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The Last Word: Joseph Stiglitz

Aired August 2, 2009 - 12:00   ET


YELLIN: We'd like to welcome back our international viewers. I'm Jessica Yellin filling in for John King and this is "State of the Union" for August 2nd.


YELLIN (voice-over): The economic freefall seems to be slowing, even as jobs continue to disappear.

OBAMA: We have stepped away from the precipice.

YELLIN: President Obama's drive for a health care bill before the summer recess appears doomed.

BOEHNER: Over the August recess, as more Americans learn more about their plan, they're likely to have a very, very hot summer.


YELLIN: We'll quiz top White House economic adviser Christina Romer on health care reform and your economic future.

Plus, Senator John McCain on whether health care will be dead on arrival when Congress returns.

Nobel Prize-winning economist Professor Joseph Stiglitz gets "The Last Word."

And in our "American Dispatch," John King travels to Idaho to find out what's driving conservative Blue Dog Democrats.

This is the STATE OF THE UNION report for Sunday, August 2nd.


YELLIN: Let's go right to our first guest, joining me is Dr. Christina Romer, the chair of the White House Council of Economic Advisers.

Dr. Romer, thanks for being here.


YELLIN: There has been some positive economic news this week, and Americans want to know, bottom line, has the economy hit bottom? ROMER: You know, exactly what you said, we did get some positive news this week. We did find that GDP that had been following at minus 6.4 percent in the first quarter fell at minus 1.0 percent. That's certainly a much better trajectory.

It's still negative and that tells us that the economy is still contracting. So the slowdown is certainly slowing down, but we still have a ways to go before we hit bottom and certainly it's going to be a long, hard slog getting out of this.

YELLIN: Long, hard slog. So in plain English, when you do you project the recession will end?

ROMER: Well, what we -- you know, we, like most private forecasters, think that real GDP growth will probably turn positive before the end of the year, but that's just the first step, right? You've got to start growing again before you start adding jobs.

But the other thing is you've got to grow quickly to really bring the unemployment rate down. And so that's the other thing we'll be looking at. As you go into 2010, we can't just limp out of this thing, we need to be growing robustly to make sure that the unemployment rate comes down.

YELLIN: So you're saying improvement by the end of this year, you're saying Americans could feel some relief by Christmas time?

ROMER: I do absolutely think that we can probably see some positive GDP growth. It will be a while after that before we see employment actually going up.

YELLIN: Right now we know that there are 15 million Americans out of jobs right now. And The New York Times is saying that 1.5 million face a cutoff from their unemployment benefits. I'm curious, is the administration going to extend unemployment benefits?

ROMER: I mean, that certainly is an important issue. Something I'd like to make sure everyone realizes is just how much we have done already.

YELLIN: Important, but are you going to extend benefits?

ROMER: It is absolutely something that we're working with Congress to do. Let me just...

YELLIN: So it's on the table.

ROMER: In the Recovery Act, what we did was to greatly extend the duration, increase the payments, and provide -- help pay for health insurance continuation for these workers.

That was an unprecedented increase, and absolutely as it's running out and as we get to the end of the year when that program would naturally end, thinking about what to do going forward is absolutely on the table and something we'll be working with Congress. YELLIN: When do you think jobs will start coming back? I mean, there have been jobless recoveries in the past. Are we potentially facing one here?

ROMER: It is the thing we are working as hard as we can to avoid. Right, we do know that jobs tend to lag the turnaround in GDP. So, as I said before, we're probably looking at a turnaround in GDP before the end of the year, so then we'd expect jobs to normally start growing shortly after that.

The whole question is how fast you grow. It's not enough to just grow a little bit. You've got to have pretty robust growth to bring the unemployment rate down and really add jobs.

What we saw in some of those -- say, the last recession is, it was very anemic growth after you turned the corner. And that's why you had the jobless recovery. YELLIN: Let's talk about the folks who got us into this problem to begin with, Wall Street. When the meltdown began, there was a lot of talk about changing practices on Wall Street.

Back in March, John King interviewed you here in this room. There was a lot of talk about the AIG bonuses. And at that time you called those AIG bonuses outrageous and terrible. Here is what you said to John.


ROMER: Firms that are getting a lot of government money, absolutely, we need a different way to deal with those so that this kind of thing doesn't happen. Because it is, frankly, outrageous.


YELLIN: You didn't want it to happen again, and yet news this week, it did. Citigroup, Bank of America, nine of the firms that received bailout money paid out billions and billions in bonuses.

Citigroup alone, which suffered losses last year, got $45 billion and paid out $5.3 billion in bonuses, and yet the White House has been pretty quiet. Is the president outraged again?

