Here's a transcript of my conversation with Arianna Huffington, editor in chief of the AOL "Huffington Post" Media Group; Joe Klein, political columnist for TIME magazine; Nicholas Wapshott, Reuters contributing columnist; and Reihan Salam, who writes The Agenda blog on National Review Online. We talk about U.S. debt, President Obama and much more. Here's a lightly edited transcript of our discussion:
Fareed Zakaria: Joe, you've been around a long time. Have you seen anything like what happened over the last month?
Joe Klein: Well, in the several centuries that I've been reporting, I can say no. And, in fact, we're in a position now in this country that is the exact opposite of where we were when I began as a journalist 40 years ago.
In those days, there were real divisions in the country. We were still in the midst of the Civil Rights Movement. People were getting killed. There were huge riots in the country. The Anti-War Movement had taken a turn toward the irrational. Weathermen were blowing up college buildings on college campuses, but the political system worked.
There were filibusters against the civil rights legislation, but they were defeated. The Democrats did not use the debt ceiling – and we had one at that point – to stop funding for the Vietnam War. Impeachment was bipartisan and only happened because Republicans thought that Richard Nixon had done violence to the constitution.
Now, we have the exact opposite. It seems that, the way I read the polls, 60 percent of the people were in favor of the kind of policies that President Obama and the Gang of Six wanted, to deal with this deficit, long-term deficit, through a mix of revenues and budget cutting. And yet, that national consensus was thwarted by the minority of a minority in the Congress.
So, no, I've never seen anything like this before.
Fareed Zakaria: Now, you look at this and you say – I heard you somewhere say, 'If Obama thought he was playing for independents by being the grownup in the middle, it didn't work.' Why?
Arianna Huffington: Right. Well, you see – in your own CNN poll, you see over 60 percent of independents are opposed to the deal. So if Obama thought that this was really his way of saying to independents, 'I'm the grownup in the room. I'm going to compromise. Go with me.' It's not working.
So, on purely economic terms, this is not working. I mean, you had Larry Summers on your show, saying that without growth you're not ever going to be able to really deal with the deficit crisis. You had JPMorgan and – with their top clients this week saying that this deal is going to reduce growth by a point and a half.
So you had basically a pretty reasonable consensus among the economists, this is not the right policy long term to control the deficit. So if this is a political play from Obama, it failed because independents are turning on him and the deal.
Fareed Zakaria: But Reihan, you see this very differently. You see this actually as a turning point in the growth of the American welfare state.
Reihan Salam: Well, I do. And I think that you made a remark, an important remark, in your – in your opening statement. You were talking about how this year, this fiscal year, it's a cut of about $22 billion.
Now, that is not really terribly dissimulative. We could complain about the fact that, well, perhaps we should have more stimulus, and, again, we could talk about that at length. But I think that actually this debt limit deal doesn't actually do all that much of consequence. In fact, the cuts in it are smaller than what you saw in Bowles-Simpson, granted Bowles-Simpson also created revenue increases. But I think that, actually, it's not really what people imagine it to be.
Fareed Zakaria: Couldn't you make the case though, Joe, that if – if – I mean, I'm – if you just play this out, and let's assume Congress remains as paralyzed as ever, the deadlock, the commission deadlock –
Joe Klein: I don't think you can assume that.
Fareed Zakaria: But let's assume the commission deadlocks, the guillotine falls, you get all these cuts, half in defense, half in discretionary non-entitlement –
Reihan Salam: You'll have a patch, unfortunately.
Fareed Zakaria: And then – and then Obama says, fine. Now I'm going to – I'm going to let the Bush tax cuts expire. You effectively get Simpson-Bowles because you get about $2.5 billion in spending cuts and about $3 trillion of tax increases.
Reihan Salam: And that's why some of the – if I may – hysteria around this conversation coming from some of our friends on the left or center is notable, because, again, this deal is part of a larger architecture. It's not just one decision and ergo everything is decided. The president has considerable leverage. And, also, you know, after a presidential election, were he to be re-elected...
Nicholas Wapshott: But he's still – he's still got to be re-elected, and this makes – what happened last week has made it much more difficult for him. Because the political argument has now moved on to exactly the Tea Party territory. They've done terribly well. They might not consider themselves victorious because they haven't got all the bits and pieces that they're interested in, but many of those were conflicting in any case.
But what they have done is moved the national conversation on to the fact that you may not raise taxes in any circumstances and you may not do all of the measures that the president needs in order to get himself re-elected, which would boost the economy, which actually would allow the prosperity to allow people to pay off the debt.
