which it had in a slower, but to wealth no less downward drift lost another 500 points. today we got news that the economy only created 117,000 jobs in july. did that beat market expectations? were they happy about that? sure. but that's because market expectations were for a terrible, horrible, no good, very bad jobs number. instead, we just got a disappointing pretty bad, not nearly good enough jobs number. that may be a bit of an upgrade but at that rate at 117,000 how long it would take us to get back to normal unemployment? forever. we would never get there. because that isn't enough jobs to keep up with population growth. in the last couple days the economy has a one-two punch, the equivalent of you lost your job and marriage dissolved. as you might expect after two days of which a global economy dashed our hopes foreany sort of recovery, people got questions. first they want to know, why did the markets drop? >> what happened today, what is

going to happen tomorrow? >> people trading every which way buts. >> what happened on wall street today? >> and then they want to know why the economy isn't creating more jobs. >> where are the jobs. >> jobs, jobs, jobs, jobs. >> where are the jobs? >> these are good questions. but they're the wrong ones. they're backwards. the right question, the one that explains where the markets are right now, that explains the job numbers this morning, is why shouldn't the market be tanking? why should corporations and businesses be hiring? why should anyone in their right mind think things will get better any time soon. today on shows we're going to take the economic news of the last few weeks in three parts. the markets are reappraising the economy and so will we. we will look back over the last three years and what we missed, why the mess we're in today should have been predictable and preventable. we're going to tell you what governments in america and elsewhere could be doing but aren't in order to stop the bleeding and give the global economy some time and space to heal.

and we'll tell you why politicians are shig away from doing what need to be done. why they may want to rethink that strategy and what needs to happen for an actual economic recovery. not just a return to normalcy, but a return to a period in which living standards improve and wages rise. but before we can map that path forward we have to do a better job exexplain how we actually got here. this week white house press secretary jay carney was asked if there's any chance at all of a double dip recession. jay? >> we do not believe that there is a threat there of a double dip recession. we believe that the economy will continue to grow. >> most economists, they're not quite so confident. it's even true for former white house economists like carney's former colleague larry summers. he put the chances of a double dip at one in three. to talk about this in terms of recessions and double dips it's wrong. that at least is the conclusion of harvard economist ken row gof of "this time is different" perhaps the single best history

of financial crises throughout history. the phrase great recession he writes -- that's where we are. we keep waiting for the thing that follows normal recessions, a normal quick recovery. but it's not coming and it's not coming because this time, compared to the recessions we're used to, this time was different. back in 2008, elizabeth warren, yeah, that elizabeth warren of the consumer financial protection bureau, wrote a blog posted that sounds prophetic now. she wrote, quote --

>> and that is exactly what happened. when the crisis began, consumer debt to gdp, money we owed on our homes and credit cards and everything else compared to our total economy was about 100% of gdp. it's fallen now to 90% of gdp. mostly through families getting foreclosed on. back in the early 1980s which was the last time we had a bad recession it was at about 45% of gdp. that was how consumer spending that time could drive a rebound. right now, consumers can't drive a rebound because they're too indebted to buy anything. by stuff businesses can't drive a rebound because they're not selling. congress isn't letting the federal government step into the gap. but you're looking for solutions

or just predictions, this is where you need to look. this is where we'll find it. we need to wipe out some of that debt. she thinks we'll need a period of higher inflation so the debt becomes worth less money. others say we need to forgive some of the debt in the housing market. but one way or the other we need to begin addressing the real problem. joining me is peter orszag who served as obama's chief and now a vice president at citi group. >> great to be here. >> start with the news, why now? what was the new information, if there was any, that caused the markets to tank this week some. >> i don't think there was anything specific about this week. it was almost like we were distracted by the debt deal in the united states and turned back to reality and that reality was not altogether pleasant. you did have some weak consumer spending numbers and you also had ongoing problems in europe, obviously. mostly it was just looking back at that real world picture and saying that doesn't look so good. >> and you were part of the team that actually began to respond to this in 2008. or 2009 when obama was

