right here at "mad money," i'm jim cramer.larry, what do you hr us? >> jimmy, the do nothing congress is back. will they do anything to avoid a fiscal cliff recession? good evening, i'm larry kudlow. this is the kudrow report. our top story tonight as america races towards the fiscal cliff, the do nothing congress returns to doing nothing? maybe not. we'll talk. meanwhile, president obama in an interview with cnbc says he would be willing to compromise on a budget deal, willing to give 2 $1/2 of spending cuts for every dollar in tax revenue. so is this a presidential compromise to avoid the cliff or just election year politicking? also tonight, team romney sends out a booster e-mail to supporters. the first line, don't get too worked up about the latest polling. question, is obama winning the battle of the convention bounce? we'll look at how both team romney and team obama's fight to

the finish will be played out in seven battleground states where the spread is in the margin of error territory. also this evening, another worrisome sign for the economy, consumer credit shrank by more than $3 billion in july, americans are spending less, markets are basically sideways today and thousands of teachers strike in chicago putting hundreds of thousands of kids on the street. these teacher's salary, health care and retirement plans are vastly greater than any chicago family and still they want more. we will take you to the front lines. first up this evening, to capitol hill, where it's quiet not because it's late but because nothing seems to be getting done. cnbc's own ayman javers joins us now with the details. good evening. >> good evening, larry. blink and you will miss it but congress is coming back to washington. they're in today for the first time since the iii. obviously, it's a campaign year.

members of congress prefer to spend time back in their states and their districts campaigning than being here in washington. they have a very limited agenda this week, up on capitol hill, harry reid admitted it was quote a light agenda this week. here's what they will be working on so far for the rest of the week, starting with the continuing resolution. they have to pass that to fund the government. they will be working on that. all expectations it will pass. a drought bill for farmers and jobs bill may or may not pass. something else that will be on the agenda this week. also interestingly, paul ryan will be making his return to capitol hill after being selected as the vice-presidential running mate for mitt romney. it will be fascinating to watch how he is received by his republican and democratic colleagues on capitol hill. if the obama campaign can make any hey out of any of the votes paul ryan casts this week.

otherwise, dot look for a lot of action on that fiscal cliff, something democrats and republicans on the hill in washington say will have to wait until after the election. and everybody knows who the winners and losers are. >> so, eamon, it will be a do nothing congress. a farm bill, a continuing resolution bill, maybe something for the veterans, god bless them. the big issue wall street and investors and men and women in business are worried about the fiscal cliff, huge tax hike, you're saying they will do nothing. zip poe. >> they will not do it until the lame duck session, paralyzed by politics. and some suggestion they won't do it in the lame duck session, particularly if mitt romney were to win, some sense republicans might want to wait until romney is sworn in as president in late january. as you know, inauguration day comes late in that month, they might have to wait until then because romney as president would be in a position to sign anything that came his way.

we could be looking for months until that fiscal cliff is dealt with. >> many thanks to eamon javers. so is president obama already making concessions to avoid the looming tax and fiscal cliff or just playing election politics. take a look at what he told cbs yesterday. >> so i'm more than happy to work with the republicans. what i've said in in reducing our deficits, we can make sure we cut 2 w1/2 dollars for ever are dollar of increased revenue. >> we will go to our distinguished house members in just a moment to talk about this. first up, here to discuss the politics and impact the government has on the stock market is our great friend, jim yo urio, optimally, what do you want to hear from these guys? >> we won't hear any work will be done on the fiscal cliff before the election.

i don't expect anything optimally, we won't repeal obama-care, this won't happen. we're is a situation now, this election is a referendum on regulation about corporate taxes. that's what we're voting on coming up here. i don't expect anything today. >> the whole world is watching this and will walk away from this and a lot of stories. guys like me will revv this story up and talk about it. i don't know if the president is talking about a come to micompr some point in the future. how can they not do what's on everybody's mind the biggest tax hike in history. >> they said they will not approve one penny more of tax increases. he knows the tax increases won't be passed and probably wants them to oppose him so he can say i tried to compromise. >> from investing standpoint what impact does this law have?

