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FAREED ZAKARIA GPS

How America Can Consolidate Its Advantage; Panel Discussion on the GOP, Syria, White House Scandals; A Call for Smaller Government in China?

Aired June 2, 2013 - 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.

Today's show marks our fifth anniversary and we have one of our classic GPS panels to start us off; Nick Kristof, David Remnick, Dan Senor and Danielle Pletka will sit down with me to talk about the Obama White House, Syria, Russia and the future of the Republican Party.

Then, is the American economy back? We'll try to understand the new data with Nobel Prize-winning economist, Paul Krugman, and what to make of Krugman versus Rogoff, the great celebrity economist food fight. I'll explain.

Also, a first look inside the Hermit Kingdom. Exclusive video from VICE's trip inside with Dennis Rodman and the Harlem Globe Trotters. What's it like breaking bread with Kim Jong-un? We'll ask the VICE correspondent who went in.

And a long awaited announcement from Beijing, we'll figure out whether it means anything.

But, first, here's my take. The great American housing market is back. The Case-Shiller housing index showed its largest annual increase in prices in seven years.

So, despite dysfunction in Washington, despite the sequester, the American economy, once again, shows its core character: flexibility and resilience.

A housing revival was inevitable at some point. The United States is the only rich country in the world whose population is growing. We add 3 million people to our numbers every year, thanks largely to legal immigration.

That means, over time, we will need new housing unless kids want to live with their parents forever.

Consumer confidence has hit a five-year high and not without reason. Americans have been paying off their debts at a steady clip since the financial crisis.

The U.S. economy is susceptible to bubbles and manias, but it also has the flexibility to adjust. American people and companies change past practices, take pain and prepare for the future.

When you compare American companies since 2007 with, say, Japan's great corporations after that country's crisis and recession, it's clear that U.S. corporations are pretty ruthless in restoring productivity even at the cost of firing people.

And they are nimbler, which means that they often come through a crisis stronger and faster. From automobiles to airlines to energy, companies are posting strong sales and profits.

American banks have been under fire from many quarters. Critics feel they should have been punished or broken up or more tightly regulated.

But if you compare them with their principal competitors in Europe, they are far better capitalized, more secure with stronger balance sheets. As home prices recover, that should create a virtuous cycle between credit and housing that will enhance both stability and growth.

The American private sector, individuals and firms, can take credit for the good news this week. But so can Washington. Looking back, it's now clear that Washington handled the 2008 financial crisis extremely well.

It acted quickly and with massive firepower rescuing overextended banks, enacting a large stimulus, saving, but restructuring two automobile giants.

Perhaps above all, we should thank the Federal Reserve for a bold strategy of flooding the markets with liquidity, lower rates and keep it up while the economy was depressed. Compare that with Europe's response or Japan's, after its crash, and you see the differences.

Many problems remain, chiefly, high and persistent unemployment and stagnant wages. For the next generation of growth, we must focus on training and retraining workers, break the immigration deadlock, build out our infrastructure, invest in science and technology.

And to pay for these, we'll need reforms that will make our entitlement programs affordable as we age. Now, if Washington could just do a few of these things, imagine what the American economy might look like then.

For more on this, go to cnn.com/fareed for a link to my Time Magazine column and let's get started.

It was a tumultuous week in the United States and around the world from White House controversies to GOP problems, from Syria to Russia and more. So, there's lots to talk about with the panel and we will get right to it.

Joining me today are Nicholas Kristof, columnist for the New York Times; the former coalition spokesman in Iraq, Dan Senor, who also helped Paul Ryan with his vice presidential campaign and is now an author and investor. David Remnick, of course, the editor of the New Yorker; and a Vice President at the American Enterprise Institute, Danielle Pletka, who was a long-time staffer at the Senate Foreign Relations Committee.

All right, rate the scandals, David Remnick.

DAVID REMNICK: EDITOR, THE NEW YORKER: Compared to what and what are they? What are these scandals? An IRS scandal in which, clearly, something was clearly being done wrong at a very low level and should be pounced up and taken care of.

The element that concerns me most, and it's not because I am a reporter and editor, I think, but as somebody who cares immensely about the First Amendment, is -- has to do with wire-tapping. It has to do with pressure on and possible prosecution of reports and actions against whistle-blowers. That is extremely serious.

