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State of the Union

Interview With Austan Goolsbee; Interview With Ron Paul

Aired June 05, 2011 - 09:00   ET


CANDY CROWLEY, HOST: Jobs market barely moving, unemployment up, Wall Street quivering, politics thriving. It is time, wrote Senate Democratic leader Harry Reid, for Republicans to stop trying to force their plan to end Medicare on the American people and work with Democrats to create jobs. Et cetera.


BOEHNER: We've lost 2.7 million jobs since he took office.


CROWLEY: Et cetera.


MITT ROMNEY, REPUBLICAN PRESIDENTIAL CANDIDATE: And he made it worse. And he made it last longer.


CROWLEY: Et cetera.


PRESIDENT BARACK OBAMA: There are going to be bumps on the road to recovery. We know that.


CROWLEY: Is it a bump in the road or has the economy hit a wall?

Today, the White House diagnoses with top economic adviser Austan Goolsbee what to make of this rough week with economists Alice Rivlin and Douglas Holtz-Eakin.

Then, Republican presidential candidate Ron Paul.


PAUL: Nobody knows what the outcome will be in this election.


CROWLEY: Plus, the Republican field and President Obama's re- election road map with former White House insiders Anita Dunn and Ed Gillespie.

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

The economy by the numbers: 54,000 jobs were added to the economy in May, well below what analysts expected and below what's needed to keep abreast of new people coming into the job market. Unemployment, that rate rose to 9.1 percent. And on Wall Street, the Dow Jones is on its longest weekly losing streak since July 2004. Joining me now the chairman of the Council of Economic Advisers, Austan Goolsbee. Thank you for being here, Austan. We appreciate it.

GOOLSBEE: My pleasure.

CROWLEY: So what do you have left to target that 9.1 percent unemployment?

GOOLSBEE: What you want to look at are what are the recent trends. Because one month is not a trend. And the last six months we've added 1 million jobs in the economy. The last 15 months we've added 2 million jobs.

Now the president's the first to say that it's not enough and if the unemployment rate's 9 percent, we got a long way to go. I think the style of things that we've been trying to do are of the form, how do you help the private sector stand up and be the driver of recovery.

The government role in rescue when the private sector's in free fall is very different than the moment we're in now where we're doing things like the president passed the investment subsidies to try to get businesses to build factories and buy equipment here at home. The payroll tax cut for 150 million workers.

CROWLEY: But didn't those all start in January?

GOOLSBEE: They began in January and they will continue as we go over...

CROWLEY: So they've been in place for six months and we've still got 9.1 percent.

GOOLSBEE: Well, this is for May. So it is the beginning of the year. And there's no question that we faced some significant headwinds.

CROWLEY: Doesn't that speak to the weakness of the economy, if I could? Because we can't -- it can't withstand an increase in gas prices, can't withstand a tsunami in Japan. Doesn't that kind of tell you that the recovery is really weak at this point?

GOOLSBEE: Well, look. We're coming out of the worst downturn since 1929. There's no question that we are facing fragile recovery and we've got to keep pressing to get the private sector stood up. Some of these headwinds were quite -- I mean the natural disasters in Japan let us hope that we don't face that on a repeated basis.

So I don't -- there's no question that as you come out of the worst downturn in most of our lifetimes, that it is going to be fragile.

But first we do the tax policy. Second, there are more things that the president is trying to enact that are all about this leveraging the private sector money. Corporations have started to become profitable again. There's money sitting on their balance sheets that they can use for investment and our effort is to try to get that investment kicked in so he's got -- the president has enacted this regulatory look-back in which we go through the 20 big agencies and find those regulations that are outmoded or if they're costly, that we streamline to try to encourage investment.

An infrastructure bank, the president's called for, which would leverage private money to try to help finance the economic infrastructure of the country. And the trade agreements.

So i think that the president's plan, there is a plan, it has been working. We have been adding jobs significantly over the course of this year. We faced a stiff headwind and this was a tough month, but I don't think that we should abandon the idea that what we need to do now is get the private sector stood up.

CROWLEY: So what I hear you saying is, when the economy was on the precipice, when you all came in, it was time for the government to act, but you don't see the government doing anything new at this point beyond what's been put in place because 9.1 percent you are hoping the private sector and the things you've done to help the private sector are going to pick up some of this.

GOOLSBEE: I don't quite -- I don't think that it is accurate to describe it as doing nothing just because it's not the government's direct spending that's what's getting done.

