republicans and democrats agree on at least one thing, fix the economy or you might face a middle class that loses any incentive to work hard. i'm ali velshi. welcome to "your money." president obama warns the system is unfair. republicans counter that the left wants to punish success. >> the american people no longer believe this is a place where only their willingness to work hard and to act with honor and integrity and ingenuity

determines their success in life. then we'll have a bunch of people sitting on a couch waiting for the next government check. >> that's new jersey's governor chris christie. he's endorsed governor mitt romney for president. who knows, the two could be running together against president obama in the fall if romney taps christie to be his vice presidential candidate. threats to hard work is hardly a new issue for president obama either. it was a central team in the kansas speech the president used to lay out his economic agenda at the end of last year. listen. >> for most americans the basic bargain that made this country great has eroded. long before the recession hit, hard work stopped paying off for too many people. fewer and fewer of the folks who contributed to the success of our economy actually benefited from that success. >> now, the president is

referring to the wealthy when he talks about those precious few who are seeing the benefits of this economy. stephen moore an editorial writer for the "wall street journal." stephen, good to see you. i know you're not going to side with the president here. give me a sense of what specifically the government does that punishes success and discourages hard work from a conservative perspective. >> ali, let me start by sounding a note of optimism. which is, i think that chris christie and barack obama are wrong here. i think the great american dream is still alive in america. we saw a great story this week, one of my favorite stories in a long time, instagram. these two kids start a company out of their garage, two years later, they sell it for a billion dollars. it can happen here in america and it's a great story. look, this has been a tough recession obviously. we're seeing declines in real incomes, people pinched by high gas and food prices. but i do believe, we've lived through this before, ali. that's the point i want to make.

we've lived through this in the 1930s, in the 1970s, people said the middle class is dead. i want to make that point of optimism, i think it's important. >> fair enough. what's the thing we say punishes success and doesn't reward hard work? what would conservatives like to see changed? >> you know, here the is the problem i have with the president's message. i think this idea of the buffett rule, tax the rich, the idea all we have to do is to get the middle class ahead is to soak the rich and sock it to the rich, that's just the wrong message of success. we need a tax system that tries to make poor people rich and not rich people poor. and i think sometimes the president misses that. that when we have vibrant employers, that when this is a country that if you get successful, the government doesn't take half of your money away from you. i don't think the american people share this kind of envy of the rich that the president and a lot of democrats do. >> hold on. chrystia freelander, from reuters. do you agree the economic system we have in the united states fails to reward hard work and punishes success?

>> no, i don't. i agree with stephen about one thing. i think america is a tremendous center for innovation. and america actually is terrifically good at both sort of fostering that innovation and rewarding it. instagram is a great example of that. i think what is missing, ali. i don't think this is a fault of politicians, i think this is about the structure of the global economy. it's about the technology revolution, it's about globalization. the hard reality is those middle class jobs, the jobs for people who are not going to become billionaires in 12 months off an ipo, those jobs are vanishing. >> right. these are people with basic educations, the kind of education that 25 years ago would have guaranteed you a good job for life, that's becoming harder. >> and we can all see that in our daily lives. think about it, travel agents. we don't need them anymore because we have the internet. people don't have so many

secretarial positions. we saw it recently in the retail sales employment numbers. sales are up but jobs are down. why is it? we're buying online. i think that that is a great trend. i believe in technology, all of us love it. >> what do you do with the people who don't have work? >> but we have to be realistic and honest about the fact that we all encounter in our daily lives that those good, solid jobs for someone who -- yes, chris christie does want to work really hard. they are not there. either you are a genius ipo person and you're doing fantastically well or you are struggling to get by at the bottom. i think that makes america and actually all of the western world right now in a really difficult place. because our democracies are built on a robust middle class. >> but you know what? can i make a point -- >> go ahead, stephen. >> i think the area where the president's just wrong, factically, is when he says over the last 20 or 30 years, that the middle class has not made gains. it's factually wrong.

