CNN IN THE MONEY
Reaction in Baghdad to Husseins' Deaths; Is Our Military Stretched Too Thin?; Wal-Mart Faces Discrimination Suit; Stock of the Week: Southwest Airlines; America's Black Market In Drugs and Cheap Labor; Should Investors Buy Dividend-Paying Stocks?
Aired July 26, 2003 - 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
JOHN CAFFERTY, HOST: Welcome to the program. I'm Jack Cafferty.
Coming up on today's edition of IN THE MONEY, blood brothers. The Hussein brothers died the way the ruled, by force. We'll look at what's next for Iraq now that they are gone for good.
Plus up against the Wal-Mart. Find out about the females employees who claim they have been short changed by the world's biggest retailer.
And joints, skin, and muscle. We're not talking about biology here. We are talking marijuana, pornography, and migrant labor. They occupy some prime real estate in America's vast underground economy. Author Eric Schlosser takes us on a guided tour a bit later.
Joining my today, a couple of our IN THE MONEY regulars, Andy Serwer, editor-at-large, "Fortune" magazine, and also from "Fortune," senior writer, Shawn Tully.
Much ado toward the end of this week about release of these pictures of Uday and Qusay Hussein. The rationale in the Department of Defense being the Iraqi people needed proof these people were no longer around. I guess I can buy into that, but the American news media could not wait -- and CNN is included -- to get these pictures on the air in the United States where they probably served no particularly useful purpose. Am I off base on that?
SHAWN TULLY, SENIOR EDITOR, "FORTUNE" MAGAZINE: These guys, Jack, are such butchers, we know about the abuses of the regime, the torture, the rape, that I think that Americans, although normally would be offended by pictures like this, in this case, are going to give the Defense Department a pass and figure that these guys essentially got what they deserved, even in death.
ANDY SERWER, EDITOR-IN-CHIEF, "FORTUNE" MAGAZINE: Yes, I've got a couple of points. First of all,, the people in Iraq who didn't believe they were dead probably still don't believe they're dead. I mean, you know, you could say the CIA ginned the whole thing up, number one.
Number two, I draw the line, Jack, between the stills and the video. I mean, I think you just take the still pictures, you put them up day one, and then it -- but with the moving pictures -- with the video, it's become day two, day three, then will analyze it, and it goes on and on. I think it's too much.
CAFFERTY: I'm inclined to agree with you. Nevertheless, we are apparently in the minority, or at least not making decisions on what people in this country see.
CAFFERTY: The only people that most Iraqis feared as much as Saddam Hussein were his two sons, and their deaths this week in a U. S. raid was a major step in breaking the hold of Iraq 's old regime on that country. But Saddam Hussein is still out there some place, and U. S. troops still coming under fire on a daily basis. It not clear at this point how much, if anything, has really changed.
For more on the situation in Baghdad, we are joined now by Harris Whitbeck live. Harris, nice to have you with us. How is the release of this videotape playing among the Iraqi citizens over there?
HARRIS WHITBECK, CNN CORRESPONDENT: Well, there have been basically three lines of thought. The first one is that people say, OK, we are convinced these are, in fact, Saddam Hussein's older sons, and we are now convinced, thank you for the proof. The other line of thought is people are really turned off -- really turned off by the airing of these images, saying they are just too gruesome, too graphic, and that they shouldn't have been aired. And the third vein of thought is basically saying to the Americans, get on with it, you need to concentrate on improving our security and our access to basic services, which has been interrupted for many people since the American occupation last April.
So that's basically it. What wasn't heard immediately after the videotape was aired, which did occur after the news broke of this, a couple of nights -- last Wednesday actually, there was no celebratory gunfire. And that was kind of surprising. People -- some people were expecting that there would be begun gun fire. You know, in the Middle East, that's the way of celebrating good news, and that certainly didn't happen in the immediate aftermath of the airing of that videotape.
CAFFERTY: You were in Mosul right after this attack happened. Give me a sense what that was like. It seemed a very long gun battle when it turned out there were apparently only four people inside this home.
WHITBECK: That's correct, and that is what people in Mosul were questioning. They were questioning why so much firepower was used. Many people wondering why the house simply wasn't put under a stage of siege, you know, for days or weeks, or however long it took to flush these individuals out. Their feeling up there was these individuals would have been perhaps more useful for intelligence purposes if they had been captured alive.
Also strong anti-American sentiment up in Mosul. It is an area that has been a traditional bastion of support for Saddam Hussein. It is also an area that is known for it's deep sense of loyalty. The citizens of Mosul have a very, very, very much ingrained sense of loyalty, and they were as upset about the fact that one of their own had betrayed somebody else, as they were about the identity of the betrayed. So that says a lot about, again, just the deep cultural traditions that have colored, perhaps, the opinions of some people.
