gwen: tonight, we look at the year just past and how it will affect the year to come. welcome to "washington week" year in review and preview. turns out elections do matter. >> there's a reason we have two parties in this country. both democrats and republicans have certain beliefs, and certain principles that each feels cannot be compromised. >> on january 5, the american people are going to watch their congress do something differently. gwen: the democrat majority has eroded and the new comers are about to arrive. >> if we can't deal with the issues of earmarks, how are we going to deal with a trillion dollars? >> we will stop the out of control spending and tax increases and repeel and replace obama care. gwen: efforts to revive the

economy. >> the land of opportunity has become the land of shrinking prosperity. gwen: promises to cut the budget deficit. >> american people know we can't borrow and spend and grow our way back to a country. gwen: and as one combat mission winds down, another one drags on. >> our goal isn't to build a 21st century afghanistan. our goal is not a country that is free of corruption, which would be unique in the entire region. gwen: who has the upper hand? we sort through it all with the reporters who covered the year. michael duffy of "time" magazine. and david westle of the "wall street journal"." >> award winning reporting and analysis, covering history as it happens. from our nation's capitol this is "washington week" with gwen

ifill. produced in association with national journal, corporate funding for "washington week" is provided by -- >> we know why we're here. to give our war fighters every advantage. >> to deliver technologies that anticipate the future today. >> and help protect america everywhere from the battle space, to cyberspace. >> around the globe, people of boeing are working together to give our best for america's best. >> that's why we're here. >> there's been a lot of market ups and downs lately. but annie and mike made it through. they stuck to their plan. now they're thinking about what's next. as their financial advisor i reviewed their complete financial picture. they're reallocating some of their assets so they don't have to rethink their dreams.

>> with you when you need a financial advisor fully invested in you, wells fargo advisors. together we'll go far. >> corporate funding is also provided by exxon mobile, and prudential funding. addition funding is provided by the ethics in excellence journalism. the anenburg foundation. the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. once again from washington, moderator gwen ifill. gwen: good evening. at year's end, we can use this week between two holidays to take a deep breath. and after a year as eventful as 2010 and looking forward to one that promises to be at least as important, it helps to look back and forward. remember thelma hart?

she's the obama supporter who said she had become exhausted defending him, then she lost her job a few months later in many ways finding the best answer to her question and the remedy for her exaugs defined the year in politics. the question becomes now looking back on it all now, karen, how did that shake out? >> i think it shook out as a pretty conventional mid term election. all year long, right up until election day the democrats kept telling us elections are really choices between two candidates and the republicans kept saying no, this is going to be a referendum on the president. that's what midterms are for after presidential elections. they are often the american public kind of putting its foot on the brake just a bit. and ultimately what happened was people expressed their disappointment that the economy had not improved as much as they had hoped. they expressed their frustrations that they did not believe president obama had put as much focus improving the

economy. their fears that the deficit was getting too big. government was getting too big. so they have now demanded that everyone sort of reorient themselves. gwen: david, we heard so much about the bad economy. yet at year's end it felt like the stock market had rebounded, retail sales, christmas sales had really bounced back. have we turned a corner or is it too soon to say? >> i think we've turned a corner. the problem is that it's better but not good. so the good news is the economy is growing again. you're right, the stock markets up 10% this year. employers are beginning to hire, and at this pace in 25 years from now we'll be at full employment again. so the problem of the pace of the improvement is so slow that many americans can be excused for saying hey, i don't think the recessions over yet. so it's not surprising that those people are dissatisfied with the president and the democrats. they would have turned on any incumbent party. gwen: in fact, if you listen to

what the republic conditions had to say after the elections, they said they're aware that people are pretty unhappy with them as well. >> i think they behaved in a way that was surprisingly, i think for some, a modest, at least for a few days. they said we hear this. we recognize this is not a referendum on our agenda, just one against the president in many ways, our against the economy. how long they remain modest is really a question. the thing that struck me about the comment at the beginning was that she used the word exaugs, which i thought was particularly tough and apt for how people felt about the politics. and the economy which has been so slow. that word was particularly indicting for the whole country. gwen: but it seems also when you go back and look at the year, which was a long year, you think about the things that actually did happen. health care bill was passed, financial reform was passed.

