>> re: welcomeo ouprogm. night, what'ss hapnedo the american dam and what's ppened to the middle-clas we begin with arianna huffington of the ffington post, jacob hack of yale university, nneth rogoff of harvard university and steve pstein of the "washington post." we conclude with fareed zakaria whose cove story in "time" magazi thiweek is cled "how t restor thee amerin drm." the middle-class and the ameran dream ne.

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>>ose: theentral questiof is picital season is what happened to the ddlelass? whatappened to the americ dream? earlier this month, i spoke with treasury secretary tim geithner about the problem that the middle-class faces in the new economy. >> the middle-class of this country are not just, like, brutally damaged b the crisis, they suffered a long period in the previous decade where the average american household saw no gn in incomover that period of time. found it harder to save for college, live with much more basic insecurity about thr economic and financial future. >> rose: what we hope to do this evening is understand y the middlelass is strugglingnd en how to rtore their dreams. with me in new york is arian huffington, she's theo-founder and editor-in-chf ofhe huffington post. her latest book is called "third

world america:owoliticians are andong th middle-cls andetrayingthe amerin eam. also here, jachack, he is a professor of political science at yal who studies inme distribution ithe united states. he the author of a new book lled "winner take all politi: inequality and the tranormation of american polics." om boston, ken rogoff. he is a professor of economics at harvard and the former chief economist at the international monetary fund. he's also co-author of the internationalbestelle "th time is different: eight centuries of financial folly." from whington, d.c., steve arlsteinhe writes about sine and the economy for the ashington po." won the pulitzer prize for commentary in 2008. i am pleased to have all of them with me on this program and i begin with arian because i want her, in a sense, because i've been talking to her about the middle-class, and then when it came to my attention that this book was out there, first, the problem. first, the sours of the oblem. >> well, as an immigrant to this

untr i lived t american dream and remember growing up in athens and i had so many friends of my fily who wld move to erica inearc o a bette life. so there was a better life identified with america. and sothing went terribly wrong. right now t-thirds americans believe that their children are going to be worse off than they are. we areense in upwar mobility. ... we are tenth behind france and germany and sweden and finland which is really extraordinary because up ward mobility habitat heart of the american dream. so the rean i picked title thats ver jring-- "ird world america"-is at i really belve america without a middle-class is a third world untr and if we n't crse correct and take the danger of the crumbling mdle-class seriously we are rlly going to become a thd world cntry of extres with t rich behin gates protectingheir kids from kidnappingnd everybo else

struggling to make a living. >> rose: okay. so lots of arguments are being made as to why it's come to this. but from you in terms of this book, what is it this caused us to come to this point where we worry about the american dream. >> well, it's been going on in 30 years and i know jacob has a lot to say about that. but this didn't just happen overnight, itdidnust hapn over theast ten years as secretary geithner said. this has been going on since 1980 and it's been going on across successive administratis. this is not just a republican problem. it's been a combination of things that were unavoidable like the shrinkin ofur manucturing base, gog om an enomythat makes things to an economy that makes things up. you ow c.b.o.s and credit default swaps and the whole financialization of e economy. but it's also been the result of things that were oidable. a lot of deregulion. mortgage compaes proming a kind ofo dn payment proof ofncome srt t to the

erican dream and not beg regulated. credit card companies offering teaser rateshich quickly skyrocketed to 30% intert rates. ana whole kind of nee to re-evaluate what ttersn life. you know, is it ju out coumptions is it justbout bung more? and as you probably know, private storage became one of the big industries in this untry. people literally buying so much stuff they had to renttorage space to put that stuff in. so as well as addressing that economic problem, we're looking at what do we value? why is the good life? >> rose: do we know what the middle-class is? >> well, i mean, americans know at they wa to be part of the middle-class. it's an aspiration as much as it is an incomecategory. and, in fact, one of the things that is striking when you start to look at the statistics, as pauleers and i do in our book is that most americans really have experienced very

similar developments over the st 3 years becau most of the econom gai have ge to a very small slice at the top. show that even when you take into accnt incometaxes and government befits and private health insurance and pensions, roughly 40% of all household inme gai ove the last generation, from 197 to 2007, went to th richest 1% of americs. anreally,ctlly, it's within that top 1% thate've en t big gains. so it's not that strange to thinthat even someone who's making $200,000 a yearould think of emseess mide-class i thatcontext beusethers a small slice that gotn vy far ay and most americans from those who we would coider workinpoorp to the eduted upper mdle-ass have largely held frly steady overhe lt genetion. >> rose: these numberst i have read, 50% of the... 10% of e ople in america make 50% of the income. and half of that is made by 1%.

