>> rose: welcome to the broadcast. tonight, part two of our conversation with peter orszag, he's the director of the office of management and budget and very much involved many policy considerations of the deficit and health care reform. >> the sense of freefall has dissipated. we're not yet in a period of sustained economic growth. but it's also the case you can't go from minus% declines in economic activity to rapid growth overnight. there's always a transition. we're in that transition period. >> rose: and we turn to foreign policy with former national security advisor general brent scowcroft. >> it's just a practical fact of life that you have to deal with countries as they are not as you would like them to be. and iran is one of those

difficult ones and the recent events in iran have... may have made it somewhat more difficult for both sides to engage in a dialogue. but i think... i think that it's so important that we ought to bend every effort to see if we can't succeed. >> rose: we conclude with with technology in a conversation with michael arrington of techcrunch. >> what is google becoming? it's almost like everybody's chasing twitter right now. and facebook clearly is. but when it comes down to it, the social aspect of facebook, where your friends are recommending things to you which could be products or news items and the constant loging into the site 25 times a day ising? google needs to address. >> rose: peter orszag, grent scowcroft, michael arrington next.

captioning sponsored by rose communications from our studios in new rk city, this is charlie rose. >> rose: last night we broadcast part one of our interview with peter orszag, president obama's budget director. here's part two of that conversation about the economy. as you know with respect to the stimulus bill, the real criticism-- which i'm going to come to in a moment-- is that it wasn't written by congress. that $787 billion was written by congress and therefore all of these earmarks came into play and therefore in the end of this

year you will have only spent 11% of the stimulus money. >> all right. let's deal with the recovery act because that seems to be bleeding into the health care reform debate. a couple things. >> rose: bleeding in everywhere or bleeding in at this table? >> no, i think it comes up in the sort of commentary the recovery act is not working therefore health care reform won't, either, which is a huge nons.e.c. weer the. >> rose: i agree with that. >> let's deal with a recovery. judging the success or failure based on the unemployment rate is misleading. the recovery act was intended to build up over time and in fact... we'll come back to its economic affects in a second. secondly, in terms of the spendout rates, 8% of the money has already been obligated. so $220 billion, roughly 40 in tax relief and $180 billion on the spending side, more than a quarter of the total has been obligated. this was intended to ramp up and if anything it's slightly ahead

of schedule according to the government accountability office. third, what is the economic impact of that? goldman sachs and other private analysts suggest the recovery act is adding 3% to g.d.p. in the second and third quarters. in other words, g.d.p. is likely to... we'll have the numbers out later this month for the second quarter, it's likely to be better than what was happening in the fourth quarter of last year when g.d.p. was falling 6% or in the first quarter of this year. >> rose: what do you expect it to be? >> private sector forecasters are expecting 1% to 2% decline. and since a freefall minus 6%, let's say slight stabilization at minus one to two, if you take the private sector analysis of the recovery act, a lot of that difference from minus six to minus one to two is due to the recovery act. and then the final question is why is the unemployment rate not tracking that g.d.p. number, for example? and what's interesting is is first unemployment tends to lag

behind economic activity in any case, secondly, there seems to be something unusual happening in that the up employment rate is 1% to 1.5%% higher based on activity activity. the traditional relationship between g.d.p. and unemployment seems to be often. there are various reasons that can be discussed but that disjuncture doesn't have anythinging to do with the recovery act. >> rose: do you see... when you look at the unemployment rate and people who believe it will be at 10% and some believe it even more, what are your assumptions about what unemployment will be in 2010. >> the unemployment rate is going to remain elevated for some period of time. let me try to explain why. >> rose: above 10% do you think? up to 12%? >> pall volcker said pick a number or date but never both. that's wise advice, especially in this kind of environment.

private sector forecasters are now suggesting that positive economic growth, g.d.p. growth, might return in the latter part of this year. for the sake of argument, let's say that is true. >> rose: does that mean economic recovery has begun? >> yeah. >> rose: the last quarter of this year? >> let's say. >> rose: october, november, december. >> some private sector forecasters are suggesting it in l happen in the third quarter. >> rose: i would love to know what the director of office and management and budget thinks about that. >> we'll have more to say when we release our mid-session review next month. but here's the point. if you look back at the last two recoveries, the unemployment rate peaked a year and a half after the recovery began. so even after g.d.p. growth returns, the unemployment rate still goes up for some period of time. >> rose: because it's a lagging indicator? >> because it's a lagging indicator. for several reasons. one is you need g.d.p. growth above.5% a year before you even start creating downward pressure. and a whole variety of reasons. people... firms like to hire... expand hours before they expand