i was looking at the census data on this, ali. if you look at the middle class, 40th and 60th percentile, the people who make between $40,000 and $70,000 a year, in the last 30 years, in the '80s and '90s, under reagan and clinton, a democrat and a republican, there were big games for the middle class. there were a lot of jobs. we became a job creation factory around the world with 30 to 40 million new jobs. so the formula does work. i do think we've gotten off track in the last five years. what i'm saying i really think this economy is prepped for a big expansion that will benefit the middle class, but i don't think raising taxes on the wealthy is the way to do it. >> chrystia? >> i disagree. anybody in the middle class will tell you their lives are rough. what we have seen -- what particularly worries me is the job numbers. and what we have seen in the recovery from the past three recessions is the employment number resets at a lower level. we are seeing higher levels of structural joblessness in the economy. i don't think that this is forever, but i think it's lying

to people to say that it's easy and that something hasn't changed. it has changed. as a society people need to respond to that. >> stephen, what would be the counter to the things you're criticizing the obama administration for either doing or suggesting? i think i know where you'd go with this. what would be the thing that does incentivize hard work, that does reward success, and that ultimately will create jobs for this very set of people that we are disagreeing about right now, the middle class? >> i think what we need is a lot more saving and investment in this country. i think there's been way too much orientation towards spend, spend, spend, and not growing the building blocks of a long-term, prosperous economy which is investment and saving. i do think it's a mistake to double or triple the capital gains tax, the money that's injected into the economy that creates these new businesses. and chrystia, look, i'm not saying that the middle class is not struggling right now, you're absolutely right. this has been a very difficult recession for middle class families.

what i'm saying is with the right amount of skills and the amount of new companies developing -- we're seeing a huge renaissance in manufacturing right now, it's true. it's true that manufacturing doesn't employ as many people as it used to, but call me an optimist, but i think that we are prepped for a really big expansion that's going to benefit all income groups. but it can't be this kind of redistribution. we have to agree tgrow the econ the key word here is competitiveness. i wish everything that washington did wasiented towards how to make america number one. >> we're going to talk about those things, manufacturing, a key point you brought up. chrystia, stay where you are. the guru behind the republican or economic tax agenda. is paul ryan ready to sit down in a room with president obama and work out a deal? >> work with president mitt romney and work with a senate -- >> can you choose somebody who's in office right now? >> ryan is also rumored to be at the top of romney's vice presidential list.

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all kinds of vehicles, all kinds of savings. multi-policy discounts from progressive. call or click today. paul ryan is the republican chairman of the house budget committee. he seems like the architect of the gop's economic agenda these days. if governor mitt romney has a short list of potential vice presidential running mates, ryan would likely be at the top. in an election that will likely be based on the economy, one could understand why romney would choose someone like ryan, but would ryan accept if he were asked? >> you have to give that serious consideration and thought. i haven't done that. i'm pretty busy doing my day job. >> people have been talking about it. >> it's not my decision to make, it's somebody's decision to offer it. it's a good deal of time from now. if somebody says consider it, i would. until they don't, i don't see the point of spending a lot of time thib it.

>> you're open to it. >> i don't know. my wife and i would have to set down and think it through and i haven't done any of that. >> could you and the president sit in a room like this or a starbucks or a room we provide and hammer out a budget? notwithstanding all the outside -- >> i would love to try. i would love to try. the president has given us four budgets and he has never once attempted to do that. i mean, usually you have to get an invitation from the white house to do such a thing. i've always wanted to do that. i've always wanted to try. when i first put budgets out, maybe i was naive, i thought, if i put this budget out, others will put their budgets on the table and we'll start debates these and get to a consensus. but nobody followed suit. the senate hasn't passed a budget in over a thousand days. they wait for republicans to offer their solutions and simply attack for election purposes. so i just don't see that kind of leadership from this president. if we were going to get this it by now. kind of leadership from this >> ultimately, you have to deal