CROWLEY: No. No, I'm just trying to figure out what you're saying here, that there's not going to be any new government programs here.

GOOLSBEE: The regulatory streamlining and look-back is an action of the government. The tax incentives for business investment and the payroll tax cut are government programs. They're government programs whose intention is to leverage the private money.


Let me just move you on. We've spent basically since the president took office, $814 billion on the stimulus, by the time you add in some of the things that were increases in the budget for infrastructure, education, things like that, sort of very close to $1 trillion. Have we gotten our money's worth in jobs?

GOOLSBEE: Well, the stimulus effort, the Recovery Act, was passed at a moment when the private sector was in free-fall. So the purpose of the act is to add jobs but is even more importantly to prevent us going into a great depression. And we did avoid going into a great depression. And we've come a million miles from the moment that the president took office when the economy's losing 780,000 jobs a month and people are actively talking about will there be an end to the financial system in the United States.

So that part was quite important. Now we've moved to adding jobs in the economy. We added 2 million jobs over the last 15 months.

CROWLEY: But not enough, you would concede. GOOLSBEE: Not enough, absolutely not.

CROWLEY: OK. So that's what I'm trying..

GOOLSBEE: ...we have more.

CROWLEY: Did the stimulus create as many jobs as you thought it would? A $1 trillion worth of taxpayer money, has it been worth it?

GOOLSBEE: As I said, the question of is it worth it is not just about the jobs. Now the Congressional Budget Office and many of the private sector analysts ask the question, how many fewer jobs would there be had we not passed the Recovery Act. And they came up with numbers that are in the target range of what we said would come from the Recovery Act.

But the Recovery Act and all of the actions of the government in the rescue phase were more than just a jobs program, it was trying to prevent us from going into a depression, whether you look at the auto rescues, or any of the other programs.

CROWLEY: Let me move you to the housing market. As you know, some people say a recovery never starred. other people say it is it in a double-dip. What we do know is home value is down 4.2 percent in the first quarter of this year. Now they're down to 2002 levels, I think? Home values? So sort of a decade of equity is gone for Americans owning a home.

Do you think it is time maybe to reinstate your first-time home buyers program? Is there anything you need to do, because the economy can't really recover, can it, in the strength that you need it to recover if the housing market is so bad?

GOOLSBEE: Well, you know, I'd say there are really two different questions embodied in that question. Housing is important. It's clear we got into a housing bubble and we got substantial numbers of people into houses that they could not afford. And so in addition to the recession, we're dealing with an excess 5 million-plus vacant homes in the country.

So it's been a tough struggle and slog in the housing market. And it is likely to remain so because you have these vacant homes.


CROWLEY: Can the economy improve?

GOOLSBEE: So, number one -- so on the -- can the economy improve, I think it can. I think the mistake -- it would be a mistake to try to roll back the clock and go back to the expansion of the 2000s which was driven almost exclusively by excessive consumer spending and residential housing construction. Those can be important, but they should not be the sole drivers the way they were in the 2000s.

CROWLEY: Austan Goolsbee, the president's top economic adviser. Thanks for stopping by. Appreciate it.

GOOLSBEE: Great to see you again, Candy.

CROWLEY: When we come back, the debate in Washington is focused on debt reduction, but should it be on job creation? Opposing views from economists Alice Rivlin and Douglas Holtz-Eakin.


CROWLEY: Welcome back to STATE OF THE UNION. Joining me now, Alice Rivlin, former director of the Office of Management and Budget; and Douglas Holtz-Eakin, former director of the Congressional Budget Office.

We said going into you all before the last break that you were going to have differing opinions, and then you inform me you might not. So that's perfectly all right on this show.


CROWLEY: Let me first ask you, it seems to me what I took away from Goolsbee was that there are no new programs the administration is eying to try to bring down that unemployment rate, that they're focused on the private sector revving up.

HOLTZ-EAKIN: They should be. I mean, the private sector is the key. That doesn't mean there aren't things that could be done which would improve the outlook in the private sector.

So I think the basic formulation that is important now is to recognize that the trend growth in the economy is weak. That means that when bad things happen, as inevitably they do, we get scared that we're going to go into a double dip.

CROWLEY: Right. A tsunami came or the gas prices are up, and all of the sudden the economy goes.

HOLTZ-EAKIN: Things will happen. So the core objective should be to bolster the trend growth leading the economy as much as possible. That means do things now that you would like to do anyway: tax reform pieces, long-term policies that aid growth, and do it exclusively with an eye toward growth.

