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FAREED ZAKARIA GPS

Interview with Alan Simpson, Erskine Bowles; Panel Discusses Presidential Politics

Aired May 27, 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.

This week, we'll tackle America's troubles, both economic and political, and how they affect the world.

We'll start with Simpson and Bowles; that's Alan Simpson and Erskine Bowles, the men who headed a commission to figure out how to fix America's fiscal troubles and they did figure it out. Their recommendations, however, were never implemented. Can they be revived?

Later in the show, the presidential race, how much will same-sex marriage, private equity and contraception have to do with whose elected November or is it all about the economy?

I've got a great panel: The "Wall Street Journal's" Peggy Noonan, Ross Douthat of the "New York Times" and more.

Also, moving a capital to increase your political capital, should Russia build a new Kremlin 4,000 miles to the east? I'll explain.

But, first, here's my take. There's much speculation these days about the power struggles in China in the wake of the ouster of Bo Xilai, the powerful party boss of Guangcheng.

China's political system will surely be tested, but, in the short run, its leaders may have dodged a bullet. Bo Xilai was a charismatic, "Machiavellian" leader who used populism, money and power to build a political base.

Had he not been brought down by a series of mistakes, revelations and bad luck for him, he might well have altered the nature of the technocratic system that now runs China.

In the short run, China might well survive its political crisis China might well survive its political crisis, but it faces a more immediate challenge: an economic crisis.

I've been visiting China regularly for 20 years and every year, I heard from experts that China's economy was set to crash, felled by huge imbalances and policy errors.

People would point to non-performing loans, bad banks, inefficient state-owned enterprises and real estate bubbles, but, somehow, none of these has derailed China's growth, which has been an astonishing 9.5 percent a year for the last three decades.

But Ruchir Sharma, who runs Morgan Stanley's Emerging Markets Fund, makes a different and more persuasive case in his new book, "Breakout Nations." China is going to slow down not because of its failures, but because of its successes.

"China is on the verge of a natural slowdown that will change the global balance of power, from finance to politics, and take the wind out of many economies that are riding in its draft," he writes.

China's growth looks remarkable, even unprecedented, but it really isn't unprecedented. Japan, South Korea and Taiwan all grew close to 9 percent a year for about two decades or more and, then, they started to slow down.

Sharma points out that many China (inaudible) think China will suffer the fate of Japan as it crashed and slowed in the 1990s never to boom again. But the more realistic scenario is Japan in the 1970s, when the original Asian tiger slowed from about 9 percent growth to about 6 percent growth. Korea and Taiwan followed a similar pattern.

What was the cause for these slowdowns? In a word, success. In all these cases, the economy had produced a middle-income range and it becomes much more difficult to grow at a breakneck pace when you have a large economy and a middle-class society.

The surest path to sustain high growth has been to start very poor. Once you reach middle-income levels, even well-run economies with strong fundamentals slow down.

Sharma points out that China slowing down should not have a huge internal economic effect, but he predicts much trouble for countries that have been buoyed up by a booming China, from Australia to Brazil, as Chinese demand for raw materials drops.

He even predicts a decline in oil prices, which, coming on top of the shale boom, should worry oil-producing states everywhere. As for China, Sharma is right to say that 6 percent growth should not worry the Chinese; these would be enviable rates for anyone else.

But China's regime legitimizes itself almost solely by delivering high-octane growth. If that fades, China's economic problems might well translate into political ones.

Let's get started.

The former Republican Senator, Alan Simpson, and the former Clinton White House Chief of Staff, Erskine Bowles may forever be remembered for their great idea that was never put into practice.

In 2010, President Obama challenged the bipartisan duo to chair a commission to develop policies to bring America back to fiscal sustainability and they did. Many powerful Washingtonians on both sides of the fence applauded the proposal from the two chairs, but nobody ever did anything about it and this week, the dangerous carping over the debt limit began anew.

Who better to talk about this than Alan Simpson and Erskine Bowles who are joining me now from North Carolina?

Thank you so much for joining me, folks.

ALAN SIMPSON, FORMER WYOMING SENATOR: It's a pleasure.

