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FAREED ZAKARIA GPS

Interview with Enrique Pena Nieto; International Problems Panel

Aired July 8, 2012 - 10:00   ET

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


FAREED ZAKARIA, 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.

On today's show, the presumptive President Elect of Mexico Enrique Pena Nieto on the war on drugs, on immigration, on the economy, can Mexico be the next emerging market star?

Before that though, a truly Global Public Square, we've assembled a panel from across the globe to talk about the many international problems; Syria, Egypt, Iran, Europe and more. And, on this July 4th week, we'll also look at America from the outside in.

Also, who creates jobs? It is the 1 percent or is it the middle class? We have a debate, a fascinating debate between two 1 percenters. Finally, tanks for the memories, a somewhat beautiful ballet by 50-ton ballerinas.

Many liberals believe that the Affordable Care Act, sometimes called Obamacare, is unpopular only because most Americans don't understand it. There is some truth to this. Studies show that the core provisions of the bill are more popular than the bill itself. But there's also a reason, rooted in reality, why many Americans worry about Obamacare, its cost.

Remember, most Americans have health care. What they worry about is the cost of insuring 20 million to 30 million more people and unless the meteoric rise of health-care costs is slowed, a big expansion of coverage might well remain unpopular no matter how it is explained.

Now, how is that going to happen? Well, Republican alternatives to Obamacare, such as they are, do have a strategy to control costs; get consumers to pay for more of their health care. The basic idea is intuitively appealing. Markets produce efficiencies; they presumably would do the same thing in health care.

But the situation on the ground suggests that markets work imperfectly in this realm. A new study conducted by the pharmaceutical company Novartis and McKinsey and Co. shows a stunning difference among countries with regard to health-care efficiency.

For example, smoking rates are higher in France than in the United States so the French population has higher rates of lung disease. Yet, the French system is able to treat the disease far more effectively than happens in the United States.

Its levels of severity and fatality are three times lower than in this country and yet France spends eight times less on treatments per person than the U.S. system, eight times less.

Or consider Britain, which handles diabetes far more effectively than the U.S. while spending less than half of what we spend per person. The study concludes that the British system is five times more productive in managing diabetes than the United States is.

To understand the issue better, I spoke with Daniel Vasella, the chairman (and former chief executive) of Novartis and a physician by training. He is also frankly pro-market and pro-American, both of which have occasionally made him a target for some criticism in Europe.

Vasella emphasized that there is no single model that works best, but he explained that France and Britain have been better at tackling diabetes and lung disease because they take a system-wide approach that gives all health-care providers incentive to focus on early detection and cost-effective treatment and that makes wellness the goal.

So, I asked him is the lesson that only the government can produce system-wide improvements. Vasella's brief answer is, "Yes, this is a case where you need government action."

You see economists have often written about "the asymmetry of information", areas where consumers are not expert enough to be able to determine what product is best. Evidence increasingly shows that this is true for health.

After all, consumers freely make the choice to smoke, eat junk food and forgo preventative care; all of which are highly likely to make them sick, force up their health-care costs and lower their quality of life. Having us spend more of the money ourselves is not likely to solve the cost crisis in health care.

Let's get started.

Let's get right to our global panel. In London, Anne Applebaum is a foreign policy columnist for the "Washington Post." In Paris, Dominique Moisi is the founder of the French Institute of International Affairs.

And, in Singapore, Kishore Mahbubani is the dean of the Lee Kuan Yew School of Public Policy at the National University over there. And, also, in London, Mark Malloch-Brown was deputy secretary general of the United Nations and a member of Gordon Brown's cabinet.

Welcome to you all. So let's start with the crises. Mark Malloch-Brown, you've dealt with these issues often and your former boss, Kofi Annan, is not trying to broker some kind of settlement in Syria. Is he likely to be successful?

MALLOCH-BROWN: Well, I think you've got to go on giving diplomacy a chance while being very realistic, but it may not get us across the finishing line. In the Balkans, many of us remember diplomacy went on for too long and we didn't, you know, turn to a military solution soon enough.

But I do think that Kofi Annan has made progress. The Russian and American positions in private are closer than they often appear in public and, still if there is a united international community, the regional neighbors plus Russia and the United States and Europe all rowing in the same direction on this. This is the best way to get the transition to a legitimate government that the country has.

