FAREED ZAKARIA GPS
Aired November 23, 2008 – 13:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
FAREED ZAKARIA, HOST, GLOBAL PUBLIC SQUARE: This is GPS, the GLOBAL PUBLIC SQUARE. Welcome to our viewers in the United States and around the world. I’m Fareed Zakaria.
Before we begin, a couple of thoughts. This election began on the issue of Iraq. It ended on the financial crisis. And while that remains the dominant issue President Obama faces, the one foreign policy challenge that really can’t wait is Afghanistan.
By every account, the situation there and in Pakistan’s tribal areas is deteriorating fast. The Taliban are getting stronger, taking more territory, becoming more powerful politically.
Obama’s solution to the problem — which is also John McCain’s solution, and has also been proposed by Secretary of Defense Robert Gates — is to send in more troops — 20,000, 30,000.
But will that work?
The Soviet Union, after all, sent in 150,000 troops into the country, and it couldn’t end the rebellions against it.
More likely, we will have to try to make deals with local warlords, some of whom will be Taliban figures — if they will agree to turn on al Qaeda and make peace with us.
But that means slowing down on the nation-building and modernization of the Afghan state, which tends to take power away from traditional tribal leaders.
Oh, and are there such tribal leaders with clout, with whom we can deal?
This is all complicated and dangerous enough that the president needs to commission a serious strategic review of U.S. policy toward Afghanistan — sooner rather than later.
Now, on GPS this week, an exclusive interview. I’m talking to former Vice President Al Gore. Also, a panel — Thomas Friedman, Niall Ferguson and Anne Marie Slaughter — all on one program.
Need I say more?
ZAKARIA: We’ve all talked endlessly about the historic nature of Barack Obama’s election. But there was another historic election not so long ago — the year 2000, the election in which Vice President Al Gore was declared the president-elect, at least for a while.
There are many who wish that Al Gore’s temporary victory had lasted longer. But as we all know, the story ended differently, and for the former vice president, perhaps happily. He got busy saving the planet, making an Academy Award-winning movie, and then winning a Nobel Peace Prize in the process.
And he’s not done yet.
Al Gore, welcome.
AL GORE, FORMER U.S. VICE PRESIDENT, NOBEL PEACE PRIZE WINNER: Well, thank you, Fareed.
Winston Churchill once said, early in his career after he lost an election, someone said that was a blessing in disguise. He said, “Damned good disguise.”
ZAKARIA: Let me ask you about this election. Do you think — you’re a student of American politics, obviously — is this a great realignment? Do you think that historians will look back on this election as the moment that the era of Republican supremacy ended?
GORE: Well, I think it is a realignment. But I’m not sure that it falls neatly into the categories that we call Democratic and Republican.
I think it’s partly a generational realignment. This was never a close election among voters who were under 30. It was a landslide among the younger voters.
And I can barely contain my excitement about his election. I just think that it’s a fabulous new development.
And you know, for those in your international audience, which is quite large, I want them to know that right after the election, Republicans who had campaigned strongly against Barack Obama were interviewed everywhere in the United States right after the election, saying, “I’m so proud of my country.”
You know, regardless of the differences over issues and politics, this was a watershed election that really just gave every American a feeling of great pride in our nation’s ability to transcend our past and redeem the revolutionary promise of our Declaration of Independence that every human being is created equal. And it’s electrifying to redeem that declaration.
ZAKARIA: Do you think that Biden should maintain the vice presidential structure that Dick Cheney has put in place? You know, a lot of people feel Cheney has effectively changed the nature of the vice presidency forever, that these institutional aggrandizations of power never shrink.
How should Joe Biden think about the vice presidency? GORE: Well, the —
I mean, I don’t think that’s going to happen, because that’s really a function of what the president wants.
And I hesitate to comment on Bush and Cheney, because I’ve recently begun to fear that I’m losing my objectivity on them.
But actually, if you look at the history of the vice presidency — it’s a very arcane field of history — it was Walter Mondale who really elevated the office to what it is now. And I learned a lot from him in designing a partnership with President Clinton.
And I think Dick — I think it’s good to have an active, powerful vice president who can help the president carry a lot of the burden.
ZAKARIA: You just don’t think that person should be Dick Cheney.
GORE: Well, not only that. I think that the nature of the delegations in this present administration were unhealthy for the country.
But there’s a way to do it right that will give Joe Biden a huge amount of power and influence, which I think he should have. And one of the many things that I admire about President-elect Obama is that he is comfortable and confident in sharing the limelight, sharing responsibility.
And I’m certain that you’ll see Joe Biden playing a very active and productive role. He’s a terrific guy. He has an enormous capacity, as you know, and I think — not only in foreign policy, which is one of his specialty areas along with law enforcement and justice and so forth — I think he’s going to have a lot of influence across the board.
ZAKARIA: You worked with Hillary Clinton for eight years.
ZAKARIA: Do you think she’d be a good secretary of state?
GORE: I think she’d be very good at it. I don’t know what the current status of that is, but I think she would be very effective. Sure.
