at least in front of a television camera. that's it for this edition of "reliable sources." i'm howard kurtz. join us next sunday morning for another critical look at the media. "state of the union" with candy crowley begins right now. numbers that rocked the week. 8.6%. 25%. and minus one. today, the republican dynamic minus cain with candidates ron paul and michele bachmann. payroll taxes and republican politics with former presidential candidate john mccain. and the reality and politics of a drop in unemployment with alice rivlin, douglas holtz-eakin and ron brownstein. i'm candy crowley. and this is "state of the union." the iowa caucuses are

curious things, places where a guy named "jimmy who" began his journey to become president carter. places where inevitable winners like hillary clinton and howard dean lost. places where somebody could rewrite the story that this republican race has come down to mitt versus newt. somebody like ron paul. >> newt gingrich has been on both sides of a long list of issues. sometimes in the same week. >> it's wrong to go around and adopt radically different positions. because then people have to ask themselves what will you tell me next time? ron paul hit newt gingrich pretty hard this week and he's got the money to keep at it. $3.6 million in cash. even better, he's got the army, "time" magazine reports paul insiders claim to have hard pledges from 20,000 caucusgoers, a record 120,000 iowans showed up in the 2008 republican caucuses. and one more number. 30. congressman paul joins me now from his home state of texas.

congressman, you were greeted this morning by a new "des moines register" poll that i want to share with our audience. it is showing newt gingrich on top at 25%. and then coming in second, ron paul at 18%. beating out mitt romney at 16%. and everyone else in the single digits. how do you take these numbers and roll it into a victory in january? have you got the manpower to do it? >> of course it is very encouraging because we're getting pretty close to it being within the margin of error. so i think we continue to do what we're doing. we've had the flavors of the month up and down so far in this campaign. i'd like to think of myself as the flavor of the decade. we keep plodding along on a couple of issues that are really striking a chord with the people. and that is, of course, the wars, the end of the wars going on, as well as the financial

condition of the country, because i've been talking about the housing bubble and the financial situation that we have and the crisis going on and even the recent promises that we, the united states, with our dollar, will bail out europe. so these issues are, you know, striking a chord with the people and i think this is why we are doing so well in the polls. not only in iowa but we have some similar results up in new hampshire. >> you are in fact doing well in new hampshire. but i wanted to ask you, i want to show another poll that we have done. this is a cnn/orc poll. the question is, which republican candidate has the best chance to beat president obama? mitt romney, 40%. newt gingrich, 21%. herman cain was still in it when this poll came out, 16%. you are down at 4%. this is a poll among republicans. so the very -- there are republicans in iowa putting you in second place, and yet only 4% of republicans see you as the one best able to beat president

obama. can you explain that to me? >> well, if you're starting to talk about the general election, that poll doesn't mean very much because you take -- even in the primary up in new hampshire, you know, the largest number of registered voters in new hampshire are independent. but go out and do a poll just on independents and put my name up against obama. all of a sudden, the disenfranchised and the people from the left who are upset with the constant wars and the attack on our civil liberties, they're really down on the president. and they're down on the economy. so i would bet you we get a completely different result. you don't win just with the hardcore republican base. you have to have a candidate that's going to appeal across the political spectrum, and i think with my views they're quite different than the hard-edged views that so many on the republican side frequently are showing. >> well, in fact, you're right, it does take more than just republicans, or for democrats, just democrats, to win a general election.

