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FAREED ZAKARIA GPS

Nine Years After 9/11: Are We Safer?; Drawdown in Iraq

Aired September 12, 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 all of you in the United States and around the world.

I'm Fareed Zakaria.

Yesterday was of course the ninth anniversary of the September 11th attacks. For me, these anniversaries have always been times of remembrance and mourning -- I lost a friend in the twin towers -- but also of reflection. And I've tried to reflect on how far we've come as a country since that day and whether we are safer now than we were then.

My answer is unequivocally yes. Look, al Qaeda flourished when governments the world over treated it as a minor annoyance rather than a major national security challenge. Since 9/11, cockpit doors are now sealed so planes can't be used as bombs. Other simple security measures that focus on travel have made open societies much less vulnerable.

Al Qaeda terrorists and their ilk are being chased around the mountains of Afghanistan. They are being bombed in Pakistan. Their money trails are being tracked the world over.

It's very tough to plan major terrorist attacks in that environment. So smaller, local groups inspired but not directed by al Qaeda have found ways to attack easy, open targets like cafes, nightclubs, train stations.

But the result is they kill locals rather than Americans or Brits or foreign soldiers. And, of course, this means that Islamic radicalism loses public support in all these countries. Think of Saudi Arabia as the perfect example.

The poll numbers on this are stunning. Islamic radicalism has been losing public support in every Muslim country over the last nine years. The result: al Qaeda is a much weakened enemy militarily, economically, politically. In the last nine years it has been able to put together scary videotapes, but it has not been able to mount a single terrorist attack.

Now is surely the time to evaluate soberly what has worked and what has been overkill in our reaction to al Qaeda. It's clear to me that the massive expansion of the national security state, the Homeland Security Administration, the hundreds of billions of dollars spent, 17 million square feet of new office space for bureaucrats, the equivalent of three Pentagons, the code orange alerts, have all been an overreaction. Now is the time to begin rethinking the balance between security and liberty and re-balancing somewhat.

Now, here's the scary part. I've made every one of these points before, but when I say it today, it seems controversial, and that tells you something about the polarized, dysfunctional political atmosphere we are living through right now.

I think it has something to do with the fact that the right wants to maintain an atmosphere of fear and, therefore, accuses me of being cavalier about security. And the left can't stand the thought that George W. Bush might have done a few good things after 9/11.

So the result is nine years after the attacks, we cannot have a sober, rational conversation on the topic. But we at GPS will persist.

You've heard my views. You will hear from four seasoned experts: two conservatives, two Independents or liberals, two Republicans, two non-Republicans.

(BEGIN VIDEO CLIP)

FAWAZ GERGES, PROFESSOR, LONDON SCHOOL OF ECONOMICS: We are terrorizing ourselves, Fareed. We, as Americans, we have terrorized ourselves. We have provided the oxygen that sustains al Qaeda.

(END VIDEO CLIP)

ZAKARIA: And then, what in the world is the rush to get out of Iraq? My views.

The main event of our show is an exciting GPS exclusive. One of President Obama's closest economic advisers, Peter Orszag, has left the White House. He talks for the first time to us about the economy, the stimulus plans, and what can be done to get jobs flowing again.

Finally, we have found a way to decisively beat the Taliban. We'll let you know.

Let's get started.

So, nine years after 9/11, the bottom line question is, are we safer or aren't we? Let's begin the conversation by talking about that.

Richard Falkenrath was responsible for developing and coordinating homeland security strategy at the White House after 9/11. And he then ran the New York Police Department's massive anti-terror efforts. Bob Baer and Reuel Marc Gerecht are both former CIA operative officers and have both written extensively on all these issues since then. Fawaz Gerges is a professor of Middle Eastern Politics at the London School of Economics.

Welcome to all of you. Richard Falkenrath, how would you answer that question? Are we safer than we were nine years ago, when al Qaeda attacked the United States?