new workers. and so unemployment lags behind. it's going to remain stubbornly high for an extended period of time even if recovery... even if the economic activity returns and even if the recovery act is working as it should. >> rose: there's no way to ask this question because if i say to you what's an unacceptable unemployment rate... the the >> the current rate is unacceptable. >> rose: exactly right. but i mean what would be scary to you at the end of 2010? what would be scarely. >> the current rates are too high. the current rates are... i don't know that it's constructive for me to use words like "scary" but they are unacceptably high. 10% of the labor force being unemployed is too many people. >> rose: will you begin to see a decline by the end of 2010, do you think? >> again, if you accept the traditional relationship, it would be sort of in that... around that time frame. >> rose: that's about the time. the beginning of 2011. >> if things work as they have historically have. but i would again note something different is happening in the labor market today than

traditionally. >> rose: which is? >> which is the unemployment rate is much higher than you predict based on economic activity. it may be... here's an interesting thing. may be disproportionally as older workers become more reliant on 401(k) plans rather than defined benefit plans, the downturn in the stock market seems to be causing people to delay their retirement. so, for example, labor force participation rates have increased among old her enwhile declining for younger men. in addition, one of the things that tends to hold down unemployment is geographic mobility. there's a job over here and you move there. the problems in the housing market may be imimmediating that mobility. there seem to be special factors elevating the unemployment rate but even without those, it would be too high. >> rose: with 20/20 hindsight, what do you wish you had done or recommended to the president that you didn't do? >> that is a difficult question. i mean, there are a whole variety of things just in terms

of policy recommendations to the president. >> rose: in other words, what did you do wrong, is one way. or what did you fail to see? i'm giving you the value of hindsight now that perhaps you could not have seen it when you took office in january of 2009. >> frankly, i'd return to what we were just discussing, which is the unemployment rate has trended higher than you would have expected based on what's been happening to economic activity and g.d.p. and that... you know, that was a surprise. >> rose: are your assumptions about the economy a little bit different or significantly different, say, from the congressional c.b.o.? >> when we update in august, our so-called mid-session review, our assumptions will be in line with private sector forecasters and the most recent set of congressional budget office projections for the economy. >> rose: so you're suggesting by... within a month wall street c.b.o., office of management and budget will have pretty much the same basis. >> roughly in line, yes.

and one of the things that happened last time, there's been a lot of discussion about this, is when you okay down the assumptions, when the situation is evolving rapidly, can matter. so our assumptions for the february budget document were locked down in december. and at that time they were in line with private sector forecasts in the intervening period, private sector forecasts kind of dehere in your rated then we were a little bit out of line. >> rose: if the economy is going to begin a recovery in the last quarter, why will that have happened? >> i think it will have happened for a variety of reasons. one is that there's the normal business cycle. i mean, there's just a normal cycle to economic activity. leaving that aside. second piece is.... >> rose: where are we in the cycle? beginning another cycle or... >> no, what i would say is the sense of freefall has dissipated. we're not yet in a period of sustained economic growth. but it's also the case you can't

go from minus 6% declines in economic activity to rapid growthover night. there's always a transition. we're in that transition period. the things that would lead.... >> rose: go ahead. but how about the stimulus program? what did that contribute? >> well, again, so the private sector analysis that i have seen suggests that in the second and third quarter the recovery act is adding three percentage points to g.d.p. so instead of minus 1% to 2%, that would be minus 4% to 5% without the recovery act. same thing in the third quarter of this year. so that's a pretty significant impact. >> rose: this question has been asked a thousand times, too. >> okay. >> rose: if you had designed the stimulus program, yes? >> yes. up? rather than congress. how would it have been different? >> it might have been different in some of its details. but let me try to describe.... >> rose: if you say "not much," that's an interesting response. >> but let me describe the tension that existed. at the end of last year, the gap

between how much the economy could produce and how much it was producing amounts to about 7% of g.d.p.. that's about a trillion dollars a year. again, projections that it might go on for more than a year or two. so that would suggest a recovery act that was $1 to $2 trillion in size in terms of macroeconomic necessity. on the other hand, you start lining up all of the specific policies that spend out immediately and that have high bang for their buck, you may have a $200 to $300 billion package. so then you have this tradeoff. do you try to meet more of the macroeconomic necessity? even acknowledging some of the things you're put in place don't spend out as rapidly as you'd like or that have less bang for the buck than you'd like when they do spend out. and you start building up the package to include tax cuts-- which are partially saved rather than spent-- and other provisions that spend out more slowly than a six-month period, for example. we wound up with a $700 to $800 billion package, balancing that

