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FAREED ZAKARIA GPS

Interview with Italian Prime Minister Mario Monti; Interview with Shamseddin Hosseini, Iran's Economics Minister; Interview with Paul Krugman

Aired May 20, 2012 - 10:00   ET

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


FAREED ZAKARIA, CNN 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 very important show today dealing with the biggest problems facing the world. As Europe is crumbling, the man who is seen as its potential savior is Italy's new Prime Minister Mario Monti, "Super Mario."

I have an exclusive interview with him. Monti has been trying to reform Italy, reassure markets and keep the Germans happy. If he succeeds, he charts a path out of the crisis for other countries.

Then, Iran, it's in dire economic straits for a very different reason. We have another exclusive, this one with Iran's Finance Minister about just how crippling U.S. led sanctions have been for his nation.

Next up, a conversation with Paul Krugman, the biggest question in the world today is whether to spend or whether to cut. Krugman is the leading voice saying stimulate. I'll ask him to defend his views.

All that plus superstitions and the race for space, but, first, here's my take.

Everyone is worried that Greece might default on its national debt. That's really not news. By one estimate, in the 180 years since it gained its independence from the Ottomans in 1832, the country has been in default or restructuring for half this period. The news is that this time, Germany is willing to bail Greece out.

Throughout the euro-zone crisis, it has been conventional wisdom to regard the Germans as narrow-minded, ungenerous and dogmatically wedded to prescriptions of austerity to treat Europe's problems. These criticisms are vastly overstated.

Consider that Germany is being asked to take its taxpayers' money, in a democracy, and use it to bail out a country like Greece, which is guilty of mismanagement, poor competitiveness and financial fraud, and it has said yes. In return for this, Germans are being called Nazis in Greek newspapers.

Germany is by far the largest contributor to the European Financial Stability Facility, which totals a staggering $924 billion. That number will rise and, when combined with earlier funds and loans, Germany's share will easily exceed the country's total annual federal tax revenues. Imagine the United States being willing to guarantee more than $2 trillion to bail out say Mexico. The German government has also relaxed its once rigid opposition to a more aggressive monetary policy. And, now, it has signaled that it is even open to some stimulus plans for Greece.

German leaders have said again and again that they are willing to bail out weak euro-zone countries, but they have asked for reform as a condition of that aid.

The real path to growth for countries like Greece and Italy is less austerity to be sure, but more reform. Reform that opens up their labor markets breaks protections and liberalizes sectors of their economies. These are politically hard to do and certainly Greece has done very little of it.

And Greece needs reform badly as do other countries. The World Bank ranks Greece and Italy as the worst two high income countries in which to do business. Other rankings place them even lower in terms of economic competitiveness.

German Chancellor Angela Merkel is opposed to some sweeping solution to the euro crisis like eurobonds not because of their cost, Germany will end up paying more, but because they would take off the pressure to reform.

The only leverage Germany has with countries like Greece is that it gets the money incrementally as it enacts reforms. Now, Greece might yet have to default and quit the euro zone and perhaps the European Union.

But if it goes down this path, Greece will find that the markets will refuse to lend it money at reasonable rates unless it does pretty much the same things Germany is asking it to do anyway. Life without Germany will mean a lot more austerity than life with Germany.

For more on this, you can read my column in this week's "Time Magazine" and one time.com.

Let's get started.

All eyes are on Europe right now and "Time Magazine" calls my next guest the most important man on that continent. Italian Prime Minister Mario Monti traveled to the United States for the G8 meeting at Camp David and the NATO meeting in Chicago and he joins me now in Washington.

Welcome.

MARIO MONTI, PRIME MINISTER, ITALY: Pleasure to be here.

ZAKARIA: Let ask you, Prime Minister, first -- we'll talk about Italy, but, first, I got to talk to you about Greece. There is, in a sense, a bank run taking place. Greece is going to be unable to finance itself unless there is some kind of massive help from Europe. Can Greece stay in the euro?

MONTI: I think Greeks want to stay in the euro. Not all Greeks are ready to do whatever is necessary to stay in the euro.

