This is a rush transcript from "Your World With Neil Cavuto," December, 28 2009. This copy may not be in its final form and may be updated.

BRIAN SULLIVAN, GUEST HOST: Good pay, great benefits, and nearly total job security. It's no wonder a new poll shows that government workers have a rosier outlook on the economy than employees in the private sector.

According to a new Rasmussen poll, 46 percent of those getting paid with our tax dollars say things are getting better. Numbers, though, flip for workers in the private sector. Forty-nine percent think it is getting worse.

That doesn't surprise Steve Forbes one bit, the CEO of Forbes and author of "How Capitalism Will Save Us" joining us now. I will tell you, hey, you know what? I guess, if you work for the government, I mean, why not? Things should be pretty good. We saw that report recently on how much they are making.

STEVE FORBES, PRESIDENT & CEO, FORBES INC.: Sure. They are making more than many private sector workers now in equivalent jobs. It used to be you accepted the lower pay, got better benefits. Now you're getting better pay and better benefits.

SULLIVAN: There's more time off and earlier retirement.


SULLIVAN: Batting four for four.

FORBES: Yes, this is like Western Europe.

But I think, on the state level, you are going to see some surprises in 2010. Unless Congress comes through with some big bailout money, states like California, Michigan, New York, New Jersey are going to have to make some painful cutbacks. People are going to discover, even if you work for the government, if the taxpayer can't pay, you are not going to get paid.

SULLIVAN: Yes. And so what can we do, honestly?

Do you think that any politician on whatever level has the political will to basically look the employees of his own or her own agency in the eye and say, you know that retirement you were thinking about taking at 54? Add a decade to that.

FORBES: Well, the answer is...


SULLIVAN: Because that is what we have to do.

FORBES: The answer is normally no. In the private sector, you have management. You have labor. You have a bit of a conflict.

In the political sector, they are the people who determine your job. You may be negotiating with them, but they determine whether you get reelected or not, often times. So, no, it is not fair bargaining.

However, reality does kick in. The reality is, states are running out of money. The pension funds are way underwater. And many of them are going to have to do what New York City had to do in the mid-1970s. New York City backtracked.

But, for about eight years, it had to cut back, make painful readjustments, just because of the realities of the situation. So, no, they won't look at you and say, we have to cut you back. They will have to say, we are being forced to do it.

And the markets are going to force the change.

SULLIVAN: Do you think it will happen?

FORBES: I think you will see some changes. Some of them will be, I hope, long-term ones, like having a 401(k) plan, instead of what they call defined benefits, where you can retire at 50 at $100,000-plus, as some of these folks are able to do.

So, that's going to change. You will have a 401(k). The state will put in some. You will put in some. And depending on when you retire will determine what kind of benefits you have. California tried to do that. The union beats it badly four years ago. But it is a different circumstance today. So, I think some of those reforms will start to kick in, again just because of the sheer force of events.

SULLIVAN: How serious of a problem is it? I mean, it seems to be getting...

FORBES: It's a very serious problem.

SULLIVAN: You saw the USA Today story, Steve, where one employee at the Department of Transportation a few years ago was making more than $170,000 a year. Now it's something like 1,700 employees make more than $170,000 a year.


FORBES: And you look at total federal employees, in the last 18 months, the proportion making $100,000 or more has gone from 14 percent to 19 percent, in a year-and-a-half recession, when everyone has been having to cut back?

Yes, it just shows the public sector bloats itself because there is no discipline on it. In the marketplace, if you don't have a sale, you got to adjust. In the government, if you don't have a sale...

SULLIVAN: We keep trying to beat them, Steve. Shouldn't we just join them?

FORBES: Well, who is going to pay, then? Chinese? I think they're going to run out of patience financing that stuff. So, yes, change will come, but it's going to be tough.

SULLIVAN: Maybe it wouldn't be such a bad thing to get paid in yuan at this point.

FORBES: Well, I would rather have gold.


SULLIVAN: Steve Forbes, thank you very much. We will see you soon.

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