RICHARD FALKENRATH, FMR. WHITE HOUSE HOMELAND SECURITY ADVISER: Well, we here in the United States certainly are much safer. Al Qaeda still exists, but it's been massively damaged through nine years of an onslaught against them. Our defensive abilities here in the country, our intelligence, our law enforcement, our homeland security is much better, so there's no question the U.S. is safer.

Bob, what is your sense? You were out in the field when al Qaeda was growing. It was often a kind of an under-the-radar screen phenomenon. A lot of countries didn't take it very seriously.

What is your sense nine years after 9/11?

BOB BAER, FMR. CIA OFFICIAL: Well, I think we're a lot safer inside this country, and I think there's a lot of Middle Eastern countries that are safer today. Let's talk Saudi Arabia, a country that I haven't been very favorable to in the past. But it's amazing how this country has turned around itself on terrorism.

And even yesterday, they're closing down jihadi sites, and it's largely thanks to the new king. But the point is that I think al Qaeda -- and that was where al Qaeda was born, in Saudi Arabia -- is on the run.

ZAKARIA: Raul, I tend to agree with Bob. What I'm struck by -- and I want to see what your response is, because I'm not sure how you're going to respond -- what I'm struck by is the number of imams who are issuing fatwas against al Qaeda, against suicide bombings.

Ayman Zawahiri's former mentor, a guy whose writings I know you've studied, has now come out and effectively openly repudiated him. If you look at polling in Muslim countries, the support for Islamic radicalism, which is not even al Qaeda -- it's, you know, sort of one step in, if you will, from al Qaeda -- support for Islamic radicalism of any kind has plummeted.

Doesn't this all suggested that the political force of al Qaeda, separate from the issue of military strength and its ability to organize tactics, that that political force has weakened substantially?

REUEL MARC GERECHT, FMR. CIA OPERATIVE: Yes. I mean, I think they have taken quite a hit since 9/11, primarily because the majority of those people who have been killed through terrorism since 9/11 have certainly been in the Middle East, and they have been Muslims.

And I think the wars in Iraq and Afghanistan, but particularly Iraq, where al Qaeda and other Sunni insurgents, you know, had a real heyday slaughtering Shiite women and children, had a profound effect -- it took a while, but a profound effect on Sunni Arab attitudes in the Middle East and, needless to say, the attacks in the Sunni Arab world. And I think also in Pakistan, inevitably bounced back against al Qaeda and their ability to present themselves as sort of modern day paladins of a just Islamic cause.

ZAKARIA: Fawaz, you've been arguing for a while that this is actually a sea change that has been relatively unnoticed in the Muslim world, right?

GERGES: Yes, absolutely. In fact, al Qaeda has not just suffered, Fareed, a catastrophic military defeat, I would argue a more critical development is the fact that al Qaeda has lost the struggle for Muslim hearts and minds.

Yet, Fareed, here we are today. It seems to me there's a consensus that al Qaeda no longer exists as a centralized organization. Yet, I would argue on the psychological level -- and this is really the point I want to make today -- that al Qaeda has taken hold of the American imagination.

There has been, unfortunately, at least to my mind, a sea change, a reshaping of the American imagination since 9/11. The terrorism of al Qaeda which no longer exists as we -- as it used to be since the 1990s now has replaced the red (ph) scare. We have to really deconstruct the terrorism narrative in the United States and why al Qaeda has taken hold of the American imagination.

ZAKARIA: Reuel, how do you react to that? Because you write for "The Weekly Standard." You would be somebody who I think would be comfortable. I hope I'm not mischaracterizing you as a neo- conservative.

It is true that it seems somewhat difficult to say to conservatives, look, this enemy is not as strong as it was, partly because of our success, partly because of its own mistakes. But the reality is these guys are not 25-feet tall.

GERECHT: Well, I don't know. I mean, I can't really speak about the American imagination. I live in Bethesda, Maryland, after all.

But, I mean, I would say that the problem is, is that al Qaeda and other Islamic militant groups, the threat is quite insidious. So it's always possible that you will have another strike. And I think at least with government officials, who are of course responsible for our lives, it is disturbing.