>> we both know logjams can sometimes meet additional fed stimulus. we know the fed is concerned with this. that's one of the things in their bag of reasons why they will go to some form of qe-3 coming up. the stock market might be able to do okay. it certainly won't do as well as it would if things were going good and the dollar is rallying and the united states represented the best place to invest. the stock market could do higher. >> i figure after the first 16 or 18 minutes of stock market rally with qe-3, i think the stock market this whole bloody thing, they're tired of it, then they start worrying about tax hikes, as our own ayman javers said, probably an accurate point, we may not, they may not in washington get to tax hikes until the middle of january, when a potential new president is sworn in, and then i could just tell you from the reagan days, you don't just snap your fingers and do a deal. these things have -- even with

romney, it will take months to go through the process. >> i think -- despite the fact i'm completely supporting the new conservative administration, i do think it might get a little trickier if republicans come in. i think they may wait and i think it could be -- i won't say a disaster by any means, i think it could spook the market quite easily. >> let's prosecuting in jeff, who knows a thing or two about all this, the chief market strategist. good evening, jeff, thanks, buddy. we're having a coffee and tea chat why members of congress can't get anything done looking at a $450 billion tax hike that would raise marginal rates from middle to the upper end investors. what do you think it means, if anything, what do investors think about congress coming back for a few days, walking away and not doing anything? >> it's interesting, right now our wall street election poll, based on eight industries favored by republicans, eight by

democrats, tells us the market's pricing in a status quo outcome from this elections and a quick compromise on the fiscal cliff. larry, i just don't see that. if you have gridlock, you don't have a quick compromise. it's surely going to result in a recession and probably bear market for stocks if we don't deal with this issue. the market's best hope is for unlocked congress probably seeing t seeing it go over to the gop so we can get compromise on these issues and move forward and address this. it is a desire scenario for the markets if we go over the cliff. >> if you have a status quo congress, republicans hang onto the house and democrats have a slim majority in the senate and president obama is re-elected, is that basically what your poll means? >> that's what our poll is telling us, that's what markets are pricing in, therefore, they assume a very quick compromise unlike what we saw last year. >> that's what concerns me. i'm here to tell you as somebody who has some political

experience, under that scenario, you will have anything but a quick compromise, anything but a quick compromise. it will be extended out. they will debate spending, they will debate taxing, they will debate defense. this thing will not happen quickly, there is no way, jeff. no way. >> i agree completely with you, larry. i think this market is vulnerable. we're coming back to school. the market is prepared to get schooled this coming week as we get close tor this election and the prospects, we're excited what the fed may do this week is like getting a flu shot before you storm the beaches at normandy if we go over that fiscal cliff. >> is there any chance at all if the status q quo continues and obama wins the election, that the republicans will feel they need to acquiesce at this point in time, having fought the good fight and shown their constituents we did everything we could, we had to avoid this at the end, are they willing really to go over that cliff?

>> you're asking me to be a political strategist now rather than market. >> why not? i've seen guys with less intelligence than you do it. >> i think the market will bet that won't be an easy thing to do. and we will see a pretty significant slide in stocks and more prepared to be defensive around than optimistic. >> you're worried about it and you're worried, too. thank you. you're both great. i appreciate it. as america races towards the fiscal cliff, the so-called "do nothing congress" prepares to do nothing. please, folks, don't forget free market capitalism, the best path to prosperity. you know what the capital position is? extend the tax cuts and go for full-fledged tax reform. lower rates, broaden the base. i'm kudlow, i am for economic growth.

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welcome back to t"the kudlo report." the so-called "do nothing congress" back in session this week, but can we really expect any deal at all on the fiscal cliff before the november election and before we get a recession? let's turn to capitol hill, two distinguished house members. we welcome back new york democratic gregory meeks and

republican conference chairman from texas. mr. hensley, you were involved very deep lin these discussions last year. i want to ask you how you read this. president obama told c brbs ""f the nation"" yesterday. he would make a compromised deal, 2 w$1/2 of spending cuts for every dollar of revenues. first, is he talking about the budget now to deal with the cliff problem or some far away place in kansas we have no sense of what he's really getting for? >> larry, i don't know the answer to the question. wave heard the president kind of whisper these sweet nothings in our ear before. i mean, what we do know is unfortunately we now have more debt racked up in 3 1/2 years of his administration than the previous 200. he hasn't shown a willingness to do this in the past. the bottom line is we're still on track for the largest tax increase in america's history. no fundamental entitlement reform unless you call the roughly 7, 800 billion he's