inaugurated. looking back, was it misunderstood at the time? do you think there were conceptual mistakes or policy mistakes that were made and should have been done differently? >> i think we maxed out how much the system could have absorbed by that i mean the political system in 2009. i think there are questions in 2010 whether there should have been more emphasis on the duality of more deficit reduction enacted to take effect in three or four years combined with more job creation measures. look, your intro had it right. the hard slog following financial slumps are fundamentally different than other recoveries. it's almost -- we need a new word, a slogrecovery following these slumps where you're barely above stall speed for the economy for an extended period of time. >> ken rowgof tries to put out in his column, the great contraction, at least a different word. that brings up the question on whether he's right. we've been -- when we think of how to respond we think of fiscal policy, congress, infrastructure or tax cuts and

he put it on something monetary, he said inflation, inflation tends to be a dirty word, enemy for the '70s and '80s and it's the enemy, is it not the enemy now, actually a different moment? >> it's tough. what you need is unanticipated inflation or else it will get built into the interest rates charged on debt and so on and so forth. that's a risky game to play because if your central bank is injecting unanticipated inflation into the system, you can lose credibility quickly. there are no good -- i'm not going to -- you can criticize that idea. no good options because every -- you basically all the tradeoffs are much worse than in a normal recovery. you have a bad combination of sluggish growth, elevated unemployme unemployment, weak housing market and all makes your deficit problem especially for the medium term worse. >> and now you're sort of part of the market, so to speak. the vast conglomeration we call the market and is there a preference there that you pick up on or that you can see for what should actually be done

next? because it's often sort of frustrating in washington that you feel that there is something the market wants from you, something the market wants done in policy that would comfort it or push it forward. but, because it, obviously, doesn't speak with one voice, you just have people saying it dropped today and that clearly shows i have been right all along. is there any sort of plan of action? >> i think, look, we can talk about the policy measures, but beyond that, just a little more continuity of message and clarity and so, for example, continuing to emphasize that you need to do more job creation now and a lot more deficit reduction enacted now but to take effect with the lag rather than circling back and forth between those two objectives i think would be beneficial. >> it felt in the recent decade we sort of got the worst of both worlds, not only no job creation but we didn't extend unemployment insurance, raise the spector of the contraction next year and wasn't any serious long-term deficit reduction. a promise to have a committee

that would report later. it seems if we were going to point that particular gun at our heads and take that risk to get that deal didn't seem like we got a lot for it. >> i think the biggest benefit it avoided a worse crisis which would have occurred in early august. and it also did while you're right it doesn't include additional job creation measures, at least it avoided a very substantial contraction up front. it pushed off most of its au stensble deficit reduction until 2013 and thereafter which is beneficial and the new trigger is an interesting innovation. i think it's sort of a mixed bag. >> and part of what all this implies is the last couple years we've been overshooting the pessimistic case, too optimistic. s is there a case for optimism as we become more pessimistic? if you're going to tell a story about how things get better more quickly than some of us are assuming how would that story go? >> before we get to that. i think the official projections are optimistic. we keep assuming a more rapid growth rate and that doesn't

happen, we're the dog chasing the bone three feet ahead of us. if you're going to try to tell the story that would make that a reality, which is not particularly likely it would focus on areas of -- that are positive, including investment in equipment and transportation equipment and software. exports continue to be a strong -- a strong area of strength and corporate balance sheets are in better shape than you would have expected at this point in a -- i'm going to use the word again. >> and okay. thank you very much then. peter orszag with not much hope but a new word. >> trying to do what i can. >> next, austin goolsbee on his last day of work at the white house tells us what he's learned and boy, he sure seems ready to go. >> once you get to washington, there's only so long you can go. i mean there are a number of people there whose trade tables are not in the full, upright and locked position and eventually,

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the last three years mired in an economic crisis getting better very slowly. we've also been hindered by a twin set of political crises getting worse quickly. the problem is this when an economic crisis is very bad, you need to do an enormous amount to combat it, far more than anyone would consider in a noncrisis environment. but because you need to do that at the beginning because you need to do it before you actually know how bad the crisis is it's often impossible to do enough. and if you don't do enough, if your policy prescriptions are under sized your solutions become discredited because

