GPS-01
Current and Former Fed Chairs; Death of American Productivity and the
American Dream; The Sleep Revolution . Aired 10-11a ET - Part 1>
[10:00:24] FAREED ZAKARIA, CNN HOST: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.
We'll start today's show with Janet Yellen, the second most powerful person in the United States. A rare chance to hear from the chair of the Federal Reserve.
(BEGIN VIDEO CLIP)
JANET YELLEN, CHAIRMAN, FEDERAL RESERVE: I feel more positive.
(END VIDEO CLIP)
ZAKARIA: I was asked to moderate an extraordinary event that gathered all living Fed chairs, Yellen, Bernanke, Greenspan and Volcker. We will bring you the highlights.
Also the Panama papers have been out for just a week and they have already taken their toll on world leaders. But this is only the start of a growing trend. Data dumps that embarrass the wealthy and powerful. We will tell you where it will go next.
Finally, we will teach you how to sleep, not while watching the show of course. Arianna Huffington has a new book out that she hopes will have you snoring. Again not now, but I'll let her explain.
But first, here's my take. In an interview during the 2008 campaign, Barack Obama explained that Ronald Reagan had changed the trajectory of America in a way that Richard Nixon and Bill Clinton had not.
Clearly Obama aspired to be a transformational president like Reagan. At this point it's fair to say that he has succeeded. Look at what's happened during his tenure to the country, his party and most telling, his opposition.
The first line in Obama's biography would have to do with who he is, the first African-American president. But what he has done is also significant. Obama's single accomplishment is healthcare, of course, where he was able to enact a law that has resulted in 90 percent of Americans now having health insurance. While the law has its problems, it achieves a goal first articulated by Theodore Roosevelt 100 years ago. Then there's the transformation of America's energy policy. The administration has made investments and given a variety of incentives to place the United States at the forefront of the emerging energy revolution. Just one example, over Obama's term as president, solar costs have plummeted by 70 percent and solar generation is up 3,000 percent.
Obama has also pursued a new foreign policy informed by the lessons of the last two decades that limits America's involvement in establishing political order in the Middle East, focusing instead on counter- terrorism. This has freed the administration to pursue new approaches with countries like Iran and Cuba and to direct attention and resources to the Asia Pacific, which in just a few years will be home to four of the world's five largest economies.
In that 2008 campaign interview, Obama pointed out that Reagan didn't change the country single handedly. He took advantage of a shift in the national mood. The same could be said about America today. Years of stagnant wages, rising inequality, and a big financial crises all created a new political atmosphere, one that Obama has helped shape.
The biggest impact of his presidency, however, can be seen in his opposition. The Republican Party, which is the midst of an ideological breakdown. Surveying the scene, Daniel Henninger, the conservative columnist, writes in the "Wall Street Journal" that Obama is now close to destroying his political enemies -- the Republican Party, the American conservative movement, and the public policy legacy of Ronald Reagan.
Obama's success in this regard, if it can be called that, is a passive one. He led his opponents' self-destruct and never overplayed his hand. From the first month of his presidency, the GOP decided that Obama was a socialist radical who had to be opposed no matter what. Obama didn't take the bait, governing from the center left. Perhaps unable to paint him as a socialist, perhaps for other reasons, many Republicans' rhetoric about Obama quickly became personal with insinuations about his origins, race, religion, faith, and loyalty to the country.
Again, Obama never lashed out, demonstrating discipline even as his opposition grew wilder. As Obama kept his cool, the Republican Party descended deeper into the politics of identity, flirting with racial, religious, and ethic grievances and moving away from its core tenants of limited government, free markets and free trade.
[10:05:09] The result has been an ideological implosion, and it is still unclear what will emerge from the debris.
Barack Obama has repeatedly maintained that one of his principles in foreign policy is, don't do stupid stuff. It looks like it works in domestic politics just as well.
For more, go to CNN.com/fareed and read my "Washington Post" column this week. And let's get started.
On Thursday evening, I participated in an extraordinary event, a conversation with all of the living chairs of the Federal Reserve, current and former, Paul Volcker, Alan Greenspan, Ben Bernanke, and of course Janet Yellen. The group was gathered by International House, a residence and program house in New York City founded to turn today's scholars into the next global leaders. It's a great organization. I sit on its Board and I was honored to moderate such an important discussion.
First up, my conversation with the current chair of the Federal Reserve, Janet Yellen. Many believe that Miss Yellen is the second most powerful person in America, second only to the president. She rarely sits down for an interview, so listen in.