cutting from medicare to feed obama-care. elections have consequences and the american people will have a decision to make whether or not they want to increase taxes on small businesses. if they think that's the way out of this terrible non-recovery recovery that we have in the economy today. >> mr. meeks, i want to ask you, do you have any hint, sir, any hint whatsoever that the president yesterday talking about 2 $1/2 of spending for a dollar of revenue, any hint he would engage the congress now while you all have come back for the pre-election session or is this just some, as said, far away dorothy in kansas? >> the president has been trying to get a deal done for a long period of time. it's been the republican congress that has balked at the deal. the president put 4 1/2 billion dollars on the table previously, trillion dollars, i should say. looked like there would be a deal and then it broke up

because the republicans couldn't get the vote. i'm hoping we could get something passed to show. it seems to me in this little bit of time we have here. i like the expression because i think it's accurate in the "do nothing congress" we have, we can't get anything the president wants to get forth, something that can help generate jobs. we can't get that on the floor. if we can't get something basic, the republicans can't agree, don't want to give the president a win on anything, that's where we are right now, don't give the president a win, don't create any jobs and let's take it to november. unfortunately, that's where we are. >> larry, if i could, this is a bicameral legislature. the house passed a budget. the democratic controlled senate hasn't passed a budget in three years. we're now facing a terrible squets problem with national defense and the republican house has remain remained true to the budget

controlled measures but the democratic senate hasn't acted and the president hasn't acted in fact the president violated the law he just signed where he has to tell the american people exactly how badly the accounts are going to be hurt in this sequester. again, when you talk about "do nothing congress," it takes two to do nothing. the house has done something, the democratic controlled senate has done nothing. >> we're only going to be here for two weeks and coming off the floor. that might not be. the senate was talking today what are they going to do if the house is not in. we have two weeks. that's not serious trying to work out anything. >> what if you went more than two weeks? >> i would say -- >> cnbc, as you know, we're a financial business channel. you guys down in washington are very important to business and finance. the whole world is watching this right now. there are many people who believe that the slump in this economy, dropping below 2% growth with anemic job creation is because businesses large and

small do not want to make a decision, particularly a hiring decision, but also an investment decision until they know what's going to happen with the so-called fiscal cliff. that gives us an economic urgency. your president could be a real hero, mr. meeks, if he came back home for a few days an sat down with the lights of jeff hensarling and tried to work something out, obama could be a real hero. >> tell the -- if we were in session longer than two weeks, the president said -- as you said yesterday, when he was on the news circuit, he's ready to work something out that i think is a compromise. i think it's incumbent upon the house republicans then, let's stay in and let's see what we can get done. that's the reason i said -- i know you're a business channel. that's why i said, at the very least within the week we have here, if we're not trying to block what the president wants to move forward for the american people we should at least pass pntr for russia. we can't get that on the floor

blocking many businesses love to have a session for the wto, love to make sure we're working and be able to expand business. we can't even agree on that and we have the votes here. >> with all due respect to the president, he's been awol, absent without leadership over a year. i'm not the speaker. i bet you the speaker would agree to keep us in session if the president would agree not to impose these draconian tax increases ernst and young say will hit at least a million small business, cost us 700,000 jobs and take us from a non-recovery recovery back into a recession. i'm sure the speaker would love to keep us in session if the president would come and do that. >> let me ask you, there was a deal on paper at one point, which included tax revenue increases as well as spending cuts. i'm going back to last year. as i understand the story, speaker boehner had to walk away

because at the last minute, president obama put another 400 billion of tax hikes on the table. you were involved in that. there was a deal that sounds a little bit like what he said yesterday on c brbs. in my naive way, am i whistling past the graveyard or is there something going on here? >> i don't know. it's an election year, it's a very close presidential election. i'm dubious of claims when somebody has been absent from this debate for a year, to come in at the 11th hour. i'm somewhat dubious, all i know when i was on the super committee, republicans were willing to begrudgingly agree to tax revenue increases as long as we would have a fair, flat for simpler tax code and we would reform entitlement spending for future generations, we were told no. >> what we had was broken, coming in saying no new taxes on the top 1% and the fledges couldn't make it. >> we put it on the table, you

didn't put it on the table. >> we agreed to have both ways, no taxes at all. no revenue. >> gentlemen, i have to leave it there. this will be fought out another day. congressman meeks and congressman harsling, thank you. coming up next, president obama gets an unexpected lift by a pizza shop owner. where's the secret service? now, the pizza storeowner says he's being boycotted. when you take a closer look...