CAFFERTY: All right, Harris, I appreciate that. Thank you very much. Harris Whitbeck reporting live from Baghdad for us today.
For some additional perspective now on the deaths of Saddam's eldest sons and the impact on the reconstruction efforts in Iraq, we are joined from Washington by Judith Yaphe. She is senior research fellow at the National Defense University. It is nice to have you with us, thank you.
JUDITH YAPHE, NATIONAL DEFENSE UNIVERSITY: Thanks for inviting me.
CAFFERTY: What effect do you think the deaths of these two will have on the general climate and atmosphere and tone, for want of a better word, of the efforts to get this country up and running and transitioned and over to a free economy, free government, et cetera?
YAPHE: Well, I think you have to separate out a couple of things. It's not going to change Iraqis view of us. We are not going to become best loved liberators over night. There will still, and there will always be a resentment of the foreigner, the occupier who's come in. Even though you did something good, got rid of Saddam and his ugly sons, still you are a foreign occupier. So we will continue to have opposition, and that will include attacks on us. That's not going to stop. It may diminish, it may stay the same.
I think we tend to overestimate the implications. This has got to be a major turning point. In a way, it is. But in a way, it isn't because the opposition to us will go on because it is so diffused, and Iraqis are really looking at us to continue to make progress, as your reporter announced. The last of the three Iraqi visions that he had -- we need to see progress. If you are so clever at getting rid of the sons, if you have so many smart bombs, if you can hit a target from so many, what, thousands of feet in the air, why can't you put the electricity back on?
CAFFERTY: They are very good points.
TULLY: Well, we have seen the governing council come into place in the last couple of weeks. This seems to be a good sign because e are moving toward self rule in Iraq. On the other hand, the council's decisions can be vetoed by Mr. Bremer Also, it has a high composition of foreign or expatriates who have come back, or exiles who have been come back, Chalabi being one of them. I know you have been critical of him in the past.
What do you think, in general, of the impact of the governing council and the view that most Iraqis hold of the governing council?
YAPHE: Well, there is good news and bad news, Friend. The good news is we have got a governing council. It's Iraqi. And many of them are not exiles. Now, there is great unhappiness with the appointment of Ahmed Chalabi, because he is not popular inside Iraq, and it has nothing to do with my view of him or not. This is just the way it is. So, I think they distrust us for that and will always see him as being not just our boy, but suspect his motives.
But the bad news is that they may or may not have the kind of decision power that they need to become respectable and to have a degree of legitimacy in Iraqis' eyes. If you don't let them make the decisions, if you just set them up in the front office so it looks good when somebody comes in and Iraqis are in charge, that's not so good.
If they make decisions on contracts, for example, on who buys and sells oil, who does repairs, what contractors we bring in, that's a different story, and Iraqis will look closely to see can this Iraqi in the ministry, in the provisional council, can he make decisions -- or she make decisions, or do they have to look behind them to the political adviser who Washington has put there to see what they can and cannot do or say?
SERWER: Judith, let me jump in. Excuse me one second and ask you a question.
SERWER: Why do think we can't find Saddam Hussein?
YAPHE: Well, for the same reason it was so hard to find the sons. He's hiding in a protected cultured environment. He's depending on long-standing traditions, as well as loyalty to hide him, and to a great extent, that's been working. He's also probably in the area, same as the sons, where there is a lot of loyalty among families, clans, and tribes, and people who -- you know, when he comes and says, we have helped you, now you will protect us -- this is the code of the tribe of the desert, of the culture, of the environment.
So, it's hard for Iraqis to say, no, especially those that have been such loyalists, and he would only go to loyalists.
CAFFERTY: Apparently the two sons simply knocked on the door of this home and said, hey, you owe us, we did you a lot of favors when dad was running things, now we need a place to hang out, and you have to let us in, from some of the accounts that I read.
YAPHE: You've got it.
CAFFERTY: Judith, thank you for joining us. I appreciate your input today.
YAPHE: You're welcome.
CAFFERTY: Judith Yaphe, senior research fellow, National Defense University, joining us from Washington, D. C.
Meanwhile, this ongoing effort to bring stability and security to Iraq is already straining the U. S. Military, which kind of makes you hope that things don't get out of hand in place like, say, North Korea. To some, the solution is to have simply a bigger fighting force. But how do you do that? Can we afford it? Yada yada yada.
For one view on this subject, we are joined from Washington by a man who has taken a close look at it, Democratic Senator Jack Reed of Rhode Island. Senator Reed, it is nice to have you with us.
Whether you agree we need more military or not, I think we can all agree that the military we have is stretched extremely thin at this point with potential problems in place like North Korea. What do we do about it, short of, you know, going back to the draft or finding the money to expand the Military? Is there a solution other than that?
