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Fareed Zakaria GPS

Interview With Paul Volcker

Aired February 14, 2010 - 10:00   ET


FAREED ZAKARIA, HOST: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to our viewers in the United States and around the world. I'm Fareed Zakaria.

On the show today, a rare interview with the former chairman of the Federal Reserve, Paul Volcker. He's, of course, currently a key adviser to President Obama.

But he earned his place in history for something he did almost three decades ago. Paul Volcker killed inflation.

You will remember that in the 1970s, the United States was experiencing uncontrolled inflation, higher than at any time in its modern history. Savings were being wiped out. Wages were escalating every month.

Then, in 1979, Paul Volcker was appointed chairman of the Fed. And he began to raise interest rates to crush inflation. It succeeded. And it actually had a follow-on effect around the world, ushering in an era of low inflation, low interest rates and strong growth.

What impresses me most about Volcker was his willingness to do something that was deeply unpopular in the short term for the long- term good of the country. Today what he did is widely praised, but at the time, he was burned in effigy as a job destroyer.

Now, if you think about almost every problem we face in the United States -- and, in fact, in Europe, Japan and just about every advanced industrial country -- the solutions are readily identifiable. But they all involved trimming benefits, restricting credit, raising retirement ages, cutting pensions -- and, of course, raising taxes.

The effect of these reforms would be to place the country on much stronger economic foundations. But that benefit comes slowly over time, while the costs are sharply felt now, and by powerful, special interests.

That's why no one will propose any real cuts in spending or any real increases in taxation. Much easier to give everyone what they want and solve the problem by borrowing, borrowing and more borrowing.

So, the core problem facing rich democracies these days is that they cannot impose any short-term pain for long-term gain. And if we can't find the courage to do it, it is very difficult to be optimistic about the future for these countries, including the United States. Now, if we need a role model, Paul Volcker is still here.

Also on the program today, a debate on Iran and how we should handle its nuclear defiance and the Green Movement. And a conversation with the president of South Africa, Jacob Zuma, on his country, his policies and his wives -- yes, plural.


ZAKARIA: You believe you treat all your wives equally?



Totally different (ph). Totally (UNINTELLIGIBLE).



ZAKARIA: And Paul Volcker joins me now.

Thank you for doing this, Mr. Volcker.


ZAKARIA: Explain to the average viewer what is at stake here. Why is it important to get this financial reform passed?

VOLCKER: If a big, non-bank institution gets in trouble and threatens the whole system, there ought to be some authority that can step in, take over that organization and liquidate it or merge it -- not save it. It's what I call euthanasia, not a rescue.

And that has to be clear enough so that you avoid the so-called "moral hazard," that people think they're going to be rescued and, therefore, will take risks that they shouldn't be doing, in my view. This is what we pushed, what the president has accepted. They shouldn't be doing highly speculated activity. They shouldn't be doing so-called "proprietary" activity, where they're off there trading for their own interest. They're trading to make money.

And you get very aggressive traders, and they're out there. Millions of dollars are at stake, and personal bonuses, so they have a real incentive to take risks, which is fine, if you're not being protected by the government.

ZAKARIA: Are you surprised by the level of dysfunction on Capitol Hill in getting this reform done?

VOLCKER: Capitol Hill and the Senate is dysfunctional. I mean, I'm very disturbed about the trend in the government generally and its inability to get together and do things.

And I had some hopes. This is a relatively neutral subject politically. The need is so clear here. And it's not an ideological issue -- or it shouldn't be, anyway -- an ideological issue. It's a practical issue.

And, yes, I'm disturbed, because they can't get together on (ph) it (ph).

ZAKARIA: You've been around Washington, in and out, for 40, 45 years. Have you -- is this the worst...


ZAKARIA: ... you've seen it?

VOLCKER: Yes. Maybe I was child earlier, 40 years ago, 50 years ago and I was in my 30s. Maybe I was little more idealistic. But, no, I do think this is more dysfunctional than I've seen it.

Let me give you an example that resonates with me, and I can generalize it around the government.

But here we are, we had a new government come in last January, in the midst or the aftermath of this great financial crisis, and a clear need to consider reform. It's a complicated subject. It's going to take a lot of attention, a lot of expertise.