I mean, I would agree with you that the reaction bureaucratically in the United States was excessive, it was understandable, it was unwise. But, you know, Americans throw lots of money when they have problems, and we did that.

ZAKARIA: Bob, where do you stand on this issue?

BAER: Oh, I absolutely agree with Fawaz. I mean, the threat of al Qaeda is virtually nonexistent. I say that with the possibility that one person could blow himself up in a mall and kill a lot of people. And I dread to see the reaction in this country. But it has taken over the American imagination.

It's transformed it into a clash of civilizations, us against the Islamic world. This is the popular view, and it's verging on racism. And it worries me because the threat is not that important.

ZAKARIA: Rick, how do you react to this conversation? Because on the one hand, these are these macro trends that does seem -- I was somewhat surprised to find that we have some degree of consensus in this group. But then you have to worry, if you were in your old job at the White House for President Bush or at the NYPD, you would have to worry about that lone guy. You would have to worry about the fact that even if 99 percent of Muslims around the world have repudiated al Qaeda, that still leaves you with a bunch of people who could do bad things.

How do you think of it?

FALKENRATH: Well, I think you've got it exactly right. Very small numbers of people can inflict catastrophic harm, and the American people expect their government to protect them against those remote possibilities. And it's a very difficult threat to counter.

ZAKARIA: But how do you react to the point that -- I wrote about that Reuel, I was delighted to see, said that he agreed with, which was there has been a massive bureaucratic overreaction. Some of it is understandable.

My old mentor, Samuel Huntington, once said that America's great strength in military affairs was bigness, not brains, that from World War Ii on was, whenever we saw a problem, you'd throw a lot of money at it and that was the way you solve it.

But do we really need all of this? I mean, we spent -- one scholar, John Mueller (ph), calculated we spent $5.5 billion to counter the anthrax scare. You know, you add it all up, you're talking about hundreds of billions of dollars. My favorite statistic is we have constructed 17 million square feet of office space -- that is three Pentagons -- to house the bureaucrats who are devoted to the homeland security intelligence establishment.

Obviously, I want you to have a very good office, Rick. But was all of the rest of it necessary?

(LAUGHTER)

FALKENRATH: Well, there's certainly parts of it that are not necessary, and I think that's true across the entire federal government. You can look at all of it, any given sector, any department, and find waste and inefficiency, and it's there.

I fault the government for really failing to downsize from the Cold War establishment as it ramped up to deal with terrorism and other asymmetrical threats. I think we didn't do a very good job of that.

But I was in the White House on 9/11, and I remember how we felt on that day, as does everyone who was in the country at that time. And I'm really not surprised that we reacted in this way.

This is what our country does when it suffers a blow, as we did on that day nine years ago. And it's how we respond. We respond with bigness and lots of different programs, some of which yield benefits, others are viewed as wasteful.

ZAKARIA: We're going to take a break.

When we come back, has the way we've handled 9/11 -- is our counterterrorism strategy counterproductive? What is the cost of the war on terror? When we come back.

(BEGIN VIDEO CLIP)

FALKENRATH: I am very worried about Koran burning and the controversy over the mosque near Ground Zero for the signal it sends to the world and indeed inside our borders, that we have intolerance in our country and this kind of xenophobia, which I think is a very ugly message to send to the world.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: And we are back to talk about 9/11 and are we safer nine years later? We have a very distinguished panel of experts.

Richard Falkenrath was George W. Bush's special assistant for homeland security during 9/11 and for the years after. Bob Baer is formerly of the CIA and now writes prolifically on the subject of terrorism. Reuel Marc Gerecht is formerly of the CIA and also writes prolifically on the subject of terrorism and Islamic radicalism for publications like "The Weekly Standard." And Fawaz Gerges is a professor at the London School of Economics, a long-time expert on Islam and Muslim societies.

