>>ose: welcome to the broadcast. tonit, part two o our conversation with peter orszag, he's the director ofthe office of managemenand budget and very mh volved ma policy considerations othe deficit and alth care reform >> the sense of freefall has dissated. 're not yet in a perd of sustained economic growth. but it's so the case you can't go from minus% declines in onomic activity to rapid growthvernight. there's always a transition. we're in at trantion period. >> rose: andwe turn to foreig policy with former naonal security advisor general brent scowcroft. >> it's just apractical fact of fe that you have to deal with countries as they are not as you woullike them to be.

and iran is one of tho fficult ones and the recent events in iran have. may ve made it somewhat more fficult foboth sides to engage a diogue. but i think... i think that it's so important tt we ought to nd every effort to see ife can't succeed. >>rose: we conclude with wit technology i a conversatn withichael arringt of techcrunch. what is ggle becoming? it's almost like everybody's chasing twitte right now. and facebo clearly is. but when it comes down to it thsocial aspect of facebook, whe your friends are recommending this to you which could be products or news items and the constt loging into the site 25 time a day ising googleeeds to address. >> rose: pet orsz, grent scowcroft,ichaelrrington next.

captioning sponsored by rose communicaons from our studios in new city, this icharlie rose. >> rose:ast night we broadcast part one of our interviewith peter orsg, president obama's budget dirtor. here's part o of that coersation about the economy. as you kw with respect to the stimulus bl, the real critism-- which i'm going to come to in a moment-- i that it wa't written by cgress. that $787 billionas written by congss and therefore all these earmas came into play

and therefore in the end ofthis year you will have only spent 11% of the stimulus money. >> all right. let's dealith the recovery a becausthat seems to be blding into the health care reform debate. a couple things. >> ros bleeding in everywhere or bleeding in this table? >> no, i tnk it comesp in the sort of commentary the covery act is not working therefore heal care reform won't, eith which is a huge nons.e.c. weer the >> rose: i agreeith that. let's dealith a recovery. judging the success or flure based on thenemployment rate isisleading. the recovery act was intended to build up over time and in fact... we'll come bk to its economic affects in a second. secondly, inerms of the spendout rates, 8% of the money has already been obligated. so $220 billion, roughly 40 in tax relief and $180illion on the spending side, mo than a quarter the total hasbeen obligated. thisas intended to ramp up and

ifnything it's sligly ahead of schedule according to the governnt accountability office. thd, what is the economic impact of that? ldman chs andther private analysts suggest therecovery act addin 3% to g.d.p. in the second and ird quarrs. inther words, g.d.p.is likel to... we'll have the numbers out later is month for the second quarter, it's like to be better than at was happening in the fourth quarter of last year whe g.d.p. was fling 6% or in the first quarter of this year. >> rose: what do you expect it to be? >> private stor forecasters are expting 1% to 2% dline. and since a freefl minus 6%, let'say slight stabilizati at minus o to two, if you take the prive sector analysis of the recovery act, a lot o that difference fm minusix to minus one to two is due to the recovery act. and then t final question is why is the umployment rate not tracking that g.p. number, for example? andhat's interesting is i rst unemploymentends to lag

behind economiactivity any case, secoly, there sms to be something unusual happening in that the up employment re is 1% to 1.5%% higher based on actity activity. the traditional relationship between g.p. and unemployment seems to be oen. there are varioeasons that can be diussed but that disjuncture doesn't have anythinging to do th the recovery a. >> rose: do yo see... when you look at the unemployment rate anpeople who believe it will be at 10% and some believe it even more, what are your assumpons about what unemployment will be in 2010. >> the unemployment rates going to remain elevated for some period of time. let me try to explain why. >> rose: above 10% do you thin up to 1? >> pall volcker said pick a number orate but never both. that's we advice, especially in this kind of environment.

private sector forecasters a now suggesting that posite economic growth, g.d.p. growth, might retu in the latterart this year. for the sake of argument, let's say that is true. >> rose: does that mean economic recoveryas begun? >> yeah. >> rose: the last quarter of this yr? >>et's say. >> rose: october, nember, december. some private ctor focasters are suggting it i happen in the third quarter. >> rose: i would love to know what the directo of office and managent and budget tnks about at. >> we'll have more to say when we relee our mid-session review next mont but here'she point. if you look bk at the last two recoveries, e unempyment rateeaked a year and a half ter the recovery ban. so evenfter.d.p. growth returns, the unemployment rate still goes up fo some period of time. >> ros because it's a lagging dicator? >> becse it's a lagging indicato for several reons. onis y need g.d.p growth above.5% year before you en start creating downward pressure. and a wholeariety of reans. people... firmlike to hir..