(BEGIN VIDEOTAPE)
ZAKARIA: Let me ask you to start. You look at the economy very carefully. Are we in an economic bubble? Is the economy as perilous as some people on the political campaign trail are suggesting?
YELLEN: So I would say the U.S. economy has made tremendous progress in recovering from the damage from the financial crises. Slowly but surely the labor market is healing. For well over a year we've averaged about 225,000 jobs a month. The unemployment rate now stands at 5 percent. So we're coming close to our assigned congressional goal of maximum employment.
Inflation, which my colleagues here, Paul and Alan, spent much of their time as chair, bringing inflation down from unacceptably high levels, for a number of years now inflation has been running under our 2 percent goal and we're focused on moving it up to 2 percent. But we think that it's partly transitory influences namely declining oil prices and the strong dollar that are responsible for pulling inflation below the 2 percent level we think is most desirable, so although interest rates are low and that is something that can encourage reach-for-yield behavior, I certainly wouldn't describe this as a bubble economy.
We have relatively weak global growth, but the U.S. economy has been doing well and domestic strength has been propelling us forward in spite of the fact that we're suffering a drag from the global economy.
ZAKARIA: In December, you raised rates. Many people, including Larry Summers, Paul Krugman, Martin Wolf, very distinguished economic commentators and economists, felt it was a mistake. In retrospect, was it a mistake?
YELLEN: Well, I certainly don't regard it as a mistake. We set out two criteria to boost the funds rate that led to the December decision. One was we wanted to see substantial progress in the labor market, and we felt that had been satisfied. And we also, recognizing that inflation was running below our 2 percent objective, wanted to feel reasonably confident that inflation would move up over the medium term back to 2 percent.
And we all felt, I think, that those conditions were satisfied in December and justified taking a step. But we've tried to make very clear, there's not a preset course of rate increases. We will watch very carefully what is happening in the economy and adjust policy as appropriate. So we took one step. Now the U.S. economy has continued to progress in a satisfactory way. We have continued to see good job performance, some evidence of inflation moving up. So that was our expectation when we raised rates in December.
[10:10:07] We indicated that we thought the path of rate increases would be gradual and that remains our best guess and expectation, that if the economy continues on the path it's on, of recovery, that further rate increases will be justified, but for a variety of reasons, particularly a set of headwinds that are the legacy of the financial crises that we suffered and weak global growth, and the strong dollar that has gone with that, that the level of rates that is sometimes called the neutral rate, a level of short-term rates that would neither be particularly stimulating the economy or holding it back.
ZAKARIA: One of the regional Fed chairs, Neil Kashkari, made a speech very recently in which he said the big banks need to be broken up. Do they?
YELLEN: Well, we have been very focused since the financial crises and the Dodd-Frank Act has directed us to pay attention and try to put in place policies that will deal with too big to fail. So we certainly -- I certainly share President Kashkari's concern with too big to fail.
I feel more positive on the progress that we've made. First of all, we've put in place policies through supervision and regulation that has greatly enhanced the safety and soundness of the banking system. And so we have more capital, higher quality capital, more liquidity. We do rigorous stress tests in our supervision, so I think the odds of failure of large financial institutions is lower.
(END VIDEOTAPE)
ZAKARIA: Next on GPS, we'll get into some of the more human aspects with the rest of the Fed chairs, Bernanke, Greenspan, Volcker, on the politics and the psychology of being chairman of the Federal Reserve.
(BEGIN VIDEO CLIP)
ZAKARIA: Alan Greenspan, I recall once at a Senate hearing I think it was, the senator said, I think I heard you say clearly, and you interrupted him and said, if I said it clearly, Senator, I must have misspoken.
(LAUGHTER)
ZAKARIA: Did you -- were you trying to be deliberately incomprehensible at times?
ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: I thought I succeeded marvelously.
(LAUGHTER)
(END VIDEO CLIP)
(COMMERCIAL BREAK)
[10:17:03] ZAKARIA: Back now to more of the extraordinary gathering I moderated this week, all four living current and former chairs of the Federal Reserve Board of Governors. Joining me on stage in New York were the current chair, Janet Yellen, her predecessor, Ben Bernanke, and Paul Volcker who served from 1979 to '87, Alan Greenspan, who led the Fed for almost 20 years, joined the group from a D.C. studio. Listen in to some of the highlights.
