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State of the Union

Interview with Carl Levin; War in Libya; Budget Battle

Aired March 27, 2011 - 09:00   ET

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

CANDY CROWLEY, HOST: Why in the world is the U.S. military involved in Libya? Republicans are the toughest critics, but there are echoes inside the Democratic Party.

(BEGIN VIDEO CLIP)

SEN. JIM WEBB, D-VA.: I really don't believe that we have an obligation to get involved in every single occurrence in that part of the world.

REP. DENNIS J. KUCINICH, D-OHIO: The immediate thing congress needs to do when it returns is to cut off any funds for containing Libya.

(END VIDEO CLIP)

CROWLEY: In a statement, Senator Jay Rockefeller wrote of serious concerns. Our military and budget are stretched thin fighting two wars already. And I want to avoid getting into another conflict with unknown cost and consequences.

Tomorrow night, the president addresses the nation.

Today, a muddled mission against Gadhafi. We talk to Senate armed services chairman Carl Levin. And chaos throughout the Mideast with former National Security Adviser Stephen Hadley and the former head of the CIA, General Michael Hayden. Then assessing growing concern over Japan's nuclear disaster with nuclear analyst Joseph Cirincione. And the impact of all of this on the U.W. with economist Alice Rivlin and Douglas Holtz-Eakin.

I'm Candy Crowley and this is State of the Union.

Helped by coalition air strikes pounding away at Gadhafi's military power, anti-government insurgents have retaken a second city, Brega. There is optimistic talk of moving all the way over into the Gadhafi stronghold of Tripoli. The rebels are back on offense, while on the homefront in the political arena, President Obama plays defense.

(BEGIN VIDEO CLIP)

PRESIDENT BARACK OBAMA: The role of American forces has been limited. We're not putting any ground forces into Libya. Our military has provided unique capabilities at the beginning. But this is now a broad international effort.

(END VIDEO CLIP)

CROWLEY: Among those looking for explanation and a little clarity, Senator Carl Levin of Michigan, the democratic chair of the armed services committee which holds hearings on Libya this week. He joins me now.

Are you -- you have talked to the president frequently in your position, obviously, as head of the Senate Armed Services Committee. Are you fully on board with this mission?

LEVIN: I am. I think it's the mission which has got a clear purpose. Once the international community was onboard, which was absolutely critical to this mission beginning and succeeding, then it made sense that to be part of that international community in a limited mission with stated goals which there were, a number of very clearly stated goals, but limited.

And then to see the kind of success which they're having now because of the support of that international community. Very different, by the way, than the situation was in Iraq where there was not international community support. And we went in anyway without that. There's a very clear difference.

CROWLEY: Well, there were -- I mean, we should just add there were other troops other than the U.S. once we went into Iraq.

LEVIN: But there was no U.N. support in Iraq. It made a big difference.

CROWLEY: So if you can just -- can you give me a version of what this mission is? What are we doing there?

LEVIN: We're part of an international coalition which has been supported now by U.N. resolution, the support of Arab countries, to prevent the slaughter of civilians in Libya and to make sure that that continue with a no-fly zone which is maintained over Libya to prevent Gadhafi from reasserting control of the air.

CROWLEY: So I want to read something to you from The New York Times Friday. It was from Joseph Ralston, whom I'm sure you know, former NATO commander, vice chairman of the joint chiefs. And he wrote this, "we should never begin an operation without knowing how we stand down. We did a no-fly zone over Iraq for 12 years. It did nothing to get rid of Saddam. So why do we think it will get rid of Gadhafi?"

Now, clearly, they said over and over again the mission isn't to get rid of Gadhafi, but if the mission is to keep Gadhafi from attacking his people, doesn't this seem like a flyover with no end?

LEVIN: Well, it will be -- it is a flyover which is succeeding. It has set Gadhafi back. He's on his heels now moving his troops towards his capital where he is strong. But he has prevented the slaughter of Libyan people. And that is what the trigger was for the president.

CROWLEY: But don't you have to state -- the idea of the end game, like when does this stop? It doesn't seem that it can stop unless Gadhafi is gone. And so even though everybody keeps saying, oh no, the mission is not to get rid of Gadhafi. How can you stop the mission unless Gadhafi is gone, because the minute those -- do you have any doubt that the minute both planes stop enforcing a no-fly zone he will be back with his troops going after the rebels?