We are more than a year after the inauguration, and neither the undersecretary for international or the undersecretary for domestic finance -- you don't have them. It's not because people haven't been put forward. It took a long to get them nominated, and an impossible amount of time to get them confirmed.

I mean, why? What's going on here?

My memory is, when I became undersecretary of the Treasury in 1969, I was in office inauguration day. Now, I wasn't confirmed, but nobody questioned the legitimacy of being there. And I think I was confirmed within a week.

But how can the Treasury effectively function -- at least anything like maximum efficiency -- without the top officials in place that are needed to go up with the Congress, and negotiate with the Congress, and develop the plans, and meet with the people in the market?

And I pick on the Treasury. The same comment could be made about some other departments.

But what's the matter with this government that we can't even get together and get an administration installed?

ZAKARIA: You saw this crisis coming. You gave several speeches in which you outlined why you thought we were at a very dangerous point, in some cases, a year-and-a-half, two years before it hit.

What did you see that worried you?

VOLCKER: Well, this country, I'm afraid, went on a kind of consumption binge.

ZAKARIA: So, the core problem is that Americans started consuming too much...


ZAKARIA: ... and consuming more than their historical averages. And that's perhaps what really got us the growth of the last 10 or 15 years.

VOLCKER: That certainly -- that gave a rosy complexion to the growth. That's correct. But it was built on a foundation that can't persist.

We need to do more manufacturing again. We're never going to be the major world manufacturer as we were some years ago, but we could do more than we're doing and be more competitive. And we've got to close that big gap.

You know, consumption is running about 5 percent above normal. That 5 percent is reflected just about equally to what we're importing in excess of what we're exporting. And we've got to bring that back into closer balance.

ZAKARIA: You feel that the longer term issue, the big issue is really this issue of how do we get real growth. How do we get exports, manufacturing -- not growth that's based on borrowing, not growth that's based on each of us selling each other our own houses in a kind of ascending spiral...

VOLCKER: Absolutely.

ZAKARIA: ... of asset inflation.

VOLCKER: We've got to produce something that somebody else wants to buy.

ZAKARIA: How do you do that? What should we be doing?

VOLCKER: Well, you really want to get -- fundamentally, I think we spent a -- more than a decade -- we spent 20 years inducing some of our brightest people, our most energetic people to go to Wall Street. And nobody wants to be a mechanical engineer or a chemical engineer or a civil engineer. They want to be a financial engineer.

If you go to a university graduation these days, and you get to the advanced degrees in mathematics, engineering, physics, you're rather hard pressed to find an American. There are Chinese, there are Indians, they're Taiwanese, they're from the Middle East.

Look, it's not easy to answer your question, because there's no easy answer.

ZAKARIA: When you look at American industry, making it more competitive again, do you think that when you compare it to industry in China, or in India or in South Korea, is part of the problem that there is -- our corporate tax rate is now the second-highest in the industrialized world?

We probably have more regulation. There's the issue of tort, you know, and the way in which the liability system...

VOLCKER: All of those things add up to some extent. And some of it is kind of a mystery, in a way. I hate to pick a particular industry, or whatever, and just anecdotally. But I understand that the cost of shipping a ton of steel from China to the United States, one ton, is about the same as the total labor cost to produce a ton of steel in the United States.

So, if, in effect, it's not all our labor costs, they're offset by the transport cost, why are we still importing so much steel?

The challenge is very substantial. I think we can do it. I mean, we used to be, not so long ago, the world's greatest manufacturer. And we haven't got any big cost disadvantage relative to Europe or other developed countries. But the emerging world certainly has a big competitive advantage.

ZAKARIA: When you look at this crisis, there are many regulatory problems. There are many issues that the bankers did wrong. There are many issues government regulators did wrong.

But many people argue that the one key issue, the biggest weapon the United States government has to slow down, to tamp down excesses, is to have raised the interest rate.

Do you believe, during this period, if interest rates had been higher, some of this would have been -- some of this froth would have subsided?

VOLCKER: Well, I have certain rule that ex-chairmen of the Federal Reserve don't comment on monetary policy of their successors. I'll tell you how good monetary policy was 30 years ago, but I don't want to comment on it now.