ERSKINE BOWLES, FORMER WHITE HOUSE CHIEF OF STAFF: Great to be here.

Senator Simpson, you've seen what's been going on these last few months. The House actually voted on the Simpson-Bowles proposal and it went down decisively.

Paul Ryan, the leader of the House on fiscal issues, I suppose, said that Simpson-Bowles was the wrong way to go because there weren't enough spending cuts and there were too many tax increases.

What was your reaction? That's your party.

SIMPSON: Well, I think my party and I have different views on a lot of things. I guess I'm known as a "rhino" now, which means a Republican in name only because I guess of social views perhaps or common sense would be another one which seems to escape members of our party.

Abortion is a horrible thing, but, for heaven's sakes, a deeply intimate and personal decision and men legislators shouldn't even vote on it. Gay-lesbian issues, we're all human beings. We're all God's children. What is that?

And for heaven's sakes, you have Grover Norquist wandering the Earth in his white robes saying that if you raise taxes one penny, he'll defeat you. He can't murder you, he can't burn your house, the only thing he can do to you, as an elected official, is defeat you for reelection.

And if that means more to you than your country when we need patriots to come out in a situation when we're in extremity, you shouldn't even be in Congress.

ZAKARIA: But talk about Ryan particularly, because what I'm struck by is the Simpson-Bowles plan calls for an awful lot of spending cuts and, yet, those weren't enough.

SIMPSON: Well, Erskine can tell you we don't call for -- You can't cut spending your way out of this hole. You can't grow your way out of this hole and you can't tax your way out of this hole "Put that in your pipe and smoke it," we tell these people.

This is madness. If you want to be a purest, go somewhere on a mountain top and praise the east or something, but if you want to be in politics, you learn to compromise and you learn to compromise an issue without compromising yourself. Show me a guy who won't compromise and I'll show you a guy with rock for brains.

ZAKARIA: Erskine, you're hopeful. You think that some of the ideas gaining fraction and, you know, there's a kind of inevitability if you're going to do this, there has to be some approach that's pretty close to what you're describing.

BOWLES: Fareed, I believe the markets will force us to. I've spent my life in the markets, as you know, and look at what's happening at the end of the year.

We have about $7 trillion worth of economic events that are happening. We have expiration of the Bush tax cuts, we have the patch that's been placed on the alternative minimum tax that'll affect so many middle-class taxpayers, we have the payroll tax deduction that's expiring.

We have these senseless, mindless, across-the-board cuts that come from the sequester that comes as a result of a failed super committee. You know, all of those are hitting at once and the economic effect of those just next year, about 2 percent of GDP.

If we have a negative effect of 2 percent of GDP, we'll be right back in recession and you better believe that the people of America will be calling on these members of Congress to do something.

So we think something will happen in the lame duck session. We believe it'll probably be a two-step process where we end up setting up a framework with a time-frame in order to get something done.

ZAKARIA: Boy, that's pretty optimistic.

BOWLES: And don't forget it doesn't have to be exactly what the Simpson-Bowles plan has, but it's got to be a balanced plan. You've got to have some small amount of revenue that comes from reforming the tax code and there's broad agreement that the tax code needs to be reformed.

So I believe that you will find -- if, in fact, we can get the right kind of momentum going, I think I'll find strong support. We've been working with 47 members of the Senate, an equal number of Republicans and Democrats, the same kind of group in the House of Representatives.

And I believe these -- this group will come together during the lame duck to put forward a plan like this. Now, I don't think the plan itself will be implemented during the lame duck, but I think there will be an agreement that we have to do some kind of balanced plan.

If we don't, then I think you will see the markets really take a really adverse look at the country and I think you'll see us lose another downgrade in our credit and I think you'll see interest rates pop up and, before long, you'll see the availability of credit lessen. So I think we could have a real problem if we don't do something and do something relatively quick.

SIMPSON: And you know who will get hurt the worst in that process when interest rates go up and inflation kicks in, the little guy, the one that everybody on their hind legs talks about, "We're doing this for the little guy, the most vulnerable, the unfortunate." Well, Merry Christmas, those guys are going to get eaten when interest rates and inflation kicks in.

