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STATE OF THE UNION WITH JOHN KING

State of the Union: Interview With Ray LaHood; Interview With Senators Schumer, Shelby

Aired February 8, 2009 - 09:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


JOHN KING, HOST: I'm John King. This is our "State of the Union," for this Sunday, February 8.

As the jobless rate soars, President Obama pressures Congress to pass his economic recovery plan, but will it really put people back to work? We'll have the first Sunday interview with a member of the Obama Cabinet, Transportation Secretary Ray LaHood.

The Senate is poised to act on its version of a stimulus bill, but the vote is a nail biter. Many House Democrats say it's a sellout, not a compromise. We'll discuss whether this dial will hold with Democratic Senator Charles Schumer and Republican Senator Richard Shelby.

And can we spend our way out of the recession? One governor emphatically says no. That important voice in the economy debate from South Carolina Governor Mark Sanford. That is all ahead in this hour of "State of the Union."

Before we get to our guests this morning, a quick rundown of what we will do this Sunday and every Sunday morning on this program. Here in our 9:00 a.m. Eastern hour, straight to the day's top stories, interviews with the top newsmakers in the United States and around the world. At 10:00 a.m., Howie Kurtz and his "Reliable Sources" take a critical look at the media. At 11:00 a.m. Eastern, members of the best political team on television, CNN's reporters and analysts, will go behind the headlines, also discuss and debate all the Sunday morning talk shows.

And at noon eastern, the last live interview program in the United States, someone will get "The Last Word." And through at all, we keep our promise to add your voices to our Sunday conversation.

So let's get started.

The numbers are bad. The picture isn't pretty. 589,000 workers lost their jobs in January alone. That pushed the country's unemployment rate to 7.6 percent, its highest level since 1992. President Obama used the bad news to pressure Congress to quickly approve nearly $1 trillion in new spending and tax cuts. But even if the president gets his way, will the plan work? And how fast?

Joining us now on "State of the Union" for the first Sunday interview by a member of the Obama Cabinet is the transportation secretary, Ray LaHood. He is in his hometown of Peoria, Illinois. Mr. Secretary, thank you for joining us on "State of the Union." I want to get straight to...

RAY LAHOOD, TRANSPORTATION SECRETARY: Good morning.

KING: ... the kitchen table. Good morning to you, sir.

I want to get straight to the kitchen table accountability test. The American people are under a lot of pressure right now economically. They hear all these numbers being thrown around in Washington. If you get this money, set the standard for us, the accountability threshold right now. How many jobs and how fast?

LAHOOD: A lot of jobs, John. And I've invited every secretary of transportation to Washington this Wednesday, that we're going to have a meeting at the Old EOB across from the White House. We're going to lay out for them what we believe are the opportunities for every state in the country to put people back to work on projects that are ready to go, by the book, no shortcuts. These projects really are projects that have been sitting on shelves all over the country, where states are waiting for the money. And this is an opportunity for every state in the country to bring to Washington a couple of examples of projects that they will be able to implement quickly, within the timeframes that are in the legislation, so that people will be building roads and bridges and other infrastructure projects this spring, summer and fall. And I believe an enormous number of people, thousands of people, will be going to work in good paying jobs.

KING: Well, Mr. Secretary, where do you draw the line in terms of what is stimulus spending and what is wasteful spending, maybe even a boondoggle? And I ask the question because the debate in Washington, you know, has been veered off track a little bit by legitimate concerns, many would say, about spending money on anti- smoking programs in this bill. Maybe a worthy goal, but why is it in this emergency recovery bill?

How do you draw the line between stimulus and maybe boondoggle? One mayor I talked to this past week, for example, says he wants to use some of this money to build a new wave pool in his community, with a water slide. He says it creates job. Is that the kind of project that passes your sniff test?

LAHOOD: Well, look, our criteria is going to be the criteria that we've used at the department for a long time, John. And, also, the money will be going to the governors and their state secretaries of transportation and highway administrators. And the one thing that the president has said all through this and set a very high bar -- no earmarks. The money has to go to projects that are ready to go in the states, and I just know that there are lots of these projects around, and we're going to learn a lot more about it next Wednesday.

And the point is, there aren't going to be any earmarks and there aren't going to be any boondoggles. This money will be spent correctly, by the book, with no shortcuts.

KING: Mayors think they should spend the money, not governors. We have turf battles in Washington between Democrats and Republicans. When you get out to the states, you know this well, it's the mayors and the governors sometimes at odds. Why do the governors have a better plan than the mayors? The mayors would tell you that they can get the shovels in the ground faster.

LAHOOD: Well, look, the bureaucracy is in place at the state level, John. The states have these departments of transportation, and they know how to meet the criteria that we have to set at the department so that the money is spent correctly, that people are put to work, that the projects are done according to the way that they are supposed to be done.

Lots of cities -- some of the big cities, perhaps like Chicago or Boston or otherwise, you know, may have these kind of staff people in place. But for the most part, every state, all 50 states do have the mechanism and the bureaucracy to make sure that this is done by the book. And that is going to be something that -- go ahead.

KING: The word bureaucracy scares me a little bit, but we hope it works out and it's a good bureaucracy.