people look around and see 9% unemployment or you're not recovering and assume what you are selling does not work. that gets your political opponents energized, weakens you and from then on you're in trouble. take the american case here. to understand how plum crazy the debate the last couple years has become you have to go back to 2001 when a republican president and house of representatives were facing a much milder recession and they wanted to use tax cuts to fight it. that's a pretty traditional keynesian solution. they had one problem, the tax cuts they were proposing had been designed for a period of growth and surpluses. how could they turn around in a totally different situation and say they were just what you needed for a recession. to try to figure that out representative paul ryan invited conservative economist kevin hassette to the hill to make the case before the house weighs and means committee and he turned to kooens. >> just like to add, mr. ryan, that the economist who studied this were quite surprised to find that fiscal policy in recessions was reasonably

effective. it's just that folks tried at first punch that was too light. and that generally we didn't get big measures until well into the recession. >> when paul ryan responded to that he said, exactly. that's my point exactly. listen to what he was saying there. keynesian economics doesn't only work, the main problem is it's usually not attempted aggressively enough. the 2007 financial crisis was far deeper and far worse than the tech bust. every calculation we knew how to run showed the stimulus we delivered was under powered and as time has gone on we learned those calculation that showed a recession much milder than the one we were in. but then the republicans took the stimulus and shaved it further by about $100 billion in the senate after it had been shaved down by $400 billion when it went to congress and when it managed to arrest the collapse in the economy but not restore the economy to full health they argued the stimulus didn't work in general, keynesian economics the platform was discredited.

a bit like saying because of their half cycle antibiotics didn't cure their pneumonia antibiotics don't work and shouldn't try any more of them. it was bad economics is good polit politics. maybe the only politics an opposition party could have used, helped republicans get elected in 2010 and might help them win in 2012. it took crucial tools out of our tool kit. 9.1% unemployment and almost nothing left to fight it with. it's dwrees blame policymakers on both sides for these missteps but some levels hard to blame politicians for being politics. the bigger lesson, sobering and scary for policymakers who will confront crises like this, when you get into an economic crisis the political situation it creates will impede an effective policy response. to get perspective on this i spoke earlier today with austin goolsbee, chairman of the white house council of economic advisors, today his last day at the white house and after three years on the job i asked him to tell us what he thought the administration could get done in

washington versus what they were able to accomplish. >> i had been working for a couple years for the then senator obama. i think the number one goal we thought coming in a crisis was, prevent a cat ta ka his mick event and we did succeed at that. we didn't have a depression, des spite a downturn both financial and economic every bit as deep as the one in 1929. i think that was -- when history is written that will be rather important. i think i probably underestimated -- i wasn't from washington. the stuff we've seen over this past year that -- the absolutism and the dysfunction in congress sort of culminating in the threats where you had actually government officials saying maybe it wouldn't be so bad for the u.s. government to default on its obligations, i think that was fairly unsettling to not just the markets, but to

consumers and businesses and that was indicative of a mentality which was, we don't want to do anything the president's for, even if it's a bipartisan thing. so that's been a little hard to deal with. >> and you know what i don't hear you say, we weren't able to do enough. i think someone looking around would say you're completely right, that you guys were able along with the bush administration to prevent a depression. but unemployment is above 9%. growth is slowing down. so if it wasn't you were constrained from doing what needed to be done then -- >> i will say that at a moment when we -- the moment we take office, we're losing 800,000 jobs a month and the economy's shrinking at a faster rate than it has in the -- since we started keeping the data in the

1940s. at a moment like that, there isn't a private sector that can save the day, period. it was in free fall. the only thing there was was direct government involvement. and the recovery act was as much and as many different varied forms as was conceivably able to get to try to address the problem. situation we're in now, is very different. we have a high unemployment rate. there's no question. we got a long way to go. but i think now you see the investment in a number of industries, growth you can envision things like. the president out with on a smaller scale the jobs for vets program, let's try to give a tax credit to get employers to hire unemployed veterans. these are things which are incentives for the private sector to be driving the recovery and i kind of think

that's where we've -- we got to be at this point. >> but, even with all that, let's say we get payroll extended, unemployment insurance is extended for another year, the white house's official position through jay carney said there is no chance of a double dip but larry summers says we're at one in three. if we do sputter out, we're left in the toolbox to get us out? >> i'm not going to get involved in a bunch of hypothetical arguments about where we are. the fundamental thing is we have to grow. we know that. that's not a secret we took two or three heavy blows in the beginning of this year so we were having a moderate pace and up to coming into 2011, we had added by the beginning of this year, something like 2 million plus jobs in the private sector and working our way out of what was a deepest hole since 1929. >> then you get gas -- the gas price shocked, the events in europe, the stuff from japan