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welcome back. we have major market movings ahead, game changers that could make or break your portfolio, at least at year end. coming up on wednesday, all eyes on the eurozone as leaders of the german parliament set to meet bailout options, i think the german parliament will okay it. dutch elections and there could be disconcerting surprises what the dutch want to do on bailouts. i think germany will pass it. ultimately, i think the euro story, at least banked on how good commercial banks have done has been a pretty good story. let's go next on thursday. the big one. bernanke and company concluded the two day meeting. is the fed going to launch a third round of quantitative easing or not? everybody in the world and i mean everybody in the world is betting on qe-3.

who am i to run against that consensus. all i will say is it is a waste of money, a waste of the fed's money and a waste of what is ultimately the taxpayer's money. it didn't work in the last three years and not going to work again. i don't know why the fed insists on this disruption of the dollar. finally, on friday, we will end the week with a slew of crucial economic reports. retail sales, consumer price index, industrial production and manufacturing. my guess is the street and the market is going to really focus on retail sales. but manufacturing is going to be important. there's also consumer sentiment in there as well. now, for the other headlines coming into the cnbc newsroom, let's go straight there and to cnbc's own jackie deangelis, good evening. >> good evening. we start off with more layoffs at two tech giants. hewlett-packard announcing an

additional 2,000 job cuts. as ceo meg whitman puts her structure into effect. look for 11,500 for this year. and kodak will eliminate 1,000 jobs as it looks to bankruptcy next year and didn't say where they will be made. in the arctic ocean, shell oil began drilling monday. sea ice is drifting towards the site and shell is moving the drill as a safety precaution. bp is reducing its presence in mexico selling assets for $5 billion part of which to pay for the cleanup costs from the explosion and spill two years ago and will still have some left after the sale. the democratic ticket found itself crossing into the reality tv zone or maybe a road trip. here's the president getting a full off the ground buddy hug from scott vanduzer from big

apple pizza in fort pierce, florida and now says that stunt cost him patrons from both parties and vice president biden seen whispering into the ear of a lady biker. it might be time to give that regular guy act a rest. >> things get weirder and weirder. where was the secret service when that guy was bear hugging president obama? jackie deangelis, it's all a mystery and will be revealed further. romney on the state of the race. he tells supporters i will quote don't get too worked up about the latest polling. it will be a fight to the finish, folks, the battle ground states still up for grabs, our political pros face off next where we are in the presidential race. [ male announcer ] how do you trade?

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welcome back to t"the kudlo report." at this hour, president obama and his former chicago education secretary are missing in action as tens of thousands of teachers

go on strike in the windy city for outrageous salary and benefit increases, all of that with terrible student performance. this is pure money politics ripoff. it's going to ruin the kids and bankrupt the city of chicago. it's a tragic story. also tonight, is gm being zapped by the vault? new numbers say government motors is losing $49,000 per car. it sells them for 40 grand. by the way, toyotas are sold for 20 grand. of course americans are not buying the vault and it's sparking taxpayer outrage. who is to blame for this. presidential candidate mitt romney and barack obama have done a lot of talking these past two weeks at conventions and battleground states and making the rounds on the television news circuits. it's on specifics the candidates seem to come up short time and time again. john harwood has the full story. good evening. >> good evening, larry.

one of the enduring frustrations of reporters and some voters is the inability to get candidates to specify their positions on some important issues. the reason why they don't do it is pretty simple, to maximize the number of people who agree with them and enemies they make. case in point, mitt romney on "meet the press," perfectly willing to talk about how much he wants to reduce tax rates but won't get specific on the loopholes he'll close to make that happen. >> where are the specifics how you get to this map? isn't that an issue? >> the specifics are these, which is those principles i described are the heart of my policy and i've indicated as well that contrary to what the democrats are saying, i won't increase the tax burden on middle income families. it would absolutely be wrongdoing that. i had the experience of being a governor and demonstrated i have the capacity to balance budgets and balanced them four years ago and cut taxes 19 times in massachusetts. >> can you give me an example of

a loophole you will close? >> high end taxpayers will have fewer deductions and exemptions, nos numbers will come down, otherwise they will get a tax break. >> that's one example of candidates' refusal to spell out specifics. president obama has not been willing to say what changes in medicare entitlements and social security he would be willing to make with congress and neither candidate has spelled out what loopholes they would close to get the corporate tax rate down as part of corporate tax reform. they will have a chance to drag some details directly during the presidential debates. three presidential, one vice-presidential that take place in october, larry. >> many thanks to john harwood. couple of questions for this segment. who won the conventional bounce. it appears to me romney's failure to make the sale on the economy has given the edge to obama and his pal, clinton.

