hi, everybody, welcome to "the wall street journal report." i'm maria bartiromo. the well-known, well-respected former governor who says we should just go over the fiscal cliff. microsoft. how the one-time tech leader turned tech lagger and whether it's too late to fix it. and the recipe for success, building a brand, an empire and a huge restaurant. my conversation with lydia bastianic. "the wall street journal report" begins right now. >> this is america's number one financial news program, "the wall street journal report." now, maria bartiromo. here is a look at what is making news as we head into a new week on wall street. some encouraging news for the u.s. economy this week.

u.s. trade deficit in june was the smallest it has been in a year and a half, as lower oil prices curbed imports, america imported $22.9 billion more worth of goods than it expected. bitter than what economists were looking for. and better than expected trade numbers could mean a stronger gross domestic product. we'll see about that. a slow market melt-up meanwhile continues. by wednesday, the dow had the first four-day winning streak in more than two months. and then on thursday, the s&p 500 was up for a fifth day in a row, that is the first time that happened in nearly five months, the markets were up again on friday. we're toward the end of earnings season. most media companies out disney beat expectations this week while news corp. met estimates. macy's, kohl's and nordstroms also beat expectation. the post office is bleeding more red ink. the postal service reporting a loss of $5.2 billion for the third quarter. a sign of deepening problems there. first-class mail volume is

declining and it has obligations to its retirees. look for gas prices to spike on the west coast. a massive refinery fire is expected to push prices up to as much as $4.25 a gallon. we are moving closer to the fiscal cliff, a bundle of painful tax increases and spending cuts late this year. and early next year will go into effect. they will slash the federal deficit by $607 billion. if there is no agreement between congress and the white house on another way to reach cutting the deficit. federal reserve chairman ben bernanke says look out below if that happens. >> the congressional budget office has estimated that if the full range of tax increases and spending cuts were allowed to take a effect, a scenario widely referred to as the fiscal cliff, a shol low recession would occur early next year and about 1.25 million fewer jobs would be created in 2013. >> my next guest says not so fast. howard dean says falling off the fiscal cliff might not be so

bad. howard, thanks for joining us today. thanks for being here. >> here's what the upside is for the fiscal cliff. clearly congress can't get its act together. there's no way that congress is going to agree to cut medicare and so forth and so on without raising taxes, and i don't think the republicans are interested in that. here's what you get if we go over the fiscal cliff. chairman bernanke is right, there's going to be a shallow recession for six months. the cbo says we'll be out of it with a growth rate by the end of the year. in exchange, we get cuts. we go back to the clinton-era tax cuts, and we do have entitlement changes. so everybody has something to dislike in the fiscal cliff. the reason i like it is i'm really a deficit hawk. i've always believed that these deficits are very bad for the country. this is the first step towards doing something serious about the deficit, and i think it's worth doing. >> so you are not worried about that recession happening in 2013? most economists, congressional

budget office said that would occur if nothing is done in washingt washington. you say it's okay if it's short term. >> maria, it wi occur. i think a recession is terrible and tough. but this country is in deep trouble. we clearly cannot go on with these kinds of deficits. doing something about the deficit can't be done in washington because none of them ever seem to want to take any political heat. this is the way they designed to take the political heat. all these cuts are necessary. some of them are painful. i hate some of them. we're all going to have to give up something in order to get out of this deficit situation, and the fiscal cliff appears to be the only situation. solution. >> it's amazing there's no discussion about coming to an agreement. i feel like it's deja vu all over again like last summer when we were waiting on the debt ceiling debate. what can washington do at this point? i mean, congress goes away this week for five weeks. five weeks' vacation. i mean, give me a break. then it's just about election time. what about a temporary extension of the tax cuts, at least? >> that doesn't do any good. all that does is do what they've been doing for years, which is