expand hours beforthey expand new rkers. and so unemploymen lagsbehind. it going to remn stubbornly high for an extended period of timevenf recovery... even if the economic activity returns and even if the recovery act is rking as it should. >> re: there's noay to ask thisquestion because if i say toou what's an unaeptable unemplment rate... the the >> theurrent rate is unacceptable. >> rose: exactly right. bui mean what wouldbe scary to yo at the end of 2010? what would be scarely. >>he currentates areoo high the current rate are... i don' know thatit's constctive for me to us words lik "scy" but ey are unacceptably high. 10% ofhe labor force bei unemployed itoo many people. >> rose: will you begin to see a decline by the end of 20, do you think? >> again, if u accept the traditional relaonship, it uld be sort ofn that... around that time frame. >> rose: that's about the time. the beginning of 201 >> if things wor as they have historically have. but i would ain noteomething fferent is happening in the

lar market today than traditionally. >> rose: which is? >> which is e unemploymt rate is much higher than you predict sed on economic activity. itay be...ere's an interestinthing. may b disproportionally as older workers become more reliant on 401(k) plansrather than definedenefit plans, the downtu in the stock market ses to be causing people to delay their retirent. so, foexample, lab force participation rates ve increased among old heenwhile declining r younger men. in addition, o of the things that tendsto holddown unemployment is geographic mobility. there's a jobver here and you move the. the problemsn the housing market maye imimmediating that mobility. there seem to bespecial factors elevating the unemployment rate but even without those, it wou be too high. >> rose: with 20/ hindght, at do you wish you had done or recommended to the predent that y didn't do? >> that is a difcult question i meanthere are a whole variety of tngs justn terms

of policy recommendatio to the president. >> rose: in other words,hat d youo wng, is one way. or what did y fail toee? i'm ging you the value of hindght now that perhaps you could t have seen ithen you took office in january of 2009. >> frankly i'd return to what weere just discussing, which is the unempyment rate has trended higher than you wld ha expected basedon wh's been hpening to economic acvity and g.d.p and that... you know, that was surprise. >> rose: are your assumptions about the economy a little bit different or significantly different, say, from t congressiol c.b.o.? >> when we update i august, our so-calledid-session review, our assutions will be inline th private sector forecasters anthe most recen set of congressional budget offic projections for the onomy. >> rose: s you're suggesting by... within a month wall street c.b.o., office of management and budget will have ptty much the same basis.

>> roughly in lin, yes. and one of the this that happenedast time, there's bee a loof discuion about this, is when you okay down the assumptions, when the tuation is evolving rapidly, camatter. so our assumions for the februaryudget document were loed down in december. and athat time they were in lineith private sector forecasts in the intervening peod, private sector forasts kindf dehere in your rated then we we a little bit out of line. >> re: if the economy is going to begin a rovery in the lt quarter, why willhat have happened? >> i thi it will have happed for a variety reasons. ones at there's the norl business cycle. i mean, there just a normal cycle to economic activity. leavinthat aside second pce is.... >> rose: where are we in the cye? beginning another cycl or... >>o, what i wld sayis the sense of freefallas dissipated. we're not yet in a period of sustaid economic growth. but it' also the ce you can't

go from minus 6% declin in economic activity to rapid grthover night. there's always aransition. 're in that transitionperiod. the things thatould lead.... >>ose: go ahead. but how about the stimulus program? what d that contribute? >> well, again, so the ivate sector alysis that iave seen ggests that in the second and thir quarter the recovy act is addg three rcentage points to g.d.p. sonstead of minus 1% to 2%, thatould be minus 4% to 5% without the covery act. same thi in e third quarter of this year. so that's a pretty signicant impact. >> ros this question has been asked a thousand times, too. >>kay. >> rose: if you had signed the stimulus program, yes? >> yes. up? rather than coress. how would it have en different? >>t might have been dfent inome of its details. but lete try to dcribe.... >> re: if you say "notuch," at's an interesting respons >> but letmedescribe the

tension that existed at thend of last yea the gap between w much the economy could produce and how ch it was producg amounts to about of g.d.p.. th's about a trillion dollars a year. again, projectio that it might go on for more than a yearor two. so that would suggest recovery act that was $1 to $2 tllion size in terms of macroecomic necessity. onhe other hand, you start lining up all of the specific policies that spend out immediately and that he high bang for theiruck, yomay have $200 to $300 billion package. so thenou have this tradeoff. do you try to meet me of the macroenomic necessity even acknowledging some of t things you're put in pla don't spend out as rapidly as you'd like or that have less bg for the buck tn you'd like when they do spend out. and you start blding up the package to include tax cuts-- which are partially saved rather than spent--nd other provisns that spend out re slowly than a six-month period, for example. we wou upith a $700 to $800 billio package, balancing that