>> well, this is the sense in which there is a third world element to this. you know, we once were part of a cluster of affluent nations that somimes called mixed democracies. that have capitalism, free markets and democratic institutions. countries in europe and canada andaustralia. and we've moved gradually but inexorably closer to theountry of nations that we callligarch i can. countries like latin america countries or russia. now, we're much richer than those counies, but what we've seen is a generation in which very, very little of the big gains in the economy overall ve ge to the mdle and we've seen the growth of some problems that were avoidable as arianna said. and one of the things that we're tryi to figure out-- my co-author pa pierson and i are tryi to figur out is how politics a policy played into this. i thk we end to think this is just due to forces yond our control, globalization, technological change

>> rose: immigraon. >> immration. wh we fou again and again is that we're experienng similar forces that other countries that are not ansitiong tord this winner take all experience. so we thought of this as an optimist story becausehis really within e ntrol of politil leads. it's a storyabout how our politics and policy has changed. >> rose: ken, you have written about eight centuries of economic collapse. so tell me what it i that you think... how lg... what' the arc that you think led us to where we are now? >> well, i think the biggest part of it, as secrery geithner outlined and arianna huffington outlines in her back into that we have this process of globalization going on with ina and india and you pour 2.5 billion oplento the world labor market and there poorer and some of them are willing to work very hard, that's going to hit you no matter wha your policies are. but the's certain an overlay of policy which instead o

making things better made things worse. it bught us thefinancial crisis and exacerbated the income inequality. and i think... you kno, you can't stop all of it, but we ca certainly improve our education system, due do more with our infrastructure, have more gressive policy towards opening the wod to trade to our goods. there's a laundry list of thing i thk we cou doetter and eventually be better f with this. but, you know, i mean, with china and india and the soviet ion l pouri in, it's going to affect us. >> re: so thiss just simply a neweality that we have to... the new reality is the rise of the east, so to speak? >> yeah, and some people benefited a lot. so if you live in a bigger world and you're a celebrity or a star in some way, it's fantastic but if you're competing with these people, it can be tough.

i mean, of course we can buy lot of cheaper things. there there's definitely faster technological advance in this riod 'sreal quite extraordinary. but r educatn system really hasn't kept up with it. i have colleues, larry katz and claudia golden have written a great book abt this where we really is to do things better in our education system in order to make the adjustment. and i might add it's not just about jobs, it's abo more than that in america: our health, obesity and many other issues rose: steve, you have writn that it nooincidence that polarization of income distribution in the u.s. incides with aolarization of the political procs. what's the impact? well, one ofthe reasons that you'... you would beconcerned abt unequal incomes isthat more and more of the income gets concentrated ithe p, people at the top might use some of that moy to eential buy the potil process, to buy poticians, to buy lawrs to

frustratregulatory eorts and eventually turn the gernments, instruments in of government into an instrument in which they can get yet more greater percentage of the income than they already have. and, in fact, if you go back to the progressive era of the turn into the 19th and 20th century, that's what they were concerned with. the reason they wanted to bust the trust was because the trusts would use their money to essentially use government to... as a club against everybody else. and onef the things you'd be concerned with with income distribution is... unequal income distributn is you get unual political power strition. >> and that is really critical to what jacob said about this igarch cal system and tothe anger because the anger that h en unleashed is really something thats teatening nojust our economy but our democratic stability. it'sery serious. and it is rllythey-product of that sense tt the de are

loaded. that somehow we don't a level pling field. you know, that... i start my bookith talkingbout the equalityf conditions tha we so admired about ameca and at equali of conditions is no more. anthatreally what is at t art of this demonizing scapegoating turning us against one another which is clsic. any perio hiorically of deep economic anxiety is actuay part of that. >> rose: when you say "demonize you mean demonizg by whom of whom? >> well, you have like the tea party movement which is actually founded on legitimate anger but which has led to an enormous amount of demonizing of particular groups, whethert's muslims, immigrants, the president, was he born in this country? does he want to impose sharia law? all these things which are completely irrational but which are not surprising in times of deep economic anxiety. >> because y'reooki for mebody to bme for the condition you're in

>> exactly. and it's not just people who are ou of wk that arffected, it's friends, family that are out of work. so the economic anxiety goes beyond the 26 million people that are unemployed or undereloye >> it also demonizes government. and if you think about it, government in many spectsas one of the great veli influences in the 20t century. we had public schools that everyone's kids went t we had public hiways that everne traveled on. we had public transportatn and metro systems that everybody traveled on. we had plic parks that everybodyvisid. now we have private parksnd health cbs. have pvate toll roads. we haverivate sools. more people sending their kid to the private schoo so the dege tohich you demonize governmt, t degree to wch you talk it down, the degr to ich yo y it'so good, we're going to privatize anything, you get even more inequality because that was the one placehat en ifyou didn't make a lot ofmoney, there was a lot of life that could be pretty good because we

basically all shared the expense. and there was implicit in that the subsidy of the higher taxpayers of the lower... by the higher taxpayers of the lower taxpayers. charlie if i could add something to what stennd ariann said. i thought a signal moment in this was when president obama gave a speech on wall street just befe the financial regulation, he said p lobbng us, we'vegot to do this, y've really got to stop lobbying us, you have to accept it." he didn't say "if you don't, we're going totop acptin ur money, 're goingut ofthe revolving door that puts many top offials wh regulate you into the financial sector." it really is a profound problem, as steveays and as arianna says in her book at the peopleet money and th they're ableo gaiore political power. >> rose: but, steve, did wall street in yr judgmentget mos of what... imean, did they stop