But I don't think there's any question that the Federal Reserve -- and the other regulators, it wasn't just the Federal Reserve -- were not on the top of this housing picture, or they weren't on top of the regulatory picture. And unfortunately, you know, when this was all going up, where was the SEC? And you ask, where was the Federal Reserve? Where was the comptroller of the currency?

There was a whole attitude, a kind of philosophic attitude that the market would take care of itself. And that became quite ingrained. The complexities, the so-called "financial engineering," a whole school of thought said you don't have to worry about a breakdown. These smart mathematicians are taking care of it. And all the risks have been dispersed to the point where they won't upset anything.

Well, when the screws became loose, we found out a lot of the risks were pretty concentrated.

ZAKARIA: All in AIG, for example... VOLCKER: And AIG was one case.

ZAKARIA: ... insuring almost all the risk.

VOLCKER: Part of the problem was that it got so complex, that a lot of the management, you know, couldn't understand it, and didn't understand it. But they were kind of reassured that somebody down in the bowels had it under control. But there was just a complexity which made it very opaque.

ZAKARIA: Is it true that you once said that the only financial innovation that you believe has added any real value in recent years is the ATM machine?

VOLCKER: I have said something like that to make the point, yes. And I guess I'll have to add the ATM machine was a mechanical innovation.

ZAKARIA: Not a financial...

VOLCKER: But I'll tell you, it is a very useful innovation. I don't think there's any doubt about that. Heavily used, efficient, saves you a lot of money.

ZAKARIA: Let me ask you a final question.

What is the crisis you're worried about now? Because one of the things people talk about is, does the United States still have the credibility to continue borrowing at the quantities we borrow? The people who -- you know, the rating agencies are now saying our AAA creditworthiness might be in doubt.

Is it something that we need to worry about? Larry Summers says...

VOLCKER: I hate to give you this answer...

ZAKARIA: ... can the world's greatest power be the world's greatest borrower?

VOLCKER: I hate to give you this answer, but the crisis I most worry about is the crisis in governance.

ZAKARIA: In government.

VOLCKER: In governance, yes. Have we got the capacity to develop programs, get them enacted and in a constructive way?

And that -- it's not just a political problem. That will underlie your question about the confidence in the United States, and confidence in American leadership.

ZAKARIA: And your basic concern is, can our democratic system make the hard choices that it needs to make...

VOLCKER: Yes. ZAKARIA: ... the reform -- to push these reforms forward?

VOLCKER: Yes. That's not a very happy note upon which to end. But, you know, there's no other country in the world that's going to lead. We can't lead the way we used to. And I think there's some guy named Fareed Zakaria who talks about the United States is no longer so dominant as it was. It's absolutely true.

But on the other hand, we may not be so dominant, but somebody out there has to be in the lead and show some sense of continuity and decision-making, and all the rest, as you well know. And I don't see that anybody else is going to do that.

ZAKARIA: Paul Volcker, a pleasure, sir. Thank you for doing this.



RICHARD HAASS: Preventive strikes, the earlier you do them, the better.

I would simply say that the United States ought to look at that seriously, the idea of simply saying...

BRET STEPHENS: Which is -- it's Israel...

ZAKARIA: What the hell does that mean?



ZAKARIA: Defiance in Iran this week. President Mahmoud Ahmadinejad made an announcement: Iran is now a nuclear state. This as his country made a big step forward in the enriching of uranium, bringing it closer to weapons capacity.

Meanwhile, the anniversary of Iran's revolution brought angry protesters back into the streets, along with a massive show of government force to keep them at bay.

Joining me now to make sense of all this is Richard Haass, the president of the Council on Foreign Relations, and the "Wall Street Journal's" foreign affairs columnist, Bret Stephens.

Now, you have gotten a fair degree of plaudits from neoconservatives. In fact, I think Bret is the only one who hasn't favorably cited...



STEPHENS: I'm in your camp now, as well.

ZAKARIA: ... a piece you wrote in Newsweek, where you basically said, even though I'm a card-carrying realist, I think we should be working to undermine the government of Iran and, indeed, change it.

Now, what would you do if the Iranians were to come to the United States and say, "You know this back channel negotiations you've been trying to do? Let's talk. Let's see if there's some way we can come up with a deal that is satisfactory."