ZAKARIA: Dominique, in France, there seems considerably less enthusiasm under Francois Hollande's government for an intervention in Syria compared with Nicolas Sarkozy in Libya. Sarkozy, of course, led the charge in some way for the intervention in Libya.

MOISI: Yes, definitely. We have no money. There is no enthusiasm whatsoever for what would look like a much more difficult military adventure and the shooting down of a Turkish plane last week was a kind of warning by the Syrian government, "Don't try to do with me what you did with Libya, it wouldn't work."

ZAKARIA: Anne Applebaum, you just got back from Libya. What is the perspective over there about Western interventions?

APPLEBAUM: Well, the Libyans would love to see Western intervention because they feel, in a way, that this is part of their revolution too. I don't know that they're so focused on it at the moment because they're worried about their own elections which are strangely both very, very chaotic and very optimistic.

It's a very strange moment in Libya. It could still go either way. There's an enormous kind of gathering together of civil society, people wanting to make this work and, at the same time, this is a country which hasn't had election or political parties for 50 years.

So it makes a kind of interesting template which maybe, you know, we can see how other countries follow it or watch it.

ZAKARIA: Kishore Mahbubani, What does this look like to you on the other end of the world? Do you think that -- how do the Asians regard this talk in the West about getting involved in Syria?

MAHBUBANI: Well, I think -- number one let me emphasize that Assad has to go because he's lost his legitimacy and it's only a matter of time before he goes.

But, at the same time, I mean there's isn't any kind of enthusiasm in Asia for any kind of military intervention again in Syria because if you look at what the West did in Iraq, you look at even in Libya, at the end of the day, can you show that any size military intervention will lead to better results?

And there's no stomach in the West to finish the job and if it starts, you have an incomplete problem again.

ZAKARIA: Mark, do you think that the Russians are the key here and can they be brought around?

MALLOCH-BROWN: Well, they're one of the keys. I think, in a sense, they've been a useful device for everybody. For the Russians, presenting themselves as a key has meant that diplomats have had to make their way to Moscow and put Moscow at the center of things again.

And, clearly, they do have influence over Assad. What's not clear is if they told him to go whether that would indeed be the decisive thing or whether the support of Iran -- continued degree of support he has inside the country would let him still hang on.

But I think it's convenient for everybody to present Russia as either having a veto on change or, at the very least, being the key to it. I think, frankly, the Russians will come into line on this. I don't think they like this public demand that Assad's departure be spelled out so explicitly.

But I think they, as long-time Syria watchers, recognize he's finished. It's just a matter of when and how he goes.

ZAKARIA: And when you look at the situation with Iran, Dominique Moisi, is the -- are the Europeans, you think, comfortable with what are now pretty crippling sanctions on the Iranians? Is this a strategy that the Europeans will stick to because it certainly seems as though Iran is going to suffer some very, very serious economic consequences not just the regime, but the whole country.

MOISI: Yes, but there seems to be, seen from Europe, that the tougher the sanctions are, the less likely military intervention will be. And so I think there is that logic which is shared, I believe, by the French and the Americans.

And I think there is now, with Hollande in power, a line in Paris which is probably more in tune with the line in Washington as if yesterday Sarkozy was even tougher than the Americans were.

ZAKARIA: Kishore, do you think this line is shared in China? Beijing got a waiver on the issue of importing Iranian oil making the case that they had cut down their imports, but they still need Iranian oil. Do you think they're comfortable with where things are heading?

MAHBUBANI: Let me say something quite provocative here because it's important to get out of the Western perception of this problem. The era when the West can go around changing governments is ending. Western power has peaked and, from now on, you will go down.

The only question is how are you going to change Iranian behavior and I actually believe, frankly, that the only to change Iranian behavior is to engage the Iranian regime. Now, of course, this is unthinkable still in the West, but you asked about China.

Frankly, from China's point of view, the more the West isolates Iran, the more Iran becomes a gift to China. And now that the Americans said, "OK, you can go ahead and buy oil", China is off the hook. And that's happening because it is impossible for America to impose the same sanctions on Chinese banks they can impose on any other banks in the world and that's why China can get away with it. So you're presenting China with a geopolitical gift and China will accept it.

ZAKARIA: All right, we're going to take a short break. When we come back, team up on Kishore Mahbubani's point about the decline of the West. We will talk about Greece, the euro, but, also, we'll ask, as we always do on international shows in American, "Enough about the world, what does the world think of us?" when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Anne Applebaum in London, Dominique Moisi in Paris, Kishore Mahbubani in Singapore and Mark Malloch-Brown, also, in London.

