'This Week' Transcript: Economic Roundtable

Google's Eric Schmidt, FedEx CEO Fred Smith, Rep. Barney Frank & Sen. Jim DeMint



STEPHANOPOULOS: Good morning, and welcome to "This Week."

The economy dives.

OBAMA: This is a continuing disaster for America's working families.

STEPHANOPOULOS: In the headlines this week, 5 million jobless claims, more than 100,000 jobs lost, the weakest economy since 1982. But does President Obama have the right fix?

(UNKNOWN): A trillion dollars is a terrible thing to waste.

STEPHANOPOULOS: That debate this morning on a special economic roundtable, with two of the country's leading CEOs and two members of Congress at the center of the action.

Then, will a faltering economy weaken us abroad? An in-depth look at that challenge and all the week's politics with George Will, Martha Raddatz, David Sanger of the New York Times, and Bob Woodward of the Washington Post.

And, as always, the Sunday funnies.

JAY LENO, TALK SHOW HOST: Starbucks announced today they're laying off 1,000 workers and could close more stores. Yes, they say, by the year end, experts predict we could be down to just two Starbucks on every corner.

ANNOUNCER: From the heart of the nation's capital, "This Week" with ABC News chief Washington correspondent George Stephanopoulos, live from the Newseum on Pennsylvania Avenue.



The lead story in today's New York Times magazine says that, for the first time in more than 70 years, the epicenter of the American economy is not Wall Street, not Silicon Valley, not the industrial Midwest, but right here in Washington.

No doubt that's a debatable proposition, but there's also no question that the decisions made by President Obama and Congress in these next few days and weeks will determine how and when the country recovers from our worst recession in memory.

We've assembled a plugged-in and opinionated panel this morning to debate those decisions. I'm joined by Republican Senator Jim DeMint of South Carolina, Fred Smith, the chairman and CEO of Federal Express, Congressman Barney Frank, the chairman of the House Financial Services Committee, and Eric Schmidt, the CEO of Google.

Welcome to all of you. And we do have a lot to cover this week.

And, Senator DeMint, let me begin with the stimulus package, because I think you've called the president's plan the worst plan since the 16th Amendment paved the way for the income tax. But polls show that a majority of Americans actually support what the president's trying to do. What are they missing?

DEMINT: Well, I think all of us support the fact that we need to do something. And all of us believe that the way to move our economy forward and protect jobs is to infuse more money so that consumers have more to spend, businesses have more to invest, buy capital equipment.

But there are two ways to do that, George. One is for the government to take it out of the private sector through taxes and then decide where it's going to go through political manipulation, as they've done in the House. The other is just to leave more money in the private sector for consumers to spend and businesses to invest.

And that's the American way. And that's -- that's the approach we're pushing. Unemployment is...

STEPHANOPOULOS: All tax cuts? No increases of spending of any kind? Yet more economists say that investments -- the right kind of investments create more jobs than tax cuts.

DEMINT: Well, I'm not sure what economists you're talking to, but we've met with a lot of them over the last week. You can look back in history, and leaving more money in the economy through tax cuts is the way that works. And government spending is -- you can see little bumps.

But this plan is a spending plan. It's not a stimulus plan. It's temporary, and it's wasteful. And a lot of the spending is going to end up being permanent, George.

So we have to decide if we want to be a free-market economy and let -- and let the money stay there or if we want to be a government- directed economy, which is where we're headed with this plan.

STEPHANOPOULOS: You voted for the package?

FRANK: I did. And the -- I regret Senator DeMint saying that this is the American way. Let's -- let's just agree that we're all Americans here, Jim, and that nobody's got the American way versus presumably the non-American way.

And as far as spending versus tax cuts, I think we need to fix some highways and bridges. I never saw a tax cut fix a bridge. I never saw a tax cut give us more public transportation. The fact is, we need a mix.

We need -- and I think we've suffered from an extremism in this country in the past of relying only on private-sector activity and having too little government. It's possible to have too much government, no question. But it's possible to have too little. And some parts of this stimulus -- extending unemployment benefits, helping with food stamps -- you know, we have two purposes here. One is to stimulate the overall economy. The other is to go to the aid of some people who, through no fault of their own, have been damaged. You can't just look at the aggregates.