sort of specific progmmatic design with the macroeconomic need and a judent call that thatas about the right size. now, so of the details sure. you kn, there are particular projects... thoslast few days of notiating the details of the recovery act involved saage making, but that's, again, that's always going to happ. rose: my question in other way is did you-- director of offi of management and buet-- recommend... did you rgo in negotiations wit ngress and everything else forgo immedie stimus iact, a, because congress had oer things they wanted to spend the money on or, b, because the president was dedicat to sustaibility programs like health care, educaon and clate change. >> re: no, i think, look... i guess. it's always ey to conduct this. i think we wound up in about the same size package at we had

descrid. the mimay have been slighy differt. but, look i can always npick. we got more ste fislelief than had ever been done before and than anyone would ve suggested was possible >> rose: thehrust of my questionthough, is to see what the learning experience is, not to sort of say tl me the magica.. >> theearning experice, i think, was we got the rovery act done 8 days after taking office. most economists would have sd at was possible. days afteraking office. up? most politicians, too. >> was it perfect? no,as hit in the middle of re let's get done something? and, you kw, this is a lite bit... this is too ce by half, but some of the looking back is a littleit like one of my colleagu said it's like a fifighter rescues your child from the fire and then youo and accuse the fireghter of kidnapping. it's a littleit of revisionist... we were in th middle of a seve collapse in the economy and we thought it was crucial to get something done raply. it's pretty good given that context. >> rose: i mean, the second... other th the deficit, the

biggest political estion i think now with respect to the esident and decision making is did theytry to do too much at one time? that's the secd question, and therefore build up deficit is alarng to lots of people. look, let's look at the budget deficit st as an example. the vast majorit of the budge deficit reflects the weakness of the econy which naturally uses revenue todecline and certain kindof spending-- like on ods stamps d unemployment benefits-- to inease. and theecovery act and financl stabilization efforts mitigad that downturn. nrdz, the fefighting i was discussing. so again what else should we have done? i think response was commensurate to e risk we face. i thk it's easy to forget that sense of freefal household n wealt fell by $5 trillion ithe last quarter of last yr. g.d.p. was declining by 6%. employment fell by almt two million people, two million jo. >> rose: thateems like an argument to do more and to

orient o stimulusprogram more towards immeate response. >> oy. and that's my poin the seof things that are immediately spendoutnd have high banfor the buck was maybe $300 bilon. cleay not commensurate.... >> rose: that's the max you could have gten any wayn terms of how fast you could work >> right. >>ose: do we ne another stimus? >> i think it's premature to be... again, t recovery act was alys intended to build over time and reach its peak i the laer half of this yearnd early next year. that's what's happening. we should gi it time toork. it's watchful waing is the approprie stance. >>ose: we turn to foreign policy with an anasis of the obama administration's por policy-- foreign policy so far. obama hashown a differe style fromis predecessor.

he'seen crediting with liening and improving america's image in the wor but the hard par is yet to come. ong the questions being ked are: will e president be able toeet th expectations he has set? will engagement work th countries liken iran? will strategs in ira and afghanistan sceed? joining me fm washington, generabrent scowcrt, retired air force generalhe was national security advisor r presidents ford and bush 41. i am pleased to have him back on this broadcast. welcome, sir. >> charlie, it's nice to be with you. >> rose: my pleasure. wh do you think of t president's foreig policy? >> i think so far s good. you kn, this is a many-act play, as yr iroduction indicad. and i think act one was to change the mood, chae the mood in this country and change the mood toward the country. i think he has done tt extremelwell. and so i would give him very

high marks up to now. >> rose: i aually heard him say once thathe in a way had a foreign policy simar to the foreign policy that you wer a part of with bush 4 does that renate withou? >> well, i don't have y... i'm not king exceion to any of the outlines the policies that he ha set out so far. how de it goes is ha to say. but i'm pleasantly... i recve th pleasantly. >> rose: all rig. let's tick off som of the thin. the secrary of state is aveling around the world. she's been in thaild a she' been i india and she saided in a recen speech about iran that maybe the midd east needs some kind defense systemif all se fails. is she on the right track? >> i think... you know, if our

pocy fails, weneed a lot of things. but at as i understand the policy toward iran, it is not that. the policy towd iran is t to engamehem in dioguend reason tether bh about the regionhere iran has borders on both the countriesin whi we have activ duty forces at the present time and t issue of nuclear weapon and i think that's where our coentration ought to be. >> rose: there's no question we have to deal with the administration that is i power in iran. >> that is correct. you know, i think it's just a practical fa of life that u ha toeal with countries as they are not as you would like them to be. and ir is one of those difficult os and the recent eventsn iran may have made it somewhat more diicult for bot sideto eage in aialogue.