ZAKARIA: Gentlemen, stay with us. When we come back, we're going to ask Senator Simpson and Erskine Bowles what they think of President Obama's leadership on this issue, what they think of Mitt Romney and there'll be a few other things as well.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Erskine Bowles and Alan Simpson, the authors of the Simpson-Bowles plan for a rare opportunity to have a conversation.

Senator Simpson, I want to ask you -- I want to ask both of you, but I want to ask you what you think of President Obama's embrace of your plan or lack thereof.

And I'm going to start by asking you -- just bear with me because I talked to him in January, mostly about foreign policy, but I did ask him about Simpson-Bowles. And he probably got -- this got him more agitated than at any point in our conversation.

This is what he said. He said, "I've got to tell you most of the people who say it if you ask them, "What's in Simpson-Bowles," they couldn't tell you. First of all, I did embrace Simpson-Bowles. I'm the one who created the commission. If I hadn't pushed it wouldn't have happened because the Congressional sponsors, including a whole bunch of Republicans, walked away."

"The basic premise of Simpson-Bowles was we have to take balanced approach in which we have spending cuts and we have revenue increases. And although I did not agree with every particular thing that was in it, what I did do is take the framework and present a balanced plan of entitlement changes, discretionary cuts, went ready to make a deal."

"I presented this plan three times to Congress. The core of Simpson-Bowles, the idea of a balanced deficit reduction plan, I have consistently argued for, presented to the American people, presented to Congress."

Is that fair?

SIMPSON: Well, he does get a little testy and we all get a little testy, but the president -- I wouldn't have done this if I didn't regard him as our president. I accept that. He's my president, too. And it's ugly stuff out there.

There's a lot of hatred in the world, hatred toward politicians, hatred toward the president, hatred toward Democrats, hatred toward Republicans, but I can tell you this. If he had embraced our plan, he would have been ripped to shreds.

Erskine can tell you a little more. He visited with him personally alone for an hour-and-a-half, but he would have been ripped by the Democrats saying, "Why you rotten -- you're digging into the precious, precious Medicare."

And the Republicans would have rejected -- if he'd embraced the Republicans, en mass, in the House would have rejected it. So, either way he's going to get hammered so he's playing the waiting game.

ZAKARIA: Erskine, a lot of economic experts say, look, the right solution for the United States right now is obvious, which is you need some stimulus now, particularly given the very low interest rates, the very high levels of unemployment in the construction sector.

The government should spend some money repairing and rebuilding the infrastructure, but that would only be viable and particularly something the markets would celebrate if it was tied to a long-term deficit reduction plan like Simpson-Bowles.

Do you buy that basic idea that if your plan were adopted as a ten-year plan, it actually gives the U.S. government some leeway to make some necessary investments now?

BOWLES: Yes, I truly believe that the only thing standing between the U.S. and sustainable growth is having a sensible, responsible, long-term fiscal plan. I believe if the world believed that we were going to put our fiscal house in order that you would see substantial economic growth in the future.

But, again, I got back to what's happening at the end of this year. We have $7 trillion worth of economic events that are going to hit the fan in December.

And if we don't set up to them -- if we don't stand up for them and we don't do the right thing, if Congress doesn't act, it doesn't put this partisanship aside and doesn't make some compromise, you'll have a negative impact on GDP next year of at least 2 percent. That doesn't make any sense.

ZAKARIA: Alan, what do you make of Mitt Romney? Romney's first ads are out and when he says, on day one what is he going to do and he says he's going to approve the Keystone Pipeline, fine. But then he says and, then, we're going to have tax cuts.

This has, of course, been the, you know, kind of a Republican strategy for a while. Do you think -- given what you're describing, I can't imagine you think day one what a Republican president should do is propose tax cuts?

SIMPSON: Well, I wouldn't have voted for him if I'd have been in Congress. How could you vote for a tax cut when you were doing two wars on the cheap? You had two wars you were fighting. You had things that were -- the government -- all the income from the government was only taking care of Medicare, Medicaid and Social Security and you do a tax cut.