I don't think the IRS matter rises to the level, despite the Republican rhetoric and some commentators' rhetoric, of Iran-Contra or Watergate. I mean that's ridiculous.

ZAKARIA: And we're forgetting about Benghazi. Benghazi, Danielle.

DANIELLE PLETKA, VICE PRESIDENT, AMERICAN ENTERPRISE INSTITUTE: You know, it continues to be the case that the president and the Secretary of State could, at any moment, come out and say look, we didn't handle this well.

We said a lot of things that involved lack of careful investigation. We're going to go back and we're going to fix this. This shouldn't have happened this way. And the public would sort of go, ha, OK, that kind of things happens.

And yet they've relentlessly refused to example themselves, to examine their own rhetoric and to answer the question of why the American people were lied to for more than a week.

So, you know, again, I think for me this is less troubling than the other two issues, but I still think that it is a sign of a White House that is tone-deaf about the concerns that the Congress and American people have about national security questions.

NICHOLAS KRISTOF, COLUMNIST, NEW YORK TIMES: You know, I think it's true that the White House has often been tone-deaf, but every second term has scandals.

And if you compare these with Iran-Contra, with Monica Lewinsky, I mean these just seem pretty miniscule.

I agree with David that the issue of going after whistle-blowers, that really does trouble me, but I also think that is one that troubles journalists much more than it does the American public as a whole.

ZAKARIA: Right. KRISTOF: And ...

ZAKARIA: And the intelligence community is hypersensitive on the issue leaks.

KRISTOF: Yes, absolutely. And so I -- and I do think that we tend to write about and pay a lot of attention to issues that concern us.

If you look at all the challenges facing America, I guess I have a hard time placing it, you know, very high on the agenda.

ZAKARIA: I'm guessing, Dan Senor, you disagree.

DAN SENIOR, FORMER COALITION SPOKESMAN IN IRAQ, ROMNEY/PAUL FORMER FOREIGN POLICY ADVISOR, AUTHOR, INVESTOR: I think the IRS is unique because it touches so many Americans' lives in a really concrete way.

It -- people know that the IRS can ruin people's lives, ruin people's businesses, ruin people's nonprofit organizations.

So I think when you hear these stories, it's not just the IRS going after 501(c)(4) organizations of one ideological bent and not the other, it's that donors to those same organizations, somehow those names got out there so the IRS was going after individual donor.

And, oh by the way, those donors are also being targeted by the EPA and OSHA and other agencies at the exact time. I don't know if it's some grand conspiracy.

You're absolutely right, the Republicans have to be careful not to overshoot here, but there is something going on here that has multiple layers and I do not believe we are near the end of getting to the bottom.

REMNICK: I think they are overshooting a lot, rhetorically and politically because of an absence of a core ideology and core issues that the Republicans can really circle around.

I think when Bob Dole starting talking about the hole in the "doughnut of the Republican Party," he was really getting at something.

ZAKARIA: Let's listen to what Bob Dole said last week on Fox.

(BEGIN VIDEO CLIP)

ROBERT DOLE, FORMER KANSAS SENATOR: You ought to put a sign on the national committee doors that says "Close for Repairs" until New Year's Day next year and spend that time going over ideas and positive agendas.

(END VIDEO CLIP)

ZAKARIA: What did you think about what Dole said? SENOR: I thought he said something that many Republicans feel, both moderate and conservative. In other words, if -- you know, you mentioned Paul Ryan.

So what Paul Ryan did with the Budget Committee over the last couple of years, you can agree with it or you can disagree with it, but he used the Budget Committee to really push an argument about entitlement reform.

Republican leaders on other committees have not done that over the last few years. Republicans have not had an idea-driven agenda about some of these big issues and that's a missed moment. We need that.

But it doesn't mean that we shouldn't also try to get to the bottom of these scandals like they are ...

ZAKARIA: You grew up in Oregon. What was the Oregon Republican Party like when you were growing up?

KRISTOF: You know, I grew up in a very different Oregon. And I grew up in an Oregon that was a Republican state and it was a state of Mark Hatfield, Bob Packwood, Tom McCall.

These were Republicans who were fiscally conservative. They also very much were looking after the environment. Mark Hatfield "Became a Republican," he said, "Because that was the party that cared about civil rights."

You know, nobody would say that kind of thing today and because the Oregon Republican Party tended to move very far to the right on social issues, they marginalized themselves.