SENATOR JACK REED (D), RHODE ISLAND: Well, the Army has created a rotation plan that will provide some sort-term relief, but it's contingent upon getting a contribution in Iraq of international troops, international division, and that is yet to be determined. The administration has to be much more effective, and, in fact, much more willing to ask countries like France and Germany, NATO, to provide troops.
If not, then certainly by next Spring, we are going to face an extreme crisis in manning our commitments across the globe, and as you point out, it's not just a question of Korea, it's also -- excuse me, of Iraq -- it's also Afghanistan and Korea. So, this is a crisis that is beginning to become much more felt in the Capitol.
SERWER: Senator, are we headed towards a situation like Vietnam? I man, we all remember that. The Democrats are against it, they want to reduce the force. The Pentagon says the solution is to send more troops in. We acknowledged it's a guerrilla war, all right. What's your take on that point?
REED: Well, the situations between Vietnam and Iraq are quite different. Vietnam was an insurgency supported that was supported by adjacent countries, North Vietnam and also internationally by the Soviet Union.
That's not the case today. But we have a real problem here. There is an active insurgency. It is being fought by die-hard elements of the Saddam Hussein regime, by criminals, and some Muslim fundamentalists. The problem we have is that at some point, if the Iraqi people decide we have not delivered on the promises and the expectations of a better life and a better economy, they could see these insurgents as representing them, and at that point, we have a serious, serious crisis, and that is a possibility.
So, our efforts have to be in the short run to route out these insurgents, while simultaneously reconstructing and reinvigorating the Iraqi economy.
TULLY: Senator Reed, in your recent speech after your trip to Iraq, you essentially are charging the administration with not being up front with the American people in the defense appropriations billing, just not addressing the need for far more troops. The fact that the troops are stretched so thin -- we only have 36,000, or 40,000 troops in South Korea currently. These in Afghanistan and other parts of the world, do you think that the administration should have been much more up front in, instead of coming back after a later date, after spending the money and wanting to be reimbursed for it, laying out the real policy decisions, the tough choices that have to be made?
REED: Oh, absolutely. I think we understand that, regardless of how one thought about the military operation, the inception of that operation, we are committed in Iraq today. And we have to be honest with the American people. We have to tell them we are going to be there for an extended period of time. It's going to be extremely expensive, about $4 billion a month, plus another $1 billion in Afghanistan, and that we're going to have to up front recognize these costs, tell the American people about it, and be honest enough to put it in our budget. Not after the fact, but while we are developing our budgets.
So, I just think the administration thought they could get away, frankly, by low-balling the numbers, hoping for the best, hoping that the situation would resolve itself without this type of conflict we are seeing today. But those hopes had been overtaken by reality. Now we have to tell the American people.
CAFFERTY: I've got 20 seconds left. You mentioned troops from other countries helping. Nobody is holding their breath for France or Germany to come rushing to our aid, at least not now. The United Nations hasn't indicated a willingness to jump on this issue either, Kofi Annan saying, yes, at some point, they might take it up, but he doesn't know when.
If you buy the idea we are all in this alone, what can we, the United States, do to protect our future interests right now without having to depend on someone else? Is there anything?
REED: Well, frankly, I think the administration is coming to the conclusion that even though their instincts are unilateral, to operate effectively in the world today, you have to be multinational, and they are the ones who are actually saying that the solution to our dilemma in Iraq is engaging these international forces. It's a change of tune, certainly, since the last few months, before the military operation in Iraq.
I think we should be multinational. I think the administration has to make a much more fervent, sincere effort to enlist other nations -- France, Germany, perhaps, they are talking with Turkey. That might be a possibility, but that introduces other problems in terms of politics for an area. But if we don't have assistance, this will be a very lonely, expensive burden which will stress us immensely.
CAFFERTY: All right. Senator Jack Reed of Rhode Island, thank you very much for joining us.
REED: Thank you.
CAFFERTY: Appreciate having you on the program. Coming up on IN THE MONEY as we continue, making change. Some female Wal-Mart employees are out to rock with world's biggest retailer with a legal claim of discrimination on the job. The financial implications of this case are huge.
Plus flying right. While other airlines struggle, Southwest keeps on soaring. Find out how this carrier is beating up on the big guys.
Plus dirty money. We'll look at America's black market in drugs and cheap labor and how all of us are paying for that.
IN THE MONEY continues in a moment.
SERWER: The world's biggest retailer may soon be facing the world's biggest gender discrimination suit. Some of Wal-Mart's female employees are taking the chain to court for alleged unfairness in pay, promotions, training, and job assignments. This week those workers asked a California federal judge to raise their suit to a class action status. If the judge agrees, some 1.5 million present and former Wal- Mart and Sam's Club employees could join the fight.
My colleague, "Fortune" magazine writer, Cora Daniels, has been following that story. She's here to tell us about it. Cora, welcome.
CORA DANIELS, WRITER, "FORTUNE" MAGAZINE: Thank you.