Every time there was a surplus and the last time was when this fine gentleman was doing it in '96, you can't get there. But you don't have to do a tax cut, get that out of your gourd. You go into the tax expenditures and start knocking that stuff off and that's where you get your revenue.

BOWLES: Fareed, we have the most inefficient, ineffective, globally anti-competitive tax code that man could dream up and what we need to do is broaden the base, simplify the code, use -- get rid of this spending in the tax code and use about 90 percent of the money to reduce income tax rates for everybody and use about 10 percent of the money to reduce this deficit.

You know if you think about the debt today and the interest on the debt, it's kind of -- you know and put it in relationship to something else, we spend about $230, $240 billion a year on interest on the debt today even at these current low rates.

Fareed, that is more than we're spending today at the Department of Commerce, Energy, Education, Homeland Security, Interior, Justice and State combined. And if we don't do anything, if we just, you know, put our heads in the sand and hope things will get better, we'll be spending over a trillion dollars on interest by the year 2020.

That's a trillion dollars we can't spend on this country on education or infrastructure or high valued-added research. And worst of all, it's a trillion dollars we will be spending principally in Asia to educate their kids and to build their infrastructure and to do high value-added research over there so that the next new thing is created there and the jobs of the future are there not here. That's crazy.

ZAKARIA: All right, final question. Erskine, there are rumors in Washington that President Obama has asked you whether you would be interested in being the Secretary of Treasury. Do you have a comment?

BOWLES: He hasn't asked me to be Secretary of Treasury for sure.

ZAKARIA: If he were to ask you, would you accept?

BOWLES: No, I'm living in North Carolina and that's where I want to live. I'm the happiest in my whole life, Fareed.

ZAKARIA: Gentlemen, pleasure to have you.

SIMPSON: I would just say we -- all we do, Erskine and I, is math. We don't do Power Points. We don't know charts. We do math, but we don't do BS or mush so join us.

ZAKARIA: Maybe what we should try and get -- and do is for the first time in the history of the republic, have co-Secretaries of the Treasury, one Republican and one Democrat. SIMPSON: Boy, if we could get our hands on that script.

BOWLES: I don't want a job, thank you.

ZAKARIA: Thank you very much, gentlemen.

SIMPSON: Thank you.

BOWLES: Thank you.

ZAKARIA: Up next, "What in the World?" A bold proposal from Russia, why President Putin should move the capital city 4,000 miles east? I'll explain.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our "What in the World?" segment. A bold proposal caught my eye this week. One of Moscow's top academics says Russia should build a new capital city. This city would be far, far away from Moscow, 4,000 miles to be exact in Vladivostok. Why?

The person who proposed the idea, Sergei Karaganov of Moscow's Higher School of Economics, wrote in a state-run newspaper that a capital in the Far East would make Russia part of what he calls, "the rising world", closer to dynamic Asian economies and further away from an aging Europe.

The idea of moving capitals is not without precedent. British India moved its capital from the coastal city of Calcutta to the more centrally located Delhi in 1911 and it created the city of New Delhi.

In the 1920s Turkish nationalists moved their capital from Istanbul to Ankara kick-starting rapid growth in central Turkey. More recently, Brazil moved its capital from Rio de Janeiro to Brasilia in the center of the country and Kazakhstan moved its seat of government from Almaty to Astana to be closer to Russia.

It's unlikely President Putin will want to follow suit. But he would do well to think about the underlying thrust behind the argument. Moscow needs urgent reform. Russia is not really a booming, emerging market economy. It is an oil-rich kleptocracy where mostly everything else in the country, including its once vaunted military, is in a shambles.

Putin often cites figures to show that he has presided over a boom. The average Russian's income has risen more than seven-fold in the last decade from $2,000 to $14,000 a year. Yet, that statistic tells an incomplete story.

Russia's growth has been uneven. Moscow has 78 billionaires, more than any other city in the world. Those billionaires, along with others in the rest of the country, account for 20 percent of Russia's GDP, far higher than any country. That doesn't leave much of Russia's economy for businesses and the other 141 million people in the country. The second problem is that Moscow's fate has for years been linked to crude oil prices. Look at this chart with a very clear correlation. It shows how Russian stocks have risen and fallen in step with oil prices.