having a negative impact on the economy in this country, and the growth slows way down. now we need to restore that growth, but -- the recession or business cycle are all about how fast are we going to grow. and i would just caution you not to translate the recovery equals the government. and that there's a lot more to the economy than what's happening inside the beltway 99% of what goes on has nothing to do with what the congress or the white house or anyone else is doing. >> austin goolsbee, thank you very much and enjoy going back to chicago. >> great to talk to you again, ezra. coming up -- a live look at the markets as a rough week on wall street comes to a close.

when we come back the 2012 republicans may loob like a hapless bunch but the one who may be in trouble is the president. [ woman ] jogging stroller. you've been stuck in the garage

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almost done, but hang on... her doctor recommended aleve because it can relieve pain all day with just two pills. this is lisa... who switched to aleve and fewer pills for a day free of pain. and get the all day pain relief of aleve in liquid gels. the conventional wisdom in washington says president obama should sail to re-election. he's got a huge campaign infrastructure, tested, battle ready, he's got a ton of money in the bank and let's face it a weak republican field. with the recovery slowing and unemployment not likely to approach the level he would need to claim this administration to turn this thing around that may need to be rethought. in fact, it may be time to question whether obama is really the favorite at all. the white house hopes voters will be convinced by the list of his domestic achievements, done wall street reform, rescue of the auto industry, health care law, stimulus, repeal of don't ask, don't tell, stopped the depression from happening and

maybe by 2012 have a deal on the deficit. a look at the history of presidential elections tells us that the economy tends to easily outweigh those other accomplishments. in the election years of 1964 and 1972 and 84, republicans goldwater and mcgovern and mondale suffered defeats. now in the popular history because all three were terrible candidates and maybe they were. but it's also the case that each of those three ran in years where the nation experienced historic income growth. thus, rendering the candidate according to many political scientists almost irrelevant against the good economic numbers. look, i know we all love to think of campaigns as a dramatic contest between two heroic or not so heroic gladiators, good for ratings, media, great to write about. the political scientists who study this stuff don't tend to see it that way. if you don't know who the candidates are, you can predict how elections will go. not good news for the president who remains relatively popular,

much more popular than [ inaudible ] any right to be, but nevertheless, is looking at high unemployment, huge deficits, no real light at the end of the economic tunnel. even a dramatic economic improvement may not be enough. as one obama adviser told politico, quote, the numbers here add up to defeat. lynn maverick an assistant professor at ucla joins me now. thank you for being here. >> you're welcome. >> let's step away from the personalities for a moment. if you just saw these economic numbers, and you saw two random names on the ballot what would you or most political scientists predict about the coming election? >> i think you're right, ezra. the economy is a great predix ter of election outcomes so if you look at the growth rate right now and try to predict what's going to happen looking forward, fourth quarter of this year, to second quarter of next year, you'd have to come away thinking this incumbent party the democrats have their work

cut out for them. they need to bring economic growth at the end of this year and into next year. and that's a big challenge. >> how much does a good campaign matter? i mean one hope is that they will be so much better at campaigning or one hope from the white house better campaigning, so much money that the republicans won't be able to compete no matter how weak the economy is can a campaign outweigh the economic numbers we're looking at? >> it's absolutely possible that a fantastic campaign, a great message, and a great strategy, can certainly steal the election away from the party that is favored by the economic conditions. that's happened in history and it certainly could happen for obama. but it rarely happens for incumbents in declining economies. >> you know, there's a fascinating implication in this research i find as a voter encouraging. i think one thing in washington the way to govern look at the polls and what's popular and go with that. what all this implies it seems

