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Fareed Zakaria GPS

Interview with Paul Krugman; Interview with Neil deGrasse Tyson

Aired March 24, 2013 - 10:00   ET


FAREED ZAKARIA, CNN HOST: This is GPS, the Global Public Square. Welcome to all of you in the United States and around the world. I'm Fareed Zakaria.

We have a great show for you today. First us, the crucial question for the American economy, should we save or should we spend? What will get the economy moving faster? I'll talk to the chief proponent of spending, Nobel Prize-winning economist Paul Krugman.

Then, the race for space, is America losing? China is building its own space station and the U.S. has to rely on Russia to send our astronauts up to the stars. What is going on?

And the exploding Asian middle class, in just seven years it will more than triple in size to almost 2 billion people. It will change the world. We'll talk about how.

But, first, here's my take. Those of you who follow the show regularly know that I have long argued that cutting government spending in the midst of a weak recovery is not a path toward growth.

But I have also argued that America does have a debt and deficit problem and we need to take it very seriously.

The fact is the vast majority of our debt problems relate to the costs of health care in America. Now that the debate over Obamacare is over, we should start thinking seriously about how to get America's health care costs under control.

As it turns out, two new works, a book and a magazine cover story, provide some very useful ways to think about this. The central debate between Democrats and Republicans is over whether the free market works well in health care.

In a new book, "Catastrophic Care," David Goldhill makes the case for the market arguing that people need to become consumers of health care so that they, not insurance companies, not the government, actually see, feel and pay the bills.

That will force producers of health care, doctors and hospitals, to push down prices and drive up quality. That's what happens with groceries or television sets or computers.

In fact, Goldhill argues LASIK surgery, which is not covered by health insurance, has seen a 90 percent drop in price and a huge increase in quality since it was introduced in the early 1990s. That's what happens when consumers pay for a product.

Steven Brill makes the opposite case in a recent cover story in Time Magazine. He painstakingly went through the actual bills that hospitals put out and found that they charge massively for routine procedures and medicines.

He found, for example, a routine blood test, prophyrin (ph) 1, was billed to patients at a hospital at the rate of $199.50. Medicare pays for that same test, $13.94.

Brill agrees that America's health care industry's not a real market, but for different reasons than many on the right. He says that there is so much collusion, so many monopolies and so much disinformation that it cannot function as one.

"Most important," he says, "Is that the consumer, when buying health care, simply does not have the power to act as he or she does in other markets. When a doctor tells you you need a CT scan, you are unlikely to say 'No, thanks' or to start haggling over the price."

I think you should read both Brill's essay and Goldhill's book. There are actually some points of agreement about how to reform what everyone accepts is a badly functioning, almost crooked, marketplace for health care.

Goldhill, by the way, wants universal health care and thinks the government has a big role to play so this is not an argument for the poor to fend for themselves.

My own views on this difficult issue are open. I want to read more and understand better what seems to be working in cutting costs and improving quality across the country and the world.

But I do think that Steven Brill points to a very real problem in health care as a market and that these are inherent in the nature of health care. The consumer does not have the knowledge or the power to act as he or she does in other markets.

Perhaps that's why in every other rich country in the world, we have found that markets don't function properly in health care and that includes very free market nations like Singapore and Switzerland, both of which score higher than the United States on the Heritage Foundation's Index for Economic Freedom.

And yet all of them provide universal health care at no cost at much, much lower costs than we do with much better health care outcomes than we have.

Let's get started.

Should the American government just spend, spend, spend and then spend some more and not worry about the deficit? Paul Krugman is the principle intellectual proponent of the idea that deficits don't matter, at least not now.

I thought we'd spend some time understanding the thinking behind the theory. Krugman is, of course, the Nobel Prize-wining, op-ed columnist for the New York Times. He won the Nobel Prize for economics not for the op-eds. He's also a Princeton professor.


Thanks for doing this, Paul.


ZAKARIA: So, explain, you know, first, very succinctly, why you feel that right now really there is almost, as far as I can tell, there's almost no limit to what you'd be willing to do in terms of stimulating the economy.

KRUGMAN: OK, right now is a time when not spending is extremely destructive. The government pulls back, it's destroying jobs and there's no way to off-set that.

