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STATE OF THE UNION WITH CANDY CROWLEY

Examining the Jobless Recovery

Aired September 5, 2010 - 09:00   ET

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


CANDY CROWLEY, CNN HOST: Labor Day, summer's last vacation, but come Tuesday almost 15 million people will wake up with no work to return to. The Bureau of Labor Statistics reports another 54,000 jobs were lost in August. Unemployment ticking up to 9.6 percent, not as bad as experts expected, but still grim news for a grim country. Just 18 percent of Americans describe economic conditions as "somewhat good" or "very good: according to a recent CNN poll, 81 percent say "somewhat poor" or "poor."

And even in a primetime address meant as a victory lap for the U.S. drawdown in Iraq, President Obama signaled his understanding of what most Americans have on their minds.

PRESIDENT BARACK OBAMA: Our most urgent task is to restore our economy and put the millions of Americans who have lost their jobs back to work.

CROWLEY: After 19 months in office, it has been easier said than done. Today, we look for answers with Richard Trumka, president of the AFL-CIO; and Todd McCracken, president of the National Small Business Association.

Then, 58 days until midterm elections, crunch time in politics, with the National Journal's Ron Fournier, TIME magazine's Michael Duffy, and Elisabeth Bumiller of The New York Times.

I'm Candy Crowley, and this is "State of the Union."

(END VIDEOTAPE)

CROWLEY: Facing the prospect of disastrous congressional elections, the Obama administration, trying to fuel recovery, is considering a package of business tax cuts. The president is expected to announce this week an extension of the research and development tax credit. Other proposals under discussion to help small businesses include a temporarily payroll tax holiday.

Over half of all the private sector employees work in small businesses. The idea is that those tax cuts might push those businesses into hiring again. Joining me now to discuss these proposals and more, thank you very much, Richard Trumka, president of the AFL-CIO; and Todd McCracken, president and CEO of the National Small Business Association.

Gentlemen, thank you so much. I want to just step back one second before we talk about specifics. And it struck me this morning, reading our research that every major paper has analysis that is just kind of heart-wrenching about what the economy is going to do.

One of them that caught my attention came from The L.A. Times talking about jobs. The nation's job deficit is so deep that even a powerful recovery would leave large numbers of Americans out of work for years. Experts say: "And with growth now weakening, analysts are doubtful that companies will boost payrolls significantly anytime soon."

So let me get you both to start out by giving me your version of the state of economy.

TRUMKA: You want to start with me?

CROWLEY: Sure.

TRUMKA: Well, it's obviously a tough economy for working people right now. And this Labor Day, workers are actually looking for economic patriots, people that will help to create good jobs, that will stop the outsourcing, that will help build retirement security, and they are looking for people to do that.

But they have a lot of hope because the foundation has been built. You know, for eight years, we got worked over by the Bush administration. And now we have an administration that is working with us instead. So there is some hope.

The foundation has been built. We've reined in Wall Street. We've done something to control health care. And we've started the process.

CROWLEY: I think this is a tough sell. And I want to ask you about some specifics, but first let me get, Mr. McCracken, your -- from your viewpoint, representing small businesses, how do they feel the state of the economy is?

MCCRACKEN: Well, it's pretty grim out there. A lot of small businesses do see some opportunities, but most of them are kind of in a stagnant or even a downward growth piece right now.

The thing we need -- we think is needed the most is access to credit and capital for small companies. Because that's what is going to enable them to take advantage of opportunities when they do have them, and hire that next employee and really begin to grow.

Unfortunately, you know, there are some proposals on Capitol Hill right now that would really help with that, and they have been stuck in the mud. And we really hope we can move forward on some of those things in the next few weeks.

CROWLEY: And again the idea is that would help workers.

MCCRACKEN: Absolutely.

CROWLEY: The small businesses employ so many people across the country. So let's just talk a minute about the idea of making permanent the research and development tax credit, which presumably would, you know, presume more innovation in the workplace, loosening credit. I mean, these are a number of things that the administration is looking at.

But in what way do you sort of think that this might be -- is this really a matter of changing policy or doing something, or is this a matter of a business cycle that is just going through the ropes and has gone back down a little bit, and kind of moving on its own?

TRUMKA: This is a business cycle. This is the result of 30 years of failed policy. In this country, we tried to say that we would have a low-wage, and high-consumption society. And that simply doesn't work, because the society -- our economy is built by consumer spending. And consumers can't spend when they don't have money.

CROWLEY: Well, doesn't that argue then for tax cuts all around? We talk about this payroll tax cut for small businesses, but how about, as Republicans argue, a tax cut for everybody so that they can buy the things that small businesses are selling?

TRUMKA: Well, when you get into tax cuts for the very rich, they don't buy much. And that's what happened. That's what resulted in the deficit in the last 30 years. They gave more tax cuts to the rich. They did not give them to the people that needed it.

