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FAREED ZAKARIA GPS

Pres. Obama's Foreign Policy; Interview with David Rubenstein; GPS Panel on the GOP Race; Poland a Model for Arab Spring?

Aired January 22, 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've got a great show for you today. First up, private equity. The words are on everyone's lips, thanks to Mitt Romney. We'll sit down with one of the inventors of private equity, the co-found of the legendary Carlyle Group, David Rubenstein.

Then, I have a lot to talk about with an all-star panel - Arianna Huffington, Steve Rattner, David Frum and Mort Zuckerman - on the GOP race, the economy, the euro, Iran, all kinds of things.

Next up, what do the Gdansk Shipyard and Tahrir Square have in common? A lot. I'll explain.

But first, here's my take. I spent the last few weeks working on an essay for "Time" magazine on Barack Obama's foreign policy, and in association with that piece, I interviewed the president last Wednesday in the Oval Office. Let me give you a few of my thoughts and impressions.

Obama seemed relaxed, calm, confident. I asked him about Mitt Romney's attacks on him as indecisive, timid and nuanced. I don't quite know why being nuanced is a bad thing, but that is what Romney said.

Obama responded that Romney and the rest of the Republican field are going to be playing to their base until the primary season is over. After that, he said, he looked forward to having a foreign policy debate. Overall, I think it's going to be pretty hard to argue that we have not executed a strategy over the last three years that has put America in a stronger position than it was when I came into office, he said.

I think Obama has good reasons to be confident on this front. He entered the Oval Office with the United States deeply unpopular around the world, with vast commitments in Iraq and Afghanistan, difficult relations with many countries, and a large part of the world feeling it had been ignored by an America obsessed by the war on terror. Obama was determined to pare down America's commitments, its military footprint, and regain trust and goodwill abroad.

And, for the most part, he succeeded. There were 140,000 troops in Iraq when he came into office. There are zero now. He added troops in Afghanistan, but there, too, a drawdown has begun. He scaled back the nation building aspect of American interventions, but ferociously embraced and expanded the counterterrorism angle, fighting al Qaeda, and other terrorist groups.

Obama ordered more drone attacks in the first two years of his presidency than George W. Bush did in his entire two terms - eight years. And the results have been noteworthy. Most of al Qaeda's senior leadership has been killed. The strategy's crowning success was, of course, the killing of Osama Bin Laden.

If the war against al Qaeda is the most visible and dramatic success story, the most significant long-term success might be in Asia, where Obama has pivoted. Asia is the new arena of global wealth, power and politics, and Obama decided to expand American presence in the region with a flurry of diplomatic, political and military moves over the last six months. He did so carefully and skillfully so that it was seen by Asian countries as a response to their request rather than a unilateral assertion of American power. When historians write about an Obama doctrine, they might point to his new Asia strategy, his declaration that America is a Pacific power and we're here to stay.

All in all, it's a pretty strong record, which is why you actually don't hear Republicans talking much about foreign policy on the campaign trail these days.

For more on all this, you can read my cover essay in this week's "Time" magazine and the interview, or go to Time.com for the complete interview. Let's get started.

(BEGIN VIDEOTAPE)

ZAKARIA: Looting - that is what Newt Gingrich says private equity is all about. But rather than take his word for it, I wanted to go to the top.

My next guest is a pioneer of private equity. The term didn't really exist before David Rubenstein and his partners founded the Carlyle Group almost 25 years ago. Today, Carlyle is, by some estimates, the largest private equity firm in the world. The companies in Carlyle's portfolio have revenues of approximately $100 billion.

If Rubenstein's name sounds familiar, he was also in the news this week for donating $7.5 million to fix the Washington Monument.

Welcome, David.

DAVID RUBENSTEIN, CO-FOUNDER, THE CARLYLE GROUP: My pleasure.

ZAKARIA: Do you understand the attacks that people are making about private equity, about Mitt Romney? The basic argument, as I understand it, goes private equity companies buy these companies, load them up with debt, fire all - lots of workers, find some low cost place to do the same thing, and that's how they make money, and it's terrible for American workers.

RUBENSTEIN: Well, I think that's unfortunate because that's not the reality. The reality is this. Private equity firms are very good at buying companies, improving them, strengthening them, actually increasing employment in many cases, and doing a very good job for the investors, most of whom are public pension funds, fire workers, policemen, teachers. They're the beneficiaries principally of private equity.

ZAKARIA: Do you think that the basic model that people look at is wrong then, that they say these private equity companies come, you - so when you buy a company, how do you strengthen it? You know, how do - what is the magic that makes you able to grow the company other than firing workers and, therefore, reducing costs?

