tournament championship, alexander sla men coversus brian derrick. thanks for watching bellator 23. this is bellator fighting championships. hi, everybody. welcome to "the wall street journal report." i'm maria bartiromo. >> i think peace is crucial. but it's crucial for -- it's crucial for our own lives. it's crucial for our security. >> my one-on-one with israeli prime minister benjamin netanyahu. we'll talk peace in the mideast, global economy and israel's economic. raising the gas tax. the tough new proposals to slice america's deficits. find out what a white house economic adviser thinks. and bulldozers, back hose. i'll talk to the man who ran a major manufacturing company about making stuff in the usa. "the wall street journal report"

begins right now. >> this is america's number one financial news program, "the wall street journal report." now maria bartiromo. >> here is a look at what is making news as we head into a new week on wall street. painful solution and shared sacrifice. that's what a special bipartisan presidential commission on reducing the deficit is calling for in its preliminary report. among the proposals being offered to cut america's deficit, eliminate the tax deduction on mortgages greater than $500,000. raise the social security retirement age to 69. that by 2075. eliminate earmarks, and cut defense by $100 billion in 2015. the panel needs 14 of its 18 members to agree on the outline for the proposal to even reach congress. the dow industrials broke a six-day winning streak on monday, was flat midweek and tumbled on thursday on disappointing earnings news. stocks fell again on friday. earnings news this week. cisco beat analysts'

expectations but its outlook for future revenue looks weak. the stock got hammered on wednesday. it had its worst day in 16 years. media powerhouse disney fell short of expectations. gm made $2 billion in the third quarter, a strong showing that may help its initial public offering next week. and chrysler reported a third quarter loss, but listed its full year outlook, projecting a profit of as much as 700 dollar million for the year. it may be tough to find a job for most americans, but if you work for google, you're in luck. the technology giant is giving its workers an across the board 10% raise, in addition to a thousand dollars holiday bonus. google says it's tough to retain talent in silicon valley, and is doing all it can to keep its workers happy. the preliminary proposals by the deficit reduction commission a realistic starting point or a pie-in-the-sky proposal? joining me is ed lazear, former member of the white house council of economic advisers and stanford university. ed, lovely to see you today. >> great to be with you, maria.

>> so the preliminary plan to cut the federal deficit lays out some hard choices. cutting the military, cutting domestic spending, raising the retirement age for social security, touching many of third rails in american politics. do you think the plan has a chance of becoming reality? >> well, i think it's going to be difficult. but i think it starts from the wrong point, because my view has always been that we shouldn't even be calling it the deficit reduction commission. that's really the wrong way to think about it. let's go back a couple of years. if we look at the past two decades, we know that the average government spending to gdp has been below 20% for each of the last two decades. we're now at 25%. so we shouldn't be taking as given that we have to be spending 25% of gdp, and that we have to figure out a way to reduce the deficit given the 25% gdp spending. i think that the first thing we should be looking at is ways to get our spending levels back down to where we were in 2007, even 2008. and that would be the first

approach. and i think that's actually a politically more feasible way to go also. but as you point out, there are a number of issues that people are talking about. i'm happy they're talking about them, because they are focusing on the right issues. but it is going to be politically quite difficult. >> so many issues to discuss with you. let me ask about the g-20, the group of 20 most powerful economic nations, met this week in south korea. president obama was hoping for a trade agreement with seoul, which did not happen. how important is that? did they get anything accomplished? what is your thought about the g-20 this week? >> well, i think it's unfortunate that more didn't get accomplished. but i certainly applaud the president for going over and trying to get something done. particularly on the free trade agreement with korea. one of the things that is extremely important for us to remember is that we are only 5% of the world's population. and although we're a very large economy, the vast majority of economic activity is now outside the united states. and i think it's very