even things that were incredibly unpopular like tarp and bailout. actually had been repaid. was it a better year than we were able to see with our noses pressed to the glass? >> i think in hindsight it will turn out to be a bet better year. what the republicans were reacting to is they felt president obama got too much done. not that thought he was being ineffective, he was being punished for his effectiveness. even at the last minute, nobody thought he was going to get don't ask, don't tell this year. then the final cherry on the soda, the star treaty at the end of the lame duck session. we all thought the lame discussion session was going to perhaps a waste of time. >> one of the paradoxes of 2011, while there will be much less progress, the president may end up being more popular. >> it's easy to have a foil, to play off of against. he's been dealing with a democrat congress of his own party with whom he's often had very tense relations, but is

supposed to be friendly with them because they're all in the same party. so now if he's dealing with a hostile house of representatives maybe it will be better for him. gwen: just listen for a second to something the president had to say at the year end news conference which sets the tone for what he thinks he wants to do. >> my singular focus over the next two years is not rescuing the economy from potential disaster. but rather jump starting the economy so that we actually start making a dent in the unemployment rate. gwen: singular focus. you wrote today that the corporate tax cut is on his plate. how does that, how does that square with what he said about the unemployment rate? >> well i think actually the president doesn't really mean jump start the economy. we've been trying to jump start the economy for two years with one after another of kind of putting the paddles on the chest and giving it a jump start. most recent when the tax cut that congress improved that surprised us, the payroll tax cut. i think what the president's going to talk a lot about now is

getting growth going again. he's going to try to do things that make the economy better now, but really better in the future. i think he's looking through 2012. he's thinking if we can get on a good trajectory it will be ok. the corporate tax reform he's thinking of proposing in the state of the union is formed by two things. one is they really want to do something that appears to be pro-business. that appears to be the flavor of the month. secondly when they look at what they can do to help the economy, they're limmingted to things that don't cost anything. and they're thinking about for every winner there will be a loser. on the list of things that don't cost anything, there are things like corporate tax reform, regulatory revamp and all that will come. gwen: things that don't cost anything. that's an effective, maybe the tea party success this year. >> if we could just go back to some revisionism in that comment of his. his suggestion was that his singular focus until now has been rescuing the economy from going over the edge.

that really wasn't. he took on health care, which i think most people in the white house would now say is perhaps the war of choice that he did not need to do. in the middle of the year we had a gigantic oil spill in the middle of the gulf of mexico. there was a lot of stuff going on this year that were outside. it's almost inside control, some of it is outside controlled. but very distracting. and again people got frustrated when they saw that the economy wasn't being addressed i think with the singular focus they were hoping. >> i thought that the surprising thing about president obama end of year press conference is when he said i don't think either side has a monopoly on good ideas. that tees up the promise and the limits of what might happen in 2011. he will have to contend with many more republicans, many of them from the tea party movement both in the house and the senate who are not merely conservative

republicans but a much more take no prisoners, no surrender republican. and that will make the progress more difficult for him. gwen: which brings us back to what will happen on the hill as opposed to what will happen at the white house. a new set of players and they're talking almost exclusively about spending issues. how do does the president begin to maneuver himself around that, or how do they maneuver himself around him? >> first of all, in three to six months, people are going to be looking to boehner. whether it's spending cuts that restore confidence or continued tax reform. so far, except for people like paul ryan, the incoming charmente, the leadership has been quite cautious about would really make a meaningful difference, unlike the prime minster of great britain where they have put together a

transformation of things about the british social welfare state. first of all, how serious they are about spending cuts. there's very little evidence to date that they're that serious. >> we will get some really clear indications within the next six weeks, get them in the president's state of the union address. we will get them in his budget, which the white house analysis is going to be about a week late. that's a document that in divided government you can almost guarantee the minute it gets to the hill, it is going to be declared dead on arrival. what you get out of the president's budget is some sense of where he thinks he can hold the line, where he is going to draw the distinctions. and also a sense of what his priorities are going to be. it will start the argument. >> but i think the republican leadership has quite a challenge. they do not have a union fied caucus. they have people of very different views, very different back grounds. whole lot of members of the house who have never been in the house before. i think the reason they talk so much about spending cutting in general, that's one of the few