(BEGIN VIDEOTAPE)
ZAKARIA: Alan Greenspan, when you were running the Federal Reserve, people would sometimes describe your performance there as god on a good day. I think Senator John McCain said that his strategy to succeed you was to have a dummy made up of Alan Greenspan and put him in the Federal Reserve chair like "Weekend at Bernie's," that movie. In Wall Street they would celebrate your birthday with -- you know, with cakes and things like that.
Did that go to your head?
(LAUGHTER)
GREENSPAN: No, but it sure enough embarrassed me. I very much appreciated that.
(LAUGHTER)
GREENSPAN: I got past the embarrassment very easily.
ZAKARIA: Paul Volcker, you had a slightly different situation. You were hung in effigy when you --
(LAUGHTER)
ZAKARIA: When you raised interest rates because people thought that you had single handedly plunged the American economy into a recession. How difficult was it to deal with that?
PAUL VOLCKER, FORMER FEDERAL RESERVE CHAIRMAN: I thought they were cheering me.
ZAKARIA: You thought they were cheering you?
(LAUGHTER)
VOLCKER: Look, to answer your basic question, what's it like to be the chairman, you got a board, you've got a public. You've got reserve bank presidents, quite a few you quite exactly do what you want without a lot of people being encouraged to agree with you and sometimes disagree. So it's not quite so absolute as you suggest.
But look, I always get asked this question about circling the Federal Reserve and so forth. We wouldn't have survived without a lot of public support. People thought there was a big problem and they didn't know all the answers, but people were unhappy with malaise and inflation rate going up, you know, a couple of percent every quarter. And they were unhappy and I think they gave us some rope to hang ourselves. They felt we were doing something. They were going to be patient for a while.
ZAKARIA: Did you feel like -- because inflation was very high. You raised rates to break the back of inflation. Did you feel -- did you worry that you would run out of time, that the public would lose patience?
VOLCKER: Well, you know, you get worried. We had a longer period than I would have anticipated, yes. Did I worry? I worried all the time.
(LAUGHTER)
[10:20:05] VOLCKER: I don't know. This rug on the floor of the Federal Reserve office has -- you know, it shows where I was walking up and down it all the time. Is it still there?
ZAKARIA: Ben Bernanke, when you adopted your extraordinary measures to save the American economy through this global recession and crises, you faced a lot of people from what was in a sense your own party. You were appointed by a Republican president and you had Republican congressmen, Republican senators. You had the Republican governor of Texas saying that you were engaging in treason. How did that make you feel?
(LAUGHTER)
BEN BERNANKE, FORMER FEDERAL RESERVE CHAIRMAN: It didn't make me happy. You know, I -- you described the job as powerful. I think more of the responsibility side and we had very huge responsibilities, all of us, in different context and different events to try to use the power of the Federal Reserve along with our colleagues and the staff. It's a wonderful institution. It's not a single-person organization. There are a lot of people working together.
But we had, you know, tremendous responsibilities to try the address these terrible risks and I think it's a good thing that within reason that the Federal Reserve does have some independence and some room to operate so that -- you know, the critics they just say what they wanted to say but we could do what was needed at least within -- as long as we could maintain, you know, broad support. And that was our strategy.
So, you know, I didn't take the job for, you know, for adulation and certainly ahead it wouldn't work. But, you know, there's just really no alternative to doing what has to be done in your best judgment to try to address whatever problem you see.
ZAKARIA: And then there's the issue of communication. How do you communicate the views you want to be -- you want to communicate but at the same time you want to leave things -- you want to give yourself room to maneuver. So, Alan Greenspan, I recall once at a Senate hearing I think it was, the senator said, I think I heard you say clearly, and you interrupted him and said, if I said it clearly, Senator, I must have misspoken.
(LAUGHTER)
ZAKARIA: Did you -- were you trying to be deliberately incomprehensible at times?
GREENSPAN: I thought I had succeeded marvelously.
(LAUGHTER)
(END VIDEOTAPE)
ZAKARIA: When we come back, the Panama Papers have already created turmoil in governments around the world, from Iceland to Pakistan to Panama itself. Why have no prominent Americans been named? It's not why you think. I'll explain.
(COMMERCIAL BREAK)
[10:26:55] ZAKARIA: Now for our "What in the World "segment. This week many of the world's most powerful people were chosen by a scandal of historic proportions. What has been called the biggest document leak in history, the Panama Papers. WikiLeaks, the Pentagon papers, even Edward Snowden's revelations may end up paling in comparison.