Ordinarily, if the government spends less, then the Federal Reserve can off-set that by cutting interest rates the way it did, actually, at the end of the Cold War when we cut military spending, but the Fed cut rates, nothing terrible happened.

We can't do that now because the interest rates the Fed controls are at zero. So we have no off-set and, conversely, up to -- if we can increase spending right now, it's going to create jobs, it's going to expand the economy.

This is a really good time to be spending. It won't also be like this. This is not the normal situation.

Normally, we have an economy that's more or less operating at full capacity, the Fed is raising interest rates to off-set the risk of inflation, in which case they're -- you know, we have a lot of - we can off-set any changes in spending.

In fact, we'll have to. If there's an increase in spending in a normal time, like 2000 or 2007, then the Feds will raise interest rates and it's not going to be helpful.

But this is not that kind of time and we have, basically -- a depressed economy is a time when there really are -- the private sector wants to save more than the private sector is willing to invest.

We're basically awash in desired savings with no place to go. And so having the government borrow some of those pent-up, useless savings and put them to work is good for everybody.

ZAKARIA: What do you say to people who say, yes, but this traditional Keynesian mechanism just doesn't seem to be working because if you look at the amount the government has spent, and I know you think the stimulus was not large enough, but, you know, it was fairly large, certainly by historical standards.

We went from debt to GDP of about 40 percent to about 70, 80 percent. And the argument is we're in the weakest recovery since the Great Depression. Is that proof that this kind of Keynesian stimulus just doesn't work in today's economy?

KRUGMAN: No, because it's exactly what you would have expected to happen. I mean, this was one hell of a financial crisis, the worst since the Great Depression, exactly.

We've had a huge fall in private investment, the collapse of the housing bubble, coupled with a huge rise in private savings, corporations and households trying to pay down debt.

Of course you have to run large budget deficits just to stay in place. You don't expect the numbers that we've been seeing to be enough to actually produce full employment.

ZAKARIA: So when people look at, you know, this issue, there are people who you often call "deficit scolds" ...


ZAKARIA: And that some of the things they point out are -- look at this first chart, that ...


ZAKARIA: You've got a long-term problem here and that even if you, you know, you get -- you can stabilize debt what's going to happen because of essentially the aging of the population and health care costs, is our debt-to-GDP ratio sort of stays very, very high, in the 70 to 80 percent of GDP.

KRUGMAN: Oh and could ...

ZAKARIA: And could even go higher than that.

KRUGMAN: Could go higher, but there's two different questions. One is what does the fairly near-term, even the next 10 years look like? The next ten years are not scary.

The debt ratio will rise. Better, we would like to have less debt, but there's no crisis in there. The markets don't think there's a crisis, right?

ZAKARIA: Because we can borrow money cheaply.

KRUGMAN: That's right. If we go back up to the year 2030, something is going to have to give. In 2030, all of the baby-boomers will have retired, Social Security will be expensive, Medicare will be expensive.

If health care costs continue to rise, which they probably will, although, hopefully, we'll bring them somewhat under control, something will have to give. We'll have to find spending cuts or additional revenues.

But what is it -- why exactly do we have to solve that problem now? What does that have to do with our spending in the year 2013? And no one has ever given me a good answer on that question.

ZAKARIA: Well, I think the answer to that is two-fold. One, if you're going to make cuts in entitlement programs, you need to give people time to plan for it.

Because if you're telling somebody who's 45 years old, look, when you get to be 65, here's what the -- the world is going to look different, your benefits are going to be different, he or she has 20 years to plan for it.

But, secondly, also, many of these changes, these reforms, are somewhat complex, particularly in health care and you want to try them out and figure out whether they work.

So for both those reasons -- you don't want to tell somebody who's 64 oh, by the way, next year your benefits will be down 30 percent.

KRUGMAN: I think that's a very much weaker argument. You usually hear people say well, you know, we're running up debt and we can't afford this stuff. That is actually not the issue.

Now, you're saying, well, there are administrative and planning issues that mean that if you're going to be -- have lower benefits in the year 2030, we should probably let people know about that some ways in advance.