Let's talk for a moment about the danger, the damage of all this overkill.

Fawaz, you're living outside the country now. What is your sense of how the United States' war on terror, homeland security measures, how they have affected America, its image, its security?

GERGES: Well, Fareed, at the height of its power, al Qaeda numbered between 3,000 and 4,000 fighters in the late 1990s. According to all our intelligence services, and also independent experts now, you have between 300 and 400 surviving members of al Qaeda -- between 300 and 400 surviving members, most of them located in the Pakistan tribal areas.

Most of them are rookies because most of the field lieutenants, most of the brains, the skill, the midlevel managers, have been either killed or captured. No decision-makers. The top leadership of al Qaeda basically is hibernating underground. They have lost their strategic struggle.

Yet, when I come back to the state of mind, how do you deconstruct a state of mind that basically we, as Americas, we constantly believe we are under imminent threat? You have an army of experts who basically hide implausible threats, potential threats. And also, this affected how Americans respond to international relations.

Fareed, even President Barack Obama, genuine as he is, progressive as he is, intelligent as he is, cannot dare to say we are not at war with 400 or 500 surviving, unskilled members of al Qaeda. And that's why the narrative of terrorism has undermined America's moral standing in the world.

We are terrorizing ourselves, Fareed. We, as Americans. We have terrorized ourselves, we have provided the oxygen that sustains al Qaeda.

Remember, the strategic vision of al Qaeda since 1996 has been not to defeat the United States. Al Qaeda, those few idiots, cannot defeat the United States of America. The strategy has been to embroil the United States in a greater clash, a big front with the Muslim world, to create a clash of civilization.

ZAKARIA: Reuel, we playing into al Qaeda's hands the way we've reacted?

GERECHT: Oh, I don't think so. I mean, again, I would rather not see bloated American national security and intelligence bureaucracies. This has been a recurring problem with these organizations. It wasn't just al Qaeda that makes these things grow. Bureaucracies turn towards money like flowers turn toward sunlight.

I mean, I think we've handled this -- again, bureaucracy aside, I think we've handled this reasonably well, and I think we can exhaust ourselves -- I was a little exhausted listening to Fawaz -- a little bit too quickly talking about how all this may have damaged us abroad. I don't really think it has.

We reacted in this way because Islamic militancy has a broad footprint throughout the Middle East. It is perhaps the dominant intellectual movement in many countries in the region. And because of that, because of the sympathy that we saw for bin Laden after 9/11, it does, you know, make you nervous.

Again, I think we are adjusting. I think Middle Eastern countries are adjusting. But I would suggest to you that Islamic radicalism, not necessarily al Qaeda, still remains a problem. All you have to do is ask the dictators in the region whether they think so, and I think they'll answer yes.

ZAKARIA: Bob, do you think there was something counterproductive in the way -- has our reaction produced a kind of -- has it embroiled us in, you know, places around the world? Bin Laden said once in one of his interviews -- he said all we have to do is to send a few -- a couple of jihadis to places, raise the banner of al Qaeda, and the American generals come running with their armies.

BAER: Well, he's right. I mean, look, 9/11 provided the opportunity to invade Iraq, which had nothing to do with al Qaeda. And today we are engaging in what I call blood feuds in Pakistan and Waziristan with the Mehsuds, a tribe in Waziristan. And now in Yemen, apparently we're getting into a blood feud there.

So this inability to define terrorism and Islamic militancy is getting us into one more after another. We are not out of Iraq, and it's unlikely we will be completely out next year. We're putting a lot of pressure on Islamabad by fighting in the tribal areas. And now we've got Yemen.

So, I mean, this is turning into an endless war. And it's got little to do with al Qaeda, and I think a lot of this has to do with overreaction to 9/11.

ZAKARIA: Rick, do you worry that, you know, whether it's the Ground Zero Islamic center, whether it's this Koran burning, that an atmosphere where there is, you know, a greater sense of being under threat to al Qaeda actually worsens our security because you lose the support of the local Muslim communities? Is that a fair tension to worry about?