And so Oregon today is essentially a blue state. And I wonder if, to some degree, the same thing isn't at risk of happening to the party as a whole nationally.

REMNICK: You could say the same about ...

ZAKARIA: Danielle, what ...

REMNICK: Bush 41 in some ways and you could even say the same about Ronald Reagan reaching his hand out to Mikhail Gorbachev. I wonder how that would go.

ZAKARIA: Danielle, what do you think?

PLETKA: I think that these expressions of (inaudible) if I may be so bold.

(LAUGHTER)

PLETKA: About the Republican Party are a little overstated. I think that everybody's right that a party that is not centered around a set of ideas and principles is a party that will lose. On the other hand, the suggestion that the Republican Party has suddenly moved out the mainstream of American life is a little bit silly to me.

You know, the Republican Party represents small government. It represents free enterprise. It represents a set of ideas and I think it represents something more.

And they walk a fine line and that is accountability. And it is right that the party that controls the House of Representatives demands accountability from the President of the United States.

This is what makes us great. This is what makes us stable. And if you didn't have that ...

ZAKARIA: But ...

PLETKA: Then we would have a White House going after reporters.

ZAKARIA: But the question in this last week making the charge ...

PLETKA: yes.

ZAKARIA: That the Republican Party has moved out of the mainstream is the former Republican presidential candidate, Robert Dole ...

PLETKA: Sure.

ZAKARIA: Who's the guy who was leader of the Senate.

PLETKA: Look, we're all always attuned to (inaudible) within parties.

You know, I like to read -- I like to read people disaffected with the president, people who've left his administration and are not happy, people around Washington who haven't gotten jobs in his administration because they're insufficiently ideological, because they care about international policy, because they want smaller government or lower taxes.

I understand that. I respect Bob Dole and I respectfully disagree with him.

ZAKARIA: All right, we've got to come back and talk about the rest of the world. As usual, as Americans, we ended up -- we're going to talk about Syria, Iran, God knows what else when we come back.

(COMMERCIAL BREAK)

ZAKARIA: And we are back with Nick Kristof, Dan Senor, David Remnick and Daniel Pletka.

All right, let's talk about the rest of the world. Syria, it feels as though nothing is going to happen much until this conference that the Russians and the Americans are organizing.

Do you sense that the Republican Party is unifying behind this idea of intervening in Syria or is it just McCain, Lindsey and a few others?

SENOR: It's McCain, Lindsey and a few others. And I think many -- there's -- Dani and I are on the same side of this, there is a growing strand of isolationist politics on the right, some of it will rear its head in the 2016 presidential primaries.

And I think until that action within the party is assured that some kind of intervention does not involve boots on the ground. It will be hard to see a unified Republican position.

But if they can be assured of that, I think conservatives -- most conservatives in Washington are pretty outraged about what is happening, what has effectively become a proxy war, right?

The U.S. on one side and then, you know, Russia, Syria, the Iranian Revolutionary Guard Corps and Hezbollah on the other side. And they, you know, -- conservatives are increasingly concerned about what the outcome of that looks like.

Either that alliance remains intact and in ascendance and the opposition is crushed or the opposition is not crushed, but that opposition that prevails is one that's populated by al-Qaeda affiliates and other jihads. Those are both petty bad outcomes.

KRISTOF: And it's also true, I think that many on -- Democrats as well are deeply troubled that the president's strategy has been a moral failure and practically has, you know, we've certainly seen the violence spread into Lebanon, creating real risks to Jordan, as well, and to Iraq.

Now, it's not clear that any other strategy would be any better. He may well say that. But I think there's a lot of real discomfort that the administration has been essentially paralyzed and that this isn't working very well.

ZAKARIA: There are a lot of ...

REMNICK: I would love to have the moral satisfaction of a successful intervention, an intervention that worked. And even independent of the disaster of Iraq, I -- please tell me what works here?

The easy answer is the ability to create a safe haven, no-fly zone.

KRISTOF: You know, there's nothing that is going to guarantee ...

REMNICK: What is the strategic ...

ZAKARIA: Danielle, give us (inaudible). PLETKA: Look, the problem here is that we're positing a nonexistent option which is that everything kind of goes back to a situation that we can ignore.

The real issue for the United States is do we get involved on our terms or do we get involved on someone else's terms.

I also worry, desperately, not just about the moral and strategic failure, but about the credibility of the United States of America.