I want to get to a point -- I was in Carmel, Indiana this past week, talking to the mayor, and he says one of the ways to get the shovels in the ground faster is for you to use your executive authority here in Washington to change the rules, at least temporarily. As you know, there are environmental impact studies. There can be, you know, public comment and review periods at times. Listen to the mayor of Carmel, Indiana, Jim Brainard.

(BEGIN VIDEO CLIP)

MAYOR JIM BRAINARD (R), CARMEL, IN: Waive the rules. The rules for transportation projects that we normally have to deal with on the highway. Environmental impact statements, public comment periods, they slow it down. The absolute key is to get shovels in the ground as quickly as possible.

(END VIDEO CLIP)

KING: Mr. Secretary, will you and the president use your executive authority? As you know, that might anger environmental groups, that might anger labor unions, but is waiver to get these projects moving faster, is that the way to do this?

LAHOOD: Not at all. It really isn't. And it would be different if every one of these states didn't have projects.

You all know -- and I think that the viewers know -- that these states have had a pent-up demand for these projects to get funded and haven't had the local match to fund them, haven't had the ability to do it, because they haven't had the money to do it.

It's not as if we're going to be lacking for projects, John. There are lots of road, bridges, infrastructure that can be implemented immediately, within the timeframes that -- in the legislation, and put a lot of people to work in good paying jobs.

We don't need to waive anything. This is going to be done by the book, according to the rules, no shortcuts, no earmarks. KING: Mr. Secretary, I'm going to stand up here in Washington and walk over to my magic wall. Because I was in your community last week. You're speaking to us from Peoria, an area you represented in the Congress for some time. When I was in your city right here in middle America, right along the river -- it is a beautiful city -- but it is struggling at the moment, like many factory towns. This is the floor of Caterpillar. You see these amazing tractors and earth-movers being made. Many of these workers, union workers, see the buy American provisions in the House version and the Senate version of this legislation, they think it sounds good, it sounds patriotic, but it might actually cost more of them their jobs. More than 20,000 have already been let go. Will your president fight to get that out of there? They say the buy American provision will cause a trade war, and they won't be able to export these tractors overseas.

LAHOOD: I think there is going to be a lot of discussion about the buy American provision in the conference. And I think you're going to see the president weigh in on this. And I haven't talked to the president directly about it, but...

KING: Is that an in or an out?

LAHOOD: ... his chief of staff -- I think there is going to be a lot of discussion about it, John.

KING: OK. Well, at least -- we'll leave that to that (ph).

I want to talk about your unique role in the administration. Just a few months ago, you were a Republican in the United States Congress. You were questioning many of the priorities of the Democrats who ran the United States Congress. You're now serving in the Democratic president's Cabinet. Every one of your former colleagues in the House, Republican House members, voted no. If Ray LaHood was still a Republican member of Congress from Peoria, Illinois, would you have joined them, sir, in voting no on the first stimulus package?

LAHOOD: Well, look, I didn't get elected to anything last November, John. I'm a part of the Obama team. I'm proud to be a part of President Obama's team. I consider it a great privilege that the president asked me to join his team. I'm going to do everything I can to help the president find the votes for the conference report once the Senate passes this. I'm going to work very hard next week. I'm going to work the phones. I am going to talk to my former colleagues, and do all that I can to persuade them that this bill really will put people to work.

KING: What about...

LAHOOD: America is hurting...

KING: What about in the first round, sir? Excuse for interrupting. Did the president call you and say, hey, Ray, we got a problem in the House? All your friends in the Republican conference are saying no? Can you pick up the phone? Can you work these guys? Or did you go to him and say, Mr. President, you've got a problem here? LAHOOD: Well, it was a combination of both. The president asked me to go up with him to the Republican conference, and I was privileged to be able to do that. And I did make some phone calls. I talked to some people.

Obviously, I wasn't very persuasive, since I wasn't able to persuade anybody to vote for it. But, look, I've been talking to some senators when I've had the opportunity and I'm going to continue to do that for the next 10 days until this bill is passed.

And I think the conference report that will come out of the conference report that will be considered will be something that Republicans, some Republicans will look very carefully at.

KING: When you were in the House, again as a Republican, you were not always a fan of the speaker, Nancy Pelosi. You have joined this administration in part because the new president -- because he wants to have true bipartisanship in Washington, after eight years of Bill Clinton and eight years of George W. Bush, where there wasn't much bipartisanship in Washington.

KING: And yet, after the compromise came out of the Senate, the other day, the House speaker, Democrat Nancy Pelosi, said this.

"Washington seems consumed in the process argument of bipartisanship when the rest of the country says they need this bill."

You didn't always get along with the speaker when you were in the Congress. Does your president, a Democrat, now have a problem with the House speaker, who doesn't think bipartisanship should rule Washington?

LAHOOD: Look, the president ran on this notion that people have to work together. This is what people in the country want, and...

KING: So is Nancy Pelosi wrong?

(CROSSTALK)

KING: Is Nancy Pelosi wrong, and does the president need to call her on this?

LAHOOD: The people in America want us to work in a bipartisan way. People want to go back to work. The only way we're going to solve the problems of unemployment and a bad economy is in a bipartisan way. The president has carried that message all the way through here, and I think he'll carry it all the way to the signing of this bill.

