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FAREED ZAKARIA GPS

Interview With Richard Holbrooke

Aired March 14, 2010 - 10:00   ET

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


FAREED ZAKARIA, HOST: This is GPS, THE GLOBAL PUBLIC SQUARE. Welcome to our viewers in the United States and around the world. I'm Fareed Zakaria.

This week, a conversation with Richard Holbrooke, Special Representative for Afghanistan and Pakistan, about the challenges facing America and the world in those hot zones.

First, a few of my own thoughts on that subject. President Obama supporters will often point to the change of tone in American foreign policy over the last year. It's less confrontational, more cooperative, but even his supporters are hard pressed to point to specific accomplishments. It's too soon, they will often say and it's unfair to ask for results just yet.

In fact, there is one difficult place where the president appears to be making some headway - Pakistan. Over the last three weeks, Pakistani forces have arrested a series of Afghan Taliban leaders, and, in a joint raid, they U.S. and Pakistani forces nabbed Mullah Barada, the deputy leader of the Afghan Taliban.

Pakistani forces have also made headway in anti-terror campaigns in the Swat Valley, where the Taliban appeared very strong just last year, and there is progress in Bashur as well, in the seemingly ungovernable tribal areas.

This marks a shift in the approach of the Pakistani military. How big a shift, we don't know, but it is a shift, and it does appear to be the result of some deft diplomatic work on the part of the Obama administration.

First, unlike the Bush team, from the start Obama identified Pakistan as part of the problem. They called the region AfPak, Afghanistan-Pakistan, much to the dismay of people in Islamabad. They put pressure on the generals in Islamabad, but they also dangled the prospects of a lot more aide. Senators Kerry and Lugar produced a huge package of civilian aid for Pakistan, and the administration showered Pakistan with attention.

The tide has not really turned yet. Many of those arrested by Pakistan are minor figures, and the Pakistanis still play a cat and mouse game and have not gone after the main terror groups that attack Americans or Afghans or Indians, such as the Haqqani faction, long supported by the Pakistani military and which killed seven CIA officers in Afghanistan just a few months ago. Pressing Pakistan is a bit like running on a treadmill. If you stop, you will go backwards, and you might fall off all together.

Now, also on the program today, a spirited discussion on the economy and health care with some very smart economists and writers, including Jeff Sachs.

(BEGIN VIDEO CLIP)

JEFF SACHS, COLUMBIA UNIVERSITY: Are you proposing to eliminate Social Security?

AMITY SHLAES, COUNCIL ON FOREIGN RELATIONS: Let me just go back and say one thing.

SACHS: Are you proposing to eliminate Medicare?

SHLAES: I'm proposing - there's -

SACHS: Are you proposing to eliminate Medicaid -

SHLAES: Jeff -

SACHS: -- which you defended about five minutes ago? So which of these -

SHLAES: Jeff, Social Security is very easy to reform.

(END VIDEO CLIP)

ZAKARIA: You wouldn't want to miss it.

Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: Ambassador Holbrooke, thank you for joining us.

RICHARD HOLBROOKE, SPECIAL REPRESENTATIVE FOR AFGHANISTAN AND PAKISTAN: Good to be here, Fareed.

ZAKARIA: How would you describe the operation in Marjah and how would you particularly describe the - the transference of authority from American forces to locals? Do you think that the Afghans who are likely to take charge are going to be able to hold the territories that General McChrystal clears?

HOLBROOKE: Well, that's the test, and I would agree with General Petraeus' comments to you last Sunday on this program. Clear, hold, build and transfer is the shorthand for the strategy.

That's why we made a major effort, probably the greatest in - in the history of counterinsurgency, to bring in with the military forces, as soon as the area was secure, civilians. The U.S. government, the State Department, AID put together a small but very high quality team that's been moving into Marjah and, most importantly, accompanied by Afghan officials.

ZAKARIA: When you were out of government, you had some very critical things to say about President Karzai. Many people have felt that things have not really improved, and when you look at President Karzai during this operation, to me at least, it does not seem he has been particularly helpful, even though he's technically one of the people ordering the operation.