More than 11 million documents were apparently leaked from the Panamanian law firm Mossack Fonseca, a major global player in creating secretive offshore accounts for the rich and powerful. 12 current and former world leaders and over 100 other public officials were referenced in the documents.
Offshore accounts aren't generally illegal in themselves, but they are a signature tool for money laundering, tax evasion, drug deals and other activities that require keeping money a secret. An anonymous source sent the documents to a German newspaper which shared them with the International Consortium of Investigative Journalists. The law firm's co-founder told CNN that the ICIJ's information is false and full of inaccuracies.
Countries and leaders around the world have responded with outrage. One world leader has already fallen. The prime minister of Iceland who denied wrongdoing, nevertheless resigned after big protest over his alleged links to offshore holdings.
No secret is safe in the digital age, no matter how powerful the person behind that secret. But as colossal as the Panama leak is, it's actually a small window into the world of shadowy of finances. An enormous force in the world economy.
In a fascinating book that came out last year, Berkeley economics professor, Gabriel Zukman, tried to quantify the wealth held in tax havens worldwide. The total was at least $7.6 trillion he said, 8 percent of the world's household wealth. That share is even higher in developing countries, Zukman said. 20 percent to 30 percent in many Latin American and African nations and as much as 50 percent in Russia, he says.
So perhaps it wasn't surprising that one of the stars of the Panama Papers was Vladimir Putin. A Kremlin spokesman says that the allegations were simply a show of Putin-phobia, but it was alleged that at least $2 billion was transferred through secretive financial entities connected to Putin's associates.
How did the United States fair in the Panama scandal? No prominent American public officials have been named so far. But the truth is that Americans don't really need to go offshore to keep their finances secret. As Matthew Gardener of the Institute on Taxation and Economic Policy, recently pointed out on CNN.com, the Tax Justice Network ranked the U.S. as the world's third worst offender for allowing financial secrecy.
It is easier to set up a secretive shell company in Delaware and Nevada than in the Cayman Islands, Gardener says.
[10:30:00] All of the secrecy and finance around the world, often a cover for ill-gotten wealth, also enables people to avoid paying taxes and forces more of the tax burden on low and middle-income households. It takes money from schools and services and exacerbates income inequality. It also fuels cynicism and rage in our politics, breeding ugly nationalist and populist movements and scapegoating outsiders. The Panama Papers is a good thing because it sheds light an on under- appreciated threat to democracy. Unfortunately, it may be just the tip of the iceberg.
Next on GPS, the middle class in America is angry; the American dream seems dead for them with no chance to move up the ladder. Why is that? A fascinating answer, when we come back.
(COMMERCIAL BREAK)
ZAKARIA: A large part of the reason for the rise of Donald Trump has been the fall of the American middle class. That heart of America has been stagnating as middle-class wages have been flat for a generation.
Why? Because American productivity has also been flat, mostly.
And why is that? Well, a powerful new book says that, despite all the "Gee, whiz" aspects of the information revolution around us, it actually hasn't brought nearly the progress of past revolutions. In other words, the invention of electricity, the light bulb, the internal combustion engine, air travel -- all of these far outweigh the advent of the Internet, the cell phone, and even the mapping of the human genome.
And that lack of recent real innovation and productivity is what is stifling the middle class. That's what economist Robert Gordon implies in his new book "The Rise and Fall of American Growth." We brought him together with another economist, Andrew McAfee, who begs to differ. Listen in to a spirited debate about the issue that is really at the heart of the fears animating the campaign trail. (BEGIN VIDEOTAPE)
ZAKARIA: Robert Gordon, Andrew McAfee, welcome.
Let's start with you. This is a monumental work, but the basic message, is it fair to say, is you're telling us you think we're -- you're living in a world of extraordinary technological progress; you really don't know what technological progress is?
Explain what the progress that you regard as truly transformative was and when was it.
ROBERT GORDON, ECONOMIST: Well, I talk about a special century that goes from 1870 to 1970. There were an enormous number of very important inventions right at the beginning of that century. In 1879 alone, we had Thomas Edison's electric light. We had Karl Benz's internal combustion engine. And we had a little-known Englishman who invented wireless.
If you think about the house in 1870, it was completely isolated. By 1940 it was connected five ways, electricity, gas, telephone, running water and sewage removal. That absolutely, completely, fundamentally changed the way life was for housewives, and at the same time working conditions were changing.
All at the same time, in the early part of the 20th century, we conquered infant mortality. Some people have calculated that that's worth more than everything else put together. In 1890 your chance of having your baby die was 22 percent in the first year. That was down below 1 percent by 1950.