But I think as we approach the 17th of June election date, the feeling in Greece that it's crucial for their country -- I believe also for Europe, but certainly for their country it's crucial to stay in the euro with focused minds and political programs on putting together a collective willingness to do so.

Certainly, Europe cannot, of course, abandon or even substantially undermine and reduce the commitments it asked of Greece in order to help it. I think an equilibrium will be found.

But whatever is achieved on Greece in this very difficult situation will not really allow Europe and the euro-zone to breath unless a more substantive agenda of growth is decided upon in Europe to accompany fiscal consolidation.

ZAKARIA: But, in the short run, without the help from the European Central Bank, it is difficult to see how Greece will be able to meet just its basic day-to-day financing requirements as money leaves the country. Somebody described it as a bank job not a bank run, but slowly money is leaving Greece.

Is there a solution to this?

MONTI: Of course it is the most fundamental mission of the ECB, although it's not mentioned specifically, to see to it that the euro is safe-guarded in its integrity.

So I think against this background the ECB, the E.U. institutions and the Greek authorities or what is left of them in the process of reaching the new elections, will find a solution.

It will not be the first time in the history of the E.U. that when Europe is really bumping into the wall, all of the sudden minds are focused, political wills converge and a solution is found, but it is a critical situation.

ZAKARIA: When you talk about the need for a growth agenda in Europe, are you saying that the austerity program really haven't worked?

If you look at a country like Ireland, which have done everything it was asked to do or many of the things in terms of fiscal consolidation, cutting spending, raising taxes. It has not produced growth. It has not even produced much investor confidence.

Italy's budget deficit is up, its debt-to-GDP ratio is up largely because growth has collapsed. Should these austerity measures end?

MONTI: First of all, I don't like to speak about austerity. I'd prefer to speak of fiscal discipline. Fiscal discipline, in the end, amounts to austerity if it is not accompanied by other policies. Fiscal discipline, in my view, is there to stay. Italy has done huge efforts towards fiscal discipline and it is now the country which will -- in the European Union which will achieve a structural balanced budget before all the others next year, actually a slight structural surplus. And, yet, growth is not coming.

ZAKARIA: How does that happen? So you, in Italy, have -- you have -- as you say, you have done more fiscal consolidation than any country. You've done structural reforms as well. Now, how do you get that demand going?

MONTI: Exactly.

ZAKARIA: You need somebody to buy your products. Are you saying you want Germany to buy things from you?

MONTI: Well, we are gaining a better position in terms of competitiveness because of the structural reforms. We're actually destroying domestic demand through fiscal consolidation. Hence, there has to be a demand operation through Europe, a demand expansion.

As you pointed out, most clearly, we, for example, in Italy, are having problems because we have achieved very good fiscal results, but will they really be sustainable in the longer term unless the dominator, GDP, increases through growth.

ZAKARIA: What do you think it says about Western democracies that when one of the most important democracies, like Italy, the richest countries in the world got into trouble, you almost had to suspend democracy to fix it.

They have gone to an unelected czar, you, who has been asked to please fix it and then the politicians can come back in and do their mischief in a few years. But I mean it's a -- because there is an issue -- the problems Italy faces, all Western democracies face.

Over the last 30 years, there has been a build-up of entitlements, of goods and services being provided to the public from the state with no sense of -- you know, the kind of fiscal balance and the result is all these countries are in debt and the picture looks worse as people retire.

Can democracy handle this?

MONTI: Democracies have to handle this. How? Well, I believe the reason why democracies are very poor these days to handle this is that democracies, like markets, have become much too short-termist.

The combination of very important media of frequent elections, of even social networks, which tend to polarize people towards more extreme positions.

The combination of these factors has the consequence that, in democracies, politicians -- professional politicians tend to reject or only to embark into solutions that imply short-term costs and longer term benefits with great reluctancy only when they are faced with an actual huge crisis.

So the problem, to me, is how it's possible to reconcile classical electoral democracy, which, after all, we love, with a longer term perspective.

So I think democracy, in the long-term, in our countries will survive if it comes to be associated with leadership, will not survive if democracy plus media brings to us more and more followship rather than leadership.

ZAKARIA: Can you say confidently that what will come out of this crisis will be a deeper and more integrated Europe and not a Europe that breaks up in some way?