Do you think President Karzai's behavior during Marjah has been enough?

HOLBROOKE: Well, he went down there last weekend, the first president of Afghanistan, the first head of state of Afghanistan ever to go to Marjah.

He spoke in the local language, because he comes from that area, from Kandahar. He had a local shura, a counsel. He listened to the people. They yelled at him. They told him they didn't like corruption.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: (SPEAKING IN A FOREIGN LANGUAGE).

HAMID KARZAI, PRESIDENT OF AFGHANISTAN: (SPEAKING IN A FOREIGN LANGUAGE).

(END VIDEO CLIP)

HOLBROOKE: I was pretty impressed with that.

As for the overall relationship, in early March 2010, we are, without question, in better relationship with President Karzai than we were a year ago today. Karzai has reached out to the Taliban with his reintegration program.

ZAKARIA: But (INAUDIBLE) -

HOLBROOKE: Things are going better in Pakistan.

So I would say, in general, in a - in a difficult and complicated situation, we are in a better position today than we were 12 months ago today, and that's the bottom line for me.

ZAKARIA: Then let's go to - stay specifically with Karzai. He has taken over the - the electoral commission. None of us expected that. It appears to be kind of a strange exercise of presidential authority.

He's criticized the U.S. troops for collateral damage, even though he understands the Taliban is using human shields. He has never publicly endorsed the operation, as far as I can tell.

This is not the kind of partnership I imagine you were hoping for.

HOLBROOKE: Well, he certainly did endorse the operation last weekend in Marjah. He was very explicit.

He stood there on the ground. It was a dramatic performance, and it was a clear endorsement. He was accompanied by American military and by his own people.

Now, your point on the elections, the Election Commission is well taken and everybody in the national community has expressed those concerns, and we are in consultations with them about that.

ZAKARIA: He's constantly criticized the American piece on the -

HOLBROOKE: Oh, yes, (INAUDIBLE) damage. You know, the criticism he issued was not - it was not dissimilar, except in tone, to what General McChrystal said.

General McChrystal - and this is really important. General McChrystal, in launching this operation, did something unprecedented in military operations. He gave up tactical surprise, which is one of the cores of any military strategy, announced the operation in advance precisely to make sure the civilians got out of the way. He gave the Taliban a chance to move out, because he knows that if you kill Taliban, you also kill civilians.

And, despite that, there were two bad civilian casualty incidents, one not even in Marjah, an air strike in another part of the country. And, as a result of that, he has tightened the tactical directives.

I know Stan McChrystal very well. I consider him both a friend and a great military leader, and he's doing everything he can to prevent it.

ZAKARIA: One of the things people often say to me when they talk about your trips in the region is that you - you take a lot of time to talk to village elders. You sit down with locals. So when you -

HOLBROOKE: And - and women. All these (ph) women.

ZAKARIA: And when you do that, what do they tell you about the appeal of the Taliban, about the appeal of radical Islam? What - what is your sense of what's happening on the ground?

HOLBROOKE: They never talk about radical Islam, ever, because it's not radical to them. Their con- the village elders are conservatives. It's a conservative society, as you have written, and they want to be sure that when the West enters their terrain, we respect their conservative traditions.

But what they do talk about is corruption, and the - and the need for services. They talked about education, including girls' education. In Swat, when I went to Swat and met with the leadership and the elders in Swat last month, that was their number one issue. And, boy, are they angry at the local Taliban. The Swats in Pakistan, about the (ph) same thing.

So, they have legitimate grievances. We can't solve their problems. We can provide funds, we can provide advice and advisers, but, in the end, it's going to take good governance. And here, you come up against the basic difference in Iraq and Afghanistan, and that's literacy.

The - the human resources in Afghanistan are depleted. There are hundreds of thousands of Afghans in the U.S. and Germany and in other countries with skills who can't go back because of security. They're embedded in this country.

The last foreign minister was a German Afghan, an Afghan who've lived in Germany. The district leader in Marjah is - lived in Germany. The - we have - we have to encourage people to go back. You know some of the people who've gone back. You know what great human resources Afghans have in the West.

