rogoff with differing perspectives will tell us what they think will happen in america, europe, the emerging markets in the year ahead. after that, why in the world is the price of oil so high when the global economy is so troubled? we'll explain. next up, iraq. the nation is on the brink of disaster according to its former prime minister, allawi. i will talk to him about iraq's trouble. and then we'll ask two participatants whether the iraq war was worth it. an important debate. first here's my take. finally it looks like former massachusetts governor mitt romney will win his party's nomination, so republicans are following a familiar pattern. they are nominating the mainstream candidate who's waited his turn, the guy who ran once before. this is the party, after all, that had a bush or a dole on its ticket for about 20 years. it's also a party that nominated richard nixon on its presidential ticket five times. republicans don't like surprises. but there is something surprising about this primary. it's the charges that are working against romney. see, romney's opponents have tried to change his upward trend at two levels. first, they called him a massachusetts moderate. but that didn't seem to work. not sure why people perhaps think that romney is more electable because he's moderate than his opponents once it gets to the general elections. but a second line of attack does seem to be gaining traction. that of romney as job killer. ronlny is the private equity guy who buys companies, hollows them out and then outsources jobs. >> a story of greed playing the system for a quick buck. >> it's viking this attack is coming in a republican presidential primary. after all, what romney did while at bain capital was classic capitalist raetive destruction. he took over businesses, tried to make them more productive. to do so he often had to shed jobs. in other companies startups like staples he created jobs. americans should be celebrating his work as an example of how the market functions, driving out inefficiency, generating productivity, creating a lean, mean cappalist machine. but something has changed in america. even in the republican party, there is a huge concern about what globalization and technological change are doing to the average middle-class american. there is a sense that the system is not working for the median american worker. if you look at job creation over the last 20 years in america, you will note us that we haven't been able to create any jobs in what is called the tradeable sector of the economy, those jobs that are subject to global competition. the jobs we've created have almost entirely been in industries like health care, government, construction which are basically local industries shielded from global competition. you can't outsource the building of eye new york skyscraper to a chinese worker. you can't outsource a nurse. the other great force coursing through the economy, technology, has created new companies, but it's had a mixed record in creates tens of thousands of new jobs. note this is not a partisan point. we've netted no new jobs in over 20 years. that's under obama. under the bush years with tax cuts, under clinton with balanced budgets and deregulation. most americans sense that we're in a new world. romney's opponents are taking advantage of this anxiety in their attacks, but none of them really have answers to deal with this problem. simply talking about cutting government spending isn't going to make the american worker more competitive in the face of these challenges from technology from globalization. hopefully during the general election we'll have a real national debate about how to create jobs in america. now, before we get started, i have great news for you. gps is back on itunes. if you ever miss a show, just go to itunes.com/fareed and you can buy it or subscribe and make sure you never miss one again. okay? let's get started. eye much why much of the media was focused on a tiny town in new hampshire, everyone knows the elections won't be determined by those results. they'll be determined by what happens in the economy and to talk about that i'm joined by paul krugman of "the new york times" and princeton university and ken rogoff of harvard university. let me ask you about a column you wrote in which you talked about mitt romney and bain capital and the fact that he had not created a lot of jobs. he had destroyed them. it struck me that it was somewhat unfair because bain capital seems to be of all the private equity companies not one of these companies that loads on a lot of debt on its -- on the companies it takes. it often acts as an early-stage investor or almost more like a venture capital company. steve ratner who is a democrat, worked for obama, says that actually, if you look at bain capital's record, it's quite remarkable. it's mostly about having spotted successful companies and steered them well. what do you think? >> i think if what i actually did, i said it's actually wrong to think about bain as having created or destroyed jobs. on balance, it led to the destruction of the good jobs and replaced them with jobs that are worse. no different. this is what private equity has done to a loorge larger stint i u.s. economy. i don't think bain stands out as a bad member of that industry. but that industry is doing stuff that is good for corporate bottom lines but not terribly good for workers. the main point is that romney is saying i should be president because i know how to create jobs. and he actually does know how to make a lot of money in private equity which is not at all the same thing as creating jobs. it's not at all the same thing as what's involved in running macroeconomic policy. the main point is not that he wasn't especially private equity investor. we don't think so. it was that it has basically zero relationship to what he would have to do as president. and it's an industry that has a somewhat mixed -- the industry has arguably not been one of the things that -- whose overall impact has been positive on america. >> let's talk about the big issue which is going forward, what the economy is going to look like, and what the debate is going to be. paul, you had a column and a striking graph where you point out that if you would ask yourself what has the market told us over the last three years, you know, the market's verdict has been that the united states which engaged in a big stimulus program and then the fed did quantitative easing and quanti quantityative easing, it has fallen. >> that's right. they're paying to keep their money safe. we're suggesting that the market is not