kick the problem down the road. this congress is incapable of doing anything. all they've done is obstruct -- they want to obstruct the president to get him to lose the election. so nothing's going to be done till after the election. but look, no matter what happens, if you take away as much stimulus as this deficit is causing, there's going to be a recession. the question is how much stimulus do you want? i personally believe that the economy's in better shape than it's been in over the last four years. it's not in great shape. somebody has to do something about the deficit. i think the time is now. i think we ought to stop kicking the can down the road. and the only alternative of this incapable congress has been able to come up with is this fiscal cliff. i don't think it's great, but it's a lot better than doing nothing. and extending the bush tax cuts and not cutting any programs is definitely not the solution. we've got to bite the bullet, deal with the deficit, take the recession. if the chairman is right and i think he is, cbo agrees with him, it will be short and shallow. it's a tough price to pay. but it's got to be paid in order to deal with these deficits. somebody has to do this

sometime. >> i've got to tell you, howard, congress, i agree with you on that, but you haven't seen any leadership on this from the president either. there's no conversation at all coming out of the white house. it's been one year since s&p downgraded the debt of america from that aaa rating that it had for 70 years. we haven't even seen treasury rates skyrocket. we've actually seen rates come down. what does that tell you? >> to be quite honest with you, they did have a deal with the white house and boehner backed away from it because he was afraid of his right wing. they had a deal. they had made a deal which involved some tax increases and the right wing wouldn't do it. i don't think you can really blame the president for this. this is a congress which is bent on doing nothing and bent on -- you know, as you know, the republican leader in congress my job here is to get rid of president obama, period. well, if you think that's what your job is, you're not serving the country very well. >> what about simpson-bowles? would you be in favor of something as a blueprint of simpson-bowles to get us out of this? >> yes, something like that.

there are a few things i don't think you need to do. what i would not done is raise under any circumstances is raise the age of eligibility on medicare. i think raising the age on social security is doable as long as you make exceptions for the people who have to work with their hands who don't get the longevity. but -- and certainly, you notify, looking at benefits or a different way to pay for medicare is a good idea, but raising the age of eligibility is foolish. we're trying to insure more people in this country, not fewer. >> we'll leave it there. howard, great to have you on the program. thanks so much. up next, how the company that practically invented personal computing lost its way. inside microsoft's lost decade and lost geek chic. and later, taking a bite out of a $100 million food haul dedicated to the flavors of italy. celebrity chef lydia bastianich on the business of eating well. as we go to the break, take a look at how the stock market ended the week. back in a moment. ks measure commitment

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welcome back. microsoft is the company that opened the window into the computing technology most of us use every day. but hasn't been a victim of its own success. joining me now is kurt ikenwold, author of "microsoft's lost decade." thanks for being on the program. >> thanks for having me. >> great piece. microsoft has been so dominant in professional and consumer technology, but it's less on the cutting edge. the name doesn't resonate with younger generations, and the stock hasn't done anything, virtually flat in the last ten years. what happened?

>> well, the biggest problem that happened is that microsoft forgot what it means to be in the technology business. you know, they came up against ibm at the beginning. ibm started getting cocky and overconfident. and microsoft zipped in. and the same thing. they've reenacted the problems of their former nemesis. they haven't been focused on development. they haven't been focused on bringing out the new product. in fact, their philosophy as expressed by their ceo, steve bomber about a decade ago was we won't be first to cool, but we'll be first to profit. meaning, they won't come in with a new cool technology. they'll wait for somebody else to do that. and then they'll buy their way into that marketplace. well, the problem is that if somebody else is coming in with a product first like an ipod or an iphone, they lock up the market. they start making all the money.