LEVIN: It is going to depend on the circumstance that exists at that particular time. There's other means of removing Gadhafi than military means. We've seen that in other countries as a matter of fact. We saw that in Egypt where the people of Egypt removed their dictator.

The people of Libya can remove their dictator. But we are not going to be the ones to remove him. We are the ones, as part of an international coalition, that are going to prevent him from massacring his own people.

CROWLEY: So basically, this coalition, flyover is kind of the air force for the rebels. It pushes back tanks. It makes sure that he can't put anything up in the air. So, you know, the fact of the matter is it does seem that this coalition, including the U.S., has to be prepared to stay there until the rebels can undo Gadhafi.

LEVIN: It's not just the rebels, it's the people who will ultimately undo Gadhafi. And it's also going to be economic sanctions, freeze of his assets -- $30 billion his assets have been frozen.

CROWLEY: But do we have to stay there so long as he's in office?

LEVIN: Not necessarily. It depends on -- it depends on whether or not the other means, the economic means, the political means succeed and it depends on whether or not the people are able to contain him and ultimately remove him.

The military mission is clearly stated, not to remove Gadhafi. I didn't hear a lot of protest, by the way. When the mission was stated to be limited, when it was stated that it's not going to be a mission which continually expands. The military was very much worried about a mission which would creep, as they put it. They wanted to know what the goals were. They were limited set goals, no troops on the ground. And that part of the mission seems to me is succeeding.

The fact that it's going to take the people of Libya to remove their dictator with the help of economic sanctions that the world has put in place and by the way, with a weakened Gadhafi because of the success, hopefully, of this military mission doesn't mean that we're there forever. It means that there are other means which are going to be utilized.

CROWLEY: Sure. But I guess what I'm saying is even a weakened Gadhafi is a dangerous Gadhafi. And it seems that there is no way out of this no-fly and help of the humanitarian assistance until he is gone. Even if it's not the mission, he has to be gone and powerless.

LEVIN: Or so weakened and so put in a corner by his own people that he is unable to again start slaughtering his own people.

CROWLEY: Let me ask something that Secretary Gates, Secretary of Defense Gates said on Meet the Press when asked what the U.S. interests are in Libya specifically. And he had this to say.

(BEGIN VIDEO CLIP)

SECRETARY OF DEFENSE ROBERT M. GATES: I don't think it's vital interest of the United States, but we clearly have interests there. And it's a part of the region which is a vital interest for the United States.

(END VIDEO CLIP)

CROWLEY: So, I think another way of asking this question is, what's in it for the U.S.?

LEVIN: A number of things are in it. First of all that we want to be part of a world community to determine to prevent a slaughter of large numbers of people. Secondly, what's in it for us is that there is a democratic movement afoot in the Arab world. And we should be on the side of that democratic movement. Where we can do so is part of an international community which is unique. And that is the situation that exists in Libya.

There's a democratic movement that is moving in Libya, part of a larger movement...

CROWLEY: There's one in Syria, too. Should we do something in Syria?

LEVIN: Not unless the international community has said to us come help us remove this dictator. We should use other means in terms of limiting the power of dictators. And we have, by the way. But we cannot use military means to remove every dictator. What's unusual here, it really gives us an opportunity is that here you've got an international community, and the Arab world has said let us together remove a dictator. And that gives, it seems to me, a lot of support to our mission of supporting democracy in that area.

CROWLEY: You know, Africa is full of countries where leaders are slaughtering their people in the hundreds of thousands. And we've done nothing about that. So the tipping point to you is well if they ask us to come and the international community supports it then we'll go. That's -- that's your...

LEVIN: That's key. That is absolutely critical. And it's what's unique here. And by the way, it was stated as being critical here.

The secretary of state said we will not go. We will not go unless there's support by the international community. Because otherwise, you have huge downsides. Otherwise, the people in the streets and the Arab world are going to be demonstrating against us for intervening instead of demonstrating against their own dictators.

CROWLEY: And just quickly, there's one of the things that Secretary Gates was also asked was about whether we would arm the rebels, see to it, because they are very underarmed as compared to Gadhafi at this point. As Secretary Gates sees it, that is allowed under this U.N. resolution. Would it be a good idea for the U.S. to arm these rebels?

LEVIN: That will be a decision which will be made by a coalition and be made again by a president who is thoughtful, who is deliberative, and who is also cautious. Because if the arms purpose, of supplying arms to the rebels, have the purpose of helping them to prevent a slaughter of their people, protect people, that's one thing.