I think we've gotten in trouble by looking only at the aggregates. If the GDP goes up but income inequality greatly increases and a lot of average workers are feeling put upon, it's a problem.

But I want to see some improvement in our transportation structure. I'd like to see some improvement in education. We have state governments laying people off, cities being told they're going to have to lay off firefighters. A tax cut isn't going to keep the city of New Bedford...

STEPHANOPOULOS: Those are all the broad...

FRANK: ... from laying off firefighters.

STEPHANOPOULOS: You mentioned a lot of the programs, yet one of the criticisms the House plan has gotten is it also includes a lot of spending for things that don't seem to be stimulative, contraception, things like that.

FRANK: Well, you have some -- well, one, I thought, contraception was out of the bill. I guess the people resented the fact that it was out of the bill.

There is some money now I guess to fight sexually transmitted diseases. Those are jobs. By the way, very few people volunteer to fight sexually transmitted diseases. They get paid to do it.

FRANK: And if all you do is construction, you're providing employment to one sector of the economy, but not others. But, yes, we are telling the city of New Bedford, which I represent, that if we give them money, if we pick up a bigger share of Medicaid through government spending, then we'll lay off firefighters, then we'll lay off police officers and health workers. And I don't see how a tax cut is going to keep firefighters at work in New Bedford.

STEPHANOPOULOS: Mr. Smith, your company depends a lot on -- on a healthy infrastructure in this country. And it does -- we -- estimates I've seen are about a $2.2 trillion gap between what we have and what we need.

SMITH: No question about it. The -- the infrastructure of the country has been underfunded for a long time. It certainly would be a wise thing to -- to invest in all kinds of infrastructure, including advanced electrical grids, or I.T., and electrify the short-haul personal transportation system.

But in -- in our view, after you take care of the folks who have been adversely affected by the economy -- I agree with Chairman Franks on that -- you've got to understand that the reason we've gotten into this problem is because for years the tax code has favored the financial sector to the detriment of the industrial sector. And by industrial sector, I'm talking about big service companies like FedEx, manufacturers, I.T. companies, agriculture, mining.

When interest is deductible, the government is subsidizing speculation and debt, where capital investment is taxed cumulatively -- and if there were one thing that in the tax code that could be changed that I'd recommend to Senator DeMint and Chairman Franks, it would be to allow industrial companies to write off or expense capital investment and software when the investment is made.

STEPHANOPOULOS: That was not included in the president's plan. Do you agree with that?

SCHMIDT: I do. The business community needs action now. There's a sense that things are getting worse. People are saying the March quarter or the June quarter are going to be particularly difficult in business. It's time for government action.

There are plenty of cases where directed spending does help things to happen more quickly. The stimulus package is -- most of the money, actually, goes to reasonably short-term things in education, state relief, various other things that help people in the very short term.

Some combination of all that money has got to get out now to get people going again.

STEPHANOPOULOS: One of the most controversial aspects of this new plan are so-called buy-America provisions. The House bill, I think, requires that iron and steel be bought from the United States. The Senate bill may expand on all of that.

The administration appears to be of two minds. Watch this.


BIDEN: I think it's legitimate to have some portions of buy- American in it.

GIBBS: The administration is reviewing that provision. It understands all of the concerns that have been heard not only in this room, but in newspapers produced both up north and down south.


STEPHANOPOULOS: Hasn't reached a final decision.

FRANK: Looks like one-and-a-half a mind.

STEPHANOPOULOS: One-and-a-half mind. That's sort of -- they're trying to figure out where they're going to be.

And I want to bring this to you, Mr. Smith, because I know you're a strong opponent of these buy-America provisions. Yet when you've got the industrial Midwest at 45 percent capacity, 40 percent of the people working in steel companies and other manufacturers laid off, why isn't this the right thing to do?

SMITH: Well, the reason it's not the right thing to do is that the growth of global trade has been enormously beneficial to the United States. The problem with trade is that the benefits are diffused and the pain is localized. But the benefits of having a global economy have created an export sector in this country that provides our highest-paying jobs.

So you listed there the companies and the people that have been adversely affected. That's why I started off by saying the first thing that the Congress should do is take care of those people who are dislocated, but there are lots of people who are dislocated because of technology.