short-sighted for us to think that we can close our markets and close our activity to prevent goods from coming in and prevent our goods from coming out. so any movement in that direction is good. >> there is a lot of buzz still about the federal reserve's decision to buy nor than $600 billion worth of treasuries, the so-called quantitative easing, or qe-2. where do you stand on this? is this going to be problematic at some point? is there a downside risk to the fed constantly being there to stimulate if in fact the economy deteriorates? it feels like things are very fragile. >> right. well, we certainly know the downside risk. i think everybody is concerned not about inflation and necessarily the near term, but the implications for inflation down the road. the fed has the tools to fight inflation down the road. the question will be whether it's willing to use those tools later on. i think the big problem with quantitative easing, and, you know, admittedly was a tough call for the fed. we saw that in the comments that came out afterward. but the big problem is that it's

not obvious that it's going to be particularly effective. and that's for a couple of reasons. even under the best of circumstances, monetary policy takes a long time to work. one to two years is what you usually expect. and that's when we're using traditional monetary policy. at this point, quantitative easing is not using traditional monetary policy relegated to using secondary techniques because we're already out of gas on the primary ones, namely operating in the overnight short-term markets and so forth. so it would be optimistic i think to think that the secondary kinds of techniques that we're using are going to be as effective as the primary ones that we have used in the past. >> and what about the midterm elections? will the republican victory impact where the president is in terms of his policies, his administration's policies? will the bush tax cuts be extended for everybody? do you think we see a response from the administration on what just happened with the midterms?

>> i think we're going to have to see a response. i don't think that the president will have any choice but to respond. so far i don't think he has been particularly responsive. the kinds of comments he has made have focused primarily on communication problems, not so much on policy problems. my personal interpretation of the election results is that it's not a communication issue, it is a substantive issue. but i think the president recognizes that, and we've already heard comments starting to come out of the white house suggesting that he is willing to compromise. as far as the bush tax cuts go, i think it's extremely important to maintain those cuts. i think the rhetoric around them has been primarily a bit misguided because it has been focused on extending them during the recession so that we keep money in the economy. i don't think that's the right way to think about it. i think the primary effect of the bush tax cuts, particularly dividends and capital gains has to do with investment incentives over the long run. and in order to make sure that

those investment incentives remain there, i think we need to extend them permanently. i hope congress and the president look seriously at this possibility. >> ed, good having you on the program. we so appreciate your time today. >> thanks, maria. great to be with you. >> we'll see you soon. ed lazear joining us. >> okay. up next on "the wall street journal report," the man who ran iconic american brand caterpillar, the world's largest maker of construction equipment. on jobs and the view of the oval office. and a tiny nation in the middle east with big economic goals. israel tries to work out peace and prosperity. i'll talk with benjamin netanyahu. as we take a break, a look at how the stock market ended the week.

as the economic recovery inches along, the vibrancy of industry plays a key role in american business. caterpillar, the world's largest maker of earth moving equipment.

the iconic black mining and construction vehicles. jim owens joins me. great to have you on the program. >> good to be here. >> you recently retired from your role as ceo and chairman of caterpillar. what trends do you see as far as drivers in the american economy? >> well, i think it's, one, i think american companies have to begin to think more and more about global competitiveness in how they compete with imported products and how they compete when they export from the united states, as well as where they invest around the world to participate. but we're also investing and continuing to invest in america. and we have a very strong, vibrant export business in caterpillar. and a number of other. americans sometimes lose track of the fact that we still have the largest manufacturing economy in the world. >> right. >> and we are one of the top four exporters in the world from the united states. >> it's very a important point that you're making. >> absolutely. critical. >> but those people who say what

does america make. so does that concern you? >> we exported $16 billion worth of products from the united states in '08 before the economic crisis. this year our caterpillar exports will be up probably on the order of 70%. so it's bounding back very smartly. all of the largest most sophisticated most equipment we make in terms of large engines, large mining equipment built and exported from the united states. >> let me ask you about some of the policies coming out of washington, and whether or not they have actually held back hiring in the united states. the obama care. the idea that we could see taxes go higher. has this impacted your hiring decisions? and is this one of the reasons holding back business? >> i don't know that it impacted caterpillar so much. the disconcerting thing to me is that washington, particularly the house of representatives, but the congress in general has passed legislation without regard to how it impacts