Reihan Salam: Or, rather, you're not going to get a bipartisan consensus around raising taxes. But I think that that's what you want.
Fareed Zakaria: Arianna, what happens to the left? Will you rent hundreds of buses for Obama's next rally the way you did for Jon Stewart's?
Arianna Huffington: Well, actually, I think that this right-left distinction has nothing to do with this debate because there is a real consensus, as Joe said, among the American people that we need both revenue increases and ways to encourage the creation of jobs.
I mean, there is a real consensus around big infrastructure projects, for example. Even if we're at full employment, we would need big infrastructure projects because our infrastructure is crumbling. There is consensus around a national payroll tax holiday.
I mean, there are a lot of interesting proposals on the table, but they are not easily divisible as left or right.
Reihan Salam: I'm not sure if there's a consensus around it.
Joe Klein: The most – and this goes back to what Nick was saying – the most important consensus among the American people is that this stuff that Washington is obsessed with isn't nearly as important as the economy. And – and I think that that is the –
Fareed Zakaria: What Arianna is talking about is ways to get the economy growing. You think they don't make that connection?
Joe Klein: No, no, no. I think the American people believe that this whole long-term deficit and debt debate is irrelevant to their lives. What's relevant is the fact that the economy is sagging. You mentioned that –
Fareed Zakaria: But then they would be in favor of Keynesian fixes, but they are not in favor as far – I mean, are they?
Joe Klein: They are in favor of everything. The answer is yes. Yes –
Fareed Zakaria: Yes to everything.
Joe Klein: Yes to tax cuts, yes to more benefits in Medicare and social security, yes to budget cuts, yes to more benefits.
Nicholas Wapshott: But there's no chance there's going to be a stimulus bill, is there? Which is actually the –
Joe Klein: Well, I don't know what's – I don't know what's coming down the pike, but I – but there is one thing that you said at the beginning that I would quibble with, and it's this. In the days before the debt ceiling deal was made, U.S. treasury bonds, especially the 10-year bond, were strengthening in value, not weakening. The interest rates were dropping.
There are two reasons for that. One is that our bonds are questionable except for every other country in the world, which is more questionable. But also, the most important thing is that the bond market senses that we're heading toward a double dip recession. And it's predicting that the value of bonds increases in recessions. Interest rates will continue to go down, believe it or not.
Fareed Zakaria: I would agree with you, Joe. I just say, Robert Rubin says this often - he spent, you know, a lifetime in markets. He says, 'The bond market is with you until the day it is against you.' And you don't want to be in a situation where your debt is so large that small changes in interest rates cause massive damage to your economy, which is what's happening to Italy right now.
I want to ask you, Nick. You wrote a book about Keynes and Hayek. You think that the Tea Party has taken the lead. It strikes me as fascinating. This is a time for Keynesianism, if there ever was one. You are in a liquidity trap. You are in a period of deflation. Call it what you will, you're in a situation where it does seem as though there isn't much demand in the economy, for whatever reason, mostly because I think everyone has lots of debt.
That's when government steps in, but you're saying that that's the moment in which Keynes has been discredited?
Nick Wapshott: Absolutely. The Tea Party, they may not know it. I don't suppose they have ever read Friedrich Hayek, but, in fact, they have been following what Friedrich Hayek wrote about at great length. He was talking mostly about politics – his economics weren't as reliable.
But what politically he said is that there should be smaller government. There's no doubt that the Tea Party has put small government or smaller government on the table, and that's now the thing that dominates in the Republican Party.
Fareed Zakaria: Arianna, how do you explain this? That – that you have had the biggest financial crisis and recession, one would argue in some part caused by the irresponsibility of the private sector, and the response – not just in the United States, but across Europe – has been that the right has been strengthened and the left has been discredited?
Arianna Huffington: I think the reason is that the public mistrusts government because the government has bailed out major financial institutions that brought us to the brink of collapse, that basically government now is providing welfare for many entrenched interests. Government is not there any longer just to support the weakest among us or the most vulnerable.
I mean, you see that this sort of intersection of lobbyists, big corporations and Washington is really what people are turning against. If you – when somebody –
Fareed Zakaria: And they think of the left as the party of government?
Arianna Huffington: Exactly. While – even though, in truth, I mean, the government has bailed out many more powerful institutions. I mean, even now, even though – even Paul Ryan came out in one brief moment in favor of ending subsidies to the oil and gas industry.
Fareed Zakaria: Joe, what do you think is on – is Obama's calculation? That, you know, go back to what Arianna was saying earlier, that if he was thinking that he's going to play the grownup and – and be – be the man in the middle, it's not working.