And I was growing up, there were a lot of people that were telephone operators. Those jobs all went away. You don't have the same argument about the loss of those kinds of jobs. It's only when it comes to trade.

If the Congress passes this buy-American provision, I can assure you -- and we operate in 220-some-odd countries around the world and are a huge part of the import-export infrastructure of the United States, we will get retaliation, and it will be American jobs at risk.

FRANK: Well, I -- I -- let me just say, by the way, on the tax code, if I could. I would very much like to see that. And I think you can do that in a revenue-neutral way.

I voted to raise the tax on so-called carried interest for hedge funds. And I think we have undertaxed some of the financial manipulation, and I would be for a package that would shift that. So I appreciate it, and I think it can be done in -- in a way that -- that is not going to increase the deficit and is stimulative.

FRANK: Beyond that, ideally, I agree with Mr. Smith, but people need to understand, I don't think there has ever been in American history -- certainly not in my memory -- a greater split between the opinion of people you would describe as the elites in the economy and the academy, et cetera, and the average American.

The fact is that the average American feels that, even when there was growth, he and she wasn't getting a piece of it. And I appreciate you saying, Fred, that we need to take care of the people dislocated, but you have to broaden it.

I will tell you, I believe, until you get a better social safety net, actions that you're not going to like are going to continue. And let me give you an example.

We were passing a bill in the House to say that we want very different rules on the TARP program, the -- the economic rescue program. And Congresswoman Sue Myrick, a Republican from North Carolina, offered an amendment that said no country -- no company receiving any financial help under this can do any outsourcing of customer service.

And that passed unanimously. Nobody wanted to vote on it; nobody wanted to vote against it.

I understand the logic there. And I just read in Great Britain there were riots now because the British workers are saying, "Don't have Italian workers," violating European Union rules.

But until the country does a better job of -- and you've said it very well. There's localized pain, diffused benefits. Until you relieve the localized pain better, the average American will block things like trade, like outsourcing that you think we ought to do.

STEPHANOPOULOS: Is that a bargain you could sign on to?

SMITH: Yes, but do it for a period of time. Somehow the government only does permanent things. This whole stimulus discussion is about a two-year period. Let's get the government, the one source of real liquidity, to help people get going again.

America's an amazing country. We have tremendous innovation. We have all sorts of new ideas, people just waiting to get new products out. Their customers are not buying, because they cannot get loans. They're getting laid off. Let's get that behind us. You'd much rather be in America than, for example, in Europe, where it will take 10 years to work this through. We can do this very quickly, get to the other side of this, and get back to business.

STEPHANOPOULOS: Do we have a deal here?

DEMINT: Well, the quickest way to -- to get money in the economy is not to take it out in the first place. And it's interesting, as we talk, like buy-American. We all -- we all want to buy American.

But then we have the highest corporate tax rate in the world. We've got a regulatory system that makes us less competitive. So we -- we actually put these people out of work, ship jobs overseas with bad policy, and then we want to put our hand up and stop our imports from coming in.

And this is a government-managed economy which doesn't work. It's inefficient. We obviously have to help people. But the quickest way to get a stimulus is -- is not to be taking so much money out of the economy, for particularly what Fred is -- is saying.

If we could expense -- if companies like FedEx could expense buying an airplane immediately, instead of over a number of years, a lot of companies would make those capital equipment purchases now rather than waiting.

And so it really comes down to a basic argument: Do you want a government-directed plan or do you want the free markets to work?

FRANK: Well, yes, I do want -- I want highways. I want better medical care for people laid off. This notion -- and the one thing I would most disagree with is you say we overregulated. It was the complete absence of regulation in the financial area that led to the crisis we're in today.

DEMINT: It was bad policy.

FRANK: Jim, can I please?

DEMINT: OK, sure.

FRANK: The policy was, yes, to put no restrictions on people outside the banking system who are extending themselves in the financial area into instruments which they couldn't back up. It was even within the banking system, letting people go with things that were off the balance sheet.

The complete absence of regulation in the financial area has, I think, been a disaster. And I think we're back to where we were when Theodore Roosevelt and Woodrow Wilson stepped in or Franklin Roosevelt.

But beyond that, the notion that everything is solved by a tax cut, of course there are sensible tax policies you could have. But there are public needs we have in this society...