but, would you agree with the premise that when it -- when it comes down to that night in iowa and when it comes down to that primary night in new hampshire, what republicans most want -- and they are the ones who are going to decide the nominee -- what they most want is someone who can beat president obama and they rate so many people above you. that's why i think it is important to talk about electability, because it is a factor in how people view you. >> yeah. you know, i would say that if the people in iowa wouldn't consider me a good option to beat obama i wouldn't be a close second there. so it is already reflecting a favorable rating for that. but i think you point out -- maybe you're giving me subtly some good advice. you better keep working, and that is what we have to convince the primary voters that we can do a good job in the general and that, of course, is part of the campaign. i think that's where we're making progress. >> congressman, you don't want to take election advice from me

no matter what. let me ask you about the departure of herman cain. what is it inside -- this was a man with huge appeal to the tea party. >> right. >> and who does leave some voters in iowa and elsewhere looking for another candidate. what is it in ron paul's campaign that might attract a former herman cain supporter? >> well, i think you mentioned the right word -- the tea party people -- because actually the tea party was started during the last campaign four years ago with our campaign. it's morphed into different things and it's broad-based and it is not monolithic. but there are a lot of people who call themselves tea party people that did like the independent mind in this of herman cain. so i think that we'll probably do better, even though some people are saying, oh, no, they're all going to go to so-and-so. but, no, i think that -- we're paying a lot of attention to that, because obviously they're going to go somewhere in the

next week or so. that's going to happen. so i'm optimistic that we'll pick up some votes from there. >> i don't know if you know it, but you are in a bit of a tiff with donald trump at this point, who was told that you were not going to participate in a debate that he apparently is going to host. he said nobody takes him seriously, he's a clown, et cetera, et cetera. i know you didn't -- you did not want to participate in the debate because you feel similarly about donald trump. do you think the republican party hurts itself by having a high-profile debate with donald trump as the moderator? >> well, yeah. and of course some of that debate was going on from what the staffers that would like to take him on, but obviously he was representing me. but, yes. i think they hurt themselves. but in the statement that i approved, it said that one of the concerns that i had was really how he was treating the republican party of iowa.

and he didn't treat them well because he had agreed to come to their biggest fundraiser of the year because he was talking about running. when he changed his mind about not running he canceled on them. they had to cancel an event. that was a bit of an insult to them. so i've gotten a lot of good, favorable responses from the people of iowa, even the people in the party that appreciated the fact that i mentioned that because they were very unhappy with the way he treated them by just stiffing them and walking away from it and they were left holding the bag. >> what do you make of his popularity? i mean, he said my poll numbers whether i was in are higher than ron paul's. why do you think people like him? newt gingrich is going to this debate. others have said they're going to the debate, but you don't want to. >> yeah, i don't quite understand it. i don't understand the marching to his office. i mean, i didn't know that he had an ability to lay on hands, you know, and anoint people.

but i have to just do my thing. i don't think -- obviously -- you know, early on, even at cpac, he volunteered the first attack on me. but evidently, you know, he probably doesn't like my position on the federal reserve. easy credit for developers and investors, you know they like easy credit and they like the federal reserve and they like that for bailing out. so i don't know. maybe deep down philosophic. of course his position on china was quite different. so i think it is philosophic and probably his personality that doesn't like to be challenged. >> let me -- this week the president has gotten a lot of good news that might be able to sort of pump up his campaign. consumer confidence is up. new home sales are up. construction spending is up. and unemployment is down. do you think this helps his campaign? and it fits in to what certainly the obama re-elect people have told us, which is they just have to show people that the

trajectory of the economy is going in the right direction, and certainly this week would say that it is. >> well, i think so. i think the headlines helped him. sometimes i think we overdo it. presidents get a lot of credit and a lot of blame, and sometimes they deserve neither. i think the headlines helps him. but when you go out and talk to the people, all of a sudden the people i talk to aren't that optimistic. and when you look at those unemployment figures, actually unemployment is still a serious problem. there's more people dropped out of the workforce than the people who got jobs. if you use the old-fashioned way of measuring unemployment, the statistics are pretty bad. the tendency of the government when it talks about unemployment or the cpi, the inflation rate, they fudge the figures if they're not very favorable. the unemployment, if you measure them the way we used to measure them, actually -- and i believe these figures -- the free-market

