solutions, many of them, lie with congress. but there are causes and there are many of them. a simple answer would be the cleanest, the most convenient, out of control deficits or stimulus. it's barack obama or george w. bush, but it's not that simple, not that satisfying. one cause however does stand out amongst many. cheap and ample credit. for years the ability of almost every working american to access more credit than they should have been able to, masked the underlying fact that lower and middle class incomes were not rising. people felt and in many cases actually were wealthier than their salaries or socioeconomic status would suggest. getting a loan and buying a house, often more house than you needed or would have expected to buy, made you feel wealthier. as more people bought those houses, your net worth increased. you borrowed against that house, maybe. maybe you put your kids through college with the money. maybe you bought another house or financed a small business. maybe there wasn't even a house involved. maybe you did all of those things on low interest credit cards or other kinds of loans, but it doesn't really matter because generally economies were strong and you had a job, even if the job wasn't getting much better and your wage wasn't growing you were for all intents and purposes getting more prosperous. because of that you weren't complaining. cheap and ample credit masked a lot of problems, the most serious of which was that income inequality was growing. but until the house got blown down, there was no class war, there was no 99%, there were no protesters in the streets. politicians and policymakers didn't have to address the underlying reasons for the trend. seriously, why fix someone -- something that no one thought was broken. easy credit means that while india was focused on educating workers, the u.s. was falling behind. while china was building world-class infrastructure, the u.s. was crumbling. while germany was establishing itself as the factory floor of the western world, the u.s. was losing ground. we already had a consumption-based economy. we just made it bigger. people felt good. they kept up with and in some cases overtook the joneses. one economist is a distinguished professor of finance at the university of chicago, former chief economist with the international monetary fund. and he blames politicians for making easy credit available to their constituents thereby masking that growing income disparity. that's the inequality debate you hear so much about these days. thank you for joining us. tough cutbacks have not worked in europe. we've got unemployment in the eurozone of more than 11%. much higher in some countries. and many argue that the solution is more government spending. the point of which is to create employment enabling consumers to spend more and continue to access credit so europe can consume its way out of this recession. what, if anything is wrong with that thesis whether in europe or america. >> the idea behind that thesis is somehow short-term spending will resolve the problems of the recession, and then we'll get back to normal growth. what i've been arguing is that there was no normal growth before the recession. it was a lot of it was fueled by spending, whether by households in the case of the united states, or by governments in the case of say greece, or by banks in the case of ireland. there was a lot of debt fueled spending which was the basis for growth. so, governments can sort of spend to substitute for a short while but you come back to the old question, how do we generate sustainable growth? you have to have real jobs with real incomes. not fake jobs created by debt. >> so let's bring kris ya freeland into this, editor of thompson reuters digital. lots of analogies for us to use so stick with me while i continue the storm idea. when the weather is good, you don't have to worry about whether or not you have holes in your roof. so the weather being good here, is this cheap and easy credit. right? you didn't have to worry about the fact that there were underlying problems. ragu says you have to have solutions that create long-term growth. wasn't there the potential for long-term growth with the easy credit? didn't it create enough wealth that put some kids through school? shouldn't that have contributed to ongoing growth? >> sure. and it could have been and some of it was, some of that money was invested in real valuable things. i think, you know, the parents who took out a home equity loan to put their kid through college and now are struggling to pay back that debt still have a kid that went to college and that's a great thing. in europe actually, the infrastructure is terrific and lot of that government spending that ragu was talking about was infrastructure spending. to continue your weather analogy, ali, i think that we are going through a period of economic climate change, global warming if you will, that the environment has changed profoundly and it was changed -- it's been changing for the past couple decades. we just didn't really notice because this easy credit masked what was going on. but we now have to retool our economies and that we is north america and western europe, to deal with this new environment in which as you were pointing out, the middle-class jobs that we were accustomed to in the post-war era are not there. even people who have jobs are getting paid much less. that is the story of detroit and the car sector. and to me, that is the most pressing economic problem right now. i don't see any politicians on the left or on the right really facing up to this directly. everyone is focusing more on okay, here's what i'll do right now, and it's going to fix things right away. >> it's like, ragu, talking to martians at this point. we know how this economy works. we buy things, that creates jobs, we get rich, we buy more things. what other type of economy could america develop? what could it turn into? >> well, it could be a knowledge economy, it could be a service-based economy. we could actually have high-tech manufacturing. there are all these possibilities. but what we must start with is by recognizing the old jobs are no longer there and there's no point hankering after them. the guy who used to add up the left-hand side of a ledger and right-hand side of a ledger has been replaced by a