to me, politicians need to go for results. they need to sort of forget what the pollsters are saying, consultants are saying and figure out what will actually work to improve the economy to create tangible improvements in the lives of americans before the next election. because these sort of prevailing wisdom is sort of so day-to-day, so much part of winning the morning and looking the good at a press conference and beating the other side at a negotiation, even though you're a year out from the election stirnlgs it seems to me they get off track. am i reading that right? >> i think that two things are important to think about here. the first is that strong predictor, the economy, it's hard to get away from that robust pattern. but the way that gets translated to voters in the voting booth, that happens through the campaign and through the day-to-day. the other thing to keep in mind is that voters have very short memories. when they go to the polling place, they're thinking about

what's happened in the last several months, a year at the outset, a little bit of the janet jackson "what have you done for me lately" kind of question. those day-to-day maneuverings, keeping track of the messaging, at that very immediate level, is important to campaigns. voters' memories are short and the effect of those campaign moments decays very rapidly. >> there also seems to be a sort of on the flip side encouraging implication a bit of a scary incentive for the minority to keep the majority from governing effectively. one thing i think is interesting and to some degree unique about our political system we have an enormous number of points where the majority can exercise a veto in the system, lot of divided government, filibuster and it seems that what this would suggest about minority parties they have a strong incentive to impede the majority from governing in a way that would dramatically make -- push for good results in the economy. at the same time because voters

blame the majority party for the state of the economy the majority party gets stuck with the effects of legislation substantially driven by the minority party. >> i think that, you know, your instincts are exactly right on that. everybody is trying to game the system here, but so is the incumbent party. so they understand that they need to bring about that growth at the end of the presidential term and most incumbents do manage to run for re-election in a period of economic growth. so, as much as the outparty would like to try to limit that, the in party is trying to maximize that. as we often see in wug we get gridlock. >> lynn, thank you very much. so after another rough week, all eyes have been on wall street to see how the markets are going to close at the end of the day. there's no doubt americans are

growing a bit tired of what seems like a never ending roller coaster ride there. is it over? with the latest news on the markets, welcome brine sullivan host of cnbc's "street signs." thank you for joining us. >> thank you for having me. i'm not sure it's over, although it looks a little better today. >> tell us about that. not far from the closing of the markets. how are we looking at this moment? >> we're looking at about 24 minutes away from a cocktail because that's the kind of week it's been. here's the situation. we know what it's done, we're down eight of the last nine days, yesterday 513 points down. really all generated by concern about europe, the banking system there. will that bleed into us. we have another financial led meltdown or recession. today we had some news out of the european central bank, don't want to bore your viewers -- >> these viewers love wonkiness. >> i'll go as wonky as you want in five languages i can't speak. here's the situation. basically let's see if i can summarize. silvio berlusconi promised, this

is all factual except the last part, balance the budget by 2013, liberalize all the closed services and do away with their social welfare and pension system. i'm not sure if that comes with a pony and a ferrari for every italian, but either way the european markets liked it, that's what they promised. basically now germany and france will loan italy a bunch of money to buy up some of the bad debt if they can do those things, wall street likes it for now. we're not way up. you know we're up a couple points to the dow, basically down to flat on the nasdaq but at least we're not down a few hundred points. europe was the problem yesterday. ezra, apparently today europe is the solution. >> now i tend to think that sometimes when there's a big couple days of swing, 500 one day, 500 down one day, up one day, they lose sight of the larger trend. there is any expectation the market will regain in the next week or two what it's lost in the last ten days? >> i don't think there's any expectation we're going to

regain that type of point in the next five to ten trading sessions. we have gotten absolutely walloped the last cup 8 weeks but i'm going to pull back on that and say, we are very myopic now in the stock market. you noted these wild swings. mostly ezra because of xurtsz computers, high frequency trading being done with the individual investors getting pushed around and big machines making these al gor rhythmic trades. that's why the swings have gotten wilder. it was a scary last really two weeks for investors. but we fell 16% last summer before rebounding. i think that we talk about, i know you've written about in your excellent articles, sort of the new normal for the economy. i think we're entering a new normal for the stock market which is where, you know, wild swings are not going to be wild swings anymore. they're just the day-to-day gyrations now. >> brian sullivan, thank you very much. enjoy that cocktail. from what you're telling me it might be the first of many. >> 21 1/2 minutes. >> see brian week days at 2:00

p.m. on his show "street signs." coming up, it's one of those economic buzz words but how do we achieve the innovation we so badly need?