And I don't think it matters whether the president is a Republican or a Democrat. Whoever it might be, when you put something out there, Assad must go, when you put something else out there, these are red lines, the use of chemical weapons.

And then you do nothing and you stand up and you sort of strange CSI, I need the forensics and the chain of custody statement about it, it diminishes your credibility.

Let's say we couldn't give a damn about Syria. What about Iran?

REMNICK: Absolutely, what's the answer then?

PLETKA: Well, for me, the answer is very clear. The answer is that we work with the Turks, we work with the Arabs, we work with NATO, our allies in Western Europe and we put in place -- first of all, we take Syria's air power up.

Next step, we create a no-fly zone. That's an escalation. We don't even have to do that to make a difference. We also arm the rebels. The truth is that there is a small pocket of moderates. Yes, they're not perfect. They're not perfect, but we work with what we have.

REMNICK: The word is "small."

ZAKARIA: And so ...

PLETKA: It's true, but they're being left out.

ZAKARIA: So, Danielle, even if that happened and you were to achieve enormous success, which would be the overthrow of the regime. This is the regime with the 300,000 army strong. but let's say you achieve that.

PLETKA: Yes.

ZAKARIA: Then you have phase 2, which is the massacre of the Alawites, the 14 percent of Syria that has ruled and that will be a bloodbath. And, then, there will be the infighting among the rebels.

Now, we had 180,00 troops in Iraq, as you well remember, Dan.

SENOR: Yes.

ZAKARIA: And we couldn't stop al-Qaeda from establishing a huge base, we couldn't stop the Saudis and the Qataris from funding one side, the Iranians from arming the other side.

And here we're going to do it by what? What Jon Stewart calls, "We're going to affect by remote-control freedom magic."

SENOR: Two things: One, if you believe that Assad is ultimately going to fall, do you believe the likelihood of the bloodletting directed at the Alawites is going to worse or less worse than if we intervene in some way sooner.

I think, I mean, my experience in Iraq was the longer we let these vendettas and grievances play out in this, you know, sort of low-level civil war, the bloodletting was far fierce, reconciliation was far more difficult.

Secondly, as a -- we should deeply consider the lessons of Iraq as we contemplate Syria.

ZAKARIA: We should.

SENOR: Absolutely do that. I do worry that ...

REMNICK: Including invasion in the first place.

SENOR: Everything. We should consider everything about -- everything that went right and went wrong in the Iraq model.

But we also have to consider the risks of doing nothing. And I feel that there has not been a real discussion in Washington about what -- we all know what can go wrong if we intervene. What goes wrong if we don't intervene?

(CROSSTALK)

ZAKARIA: Ok, I got to close. Nick, you get the final word.

KRISTOF: OK, Fareed, I think you're right that if we intervene, we may end up with Syria turning into Somalia. But the point is that right now Syria is already turning into Somalia. That's 100 percent the avenue we're on right now.

ZAKARIA: Yes, but we won't be in the middle of it and we won't own it.

KRISTOF: No, but we're not going to be in the middle of it in any case, but we may be able to reduce that chance from 100 percent to 60 percent and that would be success.

ZAKARIA: All right, the 60 percent solution.

Nick Kristof, Danielle Pletka, David Remnick, Dan Senor, thank you very much.

Up next, What in the World. An unusual, bold call for smaller government, it's not from the Tea Party, but the Communist Party. I'll explain when we come back.

(COMMERCIAL BREAK)

ZAKARIA: Now, for our What in the World Segment. There is a powerful new voice calling for smaller and more market-friendly government.

If you think it's the second coming of the Tea Party, you'd be wrong. In fact, this call doesn't come from America at all. It comes from halfway around the world from the Communist Party of China.

Last week, China's Premier Li Keqiang made an unusually bold speech, rare for a Chinese leader. He said his government would, "Loosen control of the economy and allow free market forces to blossom."

A few days later, he made another speech, this time in Berlin, Li backed an ambitious set of specific proposals which included giving foreign companies the chance to compete on equal terms in China.

This in a country where the state controls and manipulates almost every major industry; finance, transport, energy, communication. Li's comments may sound radical, but they're part of a trend.

For many months now, the two most powerful people in Beijing, Li and the president, Xi Jinping, have said that the state's command systems need an overhaul.

In fact, this is criticism of their predecessors, Wen Jiabao and Hu Jintao, whose 10 years in office were marked by passivity and a lack of courage to reform.

Corruption flourished under their watch. China is ranked as the 80th most corrupt country in the world by Transparency International. State controls, nepotism and a culture of bribery made it difficult to do business.

The World Bank ranked China 91st in the world behind the likes of Azerbaijan and the Kyrgyz Republic.

China has had remarkable growth, but the buildup of these conditions is beginning to show. Foreign investment is declining, trade with Europe and the United State is slowing.

According a recent survey, more than a third of U.S. companies in China say they their business there is hindered by state favoritism for Chinese companies.

The same survey also reveals that the two biggest perceived risks in China are an economic slowdown and rising labor costs.

In short, there is a strong case to be made for a round of serious reforms in China. The question is will any of it actually happen. Economic reforms everywhere are politically difficult.

Beijing's leaders realize that reforms are necessary to boost long-term growth, but some of them will actually address public discontent on issues like corruption. But, on the other hand, many reforms will face resistance from political elites that run state-owned enterprises and local governments that make deals with developers.

So, how Beijing navigates these waters will be fascinating to watch. Maybe next week when Xi Jinping meets President Obama in California, we will learn some more.

Keep one thing in mind though, China's new leaders want growth, modernity and all that good stuff, but they don't want to become a Western-style, liberal democracy.

Last January, when Xi Jinping went on a speaking tour of the country, he claimed that his reforms, "Do not equal Westernization. "One reason why the Soviet Union collapsed," said Xi, "was because it waivered on its beliefs."

So China wants to refine and reform its state capitalist model and maintain its political Leninist model.

But if it's reforms are actually implemented, they will create larger and larger groups of Chinese who think of themselves as middle class, do not owe their livelihood to the government and seeker greater individual autonomy and freedom. Eventually, that tends to produce political change.

Up next, the Nobel Prize-winning economist, Paul Krugman, joins me. Good news about the American economy? We'll ask him.

(COMMERCIAL BREAK)

CROWLEY: I'm Candy Crowley in Washington. We're just now learning three storm chasers were killed by Friday's tornado. Tim Samaras, his son Paul and their TWISTEX team member Carl Young, all died while chasing a twister in Oklahoma Friday. They were among nine people killed by that storm. More on this story on "Reliable Sources" at the top of the hour.

In Iraq, government troops raided a suspected terror cell that was believed to have been making chemical compounds for sarin, mustard and nerve gas. The raid occurred after a three months of surveillance by military intelligence forces. Iraq's defense ministry says one member of the alleged cell confessed that the group was planning to use chemical agents in Iraq and other countries.

Mitt Romney is jumping back into politics, he's not running for office, but plans to try to help shape national priorities. The former Republican presidential nominee will start by hosting a three- day summit with about 200 supporters in Utah later this week.

Tomorrow is Monday, that means we'll be watching for the Supreme Court to hand down some major legal rulings. The justices have until June 24th to release opinions on 30 cases. The most anticipated decisions are expected to involve same-sex marriage, affirmative action and the future of the Voting Rights Act.

Those are your top stories. Now back to "Fareed Zakaria, GPS."

ZAKARIA: If you caught the top of the show, you heard my thoughts on the American economy that seems to be bouncing back and if you tuned in late, you can look at it on our Web site. But I wanted to get another perspective from someone who has been worried about the effects of austerity, the rise in payroll taxes, the cuts mandated by the sequester and it was a deep understanding of economics from the United States to Europe to Japan. That is why I invited Paul Krugman to join me. He is, of course, the columnist for "The New York Times," a Princeton professor and a Nobel laureate in economics. Welcome again, Paul.

PAUL KRUGMAN, COLUMNIST, THE NEW YORK TIMES: Hi, there.

ZAKARIA: So, if -- if the sequester was so bad, if the expiration of the payroll tax cuts were so bad, you know, many people like you worried a great deal about the sequester, about raising taxes and, yet, the new data seems to suggest the economy is doing pretty well.

KRUGMAN: You know, this is, you always have to have some perspective here. I mean we still -- what we when we look at payroll data, you know, we get all excited over the kinds of numbers we have been seeing recently and we forget that during the -- you know, during those eight years when Bill Clinton was president and U.S. economy added 236,000 jobs in an average month and we've had hardly any months that look as good as an average month during the '90s. So, let's not get carried away. This is not too bad. But, really, we have defined a good economy way, way down.

ZAKARIA: So, when you -- when you look at this and you say, you know, the U.S. economy for the next few months. Do you think that we've now kind of digested the sequester and the payroll tax so it should take off even more strongly?

KRUGMAN: We don't know that. And this is really, and this is, I have to say, it's terribly important that somebody gets these things right, but it is kind of witchcraft. It's -- we don't know whether households are going to look at a certain point and say, gee, you know, I hadn't really noticed that payroll tax hike, but to your bank account is dwindling and they pulled back some. So, we don't know whether some of these things, some of the cuts from the sequester have yet to happen. There is some other good news that people aren't talking about, which is actually a positive. State and local governments have finally many of them have stabilized their finances. You know, California has a significant budget surplus and that means that one of the big drags, which is the cuts at the state and local level is over. So that's a positive. So, this could go either way. But I guess what I would say, is we're still deep in a hole and we need a lot of climb before I'm willing to call this anything like prosperity.

ZAKARIA: All right, I have to ask you about this because if this is the spat between two celebrity economists. Rogoff -- Ken Rogoff and Carmen Reinhart, as say, of, you know, which talked about the tipping point at 90 percent debt to GDP, which -- at which countries start growing much, much more slowly. I want to first ask you, they wrote a letter back because you've criticized them ...

KRUGMAN: Right.

ZAKARIA: For feeding this austerity mania which has caused governments to slash spending and they say you have engaged in "... spectacularly uncivil behavior in the past weeks. You have attacked us in very personal terms, virtually nonstop. You have doubled down, your characterization of our work is selective and shallow. It is deeply misleading. Now, Ken Rogoff and you were a graduate student in MIT together?

KRUGMAN: And we actually -- all of us were graduate students in MIT together, almost everybody you've heard of. It's a village. It's kind of scary.

ZAKARIA: So, what does it feel like to be ...

KRUGMAN: It's very unpleasant. Because Ken is a magnificent economist. He's done fabulous work over the years. And then this one paper, which was thrown out hastily, unfortunately, is the one that has had the greatest impact on policy debate. And, you know, never mind the question. Did they make the data available? Well, other people, not in a way, that's all irrelevant. The fact of the matter is this one result, claimed result which is that growth falls off a cliff when debt exceeds 90 percent of GDP. That's what the world picked up and that result is false. That result is clearly not true. There is a mild, negative correlation between debt and growth, but that cliff doesn't exist. Never existed in the data, certainly isn't anything anyone should believe now.

That paper of theirs did a lot of damage by giving people who didn't want stimulus, who didn't want any kind of (inaudible) policy a way to scare their opponents to say, if we don't do it my way, we'll go over the 90 percent line and terrible things will happen. And my problem now with Carmen and Ken is that while they have said a lot of things that indicate more flexibility, they have never, to my knowledge said clearly, OK, there is no cliff at 90 percent. And we really need that from them. From them to say, look, we think debt is dangerous. We think it is a problem. But 90 percent, that thing that was the artifact of some things in our original calculation that do not appear in subsequent work.

ZAKARIA: Are you surprised how personal this has gotten?

KRUGMAN: You know, the stakes are high. I mean -- I guess from my point of view, they went pretty far out on a limb with work, which is far weaker than everything else in their careers. And unfortunately, that became really, you know, that became what they are known for and then if you said, well, this is really bad work and has had a deleterious effect on policy, which I believe to be the truth, how can it not be personal? You know -- and let me say it, by the way, who cares? Right. I mean who cares about my feelings or Carmen Reinhart's feelings or Ken Rogoff's feelings. We are having a global economic crisis, which is not over, which we have handled abysmally. We have massive long-term unemployment in the United States. We have massive youth unemployment in Southern Europe. I don't think that, you know -- I don't think the question of how civil a bunch of comfortable academic economists who went to MIT in the mid-1970s -- in the mid 1970s -- I don't think that matters at all. Compared to the question of the substantive issues and are we doing this wrong, which I think we are.

ZAKARIA: Paul Krugman, thanks for coming on.

KRUGMAN: Thank you.

ZAKARIA: Up next, a fascinating fly on the wall look inside North Korea. Vice TV was there in February and we have exclusive footage. Right back.