They need help desperately, and it's going to take a little bit of time on the civilian side to rebuild. But we're - we're going to keep working at it and we'd always listen to the - to the people on the ground in Afghanistan.

(END VIDEOTAPE)

ZAKARIA: We will be back with Richard Holbrooke. More on international diplomacy and efforts surrounded Afghanistan, starting, of course, with Pakistan.

(BEGIN VIDEO CLIP)

HOLBROOKE: They have, in a sense, blown it. Their excessive brutality, the backlash against things, like the bombing of the wedding in Jordan, the beheading of people, the videotape in Swat of the flogging of the young girl, have created a - a revulsion against them.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: We are back with Ambassador Richard Holbrooke.

The last time you were on this program, we talked about Pakistan and I said to you, is it fair to say that everything really depends on the level of cooperation you get from Pakistan and you were honest enough and frank enough to say, yes. That - that is the real test.

Well, in the last month, there's been a lot of good news coming out of Pakistan. The Pakistani military does appear to be apprehending senior Taliban figures.

Do you think that they have undergone some kind of a - a change of heart or change of mind and - and recognized that even those other (ph) groups within the Taliban, even those militias, even those terrorists that don't attack Pakistanis, but attack Afghans, Indians, Westerners, are a mortal threat to Pakistan? HOLBROOKE: In the last 13 months since this administration took over, there has been a significant improvement across the board in the relationship between our government and the government of Pakistan. No government on earth has received more high level attention.

National Security Adviser Jones has been there twice. Secretary Clinton went on a - on a very successful trip at the end of October. I've been there eight times. Secretary Gates has been there several times, including this week after (ph) the - the - and many other high level visitors. FBI director Miller was there the other day and hosted a joint meeting of the two Ministers of Interior.

All of this, plus the recognition that the distinction between Afghan Taliban and Pakistan Taliban is - if it ever existed, is eroded, has led the Pakistanis to take a very much more forward leaning position. Plus, above all, the backlash from the excesses of the Taliban in Swat, in South Waziristan, and their attacks in places like Lahore or Rawalpindi, Islamabad, Kashmir - Karachi, have all contributed to an evolution.

And I spent a lot of time talking to General Kayani. In the last month I've seen him twice for long, private meetings, which were extremely productive. I've talked to the civilian leadership, as have my colleagues, especially General Jones and Secretary Gates Secretary Clinton.

We feel, clearly, that we're working more closely together with them, and I think that's a very big step forward.

ZAKARIA: Do you think that they will now finally go after the - the Afghan Taliban - that is, the Taliban that attacks and destabilizes Afghanistan who are largely North Waziristan? So far, they have confined their operations to Swat and South Waziristan.

HOLBROOKE: Well, they captured the number two person in the Taliban, Mullah Barada. That's a big deal.

ZAKARIA: But those captures are largely taking place in Karachi. These - you know, they're finding these people, but are they going to go - are they willing to take the battle to the enemy, in the heart of the enemy's camp?

HOLBROOKE: Well, I want to stress that they have moved over 100,000 troops from their eastern border against their giant neighbor to the western border to fight. They have two divisions in Swat right now. They have several other divisions in South Waziristan.

Of course, it would be extremely valuable for them to go in North Waziristan. Everyone understands that. But that's for the Pakistani army to decide based on their resources and their assessment of the situation.

We all know that if you spread yourself too thin, there's going to be a backlash, and I'm going to leave that judgment to General Kayani. ZAKARIA: Do you believe that the civilian government in Pakistan is now stable? You know, there used to be fears a year ago that Pakistan was going to collapse, that the - that the nukes were - were in peril.

Is it your feeling that Pakistan is in a much more stable place politically?

HOLBROOKE: Well, the political situation is an evolving one and I don't want to comment on it in detail in a public forum because it's an internal process. But a year ago this month, there were a million people in the streets, and there was a real danger of a crisis.