Would you not -- you would be negotiating with Ahmadinejad. You'd be negotiating with the regime that would -- and it would give it credibility.

So, would you not do that, because you want to undermine the regime?

RICHARD HAASS, PRESIDENT, COUNCIL OF FOREIGN RELATIONS: If I thought there was a serious Iranian willingness to engage in real negotiations, as opposed to simply buying time, I would negotiate with them. I would save the high-level meetings until the deal was done.

And also, even after a deal were done, I would still keep in reserve certain types of sanctions and other aspects of normalization that would only be put into play if the Iranians adjusted other parts of their policy.

We shouldn't forget, we don't like what they're doing at home to their people. We don't like what they're doing with Hamas and Hezbollah. We don't like, more broadly, their support for terrorism or some of their meddling in places like Iraq and Afghanistan.

So, we have a whole menu of issues. And we shouldn't take all of our incentives, or eliminate all of our sanctions, simply because of the nuclear issue. But I take your point. If we get an acceptable deal on the nuclear issue, we should not walk away from that, either.

STEPHENS: But I would just say...

ZAKARIA: Is he taking away what he just gave? Is he sort of suddenly becoming -- being back to being the realist?


STEPHENS: This is what happens when you're a diplomat, as opposed to a columnist.

I think your hypothetical is wrong in that, I think you -- what we've learned in the year-long effort to engage the Iranians is just how central anti-Americanism is to the ideological nature of the regime.

A different kind of regime would have seized the deal that Obama was offering. It was an extraordinary offer. We were prepared -- or through our allies -- to enrich their uranium for them to practically 20 percent, which is what they're now threatening to do anyway. There's a reason why, as we have sought to engage the Iranians, they have become more hostile, not less. And that goes to what the ideological pillars of the regime are.

ZAKARIA: Well, to be fair...

STEPHENS: Without anti-Americanism, this becomes a normalized regime.

ZAKARIA: But to be fair, Bret, the Pakistanis never accepted the offer to have outsiders enrich for them. The Indians have never accepted it.

Is it so peculiar that Iran, which thinks of itself as a proud nation, with 60 percent of the people, you know, in support, say, no, we don't want this deal?

STEPHENS: But it wasn't simply on the nuclear issue where we were rebuffed. We were rebuffed at every turn.

President Obama made this offer, this extraordinarily conciliatory message to the Iranian people last Iranian New Year's, last February or March. And Khamenei's response was derisive. It became increasingly derisive, not simply on nuclear issues, but on a whole...

ZAKARIA: So, you're saying, basically, no point in negotiating with them. Right?

STEPHENS: Well, I think that is what we ought to have learned from the last year.

ZAKARIA: Well, if the negotiations -- and, you know, I think what Bret says, you know, it is true, certainly, that it's remarkable how many opportunities they've had to get engaged seriously, and that they have chosen not to take.

HAASS: But just to slightly disagree with one point, I still don't think we ought to be the one to plug the plug on the negotiations. We just shouldn't delude ourselves that, simply because negotiations are going on, they're going to succeed. We should be prepared to continue with them at a working level. But unless there's real progress, we should then go think about our other options.

ZAKARIA: So, let's talk about them. So, the negotiations, let's say, are most likely going nowhere. Regime change in the short term is most likely -- you know, doesn't seem to be -- we don't seem to be in 1989 and Hungary and Poland yet.

What does that leave us with? I mean, you outlined the dilemma nicely. Now choose. So, you've got two choices. You've got to live with an Iran that is on a path where it could develop a serious nuclear capacity. Are you going to live with it? Or are you going to try and dismantle it?

If you're going to dismantle it, by the way, now is easier than later.

HAASS: Oh, sure. Well, preventive strikes, the earlier we do them, the better.

I would simply say that the United States ought to look at that seriously. The idea of simply saying...

STEPHENS: Which is -- it's Israel...

ZAKARIA: What the hell does that mean?

HAASS: Well, what it means is, look. Fareed, in the abstract, unless you have targeting information, unless you've done a complete look at all the intelligence about what it is we can accomplish, about what it is, what our vulnerabilities are to Iranian retaliation, I don't think anyone sitting around this little table can give you a hard answer.