KING: I want to close, sir, with what is a remarkable moment. Back when I was covering the White House and you were a House Republican, you were the gentleman who presided over most of the impeachment trial of a Democratic president in the House of Representatives.

And I want to make clear to our viewers, you received high marks from Democrats and Republicans alike for the manner in which you conducted these proceedings. But there is Ray LaHood, we're showing our viewers, in the chair in the House of Representatives, presiding over the impeachment of a Democratic president. You're now in the Cabinet of the next Democratic president. Reflect on that.

LAHOOD: I consider it a privilege. When President Obama was a senator from Illinois, he and I worked very well together. I have a wonderful relationship with the president and his chief of staff, and I consider it a great privilege to be a part of their administration, and help push through an opportunity to put America back to work. This is an extraordinary opportunity for me, to be a part of a team that wants to get America working again, and I consider it a privilege to be able to do that.

KING: Mr. Secretary, we thank you for joining us on "State of the Union." We will keep in touch in the weeks and months ahead, and we will keep you accountable, make sure that money gets to the projects that create jobs in the short term. Thank you very much, sir.

LAHOOD: Appreciate it, John.

KING: Thank you, sir.

LAHOOD: Thank you.

KING: And up next, we turn to the action on Capitol Hill, where there's still much work to be done. Senators Chuck Schumer and Richard Shelby break down the Senate stimulus bill and its impact on you.

In the 10 o'clock hour, Howard Kurtz goes one-on-one with the anchor of the CBS Evening News, Katie Couric. At 11 a.m., our diner visit and our Sunday conversation with the best political team on television. And at 12 p.m., the former CEO of General Electric, Jack Welch, gives his job review to a very important chief executive, the president.

Our "State of the Union" report is just getting started.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, R-ARIZ.: There are 40 Republican senators here. We now have two -- count them, two -- who have decided, behind closed doors. And I've been involved in a lot of bipartisan legislation around here, Mr. President, but I guarantee you, this is not bipartisan.

(END VIDEO CLIP)

KING: Senator John McCain with some tough words, after a deal on the economic rescue bill were cut Friday night. Key votes on the measure are set for Monday and Tuesday.

Joining us now to talk about it, Democratic Senator Charles Schumer of New York and Republican Senator Richard Shelby of Alabama.

Senator Schumer, let me start with you. The Democratic bill -- in your view, is it better than the House bill on the key test, creating jobs as soon as possible?

Or is it a lesser bill but one you had to agree to, simply to get the votes in the Senate? SCHUMER: It's very close to the House bill. Overall, they overlap 90 percent. The overall number, $819 billion in the House; about $820 billion in the Senate, so that's a good mark. I believe that's where we're going to end up, at about $820 billion.

And there are some differences. The House bill has a little more on education, a little less on tax cuts. I personally would favor the House bill.

But the most important thing is that we are not going to let small differences stand in the way of passing this very strong bill, which the American economy desperately needs. To quibble over small, little things and let the bill go down would be a huge mistake for the American people, given the state of our economy and the need for a real shot in the arm.

KING: Well, Senator Shelby, I know you quibble with big things in this bill.

And I want to show you, just so that we get to you in Alabama. This is the Tuscaloosa News: "Stimulus Bill Debated in Rare Session."

This is, of course, front page news, not only in your state, Senator Shelby, but around the country.

Is the compromise brokered in the Senate -- I know you don't like big things about this bill -- but is it better or did the input of those few Republicans who changed this bill make it worse?

SHELBY: Oh, I think it's -- it's similar to what Chuck Schumer said. It's close to the House bill. They tweaked it a little bit, but the substance is the same. It hadn't been changed much. It's not anything I could support.

And I would hope -- and I'm afraid we won't -- if the Republicans would stay together, we could shelf this bill and start again. That's what we really need to do.

KING: That's what we really need to do?

Now, we talk a lot, and we're going to talk about a cloture vote here in Washington. It's a word many Americans don't understand. It's a process in the Senate. We talk about billions and billions of dollars.

I want you both to listen. I was in Indiana, this week, talking to workers about this. I want you to listen, here, to the voice of a union auto worker who worries this bill may not help him out. Let's listen. (BEGIN VIDEO CLIP)

KING (voice over): A General Motors plant in Indianapolis.

JAMES KENDALL, FORMER GENERAL MOTORS EMPLOYEE: I was tickled to death when I hired in here. I mean, I was working for the largest corporation in America. I mean, I was just on cloud nine.

KING: Thirty-four hundred workers when James Kendall arrived 18 years ago.

(on camera): And how many now?

KENDALL: Well, after a layoff they're fixing to have, there will be roughly 630 folks working. It's just snowballing into a massive, massive unemployment. And I don't think we've seen the end of it. I mean, all you've got to do is watch the news, and it's depressing.

(END VIDEO CLIP)

KING: Senator Schumer, how does this legislation deal with that gentleman's concerns, 600,000 jobs lost in the economy last month; a million manufacturing jobs lost in the economy in the last year?

Mr. Kendall, there, thinks he could be next. In the next month or two, GM might say, you're out of work, after 18 years.

Is this bill short-term stimulus spending or does it do anything for the fundamental structural problems in the U.S. economy?