economists who measure say we have 22% unemployment when you add up everybody who doesn't look for work, who are just partially employed or the people looking for jobs. so it is bad. people know it. the sentiment is bad, and they also understand that their cost of living is going up and their standard of living is going down and there's very little confidence out there. but, superficially and for a short time, maybe these headlines will give a little bump. but believe me, a bump from the very bottom on housing really doesn't re-assure that many people. >> congressman and presidential candidate ron paul, thank you for joining us today. if you want more of ron paul, check out "just in time for christmas," the ron paul family cookbook. coming up, michele bachmann and why she thinks she's the only real conservative in the race. both relieve coughs, snee, aches, fevers. tylenol: and i relieve nasal congestion. nyquil (stuffy): overachiever. anncr vo: tylenol cold multi-symptom nighttime relieves nasal congestion... nyquil cold & flu doesn't. [ male announcer ] a simple gesture can spark romance anytime.

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joining me from new york, michele bachmann, republican presidential candidate, and author of "core of conviction, my story." congresswoman, thank you so much for joining us. the latest thing in this race, obviously herman cain has

withdrawn. how does that change the dynamic going forward? >> well, i think herman cain brought a really important, exciting, energetic voice to the race, and i think a lot of people are going to be very sorry to see him go. we've been talking with the herman cain campaign, and i look forward to having a full conversation with him. one thing that we've seen is that a lot of herman cain supporters have been calling our office, and they've been coming over to our side. i think part of that is because people see that i'm the tea party candidate in the race. they saw herman cain as an outsider, and i think they see that my voice would be the one that would be mow reflective of his. >> one thing that we're seeing, there is a new "des moines register" poll out where people are asked their second choices, because as you know, in those caucuses second choices very often count. what they are finding that when you take herman cain out of the mix, the person who benefits most from that is former speaker newt gingrich. how do you account for that? >> well, i think the dynamic is

changing all the time in this race. it is almost like wall street, candy. it is the up-and-down political wall street, if you will. candidates are going up and candidates are going down. and really i think it is when the voters take a look at the candidates, they want to see who's the most consistent conservative. as the layers are peeled back, we find out who the candidates are, if they've supported everything from the health care mandate to the wall street bailout, they turn away. when they find out that i'm the candidate who stands the most for their values, that's when they come home. people saw this in the iowa straw poll that i won, that i wasn't expected to win that race and i won because people ultimately saw i was the most consistent conservative. that's really also the title of my book, "core of conviction." i think they're going to see that now also on january 3rd and i think they're going to be moving over. we've got 30 days. that is an eternity in this race. >> it is an eternity, and yet as

you know every day counts. and you bring up that you're the tea party candidate. certainly you framed yourself that way. but i want to show you a poll about republicans' choice for nominee among tea party supporters. this was a poll of tea party supporters. this was before herman cain went out. 29%, followed by newt gingrich at 21%, mitt romney at 18%, and then michele bachmann at 7%. so it seems that that tea party patina has somewhat come off of you. how do you gain that back? how do you explain this? >> well, i think again it has to do with people finding out where people truly stand on the issues. if you look at, for instance, both mitt romney and newt gingrich, both of them have supported the essence of obama care. that's not something that the tea party supports. i'm the biggest fighter against obama care. of all the candidates in the race, i'm the one that's actually going to get rid of it as president of the united states, and the same thing with the global warming initiatives.

both newt gingrich and mitt romney also supported the global warming initiatives. that's not something that the tea party stands for or the wall street bailout. i'm the one who opposed the wall street bailout. both mitt romney and newt gingrich supported the wall street bailout. so as tea partiers see where the candidates stand, they're going to come home. i think on january 3rd in iowa they're going to come home and vote for me in that caucus. >> do you think any of this -- because certainly voters in iowa at this point ought to be pretty familiar with your record. you've been there a lot. as well as in new hampshire. but more in iowa. do you think any of this could be in whether people view you as electable? because it does tend in the polls to show that more people view the others as electable rather than you. >> well, the best poll that you have is the iowa straw poll. clearly they saw that i was the most electable. if you also look at the polls, upwards of 70% of the people are still undecided. they take this process very

