perry expects to join the political fray and announce his candidacy this afternoon. we will carry that announcement live from south carolina at 1:00 p.m. eastern time. police arrest dozens of people in philadelphia between the ages of 14 and 17. a story we are tracking as it develops. we'll be going next hour to philadelphia for a live report. so i'll be back with you at the top of the hour with more live news. but right now, it's christine romans and "your bottom line." sure feels like america's middle class has been under assault for years. why the s&p downgrade could make it even worse. good morning. i'm christine romans. plus, the state of states, from unemployment to housing, budget cuts and education, what states are doing to stay on top of this economy. and do you have aaa finances? it's time to take stock and take charge. we'll show you how. but first, we begin with fears of a double dip recession, home price taking another dip

and 13.9 million people are still out of work. we just can't seem to catch a break. don pack is features editor for "the atlantic" and wrote "can the middle class be saved?" don, what's the answer, can it? >> the middle class can be saved but we need to take a wide array of aggressive action to save it, i think. it's interesting the middle class itself has in many ways been downgraded in this recession. the housing bubble amassed a host of problems. the middle class has been slowly hallowing for years, wages in the middle class were stagnant throughout the odds. but the middle class retained a sense of optimism and forward progress because of increase in housing wealth and the increasing debt that went with it. but the recession has blown away that fig leaf. and one reason i think that this period has seemed so painful to so many people is in some ways we've seen the concentration of

a decades disappointment in just the past three years. >> yeah. when you look at the -- look both of you. former chief economist at the imf, professor of boost school of business. you've been writing about wage stagnation. basically this big dedi vid for a while. this is pretty shocking. median incomes have been so flat, the blue line shows. how come it only becomes an issue after the financial crisis in 2008? look at the red line. that's the top 1% income earners. tell me why. >> well, first, of course, the divide has been growing, as you say, but a divide is not just put in the median and top 1%. it's within the median and people like you and me, you know, at the upper middle class level. that's also been growing. what kept the middle class wide, as you said, is even though income in equality was growing, consumption in equality was not. what made the difference? credit.

you had a big takeoff in credit over the last few years, especially credit against your house. that kept people fairly, you know, satisfied. now, as don just said, when the housing bubble collapsed and when the same people who had seen stagnant incomes found they didn't have jobs, the houses were being foreclosed, that's when realization dawned that the dream had been stagnating for quite some time. >> terry savage, personal finance columnist. this all goes back to the housing. housing was this mirage which helped mask, terri, some of the pains happening. now you've got 27% of homeowners owe more on their mortgage thanlg the house is worth. wow. this is as home prices keep dropping. without a fix in housing is the middle class going to feel better in. >> we have to ask why that happened. and why that housing bubble happened in the first place is because politicians decided they would subsidize housing by

encouraging freddie and fannie to make mortgages to people who were not qualified. all the negative talk about loss of the middle class is encouraging to me because it flies in the face of history. middle class is not a number. it's an attitude. it's about hope. and throughout our history the middle class at one point were the farmers. then they thought that was a terrible job as farms became mechanized. in 1981 -'82 we thought we lost those jobs and we did. but we couldn't see that we had this incredible productivity and technology come along that would create a whole new middle class. if government would get out of the way right now i think we will see something new. i have no idea what it is. whether it comes from nano technology or some new energy independence. but the fact is, america has always aspired to be in the middle class so they could get better. from j.gasdby.

p we take a away that dream that you can do it yourself, you can have an opportunity and think government can take care of it, we're making a big mistake. >> i'd like to be less jay gadsby and more thomas edison. the moern people have been worried about moozing the middle class since men wore wigs. with stagnant wages, being priced out of the higher education, we're going to look at the cost of schooling and that investment in your family, flex. what if we turned trash into surfboards? whatever your what if is, the new sprint biz 360 has custom solutions to make it happen, including mobile payment processing, instant hot spots, and 4g devices like the motorola photon. so let's all keep asking the big what ifs. sprint business specialists can help you find the answers. sprint. america's favorite 4g network. trouble hearing on the phone? visit sprintrelay.com.