So look at the trade agreements. They've been sitting around for years. Get them done and do more. Those are things that would give the private sector some confidence in the future and they could do that right now.

CROWLEY: Is that what's lacking now, confidence in the future by the private sector? RIVLIN: Yes. But, we were in a very deep hole. It is not surprising that it's taking a long time to climb out. The economy is disappointingly weak right now, in part because the stimulus did work, but it ended. And the economy is -- the private sector is not picking up.

So Doug is right, we've got to focus on the long-term future, get the budget deficit under control over the long run so that markets can see that we're in charge of what we're doing here. And do everything we can to give confidence and hope to the private sector. I don't think that means there's nothing the government can do.

CROWLEY: What can they do specifically?

RIVLIN: Well, the thing that would help most right now I think is additional aid to state and local governments. That's not likely to happen because the Congress isn't likely to do that.

But I think...

CROWLEY: They're busy cutting.

RIVLIN: They're busy cutting. But I think it would help. Because if you look at the job numbers carefully, what's happening is the private sector is adding jobs and has been for a long time, but much too slowly.

In the meantime, the public sector, the state and local governments, are laying off people. So they're a drag on the economy.

CROWLEY: Let me ask you an...


HOLTZ-EAKIN: I would disagree. What we know is a lot of the state and local governments basically ballooned their budgets in a way that just can't be sustained. So what they're doing now is the restructuring that has to happen anyway. So to pay them to not do the right thing I think is a big mistake.

The fundamental thing that faces us is the looming debt. We are aiming straight toward a Greece-style fiscal crisis unless we change direction. So the single most important thing Congress can do right now is fix that. That would fix the outlook for jobs. That's a real jobs program that says, you know, we're not going to sail into a financial crisis.

CROWLEY: But I thought there were competing views here. And that just in general, Republicans were saying, listen, we've got to cut the debt, it gives businesses and sends a signal to the world that we're going to be responsible, and that's going to create jobs.

And then you have Democrats pushing back, going, you don't cut spending in the middle of what is still a very weak recovery. Which is it?

RIVLIN: Well, it isn't a "which." Both are right.

CROWLEY: Can you do both? RIVLIN: Yes. We need to cut long-run spending. We need to make changes in the entitlement programs, Medicare, Medicaid, so that they don't grow as fast in the future. We also need to reform our tax system so that it is a much more efficient and can raise more revenue in the longer run from lower rates.

There are several packages on the table. I served on the Simpson-Bowles Commission that said exactly that. And the Domenici- Rivlin group said exactly that. There's no mystery about what we ought to do. We just need to get on with it.

CROWLEY: And do you agree you can both cut spending and increase spending?

HOLTZ-EAKIN: Alice is an unusually sensible from the lefter wing of the economics profession. But the trouble is on Capitol Hill you are seeing this dichotomy. You're not hearing the Democrats say, yes, we agree, we're going to change entitlements, yes, we agree we're going to get tax reform done. They're saying no to both of those things. We need to do them both, they're saying no, and instead they're trying to get their political constituencies to come up with more spending. That's a mistake.

CROWLEY: Would you both agree that you cannot get spending under control unless you tackle the structural integrity at this moment of things like Medicare, that you have...


RIVLIN: Oh, absolutely.

CROWLEY: You have to cut benefits. You can't just, say, oh, you know...

RIVLIN: No, no, you have fraud and abuse. Absolutely we need to restructure Medicare and Medicaid so that they aren't growing as fast in the future. There are different ways of doing that.

But to get back to your question, can we do two things at once? We don't have to cut near-term spending too much. We shouldn't do that because it would endanger the recovery. But we need to have...

CROWLEY: You mean it would cost jobs if we had near-term big budget...

RIVLIN: If you just slash the spending right now or if you raise taxes right now, very bad thing to do as the economy is beginning to strengthen. But...

CROWLEY: How about if you threaten to raise taxes?

RIVLIN: But you need to put this plan in place, legislate it. Not just plan it. Legislate it so that the world knows we're taking serious steps to get our long-run deficit under control. HOLTZ-EAKIN: I agree and disagree. I mean, I agree with the long term. I mean, we have to have structural reforms to Social Security, Medicare, and Medicaid, all three of those big social safety net programs are bleeding red ink right now and they won't be around for future seniors and future poor Americans. That's a disservice.