things they can agree on. will be interesting to see when the korea, u.s. free trade agreement comes up. will the republicans be for that or against it. >> in march, continuing resolution. >> they're going to be tested as to whether they can look like they're organizized. >> let's not count the president out. he has the capacity of a surprise. he can surprise us in january at the state of the union and come out for a complete freeze on federal spending. it could happen. gwen: you've talked about that before. >> just freeze at 2006 levels. it was a huge budget. like there's plenty of money. but he can surprise a lot of people. gwen: i was interested, karen you said the term wars of choice. there are other wars of choice like for the left for gays in the military, he didn't need to do that. on the right, there were choices over earmarks which was cutting

off their own noses to spite their faces. both of them to satisfy in their base. are there other obvious wars of choice which stand to be waged before we get to job creation, or maybe hoping that the economy heals itself? that's a tough one. >> i think the reason earmarks has become such a big deal is that there's such a clear symbol of congressional inability to control spending. so they have great value. i think karen mentioned the debt ceiling vote, everybody knows the debt ceiling, the united states government is not going to default. nobody wants to be the 351st vote in the senate for that, or whatever the 200th vote in the house. so people will be using that as a bargaining. i think on the budget, the question will be, ok, paul ryan had this plan but he didn't have to get anybody to vote for it. can he put a budget down that he can get a majority of republicans to be for?

>> i think the words of choice for the democrats is whether they come back and try to do the dream act to make it for the republicans with that group of hispanic voters. i think for republicans the it's do they go through? >> yes, exactly. >> that's a very interesting question. then for president obama, since the election people said he should do what president clinton did, co opt republican ideas. which he did. but he also held the line on key things, social security, medicaid. he dared the republicans in those two government shutdowns, i won't accept the level of cuts you're proposing. and he won. so the question is where is there a place that president obama might draw a line like that. i don't think we know yet. gwen: does it matter at all who is the president's right hand in all these debates? when you stop and think about it, it's been quite the exodus from the west wing.

and we can presume others at times. does it matter who's in there? does it change? >> i think some of the key players, the new chief of staff long-time capitol hill veteran has very strong relationships with a lot of people on the hill. they're also going to have to reorient themselves so they get things done in different ways. it has been until now getting things through a democratic congress. just about everything was happening on the legislative playing field. now they're going to have to learn how to do things through the executive agencies. and they are also going to learn how to do things by marshaling public opinion behind them. i think it is very likely that what you're going to see is the president out in the country a lot more and also using the executive branch perhaps in ways that we haven't seen before. gwen: so if we saw the president in the last year push things through because he believed it was the right thing to do like

health care for instance, or gays in the military, which that's different because it actually had a lot of public support. but health care did not necessarily. you see a retrenchment from that? >> i certainly think if they do something like a broader freeze in the budget or some kind of broad tax reform, he's going to be helped in that if he has a different set of advisors that at least think more moderately or those who he lost through the last election. >> it's not only policy. i was astounded when dave camp who's the head of the wames commit -- ways and means committee said he met tim geitner for the first time after the election. >> the incoming? >> yes. they did very little outreach. and the other who would have thought that two years into the obama presidency, this man can get big bills through congress but he can't communicate well. gwen: i know. >> you hear from the policy

people all the time saying we need a better narrative. they're going to be talking about ways to do that. gwen: now i can break my rule, which was i was not going to talk about 2012 until 2011 was over. >> almost. gwen: now 2010 was over. >> i've already been to new hampshire. one thing that's interesting, almost every serious candidate had operations on the ground, campaigns being built. a lot of these republicans are holding back. a lot saying they won't anoubs until the spring. the main reason is that everyone is watching to see what sarah palin does. >> the other reason is so many of them have tv shows of their own. whether on fox or discovery network. they have a different way of communicating their stories and

their lines whether it's mike huckabee and his show or sarah palin with her alaska wild series. there lots of different ways being experimented here. whether it's a good thing or not, it's unclear. >> one thing that does appear possible is that the republican primary has been this orderly door nation of the next guys standing in line. this time around it's likely to be a lot longer, a lot messier, and there may be some openings in here for people that we're not thinking. >> that good for obama or not? >> it depends on whether the problem for him two years from now, which is what it is now, bringing back independence. the republican primary process may push the party to the right in ways that would make it more difficult. certainly that's what the white house is hoping. >> does that leave obama with a fairly clear prance to the