the rst of what they characterized as... in financial regulatoryreform? did th lobbying work? >> yes, it did i think i said t you on an earlier show. >>. >> rose: that's why i'm asking. >> at the end of the day, they complained about it but believe me, considering what they thought they were going to get at the height of the crisis, this was a rather pale in terms of a punishment and restricting their activities and restricting their profits. >> rose: and they will say... members of the business communitwill say theeason that they ve problems withhe adnisttion in th case is because the president demonizes business and because there's no business voi. >> well, that's not what americans thk. i think it's great that we actually have something called public opinion polls on this. wee asked.. the pew surveys research center asked people who they think the government was helping great deal in the wake of the economic crisis. and 53% said that wall street

was being helped a great deal. 2% thought th that the middle-class was being helpe a great deal sohere's a real sense of disconct among arica. they feeas if th lobbyists are swarmg over washington. they're getting what they want. and yet there's 10% unemployment. thers be a decade o.. as s been potedout,fno owth and ars of rising disparities. >> ros what should the president have done? if he with laser-like focus had just paid attention to employment well, if the president has reallyecnized how ep the jobs crisis wod be. rememb, larry summers really d underestimated ve deeply upntil a few months ago he would go on television and say there would be growth in the spring. like chauncey gardener. he did not expect us to be where we are now. so the administration had not underestimated the job cris they would have focused on jobs the way they focused on saving the financial system.

you know the famous weekend when everybody came together an said we cnot affd to let this happen. they would have thrown everything against the wall, republicans wanted theayroll tax holiday, ey wouldave had that. democrats wanted big infrastructure projects that ken agrees with, ty would have done tt. tax exemptio for business devepment, r&d, everything. >> re: tn w didn't they do it, ken? >> well, you kno, they wer nervous that it didn't get spending in fast enough. and they did uerestimate how bad it was going to . thintheyhould havelooked at 8 years of past financial crises and they would have realiz it would have been bad. but, you know, i mea that sa... >> ros but woul't you think there's... lar summers would have read your book, wouldn't he? >> he certainlyid. there was certainly a lot of discussion in the white hse and i don't know who thought what but they definitely collectively presented two cheery a cture. d i think it's unfortuna for presidenobama cae the ct is thiwas going to be a ry bad recession no matter what and

by saying things were going to gebeer with my licipo he now ns the recession in way that perhaps heneed not have. >> you have to resist the temptation to think that there are like three or four dials down there... here in washington and if they would just turn the dials just right we could prevent recessions, we could prevent bad tngs. the message of ken's book is once you have a financial crisis like you have, there's only so chhat you cando. and people... we can talk about what they should have done and whatever, but you should understand that it waslway going toe b. we had a huge credit bubble. we're going to have to have huge rearrangements n in the global economy to make thisight and makehings stable so we can grow again. and until you that-- which is a very painful adjustment and involves unemployment and falling wages and falling prices and readjustment of a lot of things, people moving from one industryo the oer, untilyou do that-- y cat do i

the government doesn't control th private global market economy. and it's wrong to suggest to people that it does. >> but it dn't have to be this bad. of course it was going to be bad. but it sn'toi gng toe as bad as ihad been if, y,he banks had lent. you know, e big banks tt were bailed t c spending, cut lending by $100 billion. on top of it, we havehis perverse priority when it comes to government's spending say, onfghanistan. we haveere aar that we are pursuing which increasingly more and more people across the political spectrum beyond left and right see as an unwinnable war where we are proppg up a corrupt regime and we're spending $2.8 billion a week pursuing that war while china, say, is spending blions llar bing precious mineral resources in afghantan to build its own industry. u know, here you have two different responses to what is happening and we are acting like an aging empire pursuing

military adventures. we don't nee for o national security with money we don't have. >> i mean, i tnk the fundental issue is our politics is broken and over this peri that we're talki about, it's not as if the broa glob trends diated the chans that we'reescring in e state ofhe middle-class. these were aresult of political chois that were made. steve, i think, hit the nail on the head when he said back in the progressive era therwas a narrate that said the role of government washereo represent the bad interests, the public inrests, and that often timeshat meant takingn directlyhe...hose who uld... theall ftors of wealth as they'v been sometimes called. and i mean i think that is a real feature of this crisis that has not been explored the extent to which the polical challenge was really put to theide favor of dealing with the immeate onom crisis. >> rose: so this is ahoice made b the obama administration that was the wrong choice?