We have been in the forefront of trying to rein in Wall Street and say, we do need more credit for small and mid-sized businesses so that they can start creating jobs. All of that will help, but it may not be enough, even the holiday on taxes may not be enough, the research and development tax credit may not be enough.

We need to create demand. And the best way to create demand is to put money in people's pockets. We need to invest in jobs, because without the jobs you won't get that demand.

MCCRACKEN: Yes. I do think that we are at the end of a bubble. This whole thing was created by a bubble that had lots of factors that came into why it was created in the first place.

But the reality is, it is going to take time for us to grow our way out of this. But that does not mean that we can't put into place some key policy objectives now that will help with that and will speed that up a little bit. And putting money in the pockets of both consumers and small business people so they can take advantage of the opportunities when they come along is crucial.

CROWLEY: Well, you know what's going on out there. We are hearing from more and more people showing up in the polling that people think, well, wait a second, we spent a trillion dollars and what we got for it was a 9.6 percent unemployment rate, a housing market that is dreadful.

And you can argue all you want that things are getting better or that it has been going on for 30 years, that the Bush administration was terrible, whatever you want to do, the fact is people think -- and Congress is in no mood to spend more money. How do you make that argument? MCCRACKEN: Well, I do think that there are some things that can happen relatively quickly that don't cost a lot of money. For instance, there is a jobs bill sitting in the Senate that they are going to be taking here in just a week-and-a-half that will free up a lot of credit for small companies at a very low cost of capital for the government. The SBA has loan programs that have been essentially on idle since the end of May, because Congress has not acted. They can get those enacted and reauthorized, billions more dollars will flow into small companies that will enable them to buy capital or buy equipment, hire employees, rent new spaces, and really begin the process of growing the economy.

TRUMKA: And there was not a trillion dollars, and it was three quarters, and it was bifurcated in a number of different ways. If we'd have spent...

CROWLEY: Well, if you just count the stimulus package, it was about three quarters, but then other stuff has been added on to that.

TRUMKA: If we'd have done stuff in infrastructure, the more we do in infrastructure, the more jobs we create, the more jobs we create, the lower the deficit.

CROWLEY: But there was infrastructure money in the stimulus bill.

TRUMKA: Yes, the mistake that was made with that was that they were all short-term projects. We couldn't invest in anything that was going to take more than 18 months. And as a result, we couldn't bring in private investment. That was one of the mistakes in this.

CROWLEY: So you both sort of agree that more money is needed, more federal input in terms of the money is going to be needed to jump-start both the small business arena and get jobs back.

TRUMKA: In the short term, absolutely.

MCCRACKEN: Yes, it has to be smart money, we're not ones for throwing unnecessary dollars at it. But, yes, both -- and tax cuts and access to credit, those are the key places.

TRUMKA: And here are three things that they can do between and election day. We have the Surface Transportation Act reauthorization, create a lot of jobs in the process. The Clean Water Act, the clean energy act, guaranteed loans for nuclear power, all of those would create tremendous amounts of jobs and push the deficit down at the back end, so it's a twofer.

CROWLEY: Where do you think these jobs will be coming from when they come back? Some of these may be gone forever. Now if you look at small business right now, you have seen -- you are now seeing lean and mean machines, of those who have survived.

They are using technology. They are pushing the workers that they do have, much higher productivity. Then you look at places where usually recovery comes from, contractors -- housing and building contractors, that's not going to happen because there is all of these empty buildings and houses that are for sale. Automakers, they have cut back, I mean, that has been brutal up there in the number of workers they have cut back.

Where are these jobs going to come from? Are they only going to have to come from the government?

TRUMKA: No, absolutely not. They are going to come from small and mid-sized businesses. And they are going to come from...

CROWLEY: But they are not...

TRUMKA: ... clean manufacturing, green manufacturing. That is out there. There are millions of jobs to be had. And at the same time we create those jobs, we make ourselves more efficient as a nation, and more able to compete.

CROWLEY: But there are not millions of jobs now.

CROWLEY: I mean, I keep hearing tens of thousands of green jobs. The problem is, we need hundreds of thousands of green jobs, and they're not there yet.

MCCRACKEN: We need about 15 million.

CROWLEY: Yes.

MCCRACKEN: We need about 15 million.

CROWLEY: So, 15 million. How long before we have actually 15 million green jobs, even in small businesses?

MCCRACKEN: Well, it's going to be -- it's going to be a while, but that's why we have to think about this in a broad base. I don't really think the recovery is going to be, you know, a sectoral recovery. We're going to have to think about small businesses that are adding one and two and three jobs apiece across all kinds of different industries.

But if they're going to do it, they have to be able to exploit the opportunities when they have it in front of them. And to do that, they've got to have access to money, because the -- to take advantage of a new -- of a new opportunity, you have to hire people, buy equipment, maybe lease some space.

Those three things, no one's going to wait for that. The employee is not going to wait to get paid. The -- the vendor is not going to wait to get paid, and the landlord is not going to wait to get paid. But the small-business owner is not going to give their money for 60, 90, 120 days. That's -- that's the gap that we've got to figure out how to fill, and that's what's missing right now because the banks aren't lending to small companies.