So fix them. I'm not so worried about cutting near-term spending. I think you have to cut discretionary spending. I think you have to get the deficit under control quickly. And I don't think I've ever seen a Congress cut so aggressively that it endangers the economy. I live for that moment.

CROWLEY: Let me ask you about Moody's Investor Service, which this week put out a press release which said: "Moody's Investor Service said today that if there is no progress on increasing the statutory debt limit in coming weeks, that is raising the debt ceiling which Congress has basically saying it won't do, at least Republicans, unless there is some spending cuts, Moody's expects to place the U.S. government's ratings under review for possible downgrade due to the very small but rising risk of a short-lived default.

Could you dumb this down for me? Why do I care about this? RIVLIN: Oh, you care a lot about the U.S. government not defaulting on its debt. That's like saying we're not going to -- we've run up too much debt on our credit card so we're just not going to pay it. That is unacceptable. It is a bad thing.

But, we need at the same time we raise the debt ceiling we need to put in place this long-run plan that Doug and I are agreed on that shows the world we're actually getting our situation under control.

And Moody's is right to be worried.

HOLTZ-EAKIN: And Americans should be worried. If in fact the unthinkable were to occur and the U.S. did not meet its obligations, every interest rate in this economy -- your credit card rates, your auto loans, your mortgages, your student loans, everything you touch is going to get more expensive, not just for a day or two, permanently. We will have been labeled a bad borrower. It will cost the nation as a whole.

You really don't need that at this point.

CROWLEY: I need two words from each of you. Your thumbnail sketch on where the recovery is right now: stalled or still growing.

RIVLIN: Slow growth.

HOLTZ-EAKIN: Slower than Alice thinks.

CROWLEY: Thank you both so much for joining us.

Next, Republican presidential candidate Ron Paul says the playing field is coming to him.

(BEGIN VIDEO CLIP) PAUL: The people coming over here. So I would say whatever happens is going to be good because the people have woke up.



CROWLEY: Texas Congressman Ron Paul is taking his third run at the White House in 2012. During his maiden voyage in 1988, Paul ran as a libertarian.


PAUL: We think the government should be much smaller. If government is small, then you don't need an income tax.


CROWLEY: In 2008, Paul was 20 years older, a sitting congressman from Texas, a Republican and still a small government guy.


PAUL: I have never voted for a tax increase, never will, but the tax issue is only one-half of it. You can easily pledge not to raise taxes but you have to cut spending.


CROWLEY: The man has certainly been consistent. But the times have changed, so these days Paul commands a larger audience, willing to back him up with big bucks. He's been called the intellectual godfather of the Tea Party -- not a bad title to hang your hat on this primary season.

The latest CNN poll of Republicans shows Ron Paul running second among announced and likely presidential candidates. High-flying for a candidate who three years ago finished with only 3 percent of the delegates need to win his party's nomination.

He says people used to laugh at him. They are not anymore. Congressman Ron Paul is next.


CROWLEY: Joining me now, Republican presidential candidate, Congressman Ron Paul. Congressman, thank you very much for joining us.

Let's talk about a couple of things that were out there this week. The debt ceiling. The House rejected raising the debt ceiling in what seemed like a pressure move as opposed to a final move. Will there be a deal to raise the debt ceiling this month?

PAUL: Well, I don't think anybody has an absolute answer to that. But I have my suspicions and I would bet on that there will be.

CROWLEY: And much to your unhappiness.

PAUL: Sure. I mean I came in to the congress a good many years ago and my goal was to shrink the size much government and balance the budget, pay the bills, have sound money and live within our means and mind our own business. And I haven't done a very good job. It seems like we're going in the wrong direction.

CROWLEY: Well, how much of a House vote -- the House rejecting any increase in the debt ceiling until there is a deal to cut something in government spending. How much of that is real and how much of it is a game of chicken? Because what we're told is the economy will implode if we don't raise this debt ceiling.

So is this now in the gamesmanship stage rather than the serious stage?

PAUL: 100 percent gamesmanship. I mean they're not serious. If they thought there was a problem, they would, you know, cut spending and get down to business.

But, no, they're not serious. It is who is going to get the blame and who's going to get the power and who's going to get the political benefits and who won't have to have their budget cut. That's what it is all about.

But it will come down to the wire and they'll pass it because they will beat the drums of fear. That's how we get things done in Washington, whether it's on foreign policy, you know, they're about to attack us and they're going to bomb us with nuclear weapons and they get congress to do things.

