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FAREED ZAKARIA GPS

Interview With Peter Diamond; Interview with Ayad Allawi

Aired October 17, 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.

Imagine if you will the middle ages, there we have king and his many loyal subjects. For a long time, he's never named an heir, but he finally does, anointing younger his son the heir apparent.

But the son has no experience, little charisma and generally isn't thought of very highly. So the king also appoints a regent, someone to watch over the younger royal, this regent just happens to be married to the king's sister, so to boost her power, the king puts her in charge of the army. All clear?

Now this might sound like the middle ages, but it's actually North Korea today. Kim Jong-Il has put forth his succession plan. His youngest son, Kim Jong-Un will inherit the seat of power.

But real power will be in the hands of the regent, Kim Jong-Il's brother-in-law and to keep it all in the family, Kim Jong-Il's sister, who is the regent's wife has now been made a four star general just like that.

This would be an amusing diversion, our own modern day Shakespearean history except that it is not likely to be stable at all. North Korea is one of the poorest countries in the world, run by a repressive dictatorship, has a million man army, famine occurs constantly, the leadership spends untold millions on itself.

It is both stagnant and yet fragile. No one really believes that 20, 25 years from now this dictatorship will still be ruling North Korea. Something's going to give. I was in South Korea this week, and in talking to many of the people who run that country, I noticed that no one really wants to grapple with the prospect of a North Korean collapse.

It's too messy, too expensive, but we need to think about it and we need to talk about it. When it happens, and it will happen, the United States and China in particular could end up going down an extremely confrontational path.

You see, this has to be resolved, will a unified Korea have North Korea's nuclear weapons? What happens to American troops because unified Korea would now be an American ally with nuclear weapons and American troops bordering China? Rather than wait until crisis strikes and we're in the middle of all this, this is the time to start sorting all this out by talks between China, South Korea and the United States, privately, of course, but urgently.

We have a great show for you today. First up, Peter Diamond, the American economist has just won the Nobel Prize for his work on unemployment, the hottest topic in the land.

He'll tell us what he sees in the U.S. jobs picture and he'll also tell us why he was blocked by the GOP from a spot on the Federal Reserve.

Next up, Afghanistan is talking to the Taliban, Iraq still doesn't have a government, currency was breaking out all over the globe. We'll spin the globe and talk about all of this with a great GPS panel.

What in the world, al Qaeda attacks on paper, we'll explain.

Now Iraq has been without a government for longer than any nation in all of history. We'll talk to one of the major players in the impasse, former Prime Minister Ayad Allawi.

And finally a last look at the mine in Chile. If you didn't think there was any more good news that could come out of there, we've actually got some. Let's get started.

In these fractious times, just about the only thing Americans seem to be able to agree on is that unemployment is the most important issue in the land and with the official unemployment rate at 9.6 percent, that's understandable.

Americans want answers and people want jobs, and my guest today, Peter Diamond, won the Nobel Prize in the economics this week because he has some of those answers. His work is on unemployment. Why it happens and how to fix it.

Ironically just a few months before he won the prize, he was blocked by Republicans in the Senate from an appointment to the Federal Reserve board because as one senator put it, Diamond would be learning on the job.

Here to talk about our job problem and his is MIT professor and Nobel laureate in economics Peter Diamond. Welcome.

PETER DIAMOND, MIT: Thank you. Thank you for having me.

ZAKARIA: You are up for a position on the Federal Reserve board, and after President Obama nominated you, the first time, Richard Shelby of Alabama put it on a hold saying, he didn't think you had enough experience and he didn't want this to be an on-the-job training process. How do you react to that, you're a 10-year professor at MIT and just won the Nobel Prize?

DIAMOND: This is a job I would like to have. I would like to clarify. I'm filling in the tail end. Nobody is proposing that at age 70 I take on a 14-year commitment.

The appointment I've been nominated for would end in January, 2014, and I understand there's a political process in Washington and I'm patiently waiting and hoping it turns out well.

ZAKARIA: Are you frustrated by it?

DIAMOND: I was warned right at the beginning that this is a process that is unpredictable as to how long it will take or even what the outcome will be, and that's what I should expect.