SERWER: So, why don't you start off by telling us what these allegations are. Talk about the suit.
DANIELS: Well, the suit is basically claiming that women don't get promoted at the same rate as men and that when they do, they are not paid the same. So, women with the same amount of experience, the same job title, are paid significantly less.
TULLY: One of the things that was very interesting in that story, Cora, was the way you described the power of the store managers. These stores can generate up, what, to $100 million in sales, a single store?
DANIELS: Right, right.
SERWER: And the tremendous authority that the store managers have always had in promoting people within the store, it's not really a corporate strategy.
DANIELS. No, that's part of the Wal-Mart way, to basically let the store managers sort of rule and make it feel sort of the local store. I mean, the store manager, it's a huge job, it's like a six- figure income. They are in charge of hiring. They are in charge of even some of the products within the store. So, you know, I mean, and because this is the world's largest employer, I mean, if you get store managers who sort of aren't following the book, it's very easy that these little fiefdoms get out of control. CAFFERTY: If the store managers have that much autonomy, it would seem that it might be difficult to assign class action to this across the whole corporation. What are the things that the judge will be looking at to make that determination?
DANIELS: Well, that's basically Wal-Mart's argument, that there is autonomy. I mean, what the plaintiffs are saying, though, that the Wal-Mart culture is so strong that -- that it is strong enough to sort of take over from those little fiefdoms, I mean, that there are certain things that are basic and intrinsic to Wal-Mart culture.
CAFFERTY: And that the guys at the top are not so naiive as to not know what's going on at these various stores, even though the managers are given a certain amount of freedom.
DANIELS: Right. I mean, even Wal-Mart itself -- it's not denying that this stuff happened. It just -- they are just trying to say that it's just not class. It's just that, you know, it's just, you know...
CAFFERTY: Isolated incidents here and there.
DANIELS: One person here, one person there.
SERWER: So, what do you think, Cora? I mean, do these woman have a case? What's your take?
DANIELS: I think they definitely have a case. I mean, I -- one of the things that struck me was just the consistency of their complaints and the consistency of what people said. I mean, one of the most common things that these women were told was that men were paid more because they have to support their family. And it wasn't just said in one store. It was said in store after store after store.
CAFFERTY: That's pretty lame, like women don't have families, what is that?
DANIELS: Right. I mean, I think -- I think it comes basically just because it's a very patriarchal, old school kind of culture that's there.
TULLY: What people are worried about, Cora, as you pointed out, 66 percent of the employees at Wal-Mart are women, but only 33 percent of the managers are women. And as you said, the jobs aren't posted within the stores so that women can apply for those jobs. So the question is whether the judge decides to move to kind of a quota system that whatever the employment level is, it has to be reflected at the same percentage of managers. No one wants that, but you do want a fair system.
So, how do you -- this is a tough one to work out fairly.
DANIELS: I mean, yes, I mean I don't think anyone is asking for quotas or anything, but there's certain basic H.R. stuff that just wasn't going on. I mean, you mentioned that the jobs weren't posted.
I mean, one of Wal-Mart's biggest things is that you can start out as a cashier and end up as a store manager 10 years down the road. You can be promoted within, and the big jump from that is from the hourly employees to the salaried employees, but that job, that assistant -- that training manager job was never posted. So, people didn't know how to get them.
CAFFERTY: How much money are we talking about if two things happen? One, it's declared a class action suit. And two, Wal-Mart loses.
DANIELS: Billions of dollars.
CAFFERTY: Billions. Tens of billions maybe?
DANIELS: Yes, yes.
CAFFERTY: So, the implications are just enormous?
DANIELS: Definitely, definitely, I mean -- and there's never been a class even remotely this big before. Class action suits are usually, you know, maybe 10,000, you know, 100,000 at most.
CAFFERTY: One assumes you will continue to follow this.
DANIELS: Oh, definitely.
CAFFERTY: So you will come back and talk to us on IN THE MONEY as it goes along. Cora Daniels, writer for "Fortune" magazine. Thank you.
DANIELS: Thank you.
CAFFERTY: Still ahead as we continue today, flying lessons. As other airlines fight to just stay afloat, Southwest is showing them how to soar. Find out how it's teaching the big carriers a thing or two as we continue.
Plus joint assets. Marijuana just part of America's huge underground economy. Author Eric Schlosser found out how the secret system works. He will give us a guided tour.
And stocks that pay off no matter how the markets are doing. If your CDs and mutual funds aren't delivering, stick around and learn with us about dividends. We are back after this.
SERWER: Now let's take a look at some of the top stories from this week in our money minute. Mixed news from our parent company, AOL Time Warner. The company posted a better than expected quarterly profit of $.12 a share thanks to the movie, "Matrix Reloaded" and the settlement with Microsoft. But the company also says its troubled online unit lost another 800,000 plus subscribers.
