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FAREED ZAKARIA GPS

The Real Story of Iran; Interview with Alan Simpson; Can a Leaner America Still Lead?; The Great China Entertainment Revamp

Aired January 8, 2012 - 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.

We have a great show for you today. I was asking myself whom would I like to hear from about the ups and downs of this crazy Republican race, and my answer was Alan Simpson, the former Republican senator from Wyoming, legendary for his frankness and wit. Of course, we'll also talk about America's fiscal future, because he is the "Simpson" of Simpson-Bowles.

Next up, I'll talk to a scholar and a former Pentagon official about the administration's dramatic plan to cut the Pentagon budget. Is it too much, too little, or is it the Goldilocks budget?

Then, the West and Iran are headed towards a serious showdown. What happens next? Will oil spike to $150 a barrel? What is the end game here? We have four top experts to guide us through.

Also, we'll tell you the real reason China is revamping most of its television shows. It's not to get better ratings.

My take this week is on Iran. You'll hear from others on this later, but I'll go first.

There's not much foreign policy talk on the campaign trail, as you probably noticed, except for one issue. Everyone is talking about Iran's new strength and assertiveness, its missile tests, its progress on the nuclear program, its moves in Iraq.

Mitt Romney, the Republican frontrunner, describes Iran as the greatest threat the world faces over the next decade. In fact, the real story on the ground is that Iran is weak and getting weaker. Sanctions have pushed the economy into a nose-dive, the political system is fractured and fragmenting.

The simplest measure of Iran's strength is its currency. When Barack Obama became president, you could buy 9,700 rials with one dollar. Since then, the dollar has appreciated 60 percent against the rial, meaning this week you could buy 15,600 rials with one dollar.

Iranian President Mahmoud Ahmadinejad told his parliament recently that the latest sanctions were the heaviest economic onslaught on a nation in history. The Iranian government's reaction to the prospects of sanctions that could hit hits oil exports shows its desperation.

First, one of its admirals threatened to blocked the Straits of Hormuz, invoking the Persian expression that this would be as easy as drinking a glass of water. But a senior commander of the Revolutionary Guards, Iran's crucial power source, quickly backtracked, explaining that Tehran has no intention of blocking the straits.

Frankly, it would be madness to do so because Iran would suffer more than any other country. Blocking the straits would result in a near total shutdown of Iran's exports and imports, and with 60 percent of Iran's economy coming from oil special exports, that would bring the government to a standstill.

Meanwhile, Iran's nuclear program is making progress. Now, this is inevitable. Nuclear technology is 70 years old. Iran has a serious scientific and technological community, and it does see the nuclear program as an emblem of national security and pride. But do we think of North Korea as strong and on the rise because it has a few crude nuclear weapons?

The Obama administration seem to have concluded that the Iranian regime is not ready or able to make a strategic reconciliation with the West. The regime is too divided and Khomeini, the ultimate authority, the Supreme Leader, is too ideologically rigid. So, for now, Washington wants to build pressure on Iran in the hopes that this will force the regime into serious negotiations at some point.

The strategy is understandable, but it also risks building up pressures that could take a course of their own, with explosive results. The price of oil is rising and is high during a global economic slump only because of these geopolitical risks. Without a carefully considered strategy, these risks will only grow. Remember, weak countries whose regimes face pressure can sometimes cause a lot more problems than strong countries.

Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: Joining me now, the Republican Party's eldest statesman from Wyoming, Alan Simpson. Senator, pleasure to have you on.

ALAN SIMPSON, FORMER REPUBLICAN SENATOR FROM WYOMING: It's a great treat to - to be here. I'm very pleased.

ZAKARIA: Do you think that Mitt Romney has now wrapped up the nomination, for all intents and purposes?

SIMPSON: I think that's very possible because they've washed all the laundry of his that they could ever find. Now they're going to start washing the laundry of Rick Santorum, who has not had his laundry washed yet.

Everyone that rose to the top here suddenly created a great deal of investigation and examination, and - and Rick Santorum has never had that. And, when they got it, the others, who've fallen, all capable people, when they - when they got it, they all dropped.

So Romney's had his thoroughly strung on the line, and - and has survived, and now they're going to start dragging the laundry out on Santorum and stringing it up on the line. And there would be some tough stuff in there, controversial stuff. You know, abortion, homosexuality, those flash words and earmarks and all that stuff - bam, bam. Here we go.

ZAKARIA: What do you think it says, though, about the party, that it seems to have been - tried desperately to fall in love with everyone but Mitt Romney?