The first piece of advice I was given was, don't sign a lease or buy a house until you've been confirmed. So frustration often comes from deviation of reality from expectations. Fortunately, people were giving me reasonable expectations.

ZAKARIA: If do you get the job, you will be in the unusual position of being on a board where the chairman is your former student. You were Ben Bernanke's adviser. Do you think he is doing the right thing?

DIAMOND: I have greatly admired what Ben did as the financial crisis hit. As a student of the great depression, he understood how terrible this could turn out to be, if we didn't step in dramatically to prevent the financial markets from really crashing the rest of the economy.

And naturally, this, the economy is very different from what it was in the '30s. So there was very much a trial and error and experimental look at different ways of doing things.

There's no reason to expect that anyone would get it just right, but I'm full of admiration for his viewing. The problem is doing whatever it took to make sure we didn't get a second great depression.

ZAKARIA: Professor Diamond, when you look at the American economy today and you see this enormous unemployment rate, 9.6 percent, what do you think is at the heart of it?

Is there a structural problem, a mismatch between the kinds of skills that American workers have and the kinds of jobs they need for the new world they're going into?

Why is it that it's so hard for people to get jobs, other than the obvious problem that there's not demand in the system, that people aren't buying a lot of stuff so there isn't enough demand for products and therefore, for workers?

DIAMOND: When you said other than the obvious thing that demand is limited, you took away the way I wanted to start, which is the central focus of the problems in the economy right now, is not that the labor market is working badly, but the demand for labor is weighed down.

And there a number of things the government has done to enhance labor demand, and I'd pick out the two big ones, the original stimulus bill, not only increased demand generally, but particularly by providing money to states and local governments, greatly reduced the number of layoffs early on, we're seeing the layoffs picking up now.

And secondly, an enormous amount of the functioning of ordinary business of Main Street relies on credit flows, credit flows for investment, credit flows for dealing with your suppliers.

And when the financial markets seized up, that would have been even more destructive to the rest of the economy than what we have seen the current 10 percent unemployment is painfully high and bringing that down is a central goal for the country.

But it would have been vastly higher if the government didn't act to get some of those credit flows back functioning even though with all the problems that have come out.

It's obviously not functioning as well as it was before, but I think if we get it functioning again, we will go back to normal times.

ZAKARIA: But you know that many people believe that these will not be normal times, this is not a normal recovery, because in the aftermath of a financial bubble, you have a much longer period of recovery, basically because consumers are maxed out, they are very reluctant to spend.

Right now, if you look at the average American savings rate is back up to 6 percent, but the historical average is 9 percent. Now if American savings go back up to 9 percent, it's going to be a year and a half more before you really see consumer demand come back and therefore the demand for workers come back.

Is it likely that we can handle 10% unemployment for another year and a half?

DIAMOND: I think you've put your finger on something essential, which this is a slow process. It will continue being a slow process, and there's a critical role for government in trying to speed it up.

I view the U.S. economy as extraordinarily adaptive, and we've seen historically concerns voiced whenever there's a technological change in their automobiles or there are airplanes or there's the steam engine, and there's worries that now there will be permanent high unemployment. The economy adapts, and I expect the economy to adapt this time as well.

On the other hand, it would be folly to think this could happen very quickly, that there's a switch in Washington that all they have to do is throw it and we'll go promptly back to 5 percent unemployment. There's no way of doing that.

ZAKARIA: What would you do about the Bush tax cuts, set to expire, if all of them expire, the government gets $700 billion over the next 10 years. It eliminates almost half the structural deficit instantly, but yet of course it would have, it would take money out of the economy. DIAMOND: I think in terms of the short run, it's important to preserve at least some of the Bush tax cuts, but for the long run, it's important to preserve flexibility by not making the tax cuts permanent.

Much of Washington debates are about more versus less, and my training as an economist is to focus on how to do it better. What we need is more spending on some things, where it would really be worthwhile, and less spending on others, and we need some taxes to be fixed to function better.

And that may mean more taxes for some people, and lower taxes for others. I think the details really matter.

ZAKARIA: All right, a final question, Professor Diamond. How are you going to celebrate or have you already celebrated the news of the Nobel Prize?