democratic nomination without any democratic challenges? >> i don't think he'll get any serious challenge from the left. he's really done -- in "the american president" there's a great line where michael j. fox says that high approval rating isn't worth anything unless you take it for a spin every once in a while. i think pool -- i think president obama took it for the biggest spin. i think he will have to recalibrate. >> his approval by the way is still higher then either of the two political parties. >> and been quite steady at around 50%. >> if republicans go to the right and obama is still looking a little shaky, is it the case that someone comes through with a third partity? gwen: we would love to talk about that, broker conventions and third parties. >> maybe the way to answer it, part of the tea party that's worth watching, isn't the one that comes to washington, which will be complicated. what's happening is already we saw races last year around the

country where there were three, four, five tea party candidates running for house senate, house primaryries. we're seeing already two and three people candidates run for city council, in places like nashville and suburbs of st. louis. maybe what's going to happen at the tea party level will happen at the local level where they continue to push forward. gwen: so we spend all our time watching sarah palin we're missing the story perhaps. >> again. gwen: again. who can look away? let's talk a little bit about leadership. american pp opinion is sometimes fickle. we think we're following what it is americans say they want, then it turns out they are making other demands. so if you're a leader and trying to put your footprint on how to control, which is really what all this is about for the next year, what do you pick? what is leadership? who is a leader going into this? and i'm not just party leadership? >> i think president obama's

going to move, as deb was saying running in 2008. where it was kind of about him. young generation, i'm the first african-american, i have a whole different method to being about the record. it's going to be less about him, his leadership stamp will change to one that's sort of about me or obama to mission defined mission accomplished. that's more conventional. gwen: if you're john boehner then, what is your leadership of? >> he keeps saying it's time to have the adult conversation with the american public, and so far he's said that a lot and there hasn't been so much conversation. i think he's sincere in the realization that their -- i don't think they believe they can just continue to be the party of no for the next two years. >> although his problem may be mitch mcconnell who does continue to be the party of no. he did not put forward an agenda

in this election. he said we are running as a break on barack obama. gwen: and proved it with every single vote he cast in the lame duck session. >> there's a loss of institution and leaders and people want something different. they're tried of these people saying it wasn't my fault. and they want to see somebody who they feel has learned a lesson. so i think that in both parties, people look and see did they learn something. are they going to do business differently? that goes doublely for the business leadership. people really think american business, particularly wall street, let us down. to the extent they're going back to business as usual, that's going to food a very popularrist anger. i think they're looking for some signs that they learn from this economic disaster and not just rushing back and pretending something happened. gwen: looking at washington at all. >> karen and i had these long conversations about how we're in

a particularly pendulum era. if you don't perform, we're going to kick you out. happened two cycles in a row. >> three cycles in a row. >> and to some extend to c.e.o.s. the only difference they get lots of money. gwen: time for one final thought. >> the last time we saw this was in the immediate post world war ii area where the congress changed hands immediately, in the middle of the korean war. all kind of tough times. gwen: thank you everyone. we didn't even begin to get to everything here. but the conversation continues online on our washington week webcast. check us out at pbs.org. congress is back next week. keep track of daily developments on the pbs news hour. and for our fans in los angeles, you'll be able to find "washington week" on koce channel 50. different place on the dial. reset your d.v.r.'s right now.

we'll see you and everyone else around the table again next week on "washington week." happy new year everybody. and good night. >> "washington week" was produced by weta which is soly responsible for its content. funding for "washington week" is provided by -- >> i would love to have been a musician, but i knew that i was going to need a day job. we actually have a lot of scientists that play music. the creativity, the invasion, there's definitely a tie there. one thing our scientists are working on is preventing co2 from entering the atmosphere. looks like snow. it's one way that we're helping provide energy with fewer emissions. >> this rock has never stood still. since 1875, we've been there for our complinets through good times and bad.

when their needs changed, we were there to meet them. through the years from insurance to investment management, to real estate to retirement solutions, we've developed new ideas for the financial challenges ahead. this rock has never stood still. and that's one thing that will never change. prudential. >> corporate funding is also provided by boeing, and wells fargo advisors. additional funding for "washington week" is provided by the ethics and excellence in journalism foundation. the an enburg foundation. the corporation for public broadcasting. and by contributions to your pbs station from viewers like you. thank you. >>