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Parker Spitzer
Taking a Scalpel to the Budget; Balanced Budget Amendment or Bust; Have Mideast Revolts Proved George W. Bush Right?
Aired February 16, 2011 - 20:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KATHLEEN PARKER, CNN ANCHOR: Good evening, I'm Kathleen Parker.
ELIOT SPITZER, CNN ANCHOR: And I'm Eliot Spitzer.
You know on CNN we've been talking about President Obama's budget and how it needs more cuts.
Budget cuts are a particular obsession of mine but every so often the reality of it -- the reality of the severe financial crisis America is in, well, it hits you over the head.
Take a look at this. Madison, Wisconsin, 10,000 people marched on the Capitol building jammed the surrounding square. Why? Because they are government workers. Teachers, social workers, prison guards, and their state no longer has enough money to pay their benefits. Republican Governor Scott Walker says he has to cut them to balance his budget.
One in Washington may be wrestling with the budget right now but there's a lot they're not talking about. A lot of cuts that are not on the table. Well, let's put them on the table tonight. Let's try to get specific.
PARKER: Joining us here are two folks from opposite ends of the ideological spectrum. Katrina Vanden Heuvel is the editor and publisher of "The Nation" and Nick Gillespie is the editor in chief of Reason.com.
Thank you both for joining us.
NICK GILLESPIE, EDITOR IN CHIEF, REASON.COM: Thank you.
PARKER: All right, Nick, you have created a way of balancing the budget.
GILLESPIE: Yes.
PARKER: You call it -- you read an article called "The 19 Percent Solution."
GILLESPIE: That's right.
PARKER: So in 30 seconds explain it to us. GILLESPIE: OK. What -- since 1950 government revenue, the money that we get from taxes from all sources has averaged a little -- like between 18 and 19 percent of GDP, of economic activity.
If you want to balance the budget that's the upper limit of what you can spend without borrowing money. And one -- so that's the question. We're currently spending 25 percent of GDP. We got to bring it down to 19 percent year after year on an average basis and then we'll be able to balance the budget.
And if I can just point out.
SPITZER: Absolutely. And we had that chart up on the screen so people could see that red line. The red line, just so people understand your theory. The red line was basically the 19, 20 percent of total GDP that came in in taxes to the government.
GILLESPIE: That's right.
SPITZER: And the upper line, you want to explain what that upper line? Real quickly, though.
GILLESPIE: Yes. The upper line is the top marginal tax rate at various points over the past 60 years. It's ranged from -- in the 90 percent range down to about 28 percent. It doesn't matter. When you raise taxes, when you raise top marginal tax rates things happen, the revenue doesn't go up.
If you're going over 19 percent, if you're spending more than that, you're going to be --
(CROSSTALK)
SPITZER: OK. So your theory is cut everything from the 25 percent to 19 percent about a one-quarter cut, one-fifth cut in everything we do. Katrina?
KATRINA VANDEN HEUVEL, EDITOR, THE NATION: You know --
SPITZER: Fire back.
VANDEN HEUVEL: I think Nick and I could agree on certain things, I mean cuts to defense spending, cuts for loopholes for these multinational corporations with offshore jobs, but I think we're having the wrong debate in this country at the wrong time.
SPITZER: Tell us why.
VANDEN HEUVEL: You got 25 million people out of work, underemployed, seeking work. We have a country that needs additional spending to rebuild and to recover and the debate we're having is wrong. It's about cutting, cutting. We should have a pro-growth, pro-jobs, lens over everything.
And why is it that to be tough in this country you cut social programs for the most vulnerable. (CROSSTALK)
VANDEN HEUVEL: Low-income --
GILLESPIE: Who is talking about --
VANDEN HEUVEL: Low-income people are going to have their heating subsidies cut?
GILLESPIE: No. No, they don't have to. What did Bill Clinton spend? I mean just to bring it back to a general spending.
VANDEN HEUVEL: But I just think --
(CROSSTALK)
GILLESPIE: No, so what you're saying --
VANDEN HEUVEL: I would say -- I think that the media --
SPITZER: One at a time. One at time.
VANDEN HEUVEL: I would say, you know, with all due respect to the show but that there is a mainstream media consensus and a Washington consensus that is cheerleading for austerity when I think a different debate is -- this country deserves a different debate.
SPITZER: Katrina, you know I agree with you on most of what you say. There are areas we have to (INAUDIBLE), we'll get to in a second.
VANDEN HEUVEL: Sure.
SPITZER: But I want -- but, Nick, I want --
(CROSSTALK)
SPITZER: OK. Fire back.
GILLESPIE: I'm cheerleading for posterity. I have two kids. And I don't want them to be paying off stuff so that big bird can get a subsidy this year so when my kids are 45 or their kids are 45 we're still paying off --
SPITZER: Let me ask you one question.
GILLESPIE: -- wars in Afghanistan, war in Iraq. A drug war that is stupid.
VANDEN HEUVEL: We agree on the cost of war --
GILLESPIE: No, no, no. And do you -- do you agree --
VANDEN HEUVEL: But I don't agree on slashing vital services.
GILLESPIE: What's a vital service. VANDEN HEUVEL: And they're critical --
PARKER: One at a time, everybody. But, Nick, you say even the word cuts is the wrong word to use.
GILLESPIE: I guess I do. Well, no, in terms of --
SPITZER: Well, I'll tell you what you said in your article.
GILLESPIE: Yes. In terms of forward spending, what we're talking about here, we're not talking about overnight saying, OK, let's get rid of, you know, 20 percent of what's being spent now. What we're talking about is over a decade you ratchet down expected increases in spending so that in 10 years you are spending 19 percent of GDP rather than --
VANDEN HEUVEL: Oh, please.
(CROSSTALK)
SPITZER: Wait, wait.
VANDEN HEUVEL: We've had this -- you -- you oversaw a financial crisis which has looted people's savings and their equity in homes and we are now going to cut deficits largely for the benefit.