Anne Applebaum, you have written about Greece, about the Greek crisis, that there really is no solution to it, that no matter how you structure the deal, no matter what the rescue operation, Greece is simply bankrupt. Is that right?

APPLEBAUM: Yes, well, I pointed out that Greece's problem is to do with math and the Greek government is bankrupt and the money has to come from somewhere. And, right now, it looks like the money needs to come from Germany. So, therefore, Greece needs to reach an agreement with Germany.

And that's created -- we've already seen it's created all kinds of odd side effects in Greek politics, the emergence of a far-right, a far-left, all kinds of dissatisfaction.

And I don't think -- there was a kind of a sigh of relief recently when the Greeks elected a kind of mainstream government in their recent round of elections, but I don't think the trouble with Greek politics is over yet.

ZAKARIA: Mark Malloch-Brown, will this be solved? Will the Germans essentially agree to bail the Greeks out understanding, as Anne says, this is a very large bill that will never be repaid?

MALLOCH-BROWN: Well, look, I think the whole of this crisis is, you know, it's always one minute to midnight and the Germans come in and do something that buys a bit more time, but unless there's a much more decisive intervention that goes much wider than Europe, the money must be on Anne's I think belief that ultimately Greece is going to fall out of the euro.

It finds itself trapped in, from its point of view, an overvalued currency. It's trapped in an austerity economic program. The combination is it can't grow, it can't export, it faces an economy which is, at best, ticking over. It's an unsustainable longer term situation.

ZAKARIA: Dominique Moisi, what is going to happen in Europe? Francois Hollande wants to try to change that austerity regime, but will he be able to?

At the end of the day, the European countries, as Anne Applebaum says, they do need to borrow money and want the bond market seems to say is you've got to get your fiscal house in order, which means it's very tough to say well, we don't care about that, we're just going to spend our way out of this problem.

MOISI: Well, I would say something as provocative as Kishore. I think it would be premature to bury Europe right now. I think a lot of big investors are hedging their bets between emerging countries and the West.

They are, in a way, saying the virus is in Europe, but the antibodies are probably stronger in the Western world than they are in the emerging countries. So just wait. Europe and the West may be slowly starting to be back, especially if they don't -- are falling under guillotine in the next coming weeks or coming months.

ZAKARIA: Kishore Mahbubani, when you look at this issue and I'm going to broaden it to the United States, do you think -- you know, this is July 4th weekend, do you think that the rest of the world looks at the Obama administration as having restored some of the credibility of the United States?

Do you think that they look upon what is -- you know what is America is doing now is showing a certain degree of leadership whether it's in economic policy, whether it's in geopolitics?

MAHBUBANI: I find it quite frightening that so few Americans are aware and in PPP terms, as Jeff Sachs said in a letter in the "Financial Times," the United States economy is going to become number two in the world in three-and-a-half years from now. Now, the rest of the world is preparing for a new world order, slowly, carefully and Americans are not aware that this is happening.

And here, unfortunately, the thing that's reverting -- that's keeping the rest of the world quite reverted is the fact that Washington is so divided, so polarized at a time when they should be coming together. So everyone's waiting for the elections to be over, then we know we hope something will come out of Washington, D.C.

ZAKARIA: Mark Malloch-Brown, you've spent time, both -- on both sides of the Atlantic. How does the United States look to you this July 4th weekend?

MALLOCH-BROWN: Not too bad, not too bad. I think it gets written off very prematurely. I think the extraordinary change in the energy scenario which will make it energy self-sufficient through the discovery of shale.

Tremendous changes in manufacturing in terms of the contribution of labor costs as against intellectual property and transport costs mean that a certain amount of manufacturing is going home to America. And a fiscal deficit which is so dramatic that the politicians will have to sober up after the election and, one way or the other, address it. So I think those long-time American virtues of flexibility or resilience, don't discount them yet. I think America has another chapter left in it.

ZAKARIA: Dominique Moisi, as a Frenchman from a country legendary for its anti-Americanism, you have a last word.

MOISI: Well, I'm like Mark. I think, by the end of the day, America, to me, looks better than China because its fundamentals are probably righter.

ZAKARIA: Thank you all, fantastic global panel.

Up next, "What in the World." I'll give you one reason why America has a big advantage over China. Right back.