According to "Reuters," Russia now needs crude to trade at $117 a barrel simply to balance its budget. That number used to be $50 as recently as 2008 and $27 at the start of Putin's first presidency. Talk about a bloated state.

In part, Moscow's escalating expenses are a result of Putin's largesse, a policy designed to keep his electorate happy and keep him in power.

Rising crude oil prices have allowed Putin to maintain that system of bribery, but with global growth now slowing, he can no longer count on the same set of conditions for the rest of his presidency.

Instead, he will need to reform the economy. Private companies need the freedom and the confidence to actually develop. Russia has only one main bank, for example. Its people need a financial system that they can trust. Russia ranks 143rd in the world on Transparency International's Corruption Index.

To his credit, Putin acknowledges these problems. Shortly after his reelection, he spoke of improving Russia's rank in the World Bank's Ease of Doing Business List from 120th in the world to a place in the top 20.

He's also targeted raising investment from 20 percent of GDP to 27. But if it sounds somewhat familiar, it's because he's said similar ones before during his first presidency and didn't need them. This time he has not only the economy to fix, but he is also faced with an opposition movement with growing courage. The Kremlin this week welcomed the new cabinet, but it's mostly full of the same old faces. If President Putin keeps the same old policies, his problems may only just be starting.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: This is a classic right path, wrong path election. You are going to look at the reality of America today, and you're going to say we're more or less on the right path, I'm going with Obama. I think we're on the wrong path. I may go for this guy, but I got to check him out.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

CANDY CROWLEY, CBS CORRESPONDENT: I'm Candy Crowley in Washington. "Fareed Zakaria GPS" will be back in 90 seconds, but, first, a check of the top stories. Syrian rebels say a U.N.-backed peace plan for the country is dead after yesterday's massacre of at least 85 people in the town of Houla. 32 of those killed were children. Opposition leaders blame the Syrian government for the deaths. The Syrian government says regional and western enemies, including the U.S., are responsible for the violence.

Two candidates appear headed for a runoff in Egypt's presidential election. Polls show Muslim Brotherhood candidate Mohammed Morsi in first place followed by Ahmed Shafiq who was prime minister in ousted President Hosni Mubarak's government. The next round of voting is set for next month.

Subtropical storm Beryl is expected to dump several inches of rain along the Florida and South Carolina coast today. There are already beach closures. At least 20 people were rescued off Tybee Island, Georgia near Savannah because of rip currents. These are new pictures inside the Dragon spacecraft. The SpaceX capsule delivered more than 1,000 pounds of cargo, including food, clothing, and computer equipment to the international space station. Dragon is the first commercial capsule to reach the space station. And those are your top stories. Now back to "Fareed Zakaria GPS."

ZAKARIA: Of late news on the U.S. presidential race has been dominated by niche issues -- same-sex marriage, contraception, private equity. Will they decide the race in November, or will it all be the economy? I'm joined by a distinguished panel, Bill Keller is the former executive editor of the "New York Times." He now writes a column for it. Peggy Noonan is a columnist for the "Wall Street Journal." From Reuters and formerly of "The Financial Times" we have Chrystia Freeland, and Ross Douthat writes for the "New York Times." Ross has a new book out "Bad Religion: How We Became a Nation of Heretics." Welcome.

So one of the things I've been impressed by or have noticed is that the Obama campaign, no matter what the discourse continues to feel that the private equity -- ads of the attack on private equity is the correct way to go and it's going to work. Chrystia, you had a theory about why.

CHRYSTIA FREELAND, EDITOR, THOMSON REUTERS DIGITAL: Well, I think part of what we're seeing in this campaign is the arrival of big data to politics and of micro-targeting, so we're all accustomed to in the retail sector that the big retail ad doesn't happen and people target particular constituencies. I think that's what both parties are doing, and with the private equity story, we are tempted to see it as this grand narrative about capitalism and financial vultures and so on. I think it could be about the rust belt states where Obama feels he has a very strong story to tell. He bailed out the carmakers, and this is a way to really drive it home and win that particular region.