GILLESPIE: We're not going to cut deficits.
(CROSSTALK)
VANDEN HEUVEL: We're going to do it on the backs of the low- income middle class families in this country which in my view constitute the future. Not those -- with all due respect --
GILLESPIE: Define low-income middle class, please?
PARKER: Well, I think we have --
GILLESPIE: No, define low-income middle class. That's it.
SPITZER: Wait a minute. Hold on a second. Let me ask --
(CROSSTALK)
VANDEN HEUVEL: Those are a lot of people in the streets of Wisconsin --
GILLESPIE: Wait, wait, teachers and firemen.
VANDEN HEUVEL: Teachers, policemen.
GILLESPIE: Prison guards, they're all low middle income --
PARKER: I think we see why Washington can't get anywhere.
SPITZER: Wait, let me ask a question. OK. Hold on one second. (CROSSTALK)
VANDEN HEUVEL: We have a philosophical debate.
SPITZER: Wait one second.
(CROSSTALK)
SPITZER: Here's the question that Katrina is asking which I think is the right question. She is saying do not define success or accomplishment by a balance that accountants can look at and say, oh, zero equals zero.
GILLESPIE: Yes, that's -- I'm not.
SPITZER: Define it -- define it by building the better society prospectively.
VANDEN HEUVEL: Right.
SPITZER: And your conception of how we do that is different. That's what it comes down to.
VANDEN HEUVEL: I think --
GILLESPIE: No, no, no. But here's the difference. We have spent and if you go back to the last year of George Bush, we've had 3 1/2 years of stimulus spending, of spending wildly. And if you take it back to 2000 we have had a government that has increased spending, total outlays by 62 percent since Bill Clinton left office.
By those rights we're spending a lot of money. We should have a lot of jobs, we should have a lot of prosperity. We don't because the idea of stimulus spending is wrong.
PARKER: Katrina --
GILLESPIE: It is proven wrong.
PARKER: You think we should be spending more in certain areas. But surely you think we should be cutting spending in others.
VANDEN HEUVEL: Well, I do believe that in these times, it's kind of classic Keynesianism which isn't taught in schools anymore. But in these times -- no, but the recovery program that Nick mocked averted a crisis, but was kind of washed out because states and cities are in such budgetary trouble.
But we need to spend now as we work when we come out into a recovery period toward a more balanced budget. But if you believe in human security and investment in people and rebuilding a country, we're having the wrong debate.
GILLESPIE: So high-speed rail? You're --
(CROSSTALK) GILLESPIE: Because that will help society. Look, please --
SPITZER: Wait a second.
VANDEN HEUVEL: No, I do.
(CROSSTALK)
SPITZER: Katrina, I agree with you about Keynesianism. But here's what we're going to do to move this ball forward because there is an ideological tension which is good and healthy.
GILLESPIE: Yes.
SPITZER: But I want to do is see if even through that fog -- or even if it's not fog.
GILLESPIE: Yes.
SPITZER: Even through that disagreement, we can agree on certain specifics --
VANDEN HEUVEL: Cost of war.
(CROSSTALK)
SPITZER: No, it's not war.
VANDEN HEUVEL: No, but we do agree on those cuts. And "The Nation" has written about those agreements among libertarians and liberal progressive, independents, logical people.
(LAUGHTER)
GILLESPIE: Can I also just --
SPITZER: Wait --
(CROSSTALK)
SPITZER: I want to put them on the table so our viewers can see this agreement which is important.
GILLESPIE: Yes.
SPITZER: First let's talk defense for one minute.
VANDEN HEUVEL: Please.
SPITZER: You think we can cut defense by about 20 percent?
GILLESPIE: I think we can cut defense by about 70 percent. To be quite honest in terms of --
VANDEN HEUVEL: And still be secure. GILLESPIE: Yes. We have -- we have something like 900 bases around the world. We have troops in 100 countries. You easily can cut that by half and not -- and the important thing is, OK, let's cut it so that we'll have money in our pockets.
VANDEN HEUVEL: The fundamental structural.
GILLESPIE: What I'm talking about here is defense spending and military spending are very different. One does not mean, oh, you know, we're spending a lot of military contracts, we're buying alternative engines nobody wants?
VANDEN HEUVEL: Right.
GILLESPIE: No, that's bad.
VANDEN HEUVEL: Let me just -- I would agree with Nick. And I also think it's about rethinking America's engagement with the world. That underlies how we create a defense budget which makes us secure. And we don't need --
SPITZER: And is it fair to say that the agreement we're seeing here at this table, left and right in this one, is mirrored across the spectrum.
VANDEN HEUVEL: Yes.
SPITZER: From Cato to Rand to more liberal --
(CROSSTALK)
VANDEN HEUVEL: I think --
GILLESPIE: And also it's some majority or -- not a majority.
VANDEN HEUVEL: It is.
GILLESPIE: A plurality of Americans thinks we're spending too much --
SPITZER: One check in the agreement area.
VANDEN HEUVEL: However, they will disagree with Nick because they would rather see that money go toward Medicare and Social Security.
SPITZER: OK.
VANDEN HEUVEL: And Social Security --
SPITZER: Don't change the topic.
(CROSSTALK)
GILLESPIE: Social security is one of the most immoral programs ever -- (CROSSTALK)
SPITZER: We'll get to that in a second. OK. We'll get to that in a second.
VANDEN HEUVEL: That's right. It is.
SPITZER: Let's find another one.
VANDEN HEUVEL: OK.
SPITZER: The subsidies to oil and gas --
VANDEN HEUVEL: Happy that --
SPITZER: Even the tax code, can those be cut?
(CROSSTALK)
VANDEN HEUVEL: Yes.
GILLESPIE: Yes, sure.
SPITZER: OK.
GILLESPIE: Any economic subsidy should be cut by definition because they distort the market.