SIMPSON: I don't know. It's a strange thing. I think that he is a very effective man, and I think the reason they keep coming back to him regardless of the, quote, "flaws" they attribute to him is that he's the only guy that ever met a payroll. He's the only guy that ever took over a failed organization, filled with corruption and - and disunity and dysfunctional, like the Congress, and - and put it back together, and then taken businesses which were on the ropes.

Somebody said, yes, but he - he killed - he got rid of all these people. I said, well, you've got two choices when you take over a failed business - let it fail and everybody's out of work, or take it over and hire half of them back, start paying the shareholders and get cracking. That's what he did.

ZAKARIA: So you endorse him?

SIMPSON: I haven't done that yet because I feel that I've irritated everyone in the United States. They wouldn't want the curse visited upon them, you know, because with the - what Erskine and I have done in 67 pages effectively has POed everyone in America. Especially the powerful Halloween (ph) groups, like the AARP and Grover Norquist, and - oh, name them, you know. Man, oh, man.

It's been fun, though. I love it.

ZAKARIA: One more question on the - on the politics before we get to the debt issue. When - what does it say about the Tea Party, though? This was the great vaunted new element in the - in the Republican Party, and, at the end of the day, it seems like the Republican Party is - as it always does - is nominating the frontrunner, the guy who's waited in line, the guy who's run before. And, you know, that fairly traditional, hierarchical dynamic is at work. The Tea Party wasn't able to change it at all.

SIMPSON: Well, Republicans give each other the saliva test of purity. They like to give the saliva test of purity, and then they lose and then they just bitch for four years. It's an amazing party, and I've watched it with some trepidation.

But, honestly, if that's what they're going to do again, this guy is not pure enough, not conservative enough, he's too liberal, well then, Obama's a walk-in, and they know it. They're having a lot of fun watching this orgy (ph). ZAKARIA: So, you know, one of the central moments in - in the Republican debates, the candidates were asked, if you get $10 of spending cuts for $1 of tax increases, would you take it? And not one of them took it.

I take it your view is that this is fantasy, that there is simply no way to deal with the - the budget without raising taxes.

SIMPSON: It's dream world, and I couldn't believe it when I watched that. When they asked that question, nine hands, you shot up like robots and I thought, how can you get there?

Now, you don't have to raise taxes, which, of course, makes Grover froth at the mouth and all his minions. You just go into the tax code and you say let's get rid of these tax expenditures. They are $1.1 trillion a year. Home mortgage interest deduction, $1 million? Second homes? No.

We said, get it down to $500,000, then give it 12.5 percent nonrefundable tax credit. That helps the little guy everybody talks about.

Charitable deduction, give a 12.5 percent nonrefundable tax credit. And then go in and look at the rest of the stuff. You won't believe what's in there - parking for employees, Blue Cross insurance, oil and gas.

You know, I've trampled on my own sacred cows to - to do that pitch. But you have to - it has to be self-sacrifice and know that this country is going broke.

ZAKARIA: Are you resigned to the fact that nothing is likely to happen on your proposal and the ideas around it until the election, or do you think that there's still a possibility in the next year something can happen?

SIMPSON: We'll see what happens. But - but every day that goes by, this is like a stink bomb in a garden party, and as they're eating their tea cookies and saying nothing's going to happen in America, this odor is coming out from under the table because you can't get there by doing waste, fraud and abuse, foreign aid, earmarks, Nancy Pelosi's airplane, Air Force One, all Congressional pensions - give it up. That's about four or five percent of what we're in.

You have to go deal with Medicare, Medicaid, the solvency of social security and defense. And if you can't raise the retirement age to 68 by the year 2050 without the AARP losing their marbles and Grover slavering at the mouth on every kind of thing you talk about, calling it a tax increase, we won't make it.

That's the kind of power that's out there, and - and making a dysfunctional government. Why, pull up your shorts and start running for the exit.

ZAKARIA: Senator, when I was growing up and coming of age, I remember you were thought of as a pretty conservative guy. I mean, you were representing Wyoming, after all. And to listen to you now, you sound - you sound like a moderate.

Is - have you changed, or has the Republican Party changed?

SIMPSON: Well, I think the Republican Party changed, but where - where - what happened with me is I always felt that abortion is a hideous and terrible thing. Let's all admit that. But it's a deeply intimate and personal decision. It's a -

Here's a party that believes in government out of your lives, the precious right of privacy, and the right to be left alone. Well, then, what are you doing in this issue? Partial birth abortion is not an emotional issue, it's a medical issue. It's to free the birth canal for hopefully a later child. I mean, it's madness.