FRANK: ... that cannot be accomplished by a tax cut. No tax cut builds a road. No tax cut puts a cop on the street. No tax cut educates a child in -- in the way that it ought to be done.

So this -- only tax cuts, at a time when I think we have a deficiency in some areas that are important for the quality of our life is a big disagreement.

DEMINT: But, George, we -- we have programs. I mean, we're reauthorizing our highway bill this year.

FRANK: At too low a level.

DEMINT: And -- well -- well, let's talk about making it a higher level, but let's don't say it's a stimulus when it's a government spending plan. And all of these things, the needs in our society, education, these are things we debate every year.

FRANK: Spending can be stimulus. I don't understand what you think stimulus is.


DEMINT: But this is the largest spending bill in history, and we're trying to call it a stimulus when it's just doing the things that...

FRANK: Well, let me tell you what I think is the largest...

DEMINT: ... you wanted to do anyway.

FRANK: The largest spending bill in history is going to turn out to be the war in Iraq. And one of the things, if we're going to talk about spending, I don't -- I have a problem when we leave out that extraordinarily expensive, damaging war in Iraq, which has caused much more harm than good, in my judgment.

And I don't understand why, from some of my conservative friends, building a road, building a school, helping somebody get health care, that's -- that's wasteful spending, but that war in Iraq, which is going to cost us over $1 trillion before we're through -- yes, I wish we hadn't have done that. We'd have been in a lot better shape fiscally.

STEPHANOPOULOS: That is a whole another show, so I'm going to...


FRANK: That's the problem. The problem is that we look at spending and say, "Oh, don't spend on highways. Don't spend on health care. But let's build Cold War weapons to defeat the Soviet Union when we don't need them. Let's have hundreds and hundreds of billions of dollars going to the military without a check." Unless everything's on the table, then you're going to have a disproportionate hit in some places.

STEPHANOPOULOS: There is also about $1 trillion to be spent on the banks, maybe even more, coming up in the next several weeks. And one of the hot-button issues there -- and you talk about this populist anger -- has been over whether the bankers are benefiting at the expense of the taxpayers.

And Senator Claire McCaskill took to the floor of the Senate this week. She wants -- she has a new proposal. She's heard about these $18 billion in bonuses on Wall Street last week and says, if any bank is going to get federal money, they should make sure that no banker gets paid more than the president of the United States.


MCCASKILL: They don't get it. These people are idiots. You can't use taxpayer money to pay out $18 billion in bonuses. Should these people be making more than the president of the United States? Not really, should they?


STEPHANOPOULOS: Mr. Smith, you actually took a pay cut in December. You announced a 20 percent pay cut because of the performance of FedEx over the last year, because of the tough economic times.

And I wonder, number one, what do you think of the bonus structure now on Wall Street? And, number two, does Senator McCaskill have a point?

SMITH: Well, I -- I think the -- the compensation structure on Wall Street is basically built on -- on bonuses, much more so than in the industrial sector. As I understand it, the average bonus in that $18 billion is about $100,000 a year. The bonuses on Wall Street are down about 44 percent.

So certainly up at the very top of the pyramid, people may be getting more than the president of the United States. But I think you have to go into the -- to the detail there.

Now, when you take government money, then obviously the Congress has the right to put any kind of restrictions that it wants on -- on the government money. I don't think anybody would -- would argue that.

But it's a little bit, I think, an exaggeration to say that all the money is going to -- you know, the top few people on Wall Street. There are a lot of middle-level folks that -- that live on -- on those bonuses. And the lack of those bonuses, probably the biggest people are getting hit are the state treasuries of the state of New York and the city of New York, so...

STEPHANOPOULOS: He brings in (inaudible) but to what extent have CEOs brought this on -- brought this anger on themselves?

SCHMIDT: It's a judgment issue. And, you know, when you're asking for the government, you need to moderate your behavior. I think people understand that.

We're in this for the long term. And in the businesses that I'm familiar with, people are primarily compensated with stocks. Stocks are down. Stocks will eventually return. People will make money that way. That's a much better way to compensate people.