But if you're asking me, do I think using military force is a real option -- not just a rhetorical option -- yes. I've just come back from the Middle East. And what's clear to me in the Arab world, is people do not want to see an Iranian weapon. It would be transforming in the worst possible way for that part of the world.

We have to be serious. And I don't think we should necessarily just hide behind Israel's skirts. If this strategically makes sense -- let's just say, if it does -- then it's something the United States should consider doing, rather than simply hiding behind Israel. We have greater capacities than the Israelis...

ZAKARIA: What is the Iranian threat to the United States that would justify an American military attack?

HAASS: What is an Iranian threat? Well, the idea of a Middle East in which not simply Iran, but other countries would then likely follow suit and have nuclear weapons. The idea that that would dramatically increase the likelihood that nuclear weapons would not only be introduced in the physical sense, but used, goes up tremendously with all that means for that part of the world, access to oil and the rest.

STEPHENS: I mean, look. I think I agree with what Richard said. We have three difficult options.

There's containment, which I don't think could work for the reasons that Richard just mentioned. There's an Israeli strike, which I think would be very problematic for a number of reasons -- first, the question of its efficacy, and secondly, the question of its repercussions.

And then there's the third possibility, which is contemplating American military action, which is not without cost, not without risk, not without serious worries.

ZAKARIA: But the thing about the Iranians is, in foreign policy terms, they've been incredibly rational. They've been incredibly calculating. There's no reason why one would assume you couldn't deter or contain them.

HAASS: Look, they have been -- they have been rational at times. The Ayatollah Khomeini was quite rational in ending the Iran-Iraq war. I just don't think we can assume it, given what some of the things people like Ahmadinejad have said. It may be theater. On the other hand, you don't narrowly (ph) assume it.

They would become far more radical, I believe, in their foreign policy. And again, I don't believe it would stop there.

I don't believe the other countries in the world, no matter how much missile defense, no matter how many security guarantees we put out there, we'd have to assume that security and stability in the Middle East would be degraded, if the Iranians went this path.

But I think, look, your question is a legitimate question. You've got two wildly, I think, unattractive choices -- using military force or simply tolerating or living with an Iranian nuclear weapon. I hope we don't get to that point.

You know, Yogi Berra's old line, when you reach a fork in the road, take it. This is a truly unattractive fork, which again is why people like me keep saying, are there things you can do to weaken the regime or change its calculus.

But we may get to that point, in which case, this president is going to have to make a truly historic decision. Because each way, I think, it has real repercussions and real costs. I don't see necessarily a lot of upsides of either one of those choices.

ZAKARIA: And we've got to take a break. When we come back, more with Richard Haass and Bret Stephens debating Iran.


STEPHENS: You can see a scenario playing out in which Ahmadinejad simply decides, or is declared that he has some illness and has to step aside, and some more acceptable face comes in and manages to mute the sense of outrage that his election sparked.



ZAKARIA: And we are back with Bret Stephens and Richard Haass, talking about Iran.

So, the protests were something of a damp squib. To be expected because of the government show of force, or something more?

HAASS: Well, tactically, if I had been involved with the opposition, I would have said, don't come out in force this day. It was too predictable. The regime had done everything it could to deny access to the Internet, to arrest many of the leaders, to preposition the Basij, the militia guys with clubs. So, this was not the day to do your big show of force. More broadly, this is not the sort of thing that's going to be decided in an afternoon. A process is underway. Clearly, the regime is nervous, or it wouldn't have done all the things it's doing. The revolution -- or the opposition, rather -- is growing in strength ever since the fraudulent June 12th election. This is going to play out over time.

STEPHENS: Yes, but I hope you're right, because I think the question that is raised by the failure of the so-called Green Movement to come out in force is whether the movement has actually crested. It gained strength after the election. I think it had its high point in December. It realized it could take advantage of these public occasions to protest.

But it has no agenda. It has no real leader. I mean, Mousavi is one contender to the leadership.

And so, without a sense of direction, what they want, other than opposition to the regime and of various kind of gradations, whether it's opposition to Ahmadinejad or opposition to the regime, in toto, if they don't have a sense of where they're going to go, there's a real question of whether they can maintain the momentum they've enjoyed for the last seven months.