but i think... i think that it is so importan that we ought to bend every effort to see if we cat succeed. >> rose: is there an way for a country ke the united states or countries in europe or even russia to influence the internal dynamic in iran? >> oh, think there is. not to say that it's easy. but there are two elements. e of the things thahas been demonstrated is that the iranian youth finding americas popar as almost any country in the world. th is one fact. on the oth hand, the iranian populationppears to bvery nationalistic andhmadinejad has en very successful in whipping up resentment at what he claims is demeaning licies by the united stas toward

them. so it's a complicated thg. t i think with skillful diplomacy,es, we can appeal to those forc which are beneficial to us and discourage others. >> rose: there have be a number of resetting strategy or rethinking stregy in afghanistan. general crtal, i think, has gone through even another o now. what ought beur stregy the? >> i think we have to go back and remember why we're tre in the first pce. and we were really there because the talan would not denyo al qaeda sanuary for training, equipment, and planning attacks on the west. that's why we went in. then it sort of morphed. well, there was a peri of neglect whilwe were fully cupied with iraq. th we started tothink,ell, the two are jus about alike, we immediate to do the same thing. now we're getting back tohat

fuamentally is our ise, and that is that afghanian again not be used as a sanctuary an traini ground by al qaeda and those forces determined to attack the west. i lieve now that we' getting ck on track there. and i thinke have to make afghanisn inhospitable to that kind presence. and that means tha we're really doingounterinsurgency rather than counterterror. now,hat's the differenc if your operatio are counteerror and you see a bad guy, a badeader, youo after him. and if tre is some oth... if

the are some other people killed, it's very unfortune, but you're after the bad guy if your mission coterinsurgency d you have the me situation, you don't go after the bad g. because what you don't want to do is alienate the pulation. and i think the presen team-- general mccrtal, general eikenberry, the ambassad-- they get that. and i think that the latest move, asou indicated, charlie. an i'm encouraged by it. >>ose: does that put a ceiling on the number of troops we should send ere? >> look, it's... this isot a military mission. we'rnot going to win it by mitary means. have to have some because therare parts of afghastan that a completely controlle by theadicals, not by the government but instead we need to take those partsback. but then weeed totart building up relationships with the local leadership councils,

thtribal councs, the provincial councils, find out what they need. let th know that we're there to help them run their live, not totake over and dictate to them. >> rose: this seems to be the elemenof the new stregy that came out of washington. >> well, i thi... you know, we've been leaing a lot o things all over again,charlie. you know, after vietnam, we said we, we're not going to do that again. we tore up all the things we had learned about vtnam and we had to len them all over again in ira so i think we've learned them now. >> rose: why do we do that? >> (ughs) well, y kw, to me it goes back... secretary gates in speech last year said something i thought was very profound. andhe said "wve got toearn and trainor thears we are kely to fight, not t ones we would like to fight." >> rose: is that reminisce of thfact that generals are

always fighting thmost recent war, not thefuture war? >> well, it's... you know, the military... the mility has a tendency to want to push technogy. it, after all,what we're best on. it ecomizes the use of force. it ges us all the advantages that we as a highly develop country have. kicking down doors in baghdad you know, is nothigh tech. so there is a reluctance to reduce oursees to the low end in this famou phrase now, asymmetral warfare. but that's the kindwe're facing. >> rose: well, that's where general mccrystal made his reputaon in part. >> absolutely. absolutely. as you lookround the rld, thchances of a high tech world war ii operationare pretty slim. the chance of more failed

states, states covering from cil wars, fm internal upset, bad guys here and therthat's a world that's all around us. >> rose: let me take you to the ddle easthen. what have... what shou we have learned and what shoul the obama administration know as it ha senator mitchell in the region? what oht to be h mission statement? >> i believe now we're a a ate... a stage in the middle ea-- and i that i referring to the palestinian pea process-- wherwe have change the way we approach it. have, what, for about 50 years now, been in t process of getti the two sideso sit

down, encouraging them talk together, offering suggestions d so on. i think time for that has r out. and i think time for a two-state soluti is running out. and i thi if f that's abandoneit will be even more dangerousnd tragicor the israelis and for the plinsians. and now i think it's tim for a new approach and that is for the unitedtates to beore assertive. e outlines ofettlement have been pretty cleaynown ll since the end of the clinn administration d the taba accords were drawn u and i thi that the unid stateshould be preparedo put forward a proposal saying we believe this is a just and honoble solution and we believe the parties should adopt