VANDEN HEUVEL: Well, I think special works should have their special subsidies cut.
SPITZER: OK.
VANDEN HEUVEL: Not --
GILLESPIE: Except for high-speed rail.
SPITZER: Now let's get --
GILLESPIE: And you want subsidies for carmakers if they make the types of cars you prefer.
VANDEN HEUVEL: You know I believe that --
GILLESPIE: Yes, right? I'll take that as a yes.
VANDEN HEUVEL: The most vulnerable in this country should not -- the deficit should not be balanced on the backs of the poor low-income --
GILLESPIE: No, that wasn't the question. The question was, whether or not --
SPITZER: Wait a second.
VANDEN HEUVEL: But that is where the debate -- (CROSSTALK)
VANDEN HEUVEL: You know I know a lot of guys like you fixated on high rails.
SPITZER: Wait. Let's move to Social Security for a second.
GILLESPIE: Yes.
SPITZER: Which is a contentious issue.
VANDEN HEUVEL: Yes.
SPITZER: I think we can raise the retirement age by 2050, by 2075.
GILLESPIE: By 2012. Are you kidding?
SPITZER: No, I can --
(CROSSTALK)
PARKER: Really?
(CROSSTALK)
PARKER: What is the hold up here? I don't get it. I mean 20?
GILLESPIE: Yes.
VANDEN HEUVEL: The Social Security payroll cap, that should be lifted.
SPITZER: I agree with that, too.
GILLESPIE: But you don't -- Eliot, we are sitting here. We are privileged people. We don't work in mines. We don't work this way. I mean there are people who have retirement age lifted. No.
(CROSSTALK)
PARKER: How about that?
VANDEN HEUVEL: I still think we --
PARKER: Their jobs are harder. Physically harder.
VANDEN HEUVEL: But you know Social Security is not an entitlement. It is a contract and an agreement between working people and their government. And it is not --
GILLESPIE: No. It is.
(CROSSTALK)
VANDEN HEUVEL: And those who think (INAUDIBLE) don't like government programs.
GILLESPIE: Then it is absolutely the worst contract written --
VANDEN HEUVEL: Medicare is a different issue.
GILLESPIE: Written, because people, working class people get crappy results and get crappy returns from Social Security. People -- black people who die younger, who die younger get a worse return than rich white people.
SPITZER: Can I try framing it this way since you and I usually agree but we disagree on this? It seems to me --
VANDEN HEUVEL: But you agree on lifting the payroll.
SPITZER: Yes, I do. Absolutely. And I agree that we can make Social Security more progressive. That's one way to do it and adjusting the returns. But let's not get down in the weeds on that .
VANDEN HEUVEL: Sure.
SPITZER: We are now talking about something that is, I think, 29 years out. So somebody who is 28, 29 would say to himself, herself, I will retire one year later to collect Social Security. This is demographics. This is the evolving good news of our living longer.
VANDEN HEUVEL: You know, but you spoke so well earlier, Eliot. I just feel that it's --
SPITZER: Well, thank you.
VANDEN HEUVEL: No, really, in terms of what kind of country you want to have. And I just feel that is not a fix that is at the top of any priority list. And I don't think it's in crisis. I do think the health costs in this country pose a problem but you fix it within the framework of someday Medicare for all or let the government negotiate for drug prices. Why should --
GILLESPIE: Do you realize --
(CROSSTALK)
PARKER: But financial security wasn't -- our country was in a much different situation, right, Nick?
GILLESPIE: It was totally different. It was passed in 1935. We're in the middle of the depression. People died in their 60s, people worked until they died. It's a totally different situation.
SPITZER: Let me ask you --
GILLESPIE: And, again, this is the question. Think about your kids. OK? We're all privileged and I want to point out, by the way, that I'm probably the only person at the table who will never get a chance to pay that top income rate.
VANDEN HEUVEL: Well, I mean we write. We don't work in mines.
GILLESPIE: Yes, but --
VANDEN HEUVEL: OK? We sit at desks.
GILLESPIE: More important, if you care about poor people in their age then give them money when they need it.
VANDEN HEUVEL: So they can invest it in the stock market which goes up and down --
GILLESPIE: No. No, what I'm saying is like give them a guaranteed income if they deserve it, if they need it.
VANDEN HEUVEL: Well, I like that. Guaranteed income?
(CROSSTALK)
GILLESPIE: Yes, yes, Milton Friedman, look it up. Social Security -- Social Security is not a contract with anybody. We pay in and we do not have a legal right to -- the Supreme Court has said they can end it whenever they want.
SPITZER: Couple of things. Contracts can also be amended as facts change and the parties change.
VANDEN HEUVEL: Yes. I'll give you an amendment. Payroll.
SPITZER: And I think over a 50 -- that's OK. I'll ask Nick.
Do you agree we could lift the threshold for payroll taxes --
GILLESPIE: I don't think that that would help.
SPITZER: Help algebraically.
(CROSSTALK)
GILLESPIE: No, that's because you're assuming again that political economy, that if we lift the income gap -- income cap on Social Security taxes, it won't be squeezed down somewhere else.
SPITZER: One will ask --
GILLESPIE: We have tried. Look at that 19 percent or 18 percent revenue screen that the government has had for 60 years under very different circumstances, under very different people. You're not going to plus that much higher.
SPITZER: But here's one -- here's one interesting thing.
GILLESPIE: You've got to reduce spending.
SPITZER: One chart you didn't -- and we're not going to show this. Yes, that's been constant but the percentage of revenue coming in from the personal income tax has gone down, down, down, and the percentage coming in from the payroll tax, which is regressive, meaning --
VANDEN HEUVEL: That's right.
GILLESPIE: Yes.
SPITZER: Pay more has gone up. That's what this chart is.
GILLESPIE: Yes, exactly.
SPITZER: I think if you looked at this, you would see that's where the inequity comes from.
