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STATE OF THE UNION WITH CANDY CROWLEY

Interview With Ron Paul; Interview With Michele Bachmann; Interview With John McCain

Aired December 4, 2011 - 09:00   ET

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


CANDY CROWLEY, CNN ANCHOR: Numbers that rocked the week: 8.6 percent, 25 percent, and minus one.

Today, the Republican dynamic minus Cain with candidates Ron Paul and Michele Bachmann.

Payroll taxes and Republican politics with former presidential candidate John McCain.

And the reality and politics of a drop in unemployment with Alice Rivlin, Douglas Holtz-Eakin and Ron Brownstein.

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

The Iowa caucuses are curious things, places where a guy named Jimmy Who began his journey to become President Carter, places where inevitable winners like Hillary Clinton and Howard Dean lost, places where somebody could rewrite the story that this Republican race has come down to Mitt versus Newt, somebody like Ron Paul.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Newt Gingrich has been on both sides of a long list of issues sometimes in the same week.

NEWT GINGRICH, REPUBLICAN PRESIDENTIAL CANDIDATE: It's wrong to go around and adopt radically different positions, because then people have to ask themselves what will you tell me next time?

(END VIDEO CLIP)

CROWLEY: Ron Paul hit Newt Gingrich pretty hard this week and he's got the money to keep at it, $3.6 million in cash. Even better, he's got the army, Time magazine reports Paul insiders claim to have hard pledges from 20,000 caucus goers. A record 120,000 Iowans showed up in the 2008 Republican caucuses.

And one more number: 30.

Congressman Paul joins me now from his home state of Texas. Congressman, you were greeted this morning by a new "Des Moines Register" poll that I want to share with our audience. It is showing Newt Gingrich on top at 25 percent, and then coming in second, Ron Paul at 18 percent beating out Mitt Romney at 16 percent and everyone else in the single digits.

How do you take these numbers and roll it into a victory in January? Have you got the manpower to do it?

REP. RON PAUL (R), TEXAS: Of course it is very encouraging because we're getting pretty close to it being within the margin of error. So I think we continue to do what we're doing. We've had the flavors of the month up and down so far in this campaign. I'd like to think of myself as the flavor of the decade. We keep plodding along on a couple of issues that are really striking a chord with the people and that is, of course, the wars, the endless wars going on, as well as the financial condition of the country because I've been talking about the housing bubble and the financial situation that we have and the crisis going on, and even the recent promises that we, the United States, with our dollar, will bail out Europe.

So these issues are been, you know, striking a chord with the people and I think this is why we are doing so well in the polls not only in Iowa but we have some similar results up in New Hampshire.

CROWLEY: You are in fact doing well in New Hampshire. But I wanted to ask you, I want to show another poll that we have done. This is a CNN/ORC poll. And the question is, which Republican candidate has the best chance to beat President Obama: Mitt Romney 40 percent, Newt Gingrich, 21 percent, Herman Cain was still in it when this poll came out 16 percent. You are down at 4 percent. And this is a poll among Republicans.

So the very -- there are Republicans in Iowa putting you in second place and yet only 4 percent of Republicans see you as the one best able to beat President Obama. Can you explain that to me?

PAUL: Well, if you're starting to talk about the general election, that poll doesn't mean very much because you take -- even in the primary up in New Hampshire, you know, the largest number of registered voters in New Hampshire are independent.

But go out and do a poll just on independents and put my name up against Obama. All of a sudden the disenfranchised and the people from the left who are upset with the constant wars and the attack on our civil liberties, they're really down on the president. And they're down on the economy. So I would bet you we get a completely different result.

And you don't win just with the hardcore Republican base. You have to have a candidate that's going to appeal across the political spectrum. And I think with my views they're quite different than the hard-edged views that so many on the Republican side frequently are showing.

CROWLEY: Well, in fact, you're right, it does take more than just Republicans, or for Democrats just Democrats, to win a general election. But, would you agree with the premise that when it -- when it comes down to that night in Iowa, and when it comes down to that primary night in New Hampshire, what Republicans most want -- and they are the ones who are going to decide the nominee -- what they most want is someone who can beat President Obama and they rate so many people above you. And that's why I think it is important to talk about electability, because it is a factor in how people view you.

PAUL: Yeah.

You know, I would say that if the people in Iowa wouldn't consider me a good option to beat Obama I wouldn't be a close second in there. So it is already reflecting a favorable rating for that. But I think you point out -- maybe you're giving me subtly some good advice, you better keep working. And that is what we have to convince the primary voters that we can do a good job in the general and that, of course, is part of the campaign. And I think that's where we're making progress.

CROWLEY: Trust me congressman, you don't want to take election advice from me no matter what.

