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State of the Union

Interview with Tom Barrett; Interview with Governor McDonnell; Interview with Senators Warner, Lugar

Aired June 03, 2012 - 09:00   ET


CANDY CROWLEY, HOST: A recall race fueled by big labor power, Tea Party passion, and national implications: politics gone wild.

Today Wisconsin is a fall preview.


BILL CLINTON, FRM. PRESIDENT OF THE UNITED STATES: They look at Wisconsin, and they see America's battleground between people who want to work together to solve problems and people who want to divide and conquer.


CROWLEY: Democratic challenger and Milwaukee Mayor Tom Barrett on his bid to oust the Republican governor in a recall race.

Then battleground politics with Virginia Republican Governor Bob McDonnell, U.S. jobs and the bloodshed in Syria with Senator Dick Lugar and Mark Warner.

Plus, unemployment is up, the Dow is down, and the presidential election is 157 days away. Analysis from Mark Zandi of Moody's analytics, Stephen Moore of the Wall Street Journal, and Dan Balz of the Washington Post. I'm Candy Crowley. And this is State of the Union.

19 months after electing Republican Scott Walker as governor, Wisconsin voters decide Tuesday whether to recall him. Walker's critics were galvanized by his first budget designed to fix a $3.6 billion shortfall, it included stripping collective bargaining rights for most public workers and increasing their contributions to their pension and health care plans.

The race is seen as a test run of things to come on the national scene pitting Republicans and the Tea Party against Democrats and organized labor. It has attracted mega millions from outside the state and lots of attention from party headliners, but as Republicans like to note, not all the headliners.


LT. GOV. REBECCA KLEEFISCH, (R) WISCONSIN: Well, it's more obvious is that the president himself, the current president, is not in town, and that to me speaks volumes, his absence.


CROWLEY: Joining me is Milwaukee Mayor Tom Barrett, the man who lost to Governor Scott in the 2010 election and looks to unseat him now in the recall. Mr. Mayor, thank you for being here this morning. Let me start out with you asking whether you have asked the president to come and campaign on your behalf?

BARRETT: No, because we understand that he's got a lot going on, and this actually started, Candy, as a grassroots movement here in Wisconsin because of Governor Walker's lack of integrity and his surprise attack on workers in the state. So integrity and a grassroots effort was how this started and it going to be on those same two notes, that's how this campaign will end with the grassroots movement and focusing on his integrity.

CROWLEY: You certainly have -- certainly the Republicans have had more out of state money and more out of state help, but you have had some national figures come in as well from the party and also from the unions who have been fighting Governor Walker in particular based off this budget, and one of those folks, Gerry McEntee, who I know you know well, who is the president of AFSME, had this to say about the Democratic Party. "We think there could have been more responsibility, more work on behalf of the National Democratic Party. We think they could and should have done more."

As you look at these next couple of days moving forward, where do you think the momentum is and could you use more from the DNC and from some of these other folks to get in there and try to pull you over the finish line?

BARRETT: Well, Candy, I traveled the state yesterday, I'm going to be traveling the state again today and tomorrow. And yesterday it was just a phenomenal day, literally hundreds of people all throughout the state, people saying to me they have never seen the level of excitement they're seeing right now. And it's people from Wisconsin, it's people who live here, and that's what this should be all about.

It should be all about the people in the state of Wisconsin because you've got a sitting governor, the only governor in this country who has a legal defense fund, all this outside money. This is Wisconsin values versus outside influence.

And again I want to be on the side of Wisconsin values.

CROWLEY: And do you think then that there is no national message in this? That win or lose, you don't see any national implications for November or any tea leaves coming out of this Wisconsin race?

BARRETT: Again, Scott Walker wants to make this a national race because he wants to be on the national stage as the rock star of the far right, as the poster boy of the Tea Party. That's not what I'm interested in. I'm not going to be the rock star of the far right and frankly on the rock star of the far left. I'm focusing on this state because that's what's important to me. CROWLEY: I was interested -- I want to talk to you a little bit about recall elections in general. The Marquette law school poll, this was about the approval or disapproval of Scott Walker and how he's handling his job. This May 23rd to 26th, so very recently. And 51 percent of those, you know, said, look, we think -- we approve of the job he's doing, 45 percent disapprove.

The recall election itself in general seems to me to encourage in some ways timid leadership. Here is a guy who is polling 51 percent in your state and yet you're trying to recall him because you're unhappy with what he did.

BARRETT: Well, I think it's important to understand the history of Wisconsin here. Scott Walker actually became the Milwaukee County executive following a recall that he was one of the leaders of. And as a state legislator, he says he does not remember whether he signed recall petitions against Senator Kohl and Senator Feingold.

CROWLEY: How do you feel about them though?