The long slide in mortgage rates may be over. The average rate on a 30-year loan rose to 5.72 percent, the highest level since April.
And Harlan Waxsal has resigned from ImClone, the company he and his brother Sam built. Harlan had been the company's chief science officer, and he walks away with a stake in the company worth over $90 million. Harlan used some of his newfound free time to give his brother Sam a lift to prison.
CAFFERTY: What a nice guy.
On now to our stock of the week. Southwest airlines announced another strong quarterly profit this week. And while, as you well know, most of the major airlines are barely making it, Southwest still expanding. They plan to buy another 30 new airlines over the next couple of years. A look at Southwest's stock chart over the past year shows the airline shares are pretty much on an upswing and not far off their 52-week high. That is our stock of the week, and these people have consistently outperformed the sector. What's the secret?
SERWER: Well, the question I have about this company, Jack, was this a (UNINTELLIGIBLE) personality? The was a guy named Herb Kelleher, who built this thing with his bare hands. He has retired a while back, and the company seems to be able to continue moving on. The question is can they keep it up, you know, year after year, Shawn?
TULLY: Well, this company now, with a market capital of around $13 billion, is worth the rest of the entire industry if you add up United and America, and the ones that are bankrupt will still suffer something. This company is worth the whole industry. So, they definitely have the formula down right, and it's going to be --
The world is going to go to the discounters. No question. The major airlines are going to have to get their costs in line with the discounters. Having 30 percent higher costs as American in 1984 is just not going to be enough. They have to level with their employees and seriously go after the costs. They are just too high.
SERWER: But this company is the only one, Jack, that's still profitable since 9/11. I mean, that is truly amazing. They are still ordering airplanes from Boeing, truly amazing. The rest of them are cutting back. It is expanding its business. The other ones contracting.
For instance, it may expand into St. Louis, where American airlines is pulling back. So, this company and Jet Blue -- they are the wave of the future. But we had Gordon Bethune from Continental on a couple of weeks ago, and he said, well, you know, but we can't do what they do because they fly these routes point to point. They don't go overseas. So, they are a little bit different.
CAFFERTY: What is it about the patriarch, for want of a better word, of a company like Southwest Airlines? They seem to be doing fine, even though the founder is gone. A company like General Electric, you could make the argument, is not the same company under a Jeffrey Immelt, as it was under Jack Welch. What's the secret of perpetuating the success of a company that relied so heavily -- Sandy Weill at Citibank -- on the charisma and personality of the top guy? SERWER: Well, I mean, I think for one thing, this airline, this company, Southwest, is so focused. You look at some of those other companies you mentioned, G.E., they have so many different businesses. I mean, Southwest flies Boeing airplanes from one city to the next with fixed fares. That's their business. So, it's not that complicated. Maybe a guy can fill his shoes.
CAFFERTY: You agree with that?
TULLY: Yes, I do. I think that the -- and also, just all the systems that were put in place -- actually by Jack Welch also were very effective, but Jack Welch really had the wind at his back during a terrific stock market. There was a lot of luck in G.E.'s performance, and Immelt has been much less lucky.
SERWER: And let's point out about this company -- I went back and checked -- the stock has split 13 times since 1978. Amazing.
CAFFERTY: We should have gotten in.
SERWER: We should have gotten in.
CAFFERTY: For $13 billion -- that's astonishing -- more of the whole
SHAWN TULLY, SENIOR EDITOR, "FORTUNE" MAGAZINE: ... less lucky.
ANDY SERWER, EDITOR-IN-CHIEF, "FORTUNE" MAGAZINE: And let's point out about this company -- I went back and checked -- the stock has split 13 times since 1978. Amazing.
CAFFERTY: We should have gotten in.
SERWER: We should have gotten in.
JACK CAFFERTY, HOST: For $13 billion -- that's the most astonishing -- more of the whole rest of the airline industry combined. That's stunning.
We had another big response to our e-mail question of the week, as we do each and every week here on this fine little program. Last week we asked whether the states should consider the financial costs when deciding whether to pursue the death penalty. Tracy wrote in, "I'm still in high school, and consistently hear about tight budgets for schools. A number of schools in my district were recently shut down for lack of funds. If they can close schools because they are too expensive, they should think about the costs of capital punishment, too."
Dean in Florida had a different view. He wrote this, " I question the figures that say it costs more to kill a prisoner than to keep him alive. Does it really cost less to keep Charles Manson alive since 1969? What about the rising costs of food? What about the costs of parole hearings?" What about all those uniforms you wore out? And Danny from West Virginia writes, "When it comes to issues like capital punishment, we should do whatever will hurt the lawyers and judges the most. Prosecutors, defense lawyers, and judges are all making money cycling people endlessly through the legal system."
We will read more of your e-mails a little later on in the program, and we will have the e-mail question for this week coming up a bit later. Our e-mail address, if you are so inclined to get in touch, firstname.lastname@example.org. And we do so look forward to hearing from you.