That's not a compelling case why it has to be settled right now and, particularly since health care cost is the biggest issue. By all means, we should be trying pilot programs, trying different ways of controlling health care costs.

Guess what? We're doing that. There's a lot of that stuff in the Affordable Care Act.

I think it's really important to understand that there's a lot of illogic going on here. That a lot of this way this is posed is well, if we don't do something, we're going to have to cut benefits in the future.

And, in order to avoid that, we have to commit ourselves to future benefit cuts and that doesn't make any sense at all. So we're now down to really -- I mean the things you're talking about are real, but they're really -- they're second order compared with the issue of fighting unemployment right now.


ZAKARIA: We'll be back in a moment. More with Paul Krugman. Interest rates today at record lows, they have no lower to go. So does that mean at some point they have to go up and what happens to the deficit and to Paul Krugman's theories then? I'll ask him. (COMMERCIAL BREAK)

ZAKARIA: And we are back with Nobel Prize-winning columnist Paul Krugman, columnist for The New York Times.

We're digging into the theory that the federal deficit does not matter in the short-term, that what matters is right now, spending. The U.S. government should spend to spur growth.


ZAKARIA: Let's look at the other issue people raise which is interest rates.


ZAKARIA: A lot of these projections when the go forward are assuming interest rates will stay very low and if you look at the 10- year Treasury yield over the 1990s averaged 6 percent. Over the last seven or eight years, it's averaged 4 percent.

It's currently about less than 2 percent ...


ZAKARIA: As you know. So the possibility of interest rates saying as low as they are now is highly unlikely and that, as interest rates rise, yes, the economic will recover, but the interest payments on this much, much larger debt become crushing.

KRUGMAN: A couple of things there, first of all, as long as the economy remains weak, interest rates will remain low. If the economy gets strongly, interest rates will go up.

But, also, if the economy gets stronger, we'll have more revenue and, also, if the economy gets stronger, then I start to become a deficit hawk if the economy is strong enough.

So by no means am I'm saying we don't -- we don't -- you know, we have to stay in this expansionary mode under all conditions. It's just under these conditions you want to do that.

The idea that necessarily we're going to be facing higher interest rates sometime soon is belied by history. Look at Japan. Japan has been running large deficits as much, you know, roughly twice the debt burden that we have, still very low interest rates. It's just not a story that you should place a lot of weight on.

And, by the way, the projections right now, you know, about the interest burden on the federal budget will be in the year 2023, they say that it will be a high as it was in 1991, 1992, right.

I mean we actually had interest payments that were over 3 percent of GDP under Bush 1 ...

ZAKARIA: And then we started to bring them down. KRUGMAN: And then they came way down. And so when people say oh, look at this scary numbers about rising interest payments, you know, they -- the scenario we're supposed to be afraid of is actually that things would go back to where they were 20 years ago which doesn't seem to me all that scary.

ZAKARIA: So let's look at that because we actually have a chart with those -- precisely that.


ZAKARIA: So what you see are three lines, which is this is the net interest payments and this is assuming fairly modest rate increases. And what you see here is non-entitlement spending, you know, and you see how they get -- they come down.


ZAKARIA: And what I want to ask you, as a liberal, don't you worry that if entitlements continue to go up and nothing is done about it, what is going to happen is forget about defense, but look at non- defense discretionary spending.


ZAKARIA: this is education. This is, you know, all the kinds of programs presumably that you're passionate about that are naturally and necessarily almost going to get squeezed as entitlement spending becomes larger and larger.

KRUGMAN: Well, they're going to get squeezed. Again, as we -- if we look beyond -- if you look past -- if we look to the year 2025, year 2030, something has to give.

We can't keep squeezing, you know, non-defense, NDD, non-defense discretionary. That's already pretty tight. And so something will have to give.

Some combination of higher revenues, find ways to save money on entitlements. Not necessarily benefit cuts, but maybe -- but certainly ways to save money on entitlements, use the bargaining power of Medicare more, all these things, fine, all of which is stuff that is worth talking about, but not a reason to not do deficit spending to support the economy now.

ZAKARIA: The argument would be, and this is the argument ...


ZAKARIA: That's made by Bob Rubin and many others, that do some stimulus spending now, but, also, put in place a long-term plan so that A, you assure the markets that you do have a plan. You're not hostage to fortune in case interest rates spike suddenly.