However, if those arms are just going to add fuel to a civil war, that's very different. Because then it is not aimed at providing a cease-fire and the end of violence. Those arms, if they are going used offensively by the rebels, it seems to me, would be adding fuel to that fire and would be inconsistent with what the U.N. resolution calls for which is a cease-fire.

But that is a decision which will be made by the president and coalition partners.

CROWLEY: So, the U.S. is unwilling to make unilateral decisions here when it comes to Libya.

LEVIN: I hope so. Because that is the secret to success is a coalition, international decision where a unilateral decision could have significant downsides.

CROWLEY: Senator Carl Levin, chairman of the Senate Armed Services Committee, you have hearings this Tuesday with the NATO commander as your chief witness, talking about Libya. Thank you so much for joining us today.

Up next, we'll get perspective on Libya from two former intelligence officials, former CIA Director Michael Hayden, former National Security Adviser Stephen Hadley.

(COMMERCIAL BREAK)

CROWLEY: Joining me now here in Washington, retired General Michael Hayden, former director of the CIA; and Stephen Hadley, former national security adviser.

OK. It seems to me, after talking to Senator Levin, and after listening to the secretaries of state and defense, that we're in this until Gadhafi leaves. Do you see any scenario under which this no-fly zone can stop being enforced and the coalition can leave and leave Gadhafi in place?

HAYDEN: Personally, I think when we took the first military action, that was kind of the informal contract that we signed. That we're in this until he goes away. He's loving this. He is loving the international attention. So frankly, his going away will have to be involuntarily.

CROWLEY: Do you agree?

HADLEY: I think that's right. I think the killing of civilians doesn't stop until he leaves. So if that's our objective, he has got to go.

But also, that's what the president of the United States has said, that Gadhafi needs to go. And the dilemma they've got is they've got an objective up here which is the president needs -- Gadhafi needs to go. And authorization from the U.N. that talks about protecting civilians, and a question of what is the military force we're going to apply to those goals.

And I think the challenge for the administration is to square all that up. And that's the challenge for the president Monday night.

CROWLEY: Right. I mean, rhetorically, we're dancing on the head of a pin here. Because clearly you can't stop -- exactly what I tried to ask Senator Levin, what you've just said, is you cannot stop him from attacking his own people until he's gone.

So I want to play you something that General Carter Ham, who is commander of the U.S. Africa Command, used to be in charge of this operation, now it's going to NATO, and I want to ask you about this.

But here's how he talked about the mission on Friday with Wolf Blitzer.

(BEGIN VIDEO CLIP)

GEN. CARTER HAM, COMMANDER, U.S. AFRICA COMMAND: Our mission is not to support the opposition forces. Those who are causing civilian casualties are regime forces. So when we destroy or degrade the capability of regime forces, then certainly we are doing that and there is some benefit to the opposition. But we do not operate in direct support of the opposition forces.

(END VIDEO CLIP)

CROWLEY: Can you explain that to me?

HAYDEN: I can only imagine what Carter -- what General Ham is going through and particularly his tactical commanders. Is, they try to square that circle. And at what point are Gadhafi forces representing a clear and present danger to civilians as opposed to an opposed armed enemy force from the opposition?

It must be very difficult right now to apply the rules of engagement in the way that General Ham suggested. And as Stephen and I are saying, I mean, in for a penny, in for a pound. This isn't over until Gadhafi is gone. We need to square up our means with our objectives. HADLEY: And I think the way the administration is trying to do that is this. They are trying, particularly going after the ground targets, the tanks, the artillery, and the like, they're trying to send a message to the Libyan military that this is over and Gadhafi needs to go, and encourage the military to turn against Gadhafi.

That's the first thing they want to do, because the notion is if the military turns against him, he is isolated, and they will get rid of him.

I think in parallel what you're going to see is they're going to try to start reaching out to the transition council that has been established, try to help organize the leaders of this uprising.

And, third, I would hope that the Libyan people will see this as an opportunity for them and they will begin to rise up again. Because the narrative we want is that the Libyan people free themselves of the dictator. That is the freedom agenda. And that is a narrative on which you can build a post-Gadhafi Libya.

CROWLEY: Right, because the U.S. getting rid of Gadhafi is not going to work, not just in Libya, but across the Middle East, as much as they...

HADLEY: It's a bad narrative.

CROWLEY: ... dislike him.