FALKENRATH: Well, yes, it is. But I think in New York, and in the United States more broadly, the Muslim community is highly supportive of our efforts to keep the country safe, and is really not a hot bed of radicalism, as you say. Nonetheless, it's only very small numbers that are required to stage an attack. And the year 2009 was by far the most active year in terms of homegrown terrorist plots, none of which resulted in a significant attack, but there were about a dozen appreciable threats to this country that emanated from within our borders in one way or another in the year 2009.

Now, I think that's a manageable problem. We have law enforcement, we have intelligence that can deal with it. We need to stay on it, and we can defend the country. But we did see that in 2009.

I'm very worried about Koran burning and the controversy over the mosques near Ground Zero for the signal it sends to the world and, indeed, inside our borders, that we have intolerance in our country and this kind of xenophobia, which I think is a very ugly message to send to the world.

ZAKARIA: On that note, Richard Falkenrath, Bob Baer, Reuel Marc Gerecht, and Fawaz Gerges, thank you all very much. A really fascinating conversation, and a nice way to have a reasoned, sober conversation nine years after 9/11.

Thank you.

We will be right back.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: Consistent with our agreement with the Iraqi government, all U.S. troops will leave by the end of next year.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: And now for our "What in the World?" segment.

Now that the U.S. has ended combat operations in Iraq, there is a strong sentiment in this country to get all of the troops out of there. President Obama, in his speech last week, reaffirmed his commitment to withdraw our troops by the end of 2011.

But I say what is the rush?

The news of this week is, of course, the tragic incident that took the lives of two U.S. soldiers and wounded nine others. This is, however, very much the exception, not the rule.

So far, in 2010, around 50 American troops have been killed in Iraq. That's 50 too many, of course, but it is actually a low casualty rate for military operations even in peacetime.

So we have to ask ourselves, what price is worth finishing what we started in Iraq?

This is a nation that is still in political chaos, economic shambles, and rife with insecurity. Although U.S. deaths are down dramatically from the height of the war, the country remains unstable and tense.

In many areas of the country, public services like electricity are not much better off than they were under Saddam Hussein. The Iraqi army chief says his troops won't be ready to guard his nation until 2020. And this land that we were going to make the shining democratic example for the entire Middle East is a bit of a democratic nightmare right now. It has been half a year since the Iraqi elections, and there is still no government.

Were all American troops to withdraw, we can be sure of two things -- these bad trends would get worse, and the United States would lose power and influence in the region, most probably to Iran.

Now, many Americans never liked the Iraq War in the first place. And many seem to feel that the way to vindicate this feeling is to get out of there fast. If Iraq crumbles, well, it proves them right.

But can we forget about how this operation began? At this point the United States has the infrastructure in Iraq to support tens of thousands of troops at relatively low cost. If the Iraqis want us there, there is a huge benefit. It helps consolidate a modern democracy in the heart of the Arab world, one that could be pluralistic, open, and comfortable to the West and America. That works well for a model, it also works well for national security reasons.

This is a crucial part of the world, oil-rich. And the U.S. can stay actively engaged there and keep a close eye on Iran. It could be a kind of listening post for the entire region.

In the 1950s, President Dwight Eisenhower kept tens of thousands of troops in South Korea after hostilities ceased. Of course, he had to keep them there because of the threat from the north. But it also helped consolidate democracy there. It took 30 years, but democracy did stabilize. And that stabilization helped stabilize East Asia and strengthen America's influence in the region.

The historical analogy is far from perfect. The Korean War began very differently, the north invaded the south. But in the end, Iraq could have a similar outcome. America could help a pivotal country in an important region become a stable democracy and an ally.

We will be right back.

PETER ORSZAG, FRM. DIRECTOR OF OMB: We have gone through an unbelievable experience in this country. It's not surprising that emotions run high and there's lots of frustration on both sides.