RUBENSTEIN: Well, firing workers is rarely something that's actually done. You know, the private equity statistic show that when you hire more workers, you actually make more money. So, in the end, private equity firms are trying to hire more workers and actually make the companies bigger than they were when they - when they made the original investment.

ZAKARIA: Because it would make -

(CROSSTALK)

RUBENSTEIN: Yes. That's what the statistics show. When you hire more people and you make more products or more services that you sell, you actually make more money, and that's good for the investors.

But actually, what private equity does is this. Somebody like my firm will buy a company. We are incented to do well. We typically get 20 percent of the profits, so we are perfectly aligned with our investors who put up the bulk of the money, though we invest as well.

The managers of the company, the people, the CEOs running the company, they get a large piece of the profits as well. Typically, we do this in a private setting. We don't have to worry about public reporting for a long time. The company's CEO can worry about making the company more efficient over a four to six-year period of time.

And what statistics show over a 10-year, 20 year, and 30-year period of time, that if you invest with a good private equity firm, you're likely to get a much higher rate of return than you would in almost anything else can you invest with.

So we're not doing anything that's magical, we're simply incenting the workers, we're incenting the CEOs, we're incenting the professionals to be aligned with the investors and make the companies grow.

ZAKARIA: What do you think of Bain Capital and - and the stories you hear about it in the context of this campaign?

RUBENSTEIN: Well, it's disappointing if you're in this - an industry that is actually adding value, creating jobs, making America more efficient in many ways and more effective in many ways.

Private equity is dominated by the United States companies. The largest private equity firms are here. Many people around the world are looking to us to how we do private - how they should do private equity there. In fact, the Chinese, for example, they very much want to import our private equity statistics and - because the statistics show that we are very good at what we do, and they want these - these skills and these know-how that we have here.

So why is it that the Chinese are so interested in learning what we do in private equity? Because they want to make their companies more effective, more efficient, and - and strengthen employment as well.

So I don't think what happened to Bain in terms of the criticism is really that fair. They may have done some things I don't know about years ago that aren't the practice of today. Remember, much of what Mitt Romney did happened 20 years ago or more, and the practice of the industry have evolved.

ZAKARIA: The other part about private equity that people worry about or are kind of stunned by is the kind of money you guys make. So - because there may be an IPO for Carlyle, you had to report this, and the three founders of Carlyle I think collectively made $450 million plus. There was returns from your own investments. You made several hundred million dollars last year.

Does - you know, do you understand how a lot of Americans look at that and say this just isn't fair?

RUBENSTEIN: Well, first, I do come from very modest circumstances. My father worked in a post office and never made probably more than $8,000 a year as an employee of the post office, so when people can rise up from very modest circumstances and do well economically, I think that's a good thing about America, and we should encourage that kind of activity.

Secondly, I give away about 50 percent of my income, so my, you know, desire to give back to the country is pretty strong and I intend to give away a lot more. I've signed the giving pledge with Warren Buffett and Bill Gates, and I intend to give away the bulk of my money. So yes, I do have a good income by most American standards, but I'm giving it away and doing the kinds of things that you mentioned the other day, the Washington Monument.

Third, I - I don't really set the - the rules about what income will be and taxes and so forth. If taxes are something that people are concerned about, Congress should change the taxes in the context of comprehensive tax reform.

And, most importantly, the money that I make, or my partners make, is perfectly aligned with our investors. If our investors make a lot of money, then we will make money. We typically get 20 percent of the profits. So if the pension funds that invest with us are doing very well, yes, we will do well. And because we're doing well, I'm fortunate to be able to give away the bulk of my money. ZAKARIA: Do you know - you know that there is a proposal that the bulk of the money you make, which is currently taxed at capital gains rates, which is much lower than income tax rates, that that should be changed. There are a lot of people who feel that isn't fair, that this is really income, and it should be charged at a higher rate.

Do you support changing the rate of carried interest from capital gains to ordinary income?

RUBENSTEIN: Well, there are a very few people who actually go to Congress and say please tax me higher. Maybe there are some, but there - there aren't many. In my case, what I would like to do is to have Congress tackle a tax reform in a comprehensive way. Trying to do it peacefully I don't think usually works well.

When I worked in the White House for President Carter, we tried to do comprehensive tax reform and we made some progress, and other presidents have as well. I think if you want to change that particular provision, do it in the context of everything else.

The tax system we have today is not fair in many ways. I wish it could be improved. When you have 10,000 pages of regulations and nobody can fill out their own tax return, that's not a good thing.