sort of specific programmatic design with the macroeconomic need and a judgment call that that was about the right size. now, some of the details, sure. you know, there are particular projects... those last few days of negotiating the details of the recovery act involved sausage making, but that's, again, that's always going to happen. >> rose: my question in another way is did you-- director of office of management and budget-- recommend... did you forgo in negotiations with congress and everything else forgo immediate stimulus impact, a, because congress had other things they wanted to spend the money on or, b, because the president was dedicated to sustainability programs like health care, education and climate change. >> rose: no, i think, look... i guess... it's always easy to conduct this. i think we wound up in about the same size package that we had described. the mix may have been slightly

different. but, look i can always nitpick. we got more state fiscal relief than had ever been done before and than anyone would have suggested was possible. >> rose: the thrust of my question, though, is to see what the learning experience is, not to sort of say tell me the magical... >> the learning experience, i think, was we got the recovery act done 8 days after taking office. most economists would have said that was possible. 28 days after taking office. up? most politicians, too. >> was it perfect? no, was hit in the middle of a fire let's get done something? and, you know, this is a little bit... this is too cute by half, but some of the looking back is a little bit like one of my colleagues said it's like a firefighter rescues your child from the fire and then you go and accuse the firefighter of kidnapping. it's a little bit of revisionist... we were in the middle of a severe collapse in the economy and we thought it was crucial to get something done rapidly. it's pretty good, given that context. >> rose: i mean, the second... other than the deficit, the biggest political question i

think now with respect to the president and decision making is did they try to do too much at one time? that's the second question, and therefore build up a deficit is alarming to lots of people. >> look, let's look at the budget deficit just as an example. the vast majority of the budget deficit reflects the weakness of the economy which naturally causes revenue to decline and certain kinds of spending-- like on foods stamps and unemployment benefits-- to increase. and the recovery act and financial stabilization efforts mitigated that downturn. nrdz, the firefighting i was discussing. so again what else should we have done? i think response was commensurate to the risk we face. i think it's easy to forget that sense of freefall. household net wealth fell by $5 trillion in the last quarter of last year. g.d.p. was declining by 6%. employment fell by almost two million people, two million jobs. >> rose: that seems like an argument to do more and to orient our stimulus program more

towards immediate response. >> okay. and that's my point. the set of things that are immediately spendout and have high bang for the buck was maybe $300 billion. clearly not commensurate.... >> rose: that's the max you could have gotten any way in terms of how fast you could work >> right. >> rose: do we need another stimulus? >> i think it's premature to be... again, the recovery act was always intended to build over time and reach its peak in the latter half of this year and early next year. that's what's happening. we should give it time to work. it's watchful waiting is the appropriate stance. >> rose: we turn to foreign policy with an analysis of the obama administration's porn policy-- foreign policy so far. obama has shown a different style from his predecessor. he's been crediting with

listening and improving america's image in the world but the hard part is yet to come. among the questions being asked are: will the president be able to meet the expectations he has set? will engagement work with countries like in iran? will strategies in iraq and afghanistan succeed? joining me from washington, general brent scowcroft, retired air force general, he was national security advisor for 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. what do you think of the president's foreign policy? >> i think so far so good. you know, this is a many-act play, as your introduction indicated. and i think act one was to change the mood, change the mood in this country and change the mood toward the country. i think he has done that extremely well. and so i would give him very high marks up to now.

>> rose: i actually heard him say once that he in a way had a foreign policy similar to the foreign policy that you were a part of with bush 41. does that resonate with you? >> well, i don't have any... i'm not taking exception to any of the outlines of the policies that he has set out so far. how deep it goes is hard to say. but i'm pleasantly... i receive that pleasantly. >> rose: all right. let's tick off some of the things. the secretary of state is traveling around the world. she's been in thailand and she's been in india and she saided in a recent speech about iran that maybe the middle east needs some kind of defense system if all else fails. is she on the right track? >> i think... you know, if our

policy fails, we need a lot of things. but that as i understand the policy toward iran, it is not that. the policy toward iran is try to engame them in dialogue and reason together both about the region where iran has borders on both the countries in which we have active duty forces at the present time and the issue of nuclear weapons. and i think that's where our concentration ought to be. >> rose: there's no question we have to deal with the administration that is in power in iran. >> that is correct. you know, i think it's just a practical fact of life that you have to deal with countries as they are not as you would like them to be. and iran is one of those difficult ones and the recent events in iran may have made it somewhat more difficult for both sides to engage in a dialogue.