(COMMERCIAL BREAK)

ZAKARIA: There's no more crucial issue right now than the economy. The president spent the bulk of the week talking about it. I think it's fair to say that most Americans have spent the bulk of the year worrying about it.

Peter Orszag was until six weeks ago one of the troika of the president's closest economic advisers. He stepped down at the end of July as the director of the Office of Management and Budget. We welcome Peter Orszag for his first interview since leaving office. A GPS exclusive.

(BEGIN VIDEOTAPE)

ORSZAG: good to be here.

ZAKARIA: Let me ask you something. You have served in Barack Obama's administration. You're really the first truly high-ranking person to leave. There is a mood in the country that thinks that he is a quasi- socialist who's trying to transform America, a line of his that he said it's going to spread the wealth around us, quoted endlessly. What do you think, you know, working with him, what's his core economic philosophy?

ORSZAG: I don't know. I mean, I think some of the descriptions that are out there are just completely off. The disjuncture between what's said and reality is probably wider than it's ever been, unfortunately.

ZAKARIA: So who is?

ORSZAG: President Obama is not a socialist.

ZAKARIA: Who is he? But tell us more. Fill in the details.

ORSZAG: Look, there was pressure, for example, to nationalize banks. There still is an ongoing debate about whether that would or would not have been a good idea. But the president did not do that. One would think this a socialist would be all in favor of jumping at the opportunity to nationalize banks.

He has maintained the basic structure of our capitalist system, despite the fact that we've gone through a very dramatic period. So I think that reflects -- I mean, the word I would say is attempt at -- is yearning for pragmatic problems and socialist, I mean again, just did not fit.

ZAKARIA: But people say he's never spent time in private business. I realize that he was briefly at a private law firm. Some people would doubt whether that counts. But this he doesn't have a feel for business. And that very few people in his administration have that feel.

ORSZAG: Well, I don't know that his previous experience really speaks to where his, you know, what his policy outlook is.

ZAKARIA: Alan Greenspan was asked on "Meet the Press" a couple of weeks ago, maybe a month ago, what he thought this divide between business and government and the attitude of business toward the Obama administration.

And he said, I've been around this topic for 49 years, and I've never seen us so bad.

Why do you think the business community is so upset with the Obama administration?

ORSZAG: Well, I think, look, I think there are a couple explanations. I think the most important explanation is we have gone through an unbelievable experience in this country where private sector borrowing collapsed, the economy was in a tailspin, and in that setting it's not surprising that emotions run high, and there's lots of frustration on both sides because the administration claims you don't understand, we're protecting you from what would happen. And the administration I think believes it's stepping in and taking a sensible path to try to work our way forward and not being appreciated for what it is doing.

On the other hand, corporate America has this sense that the administration doesn't get what they do, does not have a representative from their world, and sometimes use rhetoric...

ZAKARIA: Is it fair to say that the Obama administration should have somebody? I mean...

ORSZAG: Look, I'm not going to -- I don't think I should get in the game of...

ZAKARIA: But the wrap against you guys is that all of you is smart, but none of you have run anything. ORSZAG: Well, I have run a small business. Look, I think the basic complaint, again, is this sense and it definitely is out there that corporate America would like someone that they feel comes, you know, gets what they're saying and comes from their world.

But I think the more fundamental question is we are in this situation where there does seem to be an elevated level of tension and beyond a step like that, what else can be done to try to take these levels down to more productive, you know, channel it into a more productive way.

ZAKARIA: So, one of the thing -- you were really tasked as the director of the Office of Management of the Budget with worrying about the budget. And one of the things that people worry about clearly, if you look at the polls, is the spiraling budget deficit, the debt.

So here is a golden opportunity which is if you let the Bush tax cuts expire, you save an enormous amount of money for the government. The budget deficit comes down dramatically, almost 1% of GDP, I think.

Do you think that the Bush tax cuts should be -- should we just let them all expire? You wrote an op-ed about keeping them for a couple of years but then letting them all expire.