>> yeah. i mean, i believe... it's not just that they made a wrong choice, it's that we have to recognize more broadly the extent to which this represents a deerosion of american democracy. and they did, they said we need to get these things passed through ngress, that mns people like rahm emanuel who had been the great money getner the past said this means we have to work with our congressional allies. and that was all well and good for getting a progr passed but it wasn't the kind of building of the conseus and support for political reform that's going to be needed over the long term. >> rose: they should have been more biparsan? >> well, no, it's not... frankly i n't think the chances for bipartisanship were very great. i think in many cases they could have been clear to dra lines. so, for example, if you look aet if you look athe sort of c.e.o. outrage at prident oba now, i mean, you have schwartzman comparing obama to hier. he's apolozed r it. but, still, incrible vitriolic

atcks. and the administraon wked very hard toring business on board. d i ink fundamentally the problem is tt tho at the ry top felt like they didn't have that muchat stake inhe ng-term recovery of ou ecomy and our democracy. rose: how muchf this is beyond the politics of america ving to d withsimply the rcof change in the world? the is thisrend that is challenging and was going to cause a problem but we made it a lot worse. you know, certainly we saw the lower and middle-class losing ground and what we did was we fod ways to make it easier for them to borrow money to keep up their consumption, their stdard of livg. but that built the debt up and up and up and of courseit's exploded. >> rose: how did we do tha ke make it eier forhem consume and consume rather than save and save which is what the chinese and others have been doing? >> we did it through our mogage policy.

and, frankly, it wasn't all devious. ihink there were very well intentioned people feeling that somehow these financial wizas could someho help poorer people benefit from the housing boom, too. but, of course, we saw what it led to. i think the challengeow really is to stayalm and to t to get e fundamentals rit. we can't just be thinking about this year, of course people tryi to get reelected are. we need to think abo how to get back on track and grow strongly a get the fundamenls right. and this political paralysis jake refers to is an iredible concern. how can we make significant changes in oundants wn they can't agree on anything? you know, frankly what i think isoing to happen afte the election-- call me crazy-- i think we're going to see a tax cut. that's not what we need. we need tax simplification, maybe, we don't need a giant tax cut. but that's what they're going to

end up doing and maybe leading to a bigger problem downhe road. >> rose: you think the president should not extend the bush tax cuts for the middle-class, right? or wrong? oh,o, i wou eend t tax cuts for the middle-class. i dot really regard that as a taxut. i think we' going t see something much more on top of that. the economy is going to keep growing slowly. it's going to be ry tempting... nojust teming bucompellingo try to ink ofomething to do. that's the only thing the republicans will agreeo. and i'm presuming that they will do very well in the election and we'll end up- surise, surise-- seeing a tax cut and ev biggerdefitshat' a symptom of the political paralysis. >>ose: at the same time we need a still throws the economy at the same tim we need to be spending on... in order to devep the kind of investmts that wilmake us more coetitive in t worldand give us an opportuty to cree business a all those kds of thin. you were going to sayand i'll come rht t y, steve.

>> i was going t say given we all agree there's political paralysis, a dysfunctional system in washington, i want to bring a notef optimism which is as i travele around the country writing this book and then on my book tour, i have been stunned by the explosion of compassion and creativity in people creating jobs through soal media. you know, go to etsy.com, bonanza.com, it's amazing what's happening. it's like a parallel economy where people have given up on the system and they're actually turning their own bbies or their own ssio... rose: does that make a serious alternative to the kinds of issues we face. >> it doesn't get the gernmt f the hookbut here's what it does. it provides people who've lost jobs not just a means of livelihood when it works but also with a means to star seeing themselves again as contributors rather than victims which is incredibly important if thre to our democratic a stility, not jus o ecomy.

and there also ts incredie explosion among the unemployed of coming together to help others. whether it's seth reams who started somethg in ptland egon calle've got time to help he was an umplod ncierge. now 50 citiescros the country are starting branchesike his. or wther you have unemployed lawyers in philadelphia coming together to help people avoid foreclosure. this is very significant and i'd love enomies like... economists likken to lo at how this is really a wo take our surpluses-- surplusof time, surplus of resources rplus of skills-- and actually using them to create a sense of connection as well as creating jobs and helping each other. >> rose: but you know when you argue that, that's exactly ase imposes the most stringent austerity that britain has seen in the long time, more than margaret thatcher, davidameron is sing the answer is to

non-governmental groups and non-governmental organizations. >> don agree with cameron. >> that's what he's arguing, though, in terms of... >> but it's not either/or i think the lt ofusterity is wrong poly terms because really the deficit, it cannot be solvedn the short term. havto bld the economy and th we'll solvehe deficit. but at the sameime, liberals and conservativ needo cognize that rebuilding civ society and actually doi something withhe little platoons as edmund burke called them, is going to be incredibly significant. otherwise all this anger, all this frustration, all this sense of injusce will have nowhere to go except into demonizing and scapegoating. >> rose: steve, you were going to say? i was goi to say in answe youquestion that you made to ken, you kno a lotofs on this sh all agree about the importance of inequality and how it's growing. but i think is important to memb fir of all this i a worldwide phomenon non. it is not onthe united stes.