Gay/lesbian issues, we all have someone we know or love who's gay or lesbian. What the hell is this all about? Madness.

And if we're going to get trapped in that, we're headed for some more strife.

ZAKARIA: Senator, real pleasure to have you on. I hope we can have you on again.

SIMPSON: Well, I hope you'll stick around, because you speak with clarity, and you - and you ask great questions and you don't get caught up in all the garbage on the extreme Right and the extreme Left. People -- Erskine and I go around the country and we can speak to any group, Right or Left.

Give us an hour, let them ask questions, we'll get a standing ovation because people are thirsting for somebody to give them something other than B.S. or mush. And both parties are giving - giving the American people B.S. and mush, and they're sick of it.

And something's going to happen. I don't know what it is, but people - people are smarter than their politicians. They always have been. And we'll see what happens.

ZAKARIA: On that note, legendary note of frankness, Senator Alan Simpson.

SIMPSON: It's a pleasure.

ZAKARIA: Up next, the Pentagon's new strategic plan that says we can no longer fight two major wars at the same time. How will the cuts affect policy? We have a panel.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: This week President Obama and Defense Secretary Leon Panetta outlined a new strategy for a leaner military with smaller goals. We cannot any more fight two major wars at the same time. My next two guests from Washington are experts at deciphering the near and long term consequences of these cuts.

Larry Korb is a former Assistant Secretary of Defense. He is now senior fellow at the Center for American Progress.

Michael O'Hanlon is a Senior Fellow at Brookings. He's also worked as a National Security Analyst at the Congressional Budget Office.

Welcome.

Mike, let me start with you because this - the headline out of this has been we will no longer be able to fight two major wars. But was it ever realistic to believe that the United States could fight two major wars at the same time, just in terms of the - the energy, time commitment pressures?

I mean, what we saw when we were fighting Iraq surely was - the reality is that this was always just a kind of planning device, or do I have it wrong?

MICHAEL O'HANLON, SENIOR FELLOW, BROOKINGS INSTITUTION: I think you're mostly right, Fareed. Even in the Cold War, when we had larger forces, the Vietnam War drained a lot of capability from Europe, and that had been true as well in Korea. So I think you're basically correct, and therefore, you can't make too much of this change.

Also, the - the Pentagon today has - or this week has emphasized that they still do have that capability to do something in a second place. It just wouldn't be a full, all-out second major contingency.

And then, finally, and a point I've been trying to emphasize, is that of all the places where our interests are threatened, most of them really are maritime or - or air oriented. In other words, the Persian Gulf, waterways, the Strait of Hormuz, Taiwan. It's not all classic land threats anyway, and so if you can't handle two classic ground invasions at the same time at this point, that's probably all right.

So I think, A) you're right, it wasn't a big change from the past. B) to the extent it is a change, it actually accords pretty well with the changing international landscape and where we see the greatest threats to our interests.

ZAKARIA: Now Larry, you've been calling for reform of the Defense budget, frankly, for cuts for a long time. For you, do these go far enough? Because you've always thought we've had basically a, you know, a very bloated military establishment.

LAWRENCE KORB, SENIOR FELLOW, CENTER FOR AMERICAN PROGRESS: Well, basically, they're a step in the right direction but they really do not go as far as they - they should, given the threats that we face. And, as the president mentioned, the other economic concerns that we have.

And I don't think - I think basically we learned by that foolish invasion of Iraq that we're not very good at this nation building and reengineering societies. And so we had already decided not do that, and so, therefore, you can cut the Army and the Marine Corps ground forces back.

They're talking about a 50,000 cut in the Army. I'd go back to at least, you know, at least a 70,000 cut.

ZAKARIA: Mike, even with these cuts, we will have a military that is, in dollar terms, 10 - larger than the next 10 countries put together. I can't think of any point in history when that was true. I mean, the British Navy used to pride itself in the fact that they were larger than the next two put together. We're larger than the next 10 put together.

O'HANLON: Well, of course the British Navy did not prevent the outbreak of World War I. Deterrence failed in that case. There was too much competition, and I don't mean that to sound like I want to pound my chest and outspend the Chinese 10 to one forever, but I do think that it's actually a good issue to raise the basic point that you don't really want it to be too close in this business.

Having said that, we do have to be cognizant of the fact that our economy's not as strong as it used to be and we need some reasonable margin of advantage. That's why, for me, I think going back to a one ground war capability is a smart kind of gamble.