with that before now. president, we would have gotten >> i don't think that's right. i don't think the president -- if the president wanted to have a budget agreement, he would have given us a budget that attempts to solve the problem and harry reid would be passing budgets. harry releiharry reid has decid- >> who would you most like to -- if we said, we'll put you in a room, who would you most likely to work request? >> i would like to work with president mitt romney and the senate that's chosen -- >> can you choose somebody that's in office right now and someone on the democratic side? >> to me, it's not about the people or the party, but it's about the ideas, and what are the best ideas to save and strengthen these problems, medicare and things like that? >> so when a smart guy like paul ryan can't or won't name a single democrat that he would like to get in a room with right now and hash out a budget deal, it really gives you a sense of how toxic the tone is in washington right now. stephen moore and chrystia freeland are back. stephen, i have to say, and i have a lot of respect for paul ryan, i was disappointed. on this show, we love to go beyond politics, but no matter what i asked, i could not get

beyond it with paul ryan. i could not get him to reach across the aisle and show me where there was room for compromise, because that is what we need. forget right or left for a moment, as a country, it's a shame that the u.s. cannot accomplish anything big, because we're so divided. >> i agree with that. but i think you have to be fair here. and i think the press has not been enough on this story that paul ryan talked about. the fact is that the president did present a budget, as you know, in february, ali. it was brought to a vote in the house and the senate. it got zero votes in the house and zero votes in the senate. even nancy pelosi wouldn't vote for that budget. in the meantime, in the senate, which is still run by the democrats, harry reid, it's true, as paul ryan just said in your interview, for three years, there's been no senate budget. soy ta so i talked to paul ryan a lot, i really admire the guy. he's got a fair point to say, lack, we've put our cards on the table. we told the american people what we want to do with medicare, medicaid, social security, the tax code, the democrats haven't

done it. so when you asked paul ryan, are you willing to negotiate, negotiate with what? >> chrystia, everyone points to the debt creting showdown last summer and they whether or not how close they really came to achieving a grand bargain, but to stephens' point, what blame does president obama have for doing things like that, for presenting budgets and ideas that ennis are nonstarters and you've got paul ryan starting ideas that are nonstarters. what do we do about this? >> so i think, first, americans need to have an election. because i actually don't think that this is a technocratic issue at the moment. i don't think that if you just had a dwrup of smart economists in the room, they could come up with a solution that would suit everybody. i think that this is now a profoundly ideological question. you can have left-wing governments with big welfare states that have balanced budgets. let's talk about germany or sweden or even our own canada that have, you know, generous welfare states and have a very

balanced fiscally disciplined ratio, and you have right-wing countries with much smaller states that also have balanced budgets. so balancing your budget isn't a left or right thing. and the left and the right have different approaches and really americans are going to have to decide. it's really simple. pay higher taxes and you can have more government support for the elderly, for children, for education, for infrastructure. if you don't want to pay taxes, you're not going to be able to have that. >> stephen, can we present that stark an argument to the voters and have them actually make that decision, so that come december or january, we can actually start getting deals done? >> yeah. i think so. i mean, krchrystia is right. she and i are agreeing way too much today. >> it's very weird. >> but this election, ali, is going to be a voter referendum on these very issues. i may not have put it quite the way chrystia did. look, i think the big government, more taxes model is the greece model that i think hasn't worked very well.

and i think that the model, you know, of more for enterprise is sort of the hong kong model. but we can debate about this. but chrystia's actually right. this is for the voters to decide and whoever wins this election is obviously going to have an upper hand in terms of what direction we go in with this budget come january. >> the problem, of course, is that the options are never as clear as what chrystia described. it's not an all the way to the right or all the way to the left. the problem we may have in november, we may end up with a government that's as split as it is today. >> that's true. may be the worst of all outcomes. >> one thing that i think is an important point, ali, and that steve and i really do agree on, there's this sort of centrist fantasy that there's a pure mathematic technocratic solution. there isn't. it's not just about a toxic environment and people not being nice to each other. i think that america is genuinely, ideologically divided about the kind of country it wants to be. and i actually welcome this election campaign.

i think it's great to have that open daebate. >> you two have gone all weird on me. chrystia freeland, always a pleasure to see you. stephen moore, always a pleasure to see you as well. coming up next, a solution for the housing market that could make underwater mortgages a thing of the past. we'll talk to one of the most brilliant economists who successfully predicted our rough past and we'll find out what he says is in store for our future. stay with us. people with a machine. what ? customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello ? ally bank. no nonsense. just people sense. wow. this is new. yep, i'm sending the dancing chicken to every store in the franchise to get the word out.