CROWLEY: I'm going to ask you two to pause right here, because we're going to come back with you. More on the economy and some politics with Richard Trumka and Todd McCracken when we come back. (COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

CROWLEY (voice-over): The union vote is tried and true in the Democratic Party, not just because big labor is a core constituency in the party base, but also because unions are a treasured trove of feet on the ground, turning out the vote, working the phones, knocking on doors, which has not always been gratifying this year. One Ohio organizer said, "When our canvassers call on our members on their door steps, they hear Glenn Beck or Bill O'Reilly in the background."

In the face of increasingly gloomy national polls for Democrats, Richard Trumka took the "all politics is local" approach at a recent news conference.

TRUMKA: The selection is a choice. And, quite frankly, it will be decided race by race, workers deciding which candidate is on their side.

CROWLEY: The AFL-CIO plans to work in 26 states. It will focus on 18 Senate races, 70 House races. At the polls and in the right spots, the labor vote can be pivotal. In the last five congressional elections, more than 60 percent of the union vote was for Democratic candidates.

Still, union membership is down from its heyday, and its influence has diminished. In the past five elections, the percentage of voters who are union members has gone from 16 percent to 12 percent.

More with Richard Trumka and Todd McCracken in a moment.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CROWLEY: We are back with AFL-CIO President Richard Trumka and National Small Business Association President Todd McCracken.

Thank you all both for being here. You were saying as we went to break that what you needed was for the financial institutions to kind of open up, make credit a little bit easier. The fact of the matter is that part of the reverberation from this recession has been to say to banks, "You gave out too much money to people who shouldn't be getting it," and now we're asking them to give out more money. What do we do with the banks and that -- you know, because you need them to give -- and are pushing for small-business tax cuts.

TRUMKA: Well, we've really been in the forefront of that, trying to get money, and the proposal that we've made is that we ought to take used TARP money or money that was paid back and unused TARP money and give it to regional banks, so that they can lend to small- and mid-sized businesses, because there is a credit crunch out there, and they haven't been lending.

What they did is they went the opposite way. Maybe they were too loose...

CROWLEY: Well, it's a pendulum, right?

(CROSSTALK)

TRUMKA: They were too loose, and then they went too tight.

CROWLEY: And whose fault (ph)?

MCCRACKEN: I think, yes, the pendulum is exactly the right analogy, because it swung too far in one direction, now it's swung too far in the other direction, and we've got to get them back -- back in the middle, and we think there are proposals on the table that can help us do that.

The small-business lending fund idea that was just mentioned we think is a smart way to -- to start and to get the -- the SBA- guaranteed lending going again we think is also a really productive thing.

I mean, that's -- it doesn't really get banks to make bad loans, because they still have skin in the game. They're not going to go out and make crazy loans. But it -- but it really helps the small companies get the extra credit they need.

CROWLEY: Mr. Trumka, tell us what the president has done right, first of all, in trying to deal with this economy. And where do you think he's gone wrong?

TRUMKA: Well, first of all, he did the stimulus package. You know, let's remember what he inherited. He inherited a banking industry or an economy that that was about to fall off the end of the cliff. He inherited a recession.

So he's brought us back. He's brought sanity back to the financial system here. He has brought the economy back somewhat. He's created more jobs in this recession than George Bush did in eight years as president with a surplus. So he's done that.

CROWLEY: But 62,000 jobs last month is not enough.

TRUMKA: Oh, of course it's not enough.

CROWLEY: Right.

TRUMKA: We need between 400,000 and 500,000 jobs a month.

CROWLEY: So you think the stimulus package was a good idea and you think it saved us from going off the cliff?

TRUMKA: I do. It was too small at the time, and everybody knew it was too small, but it was all they could get passed because of Republican opposition.

CROWLEY: And so, first, what makes you think you can get anything passed the Republican opposition at this point, especially since the country has gotten more and more concerned about the deficit? But -- but, secondly, to my first question is, what has he done wrong, do you think?

TRUMKA: Well, the first thing that was done wrong in the stimulus package was, When we did infrastructure, it only addressed short-term infrastructure projects, so that we couldn't get a project that would take three or four years to complete and create a lot of jobs. They were all smaller jobs.

It should have been geared toward longer stuff.

TRUMKA: More of the money should have been structured towards infrastructure and helping state and local governments, because what we see right now is, the extraordinary spending of the federal government is being negated by the contracting of the state and local government...

CROWLEY: Sure.

TRUMKA: ... and that's why we're seeing the -- the... CROWLEY: Yes, where they're going to still look at more teachers and firefighters, policemen, and that's part of the AFL-CIO, that are getting laid off now because those state budgets have to be balanced.

TRUMKA: But if we hadn't given them aid, we could have lost 900,000 teachers, firefighters and police. That's not good for the country. That's not good for our children. That's not good for our future.