but i think... i think that it is so important that we ought to bend every effort to see if we can't succeed. >> rose: is there any way for a country like the united states or countries in europe or even russia to influence the internal dynamic in iran? >> oh, i think there is. not to say that it's easy. but there are two elements. one of the things that has been demonstrated is that the iranian youth finding america as popular as almost any country in the world. that is one fact. on the other hand, the iranian population appears to be very nationalistic and ahmadinejad has been very successful in whipping up resentment at what he claims is demeaning policies by the united states toward them. so it's a complicated thing.

but i think with skillful diplomacy, yes, we can appeal to those forces which are beneficial to us and discourage others. >> rose: there have been a number of resetting strategy or rethinking strategy in afghanistan. general crystal, i think, has gone through even another one now. what ought be our strategy there? >> i think we have to go back and remember why we're there in the first place. and we were really there because the taliban would not deny to al qaeda a sanctuary for training, equipment, and planning attacks on the west. that's why we went in. then it sort of morphed... well, there was a period of neglect while we were fully occupied with iraq. then we started to think, well, the two are just about alike, we immediate to do the same thing. now we're getting back to what

fundamentally is our issue, and that is that afghanistan again not be used as a sanctuary and training ground by al qaeda and those forces determined to attack the west. i believe now that we're getting back on track there. and i think we have to make afghanistan inhospitable to that kind of presence. and that means that we're really doing counterinsurgency rather than counterterror. now, what's the difference? if your operations are counterterror and you see a bad guy, a bad leader, you go after him. and if there is some other... if there are some other people killed, it's very unfortunate,

but you're after the bad guy. if your mission is counterinsurgency and you have the same situation, you don't go after the bad guy. because what you don't want to do is alienate the population. and i think the present team-- general mccrystal, general eikenberry, the ambassador-- they get that. and i think that's the latest move, as you indicated, charlie. and i'm encouraged by it. >> rose: does that put a ceiling on the number of troops we should send there? >> look, it's... this is not a military mission. we're not going to win it by military means. we have to have some because there are parts of afghanistan that are completely controlled by the radicals, not by the government. but instead we need to take those parts back. but then we need to start building up relationships with the local leadership councils,

the tribal councils, the provincial councils, find out what they need. let them know that we're there to help them run their lives, not to take over and dictate to them. >> rose: this seems to be the element of the new strategy that came out of washington. >> well, i think... you know, we've been learning a lot of things all over again, charlie. you know, after vietnam, we said well, we're not going to do that again. so we tore up all the things we had learned about vietnam and we had to learn them all over again in iraq. so i think we've learned them now. >> rose: why do we do that? >> (laughs) well, you know, to me it goes back... secretary gates in a speech last year said something i thought was very profound. and he said "we've got to learn and train for the wars we are likely to fight, not the ones we would like to fight." >> rose: is that reminiscent of the fact that generals are always fighting the most recent

war, not the future war? >> well, it's... you know, the military... the military has a tendency to want to push technology. it's, after all, what we're best on. it economizes the use of force. it gives us all the advantages that we as a highly develop country have. kicking down doors in baghdad, you know, is not high tech. so there is a reluctance to reduce ourselves to the low end in this famous phrase now, asymmetrical warfare. but that's the kind we're facing. >> rose: well, that's where general mccrystal made his reputation in part. >> absolutely. absolutely. as you look around the world, the chances of a high tech world war ii operation are pretty slim. the chances of more failed

states, states recovering from civil wars, from internal upset, bad guys here and there, that's a world that's all around us. >> rose: let me take you to the middle east then. what have... what should we have learned and what should the obama administration know as it has senator mitchell in the region? what ought to be his mission statement? >> i believe now we're at a state... a stage in the middle east-- and i that i'm referring to the palestinian peace process-- where we have to change the way we approach it. we have, what, for about 50 years now, been in the process of getting the two sides to sit down, encouraging them to talk

together, offering suggestions and so on. i think time for that has run out. and i think time for a two-state solution is running out. and i think if f that's abandoned it will be even more dangerous and tragic for the israelis and for the plinsians. and now i think it's time for a new approach and that is for the united states to be more assertive. the outlines of a settlement have been pretty clearly known by all since the end of the clinton administration and the taba accords were drawn up. and i think that the united states should be prepared to put forward a proposal saying we believe this is a just and honorable solution and we believe the parties should adopt