CROWLEY: And in the end, what do you think would happen if it didn't pass? Because you're right, we are told that economic recovery would be threatened. Do you believe that if the debt ceiling was not raised?

PAUL: It depends on how it was done. If it was a sign we were getting our house in order it might restore a lot of confidence, it might restore confidence in our dollar. Our dollar may go up, because hey, maybe they're serious this time.

But if it's just sort of a mistake and they miss it a week or two and something like that, it could be very negative. But if it was part of a plan to change things, yes, I think it could be a very positive thing.

But the big thing is, if we continue to do what we're doing and we raise the debt limit what they don't want to think about is where we're going, because they say it could be bad and there could be some difficult circumstances on delaying payments.

But delaying payments is nothing like not paying with real money, because governments always pay their bills. They never default by not paying bills. They always default by paying off with junk money.

PAUL: And we're already doing this. They're worrying about a default? The default is on the average person today because their inflation rate is high, they've lost their jobs and so we're defaulting all the time. The default is just who's going to get punished the most -- the people who got bailed out on Wall Street and they -- and somebody that owns our debt or will it once again be the middle class and default on them with just printing money?

CROWLEY: What about the argument though that if we should default, it will drive up interest rates and if you want a car, if you want to buy a house, you'll be paying double digit interest rates. Doesn't it, in turn, affect the people you're talking about on the ground on Main Street trying to just do their jobs if you don't raise that debt ceiling?

PAUL: Well, that's why it is so difficult. And after 30 or 40 years after having no restraint on spending and printing money, you don't click a switch and correct that. So yes, interest rates may go up but you want the market to work, you don't want a central economic planning. That's not our problem. Because central economic planners they get to fix interest rates, also monetizes all the debt of the country.

So the people need to realize if we're serious about this, interest rates may go up, but maybe we'll go back to work, too.

CROWLEY: The vice president and a group he is working with, Republicans and Democrats, says that he's going to find well above $1 trillion worth of cuts in his group that's trying to find a way to go at this debt. How well above $1 trillion in cuts would it take for you to actually vote for an increase in the debt ceiling?

PAUL: I'm not going to vote to increase the debt. I didn't vote for that and I don't believe in it. But what's he talking about $1 trillion? In what period of time, one year or ten years? In this year's...

CROWLEY: It's peanuts is what you're trying to say?

PAUL: It means nothing.

The only thing that counts is this year. And our obligation, when you add up the deficit, the obligation to the borrowing of the trust funds, plus the entitlement obligation, $5 trillion this year. $1 trillion over five years? People -- markets shouldn't believe us for a minute. That's just a joke. CROWLEY: Congressman Paul, I want you to stick with us. We'll be right back after the break and talk a little politics.


CROWLEY: We are back with Republican presidential candidate Ron Paul.

Congressman, let me turn to presidential politics here. This is your third time around. And I think a lot of people know that you engender great passion from your followers. You win a lot of those straw polls when Republicans come to meet. You've proven that you can raise money. And yet there are a lot of people that say, you know, it is an interesting conversation, but doesn't have much of a chance to win.

You've been around a long time. I know you know what the odds are. Why do you run?

PAUL: Well, I'm not so sure I do know what the odds are because I never thought I could ever get elected to congress. You snow then -- well, if I vote the way I believe I'll never get re-elected. So you never know what can happen.

And I know what the odds are.

But the one thing is it's very encouraging is I see a fantastic movement at the grass roots. You hear from supporters but the whole country is moving. The attitude toward the endless undeclared silly wars that we fight that are bankrupting us. The silliness of the Federal Reserve printing money when we need so-called wealth, the deficit's that are uncontrolled.

So mainstream is now thinking about these things. Before mainstream was deficits don't matter, print money when you need it, endless wars, personal privacy that didn't mean anything. But believe me, mainstream is moving in the direction that I have been talking about for a long time, and therefore nobody knows what the outcome will be in this election.

During the last campaign I knew what was happening. You know, they mocked me for my foreign policy and they laughed at my monetary policy. No more. No more. The people coming over here.

So I would say whatever happens is going to be good because the people have woke up.

CROWLEY: I want to ask you to size up the Republican race for me a little bit.

What do you think of Sarah Palin?