Coming up, we'll shed some light on the marijuana trade in this country and some of America's other secret, illegal, and highly profitable businesses as well. We will talk more about America's huge underground economy.
And you can weigh in on all the topics we have covered today or anything else that is on your little old mind, email@example.com. We have a producer, Jake Novak, who sits in a basement closet answers each and every letter. We don't get him go to lunch until he's all finished.
CAFFERTY: The old saying is money talks, unless, of course, you keep it quiet. And keeping it quiet is what America's black market economy is all about. It is driven by desire and need for things such as drugs, pornography, and workers that are too low cost to be legal. By one estimate, traffic in those areas alone constitute about 10 percent of GDP, the overall economy in the America.
Journalist Eric Schlosser looks at the some of the busiest sectors of the underground empire in his new book. It's called, "Reefer Madness: Sex, Drugs, and Cheap Labor in the American Market." He is also the author of the best-selling, "Fast Food Nation." We are delighted to have Eric with us today on IN The MONEY. Welcome.
ERIC SCHLOSSER, AUTHOR: Thanks for having me.
CAFFERTY: How big a problem is this if, in fact, it is a problem, and I assume it is, and why should Andy or myself or you care?
SCHLOSSER: I think it's a big problem. The United States is a modern industrialized nation, and the sort of economic activity we are seeing is much more common in third world and developing nations. Those are the places we find a big, booming black market. Most economists agree the black market in the United States has been growing over the last 20 years. I think it's a very bad thing.
SERWER: Eric, let me -- first of all congratulations on the title of that book. That's a good one. That's got to be flying off the shelves.
SERWER: But I'm interested, you said the economy, the black market economy, has been growing. I mean, is that really the case? I mean, didn't we have a big black market economy in the 19th century or the early part of this century, number one? And if, in fact, it is growing, as you say, why is that?
SCHLOSSER: Well, economists agree that it's growing, and they disagree over why. There have been other periods where we had a booming black market, prohibition. The illegal sale of alcohol was about 5 percent of GDP.
After World War II -- during World War II, when there was rationing of gasoline and meat, people were trading in ration books, a very big black market. It then declined.
Now, economists on the right believe that as tax rates get high, people try to evade taxes, don't report economic activity. That's why they think the underground has been growing the last 20 years. On the left, they argue that when wages are stagnant, when ordinary people aren't doing well, they turn to all kinds of black market activities to supplement their income.
The third cause would be the rise in illegal immigration. In the book, I talk about the growing roll of illegal immigrants in our economy, and that's black market labor. I think it is a very disturbing thing.
TULLY: Why isn't the solution -- and this is what libertarians have been arguing for years -- just legalize drugs? Go beyond marijuana. Milton Friedman was arguing way back in the 1950s, and just, let freedom ring, open it up and tax the receipts and decriminalize it that way because the criminals love that it's illegal because it keeps the margins really high.
Every time you take drugs off the market, the price goes back up again. So, more come on the market. That's why this whole war on drugs has been so futile over the years. Plus these guys are in favor of free immigration, also. What's wrong with that solution?
SCHLOSSER: Well, you make some interesting points. I write about marijuana. Marijuana is a weed. It grows wild. It has very little value. But with the laws against marijuana that we have, a lot of it is worth more per ounce than gold. It's also true that a lot of conservative Republicans are big opponents for the war on drugs for the reasons that you mentioned.
Personally, I am not so sure about legalizing drugs. Right now in this country, we have life sentences for marijuana, and if you went tomorrow to being able to market it on TV just like Budweiser, that's such a wild swing.
But I think decriminalizing marijuana is a very rational step. Canada is about to do it. They have done it in Italy, Spain, Portugal, the Netherlands, Ohio, and those places haven't collapsed. So, I think we need to move toward a common sense solution to a lot of these issues.
CAFFERTY: Address the hypocrisy, if you will. Talking about limiting immigration, tightening the borders, holding down the number of foreigners who can come here -- when, in fact, huge parts of this economy are absolutely dependent on migrant workers who come into this country illegally and work for 10 cents on what the American worker's dollar pays.
SCHLOSSER: There's enormous hypocrisy and migrant workers have been in, for example, California agriculture, for 100 years. The disturbing trend in the last 20 years is to have illegal immigrants meat packing, in construction, in hotels and restaurants, and really filtering into the main treatment economy.
And there's enormous hypocrisy in the way that illegal immigrants are being demonized and scapegoated, and yet at the same time, very powerful interests and very powerful industries are recruiting them and profiting from them.
SERWER: Eric, you ticked off some of the reasons why you think these things -- why the black market has gone up, but one reason why maybe is people don't agree with the laws. I mean, that's what prohibition was all about. So getting back to marijuana and reefer, you talk about wanting to decriminalize it, I mean, isn't that sort of a namby-pamby half step? I mean, why not make it legal?