Let me ask you about the departure of Herman Cain. What is it inside -- this was a man with huge appeal to the Tea Party. And who does leave some voters in Iowa and elsewhere looking for another candidate. What is it in Ron Paul's campaign that might attract a Herman Cain -- a former Herman Cain supporter.

PAUL: Well, I think you mentioned the right word -- the Tea Party people, because actually the Tea Party was started during the last campaign four years ago when our campaign. It's morphed into different things and it's broad-based and it is not monolithic. But there are a lot of people who call themselves Tea Party people that did like the independent mindedness of Herman Cain. So I think that we'll probably do better, even though some people are saying, oh, no, they're all going to go to so-and-so.

But, no, I think that -- and we're paying a lot of attention to that, because obviously they're going to go somewhere in the next week or so. That's going to happen.

So I'm optimistic that we'll pick up some votes from there.

CROWLEY: I don't know if you know it, but are you in a bit of a tiff with Donald Trump at this point who was told that you were not going to participate in a debate that he apparently is going to host. He said nobody takes him seriously. He's a clown, et cetera, et cetera.

I know you didn't -- you did not want to participate in the debate because you feel similarly about Donald Trump. Do you think the Republican Party hurts itself by having a high-profile debate with Donald Trump as the moderator?

PAUL: Well, yeah. And of course, some of that debate was going on from what the staffers that would like to take him on but obviously he was representing me.

But, yes. I think they hurt themselves. But in the statement that I approved, it said that one of the concerns that I had was really how he was treating the Republican Party of Iowa. And he didn't treat them well because he had agreed to come to their biggest fund-raiser of the year because he was talking about running. When he changed his mind about not running he canceled on them. They had to cancel the event. And that was a bit of an insult to them.

So I've gotten a lot of good favorable responses from the people of Iowa, even the people in the party that appreciated the fact that I mentioned that because they were very unhappy with the way he treated them by just stiffing them and walking away from it and they were left holding the bag.

CROWLEY: What do you make of his popularity? I mean he said my poll numbers when I was in are higher than Ron Paul's. Why do you think people like him -- you know Newt Gingrich is going to this debate, others have said they're going to the debate, but you don't want to.

PAUL: Yeah, I don't quite understand it. I don't understand the marching to his office. I mean I didn't know that he had an ability to lay on hands, you know, and anoint people. But I have to just do my thing. I don't think -- obviously -- you know, early on, even at CPAC, he volunteered the first attack on me.

But evidently, you know, he probably doesn't like my position on the federal reserve. You know, easy credit for developers and investors, you know they like easy credit and they like the federal reserve and they like that for bailing out. So I don't know, maybe deep down philosophic. And of course his position on China was quite different. So I think it is philosophic and probably his personality that doesn't like to be challenged.

CROWLEY: Let me -- this week the president has gotten a lot of good news that might be able to sort of pump up his campaign, consumer confidence is up, new home sales are up, construction spending is up, and unemployment is down. Do you think this helps his campaign? And it fits in to what certainly the Obama re-elect people have told us, which is they just have to show people that the trajectory of the economy is going in the right direction, and certainly this week would say that it is.

PAUL: Well, I think so. I think the headlines helped him. Sometimes I think we overdo it. Presidents get a lot of credit and a lot of blame, and sometimes they deserve neither. But I think the headlines helps him. But when you go out and talk to the people, all of a sudden the people I talk to aren't that optimistic.

And when you look at those unemployment figures. Actually unemployment is still a serious problem.

PAUL: There's more people dropped out of the workforce than the people who got jobs.

And if you use the old-fashioned way of measuring unemployment there, the statistics are pretty bad. The tendency of the government when it talks about unemployment or the CPI -- the inflation rate -- they fudge the figures if they're not very favorable. And the unemployment, if you measure them the way we used to measure them, actually -- and I believe these figures -- that the free market economists who measure say we have 22 percent unemployment, when you add up everybody who doesn't look for work, who are just partially employed or the people looking for jobs.

So it is bad. The people know it. The sentiment is bad, and they also understand that their cost of living is going up and their standard of living is going down, and there's very little confidence out there. But, superficially and for a short time, maybe these headlines will get a little bump. But believe me, a bump from the very bottom on housing really doesn't re-assure that many people.

CROWLEY: Congressman and presidential candidate Ron Paul, thank you for joining us today.

And if you want more of Ron Paul, we want you to check out, just in time for Christmas, the "Ron Paul Family Cookbook."

Coming up, Michele Bachmann and why she thinks she's the only real conservative in the race.

(COMMERCIAL BREAK)

CROWLEY: Joining me from New York, Michele Bachmann, Republican presidential candidate, and author of "Core Of Conviction: My Story."

Congresswoman, thank you so much for joining us. The latest thing in this race, obviously, Herman Cain has withdrawn. How does that change the dynamic going forward?