VANDEN HEUVEL: Are you for lifting --
GILLESPIE: No, no.
VANDEN HEUVEL: Are you for changing the current interest, the hedge fund loophole?
GILLESPIE: No. No --
VANDEN HEUVEL: Are you for taxing cap --
GILLESPIE: You know what?
SPITZER: All right, guys.
PARKER: I'd like to know how --
(CROSSTALK)
GILLESPIE: I am interested in reducing business taxes in America as well as income taxes.
PARKER: All right. I hate to stop you. It's so interesting. Katrina Vanden Heuvel, Nick Gillespie, thanks so much for a fascinating discussion as always.
VANDEN HEUVEL: Thank you.
GILLESPIE: Any time.
SPITZER: All right. Coming up a guy who says he can solve the problems Katrina and Nick got so heated about. The pride of the Tea Party Mike Lee is here to tell us how to balance the budget. Yes, I believe him and I've got a bridge to sell you. We'll talk about it in a moment.
(COMMERCIAL BREAK)
SPITZER: Our next guest holds himself out as one of the few voices for real change in Washington. Senator Mike Lee of Utah is a founding member of the Senate's Tea Party Caucus and a passionate advocate for his beliefs. We've had a good time mixing it up about balancing the budget before.
Take a look at this.
(BEGIN VIDEO CLIP)
SPITZER: I know time is running short, but what I'd love to do when you figure it out, I'm sure you will, is let's have you back on the show and then we can go area by area and see if we agree or not.
SEN. MIKE LEE (R), UTAH: Maybe we can put up some graphs and talk about the graphs, as well. That'll be a lot of fun.
SPITZER: I'm with you, Senator. We'll put up the graphs you want us to put up next time. How is that?
LEE: That would be great.
(END OF VIDEO CLIP)
SPITZER: All right. Senator, great to have you back with us. I hope you brought your graphs and your answers, you're always a good sport to be on the show. So let me throw it at you right away.
You've now been in Washington for a couple of months. What are the cuts, the big cuts in the big four -- Medicare, Medicaid, Social Security, defense -- that are going to balance the budget which is what you're calling for?
LEE: Well, again, Eliot, as we've had this conversation in the past both with charts and without, I've told you each and every time, everything has to be on the table. We have to look at across the board cuts to every single program and every single department. Nothing can be exempt.
I think one of way of going about that could be to go back to a base budget using 2004 figures. There's not a business, there's not a family, there's not a state or local government in America that hasn't had to face cutbacks, and many of them -- perhaps most of them -- have had to face going back to what they spent in 2004.
I believe wholeheartedly with what President Obama said in his State of the Union address, which is that Americans deserve to have a government that lives within its means. And that's why I proposed a balanced budget amendment. That's why we've got to draw the line in the sand, saying that we are going to balance it. And then we've got to do it.
And that's going to take across-the-board cuts to every single program and every single department.
SPITZER: Look, Senator, you know, I hear the answer, obviously, we can all do the same math. We're running a deficit right now of about $1.6 trillion. That is also -- that's this year and also pretty much what's predicted for next year on a base total budget of about $3.7 trillion. So roughly 40 percent or so.
So are you saying -- and there's some things that can't be cut like interest, Social Security, we could change the law. Are you saying you would go for 40 percent cut in our defense budget?
LEE: Well, I am saying that we have to look at potential cuts as high as 40 percent in every single program. It may be that there is somewhere we decide we can't or don't want to cut them that high but we've got to make it up somewhere else.
Now I don't know whether that can occur over a two-year period or a five-year period or a seven-year period. Or what? But we do have to draw the line now and we've got to establish this baseline legal requirement now, and commit now to do it, because if we don't, what's going to happen is we're going to squeeze out every other program.
If what you love most and want to protect most is national defense or Social Security or Medicare or Medicaid, any of those programs or all of them combined, you should be in favor of a balanced budget amendment because otherwise what will happen?
Just as sure as the fact that the sun will come up in the east tomorrow is that by the end of this decade if we just follow what the president has proposed so far, we'll be spending almost a trillion dollars a year just on interest on national debt.
Now that's more than we spend on Social Security, that's more than we spend on Medicare and Medicaid combined, it's more than we spend on national defense. That's what will be taken out of our budget before we even spend it on anything.
PARKER: Senator Lee, it's Kathleen Parker.
LEE: Hi, Kathleen.
PARKER: And -- how are you doing? In an interview on our Web site you said that you would filibuster any attempt to raise the debt ceiling unless there was a -- you could get a constitutional amendment to balance the budget.
But, of course, everybody knows that takes years to do so what in the short term would make raising the debt ceiling appealing to you?
LEE: Nothing, nothing. We have to have a balanced budget amendment and I do intend to use the filibuster rule and I will filibuster any effort to raise the national debt ceiling.
SPITZER: Well, I think the reality, though, Senator -- I don't want to go through the algebra again. We need to raise the debt ceiling because no matter how you cut it there will not be a balanced budget next year because there won't be -- can't be 40 percent cuts across the board including Social Security, defense and all the other things, just can't physically happen, so we're going to have to borrow more because we're burning through $100 billion a month on the down side.
Let me ask you this. Social Security -- we don't have unlimited time tonight. Let's just take Social Security. What is your plan for this one program that everybody acknowledges is a big part of the federal budget, what -- how would you change it right now? Raise the percentage of income that is subject to payroll tax? Raise the retirement age? What are you going to do to bring that into long-term solvency?
LEE: OK, we can bring Social Security into long-term solvency, 75-year solvency, without raising taxes if we do a few things. First of all we have to assure those Americans who are now retired we're not going to cut their benefits and those Americans about to retire.
But for those who are not about to retire, for those 55 and younger, we have to start saying right now, look, we're going to have to start changing our laws so that we reflect life expectancy in this country. We're going to have to start raising the retirement age gradually. We're going to have to start imposing some means-based testing so that those at the top end of the economic spectrum have diminished benefits. And at some point they might phase out.