STEPHANOPOULOS: And that's -- one of the things they're considering, I hear, as the president tries to roll out this new financial rescue plan, that the compensation should be in stock. And also some talk -- although it's very difficult to do -- of trying to get back some of these bonuses?

FRANK: Well, the clawback, yes. You -- you should have future -- we put this into the bill that we passed last year. And the problem is not just the amounts of money. And Fred Smith makes a good point. Don't lump every bonus in together.

Now, maybe they would be better off with straight salaries rather than bonuses, but it's true that some people at the working level, bonuses there are different than bonuses at the -- at the top level.

And, you know, but here's the problem we have. We have this -- we're all familiar with the -- with the concept of collateral damage, which is in the wars you don't want me to talk about, but where you want to kill some bad guys and tragically some good people get hurt.

We have the reverse problem in trying to restore the credit system. It's called collateral benefit. We need to restore the credit system. Eric talked about this. The only way -- but you can't create a whole new banking system de novo.

So the only way you can help the banking system get back into credit is to do some things that will probably provide some collateral benefit to people, people don't like. And what they shouldn't do is make it worse for us.

DEMINT: But, look...

FRANK: There's one other point, though, I want to make, and that is, it's not simply the dollars we're talking about. And this is, again -- Fred made a good distinction between the non-financial and financial parts -- the problem in the financial area in particular has been a perverse incentive in the -- in the compensation structure.

It's not just the dollars. But you had top decision-makers being told that, if they made a bet and it paid off, they got money. But if they made a bet and it lost, they didn't lose any money. It was a "heads, I win, tails, I break even," and that incentivizes more risk- taking than is in the interest of the economy.

SCHMIDT: I'm sure this stuff is going to get fixed by -- by you guys, because you're working very hard on it...

DEMINT: I wouldn't count on it.

SCHMIDT: And, by the way, you guys need to get this thing fixed. What we need is very simple. We need some form of a jobs program, something that causes jobs to get created, and we need credit to get -- get going again. That's what we should be talking about as a country.


SCHMIDT: And we can debate exactly how to do it, but get it going now.

FRANK: Well, excuse me. You (inaudible) it's called democracy, Eric. I'm sorry, but it's inevitable.

Secondly, the point I'm making is this, and I think Fred understood it. There is so much anger now on the part of the average citizen who's lost his -- you know, and the problem with traders (ph), and this is one difference we have with Europe. Americans will lose their health care, most of them, if they lose their job. We've got to, I think, fix that situation.

FRANK: I think we need to break the nexus between health care and employment from the standpoint of an efficient economy, as well as a fair one. But until you cannot get some of what you want in the credit area -- the jobs area is different -- but in the credit area, if you -- if you do not do things simultaneously to alleviate the anger, the American voter is not going to let you do it.

DEMINT: We can take $1 trillion out of the economy and we're saying we might create 3 million jobs. If we leave it in the economy, the economists at the Heritage Foundation said we create 18 million jobs.

I mean, this is something we know. And it actually -- Eric, to your point, it happens much quicker. When we don't take it out, there's an immediate jolt to the economy. But if we take -- we know only half of this $1 trillion is actually going to be spent over the next two years.

SCHMIDT: I'm worried -- I'm worried that tax cuts alone -- tax cuts won't work because -- won't be sufficient because people are not paying any taxes because they're not making any money. The stimulus bill has tax credits in it...

FRANK: How many roads are going to be built by a tax cut? How many police stations?


DEMINT: We're building roads now. And...


FRANK: If you think...

DEMINT: The Democrats control Congress. If you want to spend more for roads, let's do it.

FRANK: Excuse me, no, that's -- that's...

DEMINT: But let's don't call it an economic stimulus package.

FRANK: ... an inaccuracy. First of all...

DEMINT: Only 5 percent of this bill goes to roads and infrastructure, and you're trying to tell the American people this is an infrastructure bill. It's... (CROSSTALK)

FRANK: No, I am not trying to do that. You will check the transcript. You will find I haven't.

I also think it's helpful if you don't have policemen and firefighters laid off in New Bedford. That's jobs that would be lost that won't be lost.

I also disagree that we're taking money, quote, "out of the economy" if we improve public transportation, if we improve highways. That's your concept. You're taking money out of the economy if you make sure a bridge doesn't fall down. I think you keep people out of the water. You're not taking money out of the economy.