(COMMERCIAL BREAK)

ZAKARIA: Now for our "What in the World" segment. I was pained recently to read the tragic story of China's Feng Jianmei. She was seven months pregnant, but she already had one child so local officials forced her to abort.

The story could have ended there, another loss, another sad story, but Feng's relatives posted graphic images of her fetus on the Internet. The pictures went viral forcing government officials to apologize. The story led to a government-affiliated think tank calling for change.

Writing in the "China Economic Times," it suggested Beijing should switch to a two-child policy. Even a few years ago, it would have taken a very brave Chinese thinker to pose that question in public. Now, there is public discussion about China's one-child policy.

Could it actually change? When the one-child rule was first introduced in 1979, China's leaders were reacting to an unprecedented population boom from 540 million to 960 million people in just under 30 years and this was happening while China was one of the poorest countries in the world with little prospect of economic growth.

With certain exceptions, the policy was meant to restrict married, urban couples to having only one child. Officials sometimes resorted to extreme measures to implement the rules. But do they make sense anymore?

Leaving aside the immoral practice of forced abortions, China is facing a demographic disaster. China is going to get old before it gets rich. Right now, only 8.9 percent of Chinese are over the age of 65. Compare that to the American ratio of about 13 percent.

But come 2050, China's percentage of elderly people will overtake that of America's, rising to 26 percent, which is more than Japan's right now. Look at the median age over time in China. It's gone from 22 in 1980, rising steadily upward to 35 now, roughly the figure for a rich country like America not a developing society like China. But continue the projection until 2050 and the numbers get even more troubling for Beijing. While the U.S. will have a median age of 40, China's will be closer to 50 so half of all Chinese will be over the age of 50.

The implications are immense. China's workforce will shrink. It will no longer be the world's factory. All those older people will need to be supported by their families or by the state and China will likely need to import workers instead of exporting them and China is not exactly an immigrant-friendly society.

Societies with fewer young people become less dynamic, less risk- taking and less adventurous. There's one more thing. China's one- child policy has been especially brutal on women. By one account, there are 123 male children for every 100 females under the age of 4. Imagine what happens when they grow up, too many men, not enough potential spouses.

And, remember, countries with male youth bulges have historically seen civil wars and revolutions. Chinese officials claim the one- child policy has prevented the births of 400 million children. They point to it as one of the reasons why the state has been able to lift millions out of poverty.

That may be so, but the policy is now a burden, not a benefit. The rules have been relaxed in some ways, but no formal reversal is possible until Beijing's next set of leaders assume power next year. Even then, it will take much courage.

This is actually a fascinating real-life example of the problems with centralized authoritarian regimes even when they are as well-run as China's is. When they make good decisions on economic policy, for example, they are rapidly implemented and well-executed.

But the same is true when they make a bad decision or a decision that no longer makes much sense. That seems to be the case with the one-child policy.

We will be back. Up next, the man who is laying claim to Mexico's presidency. We'll talk about the drug war, immigration, the economy and more. Right back.

(COMMERCIAL BREAK)

CANDY CROWLEY, CNN HOST: I'm Candy Crowley in Washington. FAREED ZAKARIA GPS will be back in 90 seconds, but first a check on the top stories. It's another day of extreme heat for much of the U.S. At least 30 deaths are being blamed on triple-digit temperatures. To make matters worse some 300,000 people are without air conditioning because of power outages. Weather forecasters are expecting cooler temperatures over the next couple of days.

Secretary of State Hillary Clinton says Syrian President Bashar al-Assad's days are numbered. At a press conference in Tokyo Clinton cited the growing strength of Syria's opposition forces and high level defections from the Assad regime. Clinton is in the midst of a 13-day trip that includes stops in France, Afghanistan, Egypt and several Asian countries.

Floods have killed at least 150 people in Southern Russia. Heavy rains that began Friday flooded homes while most people were asleep. Survivors were rescued after climbing into trees and on rooftops. Some 12,000 residents have been displaced.

Those are your top stories. "RELIABLE SOURCES" is at the top of the hour, but now back to FAREED ZAKARIA GPS.

ZAKARIA: My next guest is the man who has by all accounts won the presidency of Mexico. Enrique Pena Nieto will take on a number of issues vital to Mexicans, to Americans and to the world. What are his plans? Well Mr. Pena Nieto joins me now from Mexico City. Welcome, sir.