ROMER: You know, certainly the president is very concerned about executive compensation in general. That's part of why he supported things like say on pay, again, to make sure as we go forward that at least shareholders are minding the store.

We also did appoint a special master there in the Treasury Department to take these decisions out of political hands, someone who is supposed to be watching those firms that are getting extensive government and taxpayer money.

And he's certainly going to be making recommendations.

YELLIN: Will you assure us it won't happen again this year? ROMER: Well, remember what Mr. Feinberg's job description was, right? He's trying to walk a line, right? We want these firms to earn money. We want them to pay the taxpayers back.

And so absolutely what he's working at is, you know, sort of balancing off the -- are they going to be able to retain talent with our sense of outrage, with our sense of what is reasonable, with the sense of, are we encouraging too much risk-taking? And we're going to trust him.

YELLIN: OK. Moving on. One of the president's efforts to bring us back to a healthy economy, part of what he called the three-legged stool were new financial regulations. Those financial regulations have gone almost nowhere in Congress.

Is there a lack of leadership on this? Is the administration and Congress failing the American people and changing Wall Street's practices?

ROMER: Well, absolutely not. We are working very hard on this. You know, remember his stool now has probably, I don't know, four or five legs, right? Part of the getting healthier coming out of this crisis was health care reform, comprehensive energy and climate, and financial regulatory reform. All three are absolutely top of his agenda.

YELLIN: So it's a four or five-legged stool?


ROMER: It's at least, right? I mean, precisely because the president said it wasn't enough to just rescue the economy, he has from the beginning wanted to rebuild it healthier. Financial regulatory reform will absolutely be central to this.

YELLIN: And you assure us it will pass this year?

ROMER: We're going to do absolutely everything we can. I've gotten -- even in just my six weeks in Washington, I don't promise anything for the Congress, but we are working as hard as we can.

YELLIN: OK. Let's switch gears finally. There was a New York Times Magazine -- a New York Times article about some of the tensions in the economic team in which you were featured prominently.

You are the only woman on the economic team. I wonder, do you feel your voice is heard?

ROMER: Absolutely. You know, that the economics team has a lot of strong personalities. I'm actually one of them. I'm right up there with the boys. And, you know, we have very frank discussions, but it's actually great.

There is a big feeling of mutual respect. And we argue, we think about things, and then we bring recommendations to the president. And I'm pretty proud of what we've been able to accomplish. YELLIN: So if you take us into the room with Larry Summers, and Tim Geithner, and you, do you feel it's a different experience? As a woman, do you have to raise your voice more loudly to be heard?

ROMER: No, I do sometimes have to interrupt them because they do both like to talk. But absolutely I feel my voice is heard, and I -- you know, the president is great at this. He is very careful to make sure that everybody's voice is heard. And he made it clear he wants to hear from all of us.

YELLIN: Well, Dr. Christina Romer, thanks for sharing your voice with us today. We're grateful.

ROMER: It was great to be here.

YELLIN: OK. And up next, John King's exclusive interview with John McCain. The Arizona senator weighs in on the economy, health care, and his former running mate, Sarah Palin's decision to step down as governor of Alaska.

STATE OF THE UNION will be right back.


YELLIN: Earlier, John King sat down with Senator John McCain for an exclusive, in-depth interview. The first topic was, of course, the economy.


KING: Senator, thank you so much for joining us.

MCCAIN: Thank you, John.

KING: I want to start with the economy. As we close the week, we learned the economy declined by 1 percent in the last quarter -- still down, but that's the best quarter in some time.

And the president says he deserves some of the credit. He thinks we're starting to come back. And the president said this. "There should be little debate that the steps we took, taken together, have helped stop our economic free fall."

Is that right? Does the president deserve credit?

MCCAIN: Well, I -- I think that it's very clear that the stimulus has had some effect. But what I worry more than anything about is the long-term effects because we are committing generational theft.

We have put trillions of additional debt on future generations of Americans. And there is no one that I know that sees a way out of it that. In the words of the Congressional Budget Office and others, it is, quote, "unsustainable."

So I -- I think it's pretty clear, if you pump trillions of dollars into the economy, you will see some recovery. But the long- term consequences, I think, are going to be unfortunately devastating unless we do something about it.

KING: So, then, can he claim that the stimulus is to some degree a success? Or is it a failure?

MCCAIN: I think you could say that it is a short-term improvement in the economy. And I'll be glad to give him credit for that. But the question that I think we should be asking, are the long-term consequences of this unprecedented debts and deficits -- are they beneficial to the country? And I think the answer is no. KING: I want to move to the big debate at the moment in the country, which is health care. And we will spend some time on the "what," the policy disputes and disagreements. But I want to start first with the "when," the "when."