at all worried about u.s. solvency. it would suggest that even leaving aside the whole question of multipliers and will you can create lots of jobs, this would be a good time to be doing public investment because you can borrow the money for zero or negative cost. so it's a pretty spectacular contrast with the rhetoric in washington. listening to the discussion in washington, you'd think that we're on the verge of a debt crisis that we have an intolerable crippling deficit, but the market, people are actually putting money on the line, are saying actually, you know, we're not worried about that. and we can't see any better use for our money, so here, please take it. >> ken, what do you say to that? because it is now three years. it's not a few months. and the train is pretty consistent. and you can't say that this is like subprime or something that people didn't know about. this is all we've been talking about for three years. and yet the interest rate keeps dropping. in other words, the market is saying, you know, we're not worried about an american debt crisis. what we're worried about is very slow growth in the united states. correct? >> well, i mean, for one thing, interest rates are not an incredibly great predictor of what's going to happen in the future. iceland was borrowing at very low interest rates in 2006. this has been studied a lot. and it's hard to find evidence that they really can predict what's going on. and, of course, debt levels are surging. not just the united states, but across the advanced countries. i think it's really important not just to look at public debt but to look at the total picture on debt which just looks like nothing we've ever had before. we're already at general government debt above world war ii. if you throw in public debt, which becomes public debt, we're very familiar with that. i don't think it's nuts to be worried about debt and just point at the interest rates and say, well, this isn't a concern i think it too easy. >> if i can -- first of all, i that the relevant thing here, what i've been doing is looking a lot at japan, which japan in the '90s was kind of a dress rehearsal for us now. and japan has been subject to people warning of an imminent debt crisis for a long time now. s&p downgraded them in 2002, and nothing happened. which is why some of us successfully that when s&p downgraded america, nothing would happen. of course, there are risks. there might be something that we don't know. it may be that although japan was able to get up to gross debt to 200% of gdp and still borr borrowing at less than 1%, maybe the u.s. would be different than that. that's the potential danger that is not apparently weighing very heavily right now. and the fact is meanwhile, we have massive unemployment. we have -- you know, how heavily do you weigh something that might happen but that history kind of suggests probably won't happen very soon against something that is against the clear and present damage that's being done by a weak economy? when we come back, we're going to continue this. and i want to ask two things. one is what you think your best prescription would be for the president. but also, the u.s. economy is going to be determined by something outside the u.s. which is europe. and paul krugman and ken rogoff are going to solve the european crisis when we get back. shhh. i'm researching a role. today's special... the capital one venture card. you earn double miles on every purchase. impressive. chalk is a lost medium. if you're not earning double miles... you're settling for half. was that really necessary? [ male announcer ] get the venture card at capitalone.com and earn double miles on every purchase every day. what's in your wallet? cover for me. i have an audition. and we are back with economist paul krugman and ken rogoff. so your prescription to president bvobama, i take it is run on investment. run on the idea that you're going to borrow more, spend more, that that is what the economy needs right now, not worries about the deficit. >> yeah. and i think in a way, we may -- we may be approaching a somewhat advantageous position authorize that. i think it would have been the right thing to do all along, but there are signs that private demand is starting to get some traction. you know, for one thing, we've had our housing bust has gone on so long, that we appear to be underhoused. we're short on units. people can't afford them because there's no jobs. but if we had higher employment, you could imagine a reinforcing cycle of growth, but it won't happen if we're pursuing austerity and thwarting any recovery whereas right now is about the time or next year when a push could be the thing that tips us into a self-sustaining recovery. >> what would you advise mitt romney -- i don't know if you are advising -- >> i'm not. >> what would you advise him to run on? what would be the kind of right-of-center platform in >> a right-of-center platform. i actually agree on the point of doing infrastructure spending. but i don't think it's just about increasing aggregate demand, which i'm much less impressed about i that argument because this has gone on so long. why hasn't the market cleared? i believe in keynesianism for a year, two years. this has been a long time. and i think infrastructure spending would be good, education. but you want to do it well. there need to be new ideas. i mean, i'm not saying president obama hasn't offered them, too, both sides. we need to do infrastructure spending that gets infrastructure built at a reasonable price, something we need to go, something we need to do. if we're going to spend money on education, it can't just be paying more to get the same thing done. there's a lot of ideas out there. and i feel it's been a very static debate. and it's -- you know, paralysis in washington, but there are things we need to move forward on, running things better than we do. >> how do you create jobs in the tradeable sector? in other words, you know, everything people talk about sounds to me like infrastructure jobs, construction jobs, health care will go up no matter what we do, maybe some government workers. but the thing that the american economy used to legendarily produce lots of, these manufacturing service jobs, high-paying jobs, that is where the trend has gone down for 20 years. and how do you revive that? >> i don't think we will on manufacturing. i mean, agriculture used to be more than half the people working in agriculture, now it's a couple percent. manufacturing is trending down i think for similar reasons. there are export jobs in service industries where we have the