You have a process sin place that allows it to happen and you don't get hemorrhaging of non-defense discretionary. Why is that wrong?

KRUGMAN: No, I would like to see men and women of goodwill in Washington come together and produce a long-term budget solution along with doing the stimulus that we need for the economy right now.

I would also like to see world peace and universal marital fidelity, right? It's -- the trouble is it's not going to happen in the current political environment.

We're having a situation in which, as the -- you know, as the debate over the sequester unfolded, you had Republicans saying this is terrible. It's going to open us up. It's serving the Iranians, but not a penny in tax increases. No way.

So, in that political environment, it's an unrealistic thing to expect any kind of grand bargain and we don't want to hold short-term, sensible economic policies hostage to having this grand bargain that I'd love to see, but isn't going to happen right now.

ZAKARIA: Let me ask you about -- the last graph is about Japan .


ZAKARIA: Because Japan looms large and you spent a lot of time working on it.


ZAKARIA: You came to my attention first when you wrote a book about the, you know ...


ZAKARIA: Japan-style depression economics and the age of diminished expectations.

KRUGMAN: Yes, that's right. Japan is -- was the full-scale dress rehearsal for what we're going through now. So Japan is -- people who were studying Japan in the 90s were the ones who were dreading what actually happened.

ZAKARIA: So if you look at Japan, one of the things you say is -- when you look at Japan now, you're glad that the fed -- that the Japanese Central Bank is finally doing something.

But, you often argue that Japan didn't do enough in terms of stimulus.


ZAKARIA: And I want to show you Japan's debt-to-GDP. And, you know, I guess I ...

Krugman: Right.

ZAKARIA: If this isn't enough, than what is? Look at what Japan spent over the last 20 years.


ZAKARIA: It paved every road, every highway that you could find and it went from, you know, 60 percent debt-to-GDP to 250 percent and still it didn't get out of ...

KRUGMAN: You could be a little bit careful here because that's gross debt and the Japanese Central Bank has -- so it's a smaller number actually.

ZAKARIA: But I've seen the net debt numbers ...

KRUGMAN: It's still ...

ZAKARIA: And the rise is still astonishing.

KRUGMAN: It's 140 something. So it's still very large.

ZAKARIA: Yes, from about 30.

KRUGMAN: And the answer -- two part answer. One is the Japanese dribbled the stuff out. There was never a big push. What Japan needed was to get out of deflation. And to do that they would have to have a period of strong fiscal stimulus accommodated by monetary policy, which is possibly what they're about to do now, but it will be the first time.

But the other thing is that I think the Japanese situation is inherently more difficult than ours because -- basically because of a shortage of Japanese, very low fertility rates, cultural aversion to immigration.

If you actually look at Japanese growth per working age adult, it's not bad. It had long periods of slump, but over the past 20 years, they've actually done about as well as we have in terms of growth per working age adult.

The problem is that they have an actually declining population of working age adults.

ZAKARIA: So you're pretty confident that if we went up on this scale, we would actually stimulate the economy and get it to a permanently higher output level than Japan?

KRUGMAN: Yes, there's no certainty in life, but everything I can see in the numbers, everything I can see in the historical experience says that if the United States had a period of strong fiscal stimulus, accommodative monetary policy that we can get back to sustained prosperity.

And, you know, you can see a virtuous circle building in the U.S. economy right now. You can see that housing is starting to recover. The main thing holding housing back is that young people aren't moving out and starting families because they can't find jobs so they're staying with their parents. If we get improving jobs, we get improving house, which means more jobs, all of which will kick into place unless we screw it up by wrong-headed fiscal austerity.

ZAKARIA: Paul Krugman, pleasure as always.

KRUGMAN: Thank you.


ZAKARIA: Up next, Gerard Depardieu the quintessential French actor may soon no longer be French. What is the World is up next.


ZAKARIA: Now, for our What in the World segment. It's not every day you see Russia's Vladimir Putin receiving a bear hug from a Frenchman, but the actor, Gerard Depardieu is no ordinary Frenchman. In fact, he may not even remain French for very long in some sense.