REP. MICHELE BACHMANN (R), MINNESOTA: Well, I think Herman Cain brought a really important, exciting, energetic voice to the race, and I think a lot of people are going to be very sorry to see him go.

We've been talking with the Herman Cain campaign, and I look forward to having a full conversation with him. One thing that we've seen is that a lot of Herman Cain supporters have been calling our office, and they've been coming over to our side.

I think part of that is because people see that I'm the Tea Party candidate in the race. They saw Herman Cain as an outsider, and I think they see that my voice will be the one that would be most reflective of his.

CROWLEY: Well, one of the things that we're seeing, there is a new "Des Moines Register" poll out, where people are asked their second choices because, as you know, in those caucuses, second choices very often count.

And what they're finding is that when you take Herman Cain out of the mix, the person who benefits most from that is former speaker Newt Gingrich. How do you account for that?

BACHMANN: Well, I think what -- the dynamic is changing all the time in this race. It's almost like Wall Street, Candy. It's the up- and-down political Wall Street, if you will. Candidates are going up and candidates are going down.

And, really, I think it's when the voters take a look at the candidates. They want to see who's the most consistent conservative. And as the layers are peeled back, we find out who the candidates are, if they've supported everything, from the health care mandate to the Wall Street bailout, they turn away.

And when they find out that I'm the candidate who stands the most for their values, that's when they come home. People saw this in the Iowa straw poll that I won, that I wasn't expected to win that race. And I won, because people ultimately saw I was the most consistent conservative.

That's really also the title of my book, "Core of Conviction." I think they're going to see that now also on January 3rd, and I think they're going to be moving over. We've got 30 days. That's an eternity in this race.

CROWLEY: It is an eternity, and yet, as you know, every day counts. And you bring up that you're the Tea Party candidate. Certainly you've framed yourself that way. But I want to show you a poll about Republicans' choice for nominee, among Tea Party supporters.

So this was a poll of Tea Party supporters, and this was before Herman Cain went out, 29 percent, followed by Newt Gingrich at 21 percent, Mitt Romney at 18 percent, and then Michele Bachmann at 7 percent.

So it seems that that Tea Party patina has somewhat come off of you. How do you -- how do you gain that back? How do you explain this?

BACHMANN: Well, I think again it has to do with people finding out where people truly stand on the issues. If you look at, for instance, both Mitt Romney and Newt Gingrich, both of them have supported the essence of ObamaCare. That's not something that the Tea Party supports.

I'm the biggest fighter against ObamaCare. And of all the candidates in the race, I'm the one that's actually going to get rid of it as President of the United States, and the same thing with the global warming initiatives.

Both Newt Gingrich and Mitt Romney also supported the global warming initiatives. That's not something that the Tea Party stands for -- or the Wall Street bailout. I'm the one who opposed the Wall Street bailout. Both Mitt Romney and Newt Gingrich supported the Wall Street bailout.

So as Tea Partiers see what -- where the candidates stand, they're going to come home. And I think on January 3rd in Iowa, they're going to come home and vote for me in that caucus.

CROWLEY: Do you think any of this might -- because certainly voters in Iowa at this point ought to be pretty familiar with your record. You've been there a lot, as well as in New Hampshire, but more in Iowa.

Do you think any of this could be in whether people view you as electable? Because it does tend in the polls to show that more people view the others as electable rather than you.

BACHMANN: Well, the best poll that you have is the Iowa straw poll. Clearly, they saw that I was the most electable. And if you also look at the polls, upwards of 70 percent of the people are still undecided. They take this process very seriously and they're vetting all of the candidates, weighing each one of them because they realize Barack Obama cannot have a second term.

We have to have a strong, bold candidate for president. So they're taking a look at the candidates. And there's a lot of surprises that they're finding in this race, and a lot of surprises with the candidates.

After they look at them, they're going to see, of all of the candidates, I'm the one who doesn't have the political surprises. That's why we have a website, nosurprises2012.com, and people see I am the consistent conservative who will shred Barack Obama's policies in the debates.

CROWLEY: Let me ask you about the trajectory, if you will, of Tea Party support. A Pew poll that was in early November, do you agree or disagree with the Tea Party: agree, 20 percent; disagree, 27 percent.

All the polling, ours and others, also show that the negativity of how people view the Tea Party has gone way up. Is it possible that the Tea Party has overplayed its hand and is seen as too hardcore?

BACHMANN: Oh, for heaven's sakes, no. If people know -- if you ask people what the Tea Party stands for, if you say, do you believe that you're taxed enough already, that's the essence of the Tea Party. Most people agree with the Tea Party.

BACHMANN: If you ask people do you think that government should spend less money than what it takes in, most people agree with that. Do you think that the government should follow the Constitution? Most people agree.