The president says this has to be done this year. Is that right? Do you accept that timetable?

MCCAIN: I think, clearly, by not acting before the August recess, it gives us all more time to have debate and discussion across the country. I think that it's important that we all recognize we want to fix health care, that it needs to be repaired. The question is -- is how.

And the fundamental contradiction we have between the two parties is that we believe the quality of health care is the best in the world and must be preserved. It's the cost that's the problem.

The Democrats believe that you've got to change the entire health care system in America, including the so-called government option, which we believe would be -- lead to a government takeover of the health care system in America. That's why we've had so much trouble reconciling differences even though we share a common goal of fixing health care in America.

KING: Well, let's try to reconcile some of the differences. And let me start with the process that's in place. You have several Republicans, friends of yours, Chuck Grassley from Iowa, also in the room, in the Finance Committee negotiations.

If they come out, the three or four Republicans in those negotiations come out say, "We have a deal that's acceptable to us," does that automatically make it acceptable to John McCain?

MCCAIN: It does not. But to their great credit, Senators Enzi, Grassley and Snowe have been in constant communication with the rest of us. So that's been very helpful. And so far, they have -- and I'm confident they will keep us heavily engaged as they go through this process.

KING: What's the pressure on them?

Because, as you know, many Republicans see this as a great political opportunity. The president's back on his heels for probably the first time in the administration, and you've had terms like "Waterloo," "go for the kill." What kind of pressure do those Republicans face from some Republicans who don't want a deal?

MCCAIN: I think they face pressures from both sides, to be honest with you. Part of the problem sometimes is you get the Stockholm Syndrome...


... and all of a sudden you become negotiators for the sake of negotiations and a result, no matter what that result is. So far that hasn't happened.

Look, I think, over the August recess, all of us can come home, have town hall meetings, discuss with our constituents and hopefully come back and work more closely together. But there still is these irreconcilable differences that I mentioned before.

But, yes, I think the pressures are very intense in both directions, both from people who do not want an agreement, at least the kind that's being considered, and that -- look, I've been in these negotiations. There's enormous pressure to come out with a result.

KING: Well, let's follow up on that very point. Because, right now, in the House, certainly, and to most you ask in the Senate, they say it's not a truly bipartisan process, even though a handful, two or three of your colleagues are in that room.

In the past, we have had bills like McCain-Feingold, campaign finance; McCain-Kennedy on immigration. Is there a role for John McCain, somebody who the American people trust on a lot of these issues, when it comes to spending and the role of government to step in here?

And is there somebody who could -- is there a circuit breaker, if you will, to turn this debate from what has been mostly partisan to something bipartisan?

MCCAIN: Well, first of all, unfortunately, there was no input by Republicans in the writing of if bill. In the HELP Committee, it was all a Democrat proposal. That's not the way you want to begin if you're really interested in true bipartisan result.

Maybe we can go back, and all of us -- and I'd be glad to play a role.

I have been playing a small role on the committee. And I'd be glad to try and help. But it's got to be a true sit down, OK, what are you going to concede? What are you going to concede? How we can come together -- not, here's the plan; how can we fix it so it satisfy enough of you to call it, quote, "bipartisan"? That's a huge difference.

KING: Just before the inauguration, the president had a dinner in your honor and said you're an American hero and a guy who reached across the aisle, and that is the tone he wanted to set when he came to Washington. On this point, has he failed the test he laid out at that dinner to be truly bipartisan? MCCAIN: I'm afraid they have. And look, they got the votes. We understand that. They had the votes in the stimulus package and the budget and the omnibus, all this legislation, and they have picked off sometimes two or three Republicans.

But that's not changing the climate in Washington. What that is is exercising a significant majority. And so I respect their successes, but please don't call it changing the climate in Washington. Republicans did it when they were in the majority, Democrats have done it when they're in the majority.

KING: Yet, they have the votes, you're right, they have nearly 80-seat majority in the House, they have 60 now in the Senate, if the two Independents stay with them, and yet they're having a problem. To what do you attribute that?

Having watched many of these big things over the year, some in the president's own party say because he's not getting his dirty, because he's not leading, he's not going into the House saying no, don't do this, that won't sell in the Senate, let's do that, is that true?

MCCAIN: First of all, the passage of the stimulus package and the huge deficit associated with that, I think, harmed their ability to move forward with health care because that's another $1 trillion in the view of the CBO. So that gave them a certain handicap. But I think the other thing is -- an aspect of it is that the president has laid out some ideas.