Joe Klein: I think that – I don't – I'm not sure that that's true. I – I think that it is working. I think that people still, you know, in my interactions with the American people, they liked the guy a lot. They respect him a lot. They don't feel that he's in touch with their lives, and his calculation is this, that as this goes on – and – you know, he will be the least damaged of all the various parties.
And that's what we've seen. His standing in – standing in the polls have gone down, but the Republicans' standing in the polls has plummeted. And so, you know, he's got to be feeling not terrific at this point, but not too bad politically either, because sooner or later the Republicans have to choose some candidate to oppose him and that candidate is going to have to make a calculation about how close to the Tea Party – which does remain a minority of a minority – how close to the Tea Party does the Republican presidential nominee want to be?
And so, I think the president is bemused by all of this and kind of horrified by the nonsense he's – you know, that he's had to deal with. He's made concessions, unlike – as Arianna was saying – unlike anything we've ever seen a Democratic president make before. He proposed raising the age of eligibility for Medicare to 67.
I'm not sure I'm in favor of that.
Arianna Huffington: I'm speaking this week to the National Association of African-American Journalists, you know, as faithful a base for Obama as ever, and their concern around jobs is palpable. I'm not saying that I would vote for him, but are they going to vote for – for him in the large numbers who came out in unprecedented numbers
Joe Klein: This is going to be an ugly – you're right. It's going to be an ugly campaign.
Nicholas Wapshott: The figures of unemployment is that African-Americans are 15 percent and plus, and the young people, the very –
Arianna Huffington: Forty-nine percent.
Nicholas Wapshott: Exactly. The very people who put Obama in are the people who are out of jobs. And it's the unemployment, it's the economy stupor, that still, is that's what's going to kill him.
Fareed Zakaria: And I'm guessing that you're going to say even with high – with high unemployment, a second stimulus will be wasted.
Reihan Salam: Well, what I will say is that when you look at the first stimulus, I think that what they needed to have understood is that after a financial crisis you're going to have a – a great contraction that's going to take a very long time, and that's why the patient application of infrastructure spending might have been sound, but they wound up discrediting the idea of that kind of sense of – now, that's not classic fiscal stimulus, rather it's thinking, well, if you can buy something cheap, that you ought to spend money on regardless, let's buy it at that time. And that's something that I think would have peeled off –
Fareed Zakaria: But the most ineffective part of the stimulus, though, was the part the Republicans insisted on, which was half of it, which was the tax cut.
Reihan Salam: We call it – I think that's fair to say, but the thing is, is it true – so – now, what they favored were permanent changes to the tax code, and I think that when you look a particular wrangling that's happening –
Fareed Zakaria: Well, that would be great for the budget deficit, have more permanent tax cuts.
Reihan Salam: But it's not just permanent tax cuts, it's also restructuring. We had a very narrow debate that happened very quickly, and I think that that was a big part of the danger of how that happened in.
Fareed Zakaria: Are you going to be enthusiastically supporting Obama in 2012?
Arianna Huffington: Well, listen, first of all, editorially, you know, we have been very critical of many of Obama's policies and our reporters, our journalists, everybody, you know, has been puzzled by the fact that while – while you have, as Joe said, again, a national consensus about prioritizing growth and jobs, Obama has not stood up for that.
I mean, that's really the key position that we have been taking. And we have reporters dedicated to putting flesh and blood on the statistics, because they're incredibly tragic.
What you said about young people, you had a story this week about the fact that you now have hundreds of thousands – not thousands – of students who go online to find sugar daddies to pay for their college debts, 248,000 that registered on one site called SeekingArrangements. And our reporter talked to them. You know, you have over $1 trillion in college debts, and these kids are graduating from college and are not able to get jobs with which to start repaying their debt.
I mean, this is just one area of our economy that we need to sound the alarm about because it involves, at the heart of it, the American dream and the possibility of bettering your life through education.
Fareed Zakaria: Nicholas, last thought. How will history look at all this? You write – you write about these things.
Nicholas Wapshott: Yes. I think that they'll see it as a defeat for the president, and they might – may see that it was the moment at which he became guaranteed a one-term president. It might go terribly wrong for him because I can't see what he can do.
He could drastically cut taxes. It's not such a silly idea, and actually it would be a Keynesian idea, but you got to cut taxes for people who will spend the money, not save it, not spend – not pay off their credit card bills, not buy another house in the Bahamas. We've got to give it to people who can spend it.
So, in the big picture, this is, in terms of the Keynes-Hayek clash, it's the latest battleground. And Hayek, I think, it's one- nil, and it's only half time. We could have had 15 months to go before we find out what happens.