seriously, and they're vetting all of the candidates. weighing each one of them because they realize barack obama cannot have a second term. we have to have a strong, bold candidate for president. so they're taking a look at the candidates. and there is a lot of surprises that they're finding in this race and a lot of surprises with the candidates. after they look at them, they're going to see, of all of the candidates, i'm the one who doesn't have the political surprises. that's why we have a website nosurprises2012.com. people see i am the consistent conservative who will shred barack obama's policies in the debates. >> let me ask you about the trajectory, if you will, of tea party support. a pew poll that was in early november, do you agree or disagree with the tea party? agree, 20%. disagree, 27%. all the polling, ours and others, also show that the negativity of how people view the tea party has gone way up.

is it possible that the tea party has overplayed its hand and is seen as too hard core? >> oh, for heaven's sakes, no. if people know -- if you ask people what the tea party stands for, if you say, do you believe that you're taxed enough already, that's the essence of the tea party. most people agree with the tea party. if you ask people do you think that government should spend less money than what it takes in, most people agree with that. do you think that the government should follow the constitution. most people agree. those are the three core principles of the tea party movement. so people agree with the essence of the tea party. that's why i believe fundamentally they have the strength. the strength is not with occupy wall street. if you go to the essence of what occupy wall street stands for, it's having other people pay for their stuff. that's not where the american people are at. that's why i think you're going to see a very strong, bold

turnout in the elections, because people are turning against barack obama in his failed policies. >> let me ask you about those tax cuts, because you are opposed to extending the tax cuts now in place whereby people are not paying as much in payroll taxes as they had been last year. so that's a tax cut. it will go away in january unless congress does something. and yet you oppose extending that tax cut. how does that square with the idea that people should have more of their money to spend? >> well, i opposed it when it first came up a year ago last december. i voted against it and i'll tell you why. because it blows a hole of $111 billion in the social security trust fund. that's what it goes to fund. >> but couldn't you argue the bush tax cuts blow a hole in the deficit? i mean you can argue that for other tax cuts that you favor. so i'm trying to figure out why this one is different. >> well, because the payroll tax directly funds the social security trust fund. right now we need that $111 billion in the social security trust fund.

and you also have to remember, candy, the president's reason. he said he wanted to lower that -- the payroll tax cut because it would create jobs. even the administration admits it didn't create jobs. it hasn't helped to turn the economy around. as president of the united states, i know what to do to turn the economy around. i'm a former federal tax lawyer. i created and i run a successful business as a private business woman. i get the economy. this payroll tax deduction didn't do what president obama promised he would deliver that it would do. why would we continue something that isn't working and that is taking $111 billion away from senior citizens when they need that money in the social security trust fund? >> we should just add that the law says that that money will be repaid through general funds. but i've got to go, congresswoman. thank you so much. >> there's no money in the general fund. that's the problem. >> thank you so much for joining us. i appreciate it. >> thanks, candy. after the break, john mccain on pakistan, the economy, and

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joining me here in washington, senator john mccain, ranking member of the armed services committee, and the republican nominee for president in 2008.

>> thanks for reminding me. >> so i want to take advantage of that experience of yours and ask you what do you make of the gingrich ascendancy now in the party? >> i have not commented on these different rises and declines of various candidates because i just don't think it is appropriate to do so. i did weigh in on the issue of waterboarding, which i am convinced is a moral issue. and also i like to extend my thoughts to mr. cain, thank you for serving, thank you for willing to get into the arena and we wish you luck in the future and a good life. >> you've got to be sitting back there watching this -- >> oh, yeah. >> -- with some form of opinion. >> relief. with relief. >> with great relief, no doubt. when you look at the field as it is now, anyone there bother you in terms of i just don't see this as president?