DIAMOND: Well, there was a lovely celebration at the department yesterday, with all our graduate students and my faculty colleagues, and Saturday is my anniversary and my wife and I will go to one of our favorite restaurants and have a celebration.

ZAKARIA: Perhaps a special bottle of wine. Thank you very much, Professor Diamond.

DIAMOND: Thank you for having me.

ZAKARIA: And we will be back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Even he, the guy who wants to get out, can't commit to getting out and has to commit to surging first.

UNIDENTIFIED FEMALE: The fact that Obama couldn't figure it out, though, doesn't necessarily mean it can't be figure out. He might be a great president, but still there could be an answer he didn't come up with.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

ZAKARIA: While the eyes of the world were focused on Chile this week, there was much going on elsewhere, Afghanistan, Iraq, Iran, the threat of currency wars, much more. We're going to get right into all of these.

Joining me now are Gideon Rose who is the new editor of "Foreign Affairs" magazine and the author of a new book "How Wars End," Danielle Pletka is vice president of Foreign and Defense Policy Studies at the American Enterprise Institute. Chrystia Freeland is the global editor at large at Reuters. Welcome to all of.

So, Gideon, your book is about how to end wars and particular on how Americans don't end wars well because they don't think through what they want to do, you know, in advance so we have a war that everybody, I would say the majority of the country is desperately seeking to end. How would you end the Afghan war?

GIDEON ROSE, EDITOR, FOREIGN AFFAIRS: Well, the basic question is what are you prepared to accept in Afghanistan. If you really want permanent stability there with no chance of problems recurring, you have no option but to stay there for a long time with a lot of resources and you can't get out.

If you're prepared to accept some kind of limits on what you will accept at the end game, if you want to have a lower degree of confidence that problems will reoccur.

If you're prepared to accept counterterrorism as an ongoing struggle rather than pure peace then you might be able to get away with less.

But I think we're going to be there for a lot longer than people think because wanting to get out isn't really enough.

ZAKARIA: What about this counterterrorism option, if we were to scale back our ambitions, Danielle, do you buy the idea that you could have 30,000 troops in Afghanistan, play whack-a-mole with the terrorists?

DANIELLE PLETKA, AMERICAN ENTERPRISE INSTITUTE: That's really what it is -- and you have to ask the question where going to play whack-a-mole from -- is it going to be from forward operating basis in which we hunker down.

Is it going to be from a few thousand miles away in Diego Garcia and what if they move? It's not an effective way to fight terrorism. I don't think this is a workable notion for Afghanistan for right now.

ZAKARIA: But I'm always struck by the fact that people keep saying you can't play whack-a-mole, but if you can do it forever and keeping 20,000 or 30,000 in Afghanistan is not a problem, whack-a-mole is no fun for the mole. You're beating these people up all over the world.

CHRYSTIA FREELAND, GLOBAL EDITOR-AT-LARGE, REUTERS: I think maybe we're asking the wrong question and maybe one answer to how wars end is countries run out of money.

And I think particularly after the midterms, we're going to start seeing a bipartisan focus. There's this commission that's reporting in December on the budget, and on the deficit.

And I think one of the things that you're going to see both parties looking at is how much America is spending on that war. And I think that is going to concentrate minds hugely and I think the question is going to be, this is how much we're prepared to spend, how much security can we get for that in Afghanistan.

ROSE: In theory, I agree with you, but I think if you were a politician running on I'm going to get out of Afghanistan because I can't really afford to protect you from terrorism, I think you'd do not that well in the election.

PLETKA: You wouldn't be winning the election in November, that's for sure.

FREELAND: I think it's going to be easier as a politician to sacrifice spending lots of money in Afghanistan than it is going to be to cut entitlements to cut schools if you look at the polls.

PLETKA: You've got it exactly right. The American people don't have a pocketbook attitude towards national security. We spent 10 percent of GDP on national defense in the 1950s. We're spending less than --

FREELAND: That was a very different economic time. America has 10 percent unemployment right now, 1950s were a golden era. The country was growing together.

PLETKA: Actually we spent even more than that in the 1940s.

FREELAND: Right, that was, but that --

PLETKA: No, no, golden --

FREELAND: There was something big going on in the world. I don't think that was business as usual.