PAUL: Oh, I'm not much into sizing up anybody. I guess I can size them up as a group. I think so far, most of them represent the status quo and not any -- I think they're shifting a little bit because of political pressure, but who's saying bring all the troops home? Who's saying that we need sound money and we ought to believe in the constitution? Who wants to get rid of the PATRIOT Act? Who believes in property rights?

You know, they're going to modify their position but they represent the status quo. And this is what excites so many people now. They're sick of the status quo.

CROWLEY: Let me try and put it to you this way. In '08 you did not endorse your party's ticket, Republican Party ticket of John McCain and Sarah Palin. You endorsed four others who were running on various platforms. Looking at this Republican field right now, is there anyone in it that you can already say that person's on the ticket, there's no way Ron Paul will support him or her.

PAUL: Well, if you ask me to promise that I would vote whoever the candidate is, no, I wouldn't do it, because my supporters wouldn't understand it because they want a change. If they represent the status quo, and nothing I believe in, but who knows how things may evolve? So it depends on the candidate.

If they're starting to say we need sound money, we need balanced budgets, we need to cut. We need to bring our troops home. We need to deregulate this economy and we need to believe in personal freedom, I would give it serious consideration if they're serious on those matters.

CROWLEY: So you could see Mitt Romney's platform developing into something that you could support?

CROWLEY: Gee, I don't know. I don't know. I'd have to have a conversation with him. Maybe hopefully -- I have always high hopes.

CROWLEY: You're quite the optimist.

And finally, do you think -- because I mean I think that to assume that they could sign on to a lot of the things that you're talking about, Tim Pawlenty, or Mitt Romney or Sarah Palin or others who are in the race, is a little farfetched.

Do you think there is ever a time that you would say, you know what, thanks Republican Party, but time for a third party bid?

PAUL: Well, you know I did that one time in a third party. And we don't have democracy in this country. It's so biased. If you're in a third party, you can't -- I can't get into debates as a third party candidate. When I did it as a third party, I spent over half my money just trying to get on the ballot.

So we don't have a good democratic process. What happens if you come to the conclusion, as millions of Americans have, that the parties aren't different, they're all the same? The monetary policy stays the same. The welfare system stays the same. The foreign policy says the same. They get pretty disgusted. So there is but one party. So people who want to participate, more or less, have to get into one of the major parties. A lot of our people have gotten into the Republican Party and I've already noticed a difference in the appearance of Republicans.

They say, will you come talk to the Republican Party? I say, well, you know, they didn't invite me before so I went, and they're very friendly. Some of the old-timers are there, but they're twice the size they are because all our people come and they're part of the Republican Party. So there is a transition going on right now.

CROWLEY: So you see changing the Republican Party rather than a third party.

PAUL: I think what many of the supporters I have opted out for and they've seen that I've worked in the Republican Party, but that doesn't mean we join them. We get in the Republican Party and hopefully using that as a vehicle to bring about the positive peaceful changes that we want.

CROWLEY: Presidential candidate Ron Paul, thank you so much for joining us, Congressman.

PAUL: Thank you.

CROWLEY: I appreciate it.

Up next, how the unemployment rate may offer some insight into what to expect in the upcoming presidential race.


CROWLEY: Nine-point-one percent unemployment is an uncomfortable spot from which to launch a re-election bid. In fact, history shows it has been an almost impossible spot. With one exception, the last president to win re-election with unemployment over 6 percent on Election Day was FDR in the Great Depression 80 years ago.

Since then, four presidents have tried to retain the White House with an unemployment rate over 6 percent. Three of them lost. Gerald Ford, Jimmy Carter, and George H.W. Bush.

Team Obama can find some solace on this page in history, Ronald Reagan beat Walter Mondale in a landslide re-election bid in 1984, even though the jobless rate was 7.2 percent. Unemployment had been on the downswing and voters apparently trusted Reagan to keep it going. And he did. Four years later, unemployment was 5.3 percent.

The Obama administration hopes to tell a similar story, but remember, the unemployment rate was 7.8 percent when the president took office, 9.1 percent today.

Jobs, the economy, and 2012. Former White House insiders Anita Dunn and Ed Gillespie are next.

(COMMERCIAL BREAK) CROWLEY: Joining me now, former White House Communications Director Anita Dunn; and Ed Gillespie, the former RNC chairman and counselor to President George W. Bush.

Welcome both. Let me start on the economy. And 9.1 percent is not much of a platform from which to launch a re-election bid. One can hope that it gets better, but I don't think can you go from 9.1 to 6 between now and election time. How do they handle this?