ORSZAG: Yeah. And I think that column had been somewhat misinterpreted. The key point is we unfortunately can't afford the tax cuts over the medium and long term. We face too large a deficit out in 2015, 2018, 2020. So if the - by the way, not continuing them will merely return the tax code to the way it was in during the 1990s. We've already lived through a period in which that tax code was in force, and it didn't create economic catastrophe. We can do that.

If the price of not making tax cuts permanent, even the upper income ones, for a year or two, that would be a price worth paying.

ZAKARIA: Is it true that in order to get the budget deficit to close in the medium term, inevitably you're going to have to have higher taxes, not just the repeal of the Bush tax cuts, but even more than that?

ORSZAG: If we actually ended the Bush-era tax cuts, that would pretty much to it for the medium term. So, most of the budget projections for, say, 2015 are suggesting deficits of 4% to 5% of GDP. There's uncertainty about those numbers, but that's the central estimate.

Something like 3% or lower gets you into a sustainable range. And if you do a bit on the spending side and end the tax cuts, you pretty much get there.

ZAKARIA: Have you seen a serious Republican plan that is an alternative to the president's plan?

ORSZAG: On what topic?

ZAKARIA: On...

ORSZAG: On fiscal?

ZAKARIA: ...fiscal side?

ORSZAG: No. I have not seen a serious plan that will -- I guess the test I would put forward is that that would be credible in terms of it being implemented as it's laid out, and that would be scored by -- like the Congressional Budget Office as substantially reducing the deficit over time.

ZAKARIA: Does it worry you that in our case unlike, say, a country like Japan which also has run big deficits, the debt is not owed mostly to us, the American people, but a lot of it is owed to China, a lot of it is owed to foreign central banks?

ORSZAG: Look, I think we're in - the way I would put it is we're in an exceptional period right now. I mean, ten-year bond yields are extraordinarily low, Treasury debt is the safest asset in the world. We have breathing room to address the problems that we face.

We will not always have that breathing room. Ultimately, the path that we are on will cause financial markets to impose constraints and pressure to address our budget deficit. Not an immediate problem, but we never want to put ourselves in that situation.

So I worry less about the mix of foreign versus domestic ownership and more about whether we can address that problem before it becomes a crisis because we don't want to find ourselves in that crisis mode.

ZAKARIA: And we will be back with Peter Orszag.

What do you say to the average American who's listening to this and saying, yeah, but all I notice is you said you were going to restore the economy and, in fact, the joblessness rate is terrible?

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Peter Orszag.

So there are many accounts now of the meeting that takes place initially in the administration where the chairman of the Council of Economic Advisers paints a picture of how bad the economy is and how badly it's doing and says that we probably need a fiscal stimulus of something in the range of $1.3 trillion to get us out of this mess.

There are varying accounts of what happens next and why the administration ended up with a stimulus package of about $700 billion to $800 billion. There are many who say now that that was the cardinal mistake you made because what happened as a result was the stimulus was too small. It's seen, therefore, as ineffective, and people are the right can claim it never worked, people on the left can say we told you all along this was too small. What actually happened.

ORSZAG: Well look, I think if it were up to the administration itself, the situation may have been different. But we operate in a system of law here, a system of politics, that requires congressional enactment of legislation like the Recovery Act, and that imposed a real constraint.

I could actually say I was in the room when the final details of the legislative package were being negotiated there. I find it just entirely implausible that any very substantially larger number could have passed the United States Senate just based on the dynamics in the room. In fact, I'm somewhat surprised that we got as much we did.

You know, if I were back at a think tank or Brookings, it would be easy to say the right size, but given the legislative constraints that we faced, I think it was remarkable that the package was as large as it was and was enacted as quickly as it was.

Remember the traditional complaint about these kind of things is that Congress takes forever to enact them and by the time they're enacted it's too late. This thing was put together very quickly, and had helped a lot.