it and i think... i think we would get strong support from our friends and allies and i think that it is what the region needs now. and i think it's, frankly, would be good for the administration, too, to take this issue-- which has been a nagging issue for so long, and it is so crucial to everything we're doing in the middle east in terms of changing the atmosphere, changing the approach. because whatever the countries of the region think about the palestinians, there is a heavy sense of injustice in the region to what's been happening. and we catch some of the blame. we can change a lot of things if we would adopt a more positive forceful attitude. >> rose: and how do you get the benjamin netanyahu government to

accept the essential outlines of the taba agreement? understanding. it wasn't an agreement, it was an understanding. >> yes, it was an understanding, that's right. i believe first of all by pointing out the consequences of the palestinians and the arab world abandoning a two-state solution. to me that's a nightmare for everybody concerned. that means that israel either has to abandon a jewish state or abandon democracy or practice ethnic cleansing. now, those are not very good alternatives. and it further will radicalize not just the palestinians but the whole arab and muslim world against not only israel but the west. i think that should be a very

powerful argument. and as i say, this is not punishing israel. this is allowing and helping israel to live in peace and hopefully prosperity and friendship with its neighbors. you can't move it, so we've got to change the conditions of the region. >> rose: so what should the united states do not to punish but to persuade the net you government to take that direction? >> i think we should put this out as a u.s. plan and hopefully a plan which will be supported by the quartet. and that is our european allies, the secretary again of the united nations and russia.

and say this, we believe, is the just solution and we would like to begin by setting out the borders of this palestinian state. >> rose: and what about hamas? >> hamas is a very difficult problem. i think hamas is... well, they're certainly not riding high now, but they have no particular reason to compromise. and i think to turn into hamas as a pre-condition for making a movement would be a mistake. it seems to me that if the process starts and if the train starts moving, hamas cannot afford to be left out. so they become a is uply cant rather than demander. and i think that's the way to get hamas back on track. >> rose: if things are moving down the road, they'll want to be on? >> absolutely. now, i would be open to talks

with hamas. i don't think we accomplish anything by refusing to talk to people. that's not a sign of weakness to me, it's a sign of common sense. >> rose: so george mitchell should go see the leaders of hamas, whether they're in the gaza strip or damascus? >> i think so. that doesn't mean giving away anything. and it's not a gesture of respect or anything else or building them up, it's just common sense that you talk to people with whom you have problems to try to deal with the problems rather than have the... your only option some kind of force. >> rose: let me move to asia and china. what's your sense of what china wants to do internationally beyond economics? >> that's a complicated question. i think if you go clear back in

the history of china, that is of communist china, the chinese started out in 1949 as kind of a hermit kingdom. and they believed in awe tarky, we don't believe in anybody, we don't have particular relations with anybody, we'll just deal with ourselves. that was a case even with respect the soviet union until president nixon went there and opened up, if you will with china. but it was opening up only in a very narrow sense. that is, dealt only with the concern of the two parties about the soviets attempting a hegemony in into the asian hemisphere.

now, sense then, the chinese have opened up gradually here and there. and most noticeably, for example on north korea. a decade ago if you talked to the chinese about north korea they said "well... they would say well, they went their way, we went our way, we don't have much to do with them anymore, don't talk to us about them. then they agreed to the space walks and nshlly they said... six party talks. then initially they said we will hold the talks, we'll provide the venue, you do the negotiating. now they've come and are actively participating in it. in a way the same with sudan and the darfur problem. they said we buy oil from sudan and we sell stuff to them, what they do is their business, not ours. now they're gradually saying yes we recognize that we have... that there are things we can do and should do.

i think it's a process of what former deputy secretary zoellick called having china become a responsible state holder. and i think they're movinging in that direction. but they're moving slowly and gradually to become involved in things that aren't just in their very narrow bilateral economist like economics. >> rose: but on the other hand, they believe that having a strong economic posture is essential for them being able to deal with their internal tensions. >> oh, absolutely. no question about that. and that... they single mindedly since deng xiaoping declared it in 1978 single mindedly pursued economic strength and well-being as a way to ensure their own position and the stability of the country. >> rose: the president went to moscow, made a speech, said that they're going to reset relations