(COMMERCIAL BREAK)

ZAKARIA: There's probably no weirder country in the world than North Korea. With which, of course, the United States has no formal relations. But last February, a delegation of American sportsmen went to the hermit kingdom on a sports exchange program. They dubbed it basketball diplomacy. You probably remember when basketball bad boy Dennis Rodman returned from Pyongyang with the news that North Korea's Kim Jong-un wanted Obama to call him and just wanted to be loved. Well, the whole trip was organized by VICE TV. I'm a consultant on VICE's HBO show and looking at some of the footage, I was struck by a number of moments. Here's one of my favorites.

(BEGIN VIDEOTAPE)

RYAN DUFFY, CORRESPONDENT, VICE: Next, they took us to a computer lab where students were using the Internet and your first thought is, OK, this looks like any lab at a university back home, but then it dawns on you, that it's completely silent. No one is doing anything. There is no typing, no mouse clicking, nothing.

ZAKARIA: VICE's North Korea episode will air on June 14th on HBO and we've got an exclusive preview of their work. Ryan Duffy is the correspondent you just saw and Shane Smith is the co-founder of VICE. We're joined by both.

Welcome, Shane, Ryan.

SHANE SMITH: Thank you.

ZAKARIA: Shane, what has always interested you in North Korea? I remember seeing stuff on your Web site years ago.

SMITH: Well, I think it's the Holy Grail because it's impossible to get in. Everybody wants to get in because you can't. Especially as a journalist or with the film crew. You just can't get into North Korea and you can't film anything. And if you do against all odds get in, then you see the exact same thing that everybody sees. They have the exact same tour. So, we wanted to see something that nobody had seen.

ZAKARIA: So, you get there. What is your first impression when you're there? DUFFY: Well, it's kind of shock and awe because we stepped off the plane and it was just kind of in a media blitz because we were with the globetrotters and we were with Dennis and there was kind of news of our arrival. So, we landed and are barely oriented by the time. It's a blitz of, you know, photographers and reporters, but, more importantly, minders, who became a constant throughout our trip. So, there are about 15 to 20 minders, guards, translators, others who are kind of with you the whole time. So they are immediately there as you step off, ushering you into the buses which became kind of our throughway for the rest of the trip.

ZAKARIA: I was struck by the opening shot in the documentary where it's the basketball stadium and there are few people who stand up and start cheering because they figure out that Kim Jong-un is coming and the others don't, because they think why is this -- and then they realize what is happening and they jump to their feet because they're scared that they're going to be seen as insufficiently enthusiastic about the dear leader.

DUFFY: It's an amazing scene, and what I do is, I have obviously seen this a number of times. Where I can get it. I pick a different person to watch each time I watch that scene because it is amazing. Everyone's reaction, which is -- which isn't -- oh, look at that. There is -- here we go. Oh, that guy is clapping. Something's happening. Let's clap, let's clap. Let's clap. There it is. OK, that's what I'm clapping for. You know, it's a completely out of order human process. But yeah, it's fascinating.

ZAKARIA: What did you think of the people you met? I mean mostly they're -- I mean they are all officials, minders, guards. But to the extent you could get a feel.

DUFFY: So, on the tour, every stop is kind of well stocked, right? Like we went to North Korean Sea World and they had all the attendees there and smiling and waiting, at the game all 10,000 seats were filled. Exactly one by one. But we had these moments and this is really what we are after of -- breakthrough and real conversation. So, there is a lunch with the North Korean basketball players, which is a fantastic chance to just sit down just like this, and then talk about their day to day lives.

ZAKARIA: And what were they saying?

DUFFY: They were -- it's interesting. They were very cordial and very kind and spoke highly of the leader and of North Korea, but they were also really happy to see us. They really were. They were optimistic about what the trip meant. Even more so than I think we were. We were there to make a documentary and they were saying, look, this is big. This opens up, you know, a lot of opportunity for us. And then, of course, you know, the moment on the basketball court at the end of the episode with the kids. And that's where it really hits home, because those are kids. They're five, six-year-old kids and that's the same face I would have made if a Harlem Globetrotter was spinning a ball on my hand at that age. And you just realize at that point, that's -- that's just human to human connection, and that's independent of larger ideological conflicts and the like ... ZAKARIA: And you choked up at that point?

