the end of the year. now i can't tell you what president obama or harry reid will do. you have to understand, we've been putting our cards on the table. we've passed budgets -- >> yes, you have. there's no question you have. have you been clear, absolutely. you have been clear. but i have a different point. okay? and i've been around. reagan in '81 gave some ground on his tax cuts. you remember that. he postponed them. we actually never got 30%. we took 25%. right or wrong, it was part of the deal. in '83 there was a grand design, democrats, labor, pat moynihan, george -- alan greenspan, everybody, kudlow was one of the secretaries of this committee, and everybody had to swallow hard. the same thing with clinton and gingrich. if you had to swallow hard right now in order to send a signal to business, how would you swallow hard? you got to give up something.

you can't have a deal just by saying this is my invie lat position. >> i'm not into negotiating with myself on television. that's futile in my opinion. more important and to the point, we have put solutions out there. we've been rebuffed with no alternative solutions. if you want to pass any major fiscal legislation, you have to pass a budget to do that. the senate has chosen not to pass a budget for three years. the president has chose ton disavow the fiscal commission, to not put a budget out there that attempts to deal with any of these issues. we have passed solutions. so you need to va willing partner who is willing to engage in these ideas drn. >> why not set up a commission, paul? >> we've had so many commissions, larry. larry -- >> so we're close. >> do you know how many working groups we've had? >> you were close last summer. i read the john boehner in the "new york times" magazine section. you and i talk all the time. >> they were close. >> i'm not criticizing you, buddy.

i'm just saying i don't think we can last through the entire summer without a major downturn in the stock market, without a major freeze on hiring, which is pretty lousy anyway, as long as we're stuck with huge tax hikes and, by the way, a debt limit ceiling that's going to b bejes >> no, reagan used to always say, what's that sound i would hear? that's reagan would say. that's the sound of cement cracking around my feet. >> give me a second, larry. okay? give me a second here. number one, what john boehner said today is we want to move a bill to extend the tax rates for a year to prevent this tax cliff but to have a system where we bring tax reform to the floor under exper dieted procedures so that we actually act on tax reform. now the debate is around how best to do tax reform. there are a lot of democrats who adpree with us on the need to lower rates and broaden the base

and you get more revenues into the system that way without harming the economy. but we need to extend the current tax system to get us to that point. >> would you say, for example -- >> we think that is a good offer. >> pat toomey was criticized that he had one that took a lot of deductions out -- >> i supported what pat was doing. >> all right. and came one a pretty big revenue number. maybe in return for a pretty big revenue number, you get your lower tax rates, the democrats can take we're taking it out of rich people and maybe you'll get some spending cuts along the way. see, i think, paul, people want to see some movement like that. >> so we made that movement. the toomey example is one of a few movements that were made which was more revenues through lower rates and base broadening, meaning people can't shelter their income from taxation in the top tax brackets. here's the problem, larry. we have yet to see any movement on the other side on taxes and fundamental -- spending, excuse me, on fundamental entitlement reforms. if you simply chase higher spending with higher revenues, you'll end up shutting down the economy and not solving the debt

crisis. the debt crisis is a spending driven crisis and there's never been a moment when the other side has been willing to do fundamental entitlement reforms to prevent a debt crisis in the first place. >> i agree with you. not only do i agree with you, i agree with your policy proposal. suppose you put the entitlement reform off. say, okay, i got extend tax cuts. that's number one. you had to swallow hard. you hate short term rebates but you had to buy into that goofy payroll tax thing. you had to buy into more unemployment benefits which probably drive the unemployment rate up but you had to do it. in other words, you swallow hard to do some things, it was only a few months ago. maybe you put the entitlement ie refrm out. just get through the debt ceiling and tax hikes and get this spending thing -- i don't want to break up the spending. i think spending cuts are tax cuts. in other words, maybe put the harder stuff away an show business some certainty, particularly on taxes so they won't quit hiring.