with the russians. what should he do to reset the relations? >> i think we've made a good start. it's not going to be easy because there's a lot of... well it's not exactly hostility, but there's not much love lost between the two sides right now. andñi while there were... while there were some good attempts by the... george w. bush, bush 43 administration and he and president putin made some... had some good meetings together, that didn't permeate the bureaucracies on both sides. and i think the symbolism of resetting the relationship is a very important one. if you look around the world

right now, we have more things, i would say, with the russians where we have a common outlook than where we are really at odds. and i think we forgot what a traumatic event the end of the cold war was for the russians in terms of their political and economic position in the world. and we sort of just brushed that aside and did what we thought was in our general interests. without realizing that to the russians it looked like we were taking advantage of their weakness and it bred a lot of mubarak tillty. >> rose: one of the interesting historical questions is that after the war came down and gorbachev made the decisions he did, did we fail to recognize the sort of insecurity of the russians-- both the people and the leadership-- from going to be a great power to being at the

mercy of a whole range of forces they didn't understand and how does one nation instill a sense of confidence to the other so that they don't fear every move by the other nation? >> i think that's an important point. and we've started out all right. president george herbert walker bush at the end of the cold war said nobody lost the cold war, we all won it. and went out of his way not to show any kind of smug superiority or any kind of gloating over the situation. but then we tended to forget about it and we pursued things like making europe whole and pursued the kinds of things to make the world the way we would like. but in the process, we sort of forgot about russia. and their own feelings. and i think resetting the button and i would say to start we ought to do the nuclear

business. because, after all, nuclear, especially nuclear weapons, is where the russians are still a superpower and we can restore their sense of importance and dignity by starting on the bilateral nuclear arms relationship, on proliferation, on how we can promote nuclear power safely together and so on. i think that's the place to start. >> rose: is it possible that we can have... we can eliminate nuclear weapons? >> well, i think it's possible, although i would doubt it. what we cannot eliminate is the knowledge of how to make nuclear weapons. and what i fear is that by

talking about a world without nuclear weapons, we are in danger of neglecting the world we live in now and saying, well, let's just do it. and we're not ready to do it now. and i think ha what we ought to do is focus on producing a situation where nuclear weapons are never used, either by nations or stolen to be used by the bad guys. and i think that's a much more practical thing. you know, the world was not a peaceful, happy place before nuclear weapons were developed. indeed, you know, there are some who make the argument there hasn't been a major war since. but i wouldn't go that far. but i think since we have conferred such awe on nuclear weapons and many of our actions

have seemed to indicate if you have nuclear weapons we'll li you alone that we need to change the atmosphere and we need to put nuclear weapons way in the background so that there are no circumstances under which nuclear weapons would be used. and there i think we should start with the russians. and the bilateral relationship. >> rose: general scowcroft, thank you very much. it's a pleasure always to have you here and i appreciate you taking the time. >> charlie, i've enjoyed very much chatting with you. >> rose: back in a moment. stay with us. >> rose: michael arrington is here. he's the founder and editor of techcrunch, one of the most widely red blogs in silicon valley. tech crunch was founded in ty and now has separate sites covering specific countries and technologies. arrington has formed a country to develop a tablet commuter

primarily to use for the web. it is called the crunch pad. i'm pleased to have him back on this program. welcome, sir. >> hello, charlie. >> rose: google versus microsoft. we now have bing, their search engine at microsoft, and chrome, which is going to be an operating system, a browser and an operating system. >> yeah, it's fascinating because you think of google as a search engine company which most of the revenue is derived from search marketing and microsoft as a sort of software company. windows and office, that's where they get their revenue. these companies are competing head on viciously because microsoft wants search share. there's so much money in it. so they've got bipg and they're trying to do things with yahoo! and google, i don't know if they want revenue from office and the operating system, but they certainly want to take that revenue from microsoft. so you have them with crow mow and google docs competing with windows and office. and they're going at each other's core businesses and it's fascinateing to watch. >> rose: do they really look to have great success in that? do they expect to take away a

lot of microsoft's operating system? >> if you listen to eric schmidt at google, it seems interpret serious that they want to do innovative things in their operating systems space. i don't know what their projections are. >> rose: there was the story that eric was the one resisting going ahead with chrome as an operating system. >> i don't know if he resisted or not but he's behind it now. they also have android, of course, the mobile phone operating system based on linux. >> rose: there's also bing. so bing got very good notices. people in the business... the mossbergs of the world. >> bing is a great search engine. they launched 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 the problems with search-- and all the guys who do search test willing tell you this-- is it doesn't matter what the results look like if you have a testing group blind sampling. if you put the google logo on top and ask them what they think of the search results, they like it more than otherwise. google just has the brand in