BARRETT: Look, you're a city/state legislation -- oh, I think they should be rare. I absolutely they should be rare. But this is a rare instance. You have a governor who did not campaign at all about having an attack on workers, on workers on the state. And he came in in a very furtive fashion. He said, and these are his words, not mine, he said he was going to be dropping the bomb and he was going to divide and conquer. He set out on a strategy to pit people in this state against each other and he succeeded in pitting people against each other.

CROWLEY: But -- you know again, it seems to me that if you use a recall election because a governor does something you don't like, you set up the stakes for timid leadership. They're always sort of putting their finger to the wind trying to figure out what people want so they don't get recalled. And the president himself has said I need four more years in order to fix what's wrong with the economy and other things, and Scott Walker, that whole recall thing, began within months of his taking office. That's kind of what I wanted you to address.

BARRETT: Sure. Well, it's important again to understand what happened. He said that he was require state employees to pay more towards their health care and their pensions, and quite honestly what happened was they agreed to do that. They agreed to do that. Did they want to do it? Of course not, but the leadership agreed to do that.

This entire episode would have been avoided if he would have said, all right, I campaigned on that, you agree to it, let's move on. But it became clear very, very early that was not all that was going on here. He wanted to go after his political opponents and permanently disarm them. That's what this was all about, taking away their rights. And he said it was the first step. And the next step obviously would be to go after people who are in the private sector and people who aren't in unions. So I believe that this is the first step towards taking away workers' rights throughout the state, and that's where the surprise attack came in. He never once mentioned that, but once he came in, he instead of focusing on jobs, which he said he was going to do, he took this road where he went after the rights of workers throughout the state of Wisconsin. That's what got people up in arms. All of this could have been avoided if he would have agreed to that.

CROWLEY: Quickly if I could, are you going to win this thing?

BARRETT: I am going to win it. What we saw in the last tracking poll two nights ago, this is 800 samples, I was one vote behind, not one percentage point behind, but one vote behind. And we have literally thousands of people on the streets this weekend. So we are very, very positive.

CROWLEY: Milwaukee Mayor Tom Barrett, you have got a busy couple days ahead of you so we doubly appreciate your time this morning.

BARRETT: Thank you, Candy.

CROWLEY: We invited Governor Walker to appear, but we were told his schedule was to tight.

Now, one state that President Obama and Mitt Romney are fighting hard to win this November is Virginia. Governor Bob McDonnell is here next.


CROWLEY: Joining me, Virginia Governor Bob McDonnell. He heads the Republican Governor's Association

And you're a man that has been out to Wisconsin to try to help Governor Walker stay in office. About $8.3 million you all have sent out to him to try --


CROWLEY: About, but probably a little more by this point.


CROWLEY: What do you think is at stake? We just heard from the mayor, the Democratic challenger, that he doesn't think this has anything to do with the national scene. Does it?

MCDONNELL: I think it will, but it's certainly about Wisconsin. It's about a governor campaigning and saying elect me and I will do certain things to create more jobs and get our fiscal house in order. And this is a guy that's kept his word and I think the voters will reward him for his courage. So it's really about Wisconsin.

CROWLEY: And if he loses, what does it say?

MCDONNELL: I'm not planning on that, Candy. I mean, I think the tracking polling --

CROWLEY: You must fear that, though, a little bit.

MCDONNELL: Well, of course, because it's all about the ground game, there's same-day registration in Wisconsin, which can change the dynamics. But Scott has worked incredibly hard. And I think here is what at stake. He said we will get a $3.6 billion budget fixed. We will reduce property taxes --


CROWLEY: Budget shortfall.

MCDONNELL: -- and we will create jobs. Yes. And that's what he did. And I think -- this is about results. It's going to be the same thing with Romney and Obama. As you put policies in place, were they controversial? Sure.

Does it take guts and leadership to tell people we can't afford to do these things any more and we need to change to be more competitive in Wisconsin? Sure. But he's done it. Now he's getting the results. And that's why he's going to win, is people that might not have liked the reforms are seeing that they're working.

CROWLEY: But if they come back a year and a half later and say, we don't like these reforms, and they reject him, does that not say that you can go too far, that this is one Republican who went too far and found himself out of office?

MCDONNELL: Ask me Wednesday. Because see, that's -- I don't think that's going to happen.

CROWLEY: I'm going to hold you to that then.

MCDONNELL: Well, you can do that because -- and this is what's happening in Washington as well, is people expected results.

Obama promised a couple years ago, if I don't have this deal done in three years, it's going to be a one-term proposition, meaning on spending, on deficit, on debt and jobs, and he hasn't delivered. And that's why I think there will be a change in leadership in Washington. People are tired of the rhetoric. They want to see people get things done.