MONTI: I am confident and I would even say that the Greek crisis, if we take it since the first manifestations in early 2010, has confirmed very vividly that Europe becomes adult and stronger through crisis because we may be able or unable to ultimately solve the specific crisis in Greece, but in the process we have achieved a much higher degree of ex ante coordination of national fiscal policies.

We have put in place firewalls to reduce contagion effects. We have -- I mean -- the ECB in its autonomy has been able to find new techniques of intervention. So clearly, the governance of the E.U. has been improved by the Greek crisis.

Now, hopefully, one would like to see improvements in the governance of the E.U. without all times have a crisis as a trigger.

ZAKARIA: Mario Monti, pleasure to have you on, sir.

MONTI: Thank you very much.

ZAKARIA: Up next, many observers say the sanctions against Iran are working, that the nation's economy is taking a beating. I will ask Tehran's Economics Minister for his view on the situation.

(COMMERCIAL BREAK)

ZAKARIA: Evidence of mounting that the sanctions against Iran are having a crippling affect on that nation's economy greatly decreasing its oil exports, making most international transactions all but impossible and bringing on high inflation.

Next week, Iranian officials will meet with the great powers in Baghdad to discuss the reason behind those sanctions, Iran's nuclear program.

I am now joined by Iran's Economics Minister, Shamseddin Hosseini.

Thank you so much for joining us, Mr. Minister.

SHAMSEDDIN HOSSEINI, ECONOMICS MINISTER, IRAN (through translator): Thank you very much. I am very grateful and appreciative to be here and have a conversation with you.

ZAKARIA: So ever since President Obama signed those sanctions in -- at the end of December, the Iranian rial has dropped more than 50 percent. You now face the prospect of an oil embargo from the European Union. Your central bank is not -- no longer able to conduct international transactions. This must be very very difficult for Iran.

HOSSEINI: Well, I do believe that we must have a broader view of Iran's economy and only concentrating on a few sectors cannot be a true representation of Iran's economy.

I'll give you a few examples. Last year, the total non-oil exports increased by 30 percent and according to the latest reports that the International Monetary Fund has published, Iran's GDP -- Iran's per capita income has also increased.

ZAKARIA: But let me ask you there, 80 percent of your foreign revenues come from oil. You're telling me that these restrictions on oil, particularly if the European Union goes through with them, the Indians say they're buying less from you, the Japanese say they are buying less form you, these are not going to affect you, 80 percent of your external revenues come from oil.

HOSSEINI: We must pay close to attention when we speak of oil revenues and sanctions against oil sales. Who are the winners and the losers of such sanctions?

Indeed, it is difficult, but not just for Iran. And we can all rest assured that there will be a considerable increase in international oil market prices. Now, is this the best approach?

ZAKARIA: Just to be clear because this is very important, you think that if the European Union goes through with the oil embargo, which is slated to go into effect in July, oil prices will go up very substantially?

HOSSEINI: Certain, certainly. Even the IMF says that as a result of these sanctions, oil prices will perhaps reach and hover around $160 per barrel. And the decrease in financial and economic output in Europe will truly be felt.

ZAKARIA: How long can you endure these kind of sanctions because they are affecting your banks, they're affecting, now, the Senate is passing ones relating to the oil -- the tanker business.

How long can you continue to withstand these sanctions?

HOSSEINI: We have been the subject, the target of sanctions for the last 33 years. We never went looking for these sanctions, but during the last few years, of course, the volume of these sanctions have increased tremendously.

And we believe that those who impose the sanctions have exerted the maximum level of pressure they have been capable of, but the reality that is showing itself today is that the capacities and the economic specialties and strengths of Iran are such that can cause a backlash -- an economic backlash for the imposers of these sanctions and their countries.

This really shows that the economy -- economic strength of Iran is in such a way that can withstand these sanctions and will not be the only economy to suffer.

ZAKARIA: So if -- but if these sanctions do cost you a lot, cost the average Iranian a lot, why not allow the IAEA inspectors in, say to them you can go to every facility including the ones that we have previously not allowed you to.