it's worseere but it'sot only here. the second thing is that you started out the show with andrew talking about... i'm sorry. secondly you started the show with mr. hacker talking about how so much of the income has gone to the people at the very top. and that's a particular problem and i think one of the things that shows is the effect of technology and globalition ich is everywhere. i'm going to give you a very, very simple example. back in the 19th century if you we the greatestopera sta in thworl, you could play to a house every night if you wanted. so you could maybe play to 300 people times 3 days a year. you the math. and you sell this ticket for $2, $3, that's about as much as yo can make. today if youe the greatest opera singer in the world you can play to millions and ten of millions of people thanks technology thks the facthat you can gollver e world. anyou can make a lot of money. and if i were say to you,

"crliei want youto come over to my place because i'm going to have the 105thest opera singer in the world there tonight," you probably might say "gee, i g something else to do stev thanks very much." because you're use to now knowinthe best. d th oblem... thethin out this... >> d me. (laughr) >> the thing about this is tha what it does is iallo the most talented people in the world to ler their talent a way that never could be and they are the people who are getting this at the top largely. i know we don't like them, they're c.e.o.s or hedge fund managers or basell players, whoever they are, but these are people who are basically able to use technology and a global marketplace to leverage their talent. and it'sot the same people every year. it's true that in the top one tenth of 1%, there's alot of hedge fund manager but it's not the same every year. so i think you want to be careful about saying that this is a about vernment policy.

it isn't all about government policy. >> it's not all about government policy but we should be clear. in the top one tenth of 1% that steve was talking about, only 3% according tohe tax records, are people i sports srs, media cebrities, professiol athletes of that sort. 60are executives. abt 20% are financia execives and i tnk it just... it really strains crelity to think that these people have gotn... are doing so much better tha our similarly situated people other countries or silarly situed people in theast that that's independent of vernnt. have go examplef this. ndy aisle with w,f course, was quoted... he was quoted in th"new york times" saying "we didn't wait for other people to build what we bui." thisas an incredibly unique period of time. no, heidn't wait. in fact, apparently sandy aisle with has a four-foot plaque in hi office that has a picture of him and next to it it says ""shat shatterer of

glass-steagall" because that was the depression law he helped end. ll ge one exame of this this was very concrete. the federal income tax rate paid by the richest tpayers was around 40% i t 1960s. it was 30% in 1995. it was 16.5% in 2007. so, yes, the ri haveotten richer because of global and technological forces in part. but they've also gotten ricr because of wha government has done and not done. >> rose: sohat' the solution to that? if that's the problem, what's thsolution? >> i think the prlem is the state of t middle-class and at that this is clear symptom of the problem. >> rose: but just help me understand, though. so what is your recommendation. what i'm tryin to understand. because pa of th book or the last t of it, is abt solutions. so yr solution for dealing with the fact that we got income disparity, too many people makingoo much money at onend and the middlclass falling behind is to do what? toegulate the ricor do mething else? >> no, i think that clearly if you look at the periodrom e

1940s to the 1970s wh w did se prosperity broadly shared it rest on big investments in the middle-class. but the oblem is that that was reinforced bwhate ll middle-class democracy, but a political system that reesented organized middle-class forces. and we don't that. so i mean do think it's going to be very hard with the filibuster and with the role of money in politics come up with a magic solution in this particular climate. but i believe strongly that there are solutions on the table d i uld say that already we've seen movement in that direction. >> rose: what are the top three of those solutions on the table? >> well, the number-one thing we're going to have to do, as arianna was saying, is to focus on trying to get jobs. and that means... it may well mean ultimately creati jobs directly. >> rose: so that's exactly what i was going to ask you. how do you create jobs? is what is the petuso creating jobs? >> well,heretwo means. one is you offer targeted investments and incentes. small sinees create three qutersf new jobs i the

itedtates. >> rose: some kind of stimulus program? >> loan programs, a souped-up version of what was passed already. then the other side of it is... >> ros like a $1.3 trillion rather than $700 billion. >> exactly. >> but it not just a matter of how ch more. it's also how mucore targeted. the point is that even ie're at full employment we would need to do sometng dramatic about our infrastructure. >> rose: so thereforethe administrati, the this administration and previous administrations have made the wrong choices. >> absoluly they have. ros in terms of investment. >> yes. first of all they should not have done health care before they did jobs. absolutely not. the highest priority should have been jobs. and that should have meant really bold infrastructure projects. look at what happened in san bruno in california where people died and homes were destroyed because of the exploding pipes. that could happen all across the country. our infrastructure stem has not been maintained. so that should be a priority for government. it hasn't been. and as lloy george said, you cannot jump across a chasm in

two leaps. >> rose: my understanding of what you believe is that this particular administration both in terms of people within treasury and people at the white house including the president did no have a sufficient visceral feel, visceral feel, for what was happening to the midd-class. therefore they didt mak the right choices, correct? >> absolutely. and even when when it is oious that ty didn'tnow make the right chois they are not acknowledging it. the president when he ge e interview peter bakor the "new york tis" he said "we've done 80% of what weameere to do that is a profound mieranding of what's happening. thiss li saying "wedid everything for y ayours ctors, we fixed your bunion, your hair is gwing, you've lost weight. now yourcancer is now sta four, but 70% of your chklist has been done." that's really effectely at the president is saying. the things thathey did were peripheral to the fundamental

oblems whi is jobs and the fate of the middle-class and the sooner they acknowled it the soon thell be ableo crse correct. >> rose: ken, help us out. how do you course correct? as soon as they acknowledge it, wh are you going to tell them do? >> i don't think there's a quick fix for jobs and i'd be very cautious abouttryi tarted fixes although, you know, some of it i could accept. i think the funments. okaynfrastructure investment, really quality infrastructure investment. education has to be at the hard of this. and i don't jt mean more education and changing the schools or changing the teachers' unions, creating a more mpetive situation. i also mean athe adultevel there's so many thing which are disappearing. my mother was a lrarian. libraries are shrinking allver the place. finding ways for health educion, certainly television, radi finding ways to have adultubli education. it's a huge problem. you have tolook athe long

term it n jus about trying to fix things in th short run. we have the overlay of a catastrophic financial cris. but we really nee to deal with these chnolocal chang. this globalizationith getng ou fundamentals rig. have a lot of good fundamentals but they have drif for the worse over the last30 year rose: lt word you, steve, in terms of whe we should go and how we... you know, the be... >> well, i have to agree with ken. i think a lot of this discussion has conflate it had short-term problem which we have, the result of the financial crisis and theconomic crisis that followed it and the unemployment and then the fundamental long-term things which are the on thaare responsible for the so-called shrinking of the middle-class and greater inequality. those things do require long-term investment in people and capital, in institutions, in government so that he the

right institutions and the right infrastructure in place for a growgreative innovative economy. an we've spent so mh time diverting resources tolaying fincial eineeringames or just the simple thin, chlie. we've wasted so much money on health ca. if youcould give me 2%0r% or 4% of g.d.p back which i what weasten health car and we want to read thatmongthe middle-css, eryone wou feel better but we waste money on things like that. so thers a lot we needto to f the sff under the surface in orderor the stuff on theurface to be right and i guess i agree withen that throwing trillns o dollars ght now at short-term job creation distracts us from throwing trillions of dollars at basic infrastructure and capital so that we have long term sustainable growth. >> ros which makes us more competitive and all of tha arianna's book which got this started is called "third world america: how our politicians are abandoning the middle-class and

betraying the american dream." jacob hacker and paul pierson, "winner take all politics." thank you very much. thank you, ken, very much. thank you,teve we'lbe rightack a we'll continue this discussion with fareed zakaria whose cover story for "time" magazin inis xhu capaty there is abou restoring the american dream. stay with us. farezakaria is here, editor at large for "time" mazin his ory how to rtore the americanream, appearance in the current issue of "tim magazine. the television special in the same topic will on n this weekend. i am pleased to have fareed zakaria bac at is tle especially ttalkabout how to store the american dream. take me back to a point that perhaps america was at its strongest wor war ii. we we the victor. itas, anything, the ne 50 years would a solidification of

the amican century. you know, 's ieresting that people all remember the 50s and 1960s as the golden age of the american middle-cls and it was but it'smportanto rememberhat the pre-conditions were. 1945, the rest of the world has been desoyed i some cas quite literally. and the most important manufacturing centers of the world which were in europe and to a less exextent in japan had been totally destroyed. we're the only ones with the manufacturing capacity ft, we loan money to the rest of the world or give in the some cases as in the marshall plan and help rebuild their economies, they start buying from us. this is where the american brands go... coca-cola went solo into eve combat theater in the world and this provides enormous jobs for people and this is when e unionscan pad jobs and say we're going to hav five people for every job that's necessary and they get enormous benefit. this is the 1950s, 1960s.

by the 10s europe is bacon itfeet, pticularly countries like germany, japan has moved up south rea s moved up and we begin to face the first serious threats of competitorsnd this caes an enorms amount of anxiety and have's a smp and americans think w do get out oft? and that's when you begin the sty that everyones telng and you will notice tha tt almostveryone begins the story in theast 30 years. it's important to remember the previous0 years were a very unnatural period. >>ou tk abouttechnolond gloeization. hodid that impact wherwe are toy? >> that's very important because we had some sense of where globalizatiomeans. that's crucial. in the 1970s, 1980s, you had information technology. but remember not a lot of it. most of uare using electric typewriters and that's what we

ant by technology. when computers were used, they we hope the help... used to help the payroll system, the back offices. didn't add much to the ficiency of productity. by the late 1990s, information technology starts affecting every area of business. sales, marketing tail everything is transformed by information technology. and now all of audden you can do a lot wh many, many fewer people everywhere in the organization. jack wch has the example that i give which is extraordina. the mpany he's invold in thatas 28,000mployees a $12 billion ofrevenue. this is in 27. it will ge back t $12 billion in two yea but with 14,000 employees. so it's a 50% pay cut... work force cut to produce the same revenu >> rose: i have heard story after stor where companie in..because of th economic crisis had to tighten their belt and all a sudden they realizedhat they can be more

efcienand moreroduive without the samemount of investmentn oplerlants. >> there was a story in the "new york times" today about state and local governments realizing that you actually don't need librarians that what most people ask of lrarians is such a routine operation "can we find this book" that all you need to do is havehem make the request online and there are a bunch of towns that have created... the library is now a set of safety deposit boxes. you ke the reest, u g back an e-mailaying kay, it's in locker a-30, go and get the book." and you go andget the book. so allf a sudden...nd it' pure technology that eliminate this is class of people. >> rose: whereo you put political dysfunction. that's something that came up in e pvious conversation. as part of the problem of what's happed to the middle-class. we did not have a government that was responding to the realities of our time? >> i would auay put it third. i would say technology,

globalization and then political dysfunction and the reason is. this clearly the biggest drivers are tenology and globalizatn. i mean,globalization, again, most people understand ts. but think of it fm the point of vw of a company. ve suddenly doubled, tripled the numr of potential coumers you ght have. if you thk about what t world looked like in 1985 compar to 1995, b 15 yo have all of eaern europe, all the avic peoples, all of india, all of china aessie as a market. if you're american expres, all ofsunday al those places you can...t's he. political dysfunction, we focus on a lot, as we should, because it is the only variable of these three that we can manipulate. technology and globalization, how much can we actually do about these things? we can adapt to them. but the politics we can change. and that's why i also devote... >> rose: i want to come to your story... >> it's important to remember these other two forces are much larger. >> rose: the challenge for us in restoring the american dream is what? >> i think the k chalnge is

how do you provide reasonable employment opportunities for the vast majority of americans? i think we all know that the top 10% of america is going to do fine. they surf this worldof globalizatioand technology, they befitrom it, 's a win-win. >> rose: and they get 50% of the income. rig. and part of thats f reaso th steve peastei was lking abouwhich is t gains for talent haveecome much greater than the gains for capital. in the 1920s the way you became rich was you had access to capital. after a whileeoplrealized the world was awash in capital by if 1960s and '70s, whatyou need was talent. but i do think that you have th growing polarization but the heart the problem is how do you prove jobsfor tens of millions of people with l these competitive pressures? what do you do? how do you make the american middle-class competitive? they're not all going to be brain surgeons. they'rnot all going toe charlie roses. >> rose: so how do you do it? >> i think you've got to start

with some level of caution and modesty about this because it's very hard and it's a long-term challenge. but i would say learn from success. germany has been able to maintain a manufacturing base. why? because two things,he germans decided they were going to go into really only high-end manufacturing. they were going to leave the mmodies manactung and the unions were very good about understanding this and they let that stuff go away. >> rose: and they had co-determination policies in whicmanagement and labor worked together. >> exactly. so it was a win-win if the factory could survive. en ty ended up making b.w. s rather tn totas. they do the fancy high-end stuff where you can charge a premium and e result is there is a market for tha and there are jobs ere. lot of it is they've mainined their faith in technical education, i science and engineering, apprenticeship programs they have huge apprenticeship programs that cover0% of the labor force. ours cover .3% of the american labor force. so, you know, that i question of learninfrom success. part of silt that.

but the fundamental issue i think is that we have to make massive invtmen for the future. one of thehings thatas obscured in the discussion of the panel, we've done a lo of governmentpending, auge amount of consumption. what people don't realize is one of theeasons gernments can't affordnythg, o of the reasons thatovernor christie thinks he can't afford to build a new tunnel between new jersey and new york is because the new jersey state budget is mostly now devoted to pensions, health care for state employees. it's a huge part of the budget of every major government everywhere. >> rose:hat's a hug problem what's the answer to that because of the commitment made to the workers and the pension programs that they believe were coming to them? >> inveryestern country they have started scaling back those mmitments and there are vaous ways t do it which is to say for those of you within ten years of retirement or 15 years ofetirent, it could reasonably said that that you

are going expect these benefits we'll keep them for you. but for everybody else bin scaling them back. there's another ways which to do co-pays and things like tha but the key is, charlie, in the article i say in the 1950s we were spendg of g.d.p. on research and development. that w a time en there were lots of jobs for people who were not ille who wereot in knowlee instries. everybody agrees on one thing, th the only realobs of the ture are going to be in knowledge industries and information. doing complicated stuff. manipulating symbols, signs, computer programs. shouldn't ... we don't eve end 3% anymore. obama's great goal s been to spend . i give him a lot of credit f lot of t vestnts, particularly the department of engy. shouldn't we be trying to spend more? i me, ifou were t look at is from ma and say,well, if that where the js are, why not spend 6% of g.d.p. on this? and that money will be not money spent on consumption but on investments for future jobs. that's the politically unpopular thing. because nobody... there is no constituency for it.