computer. the guy who used to do low-skill manufacturing, just managed the machine and oil it frequently, that job is no longer there. it's gone to china. china has gone much further ahead. the new jobs are in high-tech welding, in nursing, in high-tech nursing, where you manage the machines, medical technologies. those are the jobs we have to prepare. those have reasonable incomes still. the problem is this is not a fix which is going to take place in six months. it's a fix that takes many years. a fix which requires telling kids you know you're not going to get much by just doing a liberal arts degree. you have to get the skills that allow you to get the jobs that have been created. i was talking to a professor yesterday, he says nobody does computer science in his college anymore. it's too hard. that's where the jobs are sometimes. >> yeah. >> we need to figure out a way of getting people the right way. >> take us to that discussion in a minute. everything you are suggesting is sound and it's deliberate. it doesn't play to an angry electorate in the months before an election. when we come back we're going to talk a little more about how we translate what you're talking about into something that gets interesting to americans and lets them vote in a way in their self-interest and country's self-interest. plus i'm going to tell you the three things congress needs to do to try to fix this economy in time to head off the coming economic storm. you're watching "your money." 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[ chirp ] what ? customers didn't like it. so why do banks do it ? hello ? hello ?! if your bank doesn't let you talk to a real person 24/7, you need an ally. hello ? ally bank. no nonsense. just people sense. okay. we're back with ragu and chrystia. you made some great suggestions about how we fix our economy and guess what, none of them are short-term. i suspect if you were running for office you wouldn't get a few votes. how do we take those ideas and plant them into this weird environment that we're in, that people want fast answers, to get us out of the hole now? >> well, i don't blame people for wanting fast answers, because a lot of people are suffering and as you pointed out, ali, they've been living in this beautiful illusion. so people aren't expecting to have suffered. but i think what really politicians need to be talking about is a few things. first of all, this is a time for national investment. ragu was speaking about education. he's absolutely right. that doesn't come for free. it's not free for the students who need to be educated, it's not free for the government. but what is america doing right now? firing teachers. and the great american public university system is actually weakening. i think that is really a central infrastructure, absolutely essential. look at what's happened with the storms in the northeast. you know, washington, d.c., with no power. this is supposed to be the capital of the greatest country on earth. and that's an opportunity also for jobs and the third thing is someone is going to have to pay for it. i think americans have lived with this illusion that you can have investment in your economy and nobody has to pay taxes. it doesn't work that way. >> ragu, talk about this for a second. a lot of people who align themselves with the thesis that you have laid out very clearly here, also tend to be conservative in saying stop with the short-term spending, we've got to cut our debts and deficits and then it doesn't finish the sentence with the investments that we need. people will say, we are saddling our grandchildren with unsustainable debt. there is a certain amount of debt that's okay to give to your grandchildren because in exchange for that they're getting the things that chrystia outlined, great infrastructure development, a world that will be more competitive in the next generation. how do you square that, that circle? >> well, first, the benefits. we are creating more capabilities for the future, and second, i think as, if not more important, we're creating a more stable political and social structure. if you have these levels of inequality which persist and you have people who think they have no opportunity in the future you're going to get social conflict of a kind we've not seen in the united states. this is important both from the economic perspective but also political. clearly you need -- >> sorry. >> following on to the point, the inequality, i think most americans still believe they live in a society that has the most opportunity of any country on earth. that is just not the case anymore. social mobility is breaking down because of these high levels of inequality and that political stability that ragu is talking about which is so important i think is going to be threatened. >> we've started to see bits of that on the surface with the protests we've seen, with the idea that people have segmented themselves into different parts of the economy. ragu, continue with your thought. >> so, that said, this is an investment we need to make, but we need to be clever about it. there's no point making the investment and getting away from the innovative economy we've had. there are parts of the economy which are doing quite well. let's sustain that. which means let's not do this on the backs of taxing the rich at the rates we used to tax in the past, 91% of marginal income. increase taxes a little bit, but make sure the tax system works better. tax reform across the board makes sense. broadening the base, increasing taxes a little at the top, but don't make all the spending go to the people at the top which creates a whole set of new problems that we don't want to deal with. at the same time, there's a lot of room for cleaning up the way we spend, making it more effective. it's not true that every education worker that we have is useful. it's not true that every teacher we hire is doing a good job in the classroom. we need to get more money for the dollar that we spend and so spending reform has to accompany tax reform. and that i think would put us on a more even keel. >> chrystia, what's the disconnect? listening to ragu sounds so obvious, if he were running i would want to vote for him. why can't we have that discussion translate into our elections? >> i'm going to vote for him too. i think two reasons. one, people