You see, Depardieu has been threatening to give up his French passport, especially now that Putin has handed him a brand new Russian one.

By why on Earth would he or anyone, for that matter, want to leave France? Think of the food, the wine, Paris, the countryside. Well, for Depardieu, it comes down to taxes.

Under President Francois Hollande, France has been weighing a proposal for a 70 percent marginal tax rate on millionaires. Russia, on the other hand, offers a flat, 13 percent tax.

Now, moving to tax havens is not new and it's not a foreign concept. Here in America, a number of high earners move between states to save on taxes.

The golfer, Phil Mickelson, for example, recently threatened to leave California after the Golden State raised its top income tax by 3 percentage points. Tiger Woods already did that years ago, moving to Florida.

In fact, many American retirees move to Florida or Texas, neither of which get more snow, but perhaps even more enticing neither collect state income taxes or estate taxes.

So is it counterproductive to raise taxes on millionaires? Does it drive high-earners away? A number of new studies actually address the question.

Two economists, Cristobal Young of Stanford and Charles Varner of Princeton, recently examined the case of New Jersey, which raised its top tax rate in 2004.

Anyone who was making more than $500,000 was subjected to an extra 2.6 percent in taxes. So what happened? Well, as you would expect, there was an increase in the number of millionaires who left the Garden State.

In 2006, that loss ended up costing New Jersey a grand total of $16.4 million in foregone levies. But, get this, the overall gains from higher taxes on the rich came in at 65 times that number, more than a billion dollars. Why?

Well, in part, the sheer number of millionaires increased and the vast majority of high-earners did not leave. Many of them had jobs or businesses that were tied to the state.

Other studies on California and Maryland show similar findings. We've linked to them all on

Now, let me be clear, I am not recommending higher taxes on rich people. But it's important to examine the facts. We tend to think California or New Jersey made a mistake simply because high-profile celebrities threatened to leave the state.

But the facts show that this is more complex. You can question the policy, but not the numbers. Taxing the rich, so far at least, clearly has generated more money than produced losses. This is true up to a point, of course.

What about taxes around the world? Do people move from high tax to low tax areas? Well, the data is more difficult to glean there. I couldn't help but wonder though, as I watched Gerard Depardieu show off his new passport in the Russian Republic of Mordovia, he would need to spend six months of the year in Russia to qualify for its 13 percent tax rate. To do that, he would have to deal with Russia's frigid winters, battle with the culture that is not always friendly to foreigners, trade French food for Russian food, but, most importantly, he'd have to give up what is surely one of life's greatest treasures, living in Paris. I don't think I'd make the trade.

We'll be right back. Up next is America being left behind by the rest of the world in the space race? Neil DeGrasse Tyson explains.


CANDY CROWLEY, CNN CORRESPONDENT: I'm Candy Crowley in Washington with a check of the headlines. The Israeli military says its troops came under fire today from the Syrian side of the Golan Heights. Israeli soldiers fired back. Israel blames the Syrian military for the incident, but Syria's opposition network says rebels were clashing with the Syrian army near the Golan Heights border at the time.

U.S. Secretary of State John Kerry made an unannounced visit to Baghdad today to meet with Iraq's leadership including Prime Minister Nouri al-Maliki. Kerry told Maliki the Iranian overflights carrying arms and fighters to Syria are "problematic" and help sustain Syrian leader Bashar al-Assad. After more than four years of self-exile, Pakistan's former president Pervez Musharraf returned home Sunday where he faces criminal charges by the state and an assassination threat by the Taliban. Musharraf resigned in 2008 and went into exile in London and Dubai. He declared his intention to run for office and lead his party in the upcoming May elections.

It may say spring on the calendar, but someone must have forgotten to tell Mother Nature. Parts of eight states will be under winter storm warning Sunday as another threatens to dump more snow in the Midwest. Whiteout conditions in Colorado prompted authorities to close more than 150 miles of Interstate 70 yesterday. Those are your top stories. Now, back to Fareed Zakaria GPS.