STEPHANOPOULOS: And on the -- on the issue of credit, there's -- it's a separate question. The president is going to probably have to come forward and ask for potentially hundreds of billions of dollars more for the banks. Is that something you can support?

DEMINT: Well, we're calling these Wall Street guys idiots for their bonuses. I think maybe the real question about intelligence comes from the politicians who are giving these guys money.

A lot has to sort out in the market here. We're rewarding failure by bailing out the worst of the banks instead of rewarding success. The first round of TARP did not support lending, which was its whole point. We've got to loosen up the credit markets.

I'm not convinced the guys from Wall Street who are running Treasury know how to do it. They know how wealth is traded, but they don't know how it's created on Main Street.

So, obviously, we need to loosen up credit, but what we've been doing hasn't been working. And if government spending, Barney, got our economy going, we would have the best economy in the world. We have never...


FRANK: Spending on Iraq was never going to do that. Can I just say, too -- we're talking -- I agree that, under the Bush administration, you introduced...

DEMINT: Bush is gone.

FRANK: Excuse me, Jim. You talked about Democrats and Republicans.

DEMINT: I have not.

FRANK: He's gone, and it is a mistake to assume that the Obama administration hasn't learned from the mistakes of the Bush administration. I believe they're going to do it very differently.

I agree that Secretary Paulson, whom I generally admired, made a mistake in not pushing them to do more lending. I think you're going to see the Obama administration, having learned from that, push for much more lending. There are going to be some real rules in there.

SCHMIDT: But you could just publish -- you could just publish what people are doing, and we could figure out where the money's going. All you have to do is put these things on Web sites.

FRANK: They are going to be.

SCHMIDT: One of the ways -- in fact, one of the issues with TARP was it wasn't generally known where the money went. If we simply -- as part of your work got every single dollar and where it went, we could prove whether your argument is right or your argument is right.

DEMINT: But you assume we can actually track that stuff.


FRANK: Excuse me. Can I just say, first of all, our guys -- I would say, putting on a Web site, you're not entirely disinterested...

SCHMIDT: Of course.

FRANK: ... but that's OK. Fred might want us to mail them to everybody, deliver them -- deliver them in a package. But the point is, we're going to do that.

In fact, the new inspector general, who was set up -- we've set up a special inspector general. Confirmation was delayed in the Senate. And Mr. Barofsky is now about to demand of every recipient of TARP, past and future, that they do exactly what you say and that we will publish on our Web site.

So there was -- I agree. It was not -- I think it was better to have had it than not, but it is going to be done.

SCHMIDT: But my point is, you could change -- you could change the way we...


FRANK: I'm saying we're doing it.


SCHMIDT: ... change the way...

FRANK: Did I not agree with you?



FRANK: We're doing it.

SCHMIDT: Chairman, the fact of the matter is, that if the government simply told everybody what you all were doing...


SCHMIDT: ... and then people could track it and figure out whether it's actually working...


FRANK: But we are going to do that.

SCHMIDT: ... we could get through these classic fights that you all have.

STEPHANOPOULOS: As you know...

FRANK: Well, no, I differ -- differ with you on that. Please. Let's not obviate democracy. There are legitimate different philosophical differences between Jim DeMint and myself. Please don't treat them as some sideshow.

STEPHANOPOULOS: And we will hear -- we will hear more about the...

FRANK: They're important to democracy.

STEPHANOPOULOS: We're going to hear more about them this week. We only just have a few seconds left. I just want to ask you quickly. We learned this week that President Obama's nominee for the Department of Health and Human Services, Senator Tom Daschle, has had to pay about $128,000 in back taxes. Is that disqualifying to you?

DEMINT: It may be. I -- I want to find out more about it.

But it's disheartening, obviously. I mean, people are struggling to pay taxes on a very small amount of income. And when he's got this huge amount of -- you know, I can see now why liberals don't mind if the tax rate goes up, because they're not going to pay it anyway.

And so, yes, it frustrates me. It did with our Treasury nominee. But we need to look at it. And I would just -- I wish they would just say, "Hey, our tax code is just incomprehensible. We need to change it."

STEPHANOPOULOS: You got that last plug in. Gentlemen, thank you all very much. It was a great discussion.