Let me ask you, if for some reason Gadhafi should survive, he becomes a huge danger to the U.S., does he not? I mean, we have called for his removal. We have bombed his military facilities and his tanks, and killed some of his forces. And he has got money. So he could support terrorism across the world.

HADLEY: It's also the symbolism to the Middle East. For Mubarak, who actually did do some things to try to reform, to be gone, and Gadhafi, who did not reform, and used force against his own people to stay, that's somehow going to get blamed on us.

And in the Middle East, the people are going to read it as the United States wanted Mubarak on, and they wanted Gadhafi to stay. That is a terrible outcome, and a terrible message to the Middle East, because what it basically says is, you know, the way to stay is to use force against your own people, which is exactly the opposite message we want to send.

CROWLEY: Of what they're trying to do.

Stand by. I want both of you to stand by. When we come back, we will finish up on Libya, but broaden the picture and look at some of the other hot spots in the Middle East.

(COMMERCIAL BREAK)

CROWLEY: So much of what's happening in the Middle East and northern Africa was unthinkable just months ago. Decades old repressive regimes are facing determined opposition. Libya claims the headlines now, but it was not the first nor the last country to rise in revolt. Protests erupted Friday and Saturday in Syria and government security forces opened fire killing dozens of demonstrators. The crackdown continues in Bahrain where police use helicopters, jets, and tear gas to counter the demonstrations.

Pro and anti-government protester hit the street of Yemen Friday as that country's president announced he is ready to offer concessions in order to avoid bloodshed.

And over to the Jordanian government, over 100 people were injured during clashes in the capital of Amman.

We will look at the big picture of what this all means for the Middle East and the U.S. next.

(COMMERCIAL BREAK)

CROWLEY: We are back with former CIA director General Michael Hayden and former national security adviser Stephen Hadley.

General Hayden, first to you. We hear all of this, you know, NATO is going to take, you know, command and control. Now they're ahead of it. We're not in head of it. The U.S. is going to step back. We'll give them the fuel they need for the flyover. Is it all possible for the world's only remaining superpower to stay in the backseat of this?

HAYDEN: Well...

CROWLEY: ...operation?

HAYDEN: I think we are in terms of the local commander, a very competent Canadian general has been named to do that. But keep in mind, the chain of command has two Americans north of him in the organization chart.

Frankly, Candy, there is capabilities that only we have. If there is any stress in this mission when it comes to electronic warfare, jamming, suppressing enemy air defense, refueling, intelligence, surveillance, reconnaissance, combat search and rescue, precision strike, there's no one in our class within NATO. So those are the American forces conducting those actions.

CROWLEY: So this is a rhetorical flourish here that NATO is in charge and we're in the backseat.

HAYDEN: I don't mean to trivialize what are allies are doing, but there are some things only we can do. And those some things are still needed.

CROWLEY: Will we be flying planes -- is there any way to do it so we're not flying planes other than in a backup, you know, fueling position? HAYDEN: No. I can't imagine that.

CROWLEY: We have to be in the no-fly zone.

HADLEY: I think the administration is going to try as much as possible to -- so that the actual planes enforcing the no-fly zone and ultimately doing ground attack are more allied planes than U.S. planes. Maybe completely allied planes, not U.S. planes.

But Mike is right, the enablers that are going to cludge (ph) all this together an effective operation, those are going to continue to be American.

CROWLEY: We looked around this week -- Yemen, Syria, Jordan. Seems to me the greatest of these right now is Syria where there has been a lot of bloodshed so far. What worries you about what is going on in Syria?

HADLEY: I think there's a terrific opportunity here. This is a -- Syria is led by a dictator who has not only oppressed his people, but supports terror. He's been disruptive in Lebanon, he's been disruptive in Iraq, done actions that have gotten Americans killed in Iraq. So the coming of freedom to Syria is really a very hopeful thing. If that regime could be replaced by a regime that is more responsive to the aspirations of the Syrian people and is going to look to actually beret lot of the Syrian people, that will be a great thing for Syrians, it would be a great thing for us in the Middle East.

And it would also send a clear message to Iran, Syria is really Iran's closest friend, and if revolution and democracy and freedom can come to Syria, that will give some hope to the Iranian people that actually with the Arabs finding their way to freedom, it's time for the Iranian people to do so as well.

CROWLEY: Is it ridiculous to ask, well, should there be a no-fly zone in Syria? I mean in some ways it's this, you know, there is a parallel here at the very least. You have got a guy who is cracking down his own people, doesn't hesitate to kill them, has had emergency law in effect in that country, at least, for half a century.