CROWLEY: Let me talk to you a little bit about the swing state of Virginia.


CROWLEY: And I want to show our viewers your unemployment rate, which has basically stayed two to three points below the national unemployment rate. It's a success story really.

MCDONNELL: You can keep that up for awhile.

CROWLEY: OK, yes. You like this, I understand that . But even as you embrace it as a Republican governor, does it not make it difficult for Mitt Romney, who has the same problem in other swing states, to come in and say the economy is terrible and, you know, you need to elect a new president, because Virginia is doing very well under President Obama. MCDONNELL: Yes, I don't think it undermines his argument at all for two reasons. One is as well as we've been fortunate to do with the lowest unemployment in the Southeast, I tell people, think how much better we'd do if we had President Romney.

And number two, I think that there's something going on with Republican governed states. Seven out of the 10 states, Candy, nationwide, that have the lowest unemployment rates, Republican governed states. Eleven out of the 15 --


CROWLEY: Do you credit President Obama at all for the good fortune Virginia has? He's done nothing at all to help you all?

MCDONNELL: Well, I would ask you, what would you point to that would lead you to say that that unemployment -- the only thing I can say is he had a nearly a trillion dollars in stimulus, and that was one-time spending. Did it help us in the short run with health care and education spending to balance the budget? Sure.

Does it help us in the long term to really cut the unemployment rate? I'd say no. But we have done a lot of things. Republicans and Democrats in Virginia doing some things I requested on economic development and targeted tax cuts and other things that I think have made a difference.

So I'd say Republican governors are doing some things that are making a difference and that's why I'm trying to get more of them this year.

CROWLEY: So just a tiny bit of credit to the president?

MCDONNELL: Well, sure. I think there's national policies that is have had some impact, but I can tell you this, if we didn't have all these attacks on Virginia's energy industry, we'd be in a lot better shape.

This president on coal, natural gas, nuclear, not letting us drill offshore, the Environmental Protection Agency's over-burdensome regulations on coal and natural gas have made it much more difficult for us. We'd be lower on the unemployment rate if we didn't have these policies.

CROWLEY: Let me ask you about Governor Romney's record as governor of Massachusetts.


CROWLEY: When he -- during his four years there, the state was 47th in job creation. There was a net gain in payroll jobs over his four years of 1 percent, which is well below the net gain nationwide. Spending went up, the size of government went up.

What kind of record is that for a Republican to run on? MCDONNELL: Well, I'd say it's better than that. He went from 47th down to 30th in job creation by the time he left office. He had a $3.6 billion deficit, too. Was able to cut that and left office with a $2 billion rainy day fund. I'd say that's pretty good.

CROWLEY: But in the end, you know, he was 47th throughout that whole four-year period, and he is selling himself as a businessman that knows how to create jobs and yet really didn't do that very well when he was in Massachusetts. You see the Democrats going after this. What's his defense here?

MCDONNELL: Well, the numbers I have is it went down to 30th by the time he left office nationwide in job creation. More importantly than that, Candy, is what he did in the private sector. Listen, he had a Democrat legislature.

That's a deep blue state and I think that managing the fiscal house and trying to create jobs during that time, he had to combat a Democratic legislature, but look what he did at Bain Capital, in the private sector as the executive director of the Olympics, turning that around, over 100,000 new jobs through venture capital and seeding companies with capital.

He knows how to create jobs in the private sector. He understands the American dream because he's lived it. And I'd say if President Obama had the kind of record Mitt Romney did, he'd be talking about it, but he can't run on it.

CROWLEY: Two quick questions. I need two quick answers. Donald Trump staying on the birther issue, seems to me that a cynic would look at that and go, well, you know, it helps keep a certain part of the base of the Republican Party happy.

Mitt Romney has not condemned it. In fact, he campaigned and fundraised alongside Donald Trump. Are you bothered by the kinds of things he's saying?


MCDONNELL: I think Mitt Romney and I both agree the president was born in America. It's not where he was born. It's his policies that are the issue in this race. Eight percent unemployment rate for 40 months, the largest debt in American history at $16 trillion and growing and no plan on debt reduction and energy, that's the issue, not where he was born.

CROWLEY: Has the Romney campaign asked for any papers in their VP search from you?

MCDONNELL: They have asked for my schedule to see where I can help them next, and it's going to be in Virginia.

CROWLEY: But they haven't asked for any V.P. -- MCDONNELL: No, I'll leave all that up to Mitt Romney. But I'm going to help him win Virginia. CROWLEY: Sounds like maybe he has. We'll talk to you about that later. Virginia governor, Bob McDonnell, thank you so much.

MCDONNELL: Good to be on with you.

CROWLEY: Amid new signs that the recovery may be hitting the brakes, Republicans and Democrat are pointing fingers.