ROSE: If you look at Obama you read the Woodward book. he clearly wants to get out. If it you were up to him, he'd pull out tomorrow.

But what he could come with? It's like St. Augustine, lord make me chaste, but not yet. Even he, the guy who wants to get out, can't commit to getting out and has to commit to surging first.

FREELAND: The fact that Obama couldn't figure it out, though, doesn't necessarily mean it can't be figured out. He might be a great president, but still there could be an answer he didn't come up with.

PLETKA: Well, we could debate every one of those points, but look at the end of the day, the issue is not what we think about how, whether spend something going to dictate whether we run squealing from Afghanistan and every other engagement or not.

FREELAND: It doesn't have to be run squealing. We fought out, a thought out minimal intelligence strategy, how is that, Danielle?

PLETKA: Well, I actually think that the president is pursuing a reasonably intelligent strategy right now, which is one of the reasons why even though I didn't vote for him, I supported the decision he made to surge troops and I'm going to support him if he decides to continue to do the right thing in Afghanistan.

ZAKARIA: Will you support him if he starts drawing down? PLETKA: If it is a conditions-based drawdown, not conditions in Washington, absolutely. But I think that that has to be dictated not by the folks who Bob Woodward told us were making decisions but by the people on the ground, by General David Petraeus and by the others who work close to him.

ZAKARIA: But here's the thing, if you read Gideon's book, the point he makes in it is, it never looks perfect when you start wanting to draw down and that you have to be willing to accept some level of messiness, because if you don't, we spend one and a half years in Korea fighting over obscure prisoner of war issue nobody even remembers now.

ROSE: But I think the budgetary stuff will come in not so much in Afghanistan but in Iran. I think that one of the things it's going to do is make you really averse to getting into new situations where you don't feel confident that you can get out quickly.

So I think that although the existing wars are hard to wind down, new wars are somewhat easier not to start, and I think that there's not going to be the hubris going forward there might have been in the past that we can easily take care of this and not get trapped.

ZAKARIA: Look at Afghanistan right now, it's basically unpopular. The politically popular position would be to pull out. Now they wouldn't want it to be too messy, but if you ask people --

ROSE: Depends how you ask the question.

ZAKARIA: Joe Klein in last week's "Time" cover story traveled around the country, 15 states or something, says that he was asked about for every time he was asked about Afghanistan he was asked about China 25 times. That's my sense of where the mood of the country is.

FREELAND: People are right, I mean, actually China and America's relationship with China and how America fits into the world economy in terms of the big picture where America is going to be in this century is clearly much more important than Afghanistan. I think the politicians are behind here.

ROSE: If it's not about China, it's about getting American competitiveness up to speed. It's about making the domestic kind of reforms politically, economically.

FREELAND: China is a way of saying that. When people say we're talking about China --

ROSE: Talking about outsourcing the discussion from the other things we need to do to the things we can bash them on their currency about.

PLETKA: That's exactly right and you know something, I agree with you, China is discussed probably in the wrong way. It is an enormous challenge, something that shouldn't just be talked about in terms of the relative size of the economy or the Renminbi. It should be talked about China in terms of pacific power, America as a pacific power, the future. These are all very important questions.

At the end of the day there when you wake up in the morning, let me tell you something if as al Qaeda called for this weekend somebody walks into a restaurant in Washington, D.C., and mows down a bunch of people in the name of Islamist extremism, people will put that front and center and the whole question of Chinese currency will not be forefront in their minds. That's the way it was five years ago.

ZAKARIA: And we are going to keep discussing all these issues with Danielle Pletka, Gideon Rose and Chrystia Freeland when we come back.

What strikes me is perfectly symbolizing what a different world where in we don't have a chance in hell of being able to browbeat the Chinese into a 50 percent devaluation of their currency.

(COMMERCIAL BREAK)

ZAKARIA: We are back with Chrystia Freeland of Reuters, Gideon Rose of "Foreign Affairs" and Danielle Pletka of the American Enterprise Institute talking about all kinds of interesting things.

Basically everyone seems to agree that America is broke and so is this going to be the shadow of the future for American foreign policy, the sense of constraints and a sense that you know, spending money abroad is not what we should be doing when the money is needed at home?