ZAKARIA: Around the world, countries are pouring money into space. Russia, China and India are all advancing their space programs, but here in the United States, the opposite is happening. There are no plans to launch astronauts from American soil in American crafts for a decade. Why? And what are the larger implications? I'm joined now by a man who knows and cares deeply about this issue. Neil deGrasse Tyson, the astrophysicist and director of the Hayden Planetarium. He has a new book out "Space Chronicles: Facing the Ultimate Frontier." Welcome back.


ZAKARIA: (inaudible) paperback edition.

TYSON: Paperback edition.

ZAKARIA: But now what I was struck by is let alone China ..

TYSON: Well, now that the meteors are hitting, don't say struck. You are not struck by anything.


TYSON: You were surprised by it, yes?

ZAKARIA: What I was struck by, what I was surprised by was that we all know China is making a big push and even India, but Canada is the new space nation. What's this about?

TYSON: Well, consider, first, that Canada played a major role in the space shuttle program. Their - the arm that lives inside the payload bay of the space shuttle was called the Canada arm. And it's, you know, the flag is proudly displayed. Every time this arm comes out to either deploy a satellite, to retrieve a satellite, to assemble parts of the space station. And so, Canada has thought long and hard about space and they've had many astronauts as part of this program to go up. So, it's - we shouldn't be surprised that they wanted to sort of take the next step on their own and other nations of the world, they saw what level of pride and the way in which it pumped vision statements of what a tomorrow would be for their country. They saw what effect that had on America in the 1960s and '70s and now countries, previously Third World countries and other countries, developing countries are, they want to participate in that capacity to invent their own future and space, there's no better way to do that.

ZAKARIA: And so, they are copying us at the very time that we are losing faith in our own mission. TYSON: Yeah, we're not completely rolling back. I mean in all fairness to what is going on, there is a plan to go back into space, deep space and on to Mars. But the timetable for that is decades, as your opening remarks had commented. And right now we don't have a spaceship to take us anywhere. We're buying seats on the Russian Soyuz to get to our own space station or the space station that we assembled. It's an international space station, obviously. So, it's a little embarrassing. I'm more impatient than that. I would rather see space advances happen on a time scale that matters to every generation that is thinking about what they want to be when they grow up. Because we saw what impact that had in the '60s. You had to beat people back at the door who wanted to take science and engineering. Because they saw the fruits of that exercise. It was written large in every day's paper. And so, you can take that talent and apply it to something worthy, your investment in time and energy.

ZAKARIA: Do you think it's fair to say that the push to the Moon, the interest in NASA all in some way led to the computer and information revolution?

TYSON: There are people who would say that would have happened anyway, but there are certain facts that are undeniable. The urge to miniaturize electronics did not exist before the space program. I mean our grandparents had radios that was furniture in the living room. Nobody at the time was saying Gee, I want to carry that in my pocket. Which is a non-thought. But when you launch something into space, electronics of any kind, weight matters because it's very expensive to put every incremental ounce if you don't have to put it there to launch into orbit. And so, the miniaturization of electronics got a jolt of interest by the early space age. And then once you see that it's miniaturized, all of a sudden the whole new world of consumer electronics opens up that was unimagined and undreamt of before. So, yes, and by the way, the urge to find an economic justification, I think, is laudable, but that's not even the biggest reason to do this. The biggest reason is the culture that it implicates, the innovations require to explore space on the frontier, foster an innovation nation and everybody is thinking about it. The innovation becomes just what you do. And I don't know that you can put a price tag on that.

ZAKARIA: If you had your druthers and you could create one project that would excite the imagination of the American people, what would it be?

TYSON: You know what it would be? It wouldn't be one project. If you double or triple NASA's budget and you say, NASA, take me anywhere I want to go in the Solar system. And they create a whole suite of launch vehicles. So the scientists can go back to - go to Mars and then maybe there are some tourists who want to go to the Moon and some of the miners who want to go to the asteroid and all - the whole solar system becomes our backyard. And every one of these tracks will have a frontier associated with it and the engineers will have to innovate. You need the biologists looking for life and the chemists and the structural engineers and mechanical engineers, all the STEM field that everybody is whaling about trying to improve here back in the country, that would just be part of the activity. And you wouldn't need a program just to convince people that STEM fields would be good for the country. Because it would be manifest, daily. And all the advances that would be going on. Then, that's the truly (inaudible) future that we all dreamt we'd be in from the 1960s.