But I think the president has got to be more specific in the -- when we come down to exactly what these proposals are. And I don't think he's done that. And in his speeches and his health care meetings, he's talked about the things that are wrong and need to be fixed, but he's not been more descriptive of what we need to do.

I think they may have over learned the lesson of Clinton proposal of '93 where they were totally specific proposals, now there's not enough. At this point I think the administration, the president has to be more specific.

KING: Fear can be a motivating force in politics, especially in compromise. Back in the day, Ronald Reagan was feared because people knew the bond he had with the American people. So even the Democrats would sometimes go along with him or make a deal. Bill Clinton stymied Republicans all the time because he was an effective communicator. After 9/11, nobody in these halls would stand up to George W. Bush in those early days because of the strength the president had.

Is President Obama feared?

MCCAIN: Oh, I think we all recognize -- I don't know if the word is "fear," or even in this other instances you cited, but there's no doubt that this is a very effective president of the United States.

MCCAIN: He's an excellent communicator. He has sizable majorities in both houses of Congress. So I would never count anybody out in health care or anything else when you have these sizable majorities.

I think they will renew the push after the August recess. The question is, are there going to be really bipartisan efforts or just pick off a couple of Republicans? And the blue dogs, they always bark, they never bite, they almost always rollover and then play dead.

KING: That's a couple more specifics here. The public option, off the table for John McCain period? Or is there some kind of a public option, maybe the rural co-ops like Senator Conrad has talked about, something like that. Is there a viable public option that could get your vote?

MCCAIN: I've not seen one. The co-ops remind us all of Fannie Mae and Freddie Mac. So I've not seen a public option that in my view meets the test of what would really not eventually lead to a government takeover.

KING: Paying for it. You took the step in the campaign and many fellow Republicans didn't appreciate it. But saying, look, if we're going to pay for this, we have to come up with some money beyond the savings we make and you would have taxed health care benefits that employers generously give to their employees. The president has said he does not want to do that. They haven't flatly ruled it out, but he has said he does not want to do that. And we've seen in recent days this Cadillac plan, tax if you get a benefit, if you get an insurance package that's way above the national average, tax the insurance company that gives you that. Would that sell?

MCCAIN: I think that we could look at that again, but we would have to give low-income families and maybe all Americans to a certain level a refundable tax credit and a significant one. The problem, frankly, is the unions. Not rich people, but the unions because the unions have negotiated very, very generous health insurance packages, benefits, and those would probably fall under some form of taxation and I think that's a big problem for the Democrats.


YELLIN: Up next, Senator John McCain grades President Obama's economic plan. And starting now, you can grade the Obama administration on the economy and much more. CNN has just opened the voting booth for the second national report card. Go to, make your voice heard. The results will be revealed on a CNN special program Thursday night at 8:00 p.m. Eastern. We'll be right back.


YELLIN: In the second part of John King's exclusive interview with Senator John McCain, some straight talk on the stimulus plan, President Obama's first Supreme Court nomination, and the increasing U.S. presence in Afghanistan.

(BEGIN VIDEOTAPE) KING: You talked about this a little bit, but you came on the program less than a month into the new administration, and I asked you about the stimulus vote and you said this.


MCCAIN: It was a bad beginning because it wasn't what we promised the American people. What President Obama promised the American people that we would sit down together.


KING: At that moment in time, his approval rating was about 64 percent. Now it's about 10 points lower. Still pretty good, 54's not bad, but if you get to the policy level, do you support the president on the economy, more disapprove now than approve? Health care, we see the disapproval there. What's happened?

MCCAIN: The stimulus package, I believe, was so large and the deficit and debt problem is so overwhelming that Americans now are very concerned about their children's futures and the debt we are laying on them. So you're seeing concern about the debt and the deficit being one of the most, if not the most important issue that Americans feel concerns them.

MCCAIN: And so I think that has contributed to a lack of progress on health care. Look, let's have a little straight talk. I've spoke a lot there and everybody else has, but the Congressional Budget Office made the estimate that there was $1 trillion and no way to pay for it in costs of the plan that went through the Senate HELP Committee. That blew a hole a mile wide in the administration and the Democrats' proposals. They haven't recovered from that. But that was bred by the passage of the stimulus which laid a $780 billion deficit plus a $1.8 trillion debt for the year. I mean, these numbers are staggering and they're beginning to concern Americans more and more.