We have nothing to hide. You can see all our nuclear programs and certify that it's peaceful and once you get that certification, these sanctions will get lifted.

HOSSEINI: We have said time and time again that we will not give up this unalienable right. We are a member -- full signatory and abiding member of the IAEA.

There are conversations and dialogues taking place currently, but there cannot be a hegemony and a double-standard in the treatment of member countries such as Iran.

If these principles can be understood and applied with mutual respect, I think we will be in a much better place.

ZAKARIA: Final question, what will the price of oil be in August of this year?

HOSSEINI: I believe that we must, at least, in order to have sustainable growth for the producers maintain prices at $100 per barrel. But keep in mind the following, can the industrial powers get out of the current situation they're in with these prices?

Therefore, the answer being obvious, the prices will go considerably higher than $100 per barrel. If we see reforms -- tangible reforms in this behavior, we will be in a much better place. If we don't, we will witness an increase in international oil markets.

ZAKARIA: Mr. Minister, pleasure to have you on.

Up next, a strange story in the Middle East, while much of the region clamors for democracy, one group is planning the opposite, a confederation of monarchies.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN ANCHOR: I'm Candy Crowley in Washington. "FAREED ZAKARIA GPS" returns in a moment, but first a check of the top stories. Some breaking news. The only person convicted in the 1988 Lockerbie bombing has died. In 2001, a Scottish court found that Abdel Basset Al-Megrahi guilty on the attack on PanAm flight 103. The Libyan national was freed in 2009 and allowed to return home after doctors at the time said he had only three months to live. 270 people died in the Lockerbie explosion. At least seven people are dead after an earthquake in northern Italy. The 6.0 magnitude quake struck overnight in Bologna. At least 50 people have been injured. Authorities are still assessing the damage.

Exiting Afghanistan is expected to be the No. 1 topic as the NATO summit begins today in Chicago. The gathering of more than 50 world leaders opens amid anti-war protests in the city's downtown. Security is expected to be tight following the arrests of three men who allegedly plotted to attack President Obama's campaign headquarters and city police stations.

And those are your top stories. "Reliable Sources" is at the top of the hour, but now back to "Fareed Zakaria GPS."

ZAKARIA: Now for a "What in the World" segment. I couldn't help but notice a speech this week by a man who has all but disappeared from our TV screens.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH: America does not get to choose if a freedom revolution should begin or end in the Middle East or elsewhere. It only gets to choose which side it is on. America's message should ring clear and strong. We stand for freedom.

(END VIDEO CLIP)

ZAKARIA: Over the years and long before the start of the Arab spring, former President George W. Bush has been consistent in pressing his freedom agenda in Africa and the Middle East -- in fact, the world over. It's an optimistic conservatism that contrasts strongly with the pessimism of many other conservatives.

Take, for example, Israel's prime minister, who last November called the Arab spring an Islamic, anti-Western, anti-liberal, anti- Israeli, undemocratic wave. The irony is that in his deep suspicion about the Arab spring, Bibi has a strange bedfellow -- the Saudi monarchy. It's not often you see Israel and Saudi Arabia agree on policy, but the two share a general fear of the upheavals in the Arab world. So much so in the Saudis case, that they hosted a conference last week to bolster the very opposite of modern democracy -- monarchies. Five Saudi neighbors were invited to Riyadh -- Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman. Each is a monarchy, and each a member of the group called the GCC or the Gulf Cooperation Council. The Saudis' hope is to turn that group into a more closely knit federation, something like the European Union, they say. They feel a union of monarchies would serve as a bulwark against the region's turmoil and democracy.

But it turned out that for now, the GCC agreed to disagree. You see, many of the small members fear Saudi domination. So what were the Saudis thinking? Well, Riyadh has a complicated role in the Arab spring. On the one hand, it is arming Syria's opposition, but one could argue that intervention is driven by sectarian concerns. It wants to support a Sunni opposition fighting an Alawite leader. The Saudis see the Alawites as basically Shia. And that leader, Bashar Al-Assad, is also supported by Iran, the great Persian Shia rival to Saudi Arabia.