paul, you hear this already. they don't know what's coming at you and you got five, six months. i don't think you can wait until after the election. >> get harry reid on your show and ask him the same question. we're going to be doing that this summer. we're going to be again extending current tax policies for another year to give businesses the and the to plan by give us time to do fundamental tax reform. we don't have a big tax increase looming on the horizon because we think it will be chilling for growth so yet we'll extend the current tax rates this sumner this house of representatives to buy us time to do tax reform next year and, yes, larry, you've got to deal with spending. weened there might not be the kind of spending cuts we want this year. that's not going to stop us from extending these current tax rates. we're actually legislating these things so that businesses can get certainty. >> i want to finish with this thought. you and i are both at that george bush institute thing at the new york historical society. i don't think you heard chris

christie's speech. it was at the beginning. but here's what he emphasized and has taught me. christie said you can make a deal without giving up your conservative principals. christie made a no-tax deal with spending cuts with a democratic legislature in new jersey. and new jersey, you know, ain't exactly hong kong. it can be done, paul, without giving up all our conservative principals, deals can be made and i think that's what folks want to see. >> larry, my co-sponsor of my medicare reforms is a democrat from oregon, a u.s. senator. people who agree with us, a lot of people who agree with us on tax reform are democrats. ronald reagan did these things with a democratic congress. our proposals are the same kind of thing. like the '86 tax reform. that's what we're proposing. the problem larry, partisan road blooms in the hou

blocks in the house and senate. >> you know i'm saying these things with the greatest respect. >> i love you, too, larry. >> -- greatest respect and greatest affection. believe me. i just think somehow we got to have a deal. >> paul ryan, chairman of the house budget xhircommittee and great american. thanks for coming back on the show. all the latest headlines from the cnbc news desk. plus, california's $16 billion road to fiscal hell. here we go again. another fiscal cliff, this time straight into the pacific ocean. i'm larry kudlow in search of a principled deal. that's what i'm looking for.

welcome back to the kudlow report. i'm bertha kucoombs in the cnbc newsroom. david einhorn's green light eliminated its position in the troubled search firm yahoo!. two days before the planned facebook ipo, gm says it will drop advertising on the site. the decision will cost facebook an estimated $10 million a year. i'm bertha coombs. kudlow report comes right back after the break.

welcome back to the kudlow report. so, california's in trouble. govern he jerry brown's taking a

page from president obama's soak the pririch tax proposals. >> this is the best that i could do. i've been thinking about this a long time. if one of you guys can think of something better, i'll be glad to -- i'll read your story tomorrow and if it passes the smell test we might even incorporate it. >> i've got one right off the top from the "wall street journal" article today. new jersey governor chris christie and a handful of republican governors around the country have balanced budgets with no tax hikes an large-scale union contributions to entitlements, even cutting tax. so it can be done. but where's california? it is the eighth largest economy in the world and it ain't doing great. so, here now we bring in democrat lieutenant governor gavin newsom of california. he hosts current tv's upcoming gavin newsom show. former reagan economic advisor art laffert, author of "eureka,

how to fix california." you're going to raise the top tax rate on the most successful earners and small business people. let me get this right. last 40 people who are entrepreneurs in california will move to texas and tennessee. isn't that what's going to happen? >> here's good news/bad news. we're a $1.9 trillion a year economy. we're a very dynamic and robust economy. brazil just passed us. ninth largers economy, but nonetheless a dine nick economy. but are you absolutely right to be concerned and critical. but what the governor's proposing is a tax measure to be placed on the ballot. the people of the state of california will determine their fate and future as it relates to increasing taxes on the 1% in california, the top earners, or on those that want to pay a little bit more on their sales tax or they can reject it and in return we'll have real cuts. >> gavin, you're going to

campaign for it. let's be honest. so is your running mate, mr. brown. right? you guys are going to be out there campaigning for that 13.3% tax increase. >> it's not a 13.3% tax increase but tax rate. we have a $15.7 billion problem. we had a $26.6 billion problem last year. we did an all cuts budget last career. clearly we're not out of trouble. the economy has not come back as it needs to. that being said this proposal that brown is making encourages -- or rather incorporates $5.9 billion of new revenue and $8.3 billion of additional cuts. the question is to the taxpayers -- do they want to see more cuts to public education and public safety or do they want to see a modest increase of taxes for 4 in 7 years. it's up to them. that's fundamentally what the governor's done. it is not arbitrary. >> i watched with mine own eyes right here in blue new york and

blue new jersey where a guy named chris christie made public uniyoon people had to contribute more to pensions and benefits. school districts were capped in their property taxes. he balanced the budget, arthur. did he not raise taxes and now he wants a 10% supply side tax cut. why can new jersey do it and california never can? >> of course, california can, larry. i've never heard of an economy being taxed into prosperity. you just did my book called "eureka how to fix the california problem," and frankly i also wrote jerry brown's tax plan when he ran for president in 1992. what i have proposed there is not cutting taxes but cutting tax rates and broadening the base and you would create an economy of growth that you wouldn't believe. i disagree, gavin. i really do disagree with you. your problem is not your deficit, your problem is your high unemployment rate and all the people who are leaving. you've got a real problem of poverty, despair, high