KING: One of the things when you get that break, that recess, is, you're not going to the beach, you're going to go overseas, including to Afghanistan, and we see that General McChrystal, the new commanding general in Afghanistan, is a little worried about corruption, about the Taliban, and there are indications that he will ask the president of the United States for more troops. Do you believe we need more troops in Afghanistan? MCCAIN: I also await General McChrystal's opinion. Everything -- and our visit. But from everything I've seen, it looks like the Afghan army has to be increased and significantly. And that's going to be a huge cost.

And I -- it appears as if we need more troops, but I've continued to be guided by the -- to a large degree by the commanders on the ground and their view. Not strictly dictated, but they're the ones that really have the responsibility to a great extent.

And General Petraeus was right on Iraq and I think General McChrystal will be correct on Afghanistan. KING: And why has this president been unable to get -- whether it's Germany, France, other NATO allies, they put up a modest amount for the Afghan elections, but they have refused to put significant boots on the ground for the long term. Why?

MCCAIN: Those same allies you talked about refused to put boots on the ground in Iraq and under previous president of the United States. The Europeans no longer have significant defense capabilities, so therefore, they always opt for, quote, "diplomacy" or some other method. America leads and we have to recognize that.

We have to continue to put pressure on our allies to do whatever we can convince them to do, but let's not be too optimistic. America leads the world. And there are benefits to that and there are also huge penalties.

We will sacrifice, tragically, some more American blood and treasure before this thing is resolved. It's very, very difficult.

KING: Let me stay on the world stage for one more question. Secretary Clinton last week said Iran's leadership should know it would be futile -- that's a strong word, futile for them to develop a nuclear weapon. What's your assessment of the situation there? And does this administration have it right?

MCCAIN: I think it's clear that there is the beginning of the end of the rule of the radical Muslim clerics that rule Iran. Just yesterday there were more demonstrations.

MCCAIN: There are seminal events in all these things. The young woman bleeding to death, Neda, bleeding to death in the street in Tehran was a seminal event. So I think you're going to see significant changes in Iran either sooner or later.

And so we want to be very careful about our relationship with the Iranians. Time is not on our side. The Israelis are getting more and more impatient. This is a huge national security challenge for the president, and I want to work with him just as much as we can. The whole Middle East could be in very, very serious crisis if -- unless something changes.


YELLIN: Coming up, John McCain reacts to Sarah Palin's resignation as governor of Alaska. You'll want to hear how the senator defends her decision to step down from office. "State of the Union" will be right back.


YELLIN: Welcome back. And let's get to the third and final part of John King's exclusive interview with Senator John McCain.


KING: Let's bring the conversation back home. The woman you picked to be your running mate decided to leave her job as Alaska's governor, and as you know, it set off quite a controversy and a debate.

I was at a diner this week in Idaho. And the gentleman just to my left said, you know what, I hope she runs in three years because she reminds me a lot of Ronald Reagan.

But across the table was another Republican who said, I could never support her, even though I liked her in the campaign, she brought energy to the party, he voted for you, this gentleman, and he said, I could never support her because she quit, she walked away.

MCCAIN: Yes. But, you know, John, people make decisions, what they think is best for their own future, their state, the country, and their family. And I'm not aware of all of the influences, but I respect Sarah Palin, I appreciate her and her husband enormously.

I think she will continue to play a major role in the future of the Republican Party. And I have to respect the decision she made and I don't think...

KING: It had to surprise you. You're a guy who has had many chances to quit in life. You could have quit when you were in Vietnam. You could have quit in the days of the Keating Five. You could have quit in this last campaign when you were the little asterisk in some of the primary polls and people had forgotten you were even out there running. So that part had to shock you.

MCCAIN: But it's -- well, everybody makes the decisions as to what's best for themselves and their families. And Sarah, I think, made clearly the best decision. I think she will continue to contribute, I think she'll continue to be a force.

And I just also continue to kind of be saddened by the fact that there's still such vicious attacks on her and her family. I mean, it's -- I've never seen anything quite like it.

I respect her. I appreciate her. I think she has a role to play in the future in...

KING: You're on the ballot next year, will you have her down in Arizona?

MCCAIN: Sure. Sure, I'd do it. Listen, one of the great pleasures in the campaign that I had was spending time with her and Todd and all their children.

KING: Let me try one on you. If the primary were today and you pulled the curtain behind you and you looked up at three names and it said Mitt Romney, Sarah Palin or Tim Pawlenty, John McCain would pull which lever?

MCCAIN: I couldn't state that now, John, as you know. Ronald Reagan didn't endorse George H.W. Bush until '92, I think, it was. But I think it's just much too early to tell. I don't know if all three of those are going to run or not. KING: You don't know that, that's a fact. When the presidential campaign didn't go your way, you came back here to the Senate and you promised to work hard. You also promised to try to help your party rebuild. After two tough cycles, 2006 and 2008, it's a simple question, how's the Republican Party doing?