we're talking about people 20 years from now, jobs 20 years from now, not jobs of today so they don't vote. >> rose: at the same time other places, china particularly, are movi ahead in term of ternative ergy sourc, in terms of biomedical sources, a whole range of things that they are in a swens the kind of g.p. ty have are spending moneon those very kinds of things and the fear among some people is tt theyre reall going develop the indusies in a way that it will be difficult for the united states to cch up if it ds not spend the vestnt now. >> this is the other crucial diffence between the 1945...1945 weaccounted for 90% of a scientificr&d inhe world. >> ros rig. >> iead last week south korea-south korea's a country of 15 million people-- has announced they're gog to spend 5 billion on cln energy ojec. i mean,hat's almost as much as we're spending and we're the richest country in the world with 30 million people. so we ve t get competive. but i c't strs enoug tha

if wedon't think of is as a new age in wch we actually i to do much more than we did in the pastwe can't jt stor what we were doing in the '50 in t '50samerica has a huge steel industry. we don't have that anymore. is i i doesn't it go back to the political problem you talked abt. you haveo ha political leadership that's willing to make the case and is skilled enough to make the case that this is the choice for america. >> rose: this is the... in some ways we may have stumbled upon the kind of genetic defect in democracy which is it massively overpowers and privileges the present comped tthe future. because the you think of the republicans and democrats, the one thing they agree on is subsidizing the present. the republicans do it through tax ts andthe democrats do it through consumption spending of particularly health care and pensions. in both cases,ou're sucking... and the numbers are soarge i mean, just take the bush tax cuts. that's $70 billion ov the next t years if you keep in

the place. that's huge. it dwarfs everything we're talking about. >> rose: you do have the feeling the president realizes this. he made the argument at west point that a country thatoses its economic vitality will lose its opolitical leverage. which is cleartrue. >> ithin obama gshis in theory and... >>ose: exactl >> and seems to get it very well and heeemsto get ite have been the energy investment whh is sten chu hasade which as far as ican tell is exactly what we should be doing. people forgethe government of the united states created the semiconductor instry. it created modern computer science. it creed the internet. these were all government-spoored funded... >>ose: but will we be creating the jobs, the industries of the future unless we make significant decisions now? >> and... >> rose: and significant investments now. >> this was the tragedy of obama's first two years. he staed out on theight track and then the nature of the political process took th first imulus, $800 billion of

it. a third of it went to a tax cut. completely pointless. this was the only way to get the republicanon board but still, this was the third tax cut initiated since the crisis and people, of course, were not going spend it becse they rerationalnd dided they needoepair tir balance sheets. a third of it went to localnd state vernments to prevent them from layg off people. fine but it's al consution spending. only a third of it, maybe even less, was actually what wehink of when we think of a stimulus which is a 1930s sty massive inastructure pject that will havehash will create a new terstate highway stem and things like at. so it end up bei for a $14 trillion economy you're talking about mayb $200 billion. >> rose: what isthestragy for the united states in tes of its relatiohip with the new world orde and its strategy for a new world order? >> i think people clearly still wa american leadership. partly out hat paly out of a see that nobody else

knows who would be the leader and you certainly see over the last month of real apprehension about china and about what chinese leadership would look like because of the way the chinese rattle the saber ove the south china seas with the japanese, they've done it with the vietnamese. so there's i think political terms obama has actually helped change the equation for the united states. but that sense that america was the future, that sense that arianna talked about about thinking of america as being the future, that has changed and it's n anything that arica has ne to a larg exte. it's that these countries have risen. when i came to america as a student ople used to askeme, whats dondtrump like? thiss aan.. >> rose: you mean when you go back to india. >> when go ba to dia. people would say "what's donald trump ke? " the idea that this out of size extravagance, the richt man the world in their imagition, which i'm su donald trump would be delighted by was... no if you'rsitting in india well

actually the fourth richest man in the world lives next door and he just built... >> rose: a $100 million home. >> so you n't need to look to americto look for the grandeur of riches. you have it alin your own cotry. and there are versionof that in cna a bral and innesia. that the chang and that's why we have to work evenarder and that's y i s at the enf the artic you have a benchmark. you can't sit back and say we don't care what other people are doing. if everybody else's corporate tax rate is lower than yours, you have to look at that. and everyone else can deliver health ce more cheaply than you ca youave toook at that. companies do this everyday. they're always benchmarking. as a country we are remarkably resistan to comparing rselves to the rest of the world. you know there are three countries in the world that have not gone on the metric system: liberia, myanmar and t united states of america. that tells you something about our resistance to benchmarking. >> rose: and rince tense to seeing where ware in terms of

things wehought we were leading and suddenly we realize we're 15thnerms of the numb of people that enter the educatn syem and don't finish. we've gone to one to a significant placeelow that. "how to store the america dream" is this "time"agaze. this is the first big story there since fareed moved over to "te" magazin hes also on cnn on sunday on fare zakaria's g.p.s.nd there is onaturday night a ecial which is... >> it's call red storing the americanream and many of the things we've talked about. of course, even better because we have to get people to watch that as well. >> rose: continue the story. thank you for joinin us. see yotomorrow night.

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