So I wish we would change it, but don't blame me for complying with the law. All I'm doing is I'm filling out my tax returns - or my accountants are, and I'm paying whatever I'm supposed to pay, though I'm giving away a large amount of the money and that probably lowers my tax rate because I'm giving away so much money. But change the law, but don't blame me for the law. I'm not writing the law. I didn't write the law.

ZAKARIA: But in the context of comprehensive tax reform, you would be comfortable with a change -

RUBENSTEIN: I would like to see what the whole changes would be. I can't just pick one change out and say it should be this way or that way. I want to make sure that we have good incentives, though, for doing what we do well in our business.

The United States does very well in private equity, and we have a very good economy, the most innovative economy in the world, and I want to make sure we don't do anything in tax reform that would change that. We are the envy of the world still in the way our economy is so innovative and the way we do investments very well. I want to make sure that whatever Congress does, it - it encourages people to do the kind of investing that we do.

ZAKARIA: Let me ask you about the economy, because you're looking at it with all these companies that you own, with hundred billion dollars in revenue, and this would put you as one of the largest corporations in the world, really, if you were to count it that way. Do you get the feeling that the American economy is bouncing back? RUBENSTEIN: The American economy is in better shape than people thought it was just six months ago. I expect that this year we'll grow at three percent, maybe 3.5 percent. Europe will probably be flat to - to negative.

So the United States economy, while we have too much debt - and I'm very concerned about that. We have $15 trillion of - of debt, and we're running a $1.3 trillion annual deficit. That has to be addressed, and I hope Congress and the president will address that relatively soon and not wait until after the next presidential election to address it.

But, given those debt figures, we are doing reasonably well. I think we would do better if we tackled our debt problem, though.

ZAKARIA: Let's talk for a second about the stuff that you buy and give away.

RUBENSTEIN: Sure.

ZAKARIA: So you - you're giving $7.5 million to clean the Washington Monument. You bought a -

RUBENSTEIN: More than clean it. It's to repair it. It's (INAUDIBLE) earthquake damage. Yes.

ZAKARIA: You bought a copy of the Emancipation Proclamation, and what did you do with it?

RUBENSTEIN: I have bought a number of historic documents, and I've put them on display at places where I think people can see them, because I think it's important for people to know about American history.

So I bought a copy of the Magna Carta, the only one in private hands. I've put that on display at the National Archives so Americans can see the document that inspired the Declaration of Independence and the Constitution and the Bill of Rights.

I bought a copy of the Emancipation Proclamation, and I've put that on display at the Oval Office, and I - the president is very pleased to have it there.

I bought a couple copies of the Declaration of Independence. One is on display at the State Department.

Recently I bought a copy of the 13th Amendment, which freed slaves, and that is going to be displayed somewhere else in Washington soon.

So I'm very proud of owning these documents and making - important - making sure that people can see them and learn American history. I'm very concerned that people don't know enough about our history and the rights that we have and the freedoms that we have. And I think if Americans would learn more about American history, I think we'd be a better country. ZAKARIA: But you - and you buy all these documents. You don't keep any of them at home?

RUBENSTEIN: No.

ZAKARIA: If we were - if one were to go to your house, would there be any documents there?

RUBENSTEIN: No. My - I don't want to have things in my house because how many people are going to see them? I want the American people to see them.

So millions of people go to the - to the Archives. Millions of people going to the Smithsonian. Millions of people go to the State Department. And they can see these documents, and that's more important than having them in - displayed in my house.

ZAKARIA: David Rubenstein, pleasure to have you on.

RUBENSTEIN: My pleasure, Fareed.

ZAKARIA: Up next, a GPS roundtable and the stories that caught my eye - the economy, the GOP race, Iran and more. Stay with us.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: There's lots to talk about today in politics, the economy and much more, so let's get right to it.

Joining me now, Arianna Huffington is the editor in chief and president of the Huffington Post Media Group.

David Frum is a contributing editor for "The Daily Beast" and "Newsweek."

Steve Rattner left a long career on Wall Street to be the Obama administration's car tsar. Now, he's back in business.

And Mort Zuckerman never left the business world. He is the chairman of Boston Properties and the editor in chief of "U.S. News and World Report." Welcome to you all.

David, let me start with you. One of the things I've been puzzling over is what happened to the Tea Party. This was the party - you know, this was meant to be the thing that was going to totally transform the Republican Party and it doesn't quite seem to have had that affect.

DAVID FRUM, CONTRIBUTING EDITOR, NEWSWEEK/DAILY BEAST: Well, it's failed to generate an alternative to Mitt Romney, and it's taking a - a bad humiliation because of it. I think a lot of the energy has gone out of it, and especially in South Carolina. Here's something that I think is - is maybe relevant. The - Senator Jim DeMint, a senator from North - South Carolina, has been a vocal advocate of the Tea Party. He has also been the leading opponent of dredging the harbor of Charleston.

