Watch this broadcast on Video: Part 1, Green Room (not transcribed)

SYNOPSIS:

JONATHAN MANN (YOUTUBE VIDEO): Hey, Paul Krugman, where the hell are you man? Because we need you on the front lines not just writing for "The New York Times." I'd feel better if you were calling some shots instead of writing your blog and probably thinking a lot. I mean don't you have some influence? Why aren't you secretary of the treasury? For god's sakes, man, you won the Nobel Prize

GEORGE STEPHANOPOULOS (ABC NEWS): 144,000 hits on YouTube, Jonathan Mann. Our own Paul Krugman is here today. You don't have to hang your head in shame. That was a great song.

PAUL KRUGMAN (ABC NEWS): All I can say is blah, blah, blah.

GEORGE STEPHANOPOULOS (ABC NEWS): Blah, blah, blah. Not only that, the cover of "Newsweek" today. Obama is wrong. The loyal opposition of Paul Krugman. Of course, we talked to Secretary Geithner about it. Let me bring in the rest of the roundtable here, George Will, Matthew Dowd, of course, Paul Krugman and Cokie Roberts, as always. And I do want to get you to respond on the bank plan. But let's begin generally, more generally, George, with the economy and where I began with Secretary Geithner. A lot of good economic signs this week. The secretary said we are going to emerge from this eventually stronger, but we're not out of the woods.

GEORGE WILL (ABC NEWS): Eventually has a date on it, however, because their budget, which is their narrative of the coming future, says that beginning in 1910 and for four years we will have 4% economic growth which is above the post Second World War average. So he's not only saying we're gonna come out of it eventually. He's saying when and how fast and how far.

GEORGE STEPHANOPOULOS (ABC NEWS): He also said, Paul Krugman, that he was surprised by some of the numbers this week. Were you?

PAUL KRUGMAN (ABC NEWS): That was a little bit of a term of art, right? There's all - you're always surprised by the numbers. They're never quite what you expect and the, and the surprises have been on the upside and - but, you know, the, the nature of them is it's not that things are getting better. It's that things are getting worse more slowly maybe. So there's a, there's a - you know, there's a hint that this thing might actually bottom out, but it's - so far I mean the unemployment rate is still gonna go up. We're probably going to lose another 600,000 jobs for each of the next several months, so, you know, it's a very modest form of good news.

GEORGE STEPHANOPOULOS (ABC NEWS): And, and Cokie, that really is the problem. Even if things are starting to get better for several months for most Americans they're going to be seeing more job losses, high unemployment.

COKIE ROBERTS (ABC NEWS): Absolutely, but, but if they see something getting better, that will help, and it will certainly help members of Congress. So if, if, in fact, as the secretary said, some small businesses start to feel like they're getting loans, if people are able to buy houses, if people feel like there's some hope in the economy instead of money in the mattress, I think that that makes a huge difference in terms of how Congress responds to all of these things that are still likely to come down the pipe because you heard that from the secretary that...

GEORGE STEPHANOPOULOS (ABC NEWS): Well that's one of the things that surprised me I'd have to say.

MATTHEW DOWD (ABC NEWS): And, and one of the interesting things, I think, is the faster he works and the more programs he puts in place quicker the more he owns this economy.

COKIE ROBERTS (ABC NEWS): Right.

MATTHEW DOWD (ABC NEWS): It's not as if, okay, this and Bush did this. He, he has less and less opportunity as he does more and more quicker to say that this is not my economy. I think - I thought it was going to be June or July by the time he owned the economy. I think it's either right now or it's April that he owns this economy and that's a problem.

GEORGE STEPHANOPOULOS (ABC NEWS): But what's the difference in having two months? I mean he was going to own it eventually anyway.

MATTHEW DOWD (ABC NEWS): Well I think the difference is, is I think now it's through - now people look at this through a prism of he's fixing his own economy as opposed to he's fixing a problem that developed in the past.

COKIE ROBERTS (ABC NEWS): I don't think that's true yet.

PAUL KRUGMAN (ABC NEWS): Yeah, but he was gonna own it by November, by November 2010 anyway.

COKIE ROBERTS (ABC NEWS): Well, that's, that's...

PAUL KRUGMAN (ABC NEWS): So the, the point is in terms of the electoral calendar he's gonna own it by the time the next elections come around. So he's got to do whatever he can do.

GEORGE STEPHANOPOULOS (ABC NEWS): You know, that is true but let me bring the question to you, George. Ronald Reagan ran against Jimmy Carter's economy for years, I mean, probably and, and...

COKIE ROBERTS (ABC NEWS): He ran for re-election against Washington.

GEORGE STEPHANOPOULOS (ABC NEWS): Against Washington. Although it did not help him or his party survive the recession of '81 and '82.

GEORGE WILL (ABC NEWS): In 1964 I asked a Pittsburgh steelworker why we wouldn't vote for Goldwater. He said, I don't like Hoover. I mean Hoover served this purpose for a very long time.

COKIE ROBERTS (ABC NEWS): He still is.

GEORGE WILL (ABC NEWS): And Carter served it - indeed, and I think George W Bush will for a while. I think that there will be perhaps more tolerance and latitude for Obama in the public mind than I think you're suggesting.

GEORGE STEPHANOPOULOS (ABC NEWS): And, Paul Krugman, let's go to the bank plan because as, as I showed Secretary Geithner, you have been very, very critical. He said today, and this is a, this is a direct answer to you, that actually this government has been more aggressive than even Sweden, which a lot of people have said could be some kind of a model for temporarily coming in and taking over the worst banks.

PAUL KRUGMAN (ABC NEWS): Yeah. Of course it's not actually - they've done some things very fast but they've been fairly small things. This is, you know, you had that little argument with him about how much money there is but at most there's $100 billion, and we've got probably $2 trillion of bank losses. So there's no way this could be enough. And there's this funny line you get from people in the administration. He did it in an extended version, which is this is just one piece of a larger plan besides which there's nothing else we can do and, you know, he, he did it, you know, sort of about three minutes apart but typically it's in the same sentence. So there really are - I mean, this looks a whole lot like what the Japanese did with their convoy system for supporting banks during the '90s. It's, you know, it might possibly do some good. It might lose taxpayers a lot of money. It's not the worst thing in the world but it's not an answer. And my general reaction on all this, we owe, we owe the Japanese an apology. We're doing the same thing.

GEORGE STEPHANOPOULOS (ABC NEWS): And I wonder was he actually saying it's not the full answer as well? Because he was even saying even if this works, make no mistake about it, we're going to be coming back and having more to put more money...

COKIE ROBERTS (ABC NEWS): Well because he said over and over - the, the, the take-home, as you say, from these things where- from his interview with you was the big lesson is government being shy rather than aggressive. That was the lesson from the Depression. That was the lesson from Japan. That's what we have to do is to be aggressive and not, not flinch.

GEORGE STEPHANOPOULOS (ABC NEWS): But Paul's talking about he's not being aggressive enough.

PAUL KRUGMAN (ABC NEWS): Well that's just crazy - it's that a lot of us is that the rhetoric is exactly right. Don't be like the Japanese, move aggressively but the policy, you know, I want to close...

COKIE ROBERTS (ABC NEWS): But part, part of his problem with the policy is that he's got both the Congress and the public that is furious with the banks and so - and he knows that. He says, you know, look, we're not doing something popular here shoring up the banks but on the other hand, he says the banks are nervous about doing business with the government because they're afraid the government will come in after the fact and change the rules.

GEORGE STEPHANOPOULOS (ABC NEWS): And, and I wonder if that's the strategy...

MATTHEW DOWD (ABC NEWS): The - I think the political problem is, is only thing people really know out of America about what is going on, they see all these billions and billions of dollars getting spent.

GEORGE STEPHANOPOULOS (ABC NEWS): Trillions.

MATTHEW DOWD (ABC NEWS): And then they hear, they hear about bonuses and they hear...

COKIE ROBERTS (ABC NEWS): Right.

MATTHEW DOWD (ABC NEWS): ... about private jets and they hear about - and so they have no sense like, okay, what's the success in this? Tell us the interesting success story. All we hear about is all the bad stuff and billions of dollars are getting spent on it.

GEORGE STEPHANOPOULOS (ABC NEWS): But, but at the same time, if this ends up working, if we do come out of it more quickly, a lot of that anger will recede.

MATTHEW DOWD (ABC NEWS): Yeah, obviously if this thing, if this thing is successful, if it works and it's successful although I don't necessarily think it may be a cause and effect that it's successful because of it.

GEORGE STEPHANOPOULOS (ABC NEWS): But that never matters.

COKIE ROBERTS (ABC NEWS): You just get lucky. But it's also true the President is about to go to Europe and there are a lot of pressures coming from there, as well. So that you have, you have a political situation here that says don't regulate anymore with the Republicans getting all over that and the, the G-20 saying, wait a minute, part of the problem here is a lack of regulation, particularly of these sophisticated financial institutions.

GEORGE STEPHANOPOULOS (ABC NEWS): That, that's true. And a lot of Republicans did jump on, on the secretary this week for his regulatory plans. On the other hand, George, he seemed to get a pretty welcoming - a much more welcoming reception on Capitol Hill this week with those financial plans than he did when he was talking about AIG.

COKIE ROBERTS (ABC NEWS): Because the market went up.

GEORGE WILL (ABC NEWS): Yeah, it helped that the bottom of the screen you were seeing the Dow go up while this was going on.

COKIE ROBERTS (ABC NEWS): Success.

GEORGE WILL (ABC NEWS): Look, in politics, politics is governed by the post hawk propter hawk fallacy. The rooster crows, the sun rises, therefore the crowing of the rooster caused the sun to rise and that will be the case if this works. The Obama administration made a huge wager and its whole budget depends upon, again, this working fast. Toward the end of this year.

PAUL KRUGMAN (ABC NEWS): By the way, George, I disagree actually. The, the big issue in the budget is not whether it works in the next year or two. The big issue is what it looks like five years, seven years out. Even if it works...

GEORGE STEPHANOPOULOS (ABC NEWS): On the budget, yeah.

PAUL KRUGMAN (ABC NEWS): Even if it works we're going to be looking at a $1.8 trillion deficit in the near term. Even if it works we're gonna be looking at huge red ink. So I don't think it's such a budgetary issue.

COKIE ROBERTS (ABC NEWS): Let me ask, we're talking about the budget like it's real. I mean, come on. We've all covered Congress forever. Budgets come. Budgets get up there and then Congress works its will and the appropriations committee appropriates.

GEORGE WILL (ABC NEWS): What happen - well even if they didn't do any of that stuff, the, the - what happened was, Mr Obama presents his budget, the CBO says you've underestimated over a ten-year span the deficits by $2.3 trillion, so the question becomes whose ten-year forecast is right? The answer is obviously nobody's.

COKIE ROBERTS (ABC NEWS): So then they go look at the ten- year forecast. And their answer to that is forget ten years.

GEORGE STEPHANOPOULOS (ABC NEWS): And you're obviously, you're obviously right about the budget itself but this is setting the direction for the country and it does - there is a huge debate right now on the one hand, you do have these massive deficits that we're - that are building up over the next ten years. On the other hand, you have the President and his team saying, unless we make these investments in education, in the environment and health care, we're not going to get the growth we need to bring the deficits down. It's clear, Paul, which decision the administration has made. How long can they get away with it, though and how much of a problem is this debt and deficit going to become for them?

PAUL KRUGMAN (ABC NEWS): Well, you know, advanced countries with stable governments can run up a lot of debt and still be forgiven by the markets. Belgium had a debt of 120% of GDP at one point in the '90s and there was no run on the Belgium franc. You know, they - we had a debt of over 100% of GDP. We're coming into this with...

GEORGE STEPHANOPOULOS (ABC NEWS): When?

PAUL KRUGMAN (ABC NEWS): Well, at the end of World War II. But, you know, but we did, right? The point is that if, if the markets think that we are, in fact, a stable, advanced country, then we can go a long ways here. We can run up another 40%, 50% of GDP, $5 trillion, $6 trillion, $7 trillion of deficit as long as the markets see us as stable.

GEORGE STEPHANOPOULOS (ABC NEWS): But it sounds like you're saying as long as China...

PAUL KRUGMAN (ABC NEWS): No, no, that's not true. That's not right.

GEORGE STEPHANOPOULOS (ABC NEWS): No? No?

PAUL KRUGMAN (ABC NEWS): It's not - the Chinese that the margin are not financing any of this. This is the - where the money is coming from is this is coming from American savers and we are now becoming savers again who are piling up all of the saving that American business either can't or won't invest. That's really where the money is coming from.

MATTHEW DOWD (ABC NEWS): Well, I think the, I think the problem is, I think is he, he wants to push the social programs, education, health care, all of these things in need, when...

GEORGE STEPHANOPOULOS (ABC NEWS): He would argue they're economic programs.

MATTHEW DOWD (ABC NEWS): Well, but when the people out there don't believe government has credibility or has lost trust and people forget that FDR, one of the first things he did in office was cut the federal budget by 31% after he solved the banking or tried to solve the banking, he cut the federal budget by 31%.

GEORGE STEPHANOPOULOS (ABC NEWS): Well, Secretary Geithner didn't forget. He says that was a mistake.

MATTHEW DOWD (ABC NEWS): Yeah. Well, no, he actually - things improved until after the 1936 elections. But what - FDR's thought is before I do all these program, I have to demonstrate to the American people that I'm going to be fiscally responsible, government can be responsive and not have the deficits that Hoover had.

GEORGE WILL (ABC NEWS): Before FDR cut the budget, Hoover increased federal spending 47% in three years. We're having this wonderful argument that vindicates what Orwell said in 1984 that he who controls the past controls the future. We're deciding what lessons to learn from the depression still.

PAUL KRUGMAN (ABC NEWS): The, actually the real point in a lot of this is that when FDR came in the federal government was tiny. It really wasn't a big factor in the economy.

COKIE ROBERTS (ABC NEWS): That's right.

PAUL KRUGMAN (ABC NEWS): By 1937 when he cut back, it was big enough that cutting it back could actually have an impact. So, you know, this stuff is, is - and so, and even then when you look at it, really you look at the budget deficit during the '30s, particularly when you adjust it for - you know, and then World War II and goes like this wiggle, wiggle, wiggle, zoom.

COKIE ROBERTS (ABC NEWS): But, you know, but, but the truth is...

PAUL KRUGMAN (ABC NEWS): And what actually happened was nothing.

COKIE ROBERTS (ABC NEWS): ... those arguments don't really matter if the politics of it is that the Republicans can go out and say to people, these deficits are horrendous as far as the eye can see and we're leaving it to our children and grandchildren...

MATTHEW DOWD (ABC NEWS): That's the...

COKIE ROBERTS (ABC NEWS): ... and all of that. And...

MATTHEW DOWD (ABC NEWS): That's - the problem Republicans have with that is they have no credibility either.

COKIE ROBERTS (ABC NEWS): No and they shouldn't have any.

MATTHEW DOWD (ABC NEWS): They should. This should be an issue that should be able to run to the front line and defend.

COKIE ROBERTS (ABC NEWS): But, no, they should have no credibility. Their deficits were very, very high.

MATTHEW DOWD (ABC NEWS): Well, no, I agree. But that, that's the interesting thing. If this was a normally a tax and deficit debate Republicans should be 15, 16, 17 points ahead. They're not.

PAUL KRUGMAN (ABC NEWS): That's the Republican Party of 30 years ago, not the Republican Party of today.

MATTHEW DOWD (ABC NEWS): Or 20 years ago.

GEORGE WILL (ABC NEWS): The country doesn't care about deficits. They care about what they perceive to be the consequences of deficits. And if the deficits coincide with prosperity, no one cares.

GEORGE STEPHANOPOULOS (ABC NEWS): Well, that's true but if the deficits come to mean irresponsibility, everyone cares.

COKIE ROBERTS (ABC NEWS): Right. And, and, look, Democrats are worried about it. It's not just Republicans. Look, you saw Democrats looking at those numbers, excuse me, on the deficit and saying, wait a minute, we can't do all of this, particularly on health care, saying maybe we need to pull back a little bit. So it is - there is a political issue here regardless of what all the economic factors have been over the last few decades.

PAUL KRUGMAN (ABC NEWS): By the way, I really want to protect - I mean, we got to do something about this ten-year horizon. It's a real disaster. It's too long to make any kind of accurate prediction and it's too short to get at the real issues. So on the ten years, you know, who knows which is right. CBO, OMB on this. It's crazy.

GEORGE STEPHANOPOULOS (ABC NEWS): And that's over their assumptions of economic growth.

PAUL KRUGMAN (ABC NEWS): Right. And, and, yeah, and, and on the other hand, everybody knows that if you look ahead 15 years, 20 years, the budget is impossible because of health care costs. So in some ways it's - we're having this furious debate about a completely meaningless number which is the deficit ten years out from now.

GEORGE STEPHANOPOULOS (ABC NEWS): Well that, that's true. But I wonder if it does lead to something that, that the Obama administration seems to have taken to heart. Whenever President Obama talks about health care, what you hear him say is health care costs. We've got to get health care costs under control. That's his leading argument for health care reform and I guess would you argue from an economic perspective if he were to get one thing out of this budget that's the single most important.

PAUL KRUGMAN (ABC NEWS): That's right, because everything - when you look at the long-run budget problem it's a health care problem.

COKIE ROBERTS (ABC NEWS): Right.

PAUL KRUGMAN (ABC NEWS): Demography, aging of the population is a manageable size issue. Rising health care costs is totally unmanageable. So he can't control Medicare and Medicaid unless there's control of health care costs and most people think that has to be a comprehensive health care reform. So health care reform is both the most important - you know, it's his version of social security for FDR and it's the only way that you can possibly get the federal budget under control.

COKIE ROBERTS (ABC NEWS): And American business feels the same way. That's the big difference. That's the big difference.

MATTHEW DOWD (ABC NEWS): I actually think that in order for him to demonstrate to the American public, he at some point soon has to take on some significant constituency of the Democratic Party. If he believes in change, and he wants to do things and he really - which may be the health care debate which he may have to take on some part of the constituency. As of yet, he has taken on no constituency in the Democratic Party.

GEORGE STEPHANOPOULOS (ABC NEWS): Actually you know what, just led me to my segue because I wanted to talk about the President's announcement on Afghanistan and Pakistan. And I think that that may be where he ends up taking on his own party. A lot of Democrats worry about being more involved. Here was the President on Friday.

GRAPHICS: THIS WEEK WITH GEORGE STEPHANOPOULOS

PRESIDENT BARACK OBAMA (UNITED STATES): We have a clear and focused goal, to disrupt, dismantle and defeat al Qaeda in Pakistan and Afghanistan and to prevent their return to either country in the future. And to the terrorists who oppose us, my message is the same, we will defeat you.

GEORGE STEPHANOPOULOS (ABC NEWS): A limited goal, George Will, but it's focused on both Afghanistan and Pakistan and the President is in the short run at least increasing troops by a pretty sizable amount. We're going to have 60,000 troops in Afghanistan.

GEORGE WILL (ABC NEWS): Which will be twice the number that all the other nations of NATO combined have in there and almost none of those are in a combat mission. When he says a clear and focused goal, that's code ward for I'm not using the Bush language of we're going to create a flourishing democracy. He says we're going to combat terrorism in a country in which no one knows because the income statistics in Afghanistan are a little primitive, but at least 40% of the economy is poppies for the world's heroin trade. The central government's writ runs to the outskirts of Kabul and that's it. So what we're doing is we're developing a competent army and doing well at that, which means our recipe for Afghanistan and I'm not criticizing this is bonapartism, that is, a strong military as the key to holding the state together.

GEORGE STEPHANOPOULOS (ABC NEWS): And what the...

COKIE ROBERTS (ABC NEWS): Well, but he's also proposing a lot. I mean he's not using the term nation building but he's talking a lot about going in with nonmilitary aid into the communities in Afghanistan and Pakistan, tripling of the nonmilitary aid to Pakistan. And the truth is that that is probably the best answer is to get the economy into some sort of state where people are able to exist and not, not fall for the terrorists.

GEORGE STEPHANOPOULOS (ABC NEWS): And the hope is that if he does that, he'll be able to siphon off those who sympathize with the Taliban...

COKIE ROBERTS (ABC NEWS): That's right.

GEORGE STEPHANOPOULOS (ABC NEWS): ... from the hard core of the Taliban but...

COKIE ROBERTS (ABC NEWS): And, you know, I've actually been in the northwest frontier provinces of Pakistan, and the notion that you can get at these people militarily is just ridiculous. I mean this is entirely...

GEORGE STEPHANOPOULOS (ABC NEWS): Well, what's happened is the air strikes have actually turned the populations against you.

COKIE ROBERTS (ABC NEWS): And you can hide.

MATTHEW DOWD (ABC NEWS): Well it, it, it is an interesting thing watching the contrast between, you know, this, this President Obama speaking about Afghanistan sounded like what Republicans wanted to hear President Bush talk about as opposed to talk about establishing freedom Wilsonian.

GEORGE STEPHANOPOULOS (ABC NEWS): Well, and what you didn't hear in the news was the word surge which is what, of course, this was in some ways modeled on the surge in Iraq.

MATTHEW DOWD (ABC NEWS): But what I find - if you look at the troop commitments now in Iraq and Afghanistan together there are more than was under President Bush. And so have a president that comes into office that says I'm going to lower the troop commitments in, in, in Iraq and Afghanistan.

COKIE ROBERTS (ABC NEWS): No, he would always say more troops in Afghanistan.

MATTHEW DOWD (ABC NEWS): No he would always saying increase, but he was saying he was going do it simultaneously. He has not, as of yet, lowered the troops in Iraq. And I'm gonna cut the deficits which have gotten out of control. The deficits are larger and we have more troops now in Iraq and Afghanistan. Whether or not we need them, we probably do need them in Afghanistan but it is an interesting argument which is all of the folks that got, that got him elected on this sort of peace framework that we need the troops out and less military involvement, they now have more.

GEORGE STEPHANOPOULOS (ABC NEWS): So it's not just Obama's economy, Paul Krugman, it's now Obama's war, as well.

PAUL KRUGMAN (ABC NEWS): Well, not Iraq, I think he can get - he can, in fact, pull the troops out of Iraq and leave behind a regime that doesn't like us very much and that we don't like very much without suffering the kind of political costs that a Republican would have. But Afghanistan is quickly becoming his war and that makes a lot of us nervous. It does not look - I know, they don't have these grand illusions. They're not going to try and remake Afghanistan in our image but even so it makes a lot of us nervous because it looks hard.

GEORGE STEPHANOPOULOS (ABC NEWS): I was talking to Senator Russ Feingold, George, he was making a similar point on, on Friday. He said that this policy is too Afghan centric. On the other hand, as you listen to the President's laying out his, his ideas on Friday, there is an awful lot about Pakistan.

COKIE ROBERTS (ABC NEWS): Right.

GEORGE STEPHANOPOULOS (ABC NEWS): He made it clear that Pakistan is the home of the al Qaeda leadership and that he is going to hold the Pakistani government responsible for what happens there.

GEORGE WILL (ABC NEWS): It's a thin strip of west - of eastern Pakistan centric. That is the part that butts up against Afghanistan and Pakistan. So it, it, it's in an area the size of, I don't know, New Jersey maybe rather than this enormous uncontrolled land.

COKIE ROBERTS (ABC NEWS): It's also very mountainous. Well, you know, the worst thing though that we could do about Afghanistan would be to abandon it.

GEORGE STEPHANOPOULOS (ABC NEWS): It's not possible.

COKIE ROBERTS (ABC NEWS): We've done that too many times, and, and the truth is, is that underneath a lot of the Bush rhetoric was a lot of good things were going on, particularly the - with Afghani women. And, and I think that, that if you continue those kind of civic society initiatives that you have a, you have the possibility of something going on.

MATTHEW DOWD (ABC NEWS): Contrast between how the people of Afghanistan and how the people of Iraq see the United States is dramatic.

COKIE ROBERTS (ABC NEWS): Right. Right.

MATTHEW DOWD (ABC NEWS): The people of Afghanistan, we're immensely popular, the United States is in Afghanistan. We're immensely unpopular in Iraq.

GEORGE STEPHANOPOULOS (ABC NEWS): That is the last word for now. This roundtable is going to continue in the green room.

GEORGE STEPHANOPOULOS (ABC NEWS): You can join in later on ABCNews.com and get political updates from me all week long on Facebook and Twitter. Coming up here, "The Sunday Funnies."

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Originally broadcast, 3.29.09