Those are the three core principles of the Tea Party movement. So people agree with the essence of the Tea Party. That's why I believe fundamentally they have the strength.

The strength is not with Occupy Wall Street. If you go to the essence of what occupy wall street stands for, it's having other people pay for their stuff. That's not where the American people are at. That's why I think you're going to see a very strong, bold turnout in the elections. Because people are turning against Barack Obama and his failed policies.

CROWLEY: Let me ask you about those tax cuts. Because you are opposed to extending the tax cuts now in place whereby people are not paying as much in payroll taxes as they had been last year. So that's a tax cut. It will go away in January unless Congress does something. And yet you oppose extending that tax cut.

How does that square with the idea that people should have more of their money to spend?

BACHMANN: Well, I opposed it when it first came up a year ago last December. I voted against it, and I'll tell you why. Because it blows a hole of $111 billion in the Social Security trust fund. That's what it goes to fund.

CROWLEY: But couldn't you argue that...

BACHMANN: President Obama...

CROWLEY: ... the Bush tax cuts blow a hole in the deficit? I mean, you can argue that for other tax cuts that you favor. And so I'm trying to figure out why this one is different.

BACHMANN: Well, because the payroll tax directly funds the Social Security trust fund. Right now, we need that $111 billion in the Social Security trust fund.

And you also have to remember, Candy, the president's reason. He said he wanted to lower that -- the payroll tax cut because it would create jobs. Even the administration admits it didn't create jobs. It hasn't helped to turn the economy around. As president of the United States, I know what to do to turn the economy around. I'm a former federal tax lawyer. I created and I run a successful business as a private businesswoman. I get the economy. This payroll tax deduction didn't do what President Obama promised he would deliver that it would do.

Why would we continue something that isn't working and that is taking $111 billion away from senior citizens when they need that money in the Social Security trust fund?

CROWLEY: We should just add that the law says that that money will be repaid through general funds. But I've got to go, Congresswoman. Thank you...

BACHMANN: And there's no money in the general fund. That's the problem.

CROWLEY: Thank you so much for joining us. I appreciate it.

BACHMANN: Thanks, Candy.

CROWLEY: After the break, John McCain on Pakistan, the economy, and the 2012 race.

(COMMERCIAL BREAK)

CROWLEY: Joining me here in Washington, Senator John McCain, ranking member of the Armed Services Committee and the Republican nominee for president in 2008.

So I want to... SEN. JOHN MCCAIN (R), ARIZONA: Thanks for reminding me.

(LAUGHTER)

CROWLEY: So I want to take advantage of that experience of yours and ask you what do you make of the Gingrich ascendancy now in the party?

MCCAIN: You know, I have not commented on these different rises and declines of various candidates because I just don't think it's appropriate to do so.

I -- I did weigh in on the issue of waterboarding, which I am convinced is a moral issue. And also, I'd like to extend my thoughts to Mr. Cain. Thank you for serving. Thank you for willing to get into the arena, and we wish you luck in the future and a -- and a good life.

CROWLEY: You've got to be sitting back there watching this...

MCCAIN: Oh, yeah, sure.

(LAUGHTER)

CROWLEY: ... with some form of opinion.

MCCAIN: Relief -- with relief.

CROWLEY: With great relief, no doubt.

(LAUGHTER)

I mean, when you look at the field as it is now, anything -- anyone there bother you in terms of I just don't see this as president; I don't see this person as winning?

MCCAIN: No, I respect the views of the voters. The people of New Hampshire play a very big role and they are aware of their -- of the role they play. And so I put a lot of emphasis on New Hampshire, obviously.

But, look, it's a tough process. If I had, frankly, a criticism of the process, is that I think maybe we're really getting a little too heavy on the debates. There's a lot of other suspects of campaigning besides the debates. They have so many of them.

But, look, it's a process we go through, and I'm proud of it and I'm sure that whoever we select will be the -- will be the next president.

CROWLEY: Well, that was my next question. How vulnerable -- just politically looking, how vulnerable do you think the president is?

And I ask that against the backdrop of a really pretty good week for him in terms of, you know, how the economy is going, consumer confidence, new home sales, as you saw the drop in unemployment. This strengthens the president's hand, does it not?

MCCAIN: Oh, I think that improving economic news is obviously very important to his re-election chances. I mean, that's very obvious. But it's still very high.

There's -- one of the reasons why the unemployment numbers dropped is that so many Americans left the -- stopped looking for a job so they weren't counted. There is a long way to go in this -- in this economy and all of us want it to improve.

Look, everybody wants it to improve. And so to say that we want the economy to continue bad because it would increase our chances of beating President Obama, I'd rather have us beat President Obama on the issues, on the future of the country. And also, national security, at some point, I hope, will play some role in the presidential debate.