ENRIQUE PENA NIETO, PRESUMPTIVE PRESIDENT-ELECT, MEXICO: (through translator) Fareed, thank you very much for this great opportunity. Greetings to all your audience.

ZAKARIA: We are now in the sixth year of a drug war that President Calderon announced in which 54,000 people have died. Now naturally you campaigned on policy changes, but what I'm struck by, Mr. President-Elect, is the similarities. You say no treaties, no truces, no negotiations with the drug cartels.

You promise to continue to fight them. You've hired the former chair, police chief of Columbia, a country which went for a very long tough strategy. So can we expect to see a continued bloody confrontation with the drug cartels?

NIETO: (through translator) Look, Fareed. What we seek now in our new strategy is to adjust what's been done up 'til now. It's not a radical change. It's to broaden the coverage and above all the emphasis I aspire to of reducing the violence in our country.

ZAKARIA: But there can only be a reduction in violence, Mr. President-Elect, if the cartels also agree to a reduction in violence. If they keep fighting you will simply be unilaterally disarming.

NIETO: (through translator) The -- I'm persuaded that if we achieve the specialization in the work carried out by the various branches of the federal police and the inspector general's office waging war on impunity will allow us to combat crime.

ZAKARIA: Let me as you about the last president of Mexico who came from your party, Ernesto Zedillo. He along with the former president of Brazil, Mr. Cardoso, and many others signed a report a few months ago in which they said the drug war, the war on drugs that takes on militarizing this, using violence, trying to interdict supplies and cartels has clearly failed.

And there is much evidence for this. The price of cocaine is 75 percent lower than it was 30 years ago. There are so many signs that this punitive approach, whether you use the police or whether you use the army, has failed. Shouldn't we be trying something that is more that tackles more of the problem of the demand for drugs rather than the supply of drugs?

NIETO: (through translator) Yes. I do believe that we should open up a new debate regarding how to wage war on drug trafficking. Personally I'm not in favor of legalizing drugs. I'm not persuaded by that as an argument. However, let's open up a new debate, a review in which the U.S. plays a fundamental role in conducting this review.

ZAKARIA: Mr. President-Elect, how do you react to the news that you read about in the United States with American, certain states like Arizona trying to put in place more and more punitive laws that allow the police to check whether or not people are from Mexico or whether they are U.S. citizens, the general atmosphere that you, the rhetoric you hear coming out of some parts of the Republican Party? As President of Mexico, what is your message to Americans about this?

NIETO: (through translator) Clearly it seems to me that these are discriminatory laws that don't recognize the contribution and the value of millions of immigrants, particularly from my country who make enormous contributions to the United States' economic development. It's clear to me that Mexico must facilitate conditions for greater economic development through structural reforms, energy reforms, treasury reform, labor reform in order to generate jobs and greater opportunities in my country so that immigration is a decision and not a necessity for Mexicans.

ZAKARIA: You've spoken about your priorities, Mr. President- Elect. And the key one has been economic growth. You have among the lowest tax takes of any OECD country. In other words very few Mexicans pay taxes, but Mexicans as individuals or as corporations. Will you be able to change that?

NIETO: (through translator) That's another one of the great structural reforms that I have committed to and which I propose to carry out is a treasury reform, which would allow fair taxation, simplified tax code and to broaden the tax base, which would strengthen the country's public finances.

ZAKARIA: Mr. Pena Nieto, a pleasure to have you on.

NIETO: (through translator) I will look forward, Fareed, to our next meeting and I appreciate the great opportunity to have this interview and to reach your audience.

ZAKARIA: Thank you, sir. Up next an issue that is in its very nature divisive, who creates jobs in America, the one percent or the 99 percent? We will have a debate.

(COMMERCIAL BREAK)

ZAKARIA: With the unemployment rate as high as it still is a crucial question that must be answered is who creates jobs? Is it the one percent or middle class consumers? That's at the heart of the debate we're going to have today. I'm now joined by two business leaders.

On my right is Ed Conard. He is the former Bain Capital partner, an unabashed member of the so-called one percent. And he says it is he and his colleagues who are largely responsible for job creation. Nick Hanauer is an entrepreneur and venture capitalist, also a member of the one percent. He says that when business people take credit for creating jobs it's like squirrels taking credit for evolution. So let's start. Ed's got a book out and we've had him on the show before.