CROWLEY: Mr. McCracken, what has the president from your point of view done right and what has he done wrong?

MCCRACKEN: He really has focused on the lending stuff for small companies, and I think that's a really productive thing. He seems sort of -- sort of gets the need to really -- to inject credit capital in small companies and how it's really the lifeblood of what they do.

And what he's done wrong, I think, is not really focus on that nearly early enough. I mean, we're talking about a small-business lending fund now in September into the end of a recession. This should have been on the table a year-and-a-half ago, and things like this should have been on the table a year-and-a-half ago.

And now they're also talking about a payroll tax holiday of some substance. We were talking about that also a year-and-a-half ago. We think something like that should have been in the first stimulus package, and things would have been -- we would have been in better shape than we are right now.

TRUMKA: You know, Todd, in all fairness to the president, the House of Representatives has passed 400 bills that are sitting at the doorstep of the Senate. And because of the obstructionism of the Republicans right now, they haven't been able to be passed. Much of what you've talked about are in those 400 bills that Democrats and the president advocated. CROWLEY: But he was advocating -- I mean, he was -- had his hands full and was advocating something larger and some other things. Let me ask you something, because I had two men in here who were heads of very large companies who said the president just has this anti- business tone, businesses are worried about like what's coming next, there's this uncertainty. Do you think that the president has an anti-business tone?

MCCRACKEN: I -- I think it can be perceived that way, because the -- a lot of things that have come out of -- of Washington in the last year-and-a-half do inject a degree of uncertainty into the economy. And that does hurt job growth, because you have to realize that for a company adding another job or adding (inaudible) is a long- term decision. It's not something they do lightly.

And they have to look into the future and know what's -- what they think is coming and whether they're going to be able to sustain this. And -- and the financial reform, the -- the -- the health care reform, and now all the uncertainty over what tax policy is going to be over the next few years does sort of add to that general unease. And there's no getting around that.

CROWLEY: And keeps jobs from coming, because I don't want to hire, because we don't really know what's going to go on. But let me move you on to...

TRUMKA: But wait, wait, wait. All of those were absolutely essential, and it's unfair to say that the president is anti-business. This president has done more and given more to tax cuts to business than -- than anybody before.

CROWLEY: He did say -- he saw how it could be perceived that way.

TRUMKA: Well, and, you know, he has -- we had no choice but to rein in Wall Street. We had no choice but to rein in health care costs. We have no choice but to look at a tax code that now rewards people for taking jobs offshore and trying to reverse that.

All of these things have come about because of the bad policies of the last 30 years, and this president is trying to correct them.

CROWLEY: Let me ask you about one -- one final policy, and that is about the Bush tax cuts. As you know, they are scheduled to be -- to expire in January. This president wants to keep them for anyone who makes $250,000 per household or under. I want you to listen to Joe Biden a little bit ago on this subject.

(BEGIN VIDEO CLIP)

BIDEN: The only argument that our colleagues, our Republican colleagues make is, well, this is really going to hurt small business if you don't extent the entire Bush tax cuts. Here are the facts: 3, not 3 percent of the small businesses in America would benefit one single, solitary penny of extending that top 2 percent tax cut. So this is just a bunch of malarkey. (END VIDEO CLIP)

CROWLEY: Mr. McCracken, clear this up for us, because every time we start on this -- start down this tax cut thing and the $250,000 mark, what we hear is this is going to hurt small businesses. Is this overall a drain on small businesses? Should the tax rates expire on those making $250,000 and up?

MCCRACKEN: We think this is the wrong time to have taxes go up for -- for small companies, because they do pay taxes at this rate, so we think Congress should at least temporarily extend...

(CROSSTALK)

CROWLEY: For everyone?

MCCRACKEN: Yes, these taxes, because this is the wrong time to increase taxes on anybody, because the companies that do pay this tax -- and it is a minority of small companies, for sure -- but the ones that do are the more successful ones who are most likely to be growing jobs and the ones that we want to continue to be successful and we don't want to put disincentives in place for them to do it.

But the vice president is correct that it is only a fraction of small companies that pay taxes at...

(CROSSTALK)

CROWLEY: But those companies that tend to create most of the jobs?

MCCRACKEN: Exactly. The jobs aren't spread across evenly across all small companies.

CROWLEY: OK. All right. And you've got the last...

TRUMKA: It's not fair to -- it's not fair to say most of the jobs. They create some of the jobs, not most of the jobs.

CROWLEY: Well, most of the jobs within the small-business industry.

TRUMKA: Not most of the jobs within the small businesses. They're not created by the 3 percent. They're created -- the vast majority are created by the other 97 percent. So it's not fair to say most jobs are created by that top 3 percent, because they are -- are not.

CROWLEY: I'll give you the last word.

(CROSSTALK)

MCCRACKEN: Well, there's the question of job creation versus jobs -- jobs that exist. Most small businesses -- most jobs exist in -- in the other businesses, but I think the more successful, growing companies that pay the higher rates are creating most of the new jobs, so it depends on how you look at it.