CROWLEY: Let me ask you about your home state of Arizona, which Democrats, you may or may not know, are beginning to eye as maybe doable for President Obama simply because you have an increased number of Hispanics who are registering...

MCCAIN: Absolutely. CROWLEY: ... a big drive to get them out, and because, by and large, that's a community that looks at the Republican Party as anti- immigrant.

Do you worry about the image, the imagery of the Republican Party as it relates to some of the issues that are going on up on the Hill right now? And I want to talk to you about the payroll tax.

But does the Republican Party need to refigure its imaging?

MCCAIN: I think that the Republican Party has to discuss this issue in as humane a way as possible. By the way, I would remind you that...

CROWLEY: Yes, but Newt Gingrich tried to do that and everyone jumped all over him.

MCCAIN: Yes, that's, you know, I still maintain that position.

But, look, also, the enthusiasm on the part of Hispanics for President Obama is dramatically less than it was in 2008 because he has not fulfilled his campaign promises, either.

So I view the Hispanic vote up for grabs. And I think that we are going to have to discuss this issue in a humane fashion. I still believe that most Hispanics agree that we need to secure the borders, if for the drug issue alone. We talk about people coming across the border, I'll tell you, Candy, the coyotes mistreat these people in a terrible fashion. The drug cartels, who are moving drugs across our border, that are killing our Americans by polluting our society with drugs. And we have an obligation to secure our borders.

But we also need to talk about how we need to treat people humanely... CROWLEY: Who are here.

MCCAIN: Who are here, who have been here for a long period of time.

CROWLEY: Paid their taxes, have a family.

MCCAIN: But the fact is, we don't want to trigger another flood of illegal immigrants by believing that if they can get across our border, they would be, therefore, home free. In 1986, we -- our beloved Ronald Reagan, we gave -- under him, we gave amnesty to three million people who are here illegally on the promise that we would secure the borders and we'd never have to address the issue again. Well, now there are 12 million people that are here illegally. So people have to have some confidence that it just won't trigger another third wave, as well. It's a careful balance of addressing this issue, which I think the majority of Hispanics would appreciate.

And drug trafficking and drug cartels and the existential threat of the government of Mexico, which spills over into the United States of America in many ways. Look at this Fast and Furious issue. It has to do with drug cartels.

So, look, I think we have to have empathy. We have to have concern. And we have to have a plan.

But at the same time, to say that we are going to have insecure borders and anybody can come across, if they can get across, then they're home free, that's not what -- the message we want to send, because it's unfair to people who live further away from this country and want to have the opportunity to come here.

CROWLEY: Quickly, because I want to move you...

MCCAIN: Sure.

CROWLEY: -- move you to some foreign policy issues...

MCCAIN: In other words, the long answer was too long.

CROWLEY: I'm sure -- but...

MCCAIN: The answer was too long.

CROWLEY: Oh, OK.

Yes or no, is Arizona doable for the president?

MCCAIN: I think it can be up for grabs. I think that's true of New Mexico, Colorado, Texas even, although maybe not this time. But the demographics are clear. The demographics are clear that the Hispanic vote will play a major -- be a major factor in national elections.

CROWLEY: Let me ask you about Pakistan.

MCCAIN: Right.

CROWLEY: The U.S. and Pakistani relations are terrible. The latest has been this unfortunate NATO attack that killed 24 Pakistani soldiers.

How does this get smoothed over?

MCCAIN: I'll try to make this answer as short as possible, but you really asked a complicated question.

First of all, our sympathy is with the families of those Pakistani soldiers that were killed, with our deepest sympathy and sorrow. But the fact is, there have been previous occasions where Pakistani military or others have fired across the Pakistani border into Afghanistan. This is a fog of war situation. An investigation is going on. But, also, the fact is that the ISI, the intelligence arm of the Pakistani Army is still supporting the Haqqani network, which is killing Americans. They had -- that is unacceptable.

There are two fertilizer factories where that -- the materials for which are used for IEDs that are killing Americans. Now we tried cutting of all relations with Pakistan for 10 years. It didn't work. But we have to address it in a realistic fashion and aid has to be -- has to be gauged on the degree of cooperation that they are showing us in helping us prevent the needless deaths of young Americans. That's our first obligation.

So I would gauge our aid, particularly military aid -- and we've given many billions, as you know, directly related to the degree of cooperation they show us. And we have to explore all alternatives. And but I can tell you, there's not a good answer to this.

CROWLEY: Senator John McCain...

MCCAIN: Yes.

CROWLEY: Sir, it is always -- there's always never enough time to talk to you.

I hope you'll come back.

MCCAIN: Thanks for having me on.

CROWLEY: Thank you.

Up next, everything is up to interpretation in politics, especially those job figures. We'll explain after the break.