We can't afford what we've bitten off. And again, this is out of a desire to protect that interest that Americans have in this program and if we don't take steps like this one and if we don't balance the budget there will be nothing left for Social Security or Medicare or Medicaid or defense.
SPITZER: Look, Senator, this may make you -- challenge your position, but I agree with you on part of what you just said and I think that we need more senators down there who will say very clearly raise the retirement age, do it gradually. How quickly is a matter of debate.
You said something else, though, that I have not heard from anybody, I don't think, which is just a means test Social Security. I've heard that about Medicare but not Social Security. So you want a means test of Social Security, as well, which means those who are wealthier will get a lower and lower and lower payment from the government.
LEE: Yes, I think that's right. I think that's the only way that we save this program.
SPITZER: All right. Look -- sorry, Kathleen.
PARKER: No, Senator, I was just going to shift gears away for a minute, away from the budget, which of course I adore talking about, but to politics. You have said that -- the senior senator from Utah, where you're from, of course, is Orrin Hatch and you've said that you will not endorse him -- you will not endorse him for the primary.
Do you have somebody else in mind to challenge him?
LEE: No, what I've said is that I'll support the eventual nominee for the Republican Party for the U.S. Senate race in Utah in 2012. Senator Hatch is a friend. He's helped me get oriented to the Senate. He has told me that he's fine with the position I've taken and I take him at his word on that.
PARKER: All right. Senator Mike Lee, thank you so much for being with us. LEE: Thank you. It's good to be with you.
PARKER: All right. Coming up, President Bush or President Obama. Who had it right on Egypt? We'll talk about it next.
(COMMERCIAL BREAK)
PARKER: Has the Middle East proved George W. Bush right about the universal desire for democracy? You remember the Bush doctrine, his "Freedom Agenda," he used to say it all the time. Everybody wants to be free.
SPITZER: The underlying question is whether for most of the past 30 years the United States has actually undersold freedom as a guiding principle of our foreign policy because we needed stability.
To talk about these questions we welcome back Columbia University history professor Simon Schama.
SIMON SCHAMA, HISTORY PROFESSOR, COLUMBIA UNIVERSITY: Hello.
SPITZER: Professor, thank you. So is it the case? Did we go for stability over freedom and now the public and the masses in the Middle East have risen up and said, you guys are outdated?
SCHAMA: Well, the first thing, you know, everybody does want freedom. It's like saying everybody wants nice weather. Duh? You know, I think they do. The question is how you actually deliver it? And you know, I must be missing something. It wasn't George Bush entirely in favor of delivering freedom and shock and awe, raining sky and hail from the heavens.
And if you can't actually tell the difference -- those who want to make the case -- that George Bush is vindicated by Egypt between actually the military imposition of the former freedom and the staggeringly kind of peaceful spectacle that we've been seeing unfolding from Tahrir Square, you really do need to go back to school quite urgently even to my classes, I think.
PARKER: Well, vindication might be too strong a word but Bush did fund democratic reform groups in Egypt and President Obama did remove that funding just to put the facts out on the table, but --
SPITZER: No. That's (INAUDIBLE).
PARKER: Doesn't what happened in Egypt actually demonstrate that democratic reform and democracy movements have to be organic and come from within?
SCHAMA: Yes, well, why ask me the question, Kathleen? Because you put it so eloquently yourself. Exactly so. It is critical, too, for success. I'm not someone -- I won't be put in a position of saying, you know, we go around apologizing for America. None of us do and I don't actually think whatever his failings, President Obama does that either. But it is absolutely imperative because this is above all else a nationalist uprising. All those flags in Tahrir Square, it's not Muslim that's uprising, it is not -- sorry, Glenn Beck -- a communist conspiracy. It's a nationalist uprising. And Mubarak was seen as a kind of creepy dictatorial slime ball he was because he was betraying his own people.
Now if the engine of fury is a passion on patriotism you don't want it to be seen as something you're doing in obedience to American nostrums. You really don't.
SPITZER: Which then raises the tough question, how do we promote that uprising, that very organic self-generated desire for freedom? At the same time having the foreign policy with brutal dictators in some parts of the world would nonetheless they are beyond our capacity to get rid of them, and providing a sense of stability in our foreign policy? How do you balance that?
SCHAMA: Well, the story of the events that are to unfold I think very dangerous when history in terms of predictor. It's precisely whether or not actually democracy can be a more reliable ally in the long term than our kind of tyrant. That's the thing.
I mean our kind of tyrant has been going on since Battista and (INAUDIBLE) in the 1950s, it was all to do with that. We've inherited it in the State Department and the White House was kind of ticked. Democratic and Republican presidents alike. So now we have to -- we're in a much, much more scary, fluid position when we're trusting, you know, George Bush and Barack Obama are alike, we actually have to walk the walk and say, well -- democracy is healthier, will make healthier allies, and we have to see whether that, in fact, is the case.
SPITZER: And here --
SCHAMA: We have to take that chance.
SPITZER: Put on your historian's hat. Is that in fact a safe statement? Are democracies more stable allies so that over the arc of 50, 100 years we can say, yes, there are bumps, it is messy, there are going to be government we don't agree with but they're democratically elected but nonetheless over the longer term it is better to have democracy there than the stability of an autocracy?
SCHAMA: There is nothing guaranteed about democracy. Democracy produced the horror that, you know, that is Robert Mugabe, but it also produced a stable South Korea. We decided -- it also produced a pretty stable Philippines, as well.
We can invoke certain cases where it's worked out just fine actually. But there are no guarantees and it's the boring nitpicky historical thing to say. It depends on a particular field of which you are pitching the tent.