In most other instances, Riyadh has essentially used its deep pockets to try to contain the Arab spring. In Bahrain, it sent thousands of troops to help crush a rebellion. In Jordan and Morocco, there are reports it is bribing the kings to make fewer concessions to democracy for fear of the example they would set to other monarchies.

At home, the Saudis dole out patronage to gain support. They have given tens of billions of dollars in assistance to the unemployed. They increased the salaries of soldiers and public servants. Gasoline costs some 50 cents a gallon there, an eighth of what Americans pay.

The Saudi story is of course more nuanced than the simple story of carrots and sticks. The monarchy is popular. It was popular even before its latest round of largess, and Saudi Arabia is perhaps unique in the Arab world in that the general population is more conservative than its leadership. So while Riyadh may be ridiculing the West for not allowing women to drive, it must also outweigh the potential backlash from its far right when it abruptly changes course on social policies.

But at some stage, demographic and economic changes in Saudi Arabia will force it to move with the times. Even oil wealth cannot insulate you from modernity forever.

Arab democracies will be messy, complex, even nasty at times. But they will have the legitimacy that comes with public participation, which is inevitable in today's world. And that's why in the long run, Bibi Netanyahu will be proven wrong and George Bush probably proven right.

We'll be back. Up next, the person who is leading the charge against the economics of austerity, the Nobel laureate Paul Krugman. Don't miss this.

(COMMERCIAL BREAK)

ZAKARIA: If there is one simple way to frame the debate over how to fix the global economy, it is this -- cut or spend? Austerity or stimulus? In the last few years, no one person has embodied the cause to end austerity as much as Paul Krugman. The Nobel laureate is a professor at Princeton University. He is a columnist for the New York Times, and he is out with a brand new book "End This Depression Now!" He joins me now. Paul Krugman, thank you so much for coming.

So tell me what motivated you to be writing this stuff every -- twice a week. Why did you decide you needed to do a book that put it all together?

PAUL KRUGMAN, NEW YORK TIMES COLUMNIST: Partly just to put it all together, because you write 800-word columns, write blog posts, and there's always somebody that says but what about this, but what about that? And look, it is an election year in the United States. There is -- it was pretty clear even when I was writing the book that we were approaching some kind of crisis point in Europe, where now several years into these wrong-headed policies, the failure of the policies is becoming obvious. Somebody needs to be out there and say this is why these policies are wrong. This is what we could and should be doing differently.

ZAKARIA: So, what is the -- what do you propose in this book that we do?

KRUGMAN: At this point it's stimulus, but essentially not -- we can get a lot of stimulus just by reversing the austerity that we've done. So in the United States, what we've actually had -- don't believe what people tell you about runaway government spending -- what we've actually had is unprecedented cuts, especially at the state and local level. Rehire those school teachers. Rehire those firefighters and police officers. Restart those stalled maintenance projects on our infrastructure. Right there is a big economic boost.

ZAKARIA: OK. So now you know what the criticism is. Look, it looks all right right now. The United States can borrow to spend this money, but you never know when you are going to trigger some kind of market upheaval that, you know, if it comes, the interest payments become so unmanageable that we would be in a huge crisis.

KRUGMAN: Several things. First is we have a lot of history, so I'm not just saying out of thin air this is OK. We can look at the actual debt burdens that advanced countries with their own currencies have carried over over the generations, and, you know, Britain had debt well over 100 percent of GDP for most of the 20th century. When John Maynard Keynes was writing about Britain, Britain had a heavier debt burden than it does now or than the United States does now, so it's not the case that these are historically unprecedented levels of debt.

Japan has debt levels that are astronomical, and people have been predicting a crisis in Japan for year after year. They've gone a long way. So if you were going to say, well, this might be the threshold, we might cross it next year, yes, all kinds of things can happen. Aliens can attack from outer space, but as far as we know from the lessons of history, no.

ZAKARIA: And why will it not happen? What is it?

KRUGMAN: Then the crucial points come in. First of all, a country that borrows in its own currency, even to think about how exactly does that debt crisis happen? I mean, does it mean -- the U.S. federal government can't run out of cash, because the Federal Reserve can print cash, and actually it's quite hard to tell the story. And we are not Spain because we have our own currency, we borrow in our own currency, so it becomes a quite hard story to tell about how this can go wrong.