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take a look at this. in 1987, this housing index was created. the case-shiller index. it was created to track changes in home prices in the top 20 metropolitan areas in the united states. it is still one of the leading economic indicators used by economists. in 2000, this book, "irrational exuberance" came out. it predicted a bubble in the stock market during the height of the dot-com boom. it turned out to be a prophesy.

in 2005, an updated version was released, predicting another bubble, this time in the housing market. it too turned out to be a prophesy. skip ahead to 2012, this book is released, arguing that the economy will not advance with the creation of new financial products. sounds laughable. sounds like a tough sell, particularly to a public which still blames the financial sector and financial innovation for the crisis of 2008. is this book going to turn out to be a prophesy as well? let's turn to the man behind it, robert shiller, economics professors at yale university, the name behind the case-shiller index, the name been the s&p case-shiller pe ratios. this is your new book. i can't believe it. you're telling us that we should innovate more in terms of finance. >> i think that should be our response to occupy wall street. they want to fix something, right? >> right. >> okay. like if a car is broken, you bring in a mechanic. you've got to bring in people

who study finance. they're looking kind of bad now, because people think it's just evil. it's not evil. it's something that can be fixed. >> one of the things that you recommend and the great thing about the book is you have very, very specific ideas. some of which seem attainable and some of seem like pie in the sky. one of them, my producer refers to as a prenup for mortgages. tell me what you're talking about. >> right now we have over 11 million americans who are underwater on their mortgage. the home price fell, their mortgage balance didn't fall. so they're ruined, right? and that's a major part of our crisis. they don't spend when they're in that state. that didn't have to happen. we want to give them workouts now that would -- >> right. >> but we don't have an arrangement for that. >> the workout is generally seeing if the bank will make some kind of deal to cut the amount of money they're owed. >> i dealy, that's what it would be, but it's not happening very much. and i think, well, if we want that to happen, the thing to think about now is let's plan

for it now for the next time. >> which is why we think about it as a prenup. let's give an example. if a husband and a wife go into a bank, they want to buy a house, they go to apply for a mortgage, there's, basically, it's an insurance product that they would buy that says, in the event that -- you finish the sentence. how does it work? >> i think it might be tied both to home prices and to the economy, the unemployment rate. so if home prices fall, we will reduce your mortgage balance automatically to keep you in positive territory. >> in fact, the whole concept of a mortgage was the idea that you're taking money from people who have lots of it and don't have enough places to put it or things to do with it and giving it to people who can use it to find a house. because we'd all have to be 80 years old to buy a house or most of us if we didn't have this concept of mortgages. >> mortgages are a really important -- we don't reflect on that. young people, when they have kids, that's when they want the house. but they don't have money saved up yet. so finance has improved our lives -- it used to be, you know, before we had mortgages,

you had to live with your parents. and that wasn't so good. there were frictions. people now, man and wife and the little kids and their own cute little house. that's the way to live. >> we tend to think that the idea that your bank would resell your mortgage so they could get money and make loans to other people and resell it and bundle it and that whole term is securitization of the mortgage, turning the mortgage into a security. i would say that if you ask nine out of ten people, if you explain securitization to them and ask them whether it was the cause of the financial crisis, they would probably think that it was. and yet once again, in your book, you're saying securitization may be the answer to some of our problems. >> right. securitization spreads the investment risk over the whole world, ultimately. and it makes mortgages more available. so i mean, if people want -- if young couples would like a cute little house or a nice condo somewhere, it's all made more available by these kind of