Charleston needs a deeper harbor if it's to compete with Savannah, which is being dredged - where dredging is beginning right now. And there are people in South Carolina who were saying, wait a minute. This - this is beginning to interfere with somebody's livelihood, that it's one thing to say we - we refuse all federal dollars for everybody else, but when you're refusing federal dollars here in South Carolina, that's a very different story.

ZAKARIA: But it's interesting that you have - within the Republican Party, it's almost as though each of these candidates represents one - one element of the Republican Party - Santorum the more religious, you know, socially conservative; Romney the traditional businessman.

Is - is there a sense that even in the Republican Party capitalism is on trial, that people are not convinced that being in private equity is such a great thing after all?

MORT ZUCKERMAN, CHAIRMAN, BOSTON PROPERTIES: Well, I don't know about that. I must say, I think that there is a sense that somehow our other, this economy went south in a big way and somehow or other the business world, but particularly the financial world, had a larger role in that than in previous times, certainly since the end of World War II, and there's so real validity to that.

But I don't think that it's - that - I mean, to my mind, what's going to happen, no matter where these people go, ultimately they're going to choose between a Republican and a Democrat. The Democrat happens to be Obama, and one thing that will unite the Republican Party is their hostility to Obama. So however the - the primaries play out, that will be the major residue for the general election.

ZAKARIA: What about the economy? I mean, one theory is that the Tea Party is beginning to wane in influence because it was - part of what was fueling it was just this despair, and that the economic numbers are getting better.

STEVEN RATTNER, CHAIRMAN, WILLETT ADVISORS LLC: Well, there's no question, and - well, although I think Mort might disagree with me a little bit, the economic numbers are getting better. We just had late last week new claims for unemployment insurance down to 352,000, which is the lowest number, I think, since 19 - since 2008. And every indicator is pointing to a continuation of this modest economic recovery.

But remember, people's incomes haven't really gone up during this, so there's still a lot of unhappiness. The unemployment rate is still 8.5 percent, plus or minus, at the moment. So there's plenty to worry about in the economy.

I think that the Tea Party just simply lost its - its mojo, so to speak. I think it lost its sense of purpose and - and real direction.

ARIANNA HUFFINGTON, EDITOR-IN-CHIEF & PRESIDENT, HUFFINGTON POST MEDIA GROUP: But, you know, the people on the ground do not feel that the economy is getting better. I was speaking at the Mayors' Conference in D.C. on Thursday, and you have mayors, you know, who are Republicans and Democrats, and - and they all feel that they're struggling, that their constituents are struggling, that services are being cut.

You know, all these 600,000 public sector jobs that have been cut under Obama have impacted communities in a disproportionate way. So when we talk about things improving and the - the fact that the unemployment claims are down, one of the reasons unemployment claims are down is because about 200,000 people are too discouraged now, most recently, to look for work.

RATTNER: That's not quite right. There are new claims for unemployment insurance for people who get laid off, who are then trying to get unemployment. So it's not a discouraged -

HUFFINGTON: Right. But 8.5 percent -

(CROSSTALK)

RATTNER: Look, I don't disagree with any of you guys in the sense that these cutbacks have been painful. People generally don't feel great about the economy. They shouldn't. And I think if you do look at the polls, what's also - what struck me the other day in a poll is that Democrats actually by a pretty wide margin think the economy is getting better, Republicans by an equally wide margin think it's not getting better, and I think that all play into the politics of November.

ZAKARIA: Mort, just on the economy, housing is at the heart of it. Do you think residential house is bottoming out and beginning to rise?

ZUCKERMAN: You know, I don't think so. Prices are still going down, if you measure it by the Case-Shiller Index or any of the other serious indices.

And, what is more, given the unemployment numbers - and I'm going to disagree with the unemployment numbers here, because what happens is the 8.5 percent really measures people who've actively sought a job in the last four weeks. But since the average period of unemployment is about six and a half months, that just doesn't apply when the average period - that's a record, by the way.

So if you measure it by people who've applied for a job in the last six months and people who are working part-time involuntary, that is a couple days a week when they were working full-time, that number - this is a government number - is 15.1 percent. And then, if you add to that the people who've left the labor force, you have to add another 2.9 percent to that. You're talking 18 percent.

We've never seen anything like that, certainly not in my lifetime.

ZAKARIA: Hold that thought. We will be back to discuss much more with our panel. We're going to talk about lots of interesting things - Europe, Iran.