But I'm a lot more nervous about saying that we should start choosing in terms of our Navy capabilities between the Persian Gulf and the Western Pacific, for example, which is what I think you would have to start to do if you wind up with sequestration. If you make trillion-dollar cuts over the next decade, I think you have to prioritize either the Western Pacific or the Persian Gulf. I don't believe you can do both equally, and I'm not sure that's a smart gamble for American security right now.

ZAKARIA: Larry, I noticed that Secretary Panetta took on what has been politically a very tough thing, which is the benefit packages that accrue to people who work for the Pentagon, for the Army. You retire after 20 years with these very generous pensions, full health care. Even if you get another job you retain all that.

Do you think those cuts will be - it will be politically possible to make those cuts?

KORB: Yes, I think it is, if you get the military leadership to - to back it. They're the ones who got us into this mess.

You know, I don't want to blow my own horn, but when I was there I tried to deal with military retirement. I cut the benefit from 50 to 40 percent after 20 years for people who came in after 1986. The military leaders pushed the civilians to undo it. They did it. There was no money put - put aside for it.

So you're going to have to take it on, and, if you don't, you're going to end up like some of these states do where, you know, their - their pension costs are beginning to eat them alive. Basically, you can do it as we did it, in a fair way. You can grandfather people. But, you know, when you make these promises to military retirees and you don't pay for them, this is the problem that you're going to run into.

ZAKARIA: Mike, you think these cuts will go through, bottom line?

O'HANLON: I do. I think that the roughly $400 billion, $450 billion in cuts over 10 years make good sense for the reasons we've been discussing. The harder question is, can you really increase them much beyond that? Here Larry and I disagree a bit.

In a sense, here the Obama administration has internal discord within its own thinking because on the one hand they're proposing this $400 billion package, which has become sort of a moderate package. On the other hand, Obama has no way out of sequestration at the moment, and he's pledged to veto a bill that would soften any aspect of sequestration unless it's done in broader deficit-neutral terms.

So he's sort of got a little tension in his own policy. So do the Republicans in Congress. I think that's going to be the interesting question to watch over the next 10 months, the sequestration sort of stay on course to occur, and to really kick in 12 months from now, or does it get mitigated in the meantime? That, to me, is the big question, because this first round of cuts is totally fine if it's done wisely and I think the current thinking is pretty wise.

ZAKARIA: And we'll be watching it. Larry Korb, Michael O'Hanlon, thank you very much.

KORB: Thank you.

O'HANLON: Thanks, Fareed.

ZAKARIA: Stay with us. We have a very curious story up next. Why most Chinese this week couldn't watch their favorite TV shows, and won't ever be able to watch them again. I'll explain.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Imagine if you flicked on your television and found that the government had canceled "American Idol," "30 Rock," "The Office," and "Dancing with the Stars." Well, that's essentially what happened in China when last week Beijing eliminated a staggering two- thirds of all primetime entertainment.

"What in the World?" is going on?

(BEGIN VIDEOTAPE)

(WOMAN SINGING "DON'T CRY FOR ME ARGENTINA")

ZAKARIA (voice-over): "Super Girl" looks and feels like "American Idol," but the Chinese talent show was pulled for being too vulgar and too Western.

It's one of 88 entertainment shows that have been canceled. Other programs that have survived have had to change. Sensors have insured the dating show "If You Are the One" is now less racy. Gone are the Western style discussions about sex.

Why all the cuts? Beijing reportedly wants to combat what it calls "excessive entertainment" and "a trend towards low taste." These orders came from the very top - from president Hu Jintao.

In an essay published in a party magazine last week, President Hu claimed that hostile international forces were plotting to westernize and divide China. He called for forceful measures to develop homegrown cultural products that could engage China's youth.

Mr. Hu worries about China's place in the free world, the discrepancy between its growing economic clout and its relatively feeble cultural influence. We all know that china's GDP will likely surpass America's total output within a decade or so, but as far as entertainment goes, the U.S. is completely dominant.

China's top grossing films last year were all from Hollywood -

PO, KUNG FU PANDA 2, VOICED BY JACK BLACK: Kung fu staring contest - go!

ZAKARIA: -- the latest sequels to "Kung Fu Panda" and "Pirates of the Caribbean." And that's despite a huge number of restrictions the Beijing government imposes on Hollywood.

JOHNNY DEPP AS CAPT. JACK SPARROW: There should be a captain in there somewhere.

ZAKARIA: What about domestic Chinese films?