If you look at the analysis of the Congressional Budget Office and others, even though the world's not great right now, we would be much worse off. And the whole theory of the Recovery Act was to provide one jumpstart. I think it did start the engine, but the question is the engine cranking sufficiently to be driving that car at a sufficient speed for the recovery that we all would want.

ZAKARIA: So let me posit a theory to you, which is the reason you're not getting people and companies spending is the consumer is maxed out? The consumer is staggering under a 20-year expansion of credit, the average American family has 13 credit cards, 40% of which have balances on them. You know all the data better than I do.

And businesses are looking at a much more robust demand situation abroad. So that if they are going to invest, they're going to invest in India, China, Brazil. And so you have these two forces, a maxed out consumer and growth opportunities that are far more compelling abroad than they are at home that explain why the business isn't spending, businesses are spending, and as a result the average American worker ain't getting hired.

ORSZAG: Well, I would say two things. First, remember the point we discussed earlier which is that we went through a really traumatic period. And so it's not surprising that there's an adjustment going on here. You're right, the saving rate among households is up, and while that may have some deleterious effect on short-term recovery, ultimately that is a good thing because we can't continue to have a situation this which basically households were not saving at all.

And then on the business front, again, there this this interesting disjuncture. Firms are not really spending on long-lived assets so on buildings and things that, you know, might last for 30 or 40 years. But they are buying lots of equipment and lots of software, and you're seeing substantial investments in those kinds of areas.

So I think the question is what is -- why are firms holding off on, A, hiring, and B, making those longer-lived investments which we will need to see in order for this to become a more robust recovery.

ZAKARIA: And what's your answer?

ORSZAG: I think there are a couple things. One is first, again, just the history of recoveries following downturns that were caused by financial sector collapses suggest it takes a while. So we have sluggish growth. Firms in part are not hiring because demand is growing at 1% or 2%, and, you know, they're holding off on substantial new hires until they see better growth prospects.

And then I think there is, if you talk to CEOs, as I know you do and I do regularly, there is a sense of - they talk about uncertainty both in policy and regulatory uncertainty. That they -- that makes them nervous.

ZAKARIA: What do you say to the average American who's listening to this and saying, yeah, but all I notice is you said you were going to restore the economy and, in fact, the joblessness rate is terrible?

ORSZAG: There's no doubt about it. I mean, no one can be pleased with an unemployment rate at 9.5% and long-term unemployed - unemployment at the levels that we're seeing. And so many people, not just unemployed but also those who have given up and aren't even in the labor force anymore.

I think the real question, though, becomes what specifically can we do to make the situation better because we all acknowledge it's not where it should be. And far too many families are suffering.

ZAKARIA: Peter Orszag, thank you very much.

ORSZAG: Thanks for having me.

ZAKARIA: And we will be right back.

(COMMERCIAL BREAK)

ZAKARIA: Our question of the week -- it's obvious. "Is America any safer today than it was nine years ago?" Let me know what you think.

Don't forget to subscribe to our podcast on iTunes. That way you will never miss a show, and the price is free.

Now, as with every week, a book. I want to recommend one called "Numbers Rule Your World." It's by Kaiser Fung.

We throw around a lot of statistics on the show, and until you stop to think about it you don't recognize how much statistics rule our world. Thinking about buying a lottery ticket? Bad idea. What line should you join in the supermarket? You can actually gain this. Why is median income more important than average income? Fung helps you truly understand statistics.

For those of you who hated statistics in college, this is actually an easy read with a big benefit.

Now for a last look. Take a look at this. Incredible, crisp video, isn't it? Well, it isn't real video at all, it's a computer-generated game about the war in Afghanistan. It's called "Medal of Honor." And even though it isn't even out yet it's created a controversy.

The problem is that you can choose to play as a member of any team, the Taliban or the United States. So you can be a Taliban member and kill American soldiers. The U.S. military is so upset about this that the game has been banned from being sold on most U.S. Army bases.

The good news I suppose is here's a situation in which America could have a decisive victory over the Taliban. Too bad it's just a game.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."