PARKER: You said that radical revolution is more likely to result in pseudo-socialism than an Islamic state. SCHAMA: No, only this year -- well, I think this year it may well happen because of the perfect storm with this sudden rise in food and, indeed, in oil prices. And what classically happens in revolutions, I'll take you back to mere yesteryear, how about let's try 1848. But what happened there? Revolutions often break out in the spring. You have your Easter bunny. You have your melting of the slush. You have, hello, defrosted dog turds and you have revolutions in February and March. What happens then after -- you know, it was Wadsworth, the romantic poet, who always thought about springtime as the time when people hope. It's something about meteorological psychology or something. The payoff is really in the nasty months of brutal summer. Here's what happens.
If the economic situation is tough and we've got a tough one ahead, people suddenly wake up to the fact that slow and steady taught us slight constitutional reforms do not put bread on the table. So they say, well, actually we've been conned. Well, back to the barricades, back to Tahrir Square. We need a kind of political system, whatever it is, that will deliver social justice and that produces trouble. And I think it's going to.
ELIOT SPITZER, HOST: So what you're saying is in chapter one it's freedom.
SCHAMA: Yes.
SPITZER: Chapter two is feed me. And if you can't feed the masses, then somehow the beauty of freedom begins to dissipate.
SCHAMA: Yes.
SPITZER: Whoever promises the food then rises up and that explains why revolutions often go through this arc of radicalism.
SCHAMA: Yes, you can bet there's someone waiting in the wings. We start exactly. Course one is champagne. Course two, better be the provision of falafel, you know, or else, actually this revolution is in trouble.
SPITZER: And in fact, what we're seeing in Egypt given the unemployment rates to take the Egypt example since it is front and center right now, the unemployment rates suggest there is no easy answer to that economic dynamic.
SCHAMA: No. Are we talking about the United States or are we --
SPITZER: We'll get to that in the next segment.
SCHAMA: We're talking about Cairo/USA. But that's exactly right and the shock troops of the revolution are, of course, the young who are disproportionately under and unemployed. That's a problem.
SPITZER: OK. Now answer this amazing question, because in -- as you just step back and watch the sweep of revolution over the last two or three weeks, it seems that this is as you said, you have to go back to 1848 perhaps to see something like it. What explains this sudden surge of the human desire for freedom so that nation after nation is thrown off an autocracy that seemed to have such an iron grip?
SCHAMA: Well, George Bush as in many things was not completely wrong. I think not in the sense in which actually, you know, freedom is a kind of instinct that we're hardwired for. Not everybody is. But what we are hardwired for is a sense of social solidarity, which is a pompous academic phrase. There's no -- in a way, the most important of the bits of that libertarian college (ph) fraternity is fraternity, the one nobody talks about. Because there they are sitting with our iPhones, with telephones in Tahrir Square, was like kind of camp freedom, the ultimate camp freedom. You are with your brothers and sisters, people of all ages and you felt suddenly you belonged in a way which people usually they feel in church and it's a commonplace, not entirely inaccurate to think of revolution as a kind of almost religious ecstatic experience.
PARKER: Sure.
SCHAMA: And if you've been through it, you never forget it.
PARKER: Woodstock.
SCHAMA: Give you hope.
PARKER: Woodstock.
SCHAMA: It's a little --
SPITZER: I'm not sure we equate Woodstock with Tahrir Square. That's, you know --
PARKER: The sense of being together, being part of the movement. Yes.
SPITZER: Here's we're going to have to take a break. So real quick. 1848, social media didn't exist.
SCHAMA: Oh, yes, they did.
SPITZER: It did.
SCHAMA: Sure. It was called newspapers and actually, you know, there was an age, Eliot --
SPITZER: OK.
SCHAMA: -- when newspapers were produced very quickly. They were hand distributed. They were uncensored. The great thing about many revolutions is a way with censorship and the air is thick with broad sides. The way we like it to be on this program.
SPITZER: OK.
PARKER: Simon, we have to take a quick break. We're coming right back to you, so hold that thought.
Stay with us. We'll be right back. (COMMERCIAL BREAK)
PARKER: We're back with Simon Schama. Simon, thank you so much again.
Going back to these revolutions that you studied about which you've written, is there one in particular you can put a finger on from which we might extract lessons that we can apply to what's happening right now in the Middle East?
SCHAMA: Well, I mean, I do think about the middle 19th (ph) century. It is just my archaic way of being, but also the template, you know, was there. They were all -- they were revolutions that essentially were inspired by a sense in which old monarchs really didn't represent the people. That element really of social anger. There was a great deal of fury coming from trades, sort of old- fashioned trades that felt they were becoming redundant, tailors, cabinetmakers who saw the coming industrial revolution as really an enemy. And above all they had, you know, the Facebook and Twitter kids, a mixture of university students who were prepared to put their lives on the line who had a kind of sense of the gorgeous delirium of political sacrifice. You know, they're really the kind of poets and singers and they joined forces with kind of printers and publishers and that makes for an incredibly powerful explosive beginning.
What then happened or so in the 19th century classically is that that coalition between the poets and the manual workers falls apart and it's a problem for regimes that want to contain revolution, kind of hold it steady. A lot of these 19th century revolutions where the people who want to hold it steady were lawyers, gee, what a surprise, judges, the occasional money person and they were all in favor. They were wet liberals like me. They were kind of "The New York Times" readers, the good, you know, CNN viewers of their day and, you, of course, believed in the revolution like a bouquet of flowers but they did not like the possibility of real angry bloodshed on the streets.
SPITZER: They also don't how to make --
SCHAMA: And they have trouble.
SPITZER: They don't know how to make a revolution. They know how to talk about it, not make it.
SCHAMA: There are.
SPITZER: Interesting.
SCHAMA: Yes.
SPITZER: What you're saying is also fascinating. There's the moment of economic dislocation.
SCHAMA: Right.
SPITZER: That was the industrial revolution. Similar to what we've gone through in the world over the last 10 years. So a whole new generation in Egypt is saying we are not yet part of that future and they're saying how do we get into that economic future.