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you can rest assured we help your engine run more smoothly while leaving behind cleaner emissions. it's how we make gasoline work harder for you. exxon and mobil. . terry savage, don peck with us now. as you talk about education, we talk about every weekend on this program, you talked in the last segment how we have to be investing in these skills but with skyrocketing tuition costs, a degree is still worth it but it won't protect you against job loss like it used to. what is the value of education here and is there a concerted effort in washington to make sure that isn't downsized, too? >> it's interesting. in some ways professional degrees are now what bachelor's degrees used to be. wages have been rising very smartly for quite a long time for people with professional

degrees, people with professional degrees today have very low unemployment rates. things are less certain for college graduates. however there's been a lot of commentary recently questioning whether a college degree is still worth it. we saw just that same sort of commentary during the great depression. it was wrong then. it's wrong now. all evidence suggests that a college degree is absolutely worth it. particularly in majors like the sciences and in math. >> sure. >> but a college degree, the return on that is actually near an all-time high. >> yeah. >> so i would recommend to all of your viewers, considering whether or not to to go to college, you should if you possibly can. >> the unemployment rate for a bachelor's degree is 4.3%. you hear us every jobs report day saying it's 9.1%, 9%, 4.3% if you have a college degree. terry, how much should you be willing to pay for college? this is going to be in every living room and every financial aid office right now. >> right now, right at this moment. and here's the thing. a degree is absolutely going to be worth it.

i agree. but the financing and the debt may not be worth it. you know, unsubsidized stafford loans, the ones not based on need are now at 7.9%. sorry, 6.8%. and parents plus loans, which are not based on need, are 7.9%. you know you can put money in the bank and get nothing. why are you paying 7% or 8% on loans? the trick to get that degree is to figure out how to make it more affordable. i think the real answer will be local community colleges. you don't want your kids at home for two more yes, sir, they don't want to be there but if you can get them to stay home for two years, cut the burden of debt, cut the interest rate payment, get the degree and then move on to the professional level. >> yeah, i like your thinking. i like three-year undergrad degrees. not many of them. you can find them. especially if you're going on to graduate work. the a.p. credits when you come in, it takes forethought for a 15, 16, 17, 18-year-old kid to me. i don't think you should be switching majors three or four

times because it's a different kind of world right now. let's look at the broader world. what prevents the u.s. from slipping into another recession at this point? because that's what families are worried about, too. >> well, i think a recession is, you know, it's something a lot of people are worried about. the real problem is years of slow growth. and what we need to do is figure out how we get out of this mess. and my sense is we really need to tackle the problem at the core. and that means housing, which we've already talked about, tackle the foreclosures, tackle the mortgages that are under water. and ensure that in some sense the housing market starts reviving, construction starts reviving, because that's where a lot of jobs are. the second thing we need to do is march the skills to the jobs. there are jobs in the united states, except that they're not suitable for the kinds of skills that are available in the marketplace. and that's something we need to

fix. and this is why i think not every degree is the same. i think we need to think about whether the degree that we're going to get is going to earn a job. and as don said, science, technology, engineering, math, is probably where the shortages are likely to come in the future probably much less of a market than perhaps for economists. but that's something we need to think about. that we need to look at the local jobs market and this is where community colleges need to get together with businesses and try and tailor course ourings to what the business means. >> what a fantastic discussion. we'll pick it up again very soon. don peck, terry savidge, dr. rajan, thank you very much. the middle class, has it been downgraded? we all agree that you need to to go to college and get the right major and not too much debt. what are states doing to make sure the middle class isn't

being downgraded? i posed that question to two well-known governors, next. we find the best, sweetest crab for red lobster we can find. yeah! [ male announcer ] hurry in to crabfest at red lobster. the only time you can savor three sweet alaskan crab entrees all under $20, like our hearty crab and roasted garlic seafood bake or snow crab and crab butter shrimp. [ jon ] i wouldn't put it on my table at home, i wouldn't bring it in. my name's jon forsythe, and i sea food differently.