and when you come in with the zune, that's not the cool product. so people don't buy it. >> right. and you know, the other thing is, i mean, they've missed the whole tablet trend. and you know, you mentioned the iphone and the ipad. apple is soaring past them not just in stock price but also in revenue, in technology certainly, continuing to transform our lives with search applications, mobility. so how did microsoft miss the boat on innovating these new products? are they in too many places? you know, they've got the kinect, the video games. maybe they have their hands in too many things? >> oh, absolutely. this is the thing -- somebody said when i was doing interviews for the story, microsoft doesn't know what it wants to be when it grows up. it's true. if you think about who it's competing with, well, one division is competing with sony. another division is competing with apple. another division is competing with google. another -- you know, you just go down the line and each -- this company has more competitors

than virtually any company out there. and it's because they can't figure out what they want to be. you know, and that's why in the piece what i say is one of the real options, one of the only things that i think could make microsoft a powerhouse again is to break up the company. to make it so that it is -- you know, xbox and kinect are great products, but inside the microsoft behemoth, they're just little drops of water. >> the revenue largely is coming from the office and sort of professional internet part of the business. office management. so has the leadership at the company, the co-founder, bill gates, and his successor, steve ballmer, have they basically led this? did they contribute to the lost way? >> absolutely. i mean, one of the -- what i thought was one of the more telling stories that i came across was people might not know that microsoft came up with the first e-reader. you know, the thing like the kindle and the things that are

now incredibly popular for digital downloads of books. they came up with it in the late 1990s. and it was the very, you know, tablet where you look at it. it looks like a book. you can turn the pages. and this is brought up to bill gates who gives the thumbs down because the screen doesn't look like windows. now, think about that for a minute. who cares if it looks like windows? microsoft does. do the customers? no. and so that was -- they missed that element. in fact, the kindle is built off of the technology that microsoft developed. they missed that because they were all wrapped up in themselves. so yeah, bill gates had that problem. steve ballmer made that even worse with the mindset of we'll be everything to everybody, and we'll buy our way into businesses when we see what works. >> now, you cite a remark of steve jobs in that biography of jobs by walter isaacson that there wasn't enough, quote,

liberal arts in the dna at microsoft. tell me how you think the corporate culture at microsoft has determined its fate. >> microsoft has always been a technology engineering company. one of the things steve jobs said that isn't quoted in that book -- or in that article is that, you know, the easy part is the engineering. the hard part is determining what customers want and need. and to a large extent, microsoft does it the other way around. they focus on the engineering, making -- i mean, look at windows vista which is a disaster both on a engineering and a desire stage. it was so complicated and so many of microsoft's products are so complicated. and it's because they're overloaded. they'rer inning centric. they're about getting people to

put in things that they think will look good on an engineering basis. >> do you think microsoft will be able to get their mojo back? >> only if they break up the company. >> only if they break up the company. >> there is no way for a company that is competing against everybody where every division is weighed down by, you know, massive bureaucracy and massive amounts of meetings and memos, you know, thomas edison didn't invent the light bulb with the los of meetings and memos. >> it's gotten so big that the bureaucracies are there. kurt, good to have you on the program. thanks so much. >> thanks for having me. >> we'll see you soon. coming up next, lydia b bastianich and me will sit down and have a meal at the table. >> everybody to the table and let's eat. >> we'll be right back. ♪ i want to win [ breathes deeply ] ♪ this is where the dream begins ♪

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welcome back. lydia bastianich, the italian mama to at-home cooks. she's been cooking and teaching on public television since the 1990s, making her a pioneer in the relatively new career of celebrity chef. when we first brought you this story last year, the present paren newer a entrepreneur offered me a tasting tour of her ultimate passionate. >> 60,000 feet. >> reporter: television chef and restaurant owner lydia bastianich put her money where

her mouth is. italy is the $20 million food temple to eating la dolce vita. >> 50% is retail, you can buy great chocolate or honeys, all from small italian producers. and the other 50 is prepared for restaurants. you saw the cafe. >> it is the first retail venture for lydia and her partners, son and renowned chef, mario ba tatali. heading up what might be the most successful empire. the three partnered with founder of original italy in turin. oscar forinetti. they hoped that a slice of italy in new york would generate some 60 million in annual sales. >> it was kind of an element of pulling together people, some with financial strength, some with prepared food strength, some with retail strength. the vision is close to the original vision, but it was molded to this space and to the energy of new york. >> you must make a lot of food here every day, every week.