SCHAMA: That's exactly right. The interesting thing as I understand it is that Egypt isn't at all by Middle Eastern standards a backward economy. It was six percent growth.
SPITZER: Yes.
SCHAMA: You know, but I didn't really know how that growth was constituted. But you can bet that not a lot of it was going down to the (INAUDIBLE), the kind of cultivators on the Nile, much less to the people who are in the tiny shop or a bicycle repair shop in the most crowded areas of Cairo. The pressures again classic to revolutions are demographic. Too many bodies often medical advances, another great revolutionary scenario makes for less infant mortality which makes for more crying babies to be fed, which makes -- puts real tough pressures on the family budget. And you usually have, you know, your bright Ibrahim or your bright Fatima who've been to college, been to school and cannot get a job. They are classically angry, upset people.
SPITZER: That is exactly what's happening in Egypt with the unemployment rate among women who've graduated from college I think was 90 percent and among men was 40 or 50 percent --
SCHAMA: Right.
SPITZER: -- for the first four or five years out. Very quickly, is it then the case? It struck me at the very end just before Mubarak resigned what we had begun to see was labor unions and workers shutting down businesses and saying we are joining with the students and that is the coalition you're talking about.
SCHAMA: Well, yes, as the economic crisis deepens in the spring and summer, that is when things get worse. The issue really as the constitution gets reformed and electoral parties are formed, whether or not someone or some cause is going to stand forth and say the revolution is a joke unless it delivers social justice were as one of the movies we all love says, fasten your seat belt. It's going to be a bumpy ride.
SPITZER: All right.
PARKER: All right. Simon Schama, thank you so much for that fascinating history lesson. I wish I were back in school with you.
SPITZER: All right. Coming up, believe it or not, questions still persist over President Obama's citizenship and a new poll suggests the issue could help choose the next Republican presidential nominee. Stay with us. You won't believe it.
(COMMERCIAL BREAK)
SPITZER: Believe it or not, the birthers are still with us. You remember them. The folks who refuse to believe that Barack Obama is an American. Well, guess what? Their numbers are growing. According to Public Policy Polling 51 percent, that's right, a majority of likely Republican voters still do not believe Barack Obama was born in the United States. It doesn't help that the Republican leadership refuses to acknowledge the obvious. House Speaker John Boehner was recently asked if he thought the president was born in the U.S.
(BEGIN VIDEO CLIP)
REP. JOHN BOEHNER (R), HOUSE SPEAKER: It's not my job to tell the American people what to think. Our job in Washington is to listen to the American people. Having said that, the state of Hawaii has said that he was born there. That's good enough for me.
(END VIDEO CLIP)
SPITZER: I'm sorry, he's the speaker of the House, the leader of this party. He knows the president's place of birth is not a matter of opinion. It's a fact. Unless you also believe Neil Armstrong walked on a sound stage instead of the moon.
PARKER: OK. So we're not talking about a fringe group of Obama haters. This is the GOP. And only 28 percent of those who plan to vote Republican the next election actually believe the president was born here. The rest are undecided.
What does that tell us? Well, it tells us this much. It may be bad news for Mitt Romney. The moderate Republican is the top choice of the reasonable people who understand that the president was born in America. But among those voters who just can't accept that their president was born in the U.S. of A., Romney comes in a distant fourth with the more conservative Huckabee, Palin and Gingrich crossing the finish line ahead of him.
SPITZER: I don't know what to say to that except that there's a sucker born every minute which just happens to be the subject of our next segment on Bernie Madoff. Don't go away.
(COMMERCIAL BREAK)
SPITZER: Breaking news from the Middle East. In Manama, Bahrain, police are cracking down on a peaceful demonstration in the middle of a public square. We reported on it last night and now it has turned violent. Without warning, security forces clashed with the protesters that resulted in at least one person dead according to Reuters. And after the tragic news of Lara Logan being sexually assaulted in Egypt last week, ABC News is reporting that one of its correspondents Miguel Marquez was beaten during the military crackdown. Details of his status are unknown.
PARKER: Turning now to Bernie Madoff, they had to know. That's what the convicted Ponzi schemer says about the banks he dealt with, the banks that didn't seem to notice as he dumbed (ph) up phony profits totaling in the billions. In a jailhouse interview with "The New York Times," Madoff went on to say that the banks suffered from in his words "willful blindness." SPITZER: So what did the banks know and when did they know it, in particular, JPMorgan Chase, Madoff's chief banker. Here to help us sort it out is William Cohan.
All right, Bill. You've covered this industry. You've been in this industry. You've been a banker. Conceivable to you that banks that were doing billions of dollars of transactions with him didn't sense something was amiss.
WILLIAM COHAN, AUTHOR, "HOUSE OF CARDS": I think it's more than inconceivable. I think the evidence in the Picard lawsuit that was filed last week against JPMorgan Chase shows e-mail traffic --
PARKER: Picard being?
COHAN: Being the trustee who's responsible for trying to get as much back from investors and other people, people like the banks who may have known about what was going on here. His evidence that he put -- again, nothing is proven yet and JPMorgan Chase has been very adamant that they've got the facts wrong and the law wrong but the e- mail traffic suggests that JPMorgan Chase did have knowledge and their executives had knowledge and they discussed it and sort of rejected it and carried on and let him go about his business.
SPITZER: What do you mean by rejected? Rejected an investment with Madoff?
COHAN: Well, JPMorgan Chase did have an investment with Madoff. Something like $250 billion -- $250 million when they suspected things were going wrong. What did they do? They got the money back and they didn't take care of their investors. They didn't take care of others, but they took care of themselves which is a, you know, not surprising thing to have happen on Wall Street as we all know and love unfortunately. But, you know, they took care of themselves and, you know, we'll see whether they did have actual knowledge or not.