JOHN BOEHNER, SPEAKER OF THE HOUSE: Instead of another campaign speech, the president might want to engage with Democrats and Republicans here on Capitol Hill.

NANCY PELOSI, HOUSE MINORITY LEADER: Republicans are risking another deep recession.


CROWLEY: Two senators who have reached across the aisle, Republican Dick Lugar and Democrat Mark Warner are here next.


CROWLEY: Those are live pictures of Queen Elizabeth's diamond jubilee celebration along the Thames River. CNN's coverage picks up at 11:00 a.m. Eastern.

Back here on State of the Union I'm joined by Republican Senator Dick Lugar of Indiana and Democratic Senator Mark Warner of Virginia. I brought you both together because you both are known for working across the aisle in a time when there hasn't been much of that. I want to play you something that President Obama said on Friday.


PRESIDENT BARACK OBAMA: So my message to congress is, now is not the time to play politics, now is not the time to sit on your hands, the American people expect their leaders to work hard no matter what year it is.


CROWLEY: The president repeatedly chastises congress on the campaign trail for not working and not doing anything about jobs, et cetera. But I hear from Republicans publicly, some Democrats privately, that the president has not used the power of his office to push some of these ideas that he's out there talking about. Has there been too much politics on the White House end of this as well, Senator Warner?

WARNER: Well, I didn't get the memo that we were actually supposed to take presidential election years off. You know, if we look around at the rest of the world. CROWLEY: But has he?

WARNER: I think the president has laid out an agenda.

CROWLEY: Did he push for it?

WARNER: Well, I think he has pushed for it. I think there's been particularly in the House an almost knee-jerk reaction that anything the president could be for, they've got to be against. But even if you step back and say where can we find common ground, I mean the senate worked together, we passed a two-year highway bill that would put people to work, give a little predictability. We recently passed a bill bipartisan -- Senator Lugar and I, the overwhelming majority of the Senate, to try to speed approval process for the FDA, get our whole biofarmer sector of our economy jump started.

So there are things we can do even in an election year to get this economy going.

CROWLEY: Here's what I'm getting, Senator Lugar, is you hear Democrats privately, Republicans publicly, complaining that they don't hear from the president, that he has not used his bully pulpit to say to congress, listen here folks I need -- you know pick up the phone, I need you guys to really work on this. Have you seen more or less presidential influence in the Obama administration than previous administrations?

LUGAR: Well, in this particular year the president is campaigning for re-election, that's his total preoccupation. And he's been criticized for that by some Democrats who would say as a matter of fact you ought to be talking about how jobs are going to be created, how, in fact, you have more comprehensive view of the deficit, of the debt, of all of these sorts of things. This has not been something on the president's agenda except broadly.

Now I would agree with Mark that essentially members of congress still have tried to pick up in modest ways. We're working on a farm bill, for example, where we have a majority and we're hoping to get that to the floor. This is not the whole thing, but I would say simply there have been congressional initiatives quite apart from the president's.

CROWLEY: Let me ask you, and I don't mean to bring up a sore subject, but Richard Mourdock, who defeated you in the Republican primary, was on Fox News recently and talked about the idea of bipartisanship and here is what he said.


RICHARD MOURDOCK, (R) INDIANA SENATE CANDIDATE: I have a mindset that says bipartisanship ought to consist of Democrats coming to the Republican point of view.


CROWLEY: Now we are hearing that this election is going to solve things, that there will be a clear picture after this election of which way the country wants to go: the Republican way or the Democratic way. Does that sound like to you, do you believe that the election is going to decide something or are we fundamentally a divided country that can't seem to get congress to work?

WARNER: Well, respectfully, I think what Mr. Mourdock said is wacky. I think it's kind of the antithesis...

CROWLEY: Mr. Lugar might agree.

WARNER: ...of anything -- you know, don't know what constitution he wants to defend. I mean, the brilliance of the Founding Fathers were they set up a slightly dysfunctional government to start with, checks and balances, independent House, independent Senate, independent president. You have to work together to find that common ground. That's what Dick Lugar has been about, that's what a whole lot of senators in both parties have been about.

And the notion that this election is going to be so overwhelming for one side or the other that there will be a clear picture and one party is going to be able to rule the roost, I just don't see that happening. And with the rest of the world moving ahead, we've got to find that common ground on particularly I believe that debt and deficit issue. Nothing would do more to jump start our economy than to put that type of bipartisan plan in place to get this economy going.

CROWLEY: I want to ask you about the fiscal clip after we come back. But next up, it is about the crisis in Syria. Is the meter tipping away from military support?


HILLARY CLINTON, SECRETARY OF STATE: We consider all contingencies at all time.

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: We have been focused on the need to bring about a political transition.