NICK HANAUER, ENTREPRENEUR AND VENTURE CAPITALIST: Sure.

ZAKARIA: So you get the first word. Why is it like squirrels taking credit for evolution?

CONARD: Look at the investment was the key. Then there would be Apple stores in Somalia and there would be a Bain Capital office in Bangladesh. The reason -- the thing, the goose that lays the golden egg is not people like Ed and myself. We are a dime a dozen, but the greatest economic achievement of the 20th century has been the creation of the American middle class. It is demand. It is customers that drive all economic activity.

Look. The world is awash in capital. American corporations are sitting on $2 trillion worth of cash. Ed's firm alone has raised $35 billion in private equity. I'm in the venture capital business. You can fund any cacamamie idea. There -- the world is awash, awash.

ED CONARD, FORMER BAIN CAPITAL PARTNER: And maybe that the world is awash in capital.

HANAUER: It is awash in capital. What we lack today are consumers. The only reason any company invests, the only reason any company hires someone is because they believe they're going to have a customer for that. Look. Anyone who's ever run a business knows that a capitalist hires more people only as a course of last resort when there are no options available other than meeting increasing demand from customers.

ZAKARIA: But at some point presumably this logic does apply, which is that if the middle class at the larger if the majority, if the 80, 90 percent have lower and lower incomes the fact that they can't, they don't have much purchasing power will affect demand, will it not?

CONARD: And I think there's two problems with the idea. And first of all we know why there's no Apple store in Thailand, okay, because there isn't a lot of capital per worker. There isn't a lot of training per worker and there isn't a lot of innovation there compared to there is in the U.S. And that has driven incomes way up in the U.S. relative. And that's why we can afford Apple computers and things like that.

So if you don't have the investment in place first of all you don't get the consumption after the fact. Now you can run the math and the assumption of the math is that if you lower the incentives for risk taking, if you lower the investment that goes into risk taking, if you lower the capital, the equity that underwrites the risk taking that you will get the kind of growth in the middle class that the U.S. has been able to achieve. Well we can look at real world experiments out there and we don't find one where that's true.

We have three great real world experiments, the U.S., Europe and Japan, okay? Our median incomes are 25 percent higher than Europe's. Our median incomes have grown relative to Europe's and Japan. We have -- we can spread that though the income over a lot of employees, which we have because we have grown our employment much faster and much greater than they have grown theirs, or we can restrict the supply in labor for example and drive the wages up to a certain extent.

But either way what matters is how much income you've created. And we are creating way more income at the median than Europe and Japan are creating. And that is because innovation is driving our economy so we can say, hey, we'll take away the incentives. We'll take away the equity. We'll take away the investment, but we'll get the growth anyway because God blessed American with entrepreneurial spirit. So....

(CROSSTALK)

HANAUER: Ed and I are in violent agreement that innovation is an extraordinarily important thing. Where we diverge is this idea that we have to lower tax rates to these unbelievably low levels in order to have it. And it is just so this is my world.

And the idea that you have to have a 15 percent capital gains tax rate in order for people to start companies first of all reduces people like me and other entrepreneurs to sociopathic money grubbers who only do what we do for a dollar. And that is categorically untrue. We start companies because we want to change the world, solve a problem, be king of the hill, be our own boss. By this logic Bill Gates and Steve Jobs made a terrible mistake by starting their companies because tax rates were two and a half or three times higher than they are now.

ZAKARIA: Let me ask you what you would change because even if you are arguing this through wouldn't it be fair to say the United States does provide enormous incentives for rich people to invest in taxes, are historically speaking at least are much lower than they were in the 1970s when Microsoft and Apple were founded, marginal tax rates were 75 percent, capital gains tax rates I think were in the 40s. So do you think that tax rates need to be further reduced?

CONARD: I would be very, very careful about reducing the incentives for risk takers and I would be working very hard to lower the spending. And I think there's agreement on the left and the right that we have to substantially reduce the spending over the long run if we want to preserve the growth rates and the benefits that we have been failed provide to for the middle class relative to Europe and Japan if we want to continue that success.

ZAKARIA: You want to invest -- you the spending you're talking about is basically investment in the middle class.

HANAUER: Absolutely. But I just want to address this risk thing for a moment because I find it absurd. If you think about the iconic so-called risk takers in our economy, Bezos, Zuckerberg, Gates, the Google guys, it's so just imagine their lives, right? So the Google guys, and God bless them, they've done a great thing, but they grow up in families where their parents are professors of mathematics and computer science, so far no risk.