products. >> so what went wrong? why did that cause so many of the problems that we had? >> well, i think the real problem was an error in predicting home prices. people thought they could only go up. so they can constructed instruments that didn't take any account of the possibility of a decline. we, my colleagues and i, working with the chicago mercantile exchange, started a futures market for single family home prices in ten u.s. cities in 2006. and it started warnings of this debacle soon after we found it. >> right. >> but no one paid -- people, it's not really going well yet. we have to get -- this is democratizing wall street. this is bringing the risk management potential of wall street down to the home that we own. and once we do that, we would -- if we had done that, we would have eliminated the primary cause of this crisis. >> would you buy a house right now? >> i would put it this way. if i were this couple with a young child, definitely. i don't know which way home

prices are -- with our s&p case shil shiller index, they're still going down and i think they might -- but i wouldn't buy a home as just a generic investment. >> if you know you're going to live there -- >> or if you know something about the property, you could still invest in home. but just routinely buying a house as an investment, i don't think it's a great idea right now. >> all right. stay right there. stick around. you're no apologist for waltz wall street's sins. but we'll be right back. [ male announcer ] if you believe the mayan calendar, on december 21st polar shifts will reverse the earth's gravitational pull and hurtle us all into space. which would render retirement planning unnecessary. but say the sun rises on december 22nd, and you still need to retire. td ameritrade's investment consultants can help you build a plan that fits your life. we'll even throw in up to $600 when you open a new account or roll over an old 401(k).

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we all remember gordon gekko's famous line, greed is good, from the movie "wall street." not much as changed in the last two decades wean the original movie and the sequel.

>> but you know subprimes are crap and the way you keep buying and raising insurance swaps lately, i've got to worry about any grandchildren's college education. >> you like to insurance. >> what's not to like? it's easy selling crack to kids on a school playground. >> a credit default swap is a good idea, it's the execution that isn't. >> you know what they say, fools make money, bears make money, pigs, they get slaughtered. >> what'd he say? fools make money -- >> bears make money, bulls get money, pigs get slaughtered. i was in that movie, by the way. cnn contributor will cain was not, but joins us. also with us is bob shiller. will, you have said the big problem with finance in this country is not finance, is that nobody understands finance. a little bit different from what bob's been saying. but in the movie, the character says, it's not the problem with

credit default swaps, it was the execution. >> that's what shia labeouf's character says, but the main character is gordon gekko suggesting, no, the problem of credit default swaps is a problem. you have to ask yourself, is financial innovation really the villain in our economy? if that's so, what about things like insurance and credit that have played valuable, valuable roles in human beings building wealth and diversitying risk throughout history? >> we constantly see efforts to get out of the insurance pool world. where people say, i don't like the way the insurance companies treat us and we'll start our own pool and ultimately insurance remains the same concept. you have to pool resources, you have to diversify risk, you have to spread risk. what, ultimately, bob. you write this book and come from a clean perspective, because nobody doubts your allegiances and alliances, and you come out and say something that is entirely counterintuitive, we need finances there, we don't need to disrupt it. we don't need to get rid of it. we need to improve it. >> the thing is, finance is such

a powerful technology. there's a theory, there's a mathematic -- it's -- it enables some people to get really rich. and that kind of focuses our attention. there's a little bit of anger or envy at these people. but we have to kind of look past that and say, you know, well, it happens. but look at what's happening around the world now. as more and more countries are getting financially sophisticated, look at the economic growth that's happening. it's a miracle, and the historians will look back at this time as a turning point in world history. unless something disrupts this. >> what is the thing -- i mean, you have a number of things in here that are directly related to finance and the improvement of the world. whether it's bonds for sort of social purposes, new ways of looking at debt, give us one example that our viewers can sort of chew on of something you'd like to change or see changed. >> well, yeah. one thing is, i think governments should not rely exclusively on debt for their financing. they should issue something like

shares or equity. a share in the gdp. this sounds very strange. never been tried, but we could just sell claims on a trillionth of the gdp. >> the same way they report every year, you would get a return based on what your economy is doing. the idea getting people more involved in the successes and failures of finance, as opposed to remove from it. >> the inherent tension you're going to have in that is what you started with in asking me. people fundamentally don't understand finance, muchless complicated financial products. much of the anger towards the finance industry is focused on credit default swaps or collateralized debt obligations, things that sound very complicated. but if you accept the premise that hundreds of years ago that farmers could diversify their risk on their crops, if that's a valuable tool for the economy, why suspect it valuable to diversify the risk of more complicated things like bonds?