SUSAN RICE, US AMBASSADOR TO THE UN: There's still the potential for there to be a peaceful political resolution.



CROWLEY: We are back with senators Richard Lugar of Indiana and Mark Warner of Virginia. So the notion that this election will, you know, suddenly make it all clear, which -- you know, which party the Americans support, I think we all have sort of said this, isn't going to happen.

So then what happens to this fiscal cliff? What happens to this $8 billion that will be taken out of the economy at the end of the year in tax increases and spending cuts? How is Congress going to deal with that? LUGAR: Well, essentially, the Congress leadership has decided not to deal with this until after the election, which I think is a mistake fundamentally. But let's say after the election very quickly we have the debt ceiling problem would appear. We have the sequester problem, the money for the armed forces, quite apart from the rest of it, simply taken away, plus all the end of the Bush tax cuts which means tax increases for every American.

Now you can say, well, all of that could be postponed until two months, three months, six months down the trail...

CROWLEY: Right. But Romney says if he's elected he'd rather the Congress postpone.

LUGAR: But that requires the Congress to come to that conclusion. On whatever the election is there is unlikely to be a 60- vote majority in the Senate, and unless you have a 60-vote majority and say my way or the highway, you're going to have to deal across the aisle.

So it would be better to be doing some of that now, picking up the Simpson-Bowles language or various other gang of six or 12 or so forth. I would hope that might occur. And I think the American people would be more relieved and their thoughts about the Congress certainly would be much better.

CROWLEY: I imagine you can agree with that. I want to move you on to Syria just because I know you have been on -- if you want to say something before that, feel free. But something that Mitt Romney said recently about the situation in Syria. The United States should work with partners to organize and arm Syrian opposition groups so they can defend themselves. Good idea, bad idea? Let's start with you.

WARNER: Well, I wanted to address the economic issue still. But that the idea that we're going to continue to punt this problem, which would be almost a European approach, we have watched this slow-motion train wreck take place in Europe because they have not stepped up.

I think there is the will in Congress to take the Simpson-Bowles, the gang of six, to phase in a $5 trillion over 10-year deficit reduction plan that will raise some revenues, reform our entitlement programs. We have to do it. There will be nothing that would do more to jump-start our economy and get the $2 trillion in private sector capital off the sidelines investing if we can make those permanent changes.

Now, in Syria, I just came back from Egypt and Israel, a very dangerous neighborhood at this point. I think we need to continue to ratchet up the pressure on Assad to get that regime out. I think it is different from Libya though because there's not the kind of unanimity at the United Nations or around the Arab League to have the kind of military intervention it seems that the president -- or Mr. Romney is calling for.

CROWLEY: Well, let me read you something. And this came from the Arab League secretary-general yesterday, who said: "More audacious steps are needed after the Houla massacre in order to end the bloodshed." So there is even some urgency now coming from the Arab League.

Does that help the U.S. make decisions about should we try to work with folks to get some arms into the Syrian opposition that's being brutally crushed?

LUGAR: It helps al of us, but I would say specifically we ought to work with the Turks to set up some zones in Turkey's territory guarded by Turks that Syrians can retreat to, so-called safe zones.

We ought to increase the sanctions on the government of Syria and the central bank sanctions as well as all others that people can cooperate in, to bring economic pressures, try to reinforce the diplomatic train (ph).

In other words, as opposed to dismissing Kofi Annan and the peace people, we ought to try to strengthen the hand so we get some talks going with the Syrian government.

The pressure would have to be increased, but I made two suggestions there as to how that might occur. There might be others.

CROWLEY: So there don't have to be military pressure of arming. And I know you were worried about the presence of al Qaeda and other terrorist groups.

WARNER: Well, I'm worried about we don't really know who makes up the Syrian opposition, very different than the situation in Libya.

CROWLEY: The same could be said for Libya though. We didn't know who they were either.

WARNER: Well, we're now seeing some of the arms smuggling take place out of Libya into the Sinai, which affects our ally Israel. I think that we do need to ratchet up the pressure, I think economic sanctions. I think we need to continue to put the pressure on the Russians.

Let's face it, Syria is supported dramatically by the Russians and we need to move the Russians off of that support as well.

CROWLEY: Senator Lugar, I have got less than a minute and I have to ask you, what's next for Richard Lugar after a long distinguished Senate career? You are one of the president's favorite Republicans, which probably didn't help you in your primary race.

Would you consider, if the president is re-elected, a position in his administration, say, in diplomacy or foreign policy?

LUGAR: No, I think that my role is going to be outside of government. I look forward to opportunities but I'm not going to really think about it for three or four months because essentially I have got work to do for seven months.

We've been talking today about what we ought to be doing back and forth across the aisle in the Senate now to help Americans, the people that I want to serve. So that's where my preoccupation is going to be.