search and it's going to take a lot of time and a lot of money. >> rose: and a lot of people have to say bing was better. someone said to me this interesting point that google sometimes worries about if somehow microsoft computers, p.c.s, wouldn't take google. does that make sense to you? >> i think that microsoft in the past has made changes to internet explorer that stopped the gathering of information from the browser... by the... by web sites, the browser puts up not a firewall but you can imagine something like that. that's part of the reason why google decided to backfire fox to have their own browser to stop that from happening. but i think with the w google.... >> rose: so it wouldn't be explorer? >> right. and explorer's market share is dropping. but i think google wants to get microsoft out of the p.c. entirely. and they're offering alternatives across the board to microsoft software, which makes that battle so fascinating. >> rose: speak to me about mobile phones and mobile technology and where are we? >> we're in an awesome place. think back. i know you talk about the iphone quite a bit.

the iphone changed... absolutely changed the mobile landscape and people said, you know... some people said that apple couldn't do this and they won't do it. >> rose: because they began to see it as it a computer in itself? >> well, yes. >> rose: that's what about. >> not just that. >> rose: and it looked good and everybody wanted to have one because they thought it was so cool. >> they figured out web surfing on a phone with a small screen that's a touch screen but they figured out the gestures to zoom in and out and it's an adequate web surfing experience that they figured out. >> rose: what about the palm pediatrics? >> it's a great phone. >> rose: why is it a great phone? >> it's a great operating system. it's quick, you can have lots of alps open, it's a great operating system. the hardware on the phone i think was rushed and feels a little cheap so for me i'm sticking with the iphone. but i came close to choosing the palm prix because of the physical keyboard i think is really nice and also because i feel luke i'm getting too tied

to apple. >> rose: tell me what crumple pad is. >> about a year ago i realized i just want a big iphone. i want a computer that i can sit on the couch and surf the web without having a weird keyboard stuck to it that doesn't work when you're not sitting at a desk. so we started this project on techcrunch just talking about it saying we want to build this and we want help from the community and great things happened over the course of a year. we've hired a team, we've had lots of people, partners come on board and contribute their time, their resources, suggest partnerships. >> rose: did you get venture money? >> well, you know, i'm not going to answer that question. >> rose: why not? >> because i haven't... i don't want to answer the question. (laughs) >> rose: we have our ways, sir. >> i think that a. ... forgetting the crunch pad and the fact that i want to build that, apple is talking about coming out with a tablet computer which is going to be a large screen iphone or ipod

touch. i think that's a good thing. i think they'll sell a lot of them. google's new operating system chrome o.s. is a linux-based operating system with a browser on top and the idea is you never see the operating system you never go to the desktop on the computer, it goes right to the browser. we've been talking about it for a year. they've been working on it for a long time. i'm not suggesting we had it first. but it's coming to market as a free operating system. and we're going to see net books without key boards. we're going to see computers with other input mechanism "cbs evening news" sides key boards or alternative input mechanisms that are think is really exciting stuff. >> rose: facebook versus google. is that a big competition? >> last time we talked it was facebook versus myspace. and that's not the question anyone asks anymore. >> rose: it's what is facebook becoming? >> right. and what is google becoming. it's almost like everybody is chasing twitter right now, and facebook clearly is. but when it comes down to it,

the social aspect of facebook where your friends are recommending things to you which could be products or news items and it's the constant sort of loging into the site 25 times a day is something that google needs to address. and right now they.... >> rose: so that's zuckerberg's argument. who better to go for a search than your friends? if you know and trust. >> exactly. exactly. why not. >> rose: because they know who you are and what you're like. >> some of the startups that buy traffic on google search are talking about the conversion rates from those... conversion rates meaning purchase or signup that they get from from that purchase traffic from google is good but not nearly as good as the conversion rates from facebook and twitter. so if i just send out a link saying "wow, i just saw this movie and it's good" and you click on that, you're more likely to see the movie than you are if you click on a paid ad from google. google is very aware of that. free stuff on twitter and facebook is better than paid ads