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welcome back. melissa is in the newsroom with a look at the stories developing right now. >> hi, ezra. you first heard the breaking news of the deal to end the faa impasse on this show 24 hours ago. now the president has cleared the way for thousands of federal aviation employees to return to work. moments ago just before heading off to camp david for the weekend president obama signed the faa reauthorization bill. the new law extends the agency's operating through mid-september. a story we did, has to do with man kind's dilemma. is there life out there? we don't know for sure just yet, but this week nasa announced it has found evidence of water flowing on mars. take a look.

these are pictures from the mars orbiter of what appear to be some sort of spring thaw going on on the martian slopes. nasa administrator charles boldin says while there are many unanswered questions about the flow this adds credence to the possibility the red planet may harbor some form of life. >> that looks great. we can build hotels, go there for summers, it will be terrific. >> speaking like a real developer. >> next up, the big ideas. where are they and how does the united states get them back? i love that my daughter's part fish. but when she got asthma, all i could do was worry ! specialists, lots of doctors, lots of advice... and my hands were full. i couldn't sort through it all. with unitedhealthcare, it's different. we have access to great specialists, and our pediatrician gets all the information. everyone works as a team. and i only need to talk to one person about her care. we're more than 78,000 people looking out for 70 million americans. that's health in numbers. unitedhealthcare.

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i'm hampton pearson with your market wrap. a look at how the stocks are doing today. one of those days if you don't like the markets wait a minute. right now we've got the dow in positive territory up 75 points, the s&p down a fraction, the nasdaq down about 17 points. financial woes continue to mount for the u.s. postal service. the agency reporting more than

$3 billion in losses, between april and june, bringing this year's total losses to $5.7 billion. the agency could default on payments to the government as early as next month. >> honda is recalling about 1.5 million vehicles across the u.s. the automaker says they need to update automatic transmission software to prevent transmission damage. chrysler has issued a recall of over 367,000 minivans, this time over faulty air bags that could deploy. that's it from cnbc first in business worldwide. ezra, back to you. >> thank you, hampton. you know, we've promised you at the end of the show today something a little less depressing than everything that has come before it, that points the way toward the future maybe we can not only survive in, pay off our mortgages but be proud of. the big lie of the economic crisis is it began in 2007. to understand where we need to go from here you need to go long

before that. it didn't begin in '07. at the very least it began earlier than [ inaudible ] when the credit bubble inflated and bust become inevitable. some economists believe it began even earlier than that. they say it began in the '70s. it began when we stopped innovating as much. advanced economies don't tend to grow because they discover a new land or new people or resources. they grow because they discover new ideas. this is a piece of the puzzle that's the hardest to talk about because it's the most indistinct. easy to talk about credit or dough mand or dollar easy to talk about innovations that have happened like antibiotics, automobiles and the internet. it's hard to talk about the ideas that no one has thought of yet. but oddly enough it's something we can measure and the way we measure their contribution to the economy is by subtraction. economists call this factor productivity or tfp. first growth leftover after you

subtract the growth in factories, population and education. it's the remainder, the party that humans thought of, rather than the part that they found. and it has been slowing down. according to a new report by the hamilton foundation before 18973 tfp increased by 1.9% per year. since 1973 it's been 0.7%. sounds dry, 0.7 to 1.9, but here's what it means for your paycheck. if we stayed on the trend we were on between the 1940s and '70s our compensation would be $18 higher today or 51% more than it is. now, many economists think that slow down has been behind the slow down in credit over the last few decades where the connection between tfp and financial crisis comes in. americans were used to seeing their living standards rise. when they stopped rising the way they had in previous years they turned to credit to fill the gap. we're paying for it. but if we're looking for sustainable recovery one that leads to a durable prosperity and frankly better lives, we have to get that innovation machine back on track.

joining me now is m.i.t. economist michael green stone director of the hamilton projects and author of "the report." thank you for being here. >> here. >> thanks, ezra. >> the first question, the obvious one. what happened? do we get dumber? where did our innovation go? >> innovation, you were saying, it's a tricky thing. there's not a magic formula, but rather it's it comes out of an ecosystem or a series of small choices that add up to something big. and i think what happened is that beginning sometime in the 1970s, we stopped being as aggressive in making those investments and kind of putting together the lattice work that leads to innovation and ultimately determines or living standards. >> so you talked about that lattice work. the stereotype of innovation, a lone genius, addict. the brain in larry page in a garage inventing google. that implies no role for society much less the government. we wait and hope these guys think their great thoughts.