Well, the state lavished money on two star-studded propaganda epics last year, but they didn't bring in as much revenue as the Hollywood releases. And that's in the domestic Chinese market. Outside of China, these Chinese films barely registered.

All this is putting frowns on the faces of China's leaders. Beijing isn't satisfied simply with controlling domestic TV news and the Internet, it wants to control the Chinese cultural diet.

And the appetite goes outside China's borders as well. Beijing wants more soft power.

But back to our canceled TV shows, this is not simply about cultural exports. It's about controlling what the Chinese people hear and see. Mr. Hu is trying to create a layer of stability in 2012 and beyond.

2012, of course, is an election year, that sees Beijing on the cusp of unprecedented change. Seven of the nine top members of the standing committee will be stepping down. Seventy percent of China's top 200 leaders will be replaced. And, in his final months in office, Mr. Hu is focusing on internal politics and the transition, setting the ideological foundations to guide a new generation of young leaders.

Some of them, like Bo Xilai, the party secretary of Chongqing, have been openly arguing that China has become too westernized, too materialistic, too unequal, and too untethered from its past. Bo has spoken of a return to Confucian values, encouraged festivals of Communist songs from the Cultural Revolution. He speaks reverently of China's Maoist values.

It is a conservative lament about the consequences of capitalism.

(END VIDEOTAPE)

ZAKARIA: We've seen a bold assertive Beijing in 2011. It spoke confidently after the crash of '08. It was tough on its neighbors.

But 2012 is going to be different. Look for a more inward- focused Communist Party that is trying to slow down and control the consequences of the economic juggernaut it has unleashed.

And we'll be right back.

Up next, a war of words between Iran and the West. New sanctions. But will all this turn into something much more serious?

This is a story that impacts all of us. If Tehran closes the Straits of Hormuz, oil prices could shoot up as much as 50 percent instantly.

Stay with us. We have an expert panel.

(COMMERCIAL BREAK)

CHRIS LAWRENCE, CNN CORRESPONDENT: Now time for a check of today's top stories.

Arizona Congresswoman Gabrielle Giffords will attend a vigil today marking the one-year anniversary of the massacre that wounded her and killed six others. She and her husband, retired Astronaut and Navy Captain Mark Kelly, visited a memorial for Gabe Zimmerman, an aide of Giffords who was killed in the attack. Twenty-three-year-old Jared Loughner is charged in that shooting.

Nearly 100 soldiers are confined to a Seattle base following a report of missing sensitive military equipment that includes scopes and night lasers. The unit of soldiers returned home from Iraq in 2010. Authorities are offering a $10,000 reward for information leading to that missing equipment.

Arab League officials are meeting in Cairo today to discuss their mission in Syria amid unrest that has killed thousands. In today's clashes in Dara, at least 11 Syrians were killed and 20 injured. The League says suspending monitors in Syria is not an option that's being considered, and they may ask the United Nations for help. Former Pakistani President Pervez Musharraf is expected today to announce plans to return to Pakistan. The country's officials say if he does come back, Musharraf will be arrested in connection with the assassination of former Prime Minister Benazir Bhutto.

And in what's being described as New Zealand's worst maritime disaster, a cargo ship that ran aground off the country's coast three months ago has split in two. The ship's breakage has spilled up to 300 containers and sparked concerns about an oil spill.

Those are your top stories. Now back to FAREED ZAKARIA GPS.

(BEGIN VIDEOTAPE)

ZAKARIA: Iran and the West are locked in a dangerous game of brinkmanship, a war of words and sanctions that could turn into something bigger. So what happens next?

I have a panel of experts here with me. Iranian-born Vali Nasr, professor of International Politics at Tufts University. He recently served in the Obama State Department. Bret Stephens is the Foreign Affairs Columnist of the "Wall Street Journal," formerly the editor of "The Jerusalem Post." Hillary Mann Leverett worked in George W. Bush's National Security Council as the Director for Iran and Afghanistan. She's now CEO of the Strategic Energy and Global Analysis. Hooman Majd is one of Iran's finest authors and commentators. He is the author of "The Ayatollah's Democracy." Born in Tehran, he now lives in New York.

Welcome all.

So, Hooman, you spent much of the last year in Iran.

HOOMAN MAJD, WRITER/AUTHOR, "THE AYATOLLAH'S DEMOCRACY: AN IRANIAN CHALLENGE": Yes.

ZAKARIA: Describe to me what does life in Iran look like with these mounting sanctions.