CROWLEY: Todd McCracken, it always comes out (inaudible) Todd McCracken, Richard Trumka, thank you so much for joining us. Happy Labor Day to you both. TRUMKA: Happy Labor Day to you.

CROWLEY: Up next, what the numbers say about President Obama's handling of the economy and why that could erase his Democratic majority in Congress.

(COMMERCIAL BREAK)

CROWLEY: A raft of new numbers and analysis suggests that Democrats are looking at more than election-year losses. They could be staring at an election year tsunami.

Larry Sabato of the University of Virginia predicts Republicans will gain 47 seats in the House, 8 more than they need to take over control of the House. And here's how veteran political analyst Charlie Cook sizes it up. "Democrats find themselves heading into a midterm election that looks as grisly as any the party has faced in decades. It isn't hard to find Democratic pollsters who privately concede that the numbers they are looking at now are worse than what they saw in 1994."

1994 is also known in this town as the year of the Republican revolution. They picked up 54 seats in the House and 8 in the Senate. What the Democrats needed then, what they need now is a lifeline. It doesn't look like they'll find one at the White House.

The president's approval rating on handling the economy has plummeted from 59 percent last March to 40 percent now. The president has argued that the economy will continue to improve and would have been a lot worse had he not taken action.

(BEGIN VIDEO CLIP)

OBAMA: Sometimes people don't remember how bad it was and how bad it could have been.

(END VIDEO CLIP)

CROWLEY: Tough sale. Only 32 percent of Americans believe the economy is better and will keep getting better; 49 percent say the economy is as bad or worse than two years ago; 18 percent say the economy is better now but will get worse soon.

What's a Democrat to do? We'll ask our panel, next.

(COMMERCIAL BREAK)

CROWLEY: Joining me now here in Washington, Ron Fournier, editor-in-chief of the National Journal; Michael Duffy, assistant managing editor of TIME magazine; and Elisabeth Bumiller, Pentagon correspondent for The New York Times.

I can't thank you all enough. I'm glad you're here. You read all of these stories, have been reading all of these stories. We're hearing, oh, Democrats are going to lose 60 seats in the House, oh my goodness, the Senate looks doable. Let me play devil's advocate and say the Democrats do have more money, and that counts a lot with those ads, and the fact is that when you look at the polling, Republicans don't do that much better if you generically ask, do you think Republicans can handle the economy better than Democrats, et cetera.

So can somebody argue for me that this will be a minimal loss year for the Democrats?

MICHAEL DUFFY, ASSISTANT MANAGING EDITOR, TIME: I really wouldn't want to take that case if you are offering choices. I'd rather have the other case. A couple of just quick numbers that sometimes people miss.

Even though Democrats have more money, if you look just at some counts -- if you count up on the outside groups, the people who are on the other side who aren't really people you can track, it's really 2- to-1 in the Republican advantage.

Some of the polls we are seeing, 50 percent of the public is now identifying as independents. This is an astonishing level of people who are saying, I don't really care about either party, I just want something else, I am not seeing what I am looking for.

And, of course, you are right, both now the House is not only up for grabs, possibly beyond that, and the Senate in the last couple weeks has become in play for the Republicans. This looks like a much bigger tide for Republicans, shaping up to change, obviously, than people imagined even three months ago.

RON FOURNIER, EDITOR-IN-CHIEF, NATIONAL JOURNAL: Yes, I agree, when you look at the numbers, the data, the argument that it's going to be a wave is much easier to make. When you have a 10 percent gap between the people who think that they would rather have Democrats in office than Republicans, which is a -- like has not been that way in six decades, when you look at the fact that every poll shows that the Republicans are much more energized than Democrats, when you look at the president's approval rating, when you look at that fact there are 75 Democratic seats that are toss-ups, and the Republicans only need 39 of them to win the House, when Senator Boxer, Senator Feinstein, Patty Murray, are fighting for their lives in the Senate, it's more likely than not Republicans win control of both Houses.

CROWLEY: Elisabeth, this to me is just astonishing if you just go back two years. The Republican Party is dead. Heavens, it's going to take them decades to get back in power. And now here we are, which I think tells you a lot about our prognostication skills.

But nonetheless, what happened? Is it that President Obama happened? Or is it that people ran out of patience on the economy? Or something else?

ELISABETH BUMILLER, THE NEW YORK TIMES: I think it's the economy. It's just -- it's 10 percent unemployment rate. And right now, the Democrats, they don't have a whole lot going into the next two months. And the White House is ruling out this week a bunch of proposals, you know, business tax credits and stuff.

But, you know, Democrats will concede that none of this will make any difference in the economy before the election. So a lot of it is politics. Obama just has to get out there and talk about what they are doing.

But they're -- there is not a lot of places to go. So right now, what you are seeing is individual -- you know, individual candidates are tailoring their message to individual races. There is a lot of local issues that they're pushing because they can't run on the national ones, which is the economy.