if diversitying risk is a valuable thing for an economy, we shouldn't have tension -- >> you have clearly thought about this a lot. why is this not successful? is it because the people, the perpetrators of finance don't care to explain this to people or they want to keep it within this realm of people who are very studied and know these things? why has there not been greater success in explaining to how these things have diversified risk and helped people? >> they are complicated, for one reason. the second is, they didn't ride into the economy on the wings of angels. there are not universal goods on these products, as well. i think bob has talked about it. but the concept of being able to buy, for example, a credit default swap on a company you own the bond of, you know, that creates problems, like, are you pushing the company towards bankruptcy? it becomes theories like, you want to avoid moral hazard, which i know bob has talked about. buying fire insurance on your neighbor's home. there are legitimate complaints about finance, but i don't think people understand it enough to know that it's not the villain in our economy. >> bob, one of the things you

talked about, occupy wall street, to start off, there's a sense that finance is not democratic. that it flows up to the wealthiest and the smartest, perhaps. and you talk about democratizing finance. what do you mean by that? >> i want to serve the people. when i said that in china, i suddenly realized, that sounds communist. i'm not communist. it's universal. we are the people, we control the country. we ought to control the country. and all of these risk management institutions have to be broadened. so you mentioned insurance on farmers' crop or weather insurance. that's something that is not for the afraid as well as it should. and especially outside of the u.s. people will die because their farm has a drought. and that can be insured. we're moving, the world bank, for example, is promoting that kind of thing. it's a slow process, and people have to get more enlightened about it. >> let's do exactly what you just said. take that to someone who understands that in the audience. bob just explained that a financial innovation tool such

as farmer's insurance could help people survive in countries like in africa. do people understand that? that's a financial innovation that saves lives, potentially. >> good discussion, guys. good to see you, as always. bob, thanks for being with us. robert shiller is the author of several books, including this new one called "finance and the good society." will cain, a financial contributor who was unfortunately not with me in "wall street 2." >> wait until "wall street 3." >> stick around. politically, you still have to stand behind made in the usa, but is that actual essential to this economy and this the recovery? and we all remember this scene from "i love loose ucy," this isn't the face of american manufacturing anymore. we'll tell you what it really looks like next on "your money." and my dad moving in. so we went to fidelity. we looked at our family's goals and some ways to help us get there. they helped me fix my economy, the one in my house. now they're managing my investments for me.

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the future of manufacturing in america and how to bring jobs back or create them here in the united states is at the heart of the presidential race between president obama and likely gop nominee governor mitt romney. >> i think we've got to make sure the next generation of manufacturing takes root not in asia, not in europe, takes root right here in the united states of america. right here in florida, in

detroit, in pittsburgh, in cleveland. >> the way to get jobs to come back is to make this the most attractive place for manufacturing and for other employers. and how do you do that? well, frankly, you look at what the president youtlines for his proposals and then you do the opposite, in most cases. >> nowhere in manufacturing is as important as in michigan, a battleground state that could decide the next president. paul steinhauser is the cnn's political editor. paul, president obama bailed out the auto industry, that was very popular in michigan. mitt romney was against the bailout, but he's got deep roots there. his father, george, was the governor of michigan. no republican has won michigan since president h.w. bush won did in 1988. talk to me about romney's chances there. >> as you mention, he's got deep roots there, but the bailout, which didn't hurt him in the primary, ali, a more conservative electorate there, but it could hurt him in the general election against president obama. what does it look like right now in the battleground state? it looks pretty close. take a look at this. the most recent poll in michigan. this is from epics mra, it was