is that the way it goes or am i missing something? >> no. the google example is perfect. so if you just trace out the history of google, immigrated to the united states with his parents when he was 6 years olds. part of reflecting our immigration policy. went to schools in america. went to excellent public university, university of maryland. did very well there. then was awarded a national science foundation fellowship that allow him to go to stanford. at stanford he met, met larry paige. together we tame up with this idea for google and you know, then they found themselves in an area where there were lots of high-tech workers. their ideas could be protected because we have good protection from intellectual property and fertile capital markets. so all of those things are small, taken at a piece. you take the national foundation and went to a university, put it all together, it created

conditions that allowed his brilliant idea to turn into google. now 13,000 employees in the united states alone. >> when i hear an example like that, you look at what we're cutting right now. obviously in a period in which deficit reduction is the top issue. politicians like to reduce isn't the deficit. they love cutting discretionary spending. that's where r & d is, infrastructure is. more than that on the state level cutting back substantially, share slashing education. the university of california where i went is a jewel of a university system, but it is being absolutely chopped apart now as california works to get its budget in order. are we being penny wise and pound foolish? the way we balance our budget? >> think about a typical american feel. we're in a tough economic situation, and a typical american family, i have to pay my mortgage, the utility bill.

the key thing that a forward looking american feel is going to do, they will continue to pay the mortgage, continue to pay the utility bill, might eat out a little less but they're not going to stop putting money into the fund for their child's education. therapy not going to stop putting money into 401(k)s and that analogy applies to the federal budget. we have to continue to invest in the future in a way that our parents did for us. >> michael greenstone, thank you very much. >> thank you. and we will be right back. [ male announcer ] at e-trade, investing means taking action with professional-grade research. and some of the most powerful, yet easy to use trading tools on the planet.

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we've been ang slis ang vously marking the markets. markets are posting a wobbly finish. 7465 for the dow jones

industrial. not a lot figuring they just lot 10% in the next ten days. dylan ratigan, bring him in now. this doesn't who great. this is not a bounceback. >> the interesting thing, you know this better than mosts ezra, in the short term the stock market is a voting machine. gives you a sense of sentiment, a point of view, people feel optimistic do they feel scared, hopeful? over the longer term the market is a scale. it actually weighs the embedded value of production through a financial measurement over a period of time. and at a moment where we're watching three years of monetary policy, of creating money effectively, trying to loosen the available capital in the hopes that doing that in some way would magically spark investment and job creation. the market is now realized after three years of this stimulation that it's not working. i would argue that until you deal with things like the tax policy, trade policy, banking policy that are the

extractionary factors in this country, you won't even have that happen, but that's for another day. but with the market is realizing, whatever this central bank is doing, whatever this government is doing, is not generating investment and prosperity. >> the other thing to take away from this, markets in the recent weeks, this is not just a story about us. we look at it that way. commodity prices the euro zone, it's amazing in this rough of a world how much we are fooling around here at home. how, you know, six months -- for no reason. >> exactly right. it's as if you've got a bunch of people in washington that think they're playing a game. that don't recognize that the little fiddling game they're playing is actually tied to the underlying perceptions of future prosperity of the entire western hemisphere. before we become too anxious about the immediate state of affairs, however, two silver bullets left in the gun before we actually have to get to real structural reform, real

structural debate which will actually be where this will end up in a year or two from now and that is this -- jean-claude cliche runs the european central bank and reserves the right to buy every bond in europe if he so decides. as soon as he does that, the marketplace knows he could do that, has the capacity to do it, in which emboldens the bond envesters to annihilate italian bonds, greek bonds, portuguese bonds, because he knows that bond trader know, if you start to push italy off a cliff, greece off a cliff, trichet will step in and become a bond buyer creating the relief, by the way the reason the market relief today was on speculation indeed the european central bank will be forced to step in and be a buyer. just another kicking of the can down the road but gives you a short-term understanding. >> better if people knew what the european bankwa