it and i think... i thinkwe would get strong support from our iends and allies and i think that it is what the region needs now and i think it's, frankly, woul be good for the administration, o, to take thi iue-- which has bn a naggingssue for so long,and its so crucial to everything we're doing i the middle east in terms of changing the atmphere, changing the approach. because whateve the countries of the region think about the palestinians, ere is a heavy sense of injusce in the region to whas been happening. anwe catch some of thelame. we can change lot of things if we would adt a more positive forcefulttitude. >> rose: and h do you get the benjamin netanya government to

accept the esstial tlines of the tagreement? understanding. it wasn't an agreement, it was an uerstanding. >> yes, it w an understanding, that's right i believe fit of all by pointingout theonsequences of the pestinians and the arab world abandoning a two-sta solution. to me that's a nightre for erybody concerned. that means that iael eitr has to abandon a jewish state or abandon democracy or practice ethnic cleansing. now, those a not very good alternates. and it rther wlradicalize not just the palestinis but the wle arab a muslim world against no only israel but the west i ink that should be aery

powerful argent. and as iay,his isnot punishing isel. thiss lowing and helping israel to live ineace and hopefully prosperity and frndship with its neibors. you can't move it, so we've got tohange the conditions of the region. >> rose: so wt should the united states do not to punish but t psuade the net y government to take that direction? >> i think we should put this ou as a u.s. plan and hopefully a plan which will be supported by the quartet. anthat is our european allies, the cretary again ofthe united nations and rusa.

and say this, we believe, is the ju solution and we wouldlike to begin by setting outhe borders ofhis palestinia state. >> rose: and what abo hamas? >> hamas is a veryifficult problem. i think hamas is... wel, they're certnly not riding high n, but they have no particular reasoto compromise. and i thk to turn intoamas a pre-condition for ming movement would be a miske. it seems to me that if the process starts and if the train star moving, hamas cannot affordo be leftut. so they become a is uplycant rather tha demander. d i think that's the way to get hamas back track. >> rose: if thingsre moving down the road, they'll wt to be on? absolutely.

now, iould be openo talks with hamas. i don't think w accomplish anythingy refusing to talk to peop. that not a sign of weakns to me, it's signf common sense. >> re: so orge mitchell should gsee theleaders o mas, whether they're in t gaza strip or damascus? >> ihink so. that doesn't mean giving away anything. anit's not a gesture of respt or anything else or ilding them up it's jus common nse that y talk to people with whom u have proble to try to dea with the problems rher than have the... your onl option some kind of force. >> rose: let me move to asia and china. what'sour sense ofhat china wants to do internationally beyond economics? >> that's a cplicated qution. i thinkf you go clear bk in

the story of china, that is of communist china, the chinese started out i 1949 as kind of a hermit kingdom. and they believed awe tarky, we don't believe in anybody, we don' have pticular relations with anybody we'll justeal with ourselves. that was a case evenwith respect thsoviet uni until president nin went there an opened up, if you will with chin but it was openi up onlyn a very narrow sens that is,ealt only with the concn of the two parties abou the soviet attempting a hegeny in into th asian hemisphere.

now, sensehen, the chinese have ened up gradually here and there. an most noticeab, for example on north korea. a decade ago if you talked to the chise about northorea they said "well... th would say well, they nt their way, we went o way, we don't have much to doith them amore, don'talk to us abo them. then ty agreed to the space walks and nshlly they said... sixparty talks. th initially theyaid we will hold the tks, we' provide the venue, you do the negotiating. w they've come and are actively participati in it. in a way the same with sudan and the dfur problem. they said we buy oil from sudan an we sell sff to th, what they do is their business, not ours. nowthey're graduallyaying yes we recognize that we have. th there are things we can do

and should do. i think 's a process of wh foer deputy secretar zoellick called having ina become a respsible state holder. and i thk they're movinging in that direction. but they're moving slowly and gradually toecome involved in thgs that aren't just in their very narrow bilateral economi like economics. >> rose: but on the other hand, they believe th having a strong economi posture is essential fothem being able to al with the internal tensions. >> oh, absolutely. no queion about that. and that... they single mindedly nce deng xiaoping declaredt in 1978 single mindedly pursued economic strengtand well-being as a way toensure theirwn position and the stability of the countr >> rose: the psident went to moow, made a speech,aid that

ey're going to ret relations wi the russians. whathould he do to reset the relation >> think we've made a good start. it's not going toe easy because there's a lot of. well it's not exacy hostility bu there's not much love lost betwn the two side right now. andñi while there were... wle there wereome gd attempts by the... george w. bush, bush 43 administration ae and presiden putin made some... had someood meetin together, that didn't permeate the bureaucries on both sides. ani think the symbosm of resetting the relationship is a very important one.