DUFFY: It was -- it got a little dusty. Yes. It was -- you know, we had just been there at that point for six, seven days and you're in a very unique head space where, you know, you're going along this tour, but you're constantly mindful of the larger context of this trip and where you are and, you know, all of that. So, we had been asking, can we please have this moment, can we stop at a basketball court, can we bring the Globetrotters out and have some fun with the kids, five, six days of no, we have got to go, we've got to go and next stop. Finally get it and then just to see that and, you know, the kids really were so happy and they, you know, they've never seen foreigners before, let alone gigantic basketball players who could do these tricks and it was just an amazing moment.

ZAKARIA: A lot of people would wonder, do you think you gave the regime something by going there? Of course, it's a completely scripted trip. You know, that's not how you would -- you'd report if you went to almost any other country in the world. Did you in some way play into the regime's hands?

SMITH: Yeah, I don't think so. You know, look, within North Korea, 100 percent of media is propaganda. The TV, the papers, it's all, you know, the glorious leader, the great marshal. You know, this is what is happening, we're the greatest country, you know, America's terrible. So, in North Korea, I don't think so. Outside of North Korea, it was sort of looked at as, oh, VICE and Dennis Rodman went to North Korea. That's a crazy story or that's absurd. I don't think that that was any propaganda coup for North Korea. I think it would probably be the opposite and I think if you watch our documentary what they were doing was trying to answer criticisms against North Korea by being crazy.

(LAUGHTER)

SMITH: And, so, no, we are not -- you know, we have the Internet.

ZAKARIA: Yeah. Yeah.

SMITH: You know, we have food. We have all these things.

ZAKARIA: What did you think of Dennis Rodman's attempt to add diplomacy after he came back?

SMITH: You know, I think that he's, you know, he's a, we know -- he's kind of an absurd character. You know, he's been on "The Surreal Life," he's been on "Celebrity Rehab." We didn't send him over there to be a diplomat, we sent him over there to play a basketball game. And he's a very good basketball player. And so, actually, trying to levee, you know, political questions or economic questions or, you know, it's kind of a cheap shot, I think. Because he just went over there to play a game.

ZAKARIA: Ryan, Shane, pleasure to have you guys on.

SMITH: Thank you very much.

DUFFY: Thank you.

ZAKARIA: Up next, GPS' favorite pastime. Global rankings. Which is the safest country in the world? And which one has the best education? We have the answers.

(COMMERCIAL BREAK)

ZAKARIA: This weekend marks "GPS'" fifth anniversary on the air. Today is also the anniversary of an actual historical event. It is the 60th anniversary of Queen Elizabeth II coronation in Westminster Abbey on Jjune 2nd, 1953. Hers was the most recent of 38 coronations to have been held in Westminster and that brings me to my question this week.

Who was the first monarch to be crowned in Westminster Abbey? Was it, "A" William the Conqueror, "B" Richard the Lionheart, "C" Henry VIII or D Elizabeth I. Stay tuned and we'll tell you the correct answer.

Go to cnn.com/fareed for more of the "GPS Challenge" and a special look back at five years of GPS. Many of you have asked what I'm drinking in this mug. To find out, go to our Web site. And make sure to follow us on Twitter and Facebook. This week's book of the week is "Strange Stones" by Peter Hessler. Have you ever thought you really should spend some time in China to understand the world's next great power? Well, here is the quick root: read this book. "The New Yorker" correspondent takes you inside the lives and world of the Chinese people in a way that few outsiders have ever been able to. This is long-formed journalism at its finest.

And now, for the last look. What is the world's happiest country? It's the land down under, Australia for the third year in a row. That's according to the OECD's report on the best developed country to live in. What makes it happy? Well, the nation's economy is in good shape, employment is good, life expectancy is high, the air is relatively clean. So, should we all up and move to Australia or down and move to Australia? Maybe not. What I found interesting is that Australia only does best if you measure all the factors in the study equally. But take a look what happens if you prioritize different factors. For safety, Japan ranks highest. In terms of overall life satisfaction, Switzerland is first. If you want the best education, go to Finland. If you prioritize the environment, Sweden would be your choice. But if you are looking to maximize income, the U.S. far outranks the rest. So, the question is, what makes you happy?

The correct answer to our "GPS Challenge" question was A, William the Conqueror, also known as William I. Marched to London after his victory at the battle of Hastings in 1066 and he chose Westminster Abbey for his crowning on Christmas Day of that year. All coronations since have taken place at the abbey, the building we see today having been constructed over centuries. The famous coronation chair, however, wasn't constructed until the 14th century under King Edward I. And I thought my chair was old. Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."