after "money", we have "the willis report." have a greatome back, that is is it here, see you tomorrow >> where is it? winning streak on wall street goes on, and where is the austerity? let's bring economist frifdrich hey yeck back in the mix. >> what is austerity anyway? >> i do not know. >> i have no iiea.

the fight over austerity. that is our show. tonight. >> now joh stossel. john: the word austerity means self-denial, when applied to government it means cutting spending. i put the word in quotes here, because, despite media whaling about it -- wailing about austerity there have been f real cutsere or in europe. there are books out like off ofausterity kills. he said this comic strip explains it all, portrays. aliens who want to destroy ear earth. aliens shoot him for reveals the

truth. >> i proud to be an off the an austarian . unfortunately, only a few people in congress actually take my side and want to cut spending. i am happy to have one of them here with us,enator rand paul. proposed specific cuts, but senator, i'm toldf he cut now, when the economy is not great, this will make unemmloyment worse. >> well her is the amazing thing about people saying that we are living in an age of off the austerity, w have not cut any spending in washington. spending still is growing, in washington. when they say if you tutt spending -- if you cut spending that will cause lack of economy growth. people spend money, jus who spends it, friedman had this he put it well, he said nobody spends some one else's money as wisely as they spend their own.

john: you talk with your colleagues about there have been no real cuts, do they look at you like you are wrong? >> no, i think aot of people up here understand it. people like krugman take it and demagogue an issuehey know full well we're not cutting our spending we're slowing the rate of growth at best. butteven that rate of growth, you s they went crazy, the sequester, the sky is falling, the same week they do, that they sent extra $250 million to egypt. they have enough money to send around the world but not enough for white house tours, that does not pass the smell test. john: have you a plan, you would eliminate commerce, education, energy, housi and urban development. you say that to people that frightens them, i assume? >> well, i telllto people is that really what is extme is

what is going on up here. balancing our budget, if you talk to a family abo balancing their budget, not spend morgue than comes in -- spending more than comes in, it sound like a reasonab notion, i can tak money from the economy i it build a bright shiny building say thi is what i did with your money. but we don't see what entrepreneurs and individuals would have done with that extra money in the economy that goes back to from friedman says, who spends money more wisely when it is your own or government. government are waste irs of money they have no clue has to how to making any, i want to live more money in the prproductive economy john: creates thousands of jobs, we don't know what they might have done. >> right. but really who can make things better? the private world or the government. we have a great dial of evidence that government wastes money,

misdirects it, i can give you example after examp of millions of dollar spent on roll up beef jerky, 5 million-dollars spent on studyin collective action of fish. there has been no austerity here n the united states we have struggled to slowdown the rate of growth of government, and they fought us on the sequester that slows the rate of growth, i think that american people are not buying it they see there is a plate of gamesmanship. >> president saying no more level-guided white house tours, no more a traffic controllers, most people believe you could move money around. and cover some of the things. one example. how, if the president would have behavinger rationally, if you don't rehire the people who are retiring from governmt, that is 6 billion a year. so the sequester was passed a

year and a half ago. he did nothing. for a year and a half, if he would have instituted that, it would have been $9 billion, a urth of what we needed to cut. john: thank you senator paul. now, america has big financial problem in europe, they are worse. this riot was in greece. greece had the most riots, there have been big fights in spain effort gal, portugalleportugal and england. >> there has just been cuts, cults. john: many say europe's troubles prove that the free market argument isrong. the europe troubles gave he

pause. could it be true? cato economist dan mitchell. why hav't the budget cuts worked? >> becausehe h n bee y t wom frongnd. th cut, cut, governmen spenng gon up unit kingdom ery sgl year. r at l a cple decades, anven since the scaed nservati gerentook over, a i ringas than ilaon, youlook at frce, governmentspeg in u >> w havaraph. ance,ta, it kinom, spain. >> they are increasing government spending at a rapid rate. all of a sudden, fiscal financial crisis hit, we have to do austerity, w not prune back the size, they said let's raiseaxes, they are raising xes, driving private sectors into the dirt, thatii not work, now finally, in greece,

we're seengga tiny bit of endi cuts, only because they ha reached end of the rope, they cannot get more bailouts they raised taxes to a point where the imf said you get less revenue, so, amazingly, like,al greeks made a tiny spending c. >> why all o the publicity about draconian cuts, people there experiencing it believe it. >> the fight in europe is between so-called austerity crowd and growth crowd, but the growth crowdrr paul krugman, keynesianing and ing and big sed austerityeople want higher taxes, there is nobody in europe that's advancing the position