SCHUMER: Well, it does really help in this situation. We have the same situation in Buffalo and Syracuse auto plants, really hurting. People have worked hard their whole lives, worried about being laid off.

But in this bill, for instance, is a tax incentive to encourage people to buy cars. Just like you get the interest off when you have a mortgage for your home, off on your taxes, and it's an incentive to home ownership that's worked, we're trying the same thing. Barbara Mikulski spearheaded it, to do that for automobiles.

So there are things here that would help.

SCHUMER: In addition, if we pump money into the economy, if we employ people in construction jobs, if we make sure that teachers, for instance, are not laid off, then there will be more money in the economy, more people will buy cars, and the chances of this fine gentleman being laid off would decrease.

I'll tell you one thing for sure. To do nothing, to do nothing would certainly seal his fate. And that's why the American people, 65 to 70 percent of them, support President Obama's plan.

KING: So Senator Shelby, I want to talk a little bit more about the specifics, because I want you to be as specific as you can in telling us what you think is wrong with this plan. In the Senate bill, here are some of the provisions. $47 billion to provide extended unemployment benefits. $16.5 billion to increase food stamp benefits. $3 billion in temporary welfare payments. $17 billion so there can be a one-time $300 payment to people receiving Social Security or supplemental Social Security income and veterans on disability pensions. And $4.7 billion for homeland security programs.

Are those specifics OK with you, Senator Shelby, or are those among the provisions you think are unnecessary or unwarranted in this kind of bill?

SHELBY: Well, they've got merit to them, but I don't believe in this bill.

John, the bottom line is this bill, nearly $1 trillion before it's over with, is not going to turn around our economy that you mentioned earlier. The gentleman -- the auto worker understands that. He's got a lot of sense. He knows that stimulus bills generally are not going to save his job.

Are there some merits to some of this? Some of the infrastructure is good. But are they -- is it emergency? Is it going to just flip our economy? No.

What we need to do, John, we've got to attack our banking system. We've got to bring trust back to our banking system. I hope the administration -- and they are working on this, and Senator Schumer and I will be in the middle of this on the Banking Committee. But until we straighten out our banking system, until there is trust in our banking system, until there's investment there, this economy is going to continue to tank.

KING: I want to talk about the banking system on the second half of our conversation. But Senator Schumer, in the 20 seconds we have left in this one, if this passes the Senate just barely -- the House has already said they don't like it, they want to put some of that money back in. Does the president have to go to the House Democrats and say on this one, I'm the leader of this party, you must hold the line and stay right here where this bill is coming out of the Senate?

SCHUMER: I believe House Democrats, Senate Democrats, and the three courageous Republican senators who joined us all realize we have to get this done, and everyone is going to have to give a little. We will have a bill by the end of this week. The two bills are quite close.

KING: Senator Shelby, Senator Schumer, stand by. We will be back with more of our conversation in just a minute.

And then one governor who is not so sure he will even accept the federal money to help his state. South Carolina's Mark Sanford ahead on "State of the Union."

(COMMERCIAL BREAK)

KING: I'm John King and this is "State of the Union." Here are some stories breaking this Sunday morning. The death toll rises. Officials in Australia say 96 people have now died in dozens of wildfires, raging across much of the country. Many victims burned to death inside their cars as they tried to flee the fast- moving flames. Police suspect some of those fires were deliberately set.

In Afghanistan today, the military says two U.S. soldiers were killed while trying to disarm a roadside bomb. Three Afghans were also killed, including a police chief.

The artist who created the famous poster for Barack Obama is in trouble with the law again. Boston police have arrested Shepard Fairey on two outstanding graffiti warrants. His arraignment is tomorrow. The Associated Press has accused Fairey of copyright infringement, saying the poster is based on an AP photo.

And on a lighter note, President Obama's dog dilemma. When will he fulfill his pledge to get a puppy for his two daughters? CNN's Anderson Cooper puts that question to the president himself. That and more ahead, "State of the Union," at 11:00 Eastern time.

Back now to our important discussion about the economy. A shot of the White House there. Big decisions facing this president. And back with us, Democratic Senator Charles Schumer and Republican Senator Richard Shelby.

Gentlemen, I want to get to the bank bailout, the financial bailout. We'll have more on that this week. But Senator Schumer, just before the break, you said House Democrats, Senate Democrats and those few Republicans are going to have to make some tough decisions to get this done fast. By that, do you mean Speaker Pelosi, Chairman Obey, the Democrats who are saying we want to put that money back in, what you did in the Senate was wrong -- by that do you mean simply, sorry, can't do it? We need to keep the bottom line where it is?

SCHUMER: No, I think there is going to be some give and take. And as I said, all three parties to this -- House Democrats, led ably by the speaker; Senate Democrats, led by Reid; and the three courageous Republicans -- all realize there has to be some give and take.

And you know, I appreciate the frustration in the House. There are 240 Democratic House members, and they say how could three Republicans in the Senate, whose votes are needed so, you know, move the bill over in their direction some? The answer is go ask James Madison or Benjamin Franklin. They put a lot of checks and balances in this system. So you need -- it's tough to act.