ZAKARIA: You know, I also wonder about something that we don't talk about a lot in the United States, but which I found was something discussed more by people in Europe and, actually, in a place like India, which is, just how much support does Mousavi have, and just how much support does Ahmadinejad have?

Last week, Steve Coll puts out this very elaborate poll, a lot of telephone polling into Iran. Understandably, you know, there's always the issue of whether people are being honest. There's always the issue about whether people are scared.

But he points out, for example, that in the run-up to the election, they did telephone polling for the few months before. And remember, before the election, it was not so dangerous to come out in favor of Mousavi. A lot of politicians came out. People thought this was a genuine contest.

On June 11th, the vote -- the poll -- Ahmadinejad gets 57 percent, Mousavi gets 27 percent. Now, it waxed and waned, again, in predictable ways. Ahmadinejad was seen to have done better after the first debate.

So, my sort of big question is, could it be that -- you know, this is an urban, liberal phenomenon that we love, because they seem to be opposed to theocracy and dictatorship. But actually, it's 30 percent of the country, 35 percent of the country, not 80 percent of the country.

HAASS: And the answer is, we don't know. But if Ahmadinejad had more than 50 percent of the polls when accounted (ph) on election day, odds are they would not have announced the victor, that he won, before they had any chance to count the votes. So, it suggests to me that people were probably lying, that they were playing it safe. They were saying they supported the regime when, in fact, they were voting in some ways against the regime.

But I take your point. I don't know if the opposition is 25 percent, 50 percent or more. And what perhaps matters just as much is, how united is the establishment?

We know the Revolutionary Guards have the upper hand right now. The clerical establishment, though, has some fissures in it. Who knows about the Revolutionary Guard?

The army, another principal institution in the country, is not quite as radicalized. And what history suggests is that, what matters often as much as the strength of the opposition, is the unity of the establishment. Are they prepared to essentially stay the course? Again, I don't know that.

STEPHENS: Yes, I think -- I mean, that really is the key point, because regimes like Iran only fall when the regime its will to continue to suppress the people. And the regime has cards to play. Khamenei has cards to play.

I mean, there's plenty of opposition within the IRG, the Revolutionary Guards establishment, within the clerical establishment. There's a lot of opposition to Ahmadinejad personally. He's a character, and he's problematic to them.

And so, I mean, you can see a scenario playing out in which Ahmadinejad simply decides, or is declared that he has some illness and has to step aside, and some more acceptable face comes in and manages to mute the sense of outrage that his election sparked.

ZAKARIA: And to your point about the issue of, you know, to what extent do these guys have an agenda, and what is the agenda, I was struck by, for example, you know, we now know that Mousavi decided to criticize Ahmadinejad for some mild statements he made about the nuclear program which sounded more dovish.

So, then, in this poll they asked people, do you support nuclear power, overall the number of people who support Iran having a nuclear capacity is 55 percent, among Mousavi supporters 57 percent. Those that support both nuclear power and the bomb is 38 percent overall, 37 percent Mousavi.

So, in other words, Mousavi does not seem to be drawing from a group of people who are particularly different, at least on this international issue.

STEPHENS: But it's a critical issue, nonetheless, because I mean, imagine a regime change scenario in which some new constellation comes into -- some new order is established in Iran that looks less like the current clerical regime and, say, more like the government in Pakistan and in India. Then the whole Iranian nuclear question totally loses its salience, because the world can live with an Iranian nation-state that is also a nuclear power. What the world has problems with is an Iran that has millennarian, global, revolutionary ambitions. That's where the difference lies.

So, you can support a nuclear Iran as an Iranian nationalist, or you can support it as a, you know...

ZAKARIA: So, for you, the capabilities are less important than the issue of reading Iran's intentions.

STEPHENS: That's right.

ZAKARIA: And we're going to have to leave it at that. Richard Haass, Bret Stephens, thank you very much.

And we will be right back.


ZAKARIA: Now, for our "What in the World?" segment.

What got my attention this week was something I heard last Sunday from two very prominent people on another program on another network. The guests were Henry Paulson, the former secretary of the Treasury, and Alan Greenspan, the longtime former chairman of the Federal Reserve.