(COMMERCIAL BREAK)

CROWLEY: We want to give credit for this segment to a 19th century British prime minister, Benjamin Disraeli. He once said there are three kinds of lies -- lies, damn lies and statistics. This segment is about the unemployment rate. It fell from 9 percent to 8.6 percent last month.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: We learned that our economy added another 140,000 private sector jobs in November. The unemployment rate went down. And despite some strong headwinds this year, the American economy has now created, in the private sector jobs, for the past 21 months in a row.

(END VIDEO CLIP)

CROWLEY: All absolutely true, as is this.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: The Obama administration promised that unemployment would not exceed 8 percent if we passed another stimulus bill. That promise has gone unfulfilled. More than 300,000 Americans left the labor force last month. That means they stopped looking for work. I think we should all be concerned about that.

(END VIDEO CLIP)

CROWLEY: Disraeli's point was the frequency with which statistics are used to back up weak arguments.

Who's on the wrong side of this equation?

Stats and politics with our panel of experts next.

(COMMERCIAL BREAK)

CROWLEY: Joining me to talk a potpourri of politics and the economy, Alice Rivlin, director of the White House Office of Management and Budget during the Clinton administration; Douglas Holtz-Eakin, who was chief economist of President George W. Bush's Council of Economic Advisers; and our own Ron Brownstein, CNN's senior political analyst and editorial director of the National Journal Group.

Thank you all.

OK, I want to -- the -- the president got some, what sounded to me like fairly good news this week. The November jobs report came out and said, among other things, 8.6 percent -- to me, breaking the magic number nine.

CROWLEY: 120,000 jobs added; private sector jobs up 140,000; government jobs down 20,000.

I don't -- unless you're in the government, that -- you know, people think that sounds great. Long-term unemployed, 5.7 million; retail jobs, up 50,000; change in the labor force, down 315,000.

OK. So that down -- I want to talk about that down 315,000, because I don't know who people are that suddenly decide they're so discouraged they can't look anymore. Who is that? ALICE RIVLIN, FORMER MEMBER, SIMPSON-BOWLES COMMISSION: Oh, I think it is people who've been looking for a long time, or maybe some more positive explanation, like their spouse just got a job, so they aren't looking as hard.

But it is the downside of what's happening at the moment. Jobs are being created, but not as many people are looking. So that helps the unemployment rate look a little better than it might otherwise look.

CROWLEY: So it isn't as -- 8.6 percent isn't as good, is it? I think it's symbolic. It doesn't have a 9, but I mean, so it's not as good as it sounds.

DOUGLAS HOLTZ-EAKIN, FORMER CBO DIRECTOR: If good news is the opposite of bad news, then this was a good news week, because we had some strong elements in the job report.

CROWLEY: Take it (ph).

HOLTZ-EAKIN: We saw some genuine decline in the unemployment rate that came from people being employed, and then some that -- people gave up. We saw an increase in employment, plus a revision to past months that look stronger than we thought. But below that, we saw bad hours, bad earnings, you know. It is not an unambiguously good picture.

RON BROWNSTEIN, CNN CONTRIBUTOR: No, well, look, it's a -- politically, it's a drip of good news, and he needs a torrent. I mean, the question really is whether it's sustainable. Political history is that trajectory matters more than level on unemployment. Ronald Reagan won 49 states in 1984 with unemployment at 7.6 percent.

CROWLEY: Which was horrendous.

BROWNSTEIN: Which was horrendous, but it was coming down. But it was coming down.

And so the real question here is whether the president can see sustained improvement, because I think that is a key to one of the arguments that he wants to make in 2012, which is, look, things aren't where they should be, but we've turned the corner, and we're moving in the right direction.

The economy hasn't given him much evidence to make that argument. This was, perhaps, the first glimmer that he will get some tailwind on that case.

RIVLIN: And it's the only possible thing that can happen. He's not going to get a torrent of good news. This is a very deep recession, and the housing market is still underwater, and we're not going to get a rapid, rapid job growth.

HOLTZ-EAKIN: He's working like mad on what could be the bad news, which is Europe. He has spent more time on Europe's debt problems than he's spent on ours, and that's because he's terrified that, Europe falls apart, you get a real downside hit, and we have a recession. Then it's over.

BROWNSTEIN: That trajectory.

RIVLIN: We should all be terrified of that. It's not just a political problem. It's an economic...

(CROSSTALK)

CROWLEY: ... whether or not a debt crisis...

UNIDENTIFIED MALE: Absolutely.

CROWLEY: ... which, as far as, you know, the -- I think the minute you say debt crisis in Europe, you know, you're going to hear people -- see people's eyes glaze over. But the fact of the matter is, that is by no means solved by a recent kind of Band-Aid that was put on there. It's a -- is that the biggest danger that -- to the economy right now, our economy?