unemployment. stop pushing all of the job creators out of the state. these people are the very best, the very brightest. they are the ones who give you the jobs and you're just saying get the hell out. that's wrong! >> arthur, we're not saying that. that's not fair. let me say this. let me agree with you. i'm a guy with 1,000 employees. i've created 17 small businesses. i know a thing or two about job creation not with a focus group or -- >> good for you. >> as a private sector entrepreneur. i couldn't agree with you more, we do not have a robust economic development plan in the state. we've been resting on our laurels. i've been one of the biggest critics of governor brown as governor of this state for lack of intentionality around more of an entrepreneurial frame. but in dealing with a crisis -- in the abstract we can debate the wisdom of a flat tax as brown has done in the past but we've got to get the voters of california to prove it. here's why. you were just saying the grand bargain -- we don't have a grand barringen in california because we can't get anything done because we need two-thirds for

any revenue enhancements with our republican friends. that's why we have to go to the voters. >> art -- >> let me ask you a question. lou do you think you can raise taxes and make it better? that's just crazy, gavin! >> as mayor of san francisco i never raised taxes to balance my budget but here's a situation the governor fine himself in and that's a real crisis of confidence and concern about just being able to do something as simple as this, finishing up a a school year. the alternative -- >> but you're going to lose the money. it's going to just the way it was when the taxes were done in the '90s. they raise $6 billion in taxes and it ended up being down $2 billion. >> we don't disagree we need dramatic tax reform in this state. but the situation requires we have 30 days to balance our bug. we can talk in the abstract about the way the world should be but we have to deal with reality. >> this is not reality though, gavin. from it is reality because the reality is what are you going to

do -- arthur, let me ask you. you want to cut uc? >> i would much rather do that than raise taxes on the last three people working. yes, i would. >> that's a tough call though -- >> gavin,ky just weigh in? >> this is not my proposal but i think it is understandable. >> a pal of mine was the uc berkeley treasurer for many years. that system has become privately funded. if you follow art laffer's flat tax rate and the people and the entrepreneurs and revenues come back home to california,cou'll have more than enough money to finance the entire great system of the cal schools -- >> guys, we agree. >> do you see how the revenue these that laffer's talking about -- >> we agree. you can't cut your way to prosperity or tax your way to prosperity either. 11% unemployment and we have a hybrid coastal economy, and an

inland economy. it is very serious. >> gavin newsom, i'm going to make a pitch. i don't know what it cost -- $10, $20. pledge on this show, grachb nav newsome, california, lieutenant governor, star of tv and movies and whatever else, will you read my mentor, art laffer's book, about california. >> any opportunity to learn more about the great history in the greatest state in our union, count on it. absolutely. >> you're both great to come on the show. we lost some ground in the stock market today. we lost 63 points on the dow. nine on the s&p. despite pretty good home builder sent many rising to the highest level in five years. my next guest says don't buy your first house now unless you're willing to lose 20% of its market value in the next several years. i don't know if he was referring to california or not but we welcome back gary shilling, president of a. gary shilling and company. author of "the age of

deleveraging." he is a great personal friend and friend of the show. gary, on some of the numbers today, just to get this in -- retail sales coming in 6% year on year. consumer price inflation coming down. >> both of them are. >> down to 2.3% cpi. i'll give ben bernanke something on that. the national federation of independent business has improved slightly. to my likes, it looks like a very sluggish economy but not a recession. tell me why you think it is worked. >> consumers have been on a minispending spree lately. looks like they're retrenching and they really need to. isn't by choice. it's just their assets have been depressed. stocks are still well off their peak. housing prices are down 34% from the peak and people -- post-war babies need to save for retirement. people can no longer tap home

equity in their houses because it's no longer there. there's nothing else in the economy that can really hold it up this year. if i'm right and consumers are starting to retrench, that's it for the economy. >> you're saying more housing price declines, negative wealth -- wet blanket -- >> that's an added factor but you just start with the simple fact that in the early '80s, anybody with a mortgage had on average almost 50% equity in their houses. now it's down to 17%. 23% of those mortgages are under water. in other words, people just between the sucking money out with cash out refinancing and home equity loans and the decline in prices, the equity isn't there. sfli got two sectors i want your take on. they look pretty healthy -- manufacturing coming back for the first time in a long time, and also the energy sector coming back. does that mitigate against the recession? >> it certainly helps and as you know, one of our investment