earlier this month, and you can see a four-point advantage for the president according to this poll, but that's basically dead even. go to the next one, and michiganders seem to be more optimistic these days whether their state's going in the wrong direction or the wrong track. one of the reasons why you're seeing that turnaround, unemployment in michigan down 8.8% now. it was in double digits last year. still higher than the national average. you mentioned the bailouts, we were talking about that. a stark contrast when it comes to the role of manufacturing. the president believing the government should have a bigger role. mitt romney believing the best role for government is hands off, left the private sector deal with things. that will improve the economy. >> unfortunately for mitt romney, the auto bailout ended up being more valuable than he would have guessed it would have when he was opposing it. paul, good to see you, thanks. let's bring in will cain, he's back, a cnn contributor. scott paul joins us now as well,

he's executive director at alliance for american manufacturing. let's take a look at how the united states compares to the rest of the world when it comes to manufacturing. as a share of gdp, china has established itself as the world's factory floor. they produce everything from clothing to computers. one third of all of china's economic jut put comes from there. the u.s. is a distant third with 13%. 13% of the u.s. economy coming from manufacturing. scott, are policy failures to blame for the u.s. losing this race or some would argue it's policy successes. we earn more money, and as a result, it doesn't -- it's not economic to build some of the things that other countries build. >> i don't think that's the case, ali, and i do think it's policy's fault. i think too much our our economic policy has been focused on the financial sector and the latest, greatest thing like the tech bubble in the '90s, the

housing bubble. we've chased these bubbles. other economies have shown the steadier path to growth and sustainability. and we could actually learn a lot from germany. we shouldn't become germany. but manufacturing workers in germany make an average of $48 an hour, compared to $32 in the united states. there is heavy trade union involvement. but what germany has in place that we don't is a system of patient capital, a system of vocational training, and reinvestment into that high-end manufacturing, so that they can keep manufacturing stueady. they have a trade surplus with the rest of the world, they have balanced trade with china. they have high wages. there is a way to do it, if you focus your economic policy on manufacturing. that's something this country hasn't done since the end of world war ii. we were riding free in the '50s and '60s without competition, and it caught up with us in a hurry. but we've got to get back into the game. i'm glad to see the president talking about it.

i i'm glad to see mitt romney talking about it as well. >> and i'm glad to see you reminding our viewers, this isn't the last administration, the administration before them, this is lots of administrations in the united states not having a manufacturing policy. will, whether or not you think we should have had one, there's an interesting point that you make that thing it's fair to show our viewers. you say the u.s. isn't falling behind, we're falling behind perhaps on the number of jobs, the number of people we employ in manufacturing, but take a look at manufacturing output. . in 1990, the u.s. manufacturing output was $2.79 trillion. in 2007, it was $5.25 trillion. it's dipped since then. and in 2010, it was $4.83 trillion, but the trajectory is higher. so we're probably heading back up to our high point. talk to me about this. >> well, the problem that chart prevents for many people like scott, but i'm not suggesting that scott's made this argument, i can't speak to that, they inevitably end up lamenting the fact that manufacturing hasn't been accompanied by this huge job growth. then you end up arguing for things like protectionist

measures, keeping manufacturing here and keeping us in some kind of stagnant level of productivity output to maintain the number of jobs that we have. what i'd say is that just not the way progress works. and i'll add one other thing. in the short-term, the u.s. is doing pretty good. we're bringing manufacturing back, and although manufacturing follows cheap labor to china and back on to vietnam, manufacturing follows for other reasons. we've got a huge source of cheap natural gas and companies are moving back to take advantage of that. >> and natural gas is cheap, so you can run your factories cheaply. oil is expensive, so it doesn't pay to necessarily make things other places and ship them back to the united states. so this weird energy structure, scott, is working in favor of the united states. how do you argue will's point, that we're actually manufacturing more with fewer workers? >> well, there's no doubt that we've seen productivity gains, we've seen automation gains. we've seen those in every decade, but it was really only in the last decade in the 2000s where we saw a third of all manufacturing employment disappear. we basically have the same number of manufacturing jobs in