MAJD: Difficult. Life is difficult for the ordinary person. The inflation rate is very high in Iran, as you know. You were there yourself. And it's getting worse. Foreign exchange, the foreign exchange rate has - has fluctuated dramatically over the last few months based on people's anxiety about the sanctions and anxiety about the possibility of war.

So life is actually difficult for the ordinary person, particularly in the big cities.

ZAKARIA: And whom do you think odor ordinary people blame?

MAJD: I think they tend - well, they're a little baffled by the Obama administration approach or the Western approach to Iran. They don't quite understand why these sanctions are being applied. They - some people might blame the Iranian government. But I think generally speaking, people are like, why is this happening? Why is America doing this?

Because people are pretty sophisticated in Iran, and they say, well, if they're trying to get our government to stop its nuclear program, that's not going to happen.

ZAKARIA: And, Vali, when you look at this sort of leadership issue of, first, they say they're going to block the Straits of Hormuz, then they back down. They, you know, there seems to be disarray. How would you - how do you read what the Iranian leadership is trying to do at this point?

VALI NASR, PHD, U.S. STATE DEPARTMENT FOREIGN AFFAIRS POLICY ADVISORY BOARD: Well, there always is a difference of opinion among the leaders about how to handle the negotiations, the sanctions in the United States. But I think overall a decision in Iran has been made to meet threat with threat, violation of sovereignty with violation of sovereignty and show an aggressive face to the West in order to back the West off.

Now, there are people who may go too far and then they are sort of yanked back. But it's very clear that Iran has made a - made a very clear decision that the way to deal with the United States on these sanctions issues is preemptive, and is to try to raise the cost to the West and to send warnings in the hope that the administration will back off.

ZAKARIA: But what did - what are Iran's cards here? You know, I mean, the West has all these cards of economic sanctions and potentially more military issue strikes. What can - what are Iran's credible threats?

NASR: Well, first of all, I think Iran would like to educate the West in the fact that the imposition of sanctions is not going to be cost-free. So that Iran can or can threaten to close the Straits of Hormuz, can threaten Arab allies around, can threaten regional stability.

There is a perception that Iranians have mentioned that that's going to cause an impact on energy markets, and then on Europe and the United States right now are vulnerable. And generally there are still many areas in which the United States is vulnerable in the region, in Afghanistan, in Iraq. And the Iranians have a perception that the Obama administration has been talking about sanctions as if they hold all the cards. They can make all the moves, and there is no Iranian blow-back in a sense.

ZAKARIA: Bret, seems like the Obama administration is being very tough on Iran. And we'll get into the issue of whether or not, you know, it's working and such. But from your point of view as somebody who's always had a pretty tough line, surely you must be pleased.

BRET STEPHENS, FOREIGN AFFAIRS COLUMNIST, THE WALL STREET JOURNAL: I'm more pleased - I wish it have been - these sanctions, the oil sanctions that are now coming into play, both from the United States and also the European Union had been done earlier. I think they would have had a greater effect on the regime - ZAKARIA: But thing takes time when they're trying to get -

STEPHENS: These things take time. And as we learned from the IAEA report last - late last fall, the Iranians have made enormous strides in their - in their nuclear program.

I want to somewhat take issue with something Vali said or at least make another point. The Iranians are belligerent whatever the stance of the United States. The Obama administration came in to office very clearly seeking an open hand outreach towards the Iranians.

Now you might quibble that it wasn't done in an appropriate style or it lacked a certain kind of nuance. But the general thrust of the Obama president's approach was to congratulate the Islamic republic on their new year to negotiate face to face. And the response from the get-go from the Iranians was belligerent. Not just at the level of negotiations, but taking those American hikers hostage, taking that American journalist Roxana Saberi hostage and putting her through a kind of kangaroo court.

So we shouldn't sort of imagine that Iranian behavior today is purely dictated by what - what has transpired in the last two or three months.

ZAKARIA: Hillary, you think the Obama administration has been too tough in a sense, right?

HILLARY MANN LEVERETT, CEO, STRATEGIC ENERGY AND GLOBAL ANALYSIS: Yes. I don't think they were ever straight about engagement. I think that President Obama came into office with this vague notion of engagement, but not really understanding what it would take.

When Nixon and Kissinger came into office wanting to fundamentally reorient U.S. policies for the People's Republic of China, they did really important, noticeable things to the leadership in China. They stood down covert operations in Tibet and they stop patrolling essentially to stop patrolling in the Straits of Taiwan.

Two really important things to show to the leadership in the PRC. What did the Obama administration do? They had one 45-minute meeting over the nuclear issue. They ignored President Ahmadinejad's initial letter of congratulations to President Obama.