But, up next, "What in the World?" How Arab spring nations are looking to a rather surprising source for inspiration - a former communist country. I'll explain.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: As Egypt, Tunisia and Libya transition from dictatorship to democracy, you'd think they'd like to America as a model for their new governments, but they don't. America is still too controversial in the Arab world. Instead, many of the countries transformed by the Arab spring are looking in a surprising place for inspiration. Where is this new city on a hill?

(BEGIN VIDEOTAPE)

ZAKARIA (voice-over): Recognize this man landing at the airport in Tunis, Tunisia? It's Lech Walesa. He's the man whose actions 30 years ago in the Gdansk Shipyard in Poland helped cause communism to crumble across Eastern Europe.

Walesa was in Tunisia to pass on the lessons he had learned. In fact, Poland is a good model for these countries. It's a country that started out with many problems, political and economic, but gradually overcame them.

Today's Arab revolutionaries do want to see how they did it. They're studying the Eastern European experience and particularly the Polish path, and Poland is cooperating in various ways. It has started hosting conferences to share its knowledge.

In fact, it uses a U.S.-made computer game to train Arab and East European civil servants. It's called SENSE, or the Strategic Economic Needs and Security Exercise. SENSE simulates a virtual country emerging from authoritarian rule. It trains participants to make democratic decision and allocate resources. Years after training on it, Warsaw is now passing on its own experience to the Arab world.

Poland's political and economic success have given it a sense of confidence and a new profile on the international stage. It's a member of NATO. In fact, it now holds the rotating presidency of the European Union.

Beyond Europe, Poland has also been one of Washington's most loyal allies. Poland was among the largest contributors of troops to the war in Iraq and it still has troops in Afghanistan.

But perhaps the biggest reason for poverty-stricken nations like Egypt to pay close attention to Poland is that it is a very rare breed in today's world, especially in Europe. Poland has a strong economy, the sixth biggest in the European Union now, and the only E.U. country to have avoided a recession altogether.

None of its banks needed to be rescued. Its economy grew four percent last year and is on track to grow three percent in 2012. Why, you'll ask? How did it survive the turmoil in the Eurozone?

One answer is that it has strong domestic demand and has been pouring money into infrastructure projects, but the real and fortuitous reason is that Poland has yet to be allowed into the Eurozone. It continues to use zlotys instead of the euro. So, unlike Greece or Italy, it was able to devalue its currency to stay competitive.

The irony is Warsaw continues to see its destiny as being tied to the common currency. More than half its exports go to the E.U., a majority of it to Germany, its main trading partner. Poles reason that being part of the same currency would encourage foreign direct investment in Poland.

And it's not just about economics. After yearning for decades to be part of Europe, its leaders now feel a resurgent Poland could be a full-fledged member of the European community.

(END VIDEOTAPE)

ZAKARIA: But perhaps Poland should look at England, Sweden, and Switzerland, all European countries, all with strong economies, but with their own currencies. That might be the model to emulate.

In any event, no Arab country is likely to give up its currency any time soon no matter what Poland will do.

We'll be right back. Next, back to our panel, Arianna Huffington, Mortimer Zuckerman, David Frum, Steve Rattner.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN CHIEF POLITICAL CORRESPONDENT: Breaking News at this hour. Joe Paterno, the long-time and legendary former coach of the Penn State football team has died. He was 85 years old.

We learned this in a statement from the family which said, in part, "He," meaning Joe Paterno, "has been many things in his life. A soldier, scholar, mentor, coach, friend and father. To my mother he was and is her soul mate, and the last several weeks have shown the strength of their love. To his children and grandchildren, he is a shining example of how to live a good, decent, and honest life, a standard to which we aspire."

Joe Paterno was the father of five. The grandfather of 17. I want to bring in our Susan Candiotti. She's on the phone. As I understand it, Susan, you're right in front of the Joe Paterno statue on the Penn State Campus, because while he was a father and a grandfather, he was so much more than that, indeed, in that place and to the state.

SUSAN CANDIOTTI, CNN NATIONAL CORRESPONDENT (via telephone): Oh, absolutely and that's what we've been hearing from people who are here at the statue now paying their respects to Joe Paterno. This iconic statue of him, his arm sticking up in the air with the number one sign.

This is a man who is a legacy on this campus certainly and in the world of college football. The world - the college history's most winning coach, national championships under his belt. And people here are right.

We're seeing people here with tears in their eyes, and the candlelight vigil that had been set up here last night once they got word that JoePa, as you know, has been fighting for his life, Candy, they said he died as he lived. He fought hard until the end.