CROWLEY: Senator Lugar, Senator Warner, thank you both for coming in.

WARNER: We're going to lose a lot when we lose Dick Lugar.

CROWLEY: A lot of people have said that.

WARNER: He's the kind of guy we need to more of in the Senate.

LUGAR: Thank you.

CROWLEY: Up next, a dismal jobs report and what it could mean for the election.


CROWLEY: The economy created 69,000 jobs in May, about half of what was predicted. The unemployment rate went up to 8.2. And inside the overall picture the numbers are especially painful for people whose votes the president counts on.

The growth rate of manufacturing jobs declined in May. For Hispanics, the unemployment rate rose to 11 percent from 10.3 percent. It rose as well for African-Americans, up more than half a percent to 13.6 percent. The president thinks the numbers should be seen from the vantage point of where we've been.

(BEGIN VIDEO CLIP) OBAMA: We're still fighting our way back from the worst economic crisis since the Great Depression. The economy is growing again, but it's not growing as fast as we want it to grow.


CROWLEY: But Mitt Romney says the numbers are about where we are not.


FORMER GOV. MITT ROMNEY, R-MASS., PRESIDENTIAL CANDIDATE: We should be well into a very robust recovery by now if the president's policies had worked, if he had been able to get America back on track. Why, we'd be looking at what happened in Europe as being a problem, but certainly not devastating. These numbers are devastating.


CROWLEY: Not helpful at all, uncertainty in Europe and the end- of-year fiscal cliff in the U.S., when nearly $8 trillion worth of tax hikes and spending cuts are scheduled to take effect. Adding it all up with our panel next.

(COMMERCIAL BREAK) CROWLEY: Here to talk politics and the latest job numbers, Moody's Analytics chief economist Mark Zandi, "The Wall Street Journal" columnist Stephen Moore and "Washington Post" political correspondent Dan Balz.

Thank you all. I was only half kidding when I said to you I think analysts have to stop predicting what the job market is going to do, because we were told, oh, 150,000 jobs and it comes up less than -- what was it, 69,000?

UNIDENTIFIED MALE: Sixty-nine thousand.

CROWLEY: And it just looks -- I mean, that's bad, but isn't it worse if -- since we were expecting twice as many?

ZANDI: Yes, I'm on board with that if you can get me off the hook here, I'm with you. I'm with you.

CROWLEY: What happened specifically? What happened here?

ZANDI: Two things. One thing, the job market is not as weak as it looks. I mean, we have got a lot of job growth in the winter, remember, back December, January, February, we got 250,000 jobs per month. So there's some payback and that's what we're seeing right now. We have got 100,000 jobs, what is it, April -- March, April, May. We're somewhere in between those two numbers, somewhere around 150K.

But the second reason -- this is more fundamental -- businesses are skittish, they're nervous, they have been through a lot, the Great Recession, that nightmare still in their psyche. So if anything goes off script just a little bit, they stop hiring. It's not that they're laying off, that would be a real problem, I don't think that's happening. They just pause in their hiring.

CROWLEY: You know, Stephen, I feel like every time there's some reason -- oh, there was a tsunami; oh, there was a warm winter; oh, there was this, does it actually change what's happening? I mean, it seems to me there's always some excuse.

MOORE: I think it's hard to put any lipstick on this pig. I mean, those were really lousy numbers. By the way, also we had a revision downward on the first quarter output numbers, less than 2 percent, which is -- those are kind of miserable numbers.

I mean, we -- the one thing I disagree a little bit with Mark on, we should be accelerating in job creation. We had this very deep recession, where we lost 6 million or 7 million jobs. This is a period when he should have a robust recovery.

You should be seeing 400,000, 500,000 a jobs a month, and we're just nowhere near there. It's kind of this drowning man that's treading water right now and that just isn't good enough.

ZANDI: But we can't forget the severity of what we went through. I mean, think back, just four years ago, we were losing 800,000 jobs per month literally when the president took office. You just don't forget that as a business person. And if anything goes wrong, even a tsunami in Japan or clearly Europe, the fiscal cliff, all those things make people really nervous (inaudible).


MOORE: In the Reagan era, at this stage, we were creating about 500,000 jobs a month, were growing three times faster. So, you know, I just think it's -- a lot of this is policy related and policy mistakes we made in Washington.

CROWLEY: Dan, the political implication of this, so much was written after these numbers that said, oh, this may be a turning point. This is really bad news. We've had disappointing months before and it was sort of, oh, well, it's a month, don't worry about the month. But now it seems to me that the analysis has been, this is not good news at the White House, it may be a turning point.

What's your take?

BALZ: Again, you know, I think it was a wake-up call for the White House about the kind of campaign that they've been running.