i don't see this person as winning? >> no. i respect the views of the voters, the people of new hampshire play a very big role and they are aware of their -- of the role they play. so i put a lot of emphasis on new hampshire, obviously. but, look. it is a tough process. if i had had, frankly, a criticism of the process, is that i think maybe we're really getting a little too heavy on the debates. there's a lot of other suspects of campaigning besides the debates. they have so many of them. but, look. it is a process we go through and i'm proud of it and i'm sure that whoever we select will be the next president. >> that was my next question. how vulnerable -- just politically looking. how vulnerable do you think the president is? i ask that against the backdrop of a really pretty good week for him in terms of, you know, how the economy is going, consumer confidence, new home sales, as you saw the drop in unemployment. this strengthens the president's hand, does it not? >> oh, i think improving

economic news is obviously very important to his re-election chances. i mean that's very obvious. but it is still very high. one of the reasons why the unemployment numbers dropped is that so many americans left, stopped looking for a job so they weren't counted. there is a long way to go in this economy and all of us want it to improve. look, everybody wants it to improve. and so to say that we want the economy to continue bad because it would increase our chances of beating president obama, i'd rather have us beat president obama on the issues, on the future of the country, and also national security at some point i hope will play some role in the presidential debate. >> let me ask you about your home state of arizona, which democrats, you may or may not know, are beginning to eye as maybe doable for president obama. simply because you have an increased number of hispanics who are registering. a big drive to get them out. and because, by and large,

that's a community that looks at the republican party as anti-immigrant. do you worry about the image, the imagery of the republican party as it relates to some of the issues that are going on up on the hill right now -- and i want to talk to you about the payroll tax -- but does the republican party need to refigure its imaging? >> i think that the republican party has to discuss this issue in as humane a way as possible. by the way -- >> newt gingrich tried to do that and everyone jumped all over him. >> that's -- you know, i still maintain that prosecution. but, look. also the enthusiasm from the hispanic to president obama is less than 2008 because he has not fulfilled his campaign promises either. so i view the hispanic vote up for grabs and i think that we are going to have to discuss this issue in a humane fashion. i still believe that most

hispanics agree that we need to secure the borders. if for the drug issue alone. we talk about people coming across the border. i'll tell you, candy. the coyotes mistreat these people in a terrible fashion. the drug cartels who are moving drugs across our border that are killing our americans by polluting our society with drugs. and we have an obligation to secure our borders. but we also need to talk about how we need to treat people humanely who are here, who have been here for a long period of time. >> paid their taxes, have a family. >> but the fact is, we don't want to trigger another flood of illegal immigrants by believing that if they can get across our border, they would be, therefore, home-free. in 1986 our beloved ronald reagan, under him, we gave amnesty to 3 million people who were here illegally on the promise that we would secure the borders and we'd never have to address the issue again. well now there are 12 million people that are here illegally. people have to have some confidence it just won't trigger another third wave as well.

it is a careful balance of addressing this issue, which i think the majority of hispanics would appreciate. and drug trafficking and drug cartels and the existential threat of the government of mexico which spills over into the united states of america in many ways. look at this fast and furious issue. has to do with drug cartels. so, look. i think we have to have empathy. we have to have concern, and we have to have a plan. but at the same time, to say that we are going to have insecure borders and anybody can come across if they can get across, then they're home-free, that's not the message we want to send, because it is unfair to people who live further away from this country and want to have the opportunity to come here. >> quickly, because i want to move you to some foreign policy issues -- >> in other words -- the long answer was too long. >> number one, is arizona doable for the president? >> i think that can be up for grabs.