ZAKARIA: Let me ask you about what’s going on in Washington right now. You’re watching the auto industry ask for a massive bailout.
This must tug at different sides of you. I mean, as a Democrat, you must have some sympathy for the unions, and for the plight of people who are going to be laid off. On the other hand, as the world’s foremost environmentalist, you must look at the U.S. auto industry as having been too late and insufficient in its climate — in its efforts on energy.
Would you bail out the auto industry?
GORE: Well, I think the whole industry should be transformed. It’s really tragic that General Motors, for example, allowed Toyota to get a seven-year head start on the hybrid drive train in the Prius that is now positioned to really be a dominant feature of the industry in this century.
I personally believe that the U.S. auto fleet should make a transition as quickly as possible toward plug-in hybrid electric vehicles. I think that the twin problems of the climate crisis and the economic crisis can both be addressed by investing in a transformation of our energy and transportation infrastructure to focus on renewable sources of energy.
And at the same time, our security vulnerability to a potential cutoff of the world’s access to Persian Gulf, Middle East oil should be addressed, at long last, without delay. And shifting to electric vehicles instead of petroleum vehicles is the best way to do that.
ZAKARIA: If you look at the situation right now with oil prices down to $50 a barrel — the lowest in two or three years — are we back to a familiar cycle where once the price of oil gets back down, the impetus for these alternate energies will dissipate?
GORE: Well, I don’t think we’re going to fall for it this time.
And I was very impressed with the language used by President- elect Barack Obama in his “60 Minutes” interview. He used a phrase that I hadn’t heard before, that I think summed it up really well.
(BEGIN VIDEO CLIP)
PRESIDENT-ELECT BARACK OBAMA: We go from shock to trance. You know, we — oil prices go up, gas prices at the pump go up, everybody goes into a flurry of activity.
And then the prices go back down, and suddenly we act like it’s not important, and we start filling up our SUVs again. And as a consequence, we never make any progress.
(END VIDEO CLIP)
GORE: We cannot allow ourselves to be vulnerable to that anymore. We should learn from history.
ZAKARIA: When you look at the challenges facing the United States, particularly in foreign policy — you’ve studied some of these issues for three decades. Iraq — you warned early on that the war would be, would probably be very difficult, very expensive and were against it.
Do you think that the United States should get out as fast as President Obama had — President-elect Obama — has campaigned suggesting?
GORE: Well, I warned that the invasion would go smoothly, and then the aftermath would be difficult. And I like the phrasing that Barack Obama has used. We should get out as carefully and thoughtfully as we got — as the …
ZAKARIA: The opposite …
GORE: … as the opposite was true in going in.
And I think that, in his discussions with General Petraeus, when he was there — Joe Klein had a great article in TIME Magazine that captured part of the dialogue. I’m sure you saw that. I thought it was very impressive.
And I think that people should have confidence that he is going to fulfill his pledge to get American troops out of Iraq as soon as it’s feasible to do so safely — and that he will do it in a very thoughtful and careful manner.
ZAKARIA: What about Afghanistan? A war that seems to be going badly, the Taliban seem to be regrouping. What should we do there?
GORE: Well, I think we have to play the whole keyboard. I think that, first, we need more military personnel there. And one of the concerns that I raised back when I opposed the invasion of Iraq was what it was going to do to our efforts in Afghanistan.
We should have learned from the aftermath of the Soviet experience in Afghanistan. We should have been all over that situation and make sure that transition went well.
And great nations don’t go from one half-finished task, lurching to something else. We should have stayed there, and we should have done it right at the time. It’s going to be more difficult now.
But one of the elements we need are more troops on the ground. But we need more than military activities. I think we have to have activities across the board. We have to open dialogues in places that might feel uncomfortable.
But we have to be clear-eyed about the nature of the government that we’re dealing with there. We have to pay very careful attention to what’s going on in the border areas and the tribal areas, and our relationship with Pakistan. It’s an immensely complex problem.
But I do think that it’s not an insoluble problem. I think that if we try to solve it only with military force, it might be insoluble. But I do think that, if we use all the tools available, this can be resolved.
ZAKARIA: And we will be right back with Al Gore.
ZAKARIA: And we’re back with Al Gore.
One of the solutions to the problem of climate change and the problem of CO2 emissions has often been presented as clean coal, that what we should be doing is essentially making coal emit many fewer — you know, much less CO2 — through various ways of capture and sequestration.
But in a “Wall Street Journal” article, you seem doubtful. You don’t think this is a good idea?
GORE: Well, I think if they can do it, it is a good idea. But what I am greatly concerned about is that they talk as if it’s already here.
And as a practical matter, what many in the industry are proposing is to go forward with the construction of thousands of new coal-fired generating plants, on the assumption that they will at some point be retrofitted with this technology that does not yet exist.