MCCAIN: Could I say -- there's two things. One is fiscal discipline being conservative fiscally. We lost a lot of our base because they thought we had become big spenders and basically they were right.

On the issue of the Hispanic voter, we have to do a lot more. We Republicans have to recruit and elect Hispanics to office. And I don't mean just because they're Hispanics, but they represent a big part of the growing population in America. And we have a lot of work to do there. And I am -- I am of the belief that unless we reverse the trend of Hispanic voter registration, we have a very, very deep hole that we've got to come out of. KING: On that point, you've said the president has failed the test of true bipartisanship. If you come back from the break and we're in the fall and he wants to do immigration reform and he picks up the phone, he says, John, I know you're mad at me about stimulus, I know you're mad at me about health care, I know you're mad at me about this, that and the other thing, but I need somebody to help me catch harpoons on immigration reform, which as you know first hand is one of the most emotional and divisive issues that we have. Would you stand with the president and try to do something along the lines of what you tried to do with President Bush and Senator Kennedy?

MCCAIN: Could I also say I have -- he's not mad about me on supporting the F22 on Iraq and other issues. I've tried to play the role of loyal opposition.

If the president said two things, one, I will come forward with an immigration reform policy and two, part of it would be a central part of it would be a legal temporary worker program. That and securing the borders is what we're going to have to do, otherwise we'll experience failure again.

KING: Senator Kennedy missed in the health care debate and other debate?

MCCAIN: Oh, yeah. Senator Kennedy is an institution around here that is unique and there's no such thing as a senator who is irreplaceable, there's no one who comes as close to that word as Ted Kennedy. And we are philosophically opposed, but I've grown over the years to have the highest respect and affection.

KING: I'll close with this one. The John McCain Twitter account has more than 1.1 million followers. The official White House Twitter account has only about 830,000 as of last count. Is it time to replace the Electoral College with the Twitter count?

MCCAIN: It is a phenomenal way of communicating. This morning, I said now it's David Ortiz on steroids --

KING: You're hitting close to home here.

MCCAIN: I said David Ortiz on steroids, where have you gone Joe DiMaggio, we were flooded with responses. It's a great, great vehicle for communication.

KING: It's a sport you love. What does that stuff mean? I'm a Red Sox fan.

MCCAIN: I'm sorry. I'm just sick about some of it. I really am. I'm just sick. We tried very hard in Congress, as you know, when I was the chairman of the Commerce Committee. We had hearings and all of these things.

The thing that bothers me more than anything else, very briefly, there's someone in a lab somewhere trying to develop a substance that won't be detected by tests. So it's always going to be a game of catch up. But we've got to get these young people to understand, it'll kill them, it'll kill them.

KING: Senator McCain, thanks very much.

MCCAIN: Thanks.


YELLIN: And don't forget, coming up at 1 p.m. Eastern, "Fareed Zakaria: GPS" takes a comprehensive look at international affairs with world leaders, policy experts and journalists.

This week, Fareed speaks with one of the Afghan presidential candidates trying to unseat Hamid Karzai.


ASHRAF GHANI, AFGHAN PRESIDENTIAL CANDIDATE: We're really getting the sense of a Shakespearian tragedy because it truly is tragic. Afghanistan did not need to become what it has become, the fifth most corrupt government on earth, according to Brookings, the second failed state, the center of drug production, but most significantly, a place of disenchantment of the population with this government.


YELLIN: Stay tuned for "Fareed Zakaria: GPS" coming up at the top of the hour here on CNN.

And our next guest says the problem is not that the Obama administration is spending too much to help boost the economy but that it isn't spending enough. Economist and Nobel laureate Joseph Stiglitz gets "The Last Word," next.


YELLIN: Twenty-two newsmakers, analysts, and reporters were out on the Sunday morning talk shows, but only one gets "The Last Word." That honor today goes to the former chair of the White House Council of Economic Advisers and current professor of Columbia University, Joseph Stiglitz.

Professor Stiglitz, thanks for being with us this morning.

STIGLITZ: Nice to be here.

YELLIN: So let's get straight to the news this morning. The administration sent out their economic team to talk on the morning shows. Two of their top advisers -- the president's top advisers did not rule out the possibility of a middle class tax increase.

Let's listen to Treasury Secretary Timothy Geithner.


GEITHNER: When we have recovery established, led by the private sector, then we have to bring these down -- deficits down very dramatically. We have to bring them down to a level where the amount we're borrowing from the world is stable at a reasonable level.