They go to Stanford University to get PhDs in computer science. Other than being born in the British Royal Family, no institution on earth more insulates you from risk than a PhD in computer science from Stanford at the best time in human history and the best place in human history to go off to live the dream and start an Internet company in Silicon Valley in the mid 90s, so far no risk.

The money that goes into Google comes from venture capitalists you'd think. Maybe they took a risk, but not really because venture capitalists like private equity people make money whether the deal works or not. The only people who took a risk in this entire chain are the working people whose pension funds the venture capital company invested in Google because if Google goes bankrupt those people will actually lose their money.

There's this idea that we owe the so-called risk takers fealty or special tax treatment is utterly absurd. It's just not true and not fair.

CONARD: You're making a moral argument as opposed to an economic argument. All you really care about is how do you get the risk taking that benefits the middle class at the lowest possible cost.

HANAUER: I would agree with that.

CONARD: Okay, so that. Now Thomas Edison said success is one percent inspiration, 99 percent perspiration. Business is a team sport. It's not about two guys sitting in their dorm room at Stanford, okay? It's about attracting a lot of talent to that company to make that company successful and getting those people to walk away from companies like Microsoft, and Google and all the other companies that they're walking away from. It doesn't matter whether it's moral or not. It's what the economic cost to get those guys to walk away to create the next Google, the next Facebook.

And it's not the after the fact payoff of billions of dollars. It's before the fact when they have a one in a million chance. And they recognize that unless they get a little more equity they have very little chance of producing as much income and wealth as they would have if they just would have stayed at their job at Google and Facebook as opposed to walking away and taking the risk. And we have been able to do it.

And Europe and Japan have been singularly unsuccessful in accomplishing this. Their most talented people go to the beach. Our top 20 percent are the only people in the high wage economies because as you get more money you work less. We're the only place in the high wage economies where people are working more hours, not less hours. And that is beneficial to the middle class and the working poor throughout the world. The U.S. innovation is what is driving the growth rate.

ZAKARIA: Thank you, gentlemen, wonderful debate. And we would have round two in awhile.

HANAUER: Yes. Let's just go with it.

(COMMERCIAL BREAK)

ZAKARIA: China and Europe's central banks both cut their main interest rates this week on the same day. Europe's rate is now three quarters of one percent and the U.S. Fed rate is even lower, one quarter of one percent. So my question for the week is what is China's benchmark interest rate? Is it (a) three quarters of a percent; (b) three percent; (c) six percent; or (d) nine percent? 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. And 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. Go directly there. Type iTune.com/Fareed into your browser.

Instead of one book this week we're going to give you five of our recent choices. Think of it as summer reading. Just don't think of it as homework. These are all fun reads.

The economist, Tim Harford's book "Adapt" offers a new approach to solving problems in your personal life, your career, your business. "Franklin and Winston, an Intimate Portrait of an Epic Friendship" by John Meacham, it's a fascinating book, one of my favorites.

In the campaign season one of the best presidential campaign books ever written was "The Making of the President 1960" by Theodore White. A work of fiction about Iran's nuclear program, and very good fiction at that, check out David Ignatius' "The Increment, " and finally my own book, "The Post-American World: Release 2.0." If you like the show I think you'll like the book.

And now for the Last Look. They say it takes two to tango.

(BEGIN VIDEO CLIP)

But two tanks tangoing, oh and here tanks doing a pirouette and there a jete. It's sort of kind of a tank ballet directed by a choreographer from the Bolshoi Ballet, military hardware and ballet, two of Russia's surviving strengths. This exposition held recently outside Moscow wasn't about art. It was about commerce. Russia was showing off it's military technology, looking to impress potential buyers.

One has to assume President Assad had to decline the invitation, but that's okay because Russia's best customers are not in the Middle East, but rather to the southeast, India, Vietnam, China. Asia is rising and arming up, their defense budgets soaring across the region, and Moscow is benefiting, though not as much as Washington, which is of course the world's biggest arms seller.

(END VIDEO CLIP) The correct answer to our GPS Challenge question was C. China's central bank lowered its main interest rate to six percent this week. Unlike in the United States emerging economies like Brazil, India and China have kept interest rates high. That gives them a secret weapon in their arsenal. They can lower rates if growth continues to slow.

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