welcome back to "your bottom line." let's stay with the middle class. and joining us are two governors from middle america. on the jobs front, wisconsin and montana are doing much better than the rest of the country at 7.6% and 7 .5% for their jobless rates respect ufly compared to the national rate at 9.1%. governor, let's start with you. you were one of 26 governors who took office in january. i will tell you none have incited stronger passions for you. your critics say that your belief that government is too big and taxes too high has actually made you unfriendly to the middle class. teachers in particular. how do you respond and how do you feel like you have done now halfway into this year in terms of the middle class in wisconsin? >> well, we've actually rejected middle class jobs and middle class taxpayers who for years

historically have had to pay for more and more and more of expanse in government. in our case earlier on this year we tackled the jobs ajnd da starting january 3 rs, the first day we took office. much of what we passed were pauszed by not only the republican votes but many democrats understood to get people to work, to help the middle class you've got to create jobs. they come from the private sector and not the government. first sex months of th first six months of our job. we're going to continue down that path working together. >> if you're a teacher in wisconsin, middle class teacher in wisconsin are you better off or worse off than a year ago? >> better off than across the states. because of the budget problems, laying off thousands of public employees including teachers, we don't have massive layoffs. good exampling, a school district outside green bay, wisconsin, they took the savings that we had this year, they restored any of the layoffs they

were talking about, hired more teachers for this fall. will actually lower the classroom size and set money aside for merit pay. great teachers faired better than they have ever in the past because of the reforms we gave our school district. >> governor schweitzer, move on over to montana. the latest per capita, personal income shows your state ranks 38 out of all 50 states and $35,000. that's a big improvement. where does the middle class agenda rank for you right now? >> well, in montana we lead the nation in percent of our population who work for an employer where ten or fewer employees. we really are the small business capital of america. and so, these people who are starting new businesses, who are investing all of their sweat equity back in, who are increasing the number of employees from three to five, that's what's going to get montana and the rest of this country moving. but during the last six years we built the largest budget surpluses in the history of montana. all six of my budgets have been

with the largest budget surpluses in history. in 2008, instead of sort of demagoguing state employees i negotiated with them not to increase their salary. they reason had salary increase now for three years. when people retired, we didn't replace them. we found ways of cutting the size of government. i've cut more taxes, businesses and homeowners, than any governor in history. built the largest surpluses. along the way made government more efficient. >> you said something interesting there, governor schweitzer. demagoguing public servants. are you see that in wisconsin or am i misunderstanding you? >> i see it all over america. i see elected officials who are suggesting that the people who work for government are somehow not deserving of the compensation they get or the wages that they get. >> are you speaking to the governor of wisconsin or are you speaking in general? >> just in general. >> in general. governors, i want you to both

look at this map. all the states highlighted right now are under fire for possible school cheating scandals. neither of your states are on the list. congratulations. but i'm telling you that parents and taxpayers across the country are furious about these cheating scandals. both of your states have signed up for a waiver for no child left behind. i'm going to be honest with you, a lot of people think the cheating that some of the cheating scandals, it's all stemmed in this race to test, test, test, test kids and it puts so much pressure on these school districts to lie, to cheat. the administration this week is going to allow these waivers. do you think this is a good plan and how much more needs to be done? governor walker, you first. >> in our case, it's a good example, we've been working together. our superintendent of public instructions, tony everies, is independently elected. he and i came together to say we need to have a better accountability system for our schools than the no child left behind mandate out of the federal government. so, you're right, we're seeking

that waiver based on a system where we brought educators, parents, advocates, people from all across the spectrum together and said, we need more than just one high-stakes test. we need things to measure efficiency and advanced placement in terms of core curriculum items, but also to look at progress, advanced placement, to look at other issues, to make sure that every kid in every zip code in our state are getting access to great education. because my kids both go to public schools, i want a great education for every kid in this state. we need to give the teachers the kind of support and incentives they need to continue to have a great education. but it doesn't just come through one high-stakes test. we're hoping to be one of those states that leads the nation in alternative to the federal mandate. >> governor swooitser, what about you? >> we talk about k-16, and in montana, education is for life. that's the reason why our students are some of the highest achieving students in skpicienc and math in america. on our indian reservations, we