FREELAND: I think so and it's not a pretty picture. I think the other impact that the global economic relationship is going to have on foreign policy is increasingly we tend to think of international relationships in terms of the foreign policy paradigm.

I think we're going to start thinking of them also more in terms of the clear paradigm or whose currency is appreciating unfairly, whose isn't and that conversation, which is going to migrate from being an economic conversation to the one that dominates the relationships between countries.

ZAKARIA: But, you know, if you compare the place we are, the last time we had this problem was with Japan, the United States basically browbeat the Japanese into doing a 50 percent devaluation of their currency.

What strikes me is perfectly symbolizing what a different world we're in, we don't have a chance in hell of being able to browbeat the Chinese into a 50 percent devaluation of their currency.

You know, we've been trying for years and maybe you'll get a small appreciation of the Chinese currency, but you know Japan was an ally that depended on the United States for its security. China, you know, doesn't see itself in those terms at all. PLETKA: A lot of people have been sold a false bill of goods. I think you wrote about this nicely and you said a lot of people have been sold the notion somehow if the Chinese revalue all these jobs will come home as if somehow there is a home for them, when in fact they'll go to Malaysia or Vietnam or elsewhere.

I think this is sort of a hobby horse that's become a little bit of a cheap political trick, honestly, to bash the Chinese on this issue. There are lots of things I'd like to bash the Chinese on, frankly, but this is not first and foremost.

ZAKARIA: This is not a Republican or Democrat issue.

ROSE: I think that bashing the Chinese is the kind of thing that's actually going to go in the new world because as much as there's a populist backlash to get the jobs back and be upset economically.

I think the impact of a straightened economic climate on American foreign policy is going to be less visible than people think, but still real. It will be things you might have raised a fuss about, you won't.

So we won't talk about human rights in China. Things that you might have protested, you won't protest. Goals or countries that you might have cared about, you'll basically avoid caring about and won't be as visible. It will be optional choices on the margins you're no longer concerned about.

ZAKARIA: I want to ask about one thing, Danielle, that you raised, which I thought was really interesting. Despite all the sense of constraints and unemployment being very high, there is still a mood in the country that says Iran is a rogue state and we might need to take care of it.

As you say, 50 percent of the country without any attempt to sway them, still supports an attack on Iran. I think though the way that question is asked is if they have nuclear weapons or some such thing.

PLETKA: That's not going to be for long so --

ZAKARIA: But do you think -- you said you supported Obama broadly speaking on Afghanistan. I'm wondering if I can press and get more out of you here, which is hasn't he done a pretty good job on Iran and that he's gotten sanctions through the U.N.

He's got the Europeans too to agree to tighten them. He's got the Russians and the Chinese to vote for them. It appears as though countries like the UAE and Pakistan, which were usually the sieves in the system are supporting.

So, he's got Iran in a bigger box and the best evidence of this is Israel. You don't hear the Israelis screaming about Iran as much as they used to.

PLETKA: I -- I guess I disagree a little bit. I do think that the reaction of other countries is much less a question of the -- the suasion of the president in this instance and much more an indicator of just how predominant the threat and the -- and the sense of the Iranian threat is around the world.

ZAKARIA: Meaning?

PLETKA: Well, I think, for example, in the UAE, I think they've gone from being really worried to being pretty hysterical. I'd say that that's the case in the -- in Saudi Arabia. I'd say that's the case in Kuwait. In fact, I'd say that's the case around Iran, that most of Iran's neighbors, with a couple of important exceptions, are extraordinarily concerned, not just about a nuclear Iran but about the empowerment of the existing regime and what the implications for that -- the sense of impunity they may have if in fact they have nuclear weapons.

Even if they don't have the --

ZAKARIA: You're getting this -- you're getting this out of private conversations? Because publicly they're very -- very careful.

PLETKA: Right. But, I mean -- let me tell you, I mean, they're not even discrete in their private conversations. It doesn't matter who it is, as long as the door is closed they're telling people.

The Saudis have been telling people for -- now for two years, if the Iranians get a nuclear weapon, we're going to go and buy one off the shelf. We're going to have one ourselves. So watch out. You don't want that to happen.