And when the Supreme Leader Ayatollah Khomeini responded to Obama's New Year's message to the Iranian people - to their leaders and people of - the Islamic Republic of Iran, the Supreme Leader responded that, we, the Iranians, have no experience with your administration, the Obama administration. If you change your policies, so will we.

That was a critical opening, and I've been told by people within the Iranian National Security Council that it was fully cleared, authorized, and thought through. It was a major strategic error that we did not pursue serious, sustained diplomacy with the Islamic Republic of Iran. President Obama has brought us closer to the brink of conflict with Iran than even the Bush administration did.

ZAKARIA: All right. We're going to come back. And when we come back, I will let Bret Stephens respond, but we will also talk about how this is all going to end, what's the next step, when we come back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: We are back talking about Iran and the dangers and opportunities with Vali Nasr, Bret Stephens, Hillary Mann Leverett, and Hooman Majd.

Bret, do you feel that the Obama administration made a serious offer of diplomacy? There are lots of people who feel that, you know, we've missed many opportunities for negotiation on both sides. You think that it's essentially - it's pointless to try and negotiate because this is a regime that doesn't want a reconciliation -

STEPHENS: I think that's right. I think the Iranians are of two views. That the West is either trying to subvert them through a kind of velvet revolution process, or they're trying to subvert them sort of actively through covert operations or military strikes, and so on.

So I think that in my view goes very far to explain Khomeini's incredibly harsh and immediate reaction to President Obama's very public efforts at outreach -

ZAKARIA: What do you say to that?

LEVERETT: I think the Iranians, I think inside the Islamic Republic, they are concerned about U.S. attempts to undermine, subvert an attack in the country. And they need to defend the country just as they needed to defend the country against Saddam Hussein's invasion in 1980.

Absolutely there's a - there's a clear sense of self-defense, preservation of the country. Not just the ruling elite, but the country. There's an absolute imperative for that.

But with that, Iran also sees itself surrounded by 15 neighbors. Not one of them except for Iraq today possibly is a natural ally. Iran has real - real national security concerns, legitimate interests, that in part can be alleviated, ameliorated by a much better relationship with the United States.

And that is why the Islamic Republic of Iran has periodically even from its inception been open to working with the United States. Remember the Iran-contra affair during the 1980s trying to get U.S. hostages out of Lebanon during the first Bush administration, Bush 41, working with the United States to get weapons to the Muslims in Bosnia. Working with the United States and Afghanistan after 9/11. Sending in an offer for comprehensive negotiations in 2003.

There have been repeated steps. And when the leader of the Islamic Republic of Iran says in Mashhad, in one of the holiest places in Iran, says to crowds and crowds of Iranians, we don't have any experience with this administration. If you change your policies, so will we, that was serious.

STEPHENS: And you're telling of Iran, this is a 30-year record of Iranian efforts and outreach to the United States, arrogantly or foolishly rebuffed by the United States. This is not a regime that, you know, supports terrorist groups, tries to kill a Saudi ambassador.

Perhaps is justifiably incurred the - the resentment and fear of its neighbors.

ZAKARIA: All right. Let me ask you, Vali, you were in the State Department when these issues were being debated. Again, whether the U.S. should be - should be reaching out in some way or the other. How is this going to end?

Because if you put all this pressure on them, is there a strategy for some kind of negotiated outcome? Because otherwise the pressure builds and if the Iranians as you say kind of match pressure with pressure, you - you know, things can get very, very risky. I mean, if you look at the price of oil, I'm struck by this. In a global recession with this huge slump, the price of oil is $110 a barrel. The price of oil in - the beginning of 2007 was $50 a barrel, with every economy booming in the world.

So it has to be - the fears of political risk that are doing this, and so where do we go from here?

NASR: Going from here? If the objective of the administration is get the Iranians to the table or change their behavior, the sanctions regime is not going to work and for a very simple reason. Because the sanctions, the level they're going to are going to threaten the stability of the regime. If you threaten the stability of the regime, what kicks in is a Libya scenario.

In other words, even the Supreme Leaders said that Gadhafi was an idiot for giving up his nuclear weapons, because if you give up your weapons, you don't have any weapons of mass destruction deterrents. And then your people rise up, there is nothing to protect you from outside intervention.

So if we're going to threaten the stability of the regime through these draconian sanctions, you're going to only give Iran more encouragement to stick to its guns and try to race past the point of no return. So these sanctions currently are counterproductive.

ZAKARIA: What will bring Iran to the negotiating table?