i think that's true of new mexico, colorado, texas even, though maybe not this time. but the demographics are clear. the demographics are clear that the hispanic vote will play a major -- be a major factor in national elections. >> let me ask you about pakistan. the u.s. and pakistani relations are terrible. the latest has been this unfortunate nato attack that killed 24 pakistani soldiers. how does this get smoothed over? >> i'll try to make this anticipates as short as possible but you really asked a complicated question. first of all, our sympathy is with the families of those pakistani soldiers that were killed with our deepest sympathy and sorrow. the fact is there have been previous occasions where pakistani military or others have fired across the pakistani border into afghanistan. this is a fog of war situation. investigation is going on. but also the fact is that the isi, the intelligence arm of the pakistani army, is still supporting the haqqani network which is killing americans. that is unacceptable. there are two fertilizer

factories that the materials for which are used for ieds that are killing americans. now we tried cutting off all relations with pakistan for ten years. it didn't work. but we have to address it in a realistic fashion and aid has to be -- has to be gauged on the degree of cooperation that they are showing us in helping us prevent the needless deaths of young americans. that's our first obligation. so i would gauge our aid, particularly military aid -- and we've given many billions, as you know -- directly related to the degree of cooperation they show us and we have to explore all alternatives. but i can tell you, there's not a good answer to this. >> senator john mccain, always -- there's always never enough time to talk to you. i hope you'll come back. >> thanks for having me on. >> thank you. up next, everything is up to interpretation in politics, especially those job figures. we'll explain after the break. i know the name of eight princesses. i'm an expert on softball. and tea parties.

i'll have more awkward conversations than i'm equipped for because i'm raising two girls on my own. i'll worry about the economy more than a few times before they're grown. but it's for them, so i've found a way. who matters most to you says the most about you. massmutual is owned by our policyholders so they matter most to us. massmutual. we'll help you get there. ♪ imagine me and you, i do ♪ i think about you day and night ♪

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we want to give credit for this segment to a 19th century british prime minister, benjamin disraeli. he once said there are three kinds of lies -- lies, damn lies, and statistics. this segment is about the unemployment rate. it fell from 9% to 8.6% last month. >> we learned that our economy added another 140,000 private sector jobs in november. the unemployment rate went down. and despite some strong headwinds this year, the american economy has now created in the private sector jobs for the past 21 months in a row. >> all absolutely true. as is this -- >> the obama administration promised unemployment would not exceed 8% if we passed another stimulus bill. that promise has gone unfulfilled. more than 300,000 americans left the labor force last month. that means they stopped looking for work. i think we should all be

concerned about that. >> disraeli's point was the frequency with which statistics are used to back up weak arguments. who's on the wrong side of this equation? stats and politics with our panel of experts next.

joining me to talk a potpourri of politics and the economy -- alice rivlin, director of the white house office of management and budget during the clinton administration. douglas holtz-eakin, chief economist of president george w. bush's council of economic advisors. and our own ron brownstein, cnn senior political analyst and editorial director of the national journal group. thank you, all. okay. the president got some -- what sounded to me like fairly good news this week. the november jobs report came out and said, among other things, 8.6%, to me, breaking the magic number 9%. 120,000 jobs added. private sector jobs up 140,000. government jobs down 20,000. unless you are in the government, that -- people think that sounds great. long-term unemployed, 5.7 million. retail jobs, up 50,000. change in the labor force, down 315,000. i want to talk about that down 315,000.

i don't know who people are who suddenly decide they're so discouraged they can't look anymore. who is that? >> oh, i think it is people who have been looking for a long time or maybe some more positive explanation like their spouse just got a job so they aren't looking as hard. but it is the downside of what's happening at the moment. jobs are being created, but not as many people are looking. so that helps the unemployment rate look a little better than it might otherwise look. >> 8.6% isn't as good -- i think it is symbolic. it's not 9%. it's not as good as it sounds. >> if good news is the opposite of bad news then this was a good news week because we had some strong elements in the jobs report. we saw a genuine decline in the unemployment rate. some people gave up. we saw an increase in employment, plus a revision to past months that look stronger than we thought. but below that we saw bad hours, bad earnings. it is not an unambiguously good picture.