ROSE: But this is the paradox of America pulling back, which is -- and America leans too far forward, everyone yells at us for preemption and yells at us for stirring up trouble when it wasn't necessarily there.

If we pull back, the problem still exists and U.S. basically then becomes the -- you know, the person who can defend you against the bully. The paradoxical impact of America in retrenchment is that it will make us more wanted and more desired around the world because people will realize that a world without America leaning forward is a more dangerous world that they don't want to live in.

(CROSSTALK)

FREELAND: Kind of (ph) how girls feel like dating.

PLETKA: (INAUDIBLE).

ZAKARIA: You know, I was in -- I was in Korea earlier this week, and the fascinating thing to watch in South Korea, as all of you know, the left of the political spectrum was always pretty anti-American and wanted American troops out. So I had left wing politicians coming to me and very worriedly asking you think the American troops will stay here, right? Because we need them as a check against China.

Now, they would never say that publicly, but clearly there's a market for American power in Asia as China starts rattling the saber --

PLETKA: There's a market for American leadership in the world, and I think that the American people are -- are very much up to that challenge. That's -- I mean, that's -- that's the real story behind the poll numbers that we talked about.

At the end of the day, I think that the American people actually do believe in a strong country. They do actually believe in a forward American posture. They do actually believe in the country's moral leadership.

And so, you know, that being said, I don't think that we will end up being constrained by the kinds of economic repositioning that we're going to see. I -- I hope we wouldn't.

(CROSSTALK)

FREELAND: It's not just about hope and it's not just about belief. I mean, I think Gideon alluded to the question of actually getting the American economy to work, and I think that is going to be the big challenge, and really figuring out how you put America to work, figuring out how America plugs into this globalized high tech economy.

PLETKA: Well, I do think America does work, actually.

FREELAND: Well, 10 percent of Americans don't right now, and I think part of the reason --

PLETKA: And 50 percent of Americans don't pay taxes. So, you know --

FREELAND: Part -- part -- no, no, no. Hang on Danielle. But part of it -- it's not just about taxes. I think part of the reason that there is so much interest in China is not just about China bashing and China the bogeyman. I think there is a sense that the Chinese government, an authoritarian communist regime, actually is able to do big infrastructure projects. And there is the concern in America, can we do that?

ROSE: (INAUDIBLE) the U.S. government clearly doesn't work. And if we're going to succeed, it's not going to be because we're going to become like China. It's going to be because we're at the title of an old James Fallows book, actually prompted by his Japan experiences was, it -- we're going to be "More Like Us".

If America is going to move forward, it's not going to come from Washington. It's going to come from the private sector and the populace at large.

The question is how do you get a government to actually manage its finances and policies responsibly enough to allow the animal spirits inside the American public to come forward?

ZAKARIA: And on that hopeful note, I suppose hopeful, we are going to have to close. Danielle Pletka, Gideon Rose, Chrystia Freeland, thank you all very much.

And we will be right back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Now for a "What in the World" segment. What got my attention this week was a magazine. It's called "Inspire."

It seems just like any other. It has a letters to the editor, a letter from the editor, an index, advertisements, features. But when you look at the index, you realize this magazine is a little different.

It has an article by Osama Bin Laden. Another piece entitled "My Life in Jihad." And yet another that gives helpful hints on how to commit terror.

This magazine is the publication of al Qaeda in the Arabian Peninsula. That's the al Qaeda offshoot in Yemen, where, as we've discussed many times on the show, the terror group's base of operations has been moving. And the magazine was published on the internet on the tenth anniversary of al Qaeda's big event in Yemen, the 1990 attack on the "USS Cole" in the port of Aden. That attack killed 17 U.S. sailors.

The publication is thought to be the work of this man, Samir Khan, an American citizen turned jihadi, now living in Yemen. His piece in the issue is called, quote, "I am Proud to Be a Traitor to America."

And while the magazine is glossy and flashy and angry, to me it is actually further evidence of how far al Qaeda has fallen.

Nine years ago, al Qaeda mounted a devastating attack on the U.S. homeland. Now, it's unable to do that. The article in magazine written by Osama Bin Laden actually admits as much. He says instead the organization is focused on fighting the U.S. overseas -- in Afghanistan, Iraq, Yemen and Somalia.