that senator rand paul was talking about. we have a big expensive inefficient government. if we' more growth we have to shrink burden of government spending. the transfer of resources from private sectoro the government that is what hurts your economy. john: theovernment has no money of its own. >> and all likelihood they will not spend the money as efficiently. >> and the coverage is so insane. the atlantic, a respectable magazine, editor matthew o'brian, the more country has cut, the more unemployment it has, a recovery is worth t deficit. >> i bit he agrees with paul krugman and thinks that more government spending will helpn economy even though is did not work for hoover and roosevelt in the 30s, not for japan in 90s not for bush in 2008, not

for obama in 2009, it never rkednywhere. john: people believe it. >> politicians love the theory. it tells them their advice have is a virtue. >>hey lik to spend. yeah, i am with you, i will be first in line. any good examples? any country that has done it right. >> i just go the back from europe, got off the plane today, came here because this show is the best place to be, the btic countries. estonia, they have done the right thing, they cut government spending, i say cut, i am not talking about washington thing, we increase spending at 6% instead of 8%. no, in battle tick countries -- battle ticbaltic county its was. >> tse economiesre growing?

>> ty are growing, they recovered, jobs are coming back, they have positive gtp, economy growth, wle the country that have gone with the tax increase approach, like italy, spain, gree, portugal, and et cetera, et cetera, they are in recessi receion. moral of the story, you have figure out ways to reduce burden of ggvernment spending and taxes and most country in europe have nottdone that. the baltics are a tiny glimmer of good news. john: back on this continent. years back in 90s canada maae big real cuts, a prospered. the canyon dollar was worth 70 something cent at the time, now parody with our dollar it works. >> amazing most of those cuts, actual genuine real spending cutsn canada happened under a labor party government. john: a liberal government. >> new zealand did the same thing in 1990s,nd actua to

be fair, bill clint was much better than a lot of republicans. at least he restrained the owth in spending. republican in congress made big role in i too. evidence shows if you restrain the growth of govnment or better actually cut government spending, y are freeing up resources for productive sector the economy that is where you get growt we have to focus on taking government, which figuring out, how to at least restrict it so it is growing slower than ivacy sector. john: well good luck with that, dan mitchell. coming up. two economists will argue about austerity. >> if you first, a man who said that must tert off the turty is like debtor's prison.

john: i say, bring on what the punditting calling austerity. let's cut stuff.

government spending $3.8 trillions now. and sorry that is just theefeds, states and local government spends more, it is too much, every dollar they spend is a dollar the private sector does not have. free individuals spend cutter that is why cutting government spending is good. but bob kuttner said that austerity is like prison his new book. "debtors prison: the politics of austerversus posibility." and he wants tout. so bob i start with you, we haves there are assistant s there are the national debt. as we age, the baby boomers, are you sayinge don't need too cut? >> this is a question about deficits in the context of a depressed economy. time to cut deficits is whe the

economy is in recover as bill clinton did in 10ss clinton got economy to surplus in context of high growth, you have a st economy, that is a time to have defkit sit spending because you need stimulus. john mk, respond? >> what we're sfering from today is imprudent fiscal policy, what the government is doing with their irresponsible welfare payments with interfering with business and so forth. is keeping the private sector, which is the majority stakeholder that should be the focus here, with employment and so forth, they are the key we have to really encourage. john: what abou don't poi -- boo point? >> therere many examples in private sector where banks, companies i was a consultant for ibm they went 3 a difficult down size -- through a difficult down

siding in 1990s they fired a quarter of their workers. a hundred thousand workers, like at ibm today, united states, same situation. if we adopt austerity, prudent austerit we can turn our country and blossom like we've never done before. john: bob, whe you say now is not the time, when is the time? >> the time is when the economy is healthy and the clinton era, and late 1990s, one time in recent history the budget as in surplus we were on track to have no national debt. and 2000, economists worried about how the fed will conduct monetary policy, whenave paid off national debt, i am not the sort of guy who says we should always have a deficit, this is not a time to tighten your bblt. you may agreee i don't think we

should raise taxes. i don't think we should cut ending. john: we have a national debt now that is 1% aut of gdp does that scare you. >> about 70. john: interest rates go up it will be horribl >> everyone has been warning f 5 years that interest rates are going up, the economy is so dead in the water, that interest rates are n going up. ter the war, debt ratio was 120% of g higher than today. john: it ce sharply down,t was a war, the war ended. our wfare spending is not going to end. >> that gets to my point, i think really important, we are an overly generous welfare program, second -- section 8 housing, and food stamps, the americans on welfare, they want to work but we have a sim that system that do not incentivize them to go

back to work, we need to be like ben franklin. he faced financial crisis all his life, he lived below his means,here is the federal rainy d fund. >> there is nothing wrong with debt, per se, but it has to be done prudencely, in my own life i put 20% down when i bought a home, i payoff my credit card every month, called prudence money management in government we don't have any evidence of prudence money manager. john: bob last word. >> as recently as 2001, government projected an endless surplus. and it was bush tax cut,ush wars then deregulation o finance that cated the huge defici. we agree to disagree thank you bob and mark, mark has organized what we calls world's largest gathering of free mines.