Now, political competition is returned to the same kind that we're familiar with in the States. It involves an opposition party, led by Nawaz Sharif, who we always call on on our trips, as we do to the opposition party in Britain or France or anywhere. And the government of President Zardari. It involves discussions they're having, and the military has said (ph) very clearly they don't want to get involved in a - in the way they have in the past.

So I am - I'm very - I watch this with interest. Pakistani politics is complicated, and I think it's not something a foreigner can easily assimilate and understand.

ZAKARIA: What is your sense of the state of al Qaeda today?

HOLBROOKE: They are under fantastic pressure. You know, recently their - their external operations chief was eliminated by - by activities (ph). They have lost a - about 10 to 12 of their top 20 people in recent - in the last year or so.

They are - it looks - and I want to be very careful about this - it looks like they are less an organization that plans operations now than an organization that summons people to aspirational jihad.

Now, in your cover story for "Newsweek", you had a very interesting thesis, one which my senior adviser on Pakistan, Vali Nasr, fully concurs with, and that is that they have, in a sense, blown it.

Their excessive brutality, the backlash against things, like the bombing of the wedding in Jordan, the beheading of people, the videotape in Swat of the flogging of the young girl, have created a - a revulsion against them. And although there are still these terrible incidents like the Jordanian doctor who blew himself and eight CIA people up in - in Eastern Afghanistan and other similar events, that they - that maybe they're losing their ideological appeal because it's such a nonsensical thing they're doing.

It's pure nihilism. They stand for absolutely nothing except destruction, and they destroy people's lives in a random and insane way.

So, you know, your - your cover story is a thesis which I hope history will judge to have been accurate. I - I think it's right. ZAKARIA: Ambassador Richard Holbrooke, always a pleasure.

HOLBROOKE: It's great to be back.

ZAKARIA: Thank you.

And we will be right back.

(END VIDEOTAPE)

(BEGIN VIDEO CLIP)

SACHS: -- system that they're in -

CHRYSTIA FREELAND, GLOBAL EDITOR-AT-LARGE, REUTERS: Right. And -

SACHS: -- it's - for themselves, unbelievably -

FREELAND: That's right.

SACHS: -- unbelievably frustrating because it's - they - one after another says it's deprofessionalizing. They didn't try to go into business. They tried to go into medicine.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: Is health care reform actually springing back to life again? And then there's the question, if Barack Obama finally does get it through, is that good news?

So joining me to talk about this and lots of other things, the economist, Jeff Sachs, who is the director of the Earth Institute at Columbia University; the writer Amity Shlaes. Among her many writings on economics is her book on the New Deal, "The Forgotten Man"; and Chrystia Freeland, who has just moved from the "Financial Times" to "Reuters" where she is the Global Editor-at-Large.

Welcome all.

Jeff, I'm going to imagine that you are probably sympathetic to the idea of health care reform along the lines Obama is suggesting, but I want to ask you about the issue of cost, because you are also concerned about the long-term issues relating to the deficit. So this is likely to be a budget-buster, yes?

SACHS: I think that the problem with it is that it didn't really get to systems reform very much. It's mainly about expanding coverage, which I'm in favor of. I think a decent society ensures that people have access to health care, and we've not met that most basic standard, alone among all the high-income countries in the world.

But our health system's a mess from a structural point of view, and it never got into the real deep workings. And there's a basic reason, which is that President Obama, right from the start, said to the private industry, look, don't go after - after us on this. I'm not going to go after you, you don't go after us.

ZAKARIA: In fact, he said to the insurance industry, I will deliver a very large, new customer base for you, which is all the insured, who will be insured largely with federal dollars.

SACHS: I don't think his idea was to bring business to them, but it was to avoid a massive lobbying onslaught, and the fact of the matter is that without a deeper change of the health delivery system, which we never discussed, really, in the past year, we're not going to get the costs in a meaningful way under control.

SHLAES: What's wrong with the current health insurance discussion is that you - you can hear it - when we try to grapple with it, is that it's treated as an engineering discussion. If we could just fix this and fix that or rearrange that, it will work.