And that's going to require some very hard choices and we're going to have to try to do that in a way that does not add to the -- unfairly to the burdens that the average American already faces.


YELLIN: Doesn't add to the burdens, but it's not off the table. So the question is, would taxing the middle class squeeze them too much? Is it the wrong move for the economy?

STIGLITZ: Well, we're not really into a robust recovery yet, so I don't think this is an issue that we have to face for quite a while. I actually think that what we need now is another round of stimulus.

While there has been some recovery, there are lots of reasons to be worried, lots of reasons to believe that unemployment will continue to grow. And so long as that's the case, it's hard to believe that we will have a robust recovery.

YELLIN: And when you say that, another stimulus, those are fighting words here in Washington. We hear most people saying, oh, cut what you can, the deficit is growing too large. Aren't you worried about the amount of money this government is spending or not?

STIGLITZ: It all depends on what you do with the money. You know, businesses borrow all the time. If you borrow and create an asset, then the country's balance sheet, our overall wealth can actually be stronger.

If we invest in technology, if we invest in education, if we invest in infrastructure, these are -- if we do it well, these are high return investments. And so, yes, while the deficit is higher, so are the assets side of our balance sheet and we'll be better able to meet the challenges going forward. If we don't do the spending, the economy is going to be weaker, our tax revenues are going to be lower, and we'll have a deficit, anyway.

YELLIN: So let's talk about jobs, because that's what most Americans are concerned about these days. Unemployment is so high. Larry Summers out this morning, one of the president's top economic advisers, says, you know, don't blame them for this high unemployment.

Let's listen.


SUMMERS: It's true that unemployment is higher. It's higher than almost anyone forecast at the beginning of the year. And it's higher because, frankly, what we inherited was much worse.

Most of the surprise increase had taken place by March, and you can hardly hold the administration accountable for that.


YELLIN: Well, the president has already said that this is his economy. He has accepted that he owns it. So what is this, a political game of blaming the other guy?

STIGLITZ: No, Larry Summers is absolutely right that President Obama inherited a very weak economy. The one area where I would disagree with Larry Summers is I, and many others, did believe that the unemployment rate was going to soar to the level that it is, and it's going to continue to increase.

That's why many of us thought we needed an even larger stimulus. And the criticism is twofold. One, we didn't have a big enough stimulus and it wasn't well-enough designed -- well-enough designed to get money out to the economy in a way that would lead to more spending.

The tax cuts were understandable but still given the overhang of deficit -- overhang of debt, much of that money will not be spent, and if it's not spent, it doesn't stimulate the economy. YELLIN: Well, you're committed to this notion that we need another stimulus, which is very unpopular here in Washington. Let me ask you, though, is it possible that -- do you buy the administration's pitch this morning that sort of the economy should bottom out by the end of this year, we'll start to see employment come back early next year?

STIGLITZ: I think a little bit optimistic. We're in, really, to be frank, uncharted territory. The -- even if the housing market levels off, we have problems in commercial real estate. The millions of Americans are likely to see foreclosures, particularly if the unemployment rate remains high.

And consumer spending is likely to remain weak, and as long as consumer spending remains weak, investment is going to remain weak, lots of problems from the outside. Our exports are likely to remain weak.

So I think it's a little bit premature to be confident about a recovery. And I think it's very premature to be confident about a robust recovery by early next year.

YELLIN: OK. Let me ask you about a comment by Christina Romer. Dr. Romer, who is one of the top members of the president's economic team, she was here this morning and we asked her what it's like to be on that team.

Let's listen.


ROMER: I'm right up there with the boys, and, you know, we have very frank discussions, but it's actually great. There is a big feeling of mutual respect. No, I do sometimes have to interrupt them because they do both like to talk. But absolutely, I feel my voice is heard.


YELLIN: You know these folks. How is this team doing?

STIGLITZ: Well, I think they've inherited a very difficult problem. It's an economic problem, it's also a political problem. You've mentioned before about the difficulty of getting the kind of stimulus that I think, and I think many other people think, is necessary.

And when you do get a stimulus, it's too small, it's not designed as well as it should be. Everybody obviously wants the economy to go into -- to believe the economy is in recovery as quickly as possible.

STIGLITZ: Wall Street, the administration, are trying to sell the theory of green sprouts because they hope the animal spirits will lift all this up and we'll start spending. The problem is the United States, we're spending beyond its means. And the savings rate was zero. The fact is that means we're going to have to increase our savings rate to bring it into a more sustainable level. And then the economy is going to be weak.