ANITA DUNN, FORMER WHITE HOUSE COMMUNICATIONS DIRECTOR: Candy, I think the real issue is whether the economy is moving in the right direction, which, given the fact that the president walked in to a situation with the worst economy since the Great Depression in 1929 and obviously had to, as Austan Goolsbee said earlier, keep it from becoming a Great Depression, and now we're starting that long, painful road back to sustained economic growth and the platform has been put in place for that. I think that people are going to be looking to see, are we headed in the right direction, and more importantly, who really has a plan for the future for making sure that we can win the future in this country?

And I think that that is, at the end of the day, what people in this country are going to have to decide in November of 2012. They're going to look at a Republican candidate and his or her plan, and President Obama, his record and his plan for the future and make a judgment.

CROWLEY: Let me read you something from Jared Bernstein, who is the former chief economic adviser for Vice President Biden, who had this to say in "The Washington Post": "The president is going to be running for re-election in an economy that's still too weak. It is improving and it is in a far better place than it was when he got there, but still is not adequately lifting the living standards of the broad middle class."

There's a huge soft spot there for Republicans.

ED GILLESPIE, FORMER CHAIRMAN, REPUBLICAN NATIONAL COMMITTEE: Huge. He's wrong, by the way. It is not better than when he got there. The fact is the unemployment rate when President Obama took office was 7.8 percent. It is 9.1 percent today. That reflects a loss of 2.5 million jobs during his time in office.

The price of a gallon of gasoline has more than doubled in his tenure. We are now at -- we've increased the debt by $3.7 trillion since President Obama took office and we're borrowing 43 cents on every dollar we spend today.

The problem in the economy, Candy, is that he has a toxic mix in terms of policy, of excessive regulation, of onerous mandates, of massive debt, and of higher taxes that are stifling our economy. That will be the choice in November of 2012.

CROWLEY: I'll give you a chance to respond but I want to show you some figures here. This is independents when they were asked -- these are independent voters, those self-identifying as independent, how is the president handling the economy? Thirty-five percent approve -- 35 percent of independent voters who decide elections approve. Sixty-four percent disapprove.

And yet, the president's overall approval rating is 54 percent. And if you ask them who they blame for the economy, they say George W. Bush.

DUNN: Well, and, Candy, there is a reason for that. This Tuesday, June 7th, is the 10-year anniversary of the Bush tax cuts that were supposed to assure this huge economic growth...

CROWLEY: Which President Obama agreed to extend.

DUNN: For two years, in which he now says that we have to let expire for a very simple reason... CROWLEY: Which he said before.

DUNN: Well, and he extended them very -- you know, he extended them because we had to get -- keep the economy moving here and we had to keep things going.

But let me make a point here which is that the debt that my friend, Ed, likes to talk about, you know, half of that is from those tax cuts. And if those tax cuts had actually functioned the way the Republicans said they were going to, then why did we enter a recession in 2007? Why was our economy laying off jobs at almost a million a month by the time President Obama took office.

And why did we have such a deep economic hole?

DUNN: The reality is that everybody needs to get together in this town to work together, to find some solutions to significant economic challenges. And the answer is not going to be the kind of posturing that we're seeing right now in terms of, you know, blame for the economy.

I thought it was almost unseemly on Friday to watch the Republicans basically rooting for failure on those unemployment numbers, reveling in the idea that things are not going well. This is a time when the American people are looking to their leaders to get together to actually meet some challenges here.

CROWLEY: Well, it is a political season and stuff like that does happen on both sides.

DUNN: Yeah.

CROWLEY: But the question to you, Ed, I think, is looking at those numbers, why does the president still retain such a high approval rating?

Fifty-four percent is pretty good for a guy who most people think is handling the economy badly. We're all told this is an election about the economy, yet his overall approval is 54 percent, which says to me, he's going to be pretty tough.

GILLESPIE: Well, that may have been in one poll. The average I've seen of the polls of late has him under 50 percent in terms of his average public approval rating.

And the fact is, once there's a choice put forward to the American people, they're going to look at the policies of the Republican candidate, Republican nominee, versus the policies of the Obama administration.

Let me take exception to my friend Anita. There's no Republicans out there rooting for the economy to go south. Republicans are working every day to try to bolster this economy, try to create jobs.

Only Republicans have come forward with credible plans to bring down the debt, to save Medicare for future generations, to provide an economic growth package that will spur economic growth.