HOLTZ-EAKIN: It's the biggest knowable danger. There's always something lurking out there we don't see, but it's already hurt us, because Europe's a big trading partner, and it is slowing down. And it could hurt us further if it falls apart completely.

BROWNSTEIN: Thank you, Secretary Rumsfeld.

(LAUGHTER)

BROWNSTEIN: The known unknowns or whatever (inaudible). But, look, I mean, actually, I think Americans have -- in the polling that we've done and others have done, we all have a sense that they are in a much more intertwined, globally interconnected world, and it isn't as absurd as it might have been 20 years ago to tell...

(CROSSTALK) CROWLEY: To say, oh, Greece is...

BROWNSTEIN: ... to tell Americans that Greece is failing and, you know, the dominoes may end up in your -- in the cost of your mortgage.

RIVLIN: But the United States economy has proved resilient in the face of a lot of shocks. And at the moment, it's proving resilient. Now that may not last, but it is proving resilient.

HOLTZ-EAKIN: And it has two silver linings. Silver lining number one is that there's not much left to go wrong. Housing's already depressed. Auto sector's down. So the -- you really can't get much more downside. So we need to grow. And manufacturing has turned out to be in much better shape than anyone dreamed, and it's been a real engine of this recovery.

CROWLEY: But what I hear you saying to me, as we wrap this first segment, is 8.6 percent unemployment is so much better, as that sounds, than 9 percent. The real danger is, it could go back up.

HOLTZ-EAKIN: Yes. BROWNSTEIN: And politically that would be the worst scenario.

CROWLEY: Right. I mean, it's almost worse than just staying at 9 than to go down and go back up. Isn't it?

HOLTZ-EAKIN: And I think the administration knows , because you didn't see any real dances on the White House lawn. I mean, the worst thing would be to celebrate this and have it go back up to 8.8, which it very well could.

BROWNSTEIN: Real quick, I think a key is whether the judgment in 2012 is primarily retrospective or prospective. The retrospective judgments on how the economy is under Obama, understandably, are pretty poor on the part of most Americans.

When you poll about his agenda going forward, versus the Republican agenda on how to create jobs, he does pretty well consistently in polling. So to the extent he can have people focusing forward, that's better for him. The history, though, is that a re- election is primarily a judgment on, are you better off than you were four years ago, with some element of a contrast at the end.

CROWLEY: We're going to be right back with more with our panel.

(COMMERCIAL BREAK)

CROWLEY: Back with Alice Rivlin, Douglas Holtz-Eakin and Ron Brownstein. I always think that the movie "Groundhog Day" should have been written as an ode to Congress.

(LAUGHTER)

CROWLEY: Because the fact is, we are back with the budget battle, and it always has do with taxes and spending. Any chance anything gets done in the middle of this election cycle?

BROWNSTEIN: Hard to imagine right now. I mean, you did have a situation in 1996, where ultimately congressional Republicans decided they had to make some deals with a Democratic president because they needed some accomplishments to go back to the voters. But they thought that Democratic President Bill Clinton was going to win.

This time, they think they have a very good shot at beating Obama, and one of the reasons why it's been so difficult to get anything done is Republicans believe that in 2013 they will have unified control of the House, the Senate and the White House, and they can impose their solution of a cuts-only approach, without having to accept the tax increases Democrats want to go along with that.

BROWNSTEIN: I think, for a lot of reasons, they are overestimating their ability to do that on a party-line basis; for example, to convert Medicare into a premium support or voucher system.

If you look -- just one quick thought: If the Republicans gain unified control of Washington in 2013, it will be because primarily of the votes of older and blue-collar whites who are actually quite resistant to the kinds of entitlement reform that they are talking about, which means that it may be much more difficult to hold the whole party together and do this on a party-line vote.

In other words, as always, compromise and bipartisan, bringing both parties together, is probably the only way to deal with a big budget problem.

HOLTZ-EAKIN: Well, I want to just start with the last point, which is that I think the lesson of history is, if you want to solve big problems, it has to be bipartisan and independent of the politics of this election. I think post the next election, we have a great chance to actually get something done.

Number one, the problem will be bigger by 13, 14 months. And it's a real problem that needs to be dealt with.

Number two, everybody running for president, including the incumbent, is dedicated to tax reform. That has to be part of this. That was one of the lessons of the Bowles-Simpson Commission.

And then, number three, the president will definitely be engaged 100 percent from the word "go." Because the next president has to solve this problem or they're never going to see two terms.

CROWLEY: What's frustrating, I think, though, is that, when the Republicans took over in the House, everyone said, oh, well, now they're going to have to compromise because, see, there's Republicans in charge and there's -- and...

(LAUGHTER)

... but the exact opposite happened.