themes for years has been north american energy because we as a nation decided we wanted to be independent of some of the lunatics in the world. as far as manufacturing, it is coming back. we're reshoring is sort of the buzzword. the interesting thing though is that the labor intensive manufacturing is long gone from the u.s. and will probably never be back. what we have here is very highly automated, very robotic intensive and it is very productive. what's happened if you look at the numbers, manufacturing output is recovering. still not back to its peak but recovering. but output per employee productivity is back on its strong upward trepid and all this has done for employment is arrest the long term decline. it hasn't resulted in many more jobs. of course -- but manufacturing also, one more thing -- has a huge advantage in this country in low energy costs. >> naturally. natural gas has made it competitive. bond prices have been rising, bond rates have been coming

down. dollar has been going up. dollar is up 12 straight days now. really making a move. gold prices are coming down and the aforementioned energy prices are coming down. does this foreshadow deflation and recession in the next 6 to 12 months? >> i think it is a global recession. because you remember my call over a year ago on china for a hard landing and it sure more looks like that going back to 5% or 6% real growth because the earlier fiscal restraint and the weakness of exports and it is still a very export drin economy. europe's clearly in a recession. we think it is going to be as serious as the '08-'09 recession. >> stay in stocks? >> i think we're going to see $80 s&p operating earnings this year. i put 10 multiple at a bear market low. that's more than correction. >> we'll leave it there. gary shilling, very well informed. very well informed book. thank you very much.

more crony capitalism from president obama. a friend of president gets a $6 million grant. we are going to bring you the details. up next, a billion government program to catch underwear bombers and other terrorists at airports by analyzing their facial expressions. it's your tax money at work. we're going to tell you the catch. obama's crony capitalism and a little terrorism threat right back after the break.

the man on right, a nigerian immigrant in the u.s. illegally, allegedly used a deceased american citizens's si's identi work at newark airport until he was discovered and arrested this week. despite multiple checks by his bosses, the new jersey state police and by us customs, the man slipped through and worked in secure areas for many years. adhs reports said that most breaches at newark airport have failed to lead to corrective action. our investigative inc. team has been looking at a much more expensive tsa program. it's a program that some say just doesn't seem to work as advertised and apparently missed

16 suspected terrorist moving through u.s. airports. so, scott cohn joins us now live from oakland international airport in california. good evening, scott. >> good evening, larry. at investigations inc. we're always following your money and this example is in your face. literally. the program is called spot for screening passengers by observation techniques. oakland is one of the airports where it's been used in the past and one of those techniques involves actually looking at a passenger's face to tell if he or she might be a bad guy, which sound amazing -- if it can be done. >> reporter: it's a billion dollar program developed soon after the 9/11 attacks and rolled out nationwide five years ago. >> how are you today? >> reporter: nearly 3,000 so-called behavior detection officers, or bdos, in 160 airports looking for what psychologist paul eckman calls

microexpress microexpresses, tiny slit second facial movements that can betray a passenger's hidden feelings. >> it sounds too good to be true. from it is true. what i've tried to do is take all of what i found in that 40 years of research and translate it into separate tools so it is available to people. because it was the taxpayer who paid for all my research. >> reporter: the tsa has paid more than $1 million to dr. ekman who showed us the online training course. what did you think that was? >> i have no idea. >> reporter: there is more to the s.p.o.t. program but government auditors don't know whether the program works. at least 23 times they found detected terrorists moved through s.p.o.t. airports undetected. >> if congress would give them

the money they'd have enough bdos to man every airport. they don't have it now. >> reporter: but university of utah psychologist david raskin says there's no way to observe microexpressions in the chaos of an airport security line. he calls ekman's program a waste of taxpayer money. >> i was not surprised that he sold it. i was surprised that they bought it. >> are you selling hope over science? >> well, i'm not selling at all. i'm not in the sales business. so i object to the idea that i'm trying to sell this to anyone. >> well, dr. ekman will sell you his program online for $128. for its part, the tsa says it does not use the microexpression techniques that he talks about on passengers in the training line, although dr. ekman says that's a missed opportunity. the tsa says the s.p.o.t. program in general is an effective layer in the overall airport security system and that will now studies that show that

it is significantly more effective they say than just random selection. but the government accountability office says that doesn't prove this is a scientifically valid way of catching terrorists. larry. >> all right, many thanks, cnbc scott cohn, appreciate it. up next, team obama hammers romney's record as a capitalist. but get this -- crony capitalism at its best. obama gives millions of taxpayer dollars to his close golf buddy friend. you see him right there. we're going to bring you the ugly details next up on "kudlow." [ horn honks ]