this country, in 1999, as we did in 1965. the difference has actually been china. and we have an enormous trade deficit with china. it was about $290 billion last year. we were not prepared to deal with that. we need to have a game plan on that. but here's where i will agree with will, ali. and that is, i think that manufacturing is in a renaissance right now. we've seen 470,000 jobs added in manufacturing since the beginning of 2010. it's played an outsized role in the recovery. i think it has a spillover effect that other types of economic activity simply doesn't have. i think that's reason enough to keep investing in it, even if will is right, we're not going to see the return to factories with 20,000 people in them, i think we can see slow and steady growth in manufacturing and that will have a good impact on main street. >> will's champing at the bit. >> i think that illustrates my point, scott, not yours. i think that illustrates the

need for no policy emphasis on manufacturing. that manufacturing will come and go with the natural cycles of the market. when you put policy to try to manipulate that, you're playing a game where you think you can control job growth and industry focus. i'm saying china's had its time. it's going to head downhill from here for china, most likely, we'll see, and the united states might be one of the beneficiaries of that, without any policy help. >> go ahead, scott. >> i would say this to will. unfortunately, every country plays this game. they have a manufacturing policy. and if we substantiate lootand some theory other than the real world, we're going to get left behind. that's exactly what's happened to manufacturing. that's my point. we have not had a plan to deal with it. we've focussed our eggs in financial services and housing. if we put some of them, some of them back in manufacturing, we're going to see success. >> a great conversation, as always, with the two of you. the man behind the world's largest aluminum company is betting on the u.s. up next, we'll hear why alcoa's ceo thinks education is the key to our manufacturing industry success. i love that my daughter's part fish.

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with more than 13 million americans out of work, u.s. companies shouldn't have a hard time finding workers, except take a look at this. in a recent survey, 25% of companies identified as shortage of qualified workers, as the most significant challenge facing their organizations in the coming years. i recently sat down with clause clinefeld who leads alcoa, one of the world's largest aluminum producers. he said the u.s. economy is making a comeback but we need to do a better job of training our workers for the jobs of the future. >> i am extremely optimistic. and maybe even because of the perspective of the jobs, i continue to be super optimistic. first off, all the plant

closures that we have announced on this site, they affect two places here in the u.s. that are permanent shutdowns. those things have been curtailed before. so there's no job effect involved in that. if you look at our jobs growth that we had worldwide, the majority -- over the last 12 months, the majority of this was in the u.s. 1,100 jobs we had created in the u.s. why? and where did we bring them? one example i gave you already. i gave you two, but one i spelled out. the auto industry, you know. the auto industry finally has come to an innovation model. so finally we have the u.s. automotive firms having an interest in innovation. partially driven by legislation. consumer demand comes with it. that drives the right behavior. the other example is the aerospace industry. the aerospace industry is huge in the u.s. huge. it's a fundamental impact on the u.s.

very, very good. the performance there is fascinating. so what i believe here is that you're going to see a lot of positive things happening. one of the critical elements that it needs is better education of the work force. and i'm not talking -- let me for a second exclude the ph.d.s, engineers that everybody talks about, i'm talking about the common laborer. the person on the shop floor. >> what's wrong with their education? >> well, nothing is wrong with the education, but you want to make sure that they keep up and continue to have a good employability. what we have put in place here in the u.s. is we've done at many facilities established corporations with the community colleges that we offer programs that are competitive with the normal work. people work, then they have time off where they can go to these courses and basically learn something new. get their skill levels up. >> i'm packing my passibags and

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earlier this week the u.s. coast guard reported to a report of a sheen in the gulf of mexico. no one figured out where the oil to came from. how to deal with oil spills led one organization to try to solve the problem of we moving oil from seawater. the x prize which offers large cash prizes to solve major problems awarded a winning team for tripling the industry standard rate of removing oil from seawater. next weekend i'll be heading west to los angeles for what the x prize calls visioneering where i'll work with some of the smartest people in the world on developing contests to solve problems that governments and markets can't solve. you'll get an inside look on a special "your money" from los angeles next week. thanks for joining the conversation this