if you look aroun the world righnow, we have more things, i would say, with the russians where weave a cmon outlook than where are really at odds. an i thi we forgot what a traumatic event the end of the cold war w for the russians in termof their political and economic position the world. and we sort of just brued that aside and did whatwe thought was in our general interests. wiout realizing thato the russians i looked like we were taking advantage otheir weakness and it bred a lot of mubarak tillty. >> rose: one o the interesng historical questions is that after the warcame downnd gorbacv made the cisions he did, did we fail to recognize the sort ofnsecurity of the ruians-- both the people and the leadership-- fro going to

be a great power to being at t rcy of ahole range of forces they didt uerstand and how does one nation instill a sense of confidence to the other so that theyon't fear every move by the other tion? >> i tnk that' an importt point. and we' started out a rht. president orge herbert walker bush at the e ofhe cold war said noby lost the cold war, we a won it. d went o of his way not to show any kind of smu superiority or a kind of oating over the situation. but en we tended to forget about it andwe pursuedhings like making rope whole a pursued e kinds of things to ke the world the way we would like. but in t process we sort of forgotbout russia. antheir own feelings. and i think resetting the button and i would say to start w

out to do the nuclear business. because, after a,uclear, especially nlear weapons, is whe the russians are still a superpow and we can reste their sensef importance and digny by starting on the bilateral clear arms relationshipon proliferation on how we can promote nuclear power safely together andso on. i thinthat's the place to start. >> rose: is it possible tt we can he... we can eliminate nuclear apons? well, i thk it's possible, although i wouldoubt it. what we cant eliminate is the knowledge of h to make nuclear weapons. and what i fear ishat by

talking about a world without nuclear weons, we are in danger of neglecting the world we live i now and sang, well let's just it. and we'r notready todo it now. d i think ha what we ought to do is fus on producing a situation where nuclear weapons are never used, eher by nations orstolen to be usedy the bad guys. and i thk that's a much more prtical thing. you know, the world was not a peaceful, happy place before nuclear weapons wer developed. indeed, you know, there are so who make t argument there hasn't been a jor war since. but wouldn't go that far but ihink since we have conferred such awe onuclear weapons andany ofur actions

have seemed to indicate if y have nuclear weaponse'll li you alone that we need to cnge the atmosere and we need to put nuclear weapons y in the backgrnd so that there are no circstances under which nuclear weapons wld be used. and there i think wehould art with the russians. and the bilateralelationship. >> ros general scowcroft, thank you very muc it's a pasure always to have you he and ippreciate you taking the time. >> charlie, i've enjoyed vy much chatting with yo rose: back in a moment. stay wit us. >>ose: michaelrrington is here. he's the founder a editor of techcrunch, one of the most dely red blogs in silicon valley. tech crunch was found in ty and nohas separate sites coveng specific countries and chnologies. arrington has formed a untry toevelop a tabletommuter

primary to use for the web it is called therunch pad. i'm pleased to have him back on this proam. welcome, sir. >> hello, charlie. >> rose: google versus microsoft. now ve bing, their search engine at microsoft,nd chrome, which is going to be an operating system, a browser and an operating system. >> yeah, it's fascinating because you think google as a sear engine companyhich most of the revenue derived from sear marketing and microsoft as a sort of sofare company. windows and office that'swhere ey get their revenue. the companies are competing head on vicioly because microsoft want search share. there's so much money in it. so they've got bipg and they're trying to do thgs with yahoo! and google, i don't know if they want revenue from officend the operating system, but the certainly want to take that revenue from microft. soou have them with crow mow and goog docscompeting with windows and office. and th're going at each othes core businesses and it's fascinateing to watch. >> rose: dthey really look to havereat success in that?

do theexpect to take away a lot of microsoft's operating system? >> if you listeno eric schmidt at google,t seems interpret serious that thewant to do innovative things inheir operating systems ace. i don't know what thei projections are. >> rose: there was the sry at eric was the one resistg goinahead with come as an operating system. >> ion't know if he resist not but he' behind it now. th also have android, of coursethe mobilehone operating stem based on linux. >> rose: there's alsoing. so bingot very good notices. people in t business... th mossbergs of t world. >> bing is a great srch engine. they launcd it two months ago. it's a little too early to tell what kind of market share gains they'll have if any but it's definitely a great search engine. one of t problems with search-- a all the guys who do search test willing tell you this-- is itoesn't matter what the results loo like if you have a testing gro blind sampling. if you put theoogle logo on top and ask them what they think of the srch results,they like it more than otherwise.