Our health insurance problem is a markets problem as well. We don't know what the price of our health insurance is, so we can't cost it out. And one reason Americans are so ready to take the promise from an administration, be it Republican or Democratic, that everyone will get what we're going to offer and we'll keep the prices down, is the U.S. collectively has forgotten what price controls do, which is they sound good, but they yield, in the end, a shortage of supply.

The price is OK, but you can't get the thing that you want. And you see -

ZAKARIA: But are you trying to create a shortage of unnecessary procedures? I mean, to a certain extent, the - what gets American costs out of control compared with the Swiss, who also have a private system, or the French, is that we don't have cost controls. Given, the government is paying 50 cents on every dollar, and so there's a proliferation of services.

We use four times as many CAT scans per capita as any other country.

SHLAES: Another way to - to discuss this, Fareed, is to say let people become aware of the price of what they are consuming. And we don't have that awareness currently, so we can't really discuss it.

ZAKARIA: (INAUDIBLE) chewing on this?

FREELAND: You know, I'd just like to bring in something on precisely this issue of market mechanisms in health care. And I think the American system is (AUDIO GAP) with market incentives, as Jeff was suggesting, that encourage doctors to do too much.

And what I think Americans do not fully appreciate is not only does that cost more money, but it can lead to worse outcomes, and a very good example of that is childbirth.

I've had a child now in Toronto, London and New York, and - which was an interesting journalistic odyssey.

SACHS: A sort of semi-controlled experiment, right?

FREELAND: Right. Exactly. And -

ZAKARIA: You should write a book about it.

FREELAND: And, I have to say, in the American system, you have to fight against over treatment, whereas both the Canadian and British systems encouraged less treatment, which was better. And my American doctor said if you had had your first child in the United States, you would have had three C-sections. That wouldn't have been good for me. It would cost more money for the system, but doctors would make more money.

SACHS: More than that, anybody that's had experience of complicated cases in our health systems knows that it's a nearly impenetrable minefield right now. You - doctors come and go. You don't know which practices, who they are. There's no continuity of care.

Tests get done over and over again. Lots of mistakes get made. Layers of cards in the system of, oh, that gets billed to this one, this gets billed to that one. And it's really shocking how, when you get to the core of it, the actual help for the individual is so complex that you need a team of specialists even to help you understand what's going on with - with this incredible array, and I've seen that with so many people that get completely lost in this marketized system.

FREELAND: In defense of American doctors - and this is something that I think the White House can be faulted for not tackling - part of what American doctors have to do is practice legally defensive medicine. And one reason you have over treatment, it's not just the profit motive, it's also concerns about being able to defend yourself in court.

SACHS: Well, I'm not even talking about the profit motive, that they're just laying on extra cases. I - I liked American doctors. I'm married to one.

But - but the problem is that the system that they're in -

FREEDMAN: Right. And -

SACHS: -- it's - for themselves, unbelievably -

FREELAND: That's right.

SACHS: -- unbelievably frustrating because it's - they - one after another says it's deprofessionalizing. They didn't try to go into business. They tried to go into medicine, and that's the big difference.

ZAKARIA: Let me ask you, Amity, you know, the point you were making that the consumer needs to be exposed to more of the cost rather than have this complicated insurance system where there's lots of third party payments or the government is paying, makes a lot of sense, but what I'm struck by is everybody agrees that you want to have some insurance for kind of what is considered catastrophic care or, you know, situations that are life threatening and things.

Eighty percent of the costs of health care relate to the last year of life.

SHLAES: Here Europeans have an advantage over Americans because Europeans expect to die and Americans do not. And so -

SACHS: It's ironic, Europeans have longer life expectancy than America.

SHLAES: And they have - but they do expect to die, and there are market-related mechanisms for dealing with this expensive moment. It's - sometimes a hospice can be cheaper, a less medicated, less - you imagine a person hooked up to IVs at that sad moment. That's not necessarily necessary.

SACHS: We have a big problem here that is unsolved in basic coverage. We have a system which is far more costly per same kind of patient outcome and same kind of problem than any other place in the high income world. Those are the things that we're grappling with here.