HAYDEN: There are practical differences certainly with regard to the strength of the Syrian armed forces and Libyan armed forces. And frankly, the Libyan opposition had gotten to the point where this truly was a civil war. They controlled territory.

Candy, I think maybe the most important thing -- I may have been real reluctant two or three weeks ago to be very active in Libya, but we are where we are now and we need success. We talked about Gadhafi must go.

He must go not because of Libya but because of the region. If we fail in Libya, we will teach Bashar al-Assad and the leaders in Tehran that if you're willing to kill enough of your own citizens, you get to stay in power with impunity.

So maybe the most important thing we can do with regard to Syria right now is to succeed in Libya.

CROWLEY: And what do you make of what's going on in Jordan? I mean Jordan and certainly Saudi Arabia, two of the closest -- used to be Saudi Arabia was a little upset with us at the moment, but Saudi Arabia and Jordan, these are close U.S. allies, and yet it seems to me that they're beginning to see -- certainly Jordan is beginning to see, some demonstration in their street. How do we handle that?

HADLEY: Well, these are countries that are different from Syria and Iran. These are regimes that actually have tried to reform and to move in the direction more democracy and freedom for their people. And I think our policy with respect to them needs to be to encourage them to do that, to say to them, you know, you need to accelerate the face of reform. You need to show your people that you're leading reform, not being a burial to reform. And that I think distinguishes them from Syria and from Iran.

HADLEY: I think the other thing we need to do in terms of our policy in -- with respect to Libya is to get back to a narrative where this is not an intervention to overthrow dictator. We are enabling and empowering the Libyan people to overthrow a tyrant.

That's why I think we do need to consider arming the rebels and let them -- with anti-tank weapons and anti-aircraft weapons, let them impose their own no-fly zone. In the end of the day, how this ends is when the Libyan people can overthrow the tyrant, that's the narrative we want to establish.

CROWLEY: Stephen Hadley, Michael Hayden, as always, thank you so much.

Up next, the latest on efforts to contain the damaged nuclear power plant in Japan.

(COMMERCIAL BREAK)

CROWLEY: Tokyo's Electric Power Company is re-examining test results from the number two nuclear reactor at the Fukushima power plant after the country's nuclear safety agency questioned extremely high radiation figures.

Earlier the power company said radiation levels are 10 million times the norm in the water at that reactor. With me now here in Washington to discuss the nuclear crisis in Japan, Joe Cirincione, president of the Ploughshares Fund, a public grant-making foundation focused on nuclear weapons policy.

I have to tell you, we've discussed this every week since it happened, and, to me, it gets more and more confusing. Because at first you think, oh my, this is catastrophic. And then people say, oh, you know, it's not that much radiation, it's OK. Can you -- can you compare this to something? Can you give me some sense of how serious this is, or, I guess could become, since it seems sort of never-ending?

CIRINCIONE: This situation is extremely serious. It is an unprecedented situation. I was talking in the Green Room to Stephen Hadley about multiple meltdowns. He thought I was talking about the Middle East.

But it's here in these nuclear reactors on the northern shore of Japan that you have an unprecedented situation where you have six nuclear reactors lined up in a row giving new meaning to the definition of nuclear dominoes.

Any one of these would be considered a serious situation, but the fact that you have all of them in critical condition at this same time makes this a uniquely challenging situation.

We have the possibility in three of those reactors, one, two, and three, of meltdowns. At least partial meltdowns are already under way in the cores -- those fuel rods in the cores. And then the fourth reactor, the core was taken out and put in the spent fuel pond. And there, jammed in with other fuel, is a possibility that that could also melt or catch fire.

And you have these high radiation levels spiking up, spiking down, leading to a situation that, frankly, no one knows how to end.

CROWLEY: Well, I was going to ask you, is this now beyond Japan's ability to contain it?

CIRINCIONE: Well, frankly, honestly, I do believe this is beyond the ability of the Japanese authorities and those heroic workers, despite their best efforts, to really contain.

You have to understand, what they're doing now is not in any safety manual. There's no plan for moving fire trucks on the beach and pumping seawater into reactor cores. There's no plan for what they're doing in the least threatening facilities, five and six, where they've had to punch holes in the wall to prevent any damage for potential hydrogen explosions.

They're literally making this up as we go along. And the real danger is what we've been seeing today, the possibility of high levels of radiation, whether it's going to be 10 million times or just a 1,000 times, which is what the reading from one of the other reactor was.