About two-thirds of the way through the interview, David Gregory, the moderator of "Meet the Press," asked Paulson about the deficit and how serious a problem it is.


HENRY PAULSON, FORMER TREASURY SECRETARY: It is by far the most serious long-term challenge we as a nation face. All these other issues, or economic issues, are minor compared to that. Is it's very, very difficult to get Congress to act on anything that's big and difficult and controversial, if there's not an immediate crisis.


ZAKARIA: And then Gregory asked Greenspan. And Greenspan agreed with Paulson. And I agree with Paulson. And it's the same thing Paul Volcker said earlier in the program.

Leaders in Washington have to find the courage of their convictions to deal with the deficit. Right?

Now, the next topic Gregory asked about was taxes. Listen again.


DAVID GREGORY, HOST, "MEET THE PRESS": Part of the fix here, according to the budget, has to do with the issue of taxes. Here's how the "Wall Street Journal" put it in a headline on Tuesday. And that is that the wealthy face a tax increase. Those Bush era tax cuts are going to be allowed to expire by this administration.

Secretary Paulson, is that a bad idea?

PAULSON: Well, I've got to say, anything right now that is going to -- that is going to, in effect, be a tax increase has got to be -- is going to be questioned. And an expiring tax cut is a tax increase.


ZAKARIA: And what does Chairman Greenspan think?




ZAKARIA: So, after emphatically espousing the view that Congress has got to come together and tackle the deficit, Paulson and his partner in the hot seat cannot muster the courage to suggest letting the tax cuts expire.

Now, please understand that the Bush tax cuts are the single largest part of the black hole that is the federal budget deficit. Letting them expire would take rates back to where they were under Bill Clinton, when the economy grew very robustly. And cutting the deficit without any tax increases would require massive cuts in middle class programs that would never pass.

Now, remember, neither Paulson nor Greenspan is currently in elected office, or even unelected office. They don't need to pander, and yet they do. That is a symbol of Washington. Even they can't muster the courage of their convictions to say, "Yes, we have to increase some taxes in the face of deficits larger than at any point since World War II."

And if these two men, with nothing to lose, can't bring themselves to even say it, how can we expect elected politicians to actually do it? For shame.

And we'll be right back.


ZAKARIA: You have many wives. You practice polygamy. There are many people who say this is symbolically a great step backward for the leader of South Africa to be embracing a practice that they say is inherently unfair to women. How do you react?



ZAKARIA: Twenty years ago on this week, on February 11, 1990, Nelson Mandela walked out of Victor Verster Prison in South Africa a free man. Just four years later, Mandela was elected president of the nation that had imprisoned him for 27 years.

Today, South Africa is not without its troubles. AIDS runs rampant. The economy is in recession, and whites are leaving. But filling Mandela's big shoes and faced with all these crises today is Jacob Zuma.

I had a chance to talk to President Zuma recently at the World Economic Forum. We spoke about Mandela's legacy and some of the problems he faces, and a fact that makes him pretty unique among world leaders. President Zuma has multiple wives and some girlfriends, too.


ZAKARIA: Let me ask you to start, Mr. President. You are inheriting -- you are coming into an office that was held by Nelson Mandela. Do you feel nervous, apprehensive? What are your thoughts about being in a role that has been so public and so prominent globally?

JACOB ZUMA, PRESIDENT OF SOUTH AFRICA: Well, if anything, it is humbling to be given this responsibility by the South African people, by my organization. It is a task, indeed, that needs such great leaders as Nelson Mandela.

Suddenly, we're able to defeat racism, which was entrenched in South Africa. And he led the approach and the campaigns to reconcile South Africans and establish a truly democratic South Africa.

And, of course, I have taken over from not just Mandela, from Thabo Mbeki, who followed Mandela, who also made a very huge contribution to make the task very easy for some of us who followed thereafter.

ZAKARIA: One area where I think many people hope you will diverge from the policies of Thabo Mbeki, divert from the policies of your predecessor, is on AIDS -- South Africa and the government's response to the AIDS crisis.

You face the extraordinary situation where life expectancy in South Africa, a country with strong economic growth, has actually declined over the last decade.

Will you do something different than Thabo Mbeki did on AIDS?