CROWLEY: Well, that gets me to one of the questions previously, which is, what is a Democrat to do here in this environment? And I do want to play you an ad that's on the air in New Jersey. It's put out by the Democratic incumbent there, Congressman John Adler, against his Republican opponent, take a listen.

(BEGIN VIDEO CLIP)

ANNOUNCER: This is congressional candidate Jon Runyan's house. Nice, isn't it? Costs millions. Except Runyan doesn't call it a house, he tried to call it a farm. Runyan bought one donkey to get a $20,000 tax break by saying he lives on a farm. Luckily he was caught. When New Jersey families are fighting to make ends meet, Jon Runyan is trying to rip the system off.

(END VIDEO CLIP)

CROWLEY: OK. So, I didn't hear health care, I didn't hear Wall Street reform, I didn't hear any of these things, deficit, nothing. Is this where you go if you are a Democrat?

DUFFY: Well, this is where you go if you are a Republican, because you can sort of tap into the anger that is out there about the economy, the fact that -- a sense that a lot of voters have that simply nothing is working, the government can't respond to problems.

And that ad was perfect in sort of the zeitgeist saying, it's really not about any of the issues, it's the fact that everyone in Washington is corrupt and not part of the solution.

FOURNIER: President Obama this week, in his speech on Iraq, which I think actually was the first speech of his reelection campaign, tried to tap into that sentiment by saying, you know, I understand the fact that -- and I think he used the words "in these stormy seas" or "in these turbulent times," that it's hard to see how you can maintain the American dream, how you can make your life better, I get that, and now that we've turned the page, in his words, on Iraq, now I am going to focus on that.

BUMILLER: What's interesting to me on this subject is how little Iraq and Afghanistan, the wars that we are fighting, are a factor in this campaign, basically nonexistent.

The Republicans are not pushing back on any of the -- mostly they're not pushing back on any of the strategy in both wars. You are not hearing Republicans calling for, you know, more troops in Iraq, I can tell you that.

And certainly while there is some debate about the Afghanistan deadline, there is not a huge hue and cry from the American public on that.

CROWLEY: And in fact he has got problems with Democrats on Afghanistan more than anything, right?

I mean, do you -- when you look at this, what is the game plan for Democrats?

DUFFY: I'd keep bailing. I mean, I -- as fast as you can, because you have got, you know, 60 days left and all of the trends are working against you. There is a chance for the -- you know, if the president gets out and tries to frame the issues, and the Democrats do a better job than they have of trying to make a choice between what the policies of the previous eight years to now, they can probably narrow the losses that you asked about. You know, they could maybe keep these to a minimum.

But they are up against a hurricane, it looks like. And that's -- all the bailing in the world can't keep up.

FOURNIER: I mean, tactically the Democrats have, you could argue, been better than Republicans, even with this tide. They recruited a better group of candidates. They have been making some -- they have been raising more money. It will be interesting to see if they do some really tough things tactically, you know, closing weeks.

For example, throw some incumbents over the cliff and say, we are not sending our money to these incumbents, we're going to zero the money on the people who we still think have a chance. That's a kind of tough decision they have to make if they are going to stand a chance tactically.

The Democratic Party this last couple of years has shown the stomach to do that. We'll see now.

CROWLEY: And what's interesting is, I think if anybody can make those decisions, it's probably Nancy Pelosi.

BUMILLER: She has already done that. She has already sent out a letter saying, if you're in a safe district, we need money from you for our unsafe candidates. And she has also made clear that, yes, they will throw some over the cliff, those who are not doing well.

FOURNIER: And look who is in the office down the hall from the Oval Office, Rahm Emanuel, the two of them together, they are pretty tough.

DUFFY: But they don't have a lot of safe seats to save. This is the other factor. So many places are in play that normally aren't. And, you know, the most amazing poll this week was the one that showed that in Ohio people would rather re-elect -- rather have George W. Bush as president than Barack Obama by about a 7-point margin.

This was a poll conducted in Ohio over the last week, which doesn't tell you so much about how bad things are in Ohio, but it shows you why the Democrats are having to fight places in places like Wisconsin and Washington State, and even in California now, those statewide seats are up for grabs in places that Democrats haven't had to worry about for a decade.

CROWLEY: So but -- we had been told that one of the -- or at least I had been told that at least one of the ways they were going to go after this was to say, listen, this is not about Republicans versus Democrats, this is about President Obama and the Democrats versus George Bush and the Republicans, with the idea that people still have such a bad taste in their mouth about George Bush, that that would be helpful.

Is it still?

FOURNIER: It's a fool's argument.

FOURNIER: And the person who would tell them is the most famous Democrat alive right now, Bill Clinton. Elections are about the future; they're not about the past. They've got to talk about what they could...

CROWLEY: And that might be the Democrats' problem, right?