on google and that has to be freaking them out a little bit. >> rose: what did you do? you published some internal financial documents from twitter? >> there's this hacker.... >> rose: i know that. >> this french guy got these documents from twitter because of these guest books. >> rose: what did you do? >> i'll get to it. so what he did was he wanted to warn twitter that, you know, your security is awful. and also he wanted to get credit for doing this. hackers, crackers do that. so he went to the french media and a french journalist... he was told about it, the french journalist went to twitter and said what happened and twitter wouldn't respond. he dropped it came to us and said.... >> rose: who came to you? >> that this hacker anonymously. he sent us all this document. >> rose: what was in the documents? >> it was hundreds of documents taken from twitter's employees' attachments to e-mail accounts. and it included interview schedules, people they interviewed in silicon valley,

prominent people that work in other companies that didn't end up at twitter. very embarrassing stuff. credit card information for many of the employees. e-mails, inbox screen shots, executive meeting notes, financial projections, etc., etc., etc. just the whole sort of thing. and we looked at that and said "we're going to post some of this. some of it we're not." >> rose: like credit card numbers, you're not going to post that. >> we're not going to post credit card numbers or things that would embarrass people but some of this we thought was pretty darn newsworthy. particularly the financial projections and executive meeting notes from the last few months. so we engaged in a dialogue with our readers and we said we have these documents we haven't decided what we'll post, probably a couple documents. we talked to twitter and sent them documents so they knew what was going on. >> rose: did they say go ahead and post them? (laughs) >> they said.... >> rose: we have no problem with this. >> the ultimate answer was we know you're going to post a couple of these and that's okay for most of those we hope you won't. >> we said that's not a problem. and we worked with twitter and

made sure they closed up security holes they have. it the documents were fascinate bug the interesting thing to me was the discussion that was generated around whether we should publish them or not. and there are people that have come out, major journalists who said it was unethical for us to do this. and there were journalists who came out and said it was fine and ethical. in fact, their readers deserve that kind of access. and obviously i have an opinion because i'm in the middle of the story. but taking myself out of it, it's a fascinating discussion because i know in the old days when the "new york times" or the "wall street journal" got documents like this, they weren't... they didn't have that discussion with the readers. >> rose: it's interesting how you did it. engaging your community. >> i engaged them and i would say 80% of my readers disagreed with me. >> rose: why did you do it? >> it's funny, when i make decisions with techcrunch on whether to publish, often times thinks are played out and i say would i do things differently with the benefit of hindsight

and there are a couple ins stas in the past where i would have. in this case i absolutely think i did the right thing and i wouldn't do anything differently. >> rose: do you know the site called loopd? >> it's amazing. it's a mobile social networking. and it's all about location. >> rose: wherever you are, you know everybody in your block. >> i can turn it on... i don't have my phone with me. but i can turn it on and i can see everyone around me who's a friend. mine is set up differently so i'll see everyone who wants me to see them. it's a different way of networking socially. i love it. i've written about this where you can imagine a time where you walk into a bar and you pull out your phone and you see... for everyone that wants you to see it... you laugh and it's funny but it's big business. everyone's picture who's the opposite sex or whatever your sexual preferences who are is single and maybe wants to... you can see them and that way you can go flirt with them on the phone and it helps you meet people in a bar. or you go into a business cocktail setting and you see people on your phone that you've met before and main it help i

don't say with their first name. that's the kind of lings that looped and other things are doing that's going to change social networking. >> rose: so tell me how you see the future of social networking? i mean, is it... >> i don't know what it is. it's hard to define. it's... if you look at facebook, it's really the plumbing behind the interactions online between people and helping them map to the real world. it's clear that people love interacting with each other on web sites. and it's clear that facebook has been able to get third parties to build applications on their platform that leverage you having your friends sort of seeing what you're doing. and it's clear also that they can then take that... you saw what they did with cnn around the elections and you can comment and your friends can see you comment. that's all... it's really fascinating. what's unclear is whether it can really become profitable over the long run. because facebook has these massive expenses and the revenues are growing rapidly. but it's unclear from the long

run they can make that vastly profitable like google has. >> rose: what about the kindle space in? >> the, book reader space is very interesting and i wouldn't expect a toll stay out of it for much longer to stay out of it. but amazon has been very successful in selling kindles. estimates are they might sell a million or so this year. they sell lots of books on top of it and us is scipgss so it's a great revenue stream for them. i'm argued that amazon should not build a hardware device specifically, they should build the software and let anyone build a kindle. these are forcing sony and barnes & noble and apple and others to come up with their competing closed off, book systems. i think amazon should say, look, we'll do the books and the software but other people build the hardware. >> rose: you take care of the hardware. techcrunch, thank you. >> thank you very much. >> rose: michael arrington, thank you very joining us, see you next time.

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