SCHLOSSER: You know, it's a first step. I don't think that -- again, I don't think you can go overnight. Right now you can get the death penalty under federal law for a first-time nonviolent marijuana offense. And I know of many people who are serving life sentences for marijuana. If next week you made it legal, could it be marketed like tobacco has been marketed? Could it be sold like alcohol?
So eventually, philosophically, that libertarian view is very attractive to me, but when you look at what other countries are doing -- what they are doing is they are moving away from a criminal justice approach to drug abuse and moving into a much more public health model, and that's why not punishing users with prison is a good first step.
TULLY: And isn't the reason why our prisons have filled up so much because of the huge epidemic of drug charges?
SCHLOSSER: Well, you know, my next book is on prisons. And what I found is that about 70-80 percent of the inmates are substance abusers. They are not all there for a drug charge, but if they are there for armed robbery, it's because they were going to buy drugs.
What happens in prison is they are brutalized. They receive no drug treatment. They are back on the streets. On average, you know, two-thirds of them are back in prison. So, we have a very expensive and irrational system right now.
CAFFERTY: We are going to have to leave it there. The book, as Andy pointed out, great title, "Reefer Madness: Sex, Drugs and Cheap Labor in the American Market." Eric Schlosser, the author. Thank you very much for being here.
SCHLOSSER: Thanks for having me.
CAFFERTY: He also writes for "Atlantic Monthly," which is not a half bad publication.
Still ahead on IN THE MONEY as we continue, a sure thing in a shaky market. Dividend stocks deliver returns whether the bulls are running or not. Find out whether tax changes make them a good idea for your portfolio.
You have heard of blessing your animals. Well, out in California, they bless their cars. But you probably knew that, didn't you?
Straight ahead we will have that story and some other stuff. Stick around.
SERWER: The experts tell us investing in stocks that pay steady dividends is the way to go these days. The logic is that with uncertain markets and low interest rates, investors should be flocking to the stocks where they at least get some income. But are they really doing that?
Let's look a close look at this chart now for one of those steady dividend paying stocks like Pfizer. As you can see, it's up and down over the past year. Meanwhile, nondividend-paying Amazon is through the roof in the past 52 weeks. These kinds of stats suggest most investors aren't going dividend crazy just yet. The question is, should you?
Joining us now to talk about dividend stocks is CNN/"Money" senior writer Justin Lahart. So, Justin, what about it? Shouldn't people be buying stocks that pay dividends?
JUSTIN LAHART, SENIOR WRITER, CNN/"MONEY": Yes, I think only we would say that, people should be buying stocks in companies, good companies, and it just turns out that a lot of times, good companies with sold earnings prospects are companies that are paying out dividends, but in the market right, that just isn't what people are interested in.
TULLY: Justin, for a long time, companies have been retaining most of their earnings, mostly tech companies, and they have been squandering all that cash on lousy acquisitions that have driven down their stock prices. Isn't it better for them to return? Doesn't it impose more discipline on management to give that money back to the shareholders?
LAHART: Yes, absolutely. And there are some guys that have done some great work on this, a guy named Cliff Avness (ph) and Rob Arnett (ph). I know you guys have talked to them over at "Fortune." And they have done some work that has shown that when companies raise dividends, earnings get -- earnings grow after that and that when they lower dividends, earnings don't do so well.
This flies in the face where a lot of theories that Wall Streeters had for a long time. A lot of people said, well, you know, you get these fast growing companies. They can reinvest so that their earnings, instead of paying it out to shareholders, and they are going to grow like the dickens, and that just hasn't been the case.
CAFFERTY: It would seem to the casual observer there are a couple of very powerful incentives to buy dividend stocks these days. One of them is the recent changes in the tax laws, cutting back the taxes on dividends. The other one is you can't make any money in fixed income these days. You go out and buy CDs at the bank, or you put a money market and you make one percent. A lot of these dividend paying companies pay a dividend of three, four, even more percent per year. So, why aren't people buying the dividend stocks? What is it they are chasing?
LAHART: I think, well, they are really -- they are chasing low quality stocks right now, and those aren't stocks that are going to be paying out a dividend. And, you know, what's the theory behind that?
Well, if you remember, you know, back in October when we thought the world was going to end, we also thought that a lot of companies were going to go away. Those companies that we thought were going to go away weren't companies that were paying out dividends, right? They were trying to -- they were heavily indebted. They had better things to do with their cash or they just simply couldn't pay out a dividend. So those same companies -- now suddenly, the chances of their survival are just, you know, phenomenally better.
So, it's almost like they were an option, rather than a stock. And people say hey, you know, this company -- I thought it was going to go away. Now I think it's going to survive. It goes through the roof with the stock price.