Now, in recent years, in three of those four locations, al Qaeda has had very little success, with the exception being Afghanistan. Indeed, other articles in the magazine go even further in admitting the success of America's counterterrorism efforts.

An article called "The Jihadi Experience" says that al Qaeda is no longer able to operate the same way it did before 9/11 because of the American response which, quote, "destroyed a great majority of the existing secret organizations," unquote, and points out that they have never really been able to rebuild.

So while the old methods don't work, al Qaeda seems to be prescribing in this issue of "Inspire" a new way of getting what they call the terrorist state of America. The publication encourages lone gunmen types already in the U.S. to attack the homeland, folks like Nidal Malik Hasan, who killed 13 Americans at Fort Hood. Some of the suggestions -- weld knives under the front of a Ford pickup truck, or find a crowded D.C. lunch spot to attack since here might be government employees there.

From hijacking four jetliners that killed more than 3,000, hit the Pentagon and tried to take out the White House, to knives. That's where they've gone. And besides, doesn't al Qaeda know that the conventional wisdom is that young people don't read magazines anymore?

And now, we will be right back.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN SENIOR POLITICAL CORRESPONDENT: I'm Candy Crowley, and here are today's top stories.

President Obama and First Lady Michelle Obama are hitting the campaign trail together for the first time since the 2008 presidential race. The president and First Lady head to Ohio today for a Democratic fundraiser and will headline a rally tonight at Ohio State University.

Sarah Palin urged California Republicans to support GOP candidates in the midterm elections. About 2,000 people turned out last night in Anaheim, where the former vice presidential candidate slammed Congressional Democrats.

(BEGIN VIDEO CLIP)

SARAH PALIN (R), FORMER VICE PRESIDENTIAL CANDIDATE: So what do you do with employees like that who aren't doing their job? You fire them.

You fire Pelosi, retire Reid and their whole band of merry followers, and we get back on the right track.

(END VIDEO CLIP)

CROWLEY: California Republican gubernatorial nominee Meg Whitman and GOP Senate candidate Carly Fiorina did not attend the rally.

Those are your top stories. Up next, much more "FAREED ZAKARIA GPS", and then "Reliable Sources" has an interview with screenwriter Aaron Sorkin at the top of the hour.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: Iraq still has no government after almost nine months. Violence still wracks the nation.

On Thursday, four people were killed in a roadside bombing that had a political mission. The people killed were members of the al- Iraqiya Party -- that's the party of the former prime minister, Ayad Allawi, who is a Shia but who works very closely with Sunni politicians. He joins me now from Baghdad.

Thank you for joining me, Prime Minister Allawi.

AYAD ALLAWI, FORMER PRIME MINISTER, IRAQ: Thank you for having me.

ZAKARIA: First, tell me about this -- this bomb blast. An associate of yours killed. Who are the people responsible for this attack, you think?

ALLAWI: Well, I think, you know, the -- the whole, unfortunately, environment now is -- is quite helpful to terrorists and extremism, to inflict as much damage on Iraq as possible. So, really, there are no indications who was behind it, but definitely those who are trying to sabotage the political process, which is already stalled.

ZAKARIA: But one would have to imagine there are -- there have -- there have been two sets of groups active in Iraq. One have tended to be extreme Sunni organizations, affiliated loosely with al Qaeda, in some cases, and the other have been the Shia militia, often financed or armed by Iran.

Since you are seen as a -- a moderate Shia, who is often made common cause with Sunnis, is it fair to assume that this is an Iranian-backed militia that probably planted these bombs?

ALLAWI: Well, again, Fareed, it's immaterial whether it's Iranian-backed or non-Iranian-backed. But we know that, unfortunately, Iran is trying to recover on the region and is trying to destabilize the region by destabilizing Iraq, and destabilizing Lebanon and destabilizing the Palestinian issue. And this is where, unfortunately, Iraq and the rest of the greater Middle East is falling victim to these terrorists who are definitely Iran financed, supported by various governments in the region.

ZAKARIA: You -- you said that the atmosphere is now conducive to this kind of extremism and terrorism. What do you mean? Explain that.