There is not a single, large-scale demonstration plant anywhere in the United States. There is one in the North Sea that the Norwegians are running. There’s one in the Algerian desert that BP is running. And they show some promise. But it is not anywhere near a stage that justifies building new coal-fired generating plants on the promise that it’ll soon be available.
If the industry can make good on its promise, then I’m all for it. But it’s beginning to resemble something that the auto companies did for years.
Every few years they would show the cars of the future that run on hydrogen, or whatever, and it’s going to be magical and pollution- free. And they put them in the showroom, but then they never build them. And you just keep cranking along. And it’s led to a disaster for that industry.
We cannot allow an illusion to be the basis of a strategy for human survival. We are really facing a very serious existential threat to the future of human civilization.
And I know that language sounds shrill and dire, and people instinctively say that that can’t be so. But it is so.
And the scientific community, the IPCC — the Intergovernmental Panel on Climate Change …
ZAKARIA: Which are thousands of scientists.
GORE: Three thousand of the very best scientists in the world from 130 countries, who have studied this for 20 years, and have issued four unanimous reports, the last of which said the evidence is unequivocal — unequivocal. We have to act.
ZAKARIA: One of the key objections that President Bush has always had to the Kyoto Protocol, and to all that kind of climate change activism, was you’re leaving out China and India. And if you leave out China and India, you’re not going to solve the problem.
ZAKARIA: You started to work on this issue, to try to convince the Chinas and Indias of the world that this is their problem, too.
GORE: Yes. I just came back from China two days ago. And as you know, I’m on my way to India after the holiday, and looking forward to it.
China and India, and other developing countries, all have exactly the same excuse for not moving on the climate crisis. Their common excuse is, “Wait a minute. The United States hasn’t done anything. It’s the wealthiest country in the world, the natural leader of the world. Why doesn’t the U.S. act?”
And I think that when the U.S. acts, it will be by far the most effective way to improve the odds that China and India, and other smaller developing economies, will also act. They know that it’s in their own interest to tackle this problem.
ZAKARIA: What about India? Talk about India, where you’re going, and what you’re going to do.
GORE: Well, I’m very excited to be hosting Live Earth India on December 7th. And all of the greatest stars of Bollywood are going to gather in your hometown, Mumbai. And a lot of the greatest Western artists are coming over to join, as well.
You know, the Indian government now subsidizes kerosene — probably the dirtiest fuel you can use. But they need alternatives. And these solar lanterns and solar cookers are very cost-effective. And we’re doing everything to raise money for it — and to build awareness.
ZAKARIA: Let me ask you about this election, finally. If you had one piece of advice to Obama, to consolidate these forces of realignment, what would it be? How should he govern? From the center, from — you know, you hear all this advice given to him.
GORE: Well, again, you know, just as with the categories that we label Democratic and Republican, I think center, left, right — you hear this a lot. It’s almost a cliche to say we need to move forward, not left or right. But in fact, that is the case. And I think he has an awfully good, innate sense of that.
I feel, you know, me offering him advice doesn’t feel right, because he’s doing so well. But if I did offer him advice I would say, make more of the thoughtful, long, expository speeches, because in this new media age, people are listening.
Maybe they don’t get through all of the television and radio outlets. Maybe you’ll still have only a little sound bite. But people are downloading these speeches now, if they’re good ones.
You know, it’s remarkable that the paid advertisement, the 30- minute paid advertisement that he had four or five days before the election, was one of the highest-rated programs of the year.
And I think people are now hungry for a thoughtful treatment of how we can solve the problems that we face. And I would go back to that strength. And I’m sure that he will without me advising him to do so.
ZAKARIA: And if you want a thoughtful discussion with Al Gore, you can download this one. Al Gore, thank you very much.
GORE: Thank you.
ZAKARIA: A pleasure.
ZAKARIA: It’s been another week of bad news for the economy, new lows for the Dow, new highs for unemployment. But most of the economic debate this week, both on Capitol Hill and around the country, centered on the U.S. auto industry and whether or not to bail it out.
Here to talk about all of that, plus other issues, an all-star panel.
Thomas Friedman is the foreign affairs columnist for the “New York Times,” and the author of “Hot, Flat, and Crowded,” his new “New York Times” bestseller.
Anne Marie Slaughter is the dean of the Woodrow Wilson School of Public and International Affairs at Princeton University. Her latest book is “The Idea That Is America.”
And Niall Ferguson, who is a professor of both history and finance at Harvard University, and his new book is “The Ascent of Money.”
Tom, you’ve been very vocal about the fact that the United States should not — the government should not — bail out the auto industry.
Do you think, though, that given how bad the economy is, you know, should you really just let all these people go out of work?
TOM FRIEDMAN, FOREIGN AFFAIRS COLUMNIST, “NEW YORK TIMES”: Well, my position, Fareed, isn’t that they shouldn’t bail them out. It’s that they shouldn’t bail them out without a plan.
Basically what we saw this week was the three auto executives, heads of Ford, Chrysler and General Motors, fly to Washington in separate private jets. Like, how smart is that to go, then ask for a bailout of the American people, all of whom are hurting desