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State of the Union

Interview With Mort Zuckerman, Steve Forbes; Interview With General Michael Hayden

Aired July 25, 2010 - 09:00   ET

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

CANDY CROWLEY, HOST: One hundred days until the midterms, a nanosecond in politics and not much time for Democrats to turn around what may be a rough election day focused on one issue, the economy. The unemployment rate was 6.9 percent when President Obama was elected. Eighteen months ago, his administration released a report saying if Congress passed a stimulus plan, unemployment would stay below 8 percent. Congress did pass that stimulus bill. Unemployment is now 9.5 percent; 14 million Americans out of work. Friday, the White House projected the jobless rate will remain above 9 percent until 2012.

Americans are feeling the pain. Only 22 percent say the current economic conditions are good; 78 percent say they are poor. For Democrats, the numbers do not add up to a promising November.

(BEGIN VIDEOTAPE)

CROWLEY: Today, unemployment and a recovery that doesn't feel like one, with business leaders Mort Zuckerman and Steve Forbes.

ZUCKERMAN: They demonized the business, they've blamed everything on the business world.

FORBES: Unless the president deals credibly with that uncertainty, it is going to be a very subpar economy.

CROWLEY: Then, keeping ahead of the terrorists with the former head of intelligence, General Michael Hayden. And the country, politics and race with Christopher Edley and John McWhorter.

UNIDENTIFIED MALE: Race is not rocket science. It's harder than rocket science.

UNIDENTIFIED MALE: Racism still exists, but it's nothing like it was in the past.

CROWLEY: I am Candy Crowley, and this is State of the Union.

(END VIDEOTAPE)

CROWLEY: Friday, Treasury Secretary Timothy Geithner taped an interview for NBC. He insisted that the private sector businesses are upbeat.

(BEGIN VIDEO CLIP)

TREASURY SECRETARY TIMOTHY F. GEITHNER: They see an economy that is going to continue to grow, strengthen moderately over the next 18 months or so, and I talk to businesses across the country, and I would say that's the general view, an economy that is gradually getting better.

(END VIDEO CLIP) CROWLEY: That in the face of blistering criticism from Mort Zuckerman, a Democrat and one of President Obama's supporters in the business community. He owns U.S. News & World Report, and recently wrote, "The hope that fired up the election of Barack Obama has flickered out, leaving a national mood of despair and disappointment. The fundamental problem is starkly simple: Jobs and the deepening fear among the public that the American dream is vanishing before their eyes."

I was joined earlier from New York by Mort Zuckerman and Steve Forbes, chairman and CEO of Forbes, Inc.

Gentlemen, thank you both very much. I can't think of two better people to talk about the business climate right now. So let me just start by quoting Ben Bernanke, the chairman of the Fed, as you well know, who called the state of the economy unusually uncertain. So, I would like to ask the two of you to give me your description of where you think the economy is right now? Mr. Zuckerman?

ZUCKERMAN: Well, I'm more or less on the pessimistic side of things. My view is that you have consumer spending which is either flat or going down; housing, which has fallen off the edge of the cliff; employment which still continues to be a serious problem. And I could give you a whole series of statistics that sort of fit into that general group of either flat or down, and that is what leads me to the conclusion that this economy is getting weak.

You have to understand that this is after the better part of two years of the most extraordinary fiscal stimulus we have had in our history and the most extraordinary monetary stimulus in our history. Generally speaking, when you get two years after the kind of fiscal and monetary stimulus we've had, you would have real creation of jobs. We are not having that.

CROWLEY: So, Mr. Forbes, your rendition of what you think the economy -- the state of the economy is, and if you think it's as bad as Mr. Zuckerman, why?

FORBES: Well, we are having growth, but it's not nearly the growth we should have given the severity of the hit the economy took in late 2008 and 2009. Just a natural snap back should be about two to three times the growth levels that we have had. But there is huge uncertainty out there, Candy, which is why you are not getting job creation. You have a weak dollar. Weak dollar always means a weak recovery. You've got tax increases coming, tax increases already embedded in this health care bill, massive new regulations coming. Small businesses not knowing what is going to happen. So the tendency is to clutch the cash, stay on the sidelines. So until the president deals credibly with that uncertainty, it is going to be a very subpar economy. There are very serious headwinds in the face of this economy.

CROWLEY: Mr. Zuckerman, I know you have made many of the same claims in print. I have seen a lot of the things that you have written. And the White House pushes back and says, listen, we have done a lot for business. That this is -- business always wants tax cuts, business always wants a better climate. And in fact, business is known to, quote, take risks, aren't they? So why not have -- why aren't these businesses going out, taking a little risk, hiring some people? Because we all know that's where the problem is at this point, isn't it?

ZUCKERMAN: Well, certainly employment to my mind is the key indicator of where this economy is going. And frankly, if you take what is called the birth-death series in the Bureau of Labor Statistics numbers on unemployment, which is the number of new companies that have been created and therefore hire people versus the number of companies that have shut down or gone bankrupt, where they lose employees. That series is a historical extrapolation. If you eliminate most of that, which I believe when we look at these numbers at the end of the year they will be eliminated, we have created virtually no jobs and we've had two years plus out of a recession. We have not seen that really since the end of World War II.

Now, why is that? Business is not spending, and -- or not spending nearly as much as you would have thought they would have, in fact because they view the economy and the future of the economy in much more negative terms than what you hear out of Washington. I am not saying that Washington hasn't tried to do some good things. They have also done some things that I think are really very, very counter to trying to get this economy growing. One of them is not only regulation, but expensive regulation. And the other is -- and they have done something here that affects everybody's confidence in the attitudes of this administration to the business community and to the economy. They have demonized the business world. They blamed everything on the business world. Frankly, I don't think that's accurate, but more than that, it's counterproductive to what this administration wants, which is a much more optimistic and confident business community.

The uncertainty that Steve refers to is absolutely out there, as anybody who travels through the business community as I do would see.

CROWLEY: So, Mr. Forbes, before I ask you the next question, a quick clip -- actually, several clips put together of President Obama talking about the business community, or at least some in the business community.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: We can't go back to a culture on Wall Street that says it's OK to bend or break the rules.

The days of outsized rewards and reckless speculation that puts us all at risk have to be over.

We will not go back to the days of reckless behavior and unchecked excess that was at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses.

(END VIDEO CLIP) CROWLEY: Surely you would agree, Mr. Forbes, that there are people in business who fit the description that the president was just talking about. And I guess what I don't understand is why the business community at large, who I'm told are flush with cash or at least have cash at this point, who are in a pretty good position, will not go out and hire because they perceive that the president is anti- business?

FORBES: Well, the president clearly is. I mean, you can take excesses and tar the whole business community, which is like taking election fraud and saying that's why we should not have free elections. He caricatures them, and you saw it in that letter that his top aide sent to the Business Roundtable saying our doors are open, even to the business community. The business community employs 110 million people. Companies and the people that work with them pay most of the taxes in this country. That's where the innovation comes from. So whenever business talks about the need for a stable currency, about the need for a better tax code, they always say, oh, that's what -- they are always wining that's what they always want, as if they are some dog that keeps barking or a baby crying on an airplane, instead of dealing with the substance of the thing, and that is when you have a tax environment where you don't punish success, where you don't trample on the rules of law, as they did with Chrysler and other situations, where you trust the currency, where you are not going to have massive thousands of new rules come and hit you, and you have no idea what they are going to be.

They don't take that stuff seriously. They just think they are a bunch of greedy crybabies, and the business community is reacting to that.

CROWLEY: Let me ask you both to hold just for a second. We are going to take a quick break and be right back, maybe talk about some solutions.

(COMMERCIAL BREAK)

CROWLEY: We're back with Mort Zuckerman and Steve Forbes.

Again, thank you, gentleman. I want to talk about the Bush tax cuts. They are set to expire in January. And I want to read you something that Timothy Geithner, treasury secretary, said to The Christian Science Monitor Thursday. "We believe that it is appropriate to let those tax cuts that go to, you know, the most fortunate 2 to 3 percent of Americans to expire on their current schedule. That will help us to begin the process of making a contribution to bringing down our long-term deficits."

Now, if I understand economics 101, Mr. Zuckerman, if we are still in an economy as bad as you describe, it is a bad time to let these tax cuts expire for a household making $250,000 and over, is that correct?

ZUCKERMAN: Well, I don't happen to share that view. I actually was opposed to those tax cuts when they were first put in. I don't think it's -- these tax cuts are of such a burden to the top 2 or 3 percent or whatever it is that they still would not pursue their normal economic interest. And I think we do have to begin to make some serious dent in the deficits, because I think those the deficits can create a major crisis for the American economy.

So I have always been in favor of frankly putting more taxes on the well-to-do. It's not an extraordinary burden. This is, of course, a difficult time to do it, but there is never an easy time to do it. And frankly I don't think that is what is going to turn back the economy.

It's the attitude and the confidence of the business community. And a part of that is to begin to get those deficits under control. This is just one step for the government to take. There are many other things they should do to get those deficits under control.

CROWLEY: Mr. Forbes, so my understanding of this is that if you take away tax breaks to the wealthy, what they tend to do is then go ahead and save the money. They don't spend it as much as they used to. I may have this wrong, but I also think you might differ with Mr. Zuckerman at this point?

FORBES: Yes, it's all about price, price and a burden on people working, people taking risks, people starting new businesses. And when you raise the tax rate, you raise the price of risk-taking, and you get less of it. We should have learned that decades ago. So this is absolutely counterproductive. It destroys capital, immobilizes capital.

And by the way, when the president starts beating up on the business community, Candy, let's look at the Federal Reserve, it's binge of money creation in the early part of the decade. You never could have had a housing bubble of the size that we did if they had not done that. Same thing with Fannie and Freddie, which were not addressed -- Fannie Mae, Freddie Mac, which were not addressed in this reform bill. If the government had done its part, we would not have had this disaster.

CROWLEY: Mr. Zuckerman, what is worse, a high U.S. debt or high unemployment? And obviously the base of that question, I guess, is, should the president pump more money into this economy?

ZUCKERMAN: Well, you know, that's a critical question. There are a lot of people who are advocates of more stimulus and more deficits, larger deficits. I would point out we had an $800 billion stimulus program in which -- or about which the administration said the unemployment rate would not get above 8 percent. We're way above 8 percent. In real terms we are above 10 percent.

So the stimulus program does not always work. I do think that at this stage of the game we have got to begin to think in terms of getting these deficits down, because these debts are really going to have a huge affect on our economy over time.

What I do think has to be done -- and here is an easy thing to be done. I mean, if you are looking at the Business Roundtable, which is the CEOs of the country, the Chamber of the Commerce, and the NFIB, which is a group of -- the organization that represents small businesses, have all come out very, very strongly against the administration. That's really quite unprecedented. And that, to my -- it's really unnecessary.

So there are things that the government can do. And as Steve was saying, you know, an excess of regulation and the high cost of regulation and the high cost of health care in particular, which everybody knows is going to be a huge buster of fiscal health of this country, these are the kinds of things that really make everybody very nervous going forward and insecure and uncertain.

When people invest, they are not only investing for a week or a month, they're investing for several years. And right now that certainty and that confidence is lacking.

CROWLEY: Mr. Forbes, if I understand what really the two of you are saying, business is not investing, business is not re-hiring or hiring or expanding because, A, they are uncertain how much it's going to cost them to implement health care, they don't really know or they fear that financial reform is going to cost them, and they are still worried about the economy in general?

FORBES: Well, yes. You take small businesses -- or smaller businesses, companies -- outfits employing, say, 50 people, when tax rates go up at the end of the year, they are taxed at personal rates. So they're going -- there's a big slap on them. Businesses with narrow margins, they're going to go under.

And there is no sympathy for the administration on about incentives, on creating a stable and predictable environment. And you have even entrepreneurs, people who are willing to buck the tide, are just being very hesitant because they, again, don't know what kind of costs they are going to get hit with.

And so if -- I'll tell you this, Candy, if they took that health care bill, financial reform bill, suspended it for three years, left the tax code alone for two years, three years, you would see this economy roar up and you'd see the stock market immediately go up 20 percent.

CROWLEY: Mr. Zuckerman, the last question goes to you and is less about business and more about homeowners. And I know this is an area you know a lot about. What is wrong with the housing market right now? Why are we having record foreclosures?

ZUCKERMAN: We are having record foreclosures because we had a huge bubble in housing which was supported by a bubble in credit. And what happens is that the housing market got to such a high level, it was bound to -- it was unsustainable. And now have you a huge drop in prices, and there are literally millions of homes where the home is worth less than the mortgage. And there are -- you know, the housing market has dropped about by about 75 percent. There is a huge excess of supply.

When you have supply going up dramatically, both real supply and what we call the hidden inventory of people who are basically about ready to throw their homes on the market and you have few buyers, you are bound to have a drop in prices.

And that's exactly why people aren't buying. They're afraid the prices are going to go down. And by and large they've been right for the last 18 months. And they may be right for another 18 months. That's what they're worried about.

CROWLEY: Mort Zuckerman and Steve Forbes, I cannot thank you both enough for your expertise. Have a good one.

ZUCKERMAN: Thank you.

FORBES: Thank you.

CROWLEY: Next, we will turn to the U.S. efforts to combat terrorism. Is the intelligence bureaucracy too big to keep America safe?

(COMMERCIAL BREAK)

CROWLEY: The troubling issue of home-grown terrorism raised its head this week at a detention hearing in a Alexandria, Virginia courthouse. This is Zachary Chesser, a 20-year-old convert to Islam, who grew up in suburban Washington. He is charged with providing material support to and trying to join up with a Somali-based terror group linked to Al Qaida. According to a congressional report, since 9/11, the U.S. has spent more than $1 trillion on the war on terror. The Washington Post this week published a major series reporting that American intelligence has become a bureaucracy it called a hidden world, growing beyond control. The Post reported that 854,000 people, many of them private contractors, now hold top-secret clearance. Since 2001, 30 new top-secret intelligence complexes have been built in the D.C. area. Intelligence operations are spread over 10,000 U.S. locations.

The man nominated to head all U.S. intelligence, retired Lieutenant General James Clapper, took issue with Post reporter and two-time Pulitzer Prize winner Dana Priest.

(BEGIN VIDEO CLIP)

LT. GEN. JAMES CLAPPER (RET), DNI NOMINEE: I think she has driven for a bit of sensationalism here. That's not to say that there aren't inefficiencies and there aren't things we can improve.

(END VIDEO CLIP)

CROWLEY: In today's Washington Post, retired General Michael Hayden, former director of the CIA and National Security Agency, writes, "The intelligence community often declines to defend itself for fear of making America less safe by revealing even more secrets." We will talk to General Hayden when we come back. (COMMERCIAL BREAK)

CROWLEY: Joining me now is Michael Hayden, a retired four-star general in the United States Air Force, former director of the CIA and currently a principal with the Chertoff Group, a security firm in Washington, D.C. Welcome.

HAYDEN: Good morning.

CROWLEY: You have read the Post articles.

HAYDEN: Indeed.

CROWLEY: You have responded to the Post articles, and I guess my basic question here is, inarguably, the intelligence community has gotten larger.

HAYDEN: Yes.

CROWLEY: Has it made us less safe?

HAYDEN: No, no, the expansion has made us more safe. Could we be even better protected by more efficiencies in the way we've expanded? Of course.

When I became director of CIA, it was just clear to me intuitively, without a whole lot of science behind it, that we had expanded rapidly and inefficiently. So I arbitrarily picked a number, 10 percent, and I said over the next 12 months, we are going to reduce our reliance on contractors by 10 percent. We did that with hardly any pain at all, so much so that I said, let's cut it 5 percent the next year, and we did.

So there are inefficiencies, as General Clapper pointed out in his testimony, but we rely on contractors for a lot. We can't go at this slash and burn, because contractors are key to an awful lot of our successes in the intelligence community.

CROWLEY: Let's talk about contractors for a minute, because I thought there were some surprising figures in there for some of the things that really are shopped out for other people to do. And this was someone else who wrote in the Washington Post responding to the series, Janine Wedel, who wrote, "Contractors integrally involved in intelligence, homeland security and defense policy are positioned to influence those policies to their liking on even the most sensitive government functions. The result is that our security can be jeopardized and our nation's sovereignty eroded."

So basically, that they are -- that contractors aren't beholden to the -- haven't sworn, you know, as one does when one works for the U.S. government. They are beholden to their shareholders. They want to, you know, they are in a business and they want to make money. And then we find out from this Post article that there are 854,000 people with top-secret security clearance, and 30 percent of them are these outside contractors. I just can't believe that in the hundreds of thousands of private contractors with top-secret clearance, that there is not one bad apple in there?

HAYDEN: Well, the same could be said about those government employees who have top-secret clearances. That's why you go through the clearance process.

What that essentially means is that we have a process by which we vet these individuals. And although everything you said about contractors financially, fiscally is true -- I mean, they are in business -- you would be surprised at the amount of patriotism that is actually exhibited by contractors, who would forego profit because they want to do the right thing. Now, I understand that may not always be the case, but fundamentally that's my responsibility as I was director of CIA. You have a partnership with contractors. Surely you would want to be interested in their views. So I guess they get an opportunity to shape government policy, but fundamentally, it's the government employee, the director of CIA, the DNI, who has to make those choices.

CROWLEY: I guess I would be more concerned -- look, when I went through clearance to get a White House pass, it took them six months. Now you have got 825,000 people with top-secret clearance, which to me sounds like they can see a lot of stuff. And couldn't you argue that some of these people really have not been cleared in the way they should have been? To me it's just scary.

HAYDEN: No, it's the other way around, actually, Candy. They are all held to the same standard. And if there is a fault in the system, it's the difficulty we have of getting people cleared in a reasonable period of time, whether they are government employees or contractors. Frankly, that hurts our agility. We know an individual is out there. That individual has got the right skills, the right talent, wants to come work, whether government or contractor, and it takes us months, sometimes the better part of a year, to get them across that divide and get them cleared. So I have got high confidence in the clearance process. That's not the issue.

And I guess I should add, too. I mean, we clear a lot of people who don't have access to very much. Our guard force needs to be cleared. Our chart (ph) force needs to be cleared. Our cafeteria workers need to be cleared. They are included in those numbers.

CROWLEY: Let me ask you about the budget cuts. We are hearing anywhere -- and certainly some of the heads of these intelligence agencies are expecting 10 percent, 20 percent, 30 percent cuts in their budgets. Would that harm security, from what you can tell?

HAYDEN: Cuts of that dimension would certainly harm security. And my own personal view--

CROWLEY: How so?

HAYDEN: Well, we have an agile, learning enemy in Al Qaida. I mean, to use terrorism as the prime example here. Al Qaida changes, Al Qaida adapts. We have to adapt as well. We rely on resources to do that. Reducing resources beyond a certain point will make us less able to adapt as our enemy adapts. So I would be cautious about that. CROWLEY: Let me talk about home-grown terrorism, which we have seen a lot of, it seems like, over the past several months.

CROWLEY: That's the hardest thing to combat, isn't it?

HAYDEN: Absolutely. Absolutely.

CROWLEY: And how do you do it?

HAYDEN: In a democracy, it's incredibly difficult. Look, we've all made our compromises with Al Qaida and the Al Qaida kinds of attacks against iconic targets, the spectacular, like we saw in 9/11, or the kinds they attempted in the summer of '06, with those planned attacks against wide-body jet liners between Great Britain and North America, all right.

So we're all willing to stand in line at the airport. We're all willing not to take bottles of liquids and so on. But how do you build a security structure that guards you against American citizens who are beginning to change in their thinking up to a point where they become a threat to the security of other Americans?

CROWLEY: Can you?

HAYDEN: That's a devil of a problem. And frankly, what are you or your viewers willing to pay? How much would you allow us to squeeze commerce or privacy or convenience in order to get down to that level of granularity?

And, frankly, I think American political culture -- I think you and I as citizens would be uncomfortable going very far in that direction, so that's what makes this such a devilish problem.

CROWLEY: So we can cut down the chances of a homegrown terrorist attack, but we can't eliminate it?

HAYDEN: That's correct. And one thing I've learned in the business of intelligence is never use the word "never."

CROWLEY: When you left the CIA about two years ago, you said the two biggest problems facing your successor would be the Iranian nuke program and the drug smuggling and the violence from Mexico. Would you change either one of those?

HAYDEN: No, no. To be accurate, counterterrorism was job one. Beyond counterterrorism, I would put counterproliferation as job two. And within counterproliferation, it is inarguably Iran.

The growing problem, the one that was beginning to gnaw more aggressively at our attention was what was going on in Mexico, and that began to become very visible to us about two years ago, and that's why I mentioned it as I was leaving office.

CROWLEY: Do you think, though, there is any answer?

I mean, Iran doesn't seem to be paying much attention to the sanctions. As far as we know, they are still trying to get nuclear capability. If it should, is there any alternative to taking out their facilities?

HAYDEN: It seems inexorable, doesn't it?

We engage. They continue to move forward. We vote for sanctions. They continue to move forward. We try to deter, to dissuade. They continue to move forward.

My personal view is that Iran, left to its own devices, will get itself to that step right below a nuclear weapon, that permanent breakout stage, so the needle isn't quite in the red for the international community. And, frankly, that will be as destabilizing as their actually having a weapon.

When I was in government, what we would used to mystically call "the kinetic option" was way down on our list. In my personal thinking -- in my personal thinking; I need to emphasize that -- I have begun to consider that that may not be the worst of all possible outcomes.

CROWLEY: I've got less than a minute. I want to ask you a quick question on Afghanistan, probably a yes or no. We're seeing a number of lawmakers now saying we're not sure this is still worth the fight. We're told there are less than 100 Al Qaida in Afghanistan. Do we need to stay there?

HAYDEN: I think we do. I personally believe we've got the right strategy. It's only now beginning to be resourced. The last brigades are arriving. I would let this go for a while longer.

With regard to the small number of Al Qaida in Afghanistan, that may be a reflection of American power in Afghanistan. And if one were to remove that combat power, one would naturally see the number of Al Qaida rise.

CROWLEY: Retired General Michael Hayden, thank you so much for your expertise. I appreciate it.

HAYDEN: Thank you, Candy.

CROWLEY: Up next, race. One African-American president over a nation that still has deep divisions.

(COMMERCIAL BREAK)

CROWLEY: Two years ago, Candidate Barack Obama was embroiled in a racially charged story about his close friend and controversial pastor. The man who would go on to become the country's first African-American president responded with a speech in Philadelphia, the city of brotherly love.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: Working together, we can move beyond some of our old racial wounds. We have no choice if we are to continue on the path of a more perfect union.

(END VIDEO CLIP)

CROWLEY: In the euphoria of President Obama taking office, CNN pollsters asked if a solution to race relations would eventually be worked out. Fifty percent of African-Americans were optimistic. But a year and a half into the Obama presidency, just 41 percent of blacks believe there will be a solution.

At the end of a week dominated by the Shirley Sherrod story, a conversation we had earlier with Christopher Edley and John McWhorter on President Obama and race in America.

(COMMERCIAL BREAK)

CROWLEY: Joining me now from our New York bureau, John McWhorter, contributing editor to the Manhattan Institute's City Journal, and in California, Christopher Edley, dean of the University of California at Berkeley Law School and a former congressional appointee on the U.S. Commission on Civil Rights.

Gentlemen, thank you so -- both so much for joining us. It's been quite a week, and I want to see if we can't take a look at it, the Shirley Sherrod incident in particular, and have each of you tell me, what -- is this a political lesson that we've learned from this incident or is it a racial incident that we've learned?

EDLEY: I think there are actually three stories here. One is about political mismanagement on the part of the administration and mismanagement in journalism. The second is about race. And the third is about the interaction of the two. And what we've seen is that the likelihood of mismanagement goes up if race is involved and the stakes go up as well.

EDLEY: It's like waving kryptonite in front of super stars in the media or in politics. Their knees go wobbly. Misjudgments are made. And it has really been shameful.

CROWLEY: Mr. McWhorter, would you agree with what lesson we are learning here?

MCWHORTER: Almost. I would say that obviously there is political mismanagement. And I have joined in the dog-piling on Andrew Breitbart.

However, with all due respect to Professor Edley, I am mystified at the notion that race somehow brings out this kind of political mismanagement more than other things, such as, for example, the two wars that we have been having, such as what is going on with the indictments of BP. Race is of many concerns in this country. And I've said in many places, I believe that we are getting always better on race, even though we are not there yet.

And so I don't see, for example, the Shirley Sherrod issue as a matter of racism. What was done to her was indefensible, but it's unclear to me upon what metric we can say that animus against her black skin was a decisive factor in the way things happened.

It was just tacky and wrong. I don't call it racism.

EDLEY: I agree with that. But I do believe that the presence of race in the discussion makes it more likely there will be missteps and more mishandled by the media and by politicians alike. Race is hard stuff. And it is hard, I think, in unique ways. This is not a matter of animus, it's simply a matter of difficulty, difficult even after hundreds of years of trying to do better.

CROWLEY: Well, can I -- let me just stop you here, because this a little bit surprises me simply because you look at -- at the beginning of the week we had the NAACP taking on the tea party, asking its leaders or telling its leaders that they needed to stands up against racist elements within the tea party or at least people that show up at tea party rallies.

Then you have this very conservative blogger putting out a clip that he knows to be edited, who later says, well, the NAACP, you know, took on the tea party. How is it that you don't -- neither one of you see that as having a racial element?

EDLEY: It does have a racial element, but to say that it's racial animus, I think, just goes a step further. The question -- I think that the hard question is, put this blogger to one side, why is it that professional journalists didn't go to the trouble to look more carefully at what Sherrod actually did and said? Why is it that political officials in Agriculture, in the White House, didn't look more carefully to make sure that they had their facts right before they pulled the trigger?

I think it's because -- I think on the one hand for the media, it's because there is such salience to racially charged stories, they could not help themselves, like crack cocaine. And on the political side, I think it's simply because everybody gets jittery when there is a racial issue, and certainly from the White House perspective, in a week when you are doing historic financial reform legislation, you don't want the message to get dragged off into anything else, but particularly race because of its potential to blow everything up. You want the problem to just go away.

MCWHORTER: I think, though, that we're missing something here. I think in terms of the larger perspective, and what Professor Edley just said is certainly true, but in terms of the history book perspective on race in America and what these two events mean, i.e., the NAACP last week and Shirley Sherrod this week, is notice that Benjamin Jealous, of all people, who is the head of the NAACP, of all people, called on the tea party to disavow its racists, which he should have, but he actually admitted that there is not evidence that the tea party is motivated itself by racism, as many people said.

That's history, and in the same way notice that what Shirley Sherrod was doing was explaining how somebody of her generation had come to realize that perhaps it's time to think more about class than race. Those two things go together. They are the real story at this point, whereas, let's face it, not only Shirley Sherrod, but Andrew Breitbart is going to be a punch line and/or footnote in about 10 minutes. There is something larger going on.

EDLEY: But the only reason I hope that is not the case is that I hope that Ms. Sherrod sues him for libel. And in fact, sues everybody who was in town at the time...

MCWHORTER: Me, too.

EDLEY: ... of the deed for libel.

But I agree with you that that interpretation of both what Ben Jealous did and what Ms. Sherrod did, those are in many respects positive developments. But the problem with the media -- and to some extent with the White House and the Agriculture Department, the problem is that it's great to talk about the crucifixion, but it's nice to look a little deeper and see if there is a resurrection.

And the good thing about the Sherrod story is it really was a story about redemption and a positive story about where we can go on race.

CROWLEY: Gentlemen, let me ask you this, because Mr. Edley sort of hinted at it, and I know that you have worked with President Obama when he was a candidate. So let me ask you this, do you think the president is comfortable dealing with race issues?

EDLEY: Oh, absolutely, and also recognizes the importance of leading on race. But we have to remember that he is the president of America, for all Americans. And on all issues we expect him to lead on race, but we expect him to lead on health care, on financial reform, as commander-in-chief, on immigration, on education.

And those who expect him to be devoted night and day, 24/7, to issues of race, simply don't understand the job or his responsibility. I think in many ways the most important form of leadership that he provides is simply by being there every day, by being in the public eye.

And just looking at my fourth grade -- my two fourth grade children, the impact that it's having on their generation in terms the changing the kind of dreams that Americans can have about the future, is deeply profound.

CROWLEY: Mr. McWhorter, I wonder, because every time we have one of these, we start hearing this call for the president to start a national dialogue on race. And I am always confused as to what that is and whether -- what we can actually expect of him, you know, in terms of leading in a racial conversation.

MCWHORTER: Well, let's face it, when people say that they are supposed to be in a national conversation on race, they do not mean an exchange of the kind that we are having right now. What they mean is a conversion. Nobody puts it in so many words, but the way that conversation is supposed to go is that white America is supposed to realize that the civil rights revolution wasn't enough, that structural racism, et cetera, still remains prevalent, and that there is still more admitting that needs to be done and probably some sort of second civil rights revolution.

That is the basis for what the supposed national conversation about race would be. And I don't think that white people are interested anymore. I don't think that most black people are interested anymore. And I don't think it corresponds to modern reality.

And so that conversation isn't going to happen. A real conversation is taking place all of the time. It is taking place this week. It was taking place last week. And that is showing that racism still exists, but that it's nothing like it was in the past. And this is the important point, it's no longer black America's main problem, whether you are poor, middle class or rich. It's there, it's not the main problem.

And therefore, we should think more about legislation that involves helping poor people make their lives better. The rest of it is slow socio-historical evolution.

EDLEY: I agree with Mr. McWhorter that the race agenda, so to speak, includes doing the right thing in education, doing the right thing on immigration, doing the right things in terms of veteran's benefits, and doing it -- it's a multi-front agenda of healing wounds and closing divides.

Now while I think that the president is comfortable on issues of race, as a bi-racial person who has been dealing with this his entire life, thoughtfully, I wouldn't say that that's the case with all of his staff. I am sure that there are many members of his staff who are uncomfortable with the issues and would rather not deal with the issues at all.

I certainly saw that in the Clinton White House and in the Carter White House, where I also served. But the bottom line here is that race is not rocket science, it's harder than rocket science. I mean, rocket science is, put a man on the moon, 10 years, we are done. But race is hundreds and hundreds of years of trying, 60 years after the civil rights movement, modern civil rights movement got started, and we still can't get it right. It's harder than rocket science.

CROWLEY: And, finally, let me ask you, Mr. McWhorter, because I want to read back some of your words to you and see if you still believe it. This is from January. "When it comes to race, Obama's first year has shown us again and again that race does not matter an America the way it used to. We have come more than mere long way, we're almost there." Are we still almost there?

MCWHORTER: Well, I am glad that you chose that one. I forgot that I wrote that, but I believe it firmly. And I believe that that's what most thinking Americans believe, of all colors, in their heart of hearts. Racism exists, it's no longer the main problem, and there will always be some of it. That's the sadness of life. And I do believe, despite everything we have seen over the past two weeks, that we have come much more than a long way, and I'm glad that we have.

CROWLEY: John McWhorter, Christopher Edley, I have to call it a day there, but this has been fascinating. Thank you both so much. I appreciate it.

MCWHORTER: Thank you.

EDLEY: Good bye.

CROWLEY: Today's top stories are next. And then, despite the week's rancor over race, a reminder of the power of personal ties.

(COMMERCIAL BREAK)

CROWLEY: Time now for a check of the top stories. The Taliban is acknowledging it is holding one injured member of the U.S. Navy and the remains of another killed Friday. Local Afghan government officials and a Taliban spokesman tell CNN the group is still deciding what their demands are for the return of the Americans.

Afghan officials say the two U.S. soldiers who were stationed in Kabul were driving a civilian vehicle in Afghanistan's Logar province when they became involved in a firefight. Joint Chiefs chairman Admiral Mike Mullen, who is in Afghanistan, calls it an unusual circumstance to have two servicemembers leave their base in a non- military vehicle.

On day 97 of the Gulf oil disaster, vessels being used to drill a relief well are back on site and preparing to resume work. The threat of tropical storm Bonnie forced ships to evacuate the area around B.P.'s ruptured deepwater oil well. Now that the storm is passed, crews are starting to -- are expected to start the static kill in the next few days, pumping drilling mud into the well. A cap installed earlier this month to stop the flow of oil remains in place.

An investigation is under way in Duisburg, Germany after a stampede at a music festival killed 19 and left 400 others injured. Officials say chaos broke out at yesterday's Love Parade when people pushed into a tunnel from both sides until it became fatally overcrowded.

And in eastern Iowa, floodwaters are receding after a lake dam broke yesterday. A state official says the dam failed as the result of a massive rainfall, nearly 10 inches in a 12-hour period. Residents near the lake were given just minutes to flee the floodwaters. No injuries were reported.

Those are your top stories here on "State of the Union."

Up next, Vice President Biden learns firsthand how long the shelf life is on one of his most memorable gaffes.

(COMMERCIAL BREAK)

CROWLEY: As the stories of the NAACP and the Tea Party and the Shirley Sherrod saga played out across the headlines, something quieter caught our attention.

(BEGIN VIDEO CLIP) REP. JAMES E. CLYBURN, D-S.C., HOUSE MAJORITY WHIP: You know, up there in Washington, especially on the floor of the House of Representatives, we refer to each other as "my good friend" when we really don't mean it.

(LAUGHTER)

But I really do mean it when I call Joe Biden my good friend.

(END VIDEO CLIP)

CROWLEY: Congressman James Clyburn, the highest-ranking African- American on Capitol Hill, was introducing the white number two guy in the administration. Who knows how many conversations the two have had? But they have known each other for years, long before Biden's presidential run and before Biden offered this observation about fellow candidate Barack Obama.

(BEGIN VIDEO CLIP)

VICE PRESIDENT JOSEPH R. BIDEN JR.: I mean, you've got the first, sort of, mainstream African-American who is articulate and bright and -- and clean and a nice-looking guy. I mean, it's -- that's a storybook, man.

(END VIDEO CLIP)

CROWLEY: That was a headline moment. This moment this week was not.

(BEGIN VIDEO CLIP)

CLYBURN: Ladies and gentlemen, it's a pleasure for me to present to you a mainstream American who is articulate and bright and clean...

(LAUGHTER)

... and a nice-looking guy.

(LAUGHTER)

(END VIDEO CLIP)

CROWLEY: It was a good laugh. Maybe a national conversation is not the answer. Maybe the answer is personal conversations.

Thanks for watching "State of the Union." I'm Candy Crowley in Washington.