• With: Jonathan Hoenig, Tracy Byrnes, Wayne Rogers, Julian Epstein, John Layfield

    DISCLAIMER: THE FOLLOWING "Cost of Freedom Recap" CONTAINS STRONG OPINIONS WHICH ARE NOT A REFLECTION OF THE OPINIONS OF FOX NEWS AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE WHEN MAKING PERSONAL INVESTMENT DECISIONS. IT IS FOX NEWS' POLICY THAT CONTRIBUTORS DISCLOSE POSITIONS THEY HOLD IN STOCKS THEY DISCUSS, THOUGH POSITIONS MAY CHANGE. READERS OF "Cost of Freedom Recap" MUST TAKE RESPONSIBILITY FOR THEIR OWN INVESTMENT DECISIONS.

    HOW SHOULD STATES RAISE REVENUE? CUT THE SCHOOL YEAR OR HAVE TAXPAYERS PAY MORE TAXES?

    JONATHAN HOENIG: Well Cheryl, you know me. I'm all about the kids. Really I am. I am all about the taxpayers too. We know that public schools in the aggregate have been a failure and short of privatizing them, the best thing we can do is to cut them. Let's say 25 percent. That would be a good start. Not only would it help the kids, it would improve their education, but of course it would help the taxpayers as well who wouldn't be forced to continue to participate in what we know is a failing system.

    TRACY BYRNES: Watch out Big Bird, here comes Jonathan Hoenig. I can't even believe we are talking about imposing on our children the gross mistakes the adults of the world have made and don't say the educational system is a total failure. It's not. Our education system has put some amazing people out. There are definitely issues with it, but the choice of putting a kid in a classroom or letting him be on the street and get in trouble and get arrested and end up in prison, or do something so awful because he doesn't have guidance; it's a no-brainer. Raise my taxes 50 percent if you have to.

    WAYNE ROGERS: Well I think it's probably the emotional argument that Tracy is making is what persuaded them to vote for that, but Jonathan makes a good point. The alternative to not being school doesn't have to be a street criminal. There are other things you can do besides that. There's a lot of waste in the school system. We know that. There are subjects that are taught that should not be taught. Weaving 301 does not need to be taught in school. If you stick to the basics; reading, writing, arithmetic, etc. those courses are fine. There's a ton of stuff you have to cut before you raise taxes.

    JULIAN EPSTEIN: There's all different kinds of things you can do and I agree with the point that primary and secondary education systems need all kinds of reform, but in California we've already had $20 billion of cuts and we're looking at potentially another $10 billion in cuts and you know the interesting thing is that polls will say that people generally oppose tax increases, but as California showed when you talk about tax increases that are progressively forced, the three percent income tax increase for people who make over $250,000, people generally support that if they think it goes to something that's very productive, like the public school system and the fact of the matter is what polls generally show is that the public is willing to support tax increases for something like public education because they think public education is very important given the size of the population that goes to public schools. You start cutting these, another $10 billion in California for example, you're going to see teacher layoffs, you're going to see bigger classrooms; you're going to see all kinds of things that the all the education experts say are terrible!

    JOHN LAYFIELD: I don't think there is any doubt that this is about class warfare. I think this was an empty threat. Julian I agree with you that people, when they have the choice, are going to choose education even over raising taxes if they have to. I think this was an empty threat by Governor Brown to get his way as far as raising taxes and his populous message, but to Tracy's emotional argument, I have to stick up for my friend Tracy. Look, I work with inner-city kids. We have not failed completely as an educational system, but in the inner cities, we are losing 50 percent of our minority kids to dropouts. I've started up my own program here in Bermuda and I know this very well. The time you lose these kids is the time they get out of school. Now it's not a babysitting service. Deal with the curriculum issue. The time you lose these kids is when they get out of school until the mom gets home, these single moms, and during the summer. By shortening that, we're going to stick a lot more people in society that are going to drop out that don't have a way to support themselves.

    WILL REBUILDING EAST COAST HELP REBUILD OUR ECONOMY?

    WAYNE ROGERS: I think there are examples of this in the past. The size of the storm and all of that predicts how quickly you can recover, but you take for example Hugo that hit South Carolina some years ago. The recovery that came back was stronger than the economy that was there before. In other words, the placement of older things came because new investment was made in the area to bring the area back. That encouraged the economy all around it and the economic effects were more positive than they were negative when it happened and that happens and is apparently happening now. That is to say, there are enough services coming in and creating things in Long Island and in New Jersey that are going to be very helpful to the economy going forward. It's going to take time to do this of course and the immediate effect is bad. But the ultimate effect is good.