This was a clarifying moment and what I mean by that is we've seen, over the last few weeks, all these distractions about this campaign, the attacks on Bain, which a number of Democrats have been unhappy about; the Donald Trump birther issue, which came back to the fore last week all of a sudden.

Friday's numbers reminded people of where the country really is and what the issue that most of the voters who are sitting out there trying to decide what to do are really worried about, and I think to some extent it may force both of the candidates to get back onto a message about why are we in this situation and what am I, Romney or Obama, going to do about it.

CROWLEY: And let me ask something that Mark brought up and ask you all to kind of chime in on this.

The president basically said, let's remember where we've been here and, you know, it's going to take us more than overnight to climb out of this pit that he inherited.

And Romney came back and said, you know what? Forty months isn't overnight, folks. It should be better than this.

Which is the winning argument? And is that just really the crux of the matter?

MOORE: Well, of course, the president is going to say that, you know, this was a terrible crisis and it was a terrible crisis. There's no question about it. He inherited, you're right, he inherited an economy where we were losing 700,000 jobs a month but it's also been almost four years.

UNIDENTIFIED MALE: Eight hundred thousand, by the way. MOORE: Seven hundred, 800,000. But the point is that normally when you have a very steep recession and a deep recession, usually you boom out of these periods and you have very rapid growth.

And the problem is I think a lot of Americans would say, wait a minute, where is the growth going to be, because the problem isn't, Candy, just that we've got such anemic growth right now in jobs and output, but a lot of economists, Mark himself, is saying we're not going to see the rapid growth that Americans are expecting.

CROWLEY: You expect this to be pretty, "Ugh," right, through the rest of the year? Like we're not going to look and go, "Woo-hoo, we've turned a corner."

ZANDI: Yes, I do, and I think it goes back to business skittishness in the things to worry about. I mean, Europe is a real problem, and that could have significant implications for businesspeople here.

And the other thing is our own fiscal policy, right, the fiscal cliff, the Treasury debt ceiling. Remember back last summer, that was pretty significant leading up to the Treasury debt ceiling. That did a lot of damage to the collective psyche, and we have another round of that coming up.

So we have to get beyond those kinds of things. Enough time passes from the nightmare of the recession, I think businesspeople start to engage and start to hire more.

CROWLEY: Dan, what -- how is it playing? How are the two arguments playing? One is it should be a lot better than it is right now and the other is, whoo, it was a lot worse.

BALZ: Candy, it's playing about 50-50. We are seeing a very, very tight election, and given where the president is right now, he's highly vulnerable. We have said this for a long time and I think that there were times when Democrats thought, Mitt Romney is not that strong a candidate, he had some tough times during the primary campaign.

And I think a lot of Democrats thought the president is going to be OK. I think what happened Friday is it reminded people this is going to be a tight, tight, tight election as we go through the summer.

ZANDI: I want to make a broader point. I think the economy is in a fundamentally better place than it was several years ago. We have come a long way. American companies have tremendous profits, margins are very wide, their balance sheets are very strong --

CROWLEY: They're not using any of it to hire people.

ZANDI: No, they are. They are starting again. We have hired 4 million private sector jobs over the last two -- little over two years. So they are starting to hire --

CROWLEY: OK. They're not using enough of it.

ZANDI: Yes, not enough, I agree. But they've come a long way. Banks: the banking system is highly capitalized and levered. They're not lending enough but they're lending more. We're starting to see activity pick up. Even households, even households, they've made a lot of progress. So we as a nation, our economy is in a much, much better place fundamentally from where it was.

MOORE: I want to give you an amazing statistic that -- it confounds me more than any statistic over the last 30 years. Right now you have a 10-year Treasury bill at about 1.5 percent --

UNIDENTIFIED MALE: Less than 1.5 percent.

MOORE: Think about that, Candy. We have 2 percent to 3 percent inflation. People are giving the government money, paying them back a negative real interest rate. That's something you almost never see.

Now, why is that happening? I think because there's so much fear and uncertainty right now out there, people are just going to cocoon. They don't want to invest. And I think partly it's because one of the things I would fault President Obama on, all of this attack against Bain Capital, against people getting rich, against wealth, I think it's just a negative thing for the stock market. And, of course, I entirely -- the one thing Mark and I disagree with on a lot, but the one thing I think we both agree on is this fiscal cliff next year, a big tax increase is a big, big problem, and President Obama should take that off the table. He should say we're not going to do it.

ZANDI: That 1.5 percent Treasury yield, that is fear. And that's global fear. But it also means that we are the AAA credit. If anyone is scared about anything, they come right back to the United States and they buy our Treasury bonds.