CROWLEY: Our Susan Candiotti. And, of course, that record of Joe Paterno's tarnished somewhat by a sex scandal brought on by one of his assistant coaches. You we'll see more of this story on "RELIABLE SOURCES" at the top of the hour, but right now back to FAREED ZAKARIA GPS.

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: And we are back with Arianna Huffington, David Frum, Steve Rattner and Mort Zuckerman to talk about everything in the world.

So we've been talking about the United States, but, you know, whenever you get despaired, you can only - you could look at Europe to cheer yourself up, right? Your country of native origin, again, seems to be tethering on the brink. Is it just going to default? What do you think is going to happen in Greece?

HUFFINGTON: Well, in the end, you know, Greece may decide to leave the euro, simply now to prevent a civil unrest and to be able to start growing the economy again. You know, just cutting and trying to sort of get out of the crisis simply through austerity measures isn't going to work for Greece, isn't going to work for everyone, and the civil unrest in Greece is a major factor that more and more politicians, economists are really taking into account in making decisions.

ZAKARIA: Steve, you've studied this stuff.

RATTNER: But if - but if Greece were to leave the euro, and I agree that's a real possibility, they would have a completely nonfunctioning economy. Their banking system would disappear. They wouldn't be able to - they would be forced - forced to make far more major cuts in their government workers and their government programs because they couldn't borrow any money, obviously, and they don't have the tax revenues to cover it. It would be a disaster for Greece to leave the euro.

ZAKARIA: So then what happens? Because they can't - they can't roll over this - the numbers are too - RATTNER: The best chance for Greece is to actually do what the rest of Europe is trying to get them to do, which is to agree to an austerity program, and I agree with you totally, Arianna, and the limits of how that - of that, and then get the debt holders to agree to take this haircut down to some level that at least in theory they can do it.

Fundamentally, at the end of the day, the Greeks have to decide whether to pull themselves together and get to work because -

HUFFINGTON: Well, the problem is - but there is no work.

UNIDENTIFIED MALE: But they also don't pay taxes.

UNIDENTIFIED MALE: And they don't think they avoid a lot of their taxes.

HUFFINGTON: Well, they have to (ph), but you have like 40 percent youth unemployment. I mean, I was in Greece in the summer. I went to Syntagma Square multiple times the day and night. And, you know, what's happening there is just cannot be dismissed. You know, these are people who feel they have no heart for the future.

UNIDENTIFIED MALE: But what's your - what's your solution?

HUFFINGTON: Well, what I'm saying is that right now just look at what has happened so far. Greece has put forward all the cuts that it was asked by their -

RATTNER: No, it has not.

HUFFINGTON: Yes. It has.

RATTNER: It has not, Arianna. It has done almost nothing.

HUFFINGTON: It has and the result has not led to the revenue prospects that were expected because there's no growth.

ZAKARIA: We've got to go on. I wanted to change the subject entirely, Iran. Mort, one of the things the president has done over the last few weeks has been to really ratchet up the pressure on Iran. For the first time that I've ever heard Bibi Netanyahu saying the pressure is working. The sanctions are working. The Iranians are wobbling.

Do you think that, A, this is likely to solve - you know, to solve the problem or at least keep the pressure on Iran in a kind of effective way, and, B, will it change the dynamic where people in this country, particularly many Jewish-Americans thought that Obama was not doing enough to look after Israel's security?

ZUCKERMAN: A, I don't know how to assess what the impact is on Iran. It's a very, very radical government. They are very ideologically driven. Nobody can predict what will influence the Iranians, because they do have one thing that works for them. It's called oil. And that keeps them solvent and keeps them reasonably effective, but the political system is a mystery to a lot of people.

ZAKARIA: They're having real trouble on oil.

FRUM: With the reason the United States has been acting so forcefully against Iran and so many other people have been joining us is not because of Israel's security. It's because of the security of the gulf. This is a de facto American, Israeli, Saudi, German alliance in which the stake is not just Israel's security.

And that is - that is why, you know, I think if President Obama tries to make this an ethnic point, he will - it will justly backfire on him.

ZAKARIA: The price of oil is now $110 a barrel with lower demand in the United States, with demand weakening in China, presumably it's that high because everyone's worried.

RATTNER: Yes. And so the numbers are pretty simple. Iran produces, I believe, about 2.8 million barrels a day. There's about four million barrels a day of spare capacity in the whole world, so if you take Iran out of the picture, you're operating on a razor thin margin, and this is our vulnerability as a world to the oil situation.

(CROSSTALK)

RATTNER: -- to the oil situation. I do think it is really remarkable how much cooperation we've been able to get out of places like China, India and all.