FREELAND: I think that it's a mistake to understate the economic and security of the lower middle class in America and the extent to which having health care tied to a job at a time of nearly 10 percent unemployment is not only psychologically stressful, but damaging for the economy. I think it restrains labor market flexibility. It means that people are more frightened of losing their job and they should be because they lose their health care coverage as well.

SHLAES: Chrystia has got it exactly right. The health insurance shouldn't be pegged to a job and that's a market solution as well because that does bring you closer to the price. You know the price of what you're buying. Maybe you get a tax deduction for that. Maybe we put the emphasis on our tax reform on helping people to buy health insurance. There are Democrats and Republicans who like that idea. Then they become closer to knowing what it costs. The same, by the way, holds for the housing market. The more you know what it really costs and what the real interest rate is, the wiser decisions you make.

ZAKARIA: On that note, we will take a break and we'll be back to talk about everything else, the global economy, financial reform, everything.

(COMMERCIAL BREAK)

ZAKARIA: We are back for our round table with Jeff Sachs, Chrystia Freeland and Amity Shlaes. Jeff, what do you think the American economy looks like right now? At some level, there's been a really remarkable return to normalcy. Stock markets are back to normal, but credit markets are now almost booming again. And yet, lots of people worry about a double dip because underlying all of this remains very weak consumer demand. People are just not going out and spending.

SACHS: We had a panic of course in September of 2008. And last year was battling the panic and it was gotten back under control, so we turned from a panic that could have slid into utter disaster into a recession which now looks like having some weak recovery. But there is no great impulse of long-term dynamism in the U.S. economy for the moment because the consumers are still burdened by debt. The unemployment is high, the budget deficit is still out of control, let's be clear about it. And given all of that, what we're doing is kind of inching up, but nothing very satisfactory. What I find missing in all of this is really a strategy.

ZAKARIA: Amity, interest rates are close to zero. The consumer is burdened with debt, does not seem to be consuming. Isn't this the classic case for some kind of second stimulus because if you don't and you allow the economy to maybe fall back into a second recession or even very weak recovery, you risk the kind of situation that you had in Japan, which is a downward spiral of consumer confidence which is very difficult to lift up again.

SHLAES: Fareed, Japan is a good model. We look at it very closely, the '90s and they had more than 10 stimuli. And at the end...

ZAKARIA: After 2 1/2 years of doing nothing, that was the point because they allowed...

SHLAES: We've had our two years now almost, right? So they built airports, they built roads to nowhere, concrete tsunami of construction and many Japanese feel that it wasn't necessarily worth it, most of it, certainly didn't bring back -- well, you know where their debt it.

ZAKARIA: So, how do you get the dynamism of growth?

SHLAES: I would look at it from the micro-economic and from also I would say the non-Keynesian point of view. That's not say a happy consumer who goes to the mall equals recovery. Let's do a more common sense thing and say, a happy person is a person who gets a job. And then let's say, how do we get people to offer other people jobs in the U.S. economy because that's the number one concern for all of us and why the shopping isn't happening at the mall. Wisely people are saving. We reduce the cost of employment. The big concern, uncertainty over the health care legislation in the United States is will it cost the companies who employ more and therefore, they postpone hiring or will a tax increase come on companies? Therefore, they postpone hiring.

FREELAND: I tend to agree with Amity that part of the problem right now is confidence in the business elite and actually, this week, I spoke to a couple of senior sort Wall Street Democrats, people who were very supportive of Obama, who to my surprise, are very concerned about what they perceive to be an anti-business coloring to what he says. That's surprising to me because I don't hear that. Actually, what I hear from people in the Democratic base is a sense of why the heck isn't the president going after Wall Street more? But I do think there's an insecurity in the business elite. The problem is, I don't think there are any magic bullets for the United States right now.

SHLAES: When we talk about the United States, we think the Federal government, especially in international context, it's Washington that must do this, but the states are very much labs in the United States. There are states that are doing the things we just discussed. One of them is Indiana, where they have a form of health savings account for the state employees, where they had to cut the budget. When anyone in the international market looks at the U.S. and says, it doesn't matter what size deficit they have, they say that because the dollar is king. That person is overlooking that our states are American experiments where budgets often have to be balanced and some of them are bailing -- California -- and some are not.