CROWLEY: Does it matter, Dan, that we look at the battleground states and we see that their economies in most of them are better than the national economy, so the places where we think the election is going to be decided have actually pretty good looking economy comparatively speaking. Does that matter?

BALZ: It may matter some, but there's an argument -- take Ohio, for example. There is an argument underway in Ohio. Their unemployment rate is more than the national average. The administration says that's in part because of what we did to save the auto industry, and that auto industry is helping to revive the economy in Ohio. The Republicans say no, what's really going on is you have a Republican governor who has taken on the fiscal issues in the state. So we're going to see that debate in some of these battleground states.

CROWLEY: Let me ask you. A Moody's electoral model, the only swing state of the five that it looked at that they see moving from the Obama column to the Romney column is Florida.

ZANDI: Right.

CROWLEY: Why is that?

ZANDI: Well, Florida is still a very good economy. Again, unemployment rate is still of 8 percent. It was the center of the housing bust so you have a lot of properties that are still in foreclosure, house prices still weak. So of all the swing states that's the state that's doing worse and has improved least.

So Virginia, as you were talking to the governor, that's doing quite well.

Ohio has had a tough time, but it's improving very rapidly. Iowa, New Hampshire doing much better.

CROWLEY: Let me get back to the fiscal cliff, because I think people don't -- let me try to put it in my sort of layman's terms, and that is that about $8 trillion is about to get taken out of the economy over a course of time in both mandated spending cuts as well as tax rates -- or tax increases when the Bush tax cuts go away. How is that -- a, is that right? And, b, how does that get fixed? Because everyone says, well, after the election we'll have a clear path. And we all know that after the election we'll have the same path. We'll have a pretty much 50-50 split.

BALZ: Well, I think it's as likely as anything that it will get fixed, quote, unquote, by pushed off months or a year. In some way another some way just as congress has been want to do time and time again, tried to delay that moment of reckoning.

Now, you know, you all know and can articulate better than I the consequences of continuing to do that, but I think that is the inclination of politicians today to try to find the least solution that they can find and delay it. MOORE: The tax issue, which to me is the big one. I think that's what we should do the spending. We need more austerity in government and less austerity in the private sector.

What we're talking about, Candy, is on January 1, 2013 capital gains tax is going up, dividend tax is going up, small business tax is going up, that's one of the reasons there's no investment. And you're going -- one of the reasons the stock market we haven't even talked about that, that's tumbled partly because capital gains tax are going up next year, people are selling their stocks now.

CROWLEY: Mark, you're going to hate this, but I have to look...


CROWLEY: Mark Zandi, Stephen Moore, Dan Balz, thank you. Come back and you'll get the first word. How is that?

Up next, stories of U.S. military veterans and service members lost in the system.


CROWLEY: We heard from a lot of you after last week's program highlighting veteran's issues, including the growing backlog at the VA for actions on veterans benefits and the average year-plus wait for discharge of those deemed unfit for service due to a variety of disabilities. Unfortunately, waiting in what ever permutation is a story most of you know too well, including this wife of a 20-year army vet.


UNIDENTIFIED MALE: My husband retired. He keeps getting emails and letters repeatedly that his claim is being processed, but the VA says it will be between September and January before his claim will be processed.


CROWLEY: We asked the VA about this, and some of the other emails we received. They told us they are aggressively working to transform the delivery of benefits and services to meet its 2015 goal of processing all veterans' claims in less than 125 days with 98 percent accuracy. Those are unfortunately dates without meaning for those who wait now.

We also heard stories of those still in the service often languishing in or confused by a bureaucratic or medical morass. The family of an Iraq war soldier emailed about their fight against his redeployment. They've been trying to get him dismissed from active service after a traumatic brain injury.


RICKY BURKE, BROTHER OF IRAQ WAR VETERAN: Josh went to see his doctor for a physical before he was to go to Afghanistan, and his doctor told him there was no way that a soldier in his condition was fit for duty. After almost two years of sitting around and waiting, the army told my brother that he is no longer being med boarded and they pulled him from it.


CROWLEY: Med boarded is the term used when doctors are determining if you are fit for duty. In this case the army decided Josh is fit for non-combat duty, despite his injuries.

The Pentagon declined to comment and our calls to the army have not been returned.

We will continue to follow these and other stories and we'll pursue a time for Veteran Affairs Secretary General Shinseki to join us for a conversation.

Share your story with us via email And use "lost in the system" in the subject line.

Thank you for watching State of the Union. Find today's interviews, some analysis, and web exclusives at And stay with CNN for live coverage of Queen Elizabeth's historic jubilee. It starts one hour from now at 11:00 a.m. Eastern.

Reliable Sources and the noon version of this show will return next week at our regularly scheduled times. I'm Candy Crowley in Washington. "Fareed Zakaria GPS" starts right now.