    TRACY BYRNES: So we knock them down to rebuild it and call that a thriving economy? I think net, net at the end of the day it's zero Cheryl because look at all the loss. The patriotism; you can't put a price on that because we all come together during this, but think of all the industries that are going to suffer. I for one am thinking about forgoing my vacation because I might need a new roof. So you're going to see other industries hurting because of this storm. Sure we're going to see builders and things like that do well. What about all the other stuff that's displacing because of the money I'm using somewhere else?

    JULIAN EPSTEIN: I think Tracy is right and I think with all due respect to Wayne, I disagree with him. The fact of the matter is in most of these natural disasters, the rebuilding never makes up for the economic loss. We're looking at somewhere close to $50 billion of losses here. There's only about eight billion that's actually insured and generally why you get some economic stimulus from the rebuilding you're talking about, as Tracy points out, consumers are going to stop going to stores; shops are closed for many, many weeks, if not months. The economic dislocation that occurs as a result of these things is always outmatched by the rebuilding effort.

    JOHN LAYFIELD: No I don't think they will (come back stronger). I think what Tracy and Julian are trying to say is right. I think net, net it's pretty much a loss and I think the problem is when you have deficit spending you do have a short boost to the economy. Eight thousand out-of-state workers are coming into Jersey; five thousand in New York and three thousand in D.C. That is going to benefit short-term, but you have systemic problems with debt and when you have a storm like this, I think the net, net is actually a loss for this.

    JONATHAN HOENIG: I think it's the broken window fallacy that actually Julian is alluding to that destroying wealth only to replace it doesn't actually create new wealth. Yes there's tractors and plywood that's bought, but it's the new business, the new innovation and it's the wealth that's not yet seen that's unfortunately lost in terrible tragedies like this. The economic cost is a terrible tragedy. The human cost is even worse, but I'm betting on the East Coast. I think they'll rebound better than ever; it just might take a couple of months or years at that.

    FISCAL CLIFF THREATENING 401Ks/INVESTMENTS/RETIREMENT ACCOUNTS

    JOHN LAYFIELD: I think they should be doing what I've been doing lately, and that's put more of my money percentage-wise in cash and what you're seeing with 401(k)s rising, is more Americans are saving because they're scared of what's going to happen, which is good for individual Americans; bad for the short-term economy. If capital gains and dividend tax is raised, no matter if it's good for the government revenue or not, it's going to be very bad for the stock market if we go over the fiscal cliff.

    WAYNE ROGERS: We're not going to go over the fiscal cliff. Congress can't avoid this. They've got to do something about it and they've got to reach across the aisle and they'll eventually find some solution for this, but in the meantime, John makes a point about this in the sense that of course in a 401(k) your cash does grow without taxes, but sooner or later it is taxed and I think that the point you're making is good in the sense that you're going to have to look for something else and the stock market is going to suffer in the short run. It's uncertainty that does this.

    TRACY BYRNES: That's the concern right? Because we need to be clear about this. Dividends re-invested in a 401(k) are not taxed, so when they figure this out, you don't pay dividend tax when your stocks are in a 401(k). When they figure this out and they will, let's be clear we're all jumping the gun here presuming that we're going through the roof on dividend taxes. They've got to compromise. I've just got to be Marsha Brady on this and believe there will be a compromise. So let's not panic, but at the same time go revisit your 401(k) and reallocate it.

    JONATHAN HOENIG: Viewers and all rational people are really in a tough bind. They're trying to make long-term decisions and trying to follow a government that's literally thinking day-to-day, if not week-to-week if we're lucky. The panel makes the point that taxes hurt wealth creation across the board. I think it's going to result in inflation. That's why I think investors need to start getting out of the bonds they spent the last five years getting into.

    JULIAN EPSTEIN: (people should) write their congressman. I don't think there's going to be a fiscal cliff for two reasons: one is because the fiscal cliff is incredibly unpopular on both sides of the aisle. Secondly, unlike the Gramm-Rudman-Hollings law of '85 and the Budget Enforcement Act of '91, you don't have strong enforcement provisions. In this law, I know it's an inside baseball point, but it's very easy for Congress to get past this. I mean the point here that everyone should keep in mind, is that the fiscal cliff was a Republican idea because the Republicans wanted to extend the debt ceiling in a debt-neutral way; this was the way they were going to do that. Now everyone is saying, including the Republicans, that it is a bad idea to do that when the economy is already at GDP, which is exactly the argument President Obama was making in 2011.

    WHAT DO I NEED TO KNOW?

    TRACY BYRNES: Voters in NJ: Judges have to pay more for benefits. MI voters: collective bargaining is not a "right".

    JOHN LAYFIELD: Read between the lines: college book sales boost (BKS).

    WAYNE ROGERS: Time to buy technology and (XLK) in shaky market.

    JONATHAN HOENIG: Make money from rising dollar with (UUP).