ZAKARIA: California on the other hand is a good example. You can cut your taxes, shrink your tax base and you basically go bankrupt in the long run.

(CROSSTALK)

SHLAES: Innovative part of the American economy, by the way. That's where Silicon Valley is. It's remarkable that that can happen there.

(CROSSTALK)

SHLAES: There's a big difference though between Indiana say and Michigan and what Governor Daniels is doing in Indiana is a market model.

SACHS: Amity talks about tax cuts. We're already by far lowest taxed country of all of these countries, and we busted so many of our public functions at this point, and we have a 10 percent of GNP budget deficit. You do the basic arithmetic. We come again and again to the same point that since we have the lowest tax take, that is as a share of our income and I'm not talking about the structure of the taxes, we can't fund basic things to have a normal, civilized country right now. That's what's eating us alive. We can't do anything right now. We're just paralyzed because of this huge gap and the idea that no, we got to cut more, cut more taxes, cut more taxes, rather than take an honest piece of arithmetic and say, it's going to have to be both. We're going to have to have some spending cuts. We're going to have to have some tax increases, but let's take this seriously because otherwise, the rot that will come will be very, very serious.

ZAKARIA: Tax increases. Can you go along with the value-added tax?

SHLAES: No, I can't. When you do an honest bit of math and say, supposing I want to get rid of the deficit this year, I want no deficit for the United States, well, the tax foundation did some math this week on that. They said we'll do it through taxes and they found that the top rate would be 65 percent. We would need statically (ph) to get to zero deficit. Also, everyone else's rate would go up, too. It would be needed across, what we call across the board increase. The future of the U.S. --

ZAKARIA: Nobody's saying you have to go down to zero and nobody's saying --

SHLAES: But the future of the U.S. lies in the reforming of the entitlements, not in adjusting the taxes or even necessarily adding that. I would argue that the VAT is part of Europe's trouble. Europe lies about its financial data, its national economic data more than the U.S. does. I remember and Jeff remembers, the days when Italy said, you have to count our black market economy in our GDP --

SACHS: ... are you going to save on Social Security as we have 5 percent of GNP on Social Security, 10 percent of GNP gap. Are you proposing to eliminate Social Security?

SHLAES: Let me just go back and say --

SACHS: Are you proposing to eliminate Medicare? Are you proposing to eliminate Medicaid which you defended about five minutes ago?

SCHLAES: Social Security is very easy to reform.

ZAKARIA: Would you get much savings?

SHLAES: That's the easiest one. You start with that to show that reform of entitlements --

SACHS: How many percentage points of GNP of our 10 percent of GNP budget gap are you going to get that way (INAUDIBLE) 2011, 2012, 2013, 2014. That's the arithmetic.

SHLAES: Jeff, you asked for an answer to this year's budget gap and I gave you the tax data, the tax rates we need to get to this year (INAUDIBLE) -- in the longer term, which is what we are all concerned about and in the longer term, reform of entitlements is the answer.

ZAKARIA: We are going to have to end on a bipartisan note which is that we have run out of time. Thank you all very much and we will be right back.

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CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley and here are stories breaking this Sunday morning. President Obama's top political adviser says insurance lobbyists are gathering in Washington like locusts to derail health care legislation. From "State of the Union" earlier this morning, David Axelrod said despite those lobbyist efforts, he's confident Congress will pass an overhaul measure.

(BEGIN VIDEO CLIP) DAVID AXELROD, WHITE HOUSE SENIOR ADVISER: We're very optimistic about the outcome of this process. I think people have come to the realization that this is the moment and if we don't act now, they'll be dire consequences for people all over this country.

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CROWLEY: Israel's prime minister says he's launching an investigation into how a controversial new settlement project was announced right when Vice President Joe Biden was visiting the country. The plans to build 1600 new apartments for Jews in contested east Jerusalem infuriated U.S. officials. Secretary of State Hillary Clinton called the announcement insulting to the U.S. and a setback for the peace process. Israeli Prime Minister Benjamin Netanyahu says the timing is unintentional.