ZAKARIA: Neil deGrasse Tyson, always a pleasure.

TYSON: Thank you for having me.

ZAKARIA: When we come back, what happens to the global economy when the Asian middle class more than triples in size to almost 2 billion people? That is going to happen in under seven years. Stay with us, we'll find out.


ZAKARIA: We all know that Asia is on the rise, but how will that change the way the world works? My next guest is uniquely placed to answer that question. Kishore Mahbubani has served as Singapore's foreign secretary. He is currently the dean of that country's Lee Kuan Yew School of Public Policy. He has a new book out, "The Great Convergence: Asia, the West, and the Logic of One World." Welcome back. Kishore, you start this book with good news. So, since everybody in certainly - in the United States and the west is feeling blue, tell us what the good news is and why we should all be happy.

KISHORE MAHBUBANI, AUTHOR, "LEE KUAN YEW SCHOOL OF PUBLIC POLICY": Yeah, and actually, I'm very surprised by the kind of level of pessimism you see in Europe and America today because if you look at the world globally, the world has never been in better shape if you take the macroglobal view of the situation. In terms of good news, I mean the danger of interstate law is the lowest it has ever been since statistics have been kept. And the number of people dying in conflicts is the lowest it has ever been. In terms of global poverty, the only U.N. Millennium development goal that we will meet is the halving of global poverty in probably more than the halving by 2015. And in terms of the middle class and this is the really stunning news, if you look at where Asia is today, there are 500 million people living in middle class living standards today in 2013 in Asia. By 2020, which is only seven years from now, that number is going to explode from 500 million to 1.75 billion. An increase of 3.5 times in seven years. Now, we have never seen this before in human history. And that's going to change the chemistry of the world and create a much more positive (inaudible) around the world

ZAKARIA: But think - let's talk about that middle class for a second. So, you will go from 500 million to 1.75 billion people in the Asian middle class. So, this Asian middle class will now, in a sense, dominate the world economically, politically, culturally.

MAHBUBANI: Yes, I mean certainly, in terms of economic - in terms of economics, if you run any kind of major corporation anywhere in the world and you're looking for markets and this is what CEOs tell me from time to time, that they do all the projections and they see all the future markets in Asia. And culturally to inevitably when their largest marketplace for cultural products then becomes in Asia, then really that's what (inaudible) to drive what's happening in that sphere.

The political sphere is the one that I most uncertain about, and that's actually why I wrote this book, at this point in time, to tell the west that now is your moment to construct a world order in which, as you approach becoming number two, you put in all kinds of safeguards to ensure that the world is a better place when you're number two. And that's why the west needs to demonstrate a lot of wisdom now as it manages the rise of Asia because, because if it doesn't demonstrate wisdom now, it will create a more difficult world for itself. So, my book is intended to help the west to prepare for this new world.

ZAKARIA: The biggest middle class here is going to be China. One thing historically that has always happened is when you have the rise of a middle class, countries tend to become more democratic. Do you think China will become a democracy?

MAHBUBANI: I think China will eventually become a democracy. The destination is not in doubt. The only question is the route and timing. But China is not going to become democratic in the near future. In the next ten to 20 years. By the way, one point people forget is if you go to Chinese universities and you talk to young, bright, young Chinese and I say, would you like to get rid of the Communist Party and immediately become democratic tomorrow? Most of them would say, no. Because they do know that the Chinese communist party over the last 30 years has delivered the fastest growth and standard of living and they do know that if you dismantle this and if China falls apart, all their dreams of becoming number one in the world will disappear. And the Chinese, and you talk about nationalism earlier, the feeling that they're almost there, that feeling that they're going to become number one very soon is a very powerful driving force, that's also keeping them together.

ZAKARIA: You talk about how the world is coming together, the rise of middle class and Asia, joining up with the middle classes and the Europe and the United States, so it's sort of economically, socially, there is this conversions. The part you're worried about is politically. You think that we have a very strong, if you will, international society, but very weak governance at that international level.