Not that there may not be some way that it can happen, but it's pretty speculative. I think I actually have two more points, believe it or not. One is, you set this hypothetical risk against the very real, extremely large damage that's being inflicted right now. Not just short-term, but long-term, by having almost four million people who have been out of work for more than a year. You are leading to a lot of people probably never getting back to the work force. That's going to hurt our long-run growth. By having a whole cohort of college graduates never being able to find a job that makes use of their skills, you are crippling our economic future. That's a real cost, and it's almost certainly true, given the math, given how low the interest rates are right now and given those effects, that actually trying to be austere right now is self-destructive even in truly fiscal terms, because it shrinks the economy now, it shrinks the economy in the future; it, therefore, shrinks the tax base, and it's actually going to make our debt position worse.

So the argument for austerity based on this possible imaginary -- you know, debt crises do happen, but they don't happen much to countries like us. And setting that hypothetical against the very real damage that's coming from austerity, it seems to me it should be obvious what we should be doing, and austerity is not the answer.

ZAKARIA: Right. Don't go away. When we come back, I'm going to ask Paul Krugman what he would do about the so-called fiscal cliff, the expiration of the Bush tax cuts, the sequestration, and of course the debt ceiling crisis, all coming up in January, but coming up on GPS right after this.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Paul Krugman, the Nobel Prize winning economist.

John Boehner says he is not going to do a renewal of the debt ceiling if there isn't -- if there aren't budget cuts. In any case, you have the, you know, if nothing happens, the sequestration takes effect, the Bush tax cuts expire. You presumably look at all of this with sheer horror.

KRUGMAN: I look at it as a very bad thing. It's not what you would want to do as policy. This is not the time for austerity of any kind.

Then you have the question, OK, if you are President Obama, and particularly if you are a re-elected President Obama, if that is what happens, what do you do? Because you are being -- it's a hostage situation. These guys are saying, give us what we want, even though we don't have the votes to pass it in Congress, even though we don't have the votes to override a veto. Give us what we want, or we will blow up the country. Do you give in to those demands? Do you allow yourself to be blackmailed?

And I guess my vote is no. That -- Obama has already allowed himself to be blackmailed in the past. At some point, this has to top. At some point, you have to say, look, we have a Constitution that says the way you get things is by passing legislation, not by threatening to destroy the country unless you get your way. So if that's going to happen on your head, be it. He has to say, make me a reasonable proposal for an actual compromise, not something which is entirely give on the part of the Democrats, of the reasonable people, and then we can talk.

But not -- so I think in a way, he will really have no alternative. At least no alternative that I would find acceptable, except to call their bluff. Hopefully, Wall Street, which is bankrolling these guys massively, the business community, will yank their chain and say, wait a second, you know, this is all very well, but destroying the economy is not what we're paying you for.

But no, it's a terrible thing, but the problem is not economic. If we had a sane political system, we would be able to say that this is not the time for austerity. Let's negotiate long-run revenue increases, long-run cost-saving measures.

What we actually have is we have a game of chicken. We're in -- you know, we're in the scene from the James Dean movie with the two cars racing for the edge of the cliff. At some point you have to say I am not going to be the one who always gives in, in the end.

ZAKARIA: A lot of people, though, you know, businessmen types, look and say, well, Krugman is very smart, but he has become too partisan; he thinks that everything the Republicans do is wrong, and he doesn't have -- he doesn't seem to really care about this long-run fiscal nightmare that we have, which, you know, depending on how you count it, is $50 trillion.

I mean, there's this huge issue of entitlement spending that has to be dealt with.

KRUGMAN: Except, if you actually look at, you know, personal history, I was furiously opposed to the Bush tax cuts because I was worried about the long-run deficit implications. I was opposed to the unfunded wars because I was worried about the deficit implications.

You worry about those things, but you don't do austerity when you're in the middle of -- of a depression, of a sustained period of below-normal economic performance.