YELLIN: Thank you, professor, sorry to interrupt, we've got to go though. But I love talking about animal spirits in the economy. Thanks for being with us, Professor Stiglitz for "The Last Word."

Well, you may not have heard of these politicians, but they could hold the key to health care reform and a lot more. John King's "American Dispatch" when "State of the Union" returns.


KING: In the contentious health care debate of recent weeks, you've heard from voices familiar, and some maybe not so familiar. Democratic leaders in the House and Senate, Republican leaders in the House and Senate and, of course, President Obama and his key advisers. But if you're listening closely, it's like we have also heard the term blue dog Democrats. Now individually, most are not so influential, but together, their more conservative voices are proving pivotal in the debate over how to pay for health care changes and whether a new government-run insurance program is such a good idea.

So what's a blue dog? Let's take a closer look. These are the states represented by at least one member in a congressional delegation who calls himself a blue dog. And you see them, and let's again take a peek in here. There are 52 members of the Blue Dog Coalition, they represent those 29 states we just showed you. Thirty- two of these members, and this is important, represent districts won by Republican John McCain in 2008. So in our "American Dispatch" this week, we wanted to take a closer look, out here, western Idaho, this blue congressional district, the first congressional district, we wanted to look up close to the blue dogs, who have to balance their party's call for major health care reforms with a constituency that doesn't like big spending and doesn't trust big government.


KING (voice-over): Western Idaho is, in a word, spectacular. Rolling hills filled with golden grain, breathtaking forests, shimmering lakes. And tiny towns like St. Marie's, built around the mines and mills, and a anchored by places where everyone is on a first name basis and everyone thinks the business and the government should put a premium on the bottom line.

GWEN WOTRING, OWNER, BUD'S DRIVE INN: It's different to be a liberal in this neck of the woods.

KING: Gwen Wotring is a proud Democrat, but she knows from the lively conversations in her restaurant that she's in the minority, especially in the recent debate over what to do about health care.

WOTRING: I come from British parents. They taught me that socialized government is not the bad thing that everybody imports it to be. I think that the government needs to take over health care.

KING: St. Marie's is in Benewah County, a timber region where John McCain won by a nearly two to one margin last November. Cheryl Halverson is the county Democratic chairwoman and says what sells in New York or San Francisco will likely fall flat here.

CHERYL HALVERSON, DEMOCRATIC CHAIRWOMAN: We're westerners. And westerners are more independent. This is a hunting and fishing place. People don't want to give up their guns. So we tend to be more self- reliant or think that everyone should be more fiscally conservative.

KING: For only the third time in 40 years, the local congressman is a Democrat. Walt Minnick, one of those who adds the words "blue dog" to his party affiliation.

WOTRING: It means someone who thinks realistically and pragmatically about spending. I think blue dog Democrats see their constituents more realistically than the real strong liberals. KING: To visit a place like this is to see the blue dog dilemma up close.

DON GRIESEL, ST. MARIES, IDAHO: You know, years ago I voted for Reagan, even though I thought he was too liberal.

KING: Don Griesel applauds Minnick and fellow blue dogs for complaining the president's health care ideas cost too much and give government too much power. But he won't reward the Democrat with his vote, because Griesel wants the House back in Republican hands.

GRIESEL: If he doesn't change his party, there's no way I can vote Democrat, because like right now, they have control of the House and all, and that's what's killing America.

KING: And across the table, psychologist and proud liberal, Patricia Bauer, has reservations of a different sorts.

PATRICIA BAUER, PSYCHOLOGIST: I'm concerned about them being too conservative. I am happy that he's watching the numbers, because I think we need to do that. But I'm concerned that fiscally responsible becomes a nay vote for health care. KING: University of Idaho political science professor Bryan McQuide says it is a near impossible balancing act, blue dog label or not.

BRYAN MCQUIDE, ASSISTANT PROFESSOR, UNIVERSITY OF IDAHO: The district is very Republican. Much of the district is solid red in terms of the blue and red America. Obama is going to be an issue, especially if there's more and more liberal proposals coming out.

KING: When Wotring disagrees when her congressman fights plans for a government health care option.

WOTRING: I employ 25 people here, most of whom do not have insurance.

KING: Because you can't afford to give it to them?

WOTRING: I can't afford to give it to them.

KING: Disagrees, but Wotring understands the blue dog rationale.

WOTRING: Loggers and fellows that work in the timber industry that are pretty right wing and the way he thinks is pretty typical of most moderate, be it, Republicans or Democrats in this area. He needs to do that because that's what his constituents want.


YELLIN: John King will be back here next week. I'm Jessica Yellin in Washington. Have a great Sunday.