KING: Senator Shelby, you noted before the break that both of you -- Senator Schumer represents Wall Street and the state of New York; you're down in Alabama with a key role in the Banking Committee, in the banking debate. Secretary Geithner and the administration are going to come forward with their plan to spend the second half of the $700 billion in financial institution bailout money, and they are going to come forward with that plan, and also make clear, without giving you a specific number, that they need more money.

You are a fierce skeptic of this plan. Is there anything the administration can do in the next few days that convinces Dick Shelby to say, all right, I'll support you and give you a chance here?

SHELBY: Not with -- not the road they're going down.

What I fear, John, is this is more of the same. No accountability, no transparency, a lot of secrets, a lot of deals made. The American people want integrity and trust in the banking system. This is not the way to go if it's going -- if Geithner's plan is similar to what he and Paulson had before, it's going to be a disaster and it's not going to help anybody.

KING: Well, Senator Schumer, address that. You said during Mr. Geithner's confirmation hearing that you made calls around Wall Street and they think it could take $3 trillion or $4 trillion to stabilize the financial industry. Are the American taxpayers going to be in for that?

SCHUMER: No, it would be $3 or $4 trillion if you did a bad bank, if the government bought every one of the bad assets all the banks have. And I said it was too expensive then, I believe it now.

But I think Secretary Geithner's plan is going to be very smart. It's going to be very different than the plan that Hank Paulson and George Bush put together.

SCHUMER: And as Senator Shelby correctly asks for, there is going to be much more accountability, there is going to be much more transparency, there's going to be tougher limits on executive compensation. The American people are just fed up with very high salaries for people who messed up. And even most importantly, there's going to be some conditions so that there is actual effect here, so that when the banks get some money, we will see it in lending to Main Street, small businesses...

KING: Well, you say -- let me interrupt...

SCHUMER: ... home owners, automobiles and things like that.

KING: I'm sorry to interrupt, Senator, but you say we'll see it in lending to Main Street. There is not apparently a requirement in this new plan that the banks lend the money. In my travels around the country, I can tell you, every time you meet somebody, whether they are in a conservative community or a blue-collar community, they say when is this money coming to us? Why do the banks not have to lend to us?

Senator Shelby, should there be a requirement that the banks have to lend this money?

SHELBY: I think it should be, and I'll tell you why. Without lending to small, medium-sized businesses all over the country, this economy is going to continue to tank. SCHUMER: OK. Let me say, there are two things going to be in this bill that are going to make lending much better. First, there is going to be much more pressure on the banks to lend if they're going to get this money, and because they are not doing a big broad thing, one-size-fits-all, they are going to call in the individual bank in trouble and say, all right, if we give you this, how much lending will you do?

But secondly, and this is even more important, a good part of this plan is going to just skip the banks and go right to Main Street. Not only in terms of housing, $50 to a $100 billion of this 350 will go to housing, but there's also going to be a real effort to loosen up the markets in auto buying, home buying, small business lending, by going directly to those people, by loosening up the overall credit market, not doing it through the banks.

KING: Gentlemen, I want to close by asking you both to assess the moment, where we are as a country. A trillion dollars nearly in stimulus spending appears likely to pass, even though Republicans like Senator Shelby object. $700 billion for this financial institution bailout. More money likely to come, because everyone thinks the administration will ask for billions and billions more down the road.

Want to show you the cover of Newsweek this week. "We are all socialists now." Newsweek is saying that we are back in this era of big government, where the government is not only spending and spending and spending, but controlling and controlling and controlling what used to be a free-market economy.

Senator Shelby, to you first, sir. Assess the moment. And is there a limit on how much money we can print and deficit-spent?

SHELBY: Well, I can tell you, we're going down a road where it's uncharted. We're going down a road to disaster. We've never seen this kind of spending, ever, and there is a lot more to come.

There has got to be some other way better than what we're doing. Not the socialist way, but to try to get our free markets working again.

KING: Senator Schumer, is there a limit? And it's your party that is now in charge of every branch of the government here in Washington, spending all this money that we don't have.

SCHUMER: First, there will be a limit. There is no question, you can't keep printing money. Second, there is going to be far more accountability.

Third, the alternative that so many of my Republican colleagues have -- do nothing or just tax cuts for the wealthy -- that failed under George Bush. And let's not forget, George Bush, the most conservative president in a long time, did all this government intervention.

We are in a very bad situation. We're only a few steps away from spiraling down to a depression. And I think what the Obama administration is strong, it's powerful, it's thoughtful, it's far more conditioned than what the Bush administration did.

And I'll tell you this. The risk of doing nothing could lead to a Great Depression. So we have to do something, do something smart. But just to say no, no, no, and not have any real solution, that will lead to huge -- even worse unemployment and a much worse economy.

KING: We're out of time, Senator Shelby, but go ahead. I see you agitating. Take a few seconds, quickly.

SHELBY: One last thing. We are going down a road to financial disaster. Everybody on the street in America understands that. This is not the right road to go. We'll pay dearly.

KING: Thank you both, gentlemen. Republican Richard Shelby of Alabama, Democrat Chuck Schumer of New York. Thank you both, gentlemen. We'll have you back as all this plays out in the weeks ahead. His state's unemployment rate is high, but he is giving the economic rescue plan a big thumbs down. We will hear from Republican Governor Mark Sanford of South Carolina when "State of the Union" returns.