In the (INAUDIBLE) it shows how scared people are about the nuclear side of Iran, but we have to thread the needle. We have to make this work so that Iran cooperates and we get what we need on the nuclear side, and to keep shipping - and are able to resume shipping their oil because the world cannot - oil prices will go a lot higher if Iranian oil is out of the picture. That's the problem.

HUFFINGTON: I think it's important for us to look at how Iran got so powerful and what our contributions to that was because we invaded Iraq.

You know, we don't want to go back to the invasion of Iraq, which I consider one of the most disastrous foreign policy decisions America has ever made, but we must because I think we're going to make worse decisions if we don't understand the unintended consequences of that one.

And any time we discuss Iran and the growing power of Iran and the growing possibility of dangers from Iran and if we remember that we are partly responsible for that, and we see how Iraq - the Iraqi government is getting closer and closer to Iran and the dangers of that.

ZUCKERMAN: Or Shia government which is no longer a Sunni government, which it was before.

FRUM: In 2011, Iraq produced for the first time more oil than it did before the First Gulf War and Iraq is now back as a producer.

HUFFINGTON: Yes, but it's not a good enough reason for what we did given the cost that are incredible as in the ongoing costs.

FRUM: You can weigh the costs and benefits, but you can't ignore there is a benefit. Iraq is back as an oil producer.

ZAKARIA: And we have to close on that front.

Arianna Huffington, Mort Zuckerman, David Frum, Steve Rattner, thank you all very much. We have to leave it there.

Up next, the most popular politician in the world's most dangerous country, one-on-one with Pakistan's Imran Khan. Stay with us.

(END VIDEOTAPE)

(COMMERCIAL BREAK)

(BEGIN VIDEOTAPE)

ZAKARIA: Pakistan is in crisis, perhaps an even deeper crisis than usual. There are rumors of military coups, relationships between Islamabad and Washington are at an all-time low.

My next guest is now perhaps the most popular politician in Pakistan. Imran Khan is the legendary former cricket player whose rallies now command crowds in the hundreds of thousands.

Welcome, Imran.

IMRAN KHAN, PAKISTANI POLITICAL ACTIVIST: Thank you, Fareed.

ZAKARIA: Tell me, first, what you make of these rumors of coups. There are lots of people in Pakistan, as you know, who are talking about how the military is trying to prepare the ground for either a soft coup or an outright coup. Do you think there is any validity to this?

KHAN: See, Fareed, Pakistan has moved on. The media, the independent television channels have changed Pakistan. This is no longer the old days where the military could walk in.

The level of political awareness in Pakistan is such that across the board there's consensus that military dictatorship or military governments are not the answer because now we have a history of military dictatorships, and it's like curing cancer with aspirin (ph). You have a little - the problem eases for a while, and then the cancer spreads much more. So I don't think there is any chance of a military coup.

ZAKARIA: But what about the way in which the military is taking on the civilian government where people say that the courts are acting in support of the military? They've - they're attacking the prime minister. There is this case relating to Memogate. There seems to be a kind of concerted effort to weaken the civilian government.

KHAN: You know, Fareed, the biggest enemy of the government is the government itself. It is the worst government in the history of Pakistan. It is the most corrupt, the most incompetent government ever.

I mean, according to the government survey, the economic survey of Pakistan, which is a government report which is published, never has the situation of Pakistanis been as bad as it is today. There's an unprecedented inflation. There is unemployment. There's no gas. There's no electricity. Factories are closing down. There's lawlessness. Corruption has broken all records.

So if the people are turning against the government or if the government feels beleaguered, it's not because of either the army or the Supreme Court. In fact, people like us think that the Supreme Court is too soft on the government. Remember, this is the only independent Supreme Court ever in our history, and the way we have an independent chief justice is because people came out in the streets.

It was our equivalent to the Arab Spring where masses came out in support of the chief justice. He was reinstated once, then again he was kicked out. Again, people rallied behind the chief justice.

Now, what we expected from the chief justice is to check the corruption in high places. In fact, in other words, if people come into government, they start looting the country, you wanted an independent judiciary to check the corruption. So far the government has stone walled the Supreme Court.

ZAKARIA: But tell me about the atmosphere in general in Pakistan. It seems as though the problem of a kind of Jihadi groups and terrorist groups remain unchecked. The problem of out of control elements within the military remains unchecked. Is that - is that picture, you think, accurate?

KHAN: When you talk about the Jihadi groups or the extremists, this war on terror is the biggest producer of Jihadists and extremists. The longer this war goes, the more polarize the society is getting. The more extremism and radicalization is rising in Pakistan.