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president obama's busy attack being mitt romney's career as a capitalist. but just what kind of businessman is president obama himself? take a listen to mitt romney today. >> president obama is an old-school liberal whose first instinct is to see free enterprise as the villain and government as the hero. >> you know, mr. obama's running his own taxpayer funded private equity firm. crony capitalism. to people in os that haven'ted big money to his campaign, he's very helpful. here now is former vermont governor howard dean and rick lazzio, romney supportnd and former republican congressman from new york. this gets kind of ugly. you've got solyndra which was given money. that was a disaster. you've got light square given

money. that it was a disaster. but i want your comments on the latest private ecpit donation of taxpayer money. this guy eric whitaker, university of chicago medical school, got $5.9 million, rick lazzio, he's a golfing buddy of the president's and -- and he is the guy who apparently was asked to give reverend wright $150,000 back in 2008 to stop preaching hate. okay? let's just work this through. whitaker, chicago med school, gets almost $6 million from his pal obama and supposedly that was the conduit to stop reverend wright from talking. what do you make of that, rick lazzio? that ain't exactly what i call good business practices. >> it sure smacks of crony capitalism, larry. it looks like the way this

administration conducts business is to take care of its friends and family. don't take my word for it. the inspector general who was not a political appointee of the energy department looked at the green energy programs and the loan programs and grant programs, said there was a lack of accountability, a lack of transparency and that many of these programs were steered to friends and family. it is exactly what undermines confidence in government intervention. it's why government needs to stay out to the extent possible of the private sector and just create an environment where the private sector can make decisions based on profit and loss, not on who you're taking care of. >> howard dean, have you a comment on this fast breaking story about obama's pal, chicago medical school, who got $6 million and it is by some -- at least some reports was the guy who tried to quiet, giving hush money to reverend wright. >> larry, somebody's been smoking pot that's been doing your writing. you haven't made an allegation that's any proof of whatsoever.

this is a ridiculous story. is there there's a book coming out, howard. >> written by bill o'reilly or something. come on, give me a break. >> there is a book coming out, a very well regarded book -- >> by whom? who is it written by? >> other reporters have said the same thing. >> who is it written by? >> who's it written by. eric -- wait. what's his name. ed klein. i beg your pardon. ed klein who is a ret putable journalist from "the new york times" magazine has written this book and other reporters have confirmed it, howard. >> the claim is what? that he has some proof that somebody gave jeremiah wright $150,000 and he has proof obama's people called somebody up in the government and was given $6 million as a payout? >> yeah. >> i think that's highly unlikely. secondly, let's not go too easy on governor momr romney. when he was governor of massachusetts the debt went up 16%. number of state employees rose dramatical

dramatically. his tax plan for example would leave us with $5 trillion of additional expendexpenditures, additional debt. rather than repeat what essentially is gossip, at least there's some facts and figures associated with governor romney's record in massachusetts. >> let me jump in here right now because obviously president obama has campaigned, his campaign supporters do not want to run on his record. i wouldn't eitherfy had -- >> i don't believe what larry told me. i don't think there's any evidence of it. >> if i had a trillion dollar stimulus program that by setting his own goal was a complete failure, you've got the lowest worker participation rate in 30 years. people are bailing out of the workforce because they've got no confidence in this economy and this administration. $3 trillion deficits in a row. we're on a track for a fourth straight trillion dollar deficit. it is a record of complete failure. he doesn't want to rub on it. if you look at mitt romney's record as governor, he inherited

$2 billion deficit, turns it around, leaves with a rainy day fund. i'll run on that record any time if i'm mitt romney relative to what the president's done. >> i think there are more people working today than when barack obama took office. i think that's a good record. >> thank you very much. sorry we never have enough time. that's it for this evening's show. thanks for watching. it was ed klein's book and we're going to have him on before long. today is gonna be an important day for us. you ready? we wanna be our brother's keeper. what's number two we wanna do? bring it up to 90 decatherms. how bout ya, joe? let's go ahead and bring it online. attention on site, attention on site. now starting unit nine.

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