ZAKARIA: And that the private equity story for them is a story of letting these companies fail and ...

FREELAND: And of people losing their jobs.

BILL KELLER, FORMER EXECUTIVE EDITOR, "NEW YORK TIMES": I'm not sure that the micro-targeting thing is an established success as a political tool. I agree that everybody is trying that. But it's interesting that Obama has not -- I mean presidents don't do what private equity firms do -- pick winners and losers. And so, what Romney is arguing is his greatest qualification to be president is in a field that presidents don't do except ...

ROSS DOUTHAT, COLUMNIST, "NEW YORK TIMES": Except ...

KELLER: ... when they do.

DOUTHAT: ... except in certain cases.

KELLER: And when certain -- and the most notable case is the rescue of the auto industry, which where Obama was a wonderful equity -- private equity capitalist, and Romney was opposed to it.

FREELAND: ... except one who had the unlimited resources of the U.S. state.

KELLER: Absolutely.

FREELAND: I mean, if Mitt Romney were here, he would say that's not fair, right?

DOUTHAT: The other thing is that the auto bailout remains largely unpopular outside of the state of Michigan. I mean, I think this is the danger for the Obama campaign is that in the pursuit of micro-targeting, they're possibly ignoring the fact that it is still a national election and, yes, if it comes down to a sort of 50.2 to - 49.8 vote, then some perfect micro-targeting in Ohio could win them the election, but they -- the broader narrative they're establishing it isn't clear exactly where it goes. If they're defending the auto bailout, well, the auto bailout is still unpopular nationally. GM stock has performed rather like Facebook stock.

ZAKARIA: But in a sense what you are saying is that the micro- targeting -- you can target Michigan, but the ad is going to be seen all over the country once it becomes controversial.

DOUTHAT: Right. It's going to be the talk of every Sunday show and so on.

PEGGY NOONAN, COLUMNIST, "WALL STREET JOURNAL": It will. I think what we're talking about is actually part of a larger story, and that is that both major parties in a key election year fairly well into that year have not really picked their essential themes yet. And so they're picking off these little things. Maybe it's Bain Capital now. Well, that didn't work. OK. We'll do something else. That didn't work. We'll do something else. Obama, I don't think, has picked his main theme. I don't think Romney has yet. That's yet to bubble up.

ZAKARIA: And I wonder with the part of the private equity, I mean I understand the micro-targeting issue, but is part of it an attempt to very early really demolish Romney's claim to competence and fame by, you know, forcing Romney to have to explain what he thought was going to be a natural event, which is I'm a great capitalist, I'm a great economic manager, and now instead he is having to explain how being a private equity guy actually does qualify you. NOONAN: Yes.

KELLER: And private equity issue is not a niche issue at all. It's a surrogate issue, I guess. It's a surrogate for the larger economic theme. Do you -- are you a job creator or a job destroyer? That's what Bain -- that's what the ad campaign, disingenuous as it is.

NOONAN: It's in here what I think is going on. This is a classic right path, wrong path election. You are going to look at the reality of America today and you are going to say we're more or less on the right path, I'm going with Obama. I think we're on the wrong path, I may go for this guy, but I got to check him out. Since the Obama administration -- Obama campaign knows right now in May, America is checking out Mitt Romney, they will do anything they can to go at Mitt Romney. It is Bain Capital right now. Oh, his business acumen is not so wonderful. It had an essentially deleterious affect on workers. It will change. It will be something else. What's interesting to me is that they're doing that in May, and I can't figure out if they lost control and went a little early. Maybe they ought to be making the Bain argument in September or October or if they think no we're in a new media thing where you set up a predicate and the predicate lasts for six or nine months.

DOUTHAT: I think that's what they think. I think that they -- they to the extent they see this as a tough election when they aren't feeling overconfident, they see it as a replay of 2004, and they see themselves trying to preemptively delegitimatize Romney on what was presumably his greatest strength in the same way that the George W. Bush campaign went after Kerry specifically on issues of foreign policy, his military service, and so on that Kerry had cast as his own greatest strength, and they're doing it a little earlier. Precisely because I think they think we're in a new environment. I think the downside for them here is that I don't think it's enough, assuming that the economy continues to just sort of sputter along, right? But you don't have sustained growth between now and November. I don't think it's enough for them to win the election by making people a little anxious about Romney's, you know, managerial competence. They need to make Americans fear Romney, and I don't think -- I don't think ...