freedom fest in las vegas, theme this year is,re weome? i'll take this show to t road to be in freedom fest in july. and tape a show. tonight, what if you manage your budget like the politics manage their? >> this is a family budget, what do you think about that? ey make 24, an spend 35, they lost 10,000 this year. they are already in debt. >> what type of people would do that. >> federal budget, i just took some zeros off. >> that a big number.

john: think about this family budget. really ugly. income last year $24,000, but a

spent 35,000. incurrinl left 11,000 in new debt, they had a lot of old detz. i would say they are highly irresponsible. but this is actually the federal government's budget, i just took of8 zeros, people on the street had an appropriate reaction to that. >> what? that is a lot. >> formula for disaster, our future is dismal no doubt. john: you pay for this, does it scare y? >> a little bit. >> i'm broke, i don't know how i'm going to do this john: and radio host dave ramsey helpsthemlves get out of debt. what you think about my time squared gimmick? is it fair to the government budget? >> is absolutely fair because of a zero is a zero and a mass is math when you spend more than you make you go into debt.

is not rocket science and. john: comparing politicians use sees similarities in their psychology? >> there is. one definition of maturity is learning to delay pleasure, putting itff. when you are a child you are throwing a fit in the group three -- serial i/o is a maturity. we all have that little kid but as a grown-up we learn to delay pleasure and back away from the tablecaot eat toor spend too much money we learn these thingsit is called self control but when youre imager or in the immature culture you elect imager people to represent you then you continue to spend more than you make. that is a problem with the liticians. hn: there has been interesting ychological studies putting a cupcake in front of a kid to save u don't have one and and and

now you can have bunch leader but then they follow them 20 years later and the kids who were best able got to grab the extra treats did better in life consists of 87 exactly. any of us have the ability to start making those choices to ke on pain or maturity to in later. but we have to believe if we're going to do that we will win later. in other words, the care it has to be real. john: talking to people on this tree i was happy they were horrified but i was surprised when isked them this question. what would y cut? >> i would cut come i don't know to tell you the truth. >> not education. john: not education? >> that is a tough question where to cut. john: don't cut this or that

item know what to cut. but do the peoplehat called of a radio show don't know what to cut out of their personal budget? >> people do knowut it is thimmaturity factor i don't not want to go out to eat or i don't want to not go on vacation but i have $110,000 of student loan debt that has been around so long i think it is a pet. i have to make choices because it will not go away if i don't change my behavior. john: the people that listen to after word they say i am happier now? spending less? >> what is weird is they are happier immediately because when you have a sense of being a grownup to put on your big boy pants to say i will controly destiny, i will control my life and i will not live from impulse to impulse and i wri it out even though i am not out of debt but what i am writing alex is a recipe for christmas and i have to

deliver pizza to give up my income is a tough pn but i get a sense of dignity because i am being a grownup and taking control of my re. there is a power in that that is unbelievable it is caed a whole. john: thing to do ramsey i wish i had more hope for our federal politicians. , the frederick highjack the economists comes back from the dead in support of austerity. ♪

john: [appuse] the serious debate of austeritystimulus began 80

years ago with the economist john maynard keynes and say we can spend their way back to prosperity and friedrich hayek said it no way. not those exact words but i would like to think if friedrich hayek heard about the obama stimulus plan he would have said something like this. ♪ the party is er ♪ ♪ are you kidding? conoco i works perfectly fine knockout there was a recession back in 2009 no. things could havebeen worse john: that is what i hear the recession would have been much worse without stimulus spending and when unemployment is still hak that is the time to spend anjump-start the economy. ♪ john: it is an ennine that needs a spark and this makes sense to people so let's

turn to the producers of that rap video that has received millions of views onew tube ross roberts and former m producer, keynes argued the economic slowdown is prime the pump like a car? >> it sounds good and3 politicians like it but doest actually work? >> when the stimulus plan worked using the keynesian model they said if we did not pass it unemployment could reach eight point* 5% we did and it went over tens of the model was wrong so there is a historical example for more than a fancy statistical models and i argue the evans is a mixed john: plenty of people say unemployment would be backed up if it was a bigger if you had keyneses' say it. >> if we would have done

better if we spent more than a happens if there is a world war. >> they argue world war ii ended the great depression. but to stimulate private consumption it is a time of austerity in the real sense the word. john: they were making tankk >> it is a measure economy if you are in the munitions business you di great but the average person if you want to buy the refrigerator or car you could not because the steel was used for the her stuff. that is reality government spending crowds out private activity. john: afterwards government's spending went wn we went into a horrible recession. >> that is what the keynesian is predicted -- predicted a fell 40% as truman pointed out in his discussion afterwardsnd plan it was high despite that there were 10 million

soldiers coming back some went to school and a lot of them found nework somehow the economy thrived without the governme stimulus. >> what is strange about the keynesian approach is they don't seem to care whether value is created by economic activity or not. as a producer i have to create value for my audience and makeomething people want to see but in a keynesian world it doesn't tter how you spend the money you could build the bomms are the tan or also have projects to build appear in it or have alienations. john: speaking of that we don't have a world war but on cnn paul krugman suggested it would be good if we had something like a war. >>f we discovered space aliens needed a massive buildup and inflation and

budget deficits took secondary places, this would be over in 18 months. >> in a way that speaks for itself, doesn't it? john: a lot of ba-- economic activity. i could sell you my sock and you could sell back to me and if we kept doing that in a ircular flow to measure it as gdp then we would be amazingly wealthy and the economy would grow. john: i don't want your socks. [laughter] >> in a keynesian world field is all stimulus it doesn't matter. every fight the aliens we get richer and it ignores the resources where they come from to build the anti-alien space weapons. john: talk about austerity. we have tried it and it doesn't work? >> where have we tried it? we hear abt the united states for te united states government over the last four years has not grown as dramatically as as in the

past government spending actually went down a little bit that was at the all-time high. john: now it is predicted a little more because of the sequter. >> can we run a deficit over $1 trillion the easing could be pretty keynesian peace. john: but it is not enough. >> evidently. that is what friedrich hayek made the point* very well that it is a complex world of what is going on at once but is easy to say would have been worse if we had not done it. it is hard to prove that then it is a religion of both sides. >> something i find offensive is we talk about austerity in the richest nations of the world d the largest govements the world has ever seen that when you talabout cutting 3 percent is austerity. with the rest of the planet that means your ki and

belly is crumbling because they are hungry and the culture of calling what we're doing austerity is propulsive wheyou think about it in the broader scope of the global community and the people who really haveo figure ut what they will do next. john: with the critics call us as the austerity and it sounds like austrian economics which some of you know, about and i assume most don't know is there a connection? it is a play on words to make fun of the austrian economislike friedrich hayek that was skepticalf the keynesian prescription. its a little jab. i wear it proudly john: thank you. coming up, i will saul's our deficit problem. but first you and the audience get tt quiz -- get to quiz our guest.

[applause]

attention - americans living with limited mobility. what do you do when you can no longer get around like you used to? when you fear losing your independence? who do you call? call hoveround now, to see if you qualify for america's premier power chair. hi, i'm tom kruse, inventor and founder of hoveround. now you can do more, see more, enjoy life more.

here's why hoveround makes it easier than any other power chair. hoveround is more maneuverable to get you through the tightest doors and hallways. more reliable. hoveround employees build your chair, deliver your chair, and will service your chair for as long as you own your chair. and most importantly, 9 out of 10 people got their hoveund folitt or ncost ll n forour ee d and formion ki and noeverhoveund comes with ts tote bag and cup holder for handy access to your favorite items. you don't really have to give up living because you don'have your legs. ll n forour ee coultaon. and ght now, g this miteeditn horoun hoveround.com right now!l or loo

[applause] john: we're back with your questions for our case no economist and ross roberts

and john head made the rap video. soirst from the facebook page has a. bill: defined the end game principles when deciding what program to fund or cut? >> for public goods like property rights are good for an economy that type of spending is helpful and some pe of physical and human capital spending grows education and can be go if done efficiently. t the bulk of the budget today whether europe or the s. this transfer or consumption ending and the evans is that diverts resoces from f more productive resources and if you do cost-benefit test and the transfer consumption spending looking at that types about lay. john: the port and the helpless? that is what the transfer

paymentsre supposed to be. >> if you get the private sector growing the four will be better off than he would much rather be pour in hong kong or singapore because you have a better future than france fo the best you can hope for is the politicians will for ever catch you on the head to keep you dependent ward of the state. >> people now more than ever are graduating from university into a terrible job market usually having a degree in something that ll not help them. deal think this for job market is reflective of just a bad the economy ors there a fundamental problem with the educational system how weducate our students? >> it is a personal choice with a major and if it is not profitable that is your choice. but there's nothing wrong with that don't think that knowing about poetry could help you to get a job that

makes you a beautiful father but it should not be subsidizeds much as it is we subsidize people ttking things that are not practical that means the people making those choices are not using their own money. that is miake. >> nobody has brought up entitlements. i don't see how they can be sustained with government, a city, the employees that get lifeti health insurance and pension, where does the money come from? >> with the federal government level it is about medicare and medicaid and social security it is about alth care entitlement but normally i of bill was gloooom and doom b the house of representatives in 20112012 voted for entitlement reform of medicaid and medicare with a fairly substantive way and they got reelected in 2012 and that and think they are suffering at all

have sobered up and realize looking at the calamity in europe we have to address the long run fiscal problems and unrestrained entitlements for once in my life i will sound optimistic >> those setter, the syrians a lot of times they not talk that we believe civil society should be larger looking back to history you can find there is a rich civil society that took care of our brother. >> natalie did they do the benefits that they did it in such a way that is local and help people to account because you look your brother in the face because if he had a plasma screen tv while unnmployed it is harder to do that when you know, the people that are supporting you. there is more to this than just what we will cut the wheat allowed t merge after that. johnto counter your

optimism from twitter a file clerk says is untruethis austerity will only go on to hurt theork? >> w like to think it does that most government spending goes to the rich and no class people. john: food stamps and medicaid. >> that is a tiny portion there's a lot of things to cubefore we get to the poor corporate welfare or in time of programs that go to rich people why should everybody contribute to social security and every by the get some money back? reserve for the people w are poured it is not to pay forealth care and retirement who are able. >> but they said it encourages people to not to say if we don't need to save the government saves for us then we get more spending. john: katchis sarcasm. [laughter] >> if the government is

deemed irresponsible because of rampant spending what is your solution to that same government to decide responsibly what to cut and what not to? [llughter] >> that is a great question. we often talabout the government as if it is the person who decides of course, there is no single the cider and it the emerging progress of the members of congress and it is not a logical butwe do better than other countrie out like to see th constitution. john: thank you. coming up my austerity program. i wl show you how to cut

government. [applalause]

john: if you just tune did earlier i was in times square showing people this family budget. >> what you think of these people making 24,000 in spending 35,000 almost

1,000 in debt. >> facias stop spending their money. >> they shld get their priorities bennett -- straight from what they need to spend theironey. john: this is the federal budget actuall i took off the zeros. >> battle think the is any y we can make that up. >> crazy. john: what would you cut? >> that is a tough question. john: what would you cut? >> make different choicesi guess. >> web when i cut? john:ou are corknow the government. >> i would cut i don't know to tell you the truth. john: they don't know? we spend almost $4 trillion and most people have no clue about what to cut? i know. i was strucky falling granfalls plan by cutting

entire cabinet departments like a bloatducation department. it has long been paid for by states the fed spendg $100 -- $100 billion per year is not betr just more bureaucratic. who needs a commerce department? got jt hapns the politicians get powero help the cronies. so does the energy department they tke your money to fund companies like solynd, a solar trust, all of them went bankrupt. we don't need an energy department. america already has won it is called the free mrket. if you invent a better feel you will get rich. with those departments on i would go beyond senator paul's planned to cut more and close the labor depament it is done by workers a does not need a department for also e agriculture department it is done byarmers and bureaucrats mostly

subsidized theig business. there is so much more that could be cut. in that book just out in paper book we cut all the way toerve less. it isn't hard it and it would crea prosperity that most politicians are eager to spend more. check out there website at benefits .gov they suggest i am eligible for 55 of them disability, environmental sustainabity give me a break. ending handouts t people like me is not austerity it is common sense and right now we're on the road to greece but if we couldut government to sell limited government the founders had in mind poverty wou be so where -- where our kids would have to learn about in history books. that isur show we will have another show him

ursdayight. thank you for watching. [applause] weekend. >> hello, everybody, i am gerri willis. tonight on "the willis report." deis: ho safe are these life-saving drugs? also, the ugly fight over a family fortune. and fashion from the must-have accessories of summer. >> this is gorgeous. we are watching out for you tonight on "e willis report."3 ♪ ♪ ♪ gerri: we have all of that