That could force the evacuation of workers. If it gets to be a wide scale evacuation, that means there is nobody to man the pumps, there is nobody to run the control rooms. That means the water levels drop in the pools and in the reactor cores. And that could lead to full meltdowns and possible breach of the containment walls.

CROWLEY: And full meltdowns and breach of the containment walls means what?

CIRINCIONE: The best case is that these cores sort of melt down or partially melt down, it's all contained in these concrete boxes, basically. And then over the period of years, you would -- you have a slow period of cooling of this radioactive mess.

The worst case is that as they completely melt down and they punch through, they breach through the concrete walls, spilling radioactive lava on to the beach, on to the surrounding area, spreading radioactivity over tens or hundreds of square kilometers.

CROWLEY: I know that the information has been frustrating to people like you coming out of Japan, not knowing exactly what is coming, but can you give me your best guess as how this ends?

CIRINCIONE: My best guess is that there is going to be a bigger breach than we've already seen, and we suspect there are breaches in number two and number three reactors, and that there will be a bigger breach that will force the evacuation. and we'll see, I think, at least two core meltdowns and possibly two, maybe more, pool fires. And it will end very, very badly.

That's what I actually think is going to happen. I hope I'm wrong. I hope they contain it. This will take weeks or months in the best case to contain it, to keep that radioactivity in these concrete boxes.

And in the end, two, three, four years from now, we're going to have concrete and sand mounds, sarcophagi, on each of these reactors dotting the Japanese shoreline. That's going to be a monument that no one really wants to see.

CROWLEY: And in the little time we have left, if your worst-case scenario happens, who is the most affected? Is the entire island of Japan or some segment of it?

CIRINCIONE: Well, this is not like a Chernobyl accident where intense radioactivity shot into the atmosphere and spread across the continent, in this case Europe. This is a radiation problem for Japan.

It's unlikely that we in the United States are going to feel any effects of this. But it's absolutely -- immediately the farmers and the people in that 20-kilometer radius around the facilities, whether they can return to their houses again is very doubtful.

But you also have the nuclear power industry. Japan depends for over 30 percent of its electricity on nuclear power. This is a blow that, frankly, I don't think the nuclear power industry in Japan can recover from. And it may cripple nuclear power construction around the world, just as Chernobyl and Three Mile Island did.

So that is the ripple effect that I'd be looking for from this crisis.

CROWLEY: Joe Cirincione, thank you so much for your expertise on this.

CIRINCIONE: My pleasure. Thank you for having me on.

CROWLEY: Up next, what impact the crisis in Japan and the unrest in the Middle East are having on the global economy.

(COMMERCIAL BREAK)

CROWLEY: The butterfly effect holds that the smallest change in a complicated system can cause big things to happen elsewhere. So you have to wonder how major events in the Middle East, Libya, and Japan are affecting economic recovery. Crude oil prices are up 20% since mid-February when uprisings began in Libya. This weekend a gallon of regular gas was more than 34 cents higher than it was just a month ago. Sales of new homes fell more than 16% last month, the lowest level since the government started keeping records.

In the economic aftershocks of Japan's crisis, Toyota of North America has warned employees it may have to shut down auto production because of shortages of some Japanese-made parts. American car manufacturers GM and Ford have been affected, too.

Japanese manufacturers have also delayed production of critical components in the iPad.

A CNN poll found 60% of Americans disapprove of the president's hands willing of the economy, his highest disapproval rating ever on the economy.

Alice Rivlin, former director of the Office of Management and Budget and Douglas Holtz-Eakin, former director of the Congressional Budget Office are next.

(COMMERCIAL BREAK)

CROWLEY: Alice Rivlin and Douglas Holtz-Eakin, thank you both so much for joining me.

You know, every time we watch the stock market, the analysts say, well you know, the oil did this and, therefore, the stock market's done that. What is the net effect of what's going on in the world -- I know the markets don't like things that aren't settled, but what about just every day living, you know, in America, looking for a recovery that is still sluggish?

Japan, has that affected the recovery at all? And how about Libya and the Middle East in general on oil?

RIVLIN: Well, nothing is going on is good -- Japan, Libya, whatever, the high price of oil and gasoline, all of these create uncertainty and to some extent a drag on the economy, especially the price of gasoline and oil.

But none of it is major yet. Your intro emphasized all the things that might be bad, but the good news is the economy is perking along, not fast enough, very weak hiring, very weak in housing, but the rest of the economy does seem to be coming back slowly but steadily.