So there -- in all of these different multi-dimensions, phonograph, radio, television, motion pictures -- we had a tremendous change.
And since 1970, we've had, of course, the computer; we've had communications; we have mobile phones, but that's a much smaller part of human existence than the great inventions of the early 20th century.
ZAKARIA: Explain electricity alone, because what it does is it makes it possible to power factories, to transform -- you know, night has turned into a work period.
GORDON: Think of -- think of New York City. New York City is only possible because of electric elevators. That's another example of the multi-dimensions that we have.
By the end of the 1920s, New York was a semblance of its current high- rise self, after only 50 years of electricity. Think of Super Storm Sandy back in 2012. It took away the 20th century for many New Yorkers, who lost power. They couldn't even fill up their cars with gasoline and they certainly could not recharge their cell phones.
ZAKARIA: So, Andrew, you say, yes -- I think you concede the point that, you know, the 1880s to 1910s was an extraordinary period, transformed life. But you're saying we're on the -- on the cusp of a similar kind of transformation?
ANDREW MCAFEE, ECONOMIST: Yeah, that's what I believe. And Bob makes the excellent point that it is so easy for us to underestimate the transformations that we enjoy on the back of this century worth of progress. I think that Bob underestimates how much we've already seen because of the digital revolution, and I think, more fundamentally, how much things are going to change going forward.
I don't think that global communication networks and things like this are trivial in any sense of the word, compared even to the fundamental innovations that he's talking about. For me, we are on the brink of, for the very first time in human history, interconnecting the majority of human beings with a pretty powerful device, giving them access to a good chunk of the world's accumulated knowledge, and letting them contribute to that knowledge. I think you have to be a huge pessimist about the benefits of knowledge in order to find that underwhelming.
GORDON: I think all of that is wonderful, but it happened a long time ago. And we've been pretty much in a situation of stasis, of standing still, in the way offices all over our economy work, since about 2005. I completely agree on all the glories of the digital age. I just think that we're slowing down, and that's one reason why our nation's productivity has been growing at only half a percent per year for the past six years running.
ZAKARIA: And I think that people like Bob Gordon say all the stuff you described, it's, sort of, fascinating, exciting; it's made a bunch of people very rich in Silicon Valley, but it doesn't seem to show up in the data, that, if you look at productivity growth, other than the brief period in the 1990s where it goes up, it doesn't really go up. So maybe this is all cool stuff, but where's the data?
MCAFEE: And maybe Bob's right that we automated the heck out of our white-collar work 20 years or more ago and we've just been having a little bit better interface and a little bit better search engines. Let me tell you why I don't believe that's the case.
In the Times there was a story about a startup that is completely automating the work of pretty high-end either industry or financial industry research. So push a button and get a report about the last 20 currency crises that were at about this level. It's doing it about as well as a human being would do it right now. It's doing it in seconds instead of a week's worth of work, and the person who used to do that work was getting paid hundreds of thousands of dollars.
That is a brand-new innovation. It's going to take a little bit of time to diffuse throughout the economy, but as these advances in artificial intelligence and machine learning spread, I think they're going to spread pretty quickly because of the Cloud and because of the demand for them. And I think they really are going to rewrite the way a lot of white-collar work is done.
GORDON: But that raises another problem, and I think Andy and I are on the same wavelength there, that many of the jobs that are being replaced by artificial intelligence are good middle -- upper-middle- level jobs that earn people relatively high incomes. And we're currently cranking out lots of jobs in the U.S. economy. We've created 13 million, 14 million new jobs since the recession was over, but those jobs are disproportionately low-paying, service sector, restaurants, retail, temporary help agencies. And we've permanently lost jobs in manufacturing and construction.
MCAFEE: And the reason those are relatively unimpressive jobs is that they are low pay; they're pretty precarious, and they're low- productivity jobs. A home health aide or short-order cook are a couple classic examples there. They are -- they involve human interaction. We have not figured out how to robot-o-size them yet. I don't think that's going to happen any time soon. But they are not the source of the large, stable, prosperous middle class that we grew up enjoying.
ZAKARIA: So then your dream begins to sound, for most Americans, like a nightmare?
MCAFEE: If we don't take the right actions, then the -- then the headwinds that we're facing with jobs and wages are going to continue. But you can't be pessimistic about jobs and pessimistic about technology. The reason these headwinds exist is because of tech progress.
ZAKARIA: Absolutely fascinating book, a conversation starter, agenda setter. Thank you so much.