the poll has them leading by 5 in the national tracking surveys. that ain't much. according to real clear politics, although the margins are tight, out of nine tossup state, president obama is leading in eight. has some on the team romney worried and me worried, so much so and e-mail went out to supporters saying don't let daily polls discourage you. it's an even-up race. sounds like the daily stock market. here's jimy williams, steve moore of the "wall street journal" editorial board and author of "return to prosperity goprosperity" and author of new book "divider in chief", the fraud of hope and change. before we get to the fraud of hope and change, i think hope and change wonthy convention pounce. i didn't think mr. romney got the economic message done. cut taxes, taxing, deregulating

but does he connect that with original nary voters and say convincingly, here's how we will get out of this economic mess. >> he has been specific. the guy has something like 60 points on his website. but what he didn't do perhaps is to be compelling enough about the positives of pro growth policies. you just saw what he did yesterday, pulling back, being defensive, saying, oh, we're not going to lower taxes on the rich and corporations and businesses. why not? why not? actually, let's talk about why it benefits society. >> keep more of what you earn, work harder. >> when they started talking about the middle class, he got on total defense. go for it. barack obama has increased taxes on the middle class by $15,000 per person with this individual mandate. >> what i think is even a bigger mistake, defending elements of obama-care. the reason the republicans won the election, the biggest landslide we've seen in two

decades was because americans hate obama-care. why is he retreating? >> what did he say. >> we might want to keep pre-existing conditions. we shouldn't we let 26 year-olds be on their -- >> he already walked it back. today, he actually walked back what he said this morning. >> this is a problem. >> can we have 24 hour period where we actually say what we think and change it 24 hours later? >> i agree with steve completely. it strikes me, why not just say incentives matter, lower tax rates will give people more after tax income. they'll work harder and invest. why not say, i really mean it, if you look at romney's tax cut, 20% across the board tax cut, it would lower the tax rate to about 15% to most middle class workers. 15% is a very low rate. why doesn't he say that? that's what i don't get. and then say this is the absolute best thing we can do for the economy?

>> because what obama has done is put romney on his heels. he attacked his personal wealth, attacked everybody in america that achieved a level of success and somehow that is something to be ashamed of. he's vilifying and unfortunately romney is not doing the reagan thing and said we stimulate the economy for everybody when we lower tax rates for businesses like reagan did from 70 to 28% and doubled revenue for the federal government by doing that. why not -- >> how about some truth telling? i believe this is this year of truth telling. i think that's why paul ryan got the bump. so romney, all asking him, badgering him c the mainstream media, why not say, you're right, upper class people will have limits and ultimately may lose their home mortgage deduction. you may have upper income people may lose their state and local taxes deductions. >> it's a sucker play. >> here's how i'm going to do it. >> the problem is all the press

will focus on is he wants to get rid of the mortgage deduction, charitable deduction. this is exactly why the liberals are trying to -- >> why is that a game? your guy won't say -- all i know from your guy -- >> my guy put up a bill to put it down to 28%. >> got zero votes in he thousand senate. your guy will raise tax, raise spending and raise regulation and the epa will close down oil and gas. >> i don't disagree. i agree with everything you all said. i don't know why your guy doesn't come out of the closet on the tasks. i have never in my life ever in 45 years, i used to be a republican, i have never seen a republican run away from a tax cut as quickly as mitt romney is. >> i think you're missing a main point, larry, with all due respect. the most important poll that came out last week was not these beauty contest polls, the unemployment poll. that's a survey. that number is devastating, i don't care what these -- if he gets two more months like this, i will guarantee to this

audience, is there no way barack obama wins if we don't get better jobs. >> romney will win but i wish romney would be more articulate. i believe against all odds, this is a year voters want truth telling, you don't have to be so coy. i'm telling you, they want him to stand up. i have to get out of here. kate's new book is called "divider in chief." it is available now. please go ahead and buy it. coming up on kudlow, gm, aka government motors is losing $49,000 on every vault. 49 grand they're losing on every volt according to a new reuters report. they're already $25 billion in the federal hole. is this proof positive the bailout was a total boondoggle? i will ask my friend a, bob

lutheluthez, he championed gm and it is a very important financial question. i'm larry kudlow. we'll be right back. [ male announcer ] now you can swipe... scroll... tap... pinch... and zoom... in your car. introducing the all-new cadillac xts with cue. ♪ don't worry. we haven't forgotten, you still like things to push. [ engine revs ] the all-new cadillac xts has arrived, and it's bringing the future forward.