(COMMERCIAL BREAK)

KING: To hear the president, massive stimulus spending is critical to jump-starting the anemic economy. Most mayors and most governors agree, but not all, not our next guest, who sees more and more debt as a recipe for disaster.

Republican Governor Mark Sanford of South Carolina joins us from Columbia. And Governor, as I introduce you, I want to pop up your state on our magic wall here, because you wrote a provocative essay in the Wall Street Journal. This one -- you've written a more recent one, but this one is back a little bit. "Don't bail out my state. South Carolina governor says more debt isn't the answer."

So let me ask you, as this debate goes forward, right now about $4 billion would come your way in South Carolina -- $2 billion in tax cuts to your people, $2 billion in stimulus spending. Some of that money you would have control over. Would you say on this morning, keep it, Mr. President, I won't take your money? Because you think this is so flawed?

SANFORD: I think that ultimately, we'll decide that question when we get to it. But the bigger point right now is trying to wake up the American public, as Senator Shelby was doing just a few moments ago, to the fact that if we go down this road, I believe it has disastrous consequences not just for the economy of South Carolina, but frankly, the economy of the nation.

KING: So what should be done, Governor? And I said that I want to bring up, your state unemployment rate is 9.5 percent. Here are three counties in your state, Allendale, Marion and Chester, where the rate is 19.7, 19, 17.3. What, if you don't want the federal government to spend all this money, what about these people out of work? What should be done for them? SANFORD: Well, I would say what was interesting is the Congressional Budget Office report itself that said in the long run, we'll have a slower rate of economic growth if this stimulus bill goes through than if we didn't. So I would say you got to focus on the things that have long-lasting impact in those three counties, or frankly across our state, or, for that matter, across our country.

A problem that was created by building up of too much debt will not be solved with yet more debt. And so, I think you have got to look at the notion of economic development or economic activity much more broadly than borrowing money to print checks and send those checks out of Washington, D.C.

You've got to look at something like card check, you've got to look at trade policy, you've got to look at tax policy. You've got to look much more broadly on the foundational setting to economic development.

KING: Most mayors and most governors, even Republican governors -- they might quibble with this provision or that provision -- but most mayors and most governors want this money and they say it's urgent to pass a big stimulus bill. You have said no.

KING: Governor Rick Perry of Texas has said no. What makes you right and just about everybody else wrong?

SANFORD: I would say a couple of different things. One, we're moving precipitously close to what I would call a savior-based economy. And a savior-based economy sort of is definitional of what you see in Russia or Venezuela or Zimbabwe or places like that, where it matters not how good your product is to the consumer, but what your political connection is to those in power.

And if you think about the power that's been granted to the Fed or to the Treasury, it has savior-like qualities. Everybody knows that we're an economic slowdown, but -- but the consideration now is, if I can just get my word, if I can be a plaintiff to the right person in Washington, D.C., I can get this thing fixed.

That is quite different than a market-based economy, where some rise and some fall, but there's a consequence to making a stupid decision. And a lot of people who've made very stupid decisions are being bailed out by the population at large and, one, from an equity standpoint, it really grates them -- on them, and, two, what they know from the annals of history is that these kinds of things don't work.

And we can look at other places around the globe, or we can look at examples even in our own country. If you look in the late 1920s and the early 1930s, we tried this same approach, the stimulus. What's not remembered is that the Hoover-era projects of the Golden Gate Bridge or the L.A. aqueduct system or the Hoover dam were stimulus projects designed to get the economy going, and they didn't.

If you look in the 1990s at Japan, same kind of stimulus approach tried, but it was a lost decade in Japan. You can look at both history and the examples of other countries to say that this particular track that we're taking, again, as Senator Shelby just mentioned a moment ago, is an example that has not worked well based on history.

And so I'd say history is with us, as well as a lot of economic data that says, wait a minute, if you're at a trip -- at a tipping point with regard to debt versus GDP, you could quickly go over the edge wherein folks decide not to buy Treasuries and we look at a run on the dollar that would undermine every bit of stimulus that's been taken to date.

KING: Let me ask you, lastly, then, Governor, before we let you go. You talked about those Hoover-era examples; let's talk about current-day examples.

I've been down to see you many times in your state, as you know, and you had once a thriving textile industry that was the envy of the world and the envy of the country. Most of it's now gone because of changes in the economy.

Are you saying that, like the textile industry of South Carolina, the shrimping industry maybe down in the Gulf Coast, and the auto industry that is now feeling the pain in Middle America, and some of banking industry on Wall Street, that they have to go? If they have not made the right decisions, then let them fail, even if -- even if tens of thousands of people will suffer the consequences by being thrown from work?

SANFORD: Yes. What I'm saying is, Adam Smith's so-called process of -- of creative destruction is a painful one. But the -- the choice is a much more painful one, wherein we have a politically driven economy.

And people are talking of the word "nationalization" these days when they talk about a number of banks, wherein the same entity that ran operations with Hurricane Katrina down in the gulf would be the same entity -- the federal government -- that would be running banking operations across this country or a whole host of other businesses.

Given the example that we've seen in Katrina and given the example we've seen in a lot of government programs that haven't worked so well, we believe -- or I certainly believe, with a lot of other taxpayers across my state and across the country -- that that is not the best approach.