>> you need to listen, on a slow day, anywhere from 5,000 during the week, to 8,000 on a weekend. up to 12,000 people walk through this place. >> so you're making how much pasta a week? >> we make here, produce up to 2,500 pounds of pasta. 500 pounds just of the little raviolini. that's the favorite. i'll show you. >> these roots were planted in italy, following world war ii. >> and the area i was in, i was a little girl caught behind an iron curtain, with an italian culture and heritage, into communist, and now slavic nation. they changed their names. we couldn't speak our language or go to church. >> reporter: after fleeing to the border, lidia and her family spent two years at a refugee camp before the catholic charities brought them to the united states in 1958.

>> coming at 12, most of my life is spent on education here in america, so i feel very american, and i feel very italian. and i am blessed with two of the greatest cultures in the world. that is part of the success. >> talk to us about the business. you have built a multimillion dollar global empire. you have eight restaurants, seven cookbooks, your latest just out, 12 years on public television. how did you do it, lidia? >> my driving force was not so much accumulating wealth. it was proving my parents right. telling them that the sacrifices they made was worth it. my mother is 90, she lives with me. and i tell her to this day, mom, you are the reason for it. you're part of all of it. and she was. [ speaking italian ] >> dlis yoes >> when i saw everybody to the table and eat, i mean it. because that is the glue, the center that holds a family

together, that gives security and good food brings everybody to the table. >> reporter: lydia bastianich has been bringing people to the table for decades. in april 1981 with her husband, felix, she opened felidia on manhattan's east side. how would you characterize things in terms of business? is the consumer back? >> the restaurant is the great barometer. we feel it right away. because the table is such an ideal place to do business. why you're going to ask me, and i'm going to tell you. because you know, as human beings, we need to nourish ourselves. that's something you have to do. it keeps you alive. the defenses are down, that is why it is such a good place to talk, to talk to your kids, to your family because everybody is sort of defenseless. they're taking in this nourishment. and what better place to discuss business proposals. they all happen at tables. >> lidia's table she oversees

with her two children. in addition to the restaurant, she has the foods, pastas, sauces, bringing this italian grandma right into consumer kitchens. what did your family teach you about running the business? >> respect for food, don't throw anything away. this feeling of the cycles of nature and remaining in the cooking and eating in those cycles, respecting it. look, how beautiful. have one. when i was small, i used to harvest it. >> you eat it just like that? >> just like that. >> food really gives of itself if it's treated properly. >> my thanks to lydia bastianich. and up next on "the wall street journal report." the look at the impact on your money, and in great britain, a lottery ticket is more than just a wish for a fortune. it may lead to gold, silver and bronze. stay with us.

for more on our show and our guests, check out the website at wsjr.cnbc.com. i hope you'll follow me on twitter and google plus. and a look at stories coming up ahead, earnings reports will be out from cisco, home depot and walmart, among others, tuesday we get total retail sales for the month of july. as well as the producer price index which, of course, monitors inflation at the whole sale level. wednesday the follow-up. the consumer price index will be out. also wednesday, the high-end classic car event, pebble beach automotive week will kick off in california. also thursday, the commerce department will release the number of new residential units that began construction last month. goodwin dough into good window housing. finally, a hefty investment. britain pumped the pounds into

its olympic program through its national lottery adding up to 60% of funding for its athletes. upwards of 260 million pounds or $400 million. yielding the best medal count for the uk in more than a century. root root for the home team and team usa, of course. that will do it for us for today. thank you so much for joining me. next week, a look inside start-up nation. a unique technology company that uses the wisdom of the crowd to solve consumer problems. each week keep it right here where wall street meets main street. have a great week, everybody. i'll see you next weekend. down here, folks measure commitment by what's getting done. the twenty billion dollars bp committed has helped fund economic and environmental recovery. long-term, bp's made a five hundred million dollar commitment to support scientists studying the environment.  and the gulf is open for business -  the beaches are beautiful, the seafood is delicious. last year, many areas even reported record tourism seasons.

the progress continues... but that doesn't mean our job is done. we're still committed to seeing this through.