american firms and their ability to compete in world markets. i think the health care legislation that passed does add a lot of cost to businesses. it has created a lot of uncertainty. and it is impeding the employment growth that might be coming at this stage of the economy recovery. another very interesting thing to me that's not talked about very much about the unemployment rate, which is very high. the 16 to 24-year-old group, for example, their unemployment rate has always been higher. but it's been kind of in the 12 to 15% range. now it's approaching 30. it's 27 to 30. the reason for that kind of economics 101. the house under pelosi's leadership passed a 41% increase in the minimum wage. and on top of that now we add a lot of regulatory cost and health care costs that has dramatically increased the cost per hour worked for this group of employees. >> if you could just make it real simple for us, if you hire someone who is going to make, i

don't know, let's pick a number, $50,000, how much does that person cost you, a staff person? because $50,000 if they're making that as their annual salary, it's costing you a lot more because you have the benefits packages that you've got to provide. >> and healthy companies provide a lot of companies to help attract and retain employees. >> so a $50,000 a year worker costs you how much? 80,000? >> at least. >> at least 80. >> and this is one of the things that union negotiations that is rarely understood, because the average member thinks only about what he sees in his check. and he doesn't think about the health care benefits, the pension benefits and other things. one of my big concerns with all of the accounting requirements for pension, for example, costs, most of our u.s. corporations today are moving away from defined benefit plans. which i think had been very important to employees over time. >> huge. >> but because of the earnings volatility that comes out of those with the current accounting rules, and the

changes that large shifts we've had in discount rates and earnings expectations, companies are moving more and more to defined contribution plans, which is going to put 20 years from now, it's going to be a real different equation for people that are moving into the retirement field. >> these are very important issues. you served on president obama's economic recovery advisory board. why don't you do something about it? have you been offered larry summers' job? have you spoken to the administration in terms of taking a role, or is this just speculation in the market? >> absolutely speculation. you know, i've got -- i just retired as chair and ceo of caterpillar. i'm looking forward now to doing a number of things with outside boards and other business activities. i continue to serve on the t-rab. and through that vehicle? >> the president's economic recovery advisory board. i think the prab, it will get reconstituted i believe early in the year. it gives the president an opportunity to drew on the private sector for economic

advice. i would like to see it used more. i think i've given -- i've provided a lot of input for example for the need on infrastructure investment as a key part of the stimulus in the early going. we went with more a transfer payment instead of investment with that stimulus bill. and i think we wasted a lot of money that could have been put to productive use and strengthened our economy for the long-term. >> jim, good to have you on the program. >> nice to be here. >> thank you so much. jim owens joining us. up next on "the wall street journal report", leading the new israeli economy and working israeli economy and working toward peace in the middle east.

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so they can focus on serving their customers. with xerox, you're ready for real business. well, it's been called startup nation, hope to more entrepreneurial efforts than anywhere outside the united states. but israel's role in the ongoing middle east peace conflict shows the difficulty of balancing economic vibrancy with international security. this week i sat down with israeli prime minister benjamin netanyahu. i asked him about his tiny nation's big boom times. >> i think there are innate powers of creativity and innovation and entrepreneurship that waited to be unleashed. and what i have done both as prime minister and before that as finance minister, and before that as prime minister was to basically three things. we cut spending. we cut taxes. and we removed barriers to competition. now i'm telling you in advance

that is what we did for speed boat. i don't know what i would have done if i was a captain of an aircraft carrier or cruise ship. that's different. but for us that worked. >> of course all of this in the face of uncertainty facing the political landscape. so how would possible hostilities with iran affect the economy in israel? >> they'll affect i think the global economy. it's not merely our problem. it's the problem of the entire world, because you can see what iran is doing today. it is -- it's got beachheads in yemen in the arabian peninsula and eritrea in the sudan. it's got of course its terror proxies hezbollah. it's sending tentacles here to south america. this is what iran is doing today without nuclear weapons. imagine what they would do with such weapons. and you can see how dangerous that is for the entire world.