are scared. and at a time when people are scared if your message is blood, sweat, tears and higher taxes they are not very receptive. but i think the second point is what ragu said which is really essential, that if what you're talking about is some government investment in things like education and infrastructure, people are saying, wait a minute, i have seen the private sector become much more efficient, driven by technology, you know, my iphone is a miracle, i expect real responsiveness and efficiency, i don't see government delivering that. and so why should i trust the government to be a smart spending? i think that the government has missed out on the technology revolution and until it does, people are not going to have faith. >> why should i trust my government to be a good, smart spender, what is so operative in this discussion. thanks very much for sharing this conversation with us. we'd love to have you back. i keep telling you about the impending storm, the fiscal cliff that we're on the edge of. europe is by no means stable. and we're seeing slowdowns in giants like india and china. we'll talk to someone who's putting millions of dollars to work for his clients during this uncertain time and we'll ask him what you should consider investing in right now. plus, two legdz ends of congress both disgusted by today's dangerous levels of partisanship. i'm asking them to name names of who's willing to reach across the aisles for the good of the country right now. covers spots, lines, and wrinkles. and helps improve skin tone over time. tone rehab from easy, breezy, beautiful, covergirl! covergirl! male spirit present.trong it's the priceline negotiator. >>what? >>sorry. he wants you to know about priceline's new express deals. it's a faster way to get a great hotel deal without bidding. pick one with a pool, a gym, a great guest rating. >>and save big. >>thanks negotiator. wherever you are. ya, no. he's over here. >>in the refrigerator? i tell mike what i can spend. i do my best to make that work. we're driving safely. and sue saved money on brakes. now that's personal pricing. wall street like congress has a history of not acting until it's too late. you may not have that luxury yourself. remember what happened in 2008 when you looked up and half your 401(k) was wiped out in a matter of weeks. we know the american consumer is feeling the fear and when consumers stop spending, businesses stop hiring, add to that a slow down in emerging economies like china and india, even the biggest global economies like mcdonald's and nike and ford start taking it on the chin. consumer cyclical stocks, the canaries in the coal mines for recession and recovery are the first to react to the shifting economic winds and they are where my next guest says you should put your money if you think things will get better. if you don't then don't. jim is the managing director of zephyr management. he joins me now. jim, thank you so much. >> always my pleasure. >> two things to remember, the first one, consumer cyclical stocks and generally smaller companies tend to react because they're nimble, they can react into and out of a recession. if you think things are getting better you want to be in these companies? >> you can make that case they are nor nimble. the stock market tends to move in a risk on/risk off trade. when the market gets scared and risk is off in a recession, investors typically sell those companies and go to bigger, more conservative companies with dividends and global footprint. you have to remember that. >> okay. so we think from the evidence around us that something is going on that could slow things down in this economy. we've seen manufacturing numbers weaken, consumer confidence weaken. at the same time you have other things going on, housing is not weakening, interest rates remain low. what is the bet my viewers should make? >> what they should be aware of the risks that china is slowing down, india is slowing down. europe is a mess. the united states, while it's still growing, the rate of growth is decelerating. you're in a low growth environment where a lot could go wrong and if it doesn't go wrong, the growth is going to be so slow, it's going to feel like a recession even if you're not in one. it's a low return environment. >> you think big companies are a place to be, multinationals? >> to the extend you want to be invested you can make the case in a low return environment, corporations with a global footprint and good dividends and balance sheets, many have dividends of 3% or more r a better place to be than cash which pays nothing and bonds which pay very little. if you're willing to look out a few years and not necessarily a few months, it's likely over a longer periods of time you'll do better in properly chosen equities than cash. >> talk about microsoft. we've got a screen up on microsoft. you're sort of thinking the stuff that microsoft does, continues regardless of whether there's a slowdown. >> you have a huge installed base, recurring revenues, even in slower times businesses spend to upgrade technology at a lower cost to be more productive. you've got a fortress balance sheet, 3% dividend. and global footprint. they're benefiting from the recovery in the united states and they will benefit from the long-term growth in the emerging markets so absolutely microsoft fits the bill. >> talk about mcdonald's. this is a company that continues to expand. >> mcdonald's is similar for different reasons. it's got a global footprint. when things get slower around the world, people instead of going to restaurants, especially in developed markets like the united states and europe, instead of going to fancy restaurants they'll go to a mcdonald's. >> right. >> and in the emerging markets the growing middle class gets money, instead of eating at home they will go to a mcdonald's. you have a good dividend and a fair valuation. >> do you like nike? they came out with something that sounded like a bit of a lower guidance? they were saying their sales in the east are not going to be as strong as they expected. >> look, nike is a good long-term growth story but i would put it as a little less attractive than mcdonald's other microsoft it's a higher growth/higher risk/lower dividend but it's a good global franchise. it's more volatile than where i would steer people in the