Is there pain? Yes. And the real truth that needs to be conveyed to the American public is that debt grew at three times GDP or three times the economy over the last 15 years, and we're going to go through a process of deleveraging, and it will be painful.

The question is, do we apply a bunch of different Band-Aids that lengthen and prolong this pain, or do we take the Band-Aid off? I believe very strongly, let's get this thing over with. Let's not drag it on, as Japan did for 10 years and as we saw in the Great Depression, as things got drug on, in many cases because of well intended and well meaning, but ultimately disastrous government programs. KING: Governor Mark Sanford of South Carolina, a conservative, a somewhat lonely but an important voice at the moment in this debate, we'll keep in touch in the weeks and months ahead, Governor. Thanks so much for your time.

SANFORD: Thanks, John.

KING: A rollercoaster week for President Obama. Whatever happened to bipartisanship? Democratic strategist James Carville and Republican veteran Ed Rollins talk about the state of the Obama presidency. "State of the Union," the first and last word in Sunday talk. (COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

OBAMA: Then you get the argument, "Well, this is not a stimulus bill. This is a spending bill." What do you think a stimulus is?

(LAUGHTER)

That's the whole point.

(END VIDEO CLIP)

KING: President Obama punching back there at Republican critics of his economic recovery plan. Is the honeymoon over?

Joining me now, two men with firsthand knowledge about how tough it gets in the Oval Office. Democratic strategist James Carville with us this morning from New Orleans. Veteran Republican strategist and old Reagan hand Ed Rollins with us from New York this morning.

Gentlemen, I want to start with this. You know, at the end of the week, the president seemed to get his compromise, but at the beginning of the week, he was still dealing with the fallout over the nomination, now withdrawn, of Tom Daschle to be his health and human services secretary.

And listen to what he had to tell CNN's Anderson Cooper. This is a president who had to spend a lot of capital on a personnel issue.

(BEGIN VIDEO CLIP)

OBAMA: I think this was a mistake. I think I screwed up. And, you know, I take responsibility for it, and we're going to make sure we fix it so it doesn't happen again.

(END VIDEO CLIP)

KING: James, you remember the rocky early days of the Clinton presidency.

JAMES CARVILLE, CNN CONTRIBUTOR: Oh, yes.

KING: That's a pretty big deal, isn't it, a president having to call in the five big TV anchors and spend capital on a personnel choice when he's got so many big policy fights?

CARVILLE: Well, I think he did it pretty good. I think -- I think this week, for him was a little opposite of March. I think he came in, you know -- on Monday, he was a lamb, and by Friday he was -- he was like a lion. He's gotten his feet back.

But you're right. It did cause him some problems. You know, the way Washington works is that he got wrapped up in this, but I think that Senator Daschle made the right decision by taking his name out.

And, you know, he did something that very few presidents do. He got out in front of this thing and said he messed up.

But, you know, one of the things we've got to realize, he's not been in office for three weeks. They're going to announce a complete revampment of the way we're doing banking here on Monday. Their stimulus package is all but done. They got the SCHIP thing done. They got all of the stuff on Gitmo done. They've dispatched envoys to the Middle East, to Pakistan.

I mean, we're not three weeks away. And if you look back, there's actually a lot of stuff that this administration has gotten done in a very short period of time. And I think he ended the week on a pretty good note here.

KING: Well, Ed, jump in on that point.

KING: You know, we learn a lot from new presidents in their early days, and we still don't know a lot about this president, especially when it comes to executive leadership style, because he came out of the United States Senate. What have we learned?

ED ROLLINS, CNN CONTRIBUTOR: Well, what we've learned is -- what he's learned is you get a big house when you get the job, a big office, a big plane, get to go up to Camp David this weekend, and you get to sit in the presidential box. With those perks comes the toughest job in history. He's there at the toughest time probably than any modern president has had.

And I think, to a certain extent, you know, he's got to fight with his own party. He's got to fight with Republicans.

The era of bipartisanship has been over for about 30 years at least. And what he's going to find is there's different viewpoints. Republicans believe in doing something one way, Democrats believe another way.

And he may get a couple of Republicans in the Senate once in a great while. Maybe those three will be the ones that will go with him the whole way. But at the end of the day, he's got -- he's repeated several times this week, "I won. We get to do what we want." He gets to do what he wants.

KING: Well, let's listen -- let's listen -- and I want to follow up on this point. Has -- has he changed or can he change the tone in Washington? Let's listen to the number-two Republican in the Senator, Jon Kyl of Arizona, on the floor not too happy with the president's rebuke of Republicans. Let's listen.

(BEGIN VIDEO CLIP)

SEN. JON KYL, R-ARIZ., SENATE MINORITY WHIP: ... discussing with the American people his approach to the stimulus of our economy, he's first really used some dangerous words, I would say. So it seems to me that the president is -- is rather casually throwing out some -- some careless language.

(END VIDEO CLIP)

KING: "Rather casually throwing out some careless language," in the view that leading Republican, James Carville, essentially saying, you know, we tried your way. It doesn't work. We're not going back to those policies. I understand the president's position -- he did win the election -- but that was not a bipartisan speech he gave to House Democrats earlier this week.