And the way to deal with it is to somehow get out of this war. The only way out is a political settlement, which, of course, I have been advocating for for a long time and which now, of course, the U.S. is trying to have some sort of a political settlement in Afghanistan. It's the only way out.

You must understand the problem. I mean, the people in the U.S. must understand what's happening here. In the tribal areas there are million armed men. Every man is - knows how to wield a weapon, carries a weapon. So there are million armed men there.

Now, when you do an operation or when the army does an operation and there's collateral damage, what happens? Anyone who loses a near or dear ones and they do lose them because their villages that are being bombed through airplanes, through helicopter gun ships, through artillery. Remember then it's not an army they're fighting. These are fighters in villages.

So when there's collateral damage, the local people then become militants. So every military operation has produced more militants.

ZAKARIA: But what should the United States do because, as you say, the Obama administration has been trying to negotiate with the Taliban, but one of the big problems they have had in Afghanistan is that the Taliban and elements, other groups have had these safe havens in North Waziristan and so they can always retreat to that sanctuary and, therefore, feel themselves to be invulnerable and don't want to compromise and don't want to negotiate and don't want to make any concessions.

KHAN: The problem with Obama administration is that they are stuck - they are dealing with the Pakistani government which unfortunately is a discredited government. If they had a partner in Pakistan, a political government which was credible, only a credible government not only would be able to pull our army out of the tribal areas where we are stuck, we would be able to help the Americans in getting some sort of a peace process going.

At the moment there is no help from Pakistan. All we are doing is military operations and we are going nowhere.

ZAKARIA: If you were to be Prime Minister of Pakistan, what's the first thing you would do?

KHAN: The first thing I would do is have a cease-fire. You cannot talk and fight at the same time. Either you talk or you fight. Fighting has failed, so I would go for a political settlement. I would have a cease-fire.

I would - when the people of the tribal areas, these one million fighters, which I'm talking about, I win them over to my side by saying it's the end of jihad. Cease-fire. Fighting is over. These tribal area people will not take on the militants as long as they think they're fighting a jihad. It means a foreign occupation.

Once it's no longer jihad, they will deliver peace in that area. It's in their interest to have peace. But this insanity of pushing this million strong men by bombing collateral damage and pushing them over to the other side, it's so insane, I don't know who is the think tank who is leading this senseless policy. There are no results.

I mean surely after seven years, there should be some review of this policy. And certainly in Pakistan and all parties conference, all 50 parries of Pakistan said give peace a chance. It's time for a political dialogue. End of military actions.

ZAKARIA: Imran Khan, always a pleasure to have you on.

KHAN: Thank you.

ZAKARIA: And we will be back. (END VIDEOTAPE)

(COMMERCIAL BREAK)

ZAKARIA: Monday is the Chinese New Year, and we are about to enter the Year of the Dragon in the Chinese Zodiac Calendar. That brings me to my "GPS Challenge Question of the Week."

Which of the following is not one of the animals on the Chinese Zodiac? Is it A) rooster; B) rabbit; C) pig; or D) panda?

Stay tuned. We'll tell you the correct answer. Go to CNN.com/Fareed for 10 more questions. While you're there, check out the rest of our offerings on Global Public Square, our website. There's always fresh content, insight, and analysis on what's going on around the world. Make sure you also follow us on Twitter and Facebook.

Please remember, if you miss a show, you can now find full video episodes of "GPS" for sale on the iTunes TV store. Want to make sure you never miss one again? Subscribe and get 10 episodes for less than $10. Go directly there by typing iTunes.com/Fareed.

This week's "Book of the Week" is "Strategic Vision: America and the Crisis of Global Power" by Zbigniew Brzezinski. The former National Security Advisor is always insightful with broad and deep observations about history, politics and culture. This book is no exception. It will make you think and think hard.

And now for "The Last Look." We all know there are no free lunches, but what about free rides? Well, in Indonesia, thrill seekers and free loaders alike travel into Jakarta by riding on top of trains. And the authorities have been trying to curb the train surfing scourge for decades.

Now they seem to have come up with a concrete solution. I mean that literally. The state-run rail system has installed concrete balls about the size of grapefruits above the rail tracks. They call them goal bola bola or goal balls, and the goal is to show fare beaters that it doesn't pay to be cheap.

But there's already been a glitch. It turns out officials made the chains too short leaving a gap of about 16 inches between the balls and the passing trains. They say they'll get on the ball soon.

The correct answer to our "GPS Challenge Question" was D, the poor panda, perhaps the most famous Chinese animal, does not get a year named after it in the Chinese Zodiac.

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