This is a partial transcript from "Your World with Neil Cavuto," February 21, 2006, that was edited for clarity.
NEIL CAVUTO, HOST: Are free markets really helping the little guy, or keeping him down? They are keeping him down, says Congressman Barney Frank. Sure, things are just ducky these days, he says, for the top 2 percent of the population, but Frank says far from that for the rest of us. So, he has a plan.
Here now to discuss it, the ranking Democrat on the House Financial Services Committee, Barney Frank.
Congressman, good to have you.
REP. BARNEY FRANK, D-MASS.: Thank you, Neil.
CAVUTO: What do you want to see companies do?
FRANK: Well, it's not just companies. It's public policy. I don't expect companies to do other than try and maximize the profit, although there is one thing I think they should be doing. I think boards of directors have been, frankly, scandalously negligent in allowing CEO compensation to go off the boards.
I was interested to see in The New York Times the other day Ben Stein, a conservative economist, joining in that criticism. Warren Buffett has criticized it. The compensation of the top officials go up and up and up.
And, you know, we are talking about something that has become economically significant. A study by people, not contested, at Harvard, over 10 percent of the after-tax profits of the largest corporations now go to the compensation of just the top three or four executives.
And, then, when there's a buyout of a company, and the CEO gets $150 million, and, then, thousands of people are laid off, there is a direct connection there. But, mostly, it's a public policy thing.
I believe that it is in the interests of the overall economy for us to take advantage of information technology. Trade, properly conducted, is helpful. All of those things that bring flexibility are a good idea.
And this is something that Alan Greenspan has agreed to, and Ben Bernanke recently agreed. We have seen in recent years in America an exacerbation of inequality. And Greenspan said a couple years ago — and it, sadly, hasn't changed — almost all of the increased wealth that we are getting from these trends is being held by a very small number of people.
And that's why the business community should not be surprised when there's resistance to trade when there's opposition to...
CAVUTO: But do you think, though, Congressman, that this was also happening in the Clinton years, this gap between the very rich and the very poor?
FRANK: Not as bad, no.
It really has gotten worse lately. For instance, the Clinton tax policy increased taxation on upper-income people. The Bush tax policy went in the other direction. Under the Clinton years, we did raise the minimum wage once. The Bush administration has been against that.
So, the trend — and this is not a partisan fact — the trend has gotten worse in the last few years. The government does not cause the inequality. The inequality happens because of the way the economy is going forward now. And I understand that.
But the government's role ought to be to try to mitigate inequality, not get rid of it. Inequality is essential for a capitalist regime.
CAVUTO: Well, it's a very good point.
FRANK: But it can get out of hand.
CAVUTO: One of the things that struck me in your column for BusinessWeek, sir, is you said: "Therefore, it's time to make a deal. I'm prepared to help persuade my fellow liberals and many of the public policies that they have been resistant or skeptical of are in the national interest, if those in the business community work to ensure the bulk of Americans get a greater share of this increased wealth."
Does that mean that you would support a limit on CEO pay, a ceiling?
FRANK: Not a limit.
What I have proposed, legislatively, is simply that the stockholders get to vote on it. I don't think, realistically, you can limit it. But the problem now is, if it's done in a kind of self-serving way — the CEOs pick the board, and the board pays the CEO — and vice-versa.
But I am saying this. I think trade, properly done, is very helpful. But we have a situation now where the benefits of international trade go to the gross domestic product. But a large number of workers, particularly manufacturing workers, take a hit. And if we were to have policies that shared that a little better, then you would have more support for things like trade.
CAVUTO: But would you argue, sir — and I wish we had more time — that, with a 4.7 percent unemployment, housing starts booming, factory production up, real wages, adjusted for inflation, also up, that it's not as bad as you say?
FRANK: No, they're not. That's wrong. No, that's wrong.
Real wages are not up. Real wages have stagnated. Real wages, taking inflation into account — and the Federal Reserve will tell you this — have essentially stagnated. And it's what Alan Greenspan said.
CAVUTO: Last year, they were up 3.3 percent, adjusted for inflation.
FRANK: No, not real wages. You are simply wrong, Neil. Real wages...
CAVUTO: No. No.
FRANK: By the way, if you take...
CAVUTO: I'm saying, after inflation, sir, 3.3 percent.
FRANK: No. Well, we just differ.
I think you are factually incorrect. Nominal wages may have gone up that way, the dollars. But real wages means, when you take away inflation, they have been stagnant.
You also have people losing their pensions and losing their health care. And I have to say, this is one where I give credit to Alan Greenspan and Ben Bernanke for acknowledging this. Real wages have stagnated.
CAVUTO: But you don't think the economy stinks?
FRANK: What I said is that there has been a decoupling of increases in gross domestic product, which have gone forward, and the income of the average worker.
The average worker's well-being has not improved. And that's why you have this resistance to these things that could be in the interests of the overall GDP. But you have got, as I said, fewer working Americans now who have health care.
And many of those who do have to pay more for it. You have pensions eroding. And real wages have not gone up. Your facts are just wrong there.
CAVUTO: All right. Well, we will look at it again. But, Congressman, I want to thank you very much for coming. Good having you.
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