MAJD: I think to get them to the negotiating table where you might have a positive result, you'd have to - going back to what Hillary was saying and how the Obama administration had some outreach to Iran but it wasn't enough, the 45-minute meeting and so on and so forth.

You know, a Friday prayer leader in Yaz told me at the time, right at the time Obama was elected, he said, well, if Obama is really serious - and this is what they tell their flock, they tell their people on Friday. If he's really serious, why doesn't he lift one of the sanctions?

One sanction is spare parts for our civilian aircraft. You know, right now, today if an Iranian wants to fly on Iran air or even on British Midland Airways between London and Tehran, that plane has to refuel in Armenia or in Greece or somewhere else where they can get fuel. They can't even get fuel for their airlines when they - when they go abroad.

This is directly affecting the Iranian people. The Iranian government is making sure the Iranian people know that it's directly affecting them. They don't quite understand why these sanctions are there. They don't quite understand why their planes are falling out of the sky when they could easily be buying Boeings, you know, to safely take people.

So they were looking. And I think this is a reflection of the leadership. I think Hillary's correct. They were looking for some sign - I don't know about China, I'm not an expert at all. I'm not a historian. But I think they were looking for some sign beyond the rhetoric that said, yes, we're actually serious about this.

ZAKARIA: Given all the pressures that are building, do you believe within a year we will have reached some kind of crisis? Will there be an Israeli strike? What is this going to look like a year from now? If the pressures are building to a point where something feels like it's going to give?

NASR: I think we are in a crisis. The question is when we were going to have an actual breakdown. I think, you know, we're not where we were in 2003 or in 2009. We're at the point where the regime in Iran would feel that if they sat at the table and they gave what Bret is saying, that they will be under threat.

Ultimately we want - we want the suspension to come first, normalization later. That makes them susceptible to some kind of action against them, as I said, to a Libya scenario. So they're not going to come to the table just because of the pressure.

And there is no - right now, the administration has not put forth a roadmap to a robust diplomatic negotiation. It's just pressure, pressure, pressure. And buckling now would actually make him vulnerable. So I think they're going to hold their cards and that would make -

ZAKARIA: An Israeli strike. What is the possibility within the next year there will be a strike?

STEPHENS: I think it's highly likely.

ZAKARIA: Without the United States? STEPHENS: I think it is - it is increasingly likely because there's a perception among Israelis that the United States will not do what Israelis have hoped they would do because for Israelis and Iran with the nuclear weapon is unacceptable, particularly in the current religious and political climate in - in the Middle East.

And because I think the Israeli leadership really sees this as a threat like - like none other in their history.

ZAKARIA: We then have to go. Thank you all so much. A fascinating conversation. We'll be back.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Our question this week from the "GPS Challenge" which international music star announced a campaign for president of his or her native land this week?

Is it A) Sinead O'Connor in Ireland; B) Andrea Bocelli of Italy; C) Youssou N'Dour of Senegal; or D) Ted Nugent of the US of A?

Stay tuned and we'll tell you the correct answer. Make sure you go to CNN.com/GPS for 10 more questions. While you're there, check out our website, the Global Public Square, it gets better, fresher, greater every day.

And don't forget, you can follow us on Twitter and Facebook.

This week's "Book of the Week" was written in 1935. But it's a great book and there's a gorgeous new edition out. If you like big histories, sweeping tales, you'll love "A Little History of the World," by E.H. Gombrich. The book of is a beautifully and accessibly told history of the world with short, vividly written chapters. The author was an art historian so the illustrations are perfect. This is really a treat for the eyes and the mind.

Now, for "The Last Look," three years ago when India's Tata Motors launched its Nano line, observer said it was impossible to go smaller or cheaper. Well, they've been proven wrong. This week another Indian manufacturer, Bajaj, revealed the teensy RE60. And it has been crowned the new champion in the race to the microscopic.

We thought we'd do a tale of tape between the RE60 and America's biggest passenger automobile, the fully loaded Escalade. The Indian entry weighs 881 pounds. The American, 7,100. The RE60 gets 82 miles to the gallon. The Escalade, 18. And when it comes to price, the Cadillac with all the bells and whistles will run you well over $80,000. That is about 40 times what the Indian car is expected to cost.

Finally, while the Cadillac seats eight comfortably, the RE60 supposedly seats four passengers which means four Indians which probably translates into two Americans. The correct answer to our "GPS Challenge" question was C, Youssou N'Dour, whose music you will probably recognize. And as this week that he's running for president of Senegal.

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