>> politically, it is a drip of good news and he needs a torrent. the question is really whether it is sustainable. political history is that trajectory matters more than level on unemployment. ronald reagan won 49 states in 1984 with unemployment at 7.6%. >> which was horrendous at the time. >> it was horrendous but it was coming down. but it was coming down. so the real question here is whether the president can see sustained improvement, because i think that is a key to one of the arguments that he wants to make in 2012 which is, look, things aren't where they should be but we've turned the corner and are moving in the right direction. the economy hasn't given me much evidence to make that argument. this is perhaps the first glimmer he will get some tailwind on that case. >> it is the only possible thing that can happen. he's not going to get a torrent of good news. this is a very deep recession and the housing market is still underwater, and we're not going to get a rapid, rapid job growth. >> he's working like mad on what could be the bad news, which is europe. he's spent more time on europe's

debt problems than he's spent on ours. that's because he's terrified that europe falls apart, you get a real downside hit and we have a recession. then it is over. >> we should all be terrified of that. that's not just a political problem. it is an economic problem. >> the economic debt crisis for -- i think the minute you say debt crisis in europe, you see people's eyes glaze over. but the fact of the matter is that is by no means solved by a recent kind of band-aid that was put on there. is that the biggest danger to the economy right now, our economy? >> it is the biggest knowable danger. there is always something lurking out there we don't see. but it's already hurt us because europe is a big trading partner and it is slowing down and it could hurt us further if it falls apart completely. >> thank you, secretary rumsfeld. the known and unknowns. but look. actually, i think americans have -- in the polling that we've done and others have done, we all have a sense that they are in a much more intertwined

globally interconnected world. and it isn't as absurd as it might have been 20 years ago to tell americans greece is failing and the dominos may end up in the cost of your mortgage. >> the united states economy has proved resilient in the face of a lot of shocks. and at the moment, it is proving resilient. that may not last but it is proving resilient. >> it has two silver linings. number one is that there is not much left to go wrong. housing already depressed. auto sector is down. you really can't get much more downside. so we need to grow. and manufacturing has turned out to be in much better shape than anyone dreamed and has been a real engine of this recovery. >> what i hear you saying to me as we wrap this first segment is 8.6% unemployment is so much better as that sounds than 9%, the real danger is, it could go back up. >> yes. >> and politically that would be the worst scenario. >> right. it is almost worse than just staying at 9% than to go down and go back up. isn't it? >> and i think the administration knows this because you didn't see any real dances on the white house lawn. the worst thing would be to

celebrate this and have it go back up to 8.8%, which it very well could. >> i think the real key is if the judgment in 2012 is primarily reg rho speck tif or prospective. retrospective understandably are pretty poor on the part of most americans. when you poll about his agenda going forward, versus the republican agenda on how to create jobs, he does pretty well consistently in polling. to the extent he can have people focusing forward, that's better for him. the history though is that a re-election is primarily a judgment on are you better off than you were four years ago with some element of a contrast at end. >> we're going to be right back with more with our panel. [ electronic beeping ] [ male announcer ] still getting dandruff? neutrogena® t/gel shampoo defeats dandruff after just one use. t/gel shampoo. it works. neutrogena®.

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back with alice rivlin, douglas holtz-eakin and ron brownstein. i always think "ground hog day" should have been written as an ode to congress. we are back with the budget battle and it always has do with taxes and spending. any chance anything gets done in the middle of this election cycle? >> hard to imagine right now. you did have a situation in 1996 where ultimately congressional republicans decided they had to make some deals with the democratic president because they needed some accomplishments to go back to the voters. they thought democratic president bill clinton was going to win.

this time they think they have a very good shot at beating obama. one of the reasons it's been so difficult to get anything done is republicans believe in 2013 they'll have unified control of the house, senate and white house and they can impose their solution of a cuts-only approach without having to accept tax increases democrats want to go along with that. i think for a lot of reasons they are overestimating their ability to do that on a party line basis. next for our viewers here in the united states, "fareed zakaria gps." because of the votes of older and blue-collar quits who are quite rant to the kinds of entitlement form, which means it will be difficult to hold the whole party together and do this on a party-line vote, in other words, as always, compromise and bipartisan, bringing both parties together, is probably the only way to deal with a big-budget program.