have real challenges. we have dropout rates of some 50%. those are some of the lowest scores we have anywhere in montana. and no child left behind didn't recognize the kinds of gains that you make. if you've got some of the lowest scores in america and increase by 25%, you've made more gain than somebody who was at the 90% level and who was able to increase to 5%, to the 95% level. so what we've done in montana is, we've created a partnership between our colleges and our high schools, so that high-achieving students in high school are getting college credits already when they're a sophomore or junior in high school. so that we can take care of all sides of the bell-shaped curve. if we have high-achieving students, we allow them to take distance learning at university systems, and then it allows us to focus on some of the lower -- >> but even with the surplus, you did have to raise tuition at the montana state universities, didn't you? >> well, we did go the longest time in the history of montana with no tuition increases, longer than all 49 other states, but we did have to raise tuition

a little bit, but we do have a scholarship program for middle class families in montana. we call it the best and brightest. so every family in montana can achieve the dream of a college education. we don't want kids dropping out because they have to go back to work. we want students to be able to get a university degree. >> best of luck to both of you. multi-layered issues for the middle class. some different, some the same, if both states as we've seen around the country. thank you very much, gentleman. governor scott walker from wisconsin, governor brian swooirts from montana, thank you both. >> thank you. >> thank you. the s&p may feel the country doesn't deserve the top credit rating, but do you? how to get your personal finances to aaa, how to keep them there, next. [ male announcer ] a moment that starts off ordinary

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okay, be brutally honest. are you in panic mode about your personal finances? we want you to take a deep breath, because we've brought in someone to help us put your personal finances back to aaa status and keep them there. financial adviser stacy frances had been busy all week, calming down her clients, putting them

in the right positions, and maybe taking advantage of all this mayhem. stacy, break this down for us a bit. aaa financial status. i kept think, if all and us can just try to have aaa personal finances. what's it take? >> i know, everybody's focusing on the country now, the aaa status, and we forget, how would we rank? would we get aaa status? unfortunately for a lot of consumers, not the case. there's a lot of things we need to think about to get our personal finances in the right financial mode. >> retirement plan is pretty important, that's the very long-term, and that's where you could be taking advantage of lower stock prices now, investing in stocks. when creating a retirement plan, you say there's three main factors or issues. >> the biggest factor is know what your income is going to be, obviously from social security, pensions, maybe part-time job, and investment income. and what's really important to know is, guess what, your investment income that you thought maybe you would be expecting ten years ago, many people expect an 8% return. guess what, now you should be looking at maybe a 6% return,

even a 5% return. we know the type of life we are living in. >> and be really brutally assess your expenses, as well, right? >> brutally assess your expenses and know exactly what you're spending. a lot of people only plan for 75% of your current expenses in retirement. you need to plan for 100%. your medical expenses will probably go up and also those vacation and entertainment expenses as well. >> and don't just set and forget it. you have to make sure you're reassessing this and reallocating, you say every year, for a retirement plan. >> yes, that is the third step. we spend more time planning our vacations than we do looking at our finances. >> i know. why is that? because vacations are more fun. >> they're more fun and more interesting. but you need to take the time to see if you're spending and saving the right amount and if you're on track. >> a lot of people feel they can't attack their retirement plan because they're just worried about the housing situation, or making sure they can afford the mortgage. and i said earlier this week, what this fed means for you, what this downgrade means to

you, if you have an interstate on a 30-year mortgage that's above 5%, you should think about refinancing. there are very low mortgage rates and people need to take advantage of that if we can. >> many of us are spending too much on our housing. now's a great opportunity to reduce your spending, your actual monthly payment. if you're paying more than 5% on your interest rate, look at refinancing. >> the big savings dilemma for families is saving for retirement versus college. you need to save for retirement first, hopefully you're saving for both. talk to me about finding the money to put away for college. >> well, ideally, you're saving 10% of your income each year. but in reality, usually, we find people are not doing that. saving for education is very important, but it's really important to do the savings for retirement first. no one's going to give you a loan to retire and your children can actually get a loan for school. however, it