ZUMA: Well, I know that people tended to look at our policy in the past, based on what some of our colleagues as individuals said. I think government has always had a very comprehensive policy in terms of HIV and AIDS. But there were issues there were issues that were raised -- and people, including President Mbeki, he had specific views that he said these were his specific views, were not necessarily the government...

ZAKARIA: But they were bogus issues not based in science, and had the effect of stopping an enormously important movement forward to deal with the problem. ZUMA: What we have done now, we have removed the politicization of HIV and AIDS, and therefore removed those debates, and came back to the policies. We are at this point in time, we have prioritized health as one of the five priorities. And we have a very comprehensive program to deal with that, including to remove the perceptions that existed then.

ZAKARIA: Mr. President, I have to ask you an awkward question. But in preparing for this interview, I was actually asked this by so many of the women who are here, because it relates to an issue that they see as one of equality in treatment of women.

You have many wives. You practice polygamy. There are many people who say this is symbolically a great step backward, for the leader of South Africa to be embracing a practice that they say is inherently unfair to women.

How do you react?

ZUMA: Well, it depends what culture you come from. People interpret cultures in different ways. And some think that their cultures are superior to others. That's a problem we have in the world. That's a problem which we need to deal with.

We follow a policy that says you must respect the cultures of others. That's a culture. That's my culture. It does not take anything from me, from my political beliefs and everything (ph), including the belief in the equality of women. It's my culture. And I'm sure there are other cultures that do that kind of thing.

The problem is that, when people have their own cultures and think their cultures are the only right one, (UNINTELLIGIBLE) the only one accepted by God, that's not (ph) to (ph) exactly (ph).

ZAKARIA: You believe you treat all your wives equally?

ZUMA: Absolutely.


Totally different (ph). Totally (UNINTELLIGIBLE).



ZAKARIA: I think there are many -- there are many people in this audience who find it a complex challenge to be married to one person.


Mr. President, a pleasure to have you. Thank you so much.

ZUMA: Thank you very much. Thank you very much indeed. Thank you.




ZAKARIA: Last week we changed time slots. For those of you who missed it, we're now on at 10 a.m. and 1 p.m. Eastern time in the United States. Our international times stay unchanged.

This week we're making some more changes. I think you'll like them. First, our "Question of the Week" results will now be shown exclusively on our Web site, This gives us a chance to highlight more of your ideas and criticisms.

Never fear, I'll still ask the question on TV. And for this week, here's what I want to know.

Should the Bush tax cuts be allowed to expire? Not just for the rich, but for everyone.

You know what I think. Tell me what you think.

Also, as always, I'd like to recommend a book. It's called "Into the Story," by the Pulitzer Prize-winning journalist, David Maraniss. He's spent more than 30 years at the "Washington Post," written five best-sellers, and this is a collection of his best work.

The selections range from the personal, a beautiful essay about his sister being killed in an accident; to "The Playing Field," a piece about Vince Lombardi's infamous Ice Bowl; to the presidential character studies that made him famous, Clinton and Obama.

The next time someone tells you that print journalism is dead, give them a copy of this book. I believe there will always be a market for insight, for stories, for good writing, and this book has all three.

This week a bonus. I want to recommend a magazine article. It's an essay in this week's TIME Magazine, written by the Columbia University economist, Jeffrey Sachs. It's called "How to Tame the Deficit."

Sachs suggests we need a kind of grand compromise between the two warring parties in American politics. It is truly smart, sharp analysis on the biggest danger in America today.

We've got a link to it on our Web site. Again, that's

Now, I want to introduce you to a new weekly segment here on GPS. We're calling it "The Last Look." And it's a chance for us to offer you one last image to get you through the seven days until our next program.

This photograph of Iranian president Mahmoud Ahmadinejad would seem on the surface relatively unremarkable. But take a closer look. It's rather extraordinary.

You see, the flag of the Islamic Republic of Iran is shown here behind Iran's leader as red, white and blue. But the real flag of Iran is red, white and green.

This isn't the only instance of such a switch. Here is the red, white and blue again.

Of course, the opposition movement in Iran today is the Green Movement. So, I suppose it's not a surprise that Ahmadinejad might not like that color. But red, white and blue? Doesn't he know about the United States?

Thanks to all of you for being part of my program this week. I will see you next week.