google just s the brand in search a it's going to take a loof time and a lot of money. >> rose: and a t of people have to s bing was bter. someone id to me this interesting point at google somemes worries about if somehow microsof computers, p.c.s, wouldn't take googl does that makesense to y? >> i think thaticrosoft in the past hasade changes to internet explore that stopped the gathering of information from the browser... by the... by web sites, t browser puts up not a firewall but you n agine something like that. that's pt of the reason why google decided toackfire fox to have their own browser to stop that fr happening. but i think withhe w google.... >> rose: so it wouldn't be explorer? >> right. and explorer's maet share is droppi. but i think google wants to get microsoft out of t p.c. tirely. and ty're offering alrnatives across the board to microsoft softwa, which makes that battle so fascinatin >> rose speak to m about mobile phoneand mobile technologynd where are we? >> wre in an aweso place. think back. i know y talk about the iphone

quite a bit. the hone changed. absolely changed thmobile landsce and people said, you know... some people said th apple couldn't do this and they won't dot. >> rose: because they began to seit ast aomputer in itself? >> well, s. >>ose: that's what about >>ot just that. >> rose: and it looked good and everybody wanted to ha one because they thought it was so cool. >> they figured out web surfing on a phone wita small screen that's a touch seen but they figured out theestures to zoom in a out andit's an adequate weburfing experienc that they figured out. >>ose: what about the lm pediatrics >> it's a great phone. >> rose: why is it a great phone? >>t's areat operating system. it's quick, you can have lo of alps open, it's a great operatinsystem. the hardre on the phone i ink was rushed and feels a littleheap so for me i'm sticking with the iphone. but i came closeo choosing the palm prix becse of the phical keyboard i think is

really nice analso because i feel luke i'm getng too tied to apple. >> rose: tell me what crumple pad is. >> about a year agoiealized i just want a bi iphone. i wa a comter that i can sit on the couch and surf the web witht having a weird keyboard stuck to it that doesn work when you're not sitting at a desk. so wstarted this project on techcrunch just lking about it sang we want to build this and we want help from the community and grt things happened over the course of a year. we've hired ateam, we've had lots o peoe, parers come on boarand contribute their time, their resources, suggest partnerships. >> rose: did you get venture money? well, you know, i'mnot going to answer that question. >> rose: w not? >> because i haven't... i dot want to answerhe question. (laus) >>ose: we have our ways, s. >> i thi that a ...orgetting therunch pad and the fact that i want build that, apple is talking aboutoming out with tablet computerhich is going to b a

large screen ipne or ipod touch. think that's a good thing. i think they'll sell a lot o them. google's new operating system chrome o.s. is a lix-based operating stem with a browser on top a the idea is younever se the opeting system yo never go to th desktop the computer, it goes right tothe browser. we've been talki about it for a ye. they've been working o it for a lo time. i'm not suggestinge had it firs but it's coming to market as a free operating stem. and we're goingo see net books without y boards. we're going to s computers with other input mechanism "cbs ening news" sides key boards or alternative input mechanism at are think is really exciting sff. >> rose: facebook versu google. is that a big competition? >> last time we talked it was facebook versus myspace an that's not the question anyone asks anymore. >> rose: it' what is faceok becomi? >> right. and what is googleecoming. it's almost like everybody is chasing twitter rit now, an facebook clearly is.

but when it come down to it, thsocial aspect o facebk whe your friends are recommding things to you whi could be procts or news ims and it's the cotant sort of logi into the site 25 times a day is somhing thatoogle eds to address. and right now they.. >> rose: s that's zuckerberg's argume. who better to go for a arch than youfriends? ifou know and trust. >> exactly. extly. why no >> rose: because they kw who u are and what you're like. >> some of the startups that buy affic on google search are talkin abouthe conversio rates from those.. conversion rates meaning purchase or signup that they get fr from tha purchase traff from google is good but not nearl as good as the nversion rates from cebook and twitter. so if i just sendout a link sayingwow, i just saw this movie and it's good" and you click on that, you're more likely to see e movie than you are if you click o a paid ad from google. google ivery aware of at. free sff on twitterand facebook is bett than paid ads