NOONAN: Don't you think -- I mean ...

FREELAND: ... or dismantle Romney.

ZAKARIA: We have got -- we have got to take a break. We've talked about money, and we will talk about sex, I promise you, when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Bill Keller, Peggy Noonan, Chrystia Freeland and Ross Douthat. Peggy, what do you think of gay marriage, the issue, all the issues with women's health, is that going to be a big part of this election? I mean it seems to have -- I think no one would have predicted that would have taken up the space it has already. The gay marriage issue might have been somewhat unpredictable, but what's going on?

NOONAN: I think this selection is mostly about the economy. I think at the end of the day people are going to look, as I said, are we going in the right direction more or less? Do we have a path going so that if we keep on it and keep investing time in it, I think we'll wind up in a good place or not? I mean, I actually think it's that simple. I think all of the other issues will bubble up and come down and we'll see how it breaks, but it's an economic election.

KELLER: I think that's mostly right, but, you know, if it's a close election and it gets decided at the margins, the margin is that 15 percent or so of the voters who self-identify as moderate independents, and there's been, you know, decades of polling of those people. Some of it pretty refined. And it tends to show that they are moved by social issues, that they want a kind of humanitarian character in their president.

ZAKARIA: So, that's to Obama's advantage.

KELLER: I think -- I mean there are aspects of this that could be to his disadvantage, the one that's most widely talked about is that black Americans tend to be more negative about gay marriage, although even that is shifting in the latest polls. I think -- I don't think it's going to be a decisive issue. I think on balance, though, it helps him more than it hurts him.

FREELAND: Yes. I agree with Bill, and I think that it sort of creates a what's the matter with Kansas dilemma for those kind of maybe affluent moderates who are disillusioned by Obama, feel he didn't run the economy well, were tilting towards Romney, but actually don't like the whole social-conservative agenda, and this gives them a reason to support Obama. I think it also really helps Obama in terms of the money. I think the loss of Wall Street support is potentially really a big issue for Obama, and I'm going to borrow Chuck Todd's line that in this election gay money is replacing Wall Street money for the Democrats.

DOUTHAT: Well, that was Marc Ambinder who said -- great D.C. journalist, who's actually leaving D.C. journalism, and he wrote us for the farewell piece where he said, the three -- then three-legs of the stool for Democratic fundraising right now are the Jews, the gays, and the tech industry, and that I mean is sort of like what Todd said. But that's no, I think that's absolutely part of the White House's calculation, and I think the White House would probably agree with Peggy's point. They would say this is probably going to be an economy focused election, but if it's too much focused on the economy, then, you know, we'll probably lose, so there isn't -- there isn't necessarily a downside for them as they see it in re-focusing on social issues and trying to -- -yeah, as you say, trying to create this dilemma for affluent suburbanites and so on, where you should vote your values even if you don't like our economic management.

ZAKARIA: Peggy, is there -- I mean in your opinion, is there any advantage to Romney in picking a catholic vice president because to the extent that the social issues have some resonance for on the right, there is a kind of, you know -- there is a certain -- the Catholics are in some -- to some degree in opposition to some of these things and might find solace in the catholic ...

NOONAN: Yeah, in the catholic churches. Look, this is all complicated, and I'm not sure all of these social issues are to Obama's favor by any means. There's also another thing I think going on in America where people have their daily lives, they have their own thoughts, their cultural beliefs, et cetera. That's all baked into the cake. But I think when they watch these new issues come up and bubble up, part of them thinks how interesting, a part of them thinks that's what they're using to distract us this week. You know what I mean? They're very sophisticated. As to a catholic for vice president, I don't know. I think -- I guess that would be Mr. Christie, and I think if Chris Christie were picked, it wouldn't be because he was catholic, but because he would add a dynamism and an excitement and a real verve to the ticket, so I think maybe ...