CROWLEY: But what -- can you really have a recovery with -- in a housing market, we keep saying the housing market hit bottom. Oh, the housing market has hit bottom. So now we've gone to the lowest ever in new home sales which are the most important, because they provide jobs in building, et cetera. Can you really have a recovery without a recovery in the housing market?

HOLTZ-EAKIN: There are two pieces to the housing recovery. The first is construction of new homes. And there we've seen the housing market go from just a really drag on the economy to about neutral. It's not adding or subjecting from growth at this point. The second piece is the value of homes, which affects deeply how families feel about their futures and their ability to spend. And there I think we're about to see the worst end. But until both of those start moving north, we're not going to see a really robust recovery.

CROWLEY: Because it undermines consumer confidence, right?

HOLTZ-EAKIN: Absolutely.

CROWLEY: And what about hiring and gas prices? Isn't there some connection there? If I'm a business and suddenly my energy costs have come up whether it's a business that involves trucks or a business that involves heating or air conditioning in the summer, doesn't -- isn't that a drag on hiring people?

RIVLIN: Yes. For some businesses, it is. The main effect is that consumers who have to buy gasoline will spend less on other things. So it's a drag from that sense. And for some energy intensive businesses as well.

But we don't have as many of those as we used to. We're not as dependent as an economy on energy.

HOLTZ-EAKIN: I think there are three lessons on the oil and gas front. Lesson number one is we have oil at $140 a barrel in 2008. And it went down not because we somehow discovered a lot more oil. No, it went down because we went into a massive global recession. As economies recovered, it was inevitable that prices were going to rise. And this was utterly foreseeable.

Second piece is that Libya's not really the concern. That's not what markets are pricing. It's the broader Middle East. Libya is 2% of oil supplies. That's not our problem. It's what happens in the rest of the Middle East.

And the third is, something like this is always going to happen. There is always some piece of bad news out there. So, the key should be to build an economy that's growing more robustly, it's more resilient to bad news that inevitably will happen. And there we could do better.

We've seen calls for more pro-growth strategies this week from Eric Cantor, for example, and it really is time to get a strategy that is about having the economy grow faster.

CROWLEY: And so what I take from you is, yeah, around the margins this isn't great for the economy. However, when you look at the current state of the economy, the sluggishness of recovery, what worries you most?

RIVLIN: What worries me most, and I suspect Doug as well, is our looming debt crisis. We've got to get past this squabbling over the federal budget for this fiscal year. That's just a squabble. But what is really important is that we're moving into a period when we will have debt rising rapidly because of the retirement of the baby boom generation and high medical care costs. And we've got to do something about that. It's got to be bipartisan, and we've got to do it soon so that we reassure our world creditors that we're on the job.

CROWLEY: Doug, can you just -- I think people know intrinsically the debt is a bad idea, and when they hear trillions and trillions, it's an even worse idea. But can you connect debt to my life, to the life of the viewers?

HOLTZ-EAKIN: Sure. If we continue down the path we're going down, in the good-news scenario, what we see is interest rates start creeping up and then elevate sharply.

That means that, if you want to buy a car; if you want to buy a house; if you want to send your son or daughter to college, it's a very expensive proposition.

It also means that the place you work can't invest in the upgrades it wants to and it really can't start giving you raises because they're carrying costs of their debt. So you see an economy that starts to stagnate, where you don't increases in the standard of living, and everyone suffers from that. And it goes on for a long period of time. That's the good news scenario.

The bad-news scenario is we see 2008 all over again, where credit freezes up and we get a sharp recession. Neither is something we should mess with.

CROWLEY: I was going to ask you, I mean, can you -- if the crisis remains a crisis and Congress can't get its act together nor do something about it, which I'm assuming is for you all cutting spending, perhaps raising taxes, some -- you know, combination thereof, could we have a worse recession than we have just experienced?

RIVLIN: Yes, we could definitely have what's called a sovereign debt crisis. We used to think that only happened to small countries on other continents, but it could happen to us as well.

That means we would not be perceived as able to get our act together and pay our debts. And our creditors would lose confidence in us. And when that happens, things go south very fast. We could have a big spike in interest rates, a big fall in the dollar and be plunged into a worse recession than the one we're climbing so slowly out of right now.