PARKER: Well, whether the banks knew or not, Bill, is this also another case possibly where regulators who were suppose to oversee things just didn't do their jobs?
COHAN: We know from the Markopolos who went and spoke to the SEC many, many times at the SEC completely whiffed on this and there's no getting around that. And everybody it seems was conned by Bernie Madoff and it is a real tragedy. I mean, I think you have to give "The New York Times" credit for getting the scoop that everybody would have wanted, the jailhouse interview. But does that make it sort of the most important story of the day by putting it in the upper right- hand corner of the paper, you know, after weeks of, you know, revolution in Egypt? It makes it seem more important than it probably is. It's a valuable scoop, good for them for getting it. But, you know, you have to have take this with a serious grain of salt. This guy is a convicted felon. He is a known Ponzi schemer. He's in jail for 150 years. What else does he have to do but sort of spin tales out in school?
SPITZER: Here's the question. We know the SEC failed. They had people investigating. They would often didn't find what should have been obvious. What would have become evident, one simple request for day-to-day trading records which he could not have jimmied up. There were no trades. Would have been evident that this was all a paper scheme. Having said that, put yourself in the place of the bank. What due diligence would a bank have done or should they have done before they recommended a Bernie Madoff investment? What should they have done to try to duplicate the trades or anything else?
COHAN: Well, look, Eliot, I mean, again, taking from the civil lawsuit that was filed which is just at the moment, you know, conjecture, an argument.
SPITZER: Right.
COHAN: You know, but there were these deposits that were made. I mean, some absurd amount of money. You know, $933,000, whatever it was, you know, 10 days in a row for 10 different accounts. I mean, the fact pattern, getting this amount of money just showed -- should have -- I think, did, in fact, according to the lawsuit indicate that there were problems with his behavior but they chose to continue to do business with him.
SPITZER: Is it not also and this is what ticks many people off, the regularity of the return? In other words, the consistency of winning?
COHAN: Of course. Of course, it's impossible. It's not -- nobody gets that consistent return. But, you know, this guy was a classic con artist and people wanted to believe. People like to get something for nothing. They don't like to have to work too hard. If they can get 11 percent returns year after year, that sounds fabulous. They don't need 20 percent returns.
SPITZER: Well, that's where the conscious avoidance, the legal term for what Bernie Madoff is describing. Their turning their eyes intentionally comes into play. People were being told, look, you're getting a consistent 10, 11, almost risk-free return and then when they would try to replicate the methodology because he had some crazy option scheme, they would pretend to explain it, they would go back to their offices and they couldn't do it. And so everybody who really drilled down said you can't do it. So what do you conclude?
COHAN: You can conclude that as you said in your opening piece that there's a sucker born every --
SPITZER: Right.
COHAN: If something is too good to be true, it probably is. And that's why I don't give a whole lot of credence to what Bernie Madoff says in a jailhouse interview. He even said, you know, that Mr. Picard was down there interviewing him when it turned out that, of course, he wasn't. It was just his team was down there. You know, that's the kind of thing that is very disturbing and indicates that maybe the guy doesn't -- isn't completely sane in every way.
PARKER: Well, that was my next question. Why is he saying this now?
COHAN: What is he --
PARKER: What else is he got to do?
COHAN: Honestly, what has he got to do? I mean, he knows Diana Henriques (ph) is writing this book about him. There's been other books. So this is sort of maybe his last shot at infamy, getting recognition. What better thing than to say that -- you know, notice he's saying that his friends and his family had no idea of the scheme but hedge funds and banks, third party, you know, they were culpable. They knew what he was doing and they enabled him which may, in fact, turn out to be true. That is what the trustees' case is all about. But for them to say that his friends and his family had no idea stretches, you know, incredulity as far as I'm concerned.
PARKER: Yes.
SPITZER: That is the part that I think still mystifies people. The continued stated view by Bernie Madoff that only he within his office was culpable. Because if you just think about the paperwork that needed to be created day to day to cover this up, hard to believe, almost physically impossible for one person to have done it. Hard to believe that others didn't say, wait a minute, there are no trades here. There's simply no trading floor to produce the returns that he's talking about, so is there another one out there?
COHAN: Well, of course, there's another one. There's another one out there.
SPITZER: You got them all? Come on.
COHAN: Yes. Every day. I mean, we're literally reading about them unfortunately. As Warren Buffett said, when the tide recedes, you find out who's wearing a bathing suit. When the low tide --
SPITZER: He didn't say -- he said when the tide goes out, you see who's swimming naked.
COHAN: OK, this is a family so I thought I would close it that way. But I mean, I think that when you see what happened -- you know, in an economic recession when things are tough, you begin to see who was relying on these confidence games. And I think you see, you know, Bernie Madoff was clearly one and there's been others and there will always be others. This is human nature. We're talking about human nature here.
SPITZER: Right.
You said before what is so true and so important for everybody to listen to, if it looks too good to be true, it is too good to be true. What's amazing is that back in my prior life when I was attorney general, you would go out and speak to consumers who are by and large investing in, you know, small stuff and say that to them but everybody presumed the sophisticated folks who really knew Wall Street would never fall for this. So what does it tell you that the most -- supposedly most sophisticated investors could fall for this? And you got 20 seconds to answer.
COHAN: I mean, look, I think that is a hugely important point because even the sophisticated investors who bought CDOs and CDO squares and these complicated mortgage securities thought they were worth something and they weren't. And we know what happened then.
SPITZER: Right. And so what you're saying as you said --
COHAN: Do your due diligence. Don't put your money into something until you've really researched it a lot and feel comfortable yourself.
SPITZER: And don't rely upon someone else who said all the returns have been so good for this many years because that guy may be getting his money out.
COHAN: Too good to be true.
SPITZER: All right. Bill Cohan, thanks so much for joining us tonight.
PARKER: And thank you for joining us. Good night from New York.
"PIERS MORGAN TONIGHT" starts right now.