ALLAWI: We still have a -- a stalling political process, which is really in a halt. It's not moving forward, as it should have been. Secondly, the economy is stagnant. Unemployment is -- is quite high, in fact, very high. The services are still lacking in the -- in the country.

So this is the -- the kind of environment prevailing in Iraq.

Now, if you look at the greater view of the greater Middle East, you will see that the region has really all kinds (ph), from Afghanistan through Pakistan, Somalia, Sudan, Iran, Lebanon, Iraq, Palestine, and so on, and this is all -- these kinds of environment would only encourage and -- the breeding of extreme forces. And thus, we are entering into a kind of a vicious circle where the environment is encouraging the political environment, extreme forces, and extreme forces are trying to sabotage the instability in this environment to create more what's called provincials to operate in.

ZAKARIA: You know there are those, Prime Minister Allawi, who say that there is also interference from the Sunni states, the -- the Saudis, in particular, funding politicians and telling them to hold out and not make a deal with the Shia. Is that -- is that true?

ALLAWI: This is not true, Fareed. I was recently in -- in Cairo. I met with His Excellency, President Mubarak. I went to Saudi Arabia. I met with His Majesty, the King, and I met, while I was in Cairo, in many -- with many leaders, including the President Mahmoud Abbas, the Palestinian leader, the Palestinian president. And they are suffering similar problems, because of interferences of extreme forces trying to sabotage the peace process and the negotiations that have started.

The -- the King of Saudi Arabia was very clear, very frank that they want a stable, a strong, inclusive government as soon as possible, which reflects the -- the will of the Iraqi people, and can do whatever it needs to do to -- to bring stability to Iraq. And he expressed his willingness to help as much as possible, as much as he can, to support such a government and such a future for the country.

So I don't believe that there are leaders in the region who are trying to fuel extremism and to bring about sectarianism. It's unfortunately only Iran which is trying to -- to create some problems in the region. And definitely, in Iraq, I can say categorically that Iran is trying even to -- to bring about change to the political process according to their wishes and requirements.

ZAKARIA: Ayad Allawi, thank you so much for joining us. And we will be right back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Our question this week from the "Fareed Challenge" is, which foreign leader did the "Governator", California Governor Arnold Schwarzenegger, hit the gym and lift weights with this week? Is it, A) Austria's Heinz Fischer, B) Russia's Vladimir Putin, C) Russia's Dmitri Medvedev, or D) Britain's David Cameron?

Stay tuned and we'll tell you the correct answer. And you can of course go to CNN.com/gps to try your hand at 10 more questions on this challenge. While you're there, don't forget to sign up for our weekly podcast.

This week's "Book of the Week" is by today's panel guest, Gideon Rose. It's just been published and it's called "How Wars End: Why We Always Fight the Last Battle." It's a great book. Rose argues that Americans are never content, always disappointed with the way our wars end, and he says that it happens because U.S. officials never think through the post-war when they begin or are prosecuting the war. The -- the recent example of this is of course Iraq and now Afghanistan, but it's also true of the First World War, the Second World War, Korea, Vietnam and there are chapters on each of these.

A brilliant book on an important subject.

Now, for the "Last Look." It was the feel good story of the week, if not the month or the year, the successful rescue of all 33 workers from that mine in Chile that brought the world together, but it also may have brought two countries together. You see, everyone calls them the Chilean miners, but there was actually one Bolivian amongst them, Carlos Mamani.

And while Bolivia and Chile are neighbors, they are far from friends. It goes back to the War of the Pacific, more than 130 years ago. To simplify, before the war, Bolivia had a Pacific coastline. After the war, it didn't, and ever since it's been frosty, at best.

So to see the leftist Bolivian President Evo Morales standing side by side with the conservative Chilean President Sebastian Pinera, to see Chileans, even President Pinera, waving the Bolivian flag, it all gave hope that a thaw in relations with come with the rest of the good news. We'll have to see what happens on that front.

In the meantime, Bolivian President Morales offered to take the Bolivian miner back to La Paz with him right away, but Mamani turn down the offer, deciding he's he'd prefer to stay in Chile for now.

The correct answer to our "Fareed Challenge" question is C) Dmitri Medvedev. And here's some pictorial evidence.

Go to our website for more challenging questions and answers, and thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "RELIABLE SOURCES."