>> so you are on a five-day visit. you have spoken with the vice president biden. you are meeting with hillary clinton. what will it take for you to feel this is a successful trip? what do you want the to see? >> frankly, what i have in mind is not merely to achieve a peace between us and the palestinians, but a broader peace with most or all of the arab states. now that -- that is a game-changer. it would enhance security. it would certainly have great economic benefits, because we could participate with a lot of the arab countries, and especially impressed with the gulf states. we've understood that economic regulations are not a zero sum game, but all parties benefit. >> what has been the impact from europe? europe of course still seeing stagnation and weakness in their economy. how has that impacted israel? >> well, europe was our main trading partner. so the first impact is that israeli exporters who are turning out to be quite nimble have to redirect their efforts

to other markets, principally asia. and they're doing it. i think part of the reason that israel is not experienced some of the things that our european neighbors, some of our european neighbors have experienced is because we did the tough things earlier on. i mean i raised the pension age to 67. i haven't yet found a single voter who voted for me because i did that. we had to cut child allowances that were going through the sky. and i didn't find people who voted for me either. you know, we sort of bit the bullet. and as a result, the israeli economy has been in much better shape. and i think that people are watching this should take a look at it, because this is a prime example of a high-tech economy that has reformed, reformed along market lines. and i think it promises great opportunities in the future. with or without peace, we hope with peace. >> so strong that the central

bank rose interest rates about 1 1/4% in the last year. what are your views on how the u.s. has approached this strategy, so-called qe-2 or buying $600 billion in securities? >> i'm a speed boat captain, not a cruise ship captain. i'll leave the cruise ships to the cruise ships. it's a big difference. the american economy is a fifth of the world economy. we're a small droplet. >> but all of this at the end of the day rests on the possibility of peace. isn't that true? because economic vibrancy comes as a result of peace. so how do you get there? >> well, i think peace is crucial, but it's crucial for -- it's crucial for our own lives. it's crucial for our security. it's not necessarily been the driving force -- it could be the driving force of great economic progress. the driving factor of the economic success is the ability of your citizens, of your

entrepreneurs to openly experiment with their ideas and to profit by them. or fail. i think this is the driving element of success in our part of the world. peace could enhance it. >> were you surprised at the midterm elections and how the people voted? >> oh, listen, have i enough of my own politics. >> my thanks to ime minister benjamin netanyahu. up next on "the wall street journal report," a look at the news this week that will have an impact on your money. and then the billion dollar buying spree in the art world this november. pent-up demand leads to masterpiece sales. right now, verizon has the new samsung galaxy tab.

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for more on our show and our guest, check out the website wsjr.cnbc.com. you'll also find a link to my blog, investor agenda.cnbc.com. hope you'll check it out. now a look at the markets that may impact your money this week. dow companies, home depot and walmart as well as target will report. on monday, total retail sales for the last month will be reported. on tuesday, the producer price index is released. that measures inflation at the wholesale level. wednesday, the consumer price index tracking inflation on consumer goods and services. on thursday, general motors scheduled to relist on the new york stock exchange. investors will be watching this initial public offering very closely. and the president meets with the republican leadership of the new congress, also on thursday. finally, today signs that the world's wealthiest are shopping again. the art market is roaring back.

the painting titled oh all right was sold this week by christie's for some $42 million. it was sold for las vegas casino head steve wynn. a bought of coke may go for around $1.95, but andy warhol's coca-cola 94 sold for more than 400 million at sotheby's. the major houses in new york finished their fall season $1 billion in total sales that will do it for us today. thank you so much for joining