SERWER: Yes, but isn't it too late to go after these things. I mean, "Ask Jeeves" has gone from one buck to 18 bucks this Spring. I mean, these things have really through the roof, whereas the banks, like Bank of America, Citi, and Wells, have raised their yields. Wells' yield is over three percent now, right? Isn't that where it's the place to go?
LAHART: It does seem that, you know, at some point, we are going to have to see a shift from these growth stocks. I mean -- and it really does seem like people have gone to these growth stocks way too early. They are just flying.
I mean, we saw this week, monster.com, right? They were on, you know, the Monster job board. It went up on the weekly jobs number -- it went up like 15 percent because the weekly jobs number was good. I mean, come on, this company is supposed to be losing revenues for like the next year. And it was just, you know -- maybe a good company, maybe the futures can be great, but it just seemed a little bit ridiculous.
CAFFERTY: It's a little scary to watch people bidding up the same kinds of companies that fueled the internet bubble that blew up in everybody's face about four years ago. We are going to have to leave it there. Thank you for coming on the show. We have had you here before. It's always a pleasure. Justin Lahart, senior writer for money.com.
Just ahead, you may have insurance, but you may need another kind of more spiritual coverage for the family flimmer (ph). Details are coming up.
SERWER: Mortgage rates at a 40-year low, and that has millions of Americans out buying homes and refinancing their mortgages. Refinancing simply means replacing your current high-interest loan, let's say eight percent, with a lower-interest loan, say 6 percent. That can save you all kinds of money on your mortgage payments.
So, what's the catch? Well, there really isn't any, but there are some things you should be aware of. First you have to pay the bank fees to refinance. The rule of thumb is you should be to pay back the re-fi fees with savings of your mortgage in one year. Two, if you have been paying your mortgage for 10 years and you refinance with a 30-year loan, you are back to square one in terms of paying off your house. And three, be careful of special language that prohibits you from prepaying your new mortgage.
So, just make sure to check those things out before you refinance.
CAFFERTY: If you love your car, I mean really love your car, then you may want to take it out to L.A. to the suburbs. The have a very special weekend event there. It is the 10th annual Blessing of the Cars. This event begins with a mass morning blessing done by a Catholic priest who then goes from car to car to offer individual blessings to each vehicle. Some owners even ask for the priest to put holy water in their radiators. We laugh, but this event attracted like 10,000 people last year. Hey, it's in California. Cars a big deal out there.
TULLY: You'd think these cars were Seabiscuit, Jack. They are so beloved.
SERWER: Yes, can you say, "West Coast phenomenon?" I mean, you know, the next thing they are going to do is bless your toothbrush. I tell you the only thing you should pray for is your family's well being. I mean, the same thing with the people who do this at sporting events. I pray that our team will win. Can't we just -- you have to separate this stuff out in your lives, people. I mean, right, don't you think.
CAFFERTY: The religious instruction here on IN THE MONEY courtesy of Father Sewer.
SERWER: All right, maybe I am overstepping my bounds perhaps.
CAFFERTY: Time to check the e-mail again. Richard from California had this to say that the announcement from the National Bureau of Economic Research that the recession officially ended in November of 2001. He writes, "It's nice to know the recession ended. Perhaps someone can explain to me why I lost my job in December and haven't been able to find work since. These guys in Washington should get out and see the real world."
Cliff in Los Angeles wrote about our piece on North Korea's secret slush fund for weapons, quote, "We know that South Korea gave the North $200 million a few years back. Meanwhile, the South resists our attempts to discipline the North. I think the two nations may actually be working together." Unquote.
And Craig in Kentucky had this to say about the cost of the Jessica Lynch homecoming. "Who forked out the greenbacks for the Blackhawk chopper ride Lynch received? She deserves a hero's welcome, but should the taxpayers have signed that check?"
And now it's time to ask you our e-mail question of the week. We talked earlier in the program about the huge money the marijuana business brings in, and with that in mind, the question is this, should the United States legalize drugs like marijuana and tax the revenues that would result from doing that? You can e-mail your thoughts at firstname.lastname@example.org.
That does it for this edition of our little program. As always, thanks to my good friend, Andy Serwer and Shawn Tully of "Fortune" magazine. We invite you tomorrow, Sunday, at 3:00 when we take a closer look at who really controls Iran. It may not be the president, but rather some of the wealthiest people in Iran, the religious hierarchy. The Mullahs have all the moolah. We will be talking to Paul Klebnikov, the senior editor at "Forbes" magazine who wrote an absolutely fascinating story on Iran's millionaire Mullahs. That's tomorrow 3:00 Eastern time.
Enjoy the rest of your weekend.
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Stretched Too Thin?; Wal-Mart Faces Discrimination Suit; Stock of the Week: Southwest Airlines; America's Black Market In Drugs and Cheap Labor; Should Investors Buy Dividend-Paying Stocks?>