I'm happy to talk about what we should do in the long run. I don't think you can have a serious conversation with a Republican Party which says, we're terribly worried about the deficit, so, first thing, let's cut taxes on rich people and corporations; second, let's cut aid to the poor; and add those two things up, and they actually increase the deficit, but we're going to find some extra money some place else to make it a deficit -- they're not serious. I'm serious about the long-run deficit. They are not.

ZAKARIA: So you would be willing to cut Medicare and Medicaid?

KRUGMAN: Yeah. The way you do it, though, is not by cutting the guarantee of health care. The way you do it is by finding cost savings, by saying we will not pay for medical procedures that have no medical benefit, and maybe we will start to look at procedures which generate tiny medical benefit at a huge cost, and don't pay for them.

We talk about restructuring the way that we pay for medical care, a lot of which is actually in the Affordable Care Act in Obamacare, but we need more of that. But that's how do you it.

ZAKARIA: All this said and done, are you enthusiastic about President Obama? You were not for him in the Democratic primary four years ago.

KRUGMAN: Right. I mean, we're a long way past where I think enthusiasm is the appropriate emotion for anything here.

But he's learned a lot. And, you know, his heart's always been in the right place, and I believe his head is now in the right place. And you certainly -- of course, I can't do endorsements, right? It's a Times rule. So you have no idea who I prefer in this election.

(LAUGHTER)

But he certainly is talking sense about the economy, and Mitt Romney is talking utter nonsense. And you really do worry. In effect...

ZAKARIA: What is the single biggest piece of nonsense that Mitt Romney...

KRUGMAN: Mitt Romney is saying basically that spending cuts are how we're going to get to prosperity. Mitt Romney is saying, see what's happening in Greece and in Portugal and in Spain and in Ireland; let's do that here.

Boy -- you know, we've just had a massive test, human experimentation on a massive scale, in effect, alternative doctrines of economic management. We've just seen which doctrines are disastrous. And the Republican platform is, let's put that doctrine that has just caused collapse in Europe -- let's put that doctrine into effect right here in America.

ZAKARIA: Paul Krugman, pleasure to have you on.

KRUGMAN: Good to be on.

ZAKARIA: Up next, the funny business of getting to the moon. We invoke the Russians and the Russians invoke -- well, just wait and see.

(COMMERCIAL BREAK)

ZAKARIA: The world might be going gaga for Lady Gaga, but there's at least one country that doesn't appreciate her musical stylings. And that brings me to my question of the week from "The GPS Challenge."

What country has refused Lady Gaga a permit to perform there, despite a sold-out venue?

Is it, A, Saudi Arabia; B, South Africa; C, Italy; or, D, Indonesia?

Stay tuned, and we'll tell you the correct answer. Go to CNN.com/fareed for more of "The GPS Challenge" and lots of insight and analysis. You can also follow us on Twitter and Facebook. Also, remember, if you miss a show, go to iTunes. You can get the audio podcast for free, or you can buy the video version. It's itunes.com/fareed.

This week's book of the week has been called "relentlessly intelligent." The New York Times says it is "provocative and often shrewd."

I agree, but I'm a little biassed. It's the book I wrote, "The Post-American World," 2.0. It's just been released in paperback. It could make a great graduation gift, a Father's Day gift, a belated Mother's Day gift, or just a gift for yourself. Somehow or the other, just buy it.

Now, for the last look.

When the shuttle program ended almost a year ago, America became unable to send a man to space, so now the U.S. has to rely on others, and that means the Russians. And that can be a little scary.

In the past year Russia's space program has had a series of close calls and even crashes. So before this week's liftoff, Russia invoked a higher power. OK. But that is far from the only superstition that comes into play at Russia's Cosmodrome.

Tradition says that the crew gets haircuts two days before launch and they drink a glass of champagne on launch day. And the final superstition, as Yuri Gagarin did before he became the first man in space in 1961, they relieve themselves on the wheels of the bus that carries them to the launch pad.

Let's see if it works.

The correct answer to our "GPS Challenge" question was D, Indonesia. Gaga won't be playing Jakarta. The police there reportedly refused her a permit after a threat from an extremist group who said Lady Gaga would bring "the faith of Satan to the country and would thus destroy the nation's morals." She's pretty powerful.

Thanks to all of you for being part of my program this week. I will see you next week.