You know, Anita talks about the Bush tax cuts. We had 54 months of uninterrupted job creation during that period as a result of those tax cuts. That's the longest in American history, and revenues were at their all-time high in 2007.

We can talk about the cause of the housing crisis that is at the root of this, and I would say...

DUNN: We could talk about a bubble, and what created that?

CROWLEY: Let me -- I just want to move you on because there's a...

DUNN: I just want to raise one other poll, though, since we're talking about polls here, which is Ed talks about the plan that the Republicans have put forward to actually address these issues, and that, in your poll released this week on CNN, Americans are overwhelmingly rejecting that plan, including independents, particularly the proposal...

CROWLEY: ... mostly on the Medicare.

DUNN: Well, absolutely, but it's a key part of their proposal, which is they want to get rid of Medicare, basically say to senior citizens, spend your golden years fighting with insurance companies now over your benefits, as opposed to what you have now and that -- and that plan is being overwhelming rejected, which is why you saw candidates like Tim Pawlenty spend an entire week trying to figure out if they are going to support it or not, because it is so unpopular with the American people.

CROWLEY: Let me just, sort of, speak for you, and that is that the Republicans say they're not getting rid of Medicare; they're saving Medicare. It would clearly be under a different name. But -- because I want to move you on...


... to Mitt Romney, who got into the race. I want you to listen to this, Ed, and then I want you to translate for me. This was part of his announcement speech.


FORMER GOV. MITT ROMNEY, R-MASS.: President Obama's European answers are not the solution to America's challenges. He's treating Israel the same way so many European countries have.

The president seems to take his inspiration not from the small town and villages of New Hampshire but from the capitals of Europe.


CROWLEY: Four times, the president's European, European policies. What are we supposed to take from that? What is he trying to say here?

ROMNEY: I think he's trying to say that this president is moving our country away from a market-based economy to a government-run economy like we've seen in so many European countries, Western Europe. Basically, you know, are we going to be a really big Luxembourg or a really big Greece or are we going to maintain our roots in a free- market-based economy that does have its ups and downs, which the president has said we, you know, need to even out those ups and downs, President Obama has said. The fact is that takes the dynamism out of our economy, and many of us believe we're better off being an economy rooted in a more market-oriented foundation.

DUNN: OK, so, I think...

CROWLEY: You've got the last 45 seconds to tell me what he means here.

DUNN: Well, I think he's doing the classic Republican attack on Democrats, trying to make the case that they're somehow out of step with American values.

But this week, on Friday, President Obama was surrounded by workers in a Chrysler factory in Toledo, Ohio, who, if the Republican Party had had their way, wouldn't have jobs any longer and that factory would be shuddered. Instead, thanks to the leadership of this administration, those people have jobs and Chrysler becomes a private company again.

Now, you can talk about ups and downs. But when you're in the bottom of a ditch, I think that people want government to give you a helping hand to climb -- you know, so you can climb out of it again. That is really the fundamental difference here.

CROWLEY: Anita Dunn, Ed Gillespie, thank you for joining us.

DUNN: Thank you, Candy.

CROWLEY: And don't forget to tune in next Monday when CNN will partner with WMUR and the Union Leader to bring you a Republican presidential debate from the important primary state of New Hampshire. That's next Monday, June 13th, at 8 p.m. Eastern, right here on CNN.

Up next, a check of today's top stories and then "Fareed Zakaria: GPS" at the top of the hour.


CROWLEY: Time for a check of today's top stories. More violence amid a transfer of power in Yemen. Military officials say witnesses -- military officials and witnesses say gunmen have attacked the presidential palace in the country's second largest city. It comes a day after President Ali Abdallah Saleh left the country for medical treatment in Saudi Arabia. Yemen's vice president is now the acting head of state.

A very tense situation today along the Golan heights/Syrian border. Syrian TV is reporting that six pro-Palestinian protesters were killed and dozens wounded by Israeli troops as they tried to cross into the Golan Heights. The protests are marking the anniversary of the 1967 six-day war. NATO is intensifying its attacks on Libyan leader Moammar Gadhafi's forces. British jets hit a military barrack in Tripoli and British and French attack helicopters struck for the first time inside Libya this weekend.

And those are today's top stories. This reminder: On July 3rd we'll be hosting a "State of the Union" special on the American dream. We'd like to hear from you. Post your own experiences with the American dream on our Facebook page or e-mail us at

Thank you for watching "State of the Union." I'm Candy Crowley in Washington.