which means that it may be much more difficult to hold the party together and do this on a party line vote. number three, the president will definitely be engaged 100% from word go. the next president has to solve the problem or they'll never see two terms. >> we're talking politics here, and not economics. any group of bipartisan folks, like simpson bowles or domenici-rif vin, that look at this problem, as doug just said, has got to have a bipartisan solution. and the bipartisan solution is obvious. you have to slow the growth of medicare and medicaid. you have to fix social security. and you have to raise revenues by reforming the tax system. >> and that is as politically true as it is economically in the sense that if you look back at 1981, 1995, 2005, each time a republican congressional or presidential white house team

tried to reform entitlements on a party line basis, they failed and suffered in the next election, even expanding entitle ms as president obama did in 2009 with health care generated backlash. the only way to do something big is to have both parties involved. and as alice said, each of the commissions have come up with the same solution including the gang of six. people know what's out there. the question is, can you build the politics to do it. >> is part of the problem that we hear this all the time, holy cow, holy cow, the world's got to end. we need tax reform, medicare reform, and they don't do it and we all keep having our lives. has the public found a way to be vested in this? >> part of the problem is we haven't had such a major crisis stemming from the budget. >> right. >> that everybody says, oh, we have to fix it. but if we did have such a crisis, suppose it -- we have a meltdown in the economy, a double-dip recession, then you're in a situation where it's

much harder to fix the budget. we've got to do it before that happens. but to come back to 2013, i want to come back to 2012. the thing that might force a -- an agreement in 2012 is that the bush tax cuts expire. and nobody wants all of them to expire and to have a tax cut increase at the end of next year. >> because bush tax cuts even though they've been synonymous with high income, it's across the board. >> all of them expire. >> right. bloomberg, peter orzag, martin felstein. there's an argument that if we went back to the clinton tax rates of the 1919 -- 19 points in it would solve the problem. >> we haven't had the big crisis but the crisis that will matter is to the beneficiaries. social security is running red ink and the plan which isn't a good one is to cut benefits in retirement in the future. a terrible plan. medicare is running enormous

amounts of red ink. we can't promise it will survive the next generation of seniors. medicaid's a bad program, getting starved for funds, getting worse. you don't have to have a big financial and budget crisis. people are realizing our safety net is fraying. we need to fix it. up next, "sound of sunday."

time for today ice "sound of sunday." you can tell newt gingrich is on the rise in polls. team obama was criticizing him on the sunday talks. but they saved the sharpest words for the man they still think will face the president next fall. >> i think the reason mitt romney -- people don't like him and why he hasn't caught fire, if you hear what he is says today, it's likely to change tomorrow. there's great skepticism. he's a political gymnast of the highest order. he will say virtually anything to get elected to any office. >> when it comes to his public character, he doesn't have a core. it has nothing to do with his personal life. i honor his personal life. i respect his personal life. but this is about how you behave in the public arena. >> bad enough, but perhaps the unkindest cut of all this morning was republican on

republican. senator tom coburn, who served four years under former speaker of the house newt gingrich. >> i just found his leadership lacking, and i'm not going into greater detail on that. and i think if you were to poll the gang, the group of people that came into congress in 1994, which he did a wonderful job in organizing that, he's brilliant, he has lots of positives, but i still -- it would be my -- i would have difficulty supporting him as president of the united states. >> whew. north dakota senator kent conrad says senate democratic leader harry reid is set to unveil a new plan tomorrow to extend the payroll tax cut. congress has been split on whether to renew the tax cut and/or how to pay for it. >> he indicated to me it will be paid for. it will be paid for in a serious way. >> with a tax increase or with spending cuts? >> again, i think it's up to him to define his plan, discuss his plan. but it will be paid for. it will be paid fo