rule of law information technology, things like that where i think our future lies. the world has changed. >> so let's talk now about the place that can throw all of this in turmoil. europe. in the european case, paul, i take it -- i mean, i understand that the argument that people now are understanding that you can't just have savage austerity programs and expect everything to bounce back because this economy is going into downward spiral spirals. but it seems like in many of those countries, they were having difficulty borrowing. and if they don't do something to convince the markets that they're getting their fiscal house in order, their borrowing costs will go to 7%, 8%, 9%. are they in some kind of catch-22 that they can't get out of? >> yeah, it's actually worth noting that essentially nobody has managed to regain the confidence except for latvia. even the best austerity programs are not giving confidence back. i think the answer to this is that the debtor countries in europe cannot solve this on their own. if it's only about -- if the only policy in europe is austerity in southern europe, then that's just a losing proposition. they're going to depress their economies enormously. they're not even going to do as much about reducing their budge deficit because the economy is depressed and so is the tax revenue. >> and it's not going to work. >> it's not going to work. so they need help. the only way you can save the euro is for there to be expansionary policies at the europewide level and some inflation that makes this a tolerable adjustment. >> which means the european bank should do what the fed did which is quantitative easing. >> yes. we can manage probably with 2% or 3%. they probably need 3% or 4% to make this workable. >> would you agree with that? >> actually, i do on inflation. i think it would be helpful here and there but the germans don't want it. the difference between german quantitative easing, it's more like we're buying california debt and illinois debt. it's complicated. they are running this union without a real constitution as if we lived with the articles of con federation and we were trying to run or government with that. they need to fix that. they're pouring water into a leaky bucket. and probably i think a couple of the countries at least probably need to go on sabbatical from the euro because they're just not competitive. i don't think it can work within their framework or anything close to it. >> you know, when i'd look historically at countries that get into this problem, it seems like the only thing that seems to work is you get your labor more competitive. >> absolutely. >> and you depreciate your currency which is related. paul has this great chart about, again, why don't you explain. it's basically how rates went down. and it's the four countries he looks at, u.s., japan, uk and sweden all have control over their own country and in effect have printing presses. >> the one i find really amazing is denmark which has lower borrowing costs than finland even though they look equivalent. denmark has its own currency. they're not getting themselves any flexibility, but everybody knows that they have those printing presses if they need them. that's the difference. >> if italy had its own printing press, meaning it had its own currency and own central bank, nobody would worry about italian debt. >> not entirely true. we used to worry about italian debt back in the day, but it would be very difficult. their labor costs would be in line. they would not be subject to these kinds of speculative attacks by people who think that basically people who are selling italian debt because they're afraid that other people are going to sell italian debt. the imposition to do it. >> it's a little like a couple living together. they're not quite sure if they want to get married. let's try out having a checking account together. that's basically what they've done except it's not just a couple, it's 17 involving first cousins, second cousins, third cousins. and it just is not a workable system. i think that's what people see. >> on a probability basis, how likely is it that the euro blows up this year? you have $1 trillion of european debt that has to be rolled over this year. >> i think it's not this year that it's going to happen. they're finding ways basically by having the european central bank buy everything to push it out into something bigger and worse down the road, raising interest rates, raising problems. but they have the capacity to have the european central bank buy stuff. and if that's happening indirectly, it's buying the debt, that can go on for a while. i think it will not be decisive in our election. >> probability of a blowup over all this? >> i don't think there's going to be a blowup in europe this year, but there will be a recession, and that will, in fact, hurt us. so it is going to be a drag on the u.s. economy. you know, it may not be enough. there are -- there is some sign of developing strength in the u.s. economy. but there's going to be -- i think it's going to be a fairly nasty recession in europe. i think people think it's going to be short and shallow. why would it be? but yeah, i think the big blowup -- i'm not sure the big blowup will ever happen because in the end, you know, the prospect of hanging concentrates the mind. a collapse of their greatest initiative ever may make the europeans do what needs to be done eventually but not before they absolutely have to. >> on that note, ken, paul, thank you very much. coming up next, a curious economic problem that impacts your bank balance, when demand drops and supply stays constant, prices should fall, right? but oil prices are soaring. what in the world is going on? next. ttd# 1-800-345-2550 ttd# 1-800-345-2550 let's talk about the typical financial consultation ttd# 1-800-345-2550 when companies try to sell you something off their menu ttd# 1-800-345-2550 instead of trying to understand what you really need. ttd# 1-800-345-2550 ttd# 1-800-345-2550 at charles schwab, we provide ttd# 1-800-345-2550 a full range of financial products, ttd# 1-800-345-2550 even if they're not ours. ttd# 1-800-345-2550 and we listen before making our recommendations, ttd# 1-800-345-2550 so we can offer practical ideas that make sense for you. ttd# 1-800-345-2550 ttd# 1-800-345-2550 so talk to chuck, and see how we can help you, not sell you. ttd# 1-800-345-2550 the next time you pay $3.50 for a gallon of gas, stop and think about a basic rule of economics. when demand is low and supply is strong, prices should fall, right? 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