CROWLEY: Let me ask you, speaking of Congress getting its act together, an article in The Washington Post noting that this is the longest we have gone on a budget with these, kind of, incremental continuing resolutions; that is, these temporary spending bills for two weeks or three weeks while Congress really tries to decide how to fund the government.

Is there any harm in that? As long as they keep funding and the government doesn't shut down, does it matter that they're doing it in two and three-week increments? HOLTZ-EAKIN: Yes, it does matter. And I think there's two pieces of bad news. The first is, you know, as a former director of a government agency, you can't run your agency in these circumstances. You get a budget for two weeks, and you can't make any long-term commitments. You don't know if you can hire. It is impossible to manage.

And so when we see federal agencies and say, oh, they're so inefficient and bureaucratic, one part of their problem is Congress, which does this to them far too regularly.

The second, I think, problem here is that it's a distraction from the bigger issue. The bigger issue is not the continuing resolution. It is the fact that we're headed into a looming crisis and that we need to take on all kinds of spending.

And I would prefer to see the House and the Senate passing budget resolutions that take on the big spending programs, the Social Security, the Medicare, Medicaid, the Affordable Care Act, then develop a coherent strategy so we can grow rapidly and leave our children a better standard of living. We're not doing that.

CROWLEY: You've been around Washington a long time.

(LAUGHTER)

... a member of -- co-chair of the debt commission, so I know you think they ought to tackle entitlements.

RIVLIN: Absolutely.

CROWLEY: I'm assuming you agree here?

RIVLIN: I totally agree with Doug. This is not a partisan thing. We've got to get past this distraction of the immediate this- fiscal-year budget which does cause problems if it isn't addressed. And then we've got to get onto the longer run really fast. We've got to do it now because you can't do it quickly.

When it is to do with people's retirement, you can't change that overnight. You have to change it slowly over a long period. But you need to start now to show that we can do it.

HOLTZ-EAKIN: And there's actually a playbook that we could run that's been tried around the world and been successful. If you need to control a big budget problem and you need to grow -- we need to do both in dramatic terms -- then you need to keep taxes low and reform them. The commission that Alice was on all called for a tax reform.

And we saw this week the administration, sort of, back away from a key part of those tax reforms. We should do them. The second thing you need to do is, you know, cut spending and in particular transfer programs and government employment.

And this has worked around the globe. We've even seen it in our backyard. Puerto Rico has undertaken a tremendously aggressive package of this type. It's been very successful.

CROWLEY: Douglas Holtz-Eakin, Alice Rivlin, thank you for joining me.

HOLTZ-EAKIN: Thank you.

RIVLIN: Thank you.

CROWLEY: Up next, a check of today's top headlines followed by "Fareed Zakaria: GPS" at the top of the hour.

(COMMERCIAL BREAK)

CROWLEY: Time for a check of today's top stories. Rebels in Libya are claiming victory in the key oil town of Brega. Meanwhile, Defense Secretary Robert Gates tells CBS there is evidence Moammar Gadhafi is faking civilian casualties by coalition air strikes.

(BEGIN VIDEO CLIP)

SECRETARY OF DEFENSE ROBERT M. GATES: We do have a lot of intelligence reporting about Gadhafi taking the bodies of people he's killed and putting them at the sites where we've attacked. We have been extremely careful in this military effort.

(END VIDEO CLIP)

CROWLEY: The air strikes are continuing as NATO prepares to take command of the Libyan mission.

President Obama is among those paying tribute to Geraldine Ferraro. Ferraro died yesterday after battling cancer for 12 years. She was the first woman nominated for national office by a major party. President Obama said his daughters will grow up in a more equal America because of Geraldine Ferraro. She might best be remembered for what she said in accepting the vice presidential nomination at the 1984 Democratic Convention.

(BEGIN VIDEO CLIP)

FORMER REP. GERALDINE FERRARO, D-N.Y.: Choosing a woman to run for our nation's second highest office, you send a powerful signal to all Americans. There are no doors we cannot unlock.

(APPLAUSE)

We will place no limits on achievement. If we can do this, we can do anything.

(APPLAUSE)

CROWLEY: It would be 24 years before another woman would run on a major national ticket. In a statement expressing her condolences at Ferraro's passing, Sarah Palin called Geraldine Ferraro "an amazing woman who broke one huge barrier and went on to break many more."

Geraldine Ferraro was 75.

And those are your top stories today. This reminder, CNN will have complete coverage of the president's address to the nation tomorrow evening. Thank you so much for watching "State of the Union." I'm Candy Crowley in Washington.