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lehman's bankruptcy touched off the t.a.r.p. bailout process, the federal government is about to become a minority stakeholder in aig. the treasury announced it would sell an offering this month. taxpayers are likely to make some money on the aig sale. the government has been unwinding its positions in bailed out financial institutions ahead of the election raising the question of politics driving the decisions to end the unpopular bailed out programs. here's the ugly truth on one of these things. the chevy volt, according to a reuters report, gm is losing $49,000 on each volt it bills. it costs gm $89,000 per car and sells it for $40,000. gm is still out 49 grand on each

volt. the cost of a toyota prius, $20,000. how are american taxpayers going to get their $25 billion back in gm at this rate? or maybe it will pull the plug on gm? here now is bob lutz, former gm vice chair and former contributor. you know i love you, you know i adore you, you know i have nothing but adulation for your business acumen and your political analysis. but how do you sell a car for $40,000 and lose 49 grand on each car and stay in business, mr. lutz? i don't get it. >> who do you believe? reuters or me? >> they quoted first rate analysts, they really did. >> what the analyst did was took the total investment spent on the volt which was north of half a billion dollars and divided it by the number of volts produced so far. that's like a guy who buildses a $10 million office building, has

rental income of $1 million in the first year, and then the analyst says he's lost $9 million on the investment. >> yeah. but we know the building. we know the building is going to be up for a while. i don't know that the volt will be around for a while. >> no, the depreciation and amortization on the volt will be over the lifetime of the volt. i've seen the next generation. the volt is doing just fine. read my forbes.com blog i posted this afternoon. >> i read it with great interest. i want to ask you this. >> i think it's at break even now. >> i read this with great interest, okay. the prius sells for 19 -- i'll call it 20 grand. you have your volt selling for 40 grand. toyota prius sold 164,000 units. you only sold 131/2 thousand units. of course, you're right about

the depreciation. maybe we should be depreciating this over 18 months, bob, because i don't think it has a long term future. >> it does have a long term future. there will be other gm models based on it. there's a cat lack coupe coming -- a cadillac coupe coming at the auto show next year and it will be exported all over the world. the car is going to be just fine. the loss per unit on a fully accounted basis is probably in the hundreds of dollars per unit. that will be absorbed over time. >> what about gm's $25 billion in the hole? the treasury is selling this position at aig. most of these big banks have paid their money back. general motors has not. that worries me. i was told it has to break enve at $53 a share, nowhere near close. even though car sales have improved over the past year, the gm stock has not.

what's up? in all seriousness, maybe the volt is part of this problem. >> no, it's not part of the problem. what is the problem with the financial community and analysts, they look at europe and everybody's business is in the tank in europe and there's an overfocus on europe and worrying about what will happen to the automobile companies. you look at ford stock, it's not doing any better either. i think, to me, general motors stock is the buy of the century. it's highly undervalued, when you look at the profitability of the company, its success in the marketplace, success in china, the stock price is ridiculous. >> who am i to argue with the great bob lutz, all i can say. thank you for coming back on, as always. up next, thousands of teachers strike in chicago, thousands, putting well over 300,000 kids out on the street. if they're not stopped, i tell you, government unions like this will be the death of our nation, bankrupting cities left and

right. we will take you live to the front lines. t should we invest ? maybe new buildings? what about updated equipment? they can help, but recent research shows... ...nothing transforms schools like investing in advanced teacher education. let's build a strong foundation. let's invest in our teachers so they can inspire our students. let's solve this.

chicago's teachers hit the picket lines today. classes in the nation's third largest school district are shut down after they failed to reach a new contract agreement. jay join us live with an update. good evening, jay. >> reporter: good evening. good to talk to you. it was a perfect time to have an

em pr em -- impromptu vacation. the teachers were picketing here at this school and others across chicago. 400,000 students affected by all this. the fight here, larry, not over money. money, both sides pretty much agree on. at this point, there was concern about benefits, health care in particular and the way teachers are judged, the way they're rated. there are concerns they will tie their ratings and their advancement to some standardized test scores the teachers say isn't fair. they shouldn't have to teach to any type of test they will continue to teach and afraid if they do that it will affect 6,000 teachers, 30% of the work force and will lose their jobs within the next two years. it's a serious battle and doesn't look like it's anywhere close to ending. >> many thanks, nbc's jay gray, on the front lines in chicago. the chicago teacher's union is ripping off teachers and