CARVILLE: Well, I don't know -- I don't know what problem with it that Senator Kyl has. I was in Arizona this week. And, Senator, things are pretty bad in your state.

And -- but the truth of the matter is, he's done more to reach out to these Republicans, and it was very interesting watching Senator Shelby just a little bit earlier on your show, John. He was -- he's against this banking thing, and he ain't even seen it.

I mean, at some point, usually they would give you the courtesy of at least looking at it and then being against it. These guys are just against it before they see it.

But I think that really the president has gone a long way to invite Republicans, gone over to see them, to do things like that. I don't think -- I don't know what the president said that Senator Kyl would find offensive at all. What he said was just absolute truth.

KING: Well, Ed, I want you in on this point, but I want to add a Democratic vote to this debate about bipartisanship. The Senate comes to this compromise. They have to water the bill down a little bit, take some spending out to get a few Republican votes, and the House speaker, Nancy Pelosi, doesn't like it, and she says this: "Washington seems consumed in the process argument of bipartisanship when the rest of the country says they need this bill."

The president of the United States, Ed, who is a member of Speaker Pelosi's own party, says this is critical, having true bipartisanship. She says it's a process argument. Does the Democratic president have a problem with the Democratic speaker?

ROLLINS: Well, I think he does. And I think, to a certain extent, Democrats have waited a long time to have a president who would basically carry their agenda, but even more important they're ready to move their own agenda forward.

And this is -- Chairman Obey, Nancy Pelosi, a lot of these people have wanted some of these types of programs. They can call it stimulus whatever at this point in time, but it's a lot of programs that they've tried to put in, in the past and haven't been able to.

Bipartisanship is a nice term, but the bottom line is there's very different viewpoints between these two parties. And Republicans feel that they weren't as responsible as they might have been on the fiscal issues during the Bush era, and now they're going to basically sit and be the watchdog and make sure that the public's money is spent well.

KING: The first primetime news conference of the new president's administration will come Monday night. Here's the Washington Post front page, "Planning a One-Two Punch." It talks about the stimulus plan, billions and billions of dollars, the financial industry bailout plan, billions and billions of dollars, also a bit on the National Security Council. There's a story on the Iraq war down here.

Just a reminder, one quick look at the front page of just one newspaper in the country, this president has a very deep and complicated inbox.

James Carville, you've been there. What is the biggest challenge for the president of the United States when he has his first primetime news conference?

CARVILLE: Well, I think his biggest challenge is, is that the country is very, very apprehensive right now, and with great justification. This is a terrible economic situation. And -- and -- and I think that he's got to assure the country that there is a direction there.

He's got to -- and I think they understand that the thing is not going to be done overnight and that the stimulus is one part of trying to get this back together. What they do with the banking thing tomorrow is going to be enormously important.

They have no room on interest rates. When he took office, interest rates were near zero. They've destroyed the fiscal nature of the United States. We didn't -- you know, we had these huge deficits that were accumulated, and they're trying to deal with a very difficult thing.

And I think people understand that. And they understand that he's trying to reach out, and he's got to take them into his confidence, and he's going to have to keep them there over a long period of time. And if anybody can do it, I think -- I think this president is capable of doing it. I really do.

KING: We're out of time, unfortunately. Ed, I'll have to save your view of what -- "What would Ronald Reagan do?" was going to be my question. I'll save that for another day, because we're out of time.

Ed Rollins in New York, James Carville in New Orleans, thank you both, gentlemen.

And we'd like now to say goodbye to our international viewers for now.

But up next, the latest Sunday headlines and "Reliable Sources" host Howard Kurtz. "State of the Union" will be right back.

(COMMERCIAL BREAK)

KING: I'm John King, and this is "State of the Union" for this Sunday, February 8th.

In this hour, our weekly critical look at the media. You've all seen it, that photo of Olympic gold medalist Michael Phelps holding a bong. Howard Kurtz will ask veteran sportswriters Will Leitch and Christine Brennan if this means top athletes are now under 24-hour media scrutiny. President Obama's top economic adviser Larry Summers one of those speaking out on the morning shows this Sunday in support of the economic stimulus bill. In our next hour, the best political team on television will give us the real stories behind today's Sunday talk.

And as we always do, we'll go outside the beltway and find out how Americans are being affected by the big economic decisions being made here in Washington. Today we head to Carmel, Indiana, and talk to Jim Brainard, a Republican fighting on the frontlines of our national economic meltdown.

That's all ahead on "State of the Union."

As we do every Sunday, we turn this hour over to Howard Kurtz. He's the host, of course, of "Reliable Sources."

And, Howie, as you take a critical look at the media today, let's take a critical look at some headlines. And for full disclosure -- we do that in the news media -- this is a Red Sox fan talking to you, as it shows you this headline in the Daily News, A-Rod, shocking stain on baseball's biggest star as slugger tests positive, sources says -- tests positive -- you see the syringe up here -- for steroids.

And let's go over right here, the Trentonian across in New Jersey, Rodriguez, report Yankee slugger tested positive for steroids during his MVP season.

I know you're already exploring the Michael Phelps story today, something like this not what you expect to see in the Sunday paper, and I'll keep my partisanship -- my partisanship in baseball to myself, I guess, Howie.

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