In Afghanistan, a call for more Afghan troops from Kandahar's provincial government. This after a series of bombings yesterday left at least 35 people dead and another 57 wounded. Residents of Kandahar say the Taliban operate there with little restraint. NATO considers the province the insurgents' last stronghold. It is the target of the war's next major offensive by Afghan and international forces.

A brutal storm is hammering much of the northeastern U.S. Heavy rains and hurricane-force winds slammed the region yesterday leaving more than a half million people without power. At least one person was killed and three injured when a tree fell on a car in Connecticut. The storm will continue to batter the area throughout the day and flooding remains a threat. Those are your top stories. Up next, more Fareed Zakaria, GPS.

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ZAKARIA: Now for our what in the world segment. What got my attention this week was an anniversary. Tuesday marked the first anniversary of the Dow's lowest point in this recession. One year ago on March 9th, 2009, the Dow Jones industrial average closed at 6,547 points, its lowest level in more than 12 years. The collapse, you remember, was caused by widespread fears that the American financial system was teetering on the edge and could take down the entire economy with it. But that never happened. And in fact since then, the Dow has been on a steady climb upwards with a few minor dips and plateaus. This week, the Dow was hovering around 10,500 points. That's up 60 percent in a year.

Now, one month before the Dow hit that lowest of lows, there was a different kind of low. At what was essentially his coming out party, Treasury Secretary Timothy Geithner bombed. He was announcing on television the administration's plan to fix the banks. The government would buy up toxic assets, conduct stress tests to make sure that individual banks could survive and inject equity into those that needed it. Geithner's performance was pretty universally panned. Everyone said the plan didn't make sense. It could never work. It wasn't enough. Thirteen months later, Geithner's critics are mostly silent. The plan worked. It was enough and it won't end up costing taxpayers very much either.

Since last May, when the Treasury Department released the results of the stress tests, the banks had raised more than $140 billion in capital. All of America's big banks are now well capitalized and making money and there's very little taxpayer money invested in the banks anymore. They have paid almost all of it. The Treasury says that in the end, all of the emergency government financial programs will cost taxpayers less than the savings and loan crisis clean-up did in the 1980s.

Now, there are some critics who contend that Geithner's plan worked, but at a price. It cushioned bankers or that swifter solutions should have been used such as nationalizing banks. Maybe, but of course, something like nationalization would have had huge uncertainties, huge costs associated with it. Geithner's plan was a shrewd, middle course. It solved a huge problem, came in under budget and is now winding itself out of existence, not bad for a government program and we'll be right back.

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ZAKARIA: Now for our question of the week. Here's what I want to know. It's a simple question. Do you think it would be good or bad for the United States if Obama's health care plan passes? Let me know what you think. And as always, you can go to our website to see some great answers to last week's question.

Now as I do every week, I'd like to recommend a book. This one is by Azar Nafisi. If the name sounds familiar, she wrote the best-selling memoir "Reading Lolita in Tehran." It was on the "Times" best-seller list for 200 weeks or something like that. But her second book is now out in paperback. This one is called "Things I've Been Silent about: Memories of a Prodigal Daughter." Nafisi essentially gives the reader two great stories for the price of one. First in the foreground, there is the fascinating psychological look at her relationship with her parents and her parents' tenuous relationship with each other, great, human story. And these stories play out over the incredible background of the events happening in Tehran, from the overthrow of a democratically elected Prime Minister Mosaddeq in the '50s to the reign of the shah of Iran, to the Iranian revolution and the founding of the Islamic Republic of Iran. It's a really great read about an important subject.

And now for the last look. It's amazing how the chaos and craziness of the scene here can turn into the unadulterated joy that you see here. The story is pretty amazing, too. Fifteen years ago, a bill was introduced in the Indian parliament calling for reserving 1/3 of the seats in the country's Federal parliament for women. This week, after all this time and after much heated debate, the measure passed the upper house of parliament. Now, it goes to the lower house to be debated and voted on there. Hopefully, it won't take another 15 years to get final passage there. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."