MAHBUBANI: Yes. And it's a pity that, you know, as you know, one of the saddest and most unfortunate western policies of the last 30 years, which may have made, had some logical sense 20, 30 years ago, but which makes no sense today is the western policy of weakening multilateral organizations. And I argue very strongly in this book that actually now is the time for the West to change cause. And I begin, as you know, by quoting Bill Clinton in a speech he gave in Yale in 2003 where he said, if America assumes that it will be number one forever, then please, continue doing whatever you're doing, it doesn't matter because you'll be number one forever.

But if you can conceive of the possibility of becoming number two, surely it is in America's interest to create (inaudible) peace order that would then constrain the next number one. And that is very wise of Bill Clinton to say that. I'm sorry he didn't follow it up by pushing hard for it. But my book builds on that wisdom and insight of Bill Clinton that now is the time for America and the West to create an (inaudible) peace order that will constrain any rising powers anywhere in the world.

ZAKARIA: Some of the practical suggestions, I think, like new Security Council with the 777 members. What is the chance of this happening? When you look at the reform, you will want Singapore's ambassador of the U.N. You know that when people have tried this, you know, they try to get India on China vetoes, you tried to get Brazil on the Mexicans, get upset, you try to take Nigeria, the South Africans get upset or vice versa. It's never going to happen.

MAHBUBANI: Yeah, but you're absolutely right. And that's precisely the problem that for every Japan, this is South Korea that says no. And which is why I created seven permanent members, suggest the creation of seven permanent members, and seven semipermanent members. So, all the losers, you know, the Mexicos, the Pakistans, the South Koreas, others actually become winners in the new formula, because they can automatic seat in the Security Council at every fourth turn. Now, that's a remarkable improvement for countries that have to spend millions of dollars to try to get re-elected back to the Security Council every four years. Now, I'm saying, you've got also a guaranteed seat. And so, it's a win, win, win formula for the small states, the middle powers and the great powers. And that's why I think in the end of the day, eventually, not right away, the 777 formula can break the current lock jam in Security Council reform.

ZAKARIA: The great thing about this book, is that it does a lot of insight at 30,000 feet, but this also about insight at the ground level because you live through these processes. Kishore Mahbubani, Pleasure to have you on.

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

ZAKARIA: When we come back, the story of the world's most innovative city. It's not London or Singapore. You will be very surprised.


ZAKARIA: Today's world tuberculosis day. We tend to think of TB as a disease of the past of 19 century, Europe and consumptive novelists. That brings me to my question of the week. What percentage of the world's population is infected with tuberculosis? Is it, A, three percent, B, 13 percent, c, 33 percent or D 43 percent. Stay tuned, we'll tell you the correct answer. Go to for more of the GPS Challenge, lots of insight and analysis and also follow us on Twitter and Facebook. Go to /Fareed if you missed a show or a special.

This week's book of the week is one I referenced in my take at the top of the show. David Goldhill's "Catastrophic Care: How American Health Care Killed My Father and How We Can Fix it." This is a thoughtful, intelligent book that tries to think out of the box about what is surely the biggest economic issue that the United States faces in the long run: how to pay for our health care. You may not agree with everything in it, but it's important to read it and think about it. Now, for the last look. Which is the world's most innovative city? Some of you will guess a city in Asia, perhaps Singapore or Seoul or perhaps cutting edge Tel Aviv. Maybe a European city. No, it's none of them. The non-profit Urban Land Institute has weighed the merits of 200 cities and come up with Medellin Columbia as number one. Why? Because it staged a remarkable turn around from being a drug war capital. The homicide rate has plummeted 80 percent in two decades. In part its citizens are held by innovations like this giant escalator, which allows residents of poor neighborhoods to get to the city center safely. It also won praise for its metro cable car system and new libraries and schools and parks. You see, cities have always been places that create opportunity for people from all walks of life. Medellin is fulfilling that historical role in a great comeback story.

The correct answer to our GPS Challenge question was C. I was amazed to learn that according to the Centers for Disease Control, one-third of the world's population is infected with TB. It is the second greatest infectious killer in the world after HIV/AIDS. The good news there is progress. Thanks to the work of the Gates' Foundation and many others, the world is on track to meet the millennium development goal of reversing the spread of TB by 2015.

Thanks to all of you for being part of my program this week. I will see you next week. Stay tuned for "Reliable Sources."