DOUTHAT: There's geographical implications, though, at the very least.

NOONAN: In Ohio ...

KELLER: Right, in terms of, I mean, you know, if the social issues benefit Obama potentially with affluent suburbanites in, say, Northern Virginia, they have the potential to hurt him with working class Catholics in Ohio, so I don't know if there's a vice presidential pick that fits that mold exactly, but I think overall in terms of the map you are seeing, I think the White House sort of refocus on what they think is the future Democratic majority, which probably includes fewer white working class voters, which leaves the Romney campaign with an opportunity to potentially gain ground in Midwestern states.

ZAKARIA: Who would you pick if you were running the -- if you were running Romney's vice-presidential search?

KELLY: I would go with Peggy and Christie, I'm not, you know, I mean Christie keeps protesting that he wouldn't do it, and people say that because he doesn't seem to be a healthy, you know, chiseled specimen of American manhood, he is not cosmetically right. I mean, you know, he is the one guy out there that you would like to go have a beer with, and maybe a second beer. He is good value. He is politically very, very adept.

DOUTHAT: The case for Christie that a friend suggested me is that Christie would be a terrible vice president, as he himself has suggested. Right? Just a terrible number two sort of, you know, in the Julia Louis Dreyfus, on HBO kind of role. But he would -- what do you want for your vice president during the three months run-up to the election? You want someone who will attack the other guy in the ways that you yourself can't, and that is where Christie does have an advantage over a more -- yeah, a Portman, a choice like that.

NOONAN: Oh, is that true? I've seen Christie campaign in Iowa for a while with Romney, and Romney would speak and the crowd would love it, and then Christie would speak either just before or just after him and the crowd would go wild, and Christie has fun on the campaign trail. He loves it. He likes politics. And he will say things like, I'll open up a can of Jersey on your butt. You know, he would have fun.

ZAKARIA: All right. Thank you all. Bill Kelly, Peggy Noonan, Chrystia Freeland and Ross Douthat, thank you for joining us. We will be back. I have a great story for you. This picture looks like it's from the future. A human being and a robot. You will be surprised and touched when you learn the truth.

(COMMERCIAL BREAK)

ZAKARIA: And launch! SpaceX, a private American company launched a rocket this week headed to the international space station. There are only four groups able to send spacecraft to the station. That brings me to our question of the week from the "GPS Challenge." "Which of these is not able to send a spacecraft to the international space station? Is it, A, the European Space Agency, Bb, China's National Space Administration, C, Japan's Aerospace Exploration Agency, or, D, the Russian Federal Space Agency? Stay tuned, and we'll tell you the correct answer. Go to cnn.com/fareed for more of this GPS challenge. Lots of insight and analysis and follow us on Twitter and Facebook.

Now, the Olympics are coming up, and if you want to win a gold medal, perhaps you ought to download the GPS podcast. We were tickled to read this week that our podcast is what often encourages Canadian Simon Witfield, a gold medallist in triathlon to get out the door for a training run. Maybe it will encourage you too. Go to iTunes.com/fareed. You can get an audio podcast or a video podcast.

This week's book of the week is "China Airborne" by the great journalist James Fallows. Fallows moved to China for most of the past five years to write this inside look at China's airline industry, but it's much more than that. It's part travel log and a part detailed description of China's economic liftoff, and as always with Fallows, it's a good read.

Now for the last look. I want you to take a long look at this photograph. It is quite extraordinary. What you are looking at is Air Force veteran Brian Kolfage embracing his wife. You'll note Kolfage has no legs and no right arm thanks to a mortar attack in Iraq on September 11th, yes, 2004. He is thought to be one of the most grievously wounded airmen ever to survive. He is now a thriving architecture student, but it is a vivid reminder as the United States marks Memorial Day this weekend we must remember the war dead, but we ought not forget the war wounded.

The correct answer to our GPS challenge question was, B, China is not able to send a spacecraft to the international space station, but it has plans to put a man on the Moon and has begun its own space station hoping to fill the vacuum left by the end of NASA's space shuttle program. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."