on ggle and that has to be freaking them oua little bit >> ros what did youo? youublished some internal financial docunts from twitter? >> there this hacker.... >> rose: inow that. >> this french g got the cuments from twitter beuse of these guest books. >> rose: what did u do? >> i'llget to it. sohat he did was he wanted to warn twitter that, you know, ur security is awful. and also he wanted to get credit for doing ts. hacks, crackers do that. soe went to the french media and a french journalist...e was told about it, the french journalist went to ttter and said what happen andwitter wouldn't respo. he dropp it came t us and said.... >> rose: who came to you? >> that this hacker anomously. he sent us all this document. >> rose: what was in the documents? >> itas ndreds of documents tan from twitter's employees' attachments to eail accounts. and it included interview schedules, peop they interviewed in silicon valley,

ominent people that work in otr companies that didn't e upt twitter. very embarrassing stuff. credit card information r many of the ployees. e-mails, inbox screenhots, executive meeting notes, financial pjections, etc., etc., etc. just the wle sort ofhing. anwe looked a tt a said e're going to post some of this. some of ite're not." >> ros like credit car numbers, youe not going to post that. >> we' not goingto post credit cardumbers orhis that wld embrass people but somef this we thoughtas pretty darn newsworthy. rticularly the financial projections and execute meing notes from the last f months. so we engaged in aialogue with our readers and we said we have these cuments we haven't decided what we'll st, probably a coue documents. we talked to twitternd sent them documentso they knew what was going on. >> rose: did theyay go ahead and post them? (laughs) >> they said.... >> rose: we have no problem with this. >> the ultime answer was we know you're going to post a couple of these d that'sokay r most of those we hope you n't. >> we said that's not a problem. and we worke with twitternd

made sure they closed up securityoles they have. it the documents were fascite bug the interesting thing toe s the discussion th was gerated around whether shld publish theor not. and there are people that ve come out, majo journalists w said it was unhical for us to this. d there we journalists who came o and said it was fine and ethical. infact, their readers derve at kind of accs. and obously i have anopinion cause i'm in the middle of the story. but taking myself out of it, it's a fascinating discussion because i know ithe old days whenhe "new york times" or e "wall stet journal" got documents like this, they weren't... thedidn't have that discussion with the readers. >> rose: it's interesting how you di it. gaging your community. >> enged them a i would say 80% of my reader sagreed wi me. >> rose: w did you d it? >> it's funny, when i make decisions with techcrunch on whetheto publi, often times thinks are played outnd i say would i do things differently with the benefit of hindsight

and there are a coue ins stas in the past where i would hav in this case i absolutelythink i did the righthing and i woul't do anything differentl >> rose: do you ow the site called loopd? >> is aming. it's a mobile cial networking. and it's a aboutocation. >> rose: wherever you are you knowverybody in your block. >> i can turn it on... i don't have my phone withe. but i can turn it on and i can see everyone around me who's a friend. mine is set up differently so i'llee everyone who wants me to see them. it's a different way of networng socially. love it. i've writtenbout this where you can imagine atime where yo wa into a barand you pull out your pne and you see... for everyone thawants you tosee it... youaugh and it funny but it's big business. everyone's picture who's the opposite sexr whatever your sexu preferencewho are is single and maybe wants to... you can see th and thatay you can go flirt with them on the phone and it helps you meet people in aar. or you g into a biness cotail setting and y see people on your one that you've

met before and main it help i don't say with eir first name. that's theind of lings that looped and otherthings are doing that's gng to chang social networkin rose: so tell me how you see the future of social networking? i mean, is i.. >> i don't kw what it is. it's hard to define. it's. if you look at facebook, it's really the plumbing bend thenteractions online beten people and helping them map to the real wor. it'sclear that people love interactinwith each other on web sites. and it's clear th facebook has been ableo get third parties to build applicaons on their plform thatleverage you having your iends sort of seeing what you're doing. and it's clear also that they can then te that... you saw what they did wi cnn ound the elections and you can coent and your frien can see you comment. that's all... it's reay fascinating. what's unclear ishether it can ally become protable over the long run. because facebook has tse massive exnses and the revees are growing ridly.

but it's unclear from the long run they c make that vastly profitableike google has. >> rose: what about the kindle space in? >> t, book reader spac is very interesting and wouldn't expect a toll sta out of i for much longer totay out of it. but amazon has bn very successful in selling kindles. timates are they might ll a million or so is year. they sell lotsof books on top of it and uss scipgss so it's a great revenue stream for them. i'm argd that amazonhould not build a hardware deve specifically, they should bud the ftware and l anyone build a kindle. these are forcing sony and barnes & noble and apple and others to come upwith their mpeting closed off book systems. i think amazonhould say, lo, wel do the books and the software but oth people build the hardware. >> rose: you take car of the hardware. techcrun, thank you. thank you very much. >> ros michael arrington, thank you ry joining us see you next tim

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