RIVLIN: That's the tragedy. And all of this conversation is just a metaphor for the problem. We're talking politics here and not economics. Any group of bipartisan folks like Simpson-Bowles or Domenici-Rivlin that looks at this problem has said, as Doug just said, it's got to have a bipartisan solution. And the bipartisan solution is obvious. You have to slow the growth of Medicare and Medicaid. You have to fix Social Security. And you have to raise revenues by reforming the tax system.

BROWNSTEIN: And that is as politically true as it is economically, in the sense that, if you look back at 1981, 1995, 2005, each time a Republican congressional or presidential White House team tried to reform entitlements on a party-line base, they failed and suffered in the next election. Even expanding entitlements on a party-line basis, as Obama did in 2009 with health care, generated backlash.

The only way to do something this big on a program that affects this many people is to have both parties involved.

And as Alice said, each of these commissions have really come up with the same solution, including the gang of six and the Boehner- Obama talks. People know it's out there. The question is, can you build the politics to do it?

CROWLEY: Is part of the problem that we hear this all the time, "Holy cow, holy cow, the world's got to end. We've got to reform. We need tax reform. We need Medicare reform. And then they don't do it and we all keeping have our lives."

Is part of the problem that the public has not found a way to be vested in this?

RIVLIN: Well, part of the problem is we haven't had such a major crisis stemming from the budget...

CROWLEY: Right.

RIVLIN: ... that everybody says, oh, we have to fix it. But if we did have such a crisis, suppose it -- we have a meltdown in the economy, a double-dip recession, then you're in a situation where it's much harder to fix the budget. So we've got to do it before that happens.

But to come back to 2013, I want to come back to 2012. The thing that might force a -- an agreement in 2012 is that the Bush tax cuts expire. And nobody wants all of them to expire and to have a tax increase at the end of next year.

CROWLEY: Because the Bush tax cuts, even though they've been synonymous with -- with high income, it's actually across the board.

RIVLIN: All of them expire.

BROWNSTEIN: Michael Bloomberg, Peter Orszag, Martin Feldstein. There are people -- there is an argument to be made that, if you went back to the Clinton tax rates of the 1990s, you would have a substantial -- you know, you would basically solve most of the debt and deficit problem.

CROWLEY: You would solve the problem, but not in a very good way. BROWNSTEIN: There's no one who wants to do that. That's not going to happen.

HOLTZ-EAKIN: I think the biggest thing that is getting in the way of fixing this is the fact that we haven't had the big crisis, but the crisis that actually is going to matter is to the beneficiaries.

Social Security is running red ink right now, and our plan, which isn't a very good one, is to cut benefits in retirement in the future. It's a terrible plan. Medicare is running enormous amounts of red ink. We can't promise it will survive to the next generation of seniors. Medicaid's a bad program, getting starved for funds, getting worse.

You don't have to have a big financial and budget crisis. People on the ground are going to start to realize our safety net is fraying. We need to fix it.

CROWLEY: I need one-word answers if at all possible. The thing you worry about the most next year, either politically or economically?

BROWNSTEIN: I think more gridlock that causes more Americans to lose faith in Washington.

HOLTZ-EAKIN: I worry about Europe.

CROWLEY: Europe.

RIVLIN: I worry about both.

(LAUGHTER)

CROWLEY: And after that upbeat assessment of next year, up next, our top stories.

Thank you all very much.

We want to go to "Fareed Zakaria: GPS" at the top of the hour and -- who has an interview with former Greek prime minister George Papandreou.

(COMMERCIAL BREAK)

CROWLEY: Time for a check of today's top stories. Islamist parties have won a majority of seats in the first round of Egypt's parliamentary elections. The Muslim Brotherhood Party appears to be one of the major winners. The front-runner for Egypt's presidency, Amr Moussa, tells Reuters that the strong Islamic showing is democracy in action.

More than a dozen protesters in the Occupy movement were arrested in Portland, Oregon, as police cleared a city park of demonstrators overnight. Protesters rallied in the streets as park employees tore down tents. A Portland police spokesman described the situation as hostile, but Occupy demonstrators called the protests peaceful. This just in to CNN. Iran's state-run TV is reporting that a U.S. drone was shot down in eastern Iran. They cite a military source. Press TV reported that the drone was seized by authorities after, quote, "minimum damage." CNN is reaching out to U.S. authorities for possible confirmation.

And expect it to take longer to receive your first-class mail in the future. Tomorrow the financially troubled Postal Service plans to announce a cost-saving proposal that would have first-class mail arrive in two to five days instead of one to three.

Thank you so much for watching "State of the Union." I'm Candy Crowley in Washington. You can find today's interviews, as well as analysis, web exclusives and much more at our website, CNN.com/sotu.