taxpayers. i'm sorry, that is my view. they're demanding 76,000 bucks in salary. the average chicago family earns $47,000. the teachers are being offered 16% rise in pay over four years. that's twice the rate of inflation yearly. there's virtually no co-pay for health benefits and 71% of education money from the city goes to teacher retirement cost, not the teachers, not the classrooms and not the kids. are these government unions soon going to bankrupt america and chicago? joining us now in just a moment is dan montgomery, president of the illinois federation of teachers and phil, president of american commitment and author of "democracy denied." we wait for mr. murphy, mr. montgomery. another factoid, 15% of fourth graders are proficient in reading. with all the money that goes to the chicago teachers union, 15%

of fourth graders are proficient in reading. that's what i call a waste of money and a terrible tragedy. >> you're right. of course, you know, they say now that it's not about the money but it's always about the money. they were pushing for a 30% hike in pay when they're already making a lot more than the taxpayers who pay their salaries do and have these gold plated benefits and not doing a good job teaching the kids, as you just pointed out. now, they're trying to object to any kind of performance measures, accountability to show they have teachers in those classrooms teaching the kids. i think this is an example exactly what you said, larry, these are government unions run completely amuck and shows how dangerous it is to let people getting paid by the taxpayers organize politically in this manner. even fdr was against bringing collective bargaining in the public sector. >> mr. montgomery, i want to give you a shot at this exact

same question. only 15% of fourth graders in chicago are proficient in reading. second, only 56% actually graduate from high school. those are terrible numbers. they're tragic numbers for the kids. your teachers' union does not want performance standards? to me, a doesn't lead to b on this. >> well, first of all, they're willing and absolutely accept performance standards, the question is how to do that the right way. when i went to the picket line this morning, teachers came up to me and they said, we don't have books in our classrooms, we don't have class sets of 30 books per students, that's one of the reasons the students aren't meeting those performance measures. where i teach in the suburbs, we have counselors with 200 kids to their caseload, they have twice that in chicago. i was at a high school today, where they have one social worker at that high school that splits her time with two other high schools in the suburbs

again for a high school that size, you'd be likely to see four or five social workers. >> mr. montgomery -- >> part of this fight is about the resources to teach the kids. >> i don't get the -- let's talk resources. 71% of the education money from the city of chicago goes to teacher retirement cost, it does not go to the classroom, it does not go to facilities or technologies. it goes to the retirement fund, which is vastly overrated and vastly bloated, and probably never be paid off. in other words, sir, you may be short of money in the classroom, that's because this thing is going to benefits and pensions, not the kids in the school, that's what bothers me. >> i disagree with that. i don't think it's all that they're short of money in the classroom. >> those are the numbers. >> it's how the chicago public schools steward their resources and manage the district. what you have here are teachers saying, enough. we're tired of not being listened to, we're tired of not being given the resources to

teach these kids, just like they are over the rest of the state of illinois. >> gee whiz -- >> if they don't want to do the job, they ought to resign, shouldn't take the job an not show up to work. it's a government job and not show up and do the job. >> they want to do the job. >> how many of the kids -- how many of the did -- >> hang on -- >> kids and parents -- >> fill kerpen, you go ahead and then mr. montgomery. >> i said, how many of the parents of the kids in your fancy suburban north shore schools have parents teaching in the city but won't live there because they won't send their kids to the schools. how many chicago teachers have kids going to private schools. fordham institute says 31%. they are failing schools and rahm emanuel is trying to get basic accountability and they're revolting over that. >> the teachers are -- the teachers are fine with evaluation and rigorous

evaluation. they want to be evaluated fairly with the resources they need. don't judge them by things beyond their control. >> i got it. dan montgomery of the teachers union. >> bill kerpen. thanks. appreciate it. that's it for this evening's show. i'm sorry, i think this chicago teacher's thing is an absolute utter disaster and ripoff and needs to be changed. i'm kudlow. when you take a closer look... ...at the best schools in the world... ...you see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers...

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i don't have to use gas. i am probably going to the gas station about once a month. drive around town all the time doing errands and never ever have to fill up gas in the city. i very rarely put gas in my chevy volt. last time i was at a gas station was about...i would say... two months ago. the last time i went to the gas station must have been about three months ago.