FOURNIER: Their only hope is -- is to go district by district and make it a choice between the two candidates and the candidates' vision for the future. That's hard to do, as you guys are saying, in -- in -- in an election like this, when there's this national tidal wave. This is a national election.

DUFFY: Well, especially...

FOURNIER: It's tough for the Democrats...

(CROSSTALK)

DUFFY: Especially with the former president's feelings -- public feelings about the former president are on the rise, which that polls would suggest. You know, it's interesting. In that Iraq speech that he gave that you talked about a minute ago, the president tipped his hat, sort of, kind of, but not really...

CROWLEY: Right, he said he talked to him, right?

DUFFY: Yes, for I guess, you know, what happened by -- by sort of finally coming to closure on the combat troops in Iraq. It was -- the president did not note a timetable that had been set in place by his predecessor. And he was unable, really, to give him credit even for that timetable, which I thought was easy...

(CROSSTALK)

FOURNIER: Well, what floored me about that speech -- I think this is in -- in connection with what you're saying is he sounded like George Bush to me. He said at one point in his speech that what the war had accomplished was to depose a leader who had terrorized their country, terrorized his countrymen. Well, that sounds like George Bush.

In a speech to the troops that which kind of connection (ph) to the Oval Office speech, he said that -- that America is more secure because of the war. Again, that's George Bush language that he was using, which... (CROSSTALK)

BUMILLER: But he did not -- he did not say that the surge had -- had -- had turned things around. He's always -- he's never ever...

(CROSSTALK)

BUMILLER: That's a bridge too far.

(CROSSTALK)

CROWLEY: ... yes, inside the Beltway, but noted. Let me put you all on pause here for a moment, because when we come back, more on Iraq and Afghanistan and a new push for peace in the Middle East, just some of the foreign policy challenges facing President Obama.

(COMMERCIAL BREAK)

CROWLEY: We are back with Ron Fournier from the National Journal, Michael Duffy from Time magazine, and Elisabeth Bumiller from the New York Times.

You've just come back from Afghanistan. Something this week, August 24th, really caught my attention. This is from the Marine Corps commandant, James Conway, who said, "In terms of the July 11 issue, you know, I think if you follow it closely -- and of course we all do" -- now, he's talking here about the deadline for beginning to draw down U.S. troops in Afghanistan next year -- "In terms of the July 11 issue, you know, I think if you follow it closely -- and of course we all do -- we know the president was talking to several audiences at the same time when he made his comments on July 2011. In some ways, we think right now it's probably giving our enemy sustenance. We think that he may be saying to himself, in fact, we've intercepted communications that say, hey, you know, we only have to hold out for so long."

I'm not sure that's probably what -- what the president was looking for. You've just come back from Afghanistan. Is that reflected in what's going on now? Because it struck me that we're hearing that the war is going a little bit better in Afghanistan, and -- and we're also hearing, well, they may be laying low. Which is it?

BUMILLER: Well, I can tell you that those comments caused some concern at the White House. The Marine commandant, who's retiring in two months, was rather freewheeling in those comments, and there was -- there was some blowback.

But he -- I can tell you that there -- right now, the view -- the -- the war is very uncertain right now. Everyone is being very caution from, you know, General Petraeus, the top commander, on down. And it's -- it's -- I don't know if it's going better.

There's a lot of -- it's very mixed. There are -- a lot of the country is under control, but there are still some trouble spots. Marjah is -- remains the site of a major U.S. invasion in February. And Helmand province, the Taliban stronghold, is still not secure. There's an operation around Kandahar, another major Taliban stronghold in the south, and that is going very, very slowly.

And the concern right now among commanders is that the American people are going to lose patience, and Congress is already beginning to lose patience.

CROWLEY: And the fact is, this president campaigned on a drawdown in Iraq, check, he campaigned on building it up in Afghanistan and getting it done, check, on pushing Middle East peace. He had a little bit of a blip this week. Does he get any political credit this year for either -- any of those?

FOURNIER: You can add in health care on that, check. The problem is, the difference between when he laid down those markers, what's happened between now and when you start checking those boxes is 10 percent of the public is not out of jobs, 15 percent, 16 percent underemployment.

As Liz Sidoti for the A.P. wrote today, or earlier this week, it's still the economy, stupid. All these other issues just get subsumed by the fact that people are hurting.

CROWLEY: The Washington Post, Mike, had a Democratic strategist that they quoted on Friday who said, "We did the mosque, Katrina, Iraq, and now Middle East peace, and in between you redo the Oval Office? It has become a joke." Democrats don't want him doing any of this stuff.

DUFFY: They're not happy with how the summer has gone for all these reasons. The line you hear -- and it tends to come from House Democrats in particular -- is -- I think it was political malpractice, was the line we used in Time.

You know, I think if the president had a chance to grab the agenda, he would like to talk about the economy all the time, but a president doesn't always have that option, and that's another thing that's hard for sometimes people to understand.

But giving a speech about Iraq at this point, even if you're checking off the box, even if you want to show people that you -- you can -- missions defined, missions achieved, if not accomplished, it does run the risk that you're just not where the public is. And -- and -- and putting the economy front and center probably is a strategy they would have liked to have executed. They just weren't able to. We'll see if they can do that in the next 60 to 70 days or two years.

CROWLEY: Elisabeth, is there victory in the broad sense for the president to claim in getting -- in ending combat operations, I guess is probably the best way to say it?

BUMILLER: Sure. I mean, he -- you know, it was a campaign promise. It was his -- it was his schedule. The military pushed back against getting -- you know, going down to 50,000 troops as -- as quickly as -- as he wanted. There was a compromise of three months. Anyways, sure, he can claim credit for getting down to 50,000 troops.

There are some problem, of course, in that there's still violence in Iraq. And while they say the combat mission is officially over, we all know that 50,000 troops -- those troops are going to shoot back if they're shot at, and they're on combat patrols with Iraqi forces.

And it's very fragile right now. There were -- there was a suicide bombing in Baghdad just over the weekend. There was a wave of attacks the week before he made the speech. So -- and I can assure you that no one is -- there was -- there are no huge victory parades right now, you know, in Iraq or at the Pentagon.

DUFFY: And given all the flak President Bush took for his aircraft carrier moment about missions accomplished, I was a little surprised that he...

CROWLEY: It was a big -- big, old speech. Let me turn you in our last -- we have less than a minute, but I wanted to ask you a question. We saw the Israeli prime minister and Mahmoud Abbas in the newly redone Oval Office. Was this a big deal, a medium-sized deal, a little deal in terms of the actual policy in the -- in the peace process?

BUMILLER: It's a potentially big deal. We have Hillary Clinton, you know, deeply involved for the first time, really, in one-on-one negotiations. There's a lot of naysayers.

BUMILLER: There's -- completely understand why this has not worked for decades. But right now, conditions look like they might be better than in the past.

CROWLEY: Mike?

DUFFY: Once you put -- once you put the secretary of state on the table and stepping up to this, you have the potential to make something happen. But, again, like some other things going on, against a very big tide of history.

FOURNIER: I'm wondering if the -- if the -- if the characteristics that have caused him problems as a domestic president -- his tenaciousness, his pragmatism, a term that comes up is plodding -- are those actually terms that are characteristics that could make actually him an effective diplomat? Is that -- is he the kind of guy who could actually bring these parties together? Might be.

CROWLEY: OK. Thank you, all three, very much for joining us today. We appreciate it.

Up next, a check of the top stories and then the overwhelming reaction to an Oval Office makeover. (COMMERCIAL BREAK)

CROWLEY: Now time for a check of today's top stories.

Suicide bombers struck an Iraqi military base in central Baghdad, killing seven people, injuring 21 others. The attack comes four days after the U.S. officially ended its combat operations in Iraq.

The failed blowout preventer that triggered the BP oil well explosion in the gulf has been brought to the surface and placed on a vessel. The device was taken into custody by the Justice Department as evidence in its investigation into the incident.

The father of Florida Republican Senate candidate Marco Rubio has died. Rubio's father had been battling emphysema and lung cancer. Rubio is in a three-way race with Democrat Kendrick Meek and Governor Charlie Crist, who's running as an independent, for Florida's open Senate seat.

Despite the sluggish economy, more Americans are expected to travel this Labor Day weekend. AAA expects 34 million people or so to visit family or friends during this holiday period. That's a nearly 10 percent increase in holiday travel over this time last year.

Those are your top stories here on "State of the Union." Up next, amateur interior decorators across the country critique the Oval Office's new look.

(COMMERCIAL BREAK)

CROWLEY: Call it "This Old Office" or maybe "Extreme Makeover: Washington Edition," but either way, the redo in the Oval Office was quite the drama this week. "The audacity of taupe," wrote Arianna Huffington. A former editor of House and Garden told the New York Times, "Brown upon rust upon ochre, drab. We're dangerously close to harvest gold here, folks."

We are, it seems, a nation of armchair designers. On the Internet, many critiques mentioned Pottery Barn, and not in a good way. Also, "The only thing it's missing is a lava lamp." "Overstock.com must be very pleased to have provided that table."

So is this the change we've been waiting for?

There was praise. The author of a book on the Kennedy revamp said he liked it. At least that's what we think he said. Stripes evoke a note of the modern state, a la Napoleon Bonaparte, and his tinted interiors that conveyed vigor and determination, a nation on the move.

Our research into decorating matters tells us beige is a calming color. And maybe when Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority President Mahmoud Abbas were in the Oval Office this week, they caught the beige vibe. They did agree to meet again, after all. But mostly we are out of our depth here, so we want to move this discussion into the arena we know best. The new furniture is from New York, the fabric from Pennsylvania, paint from a firm based in New Jersey, and the rug was made by a Michigan company. Grand total, 84 electoral votes represented inside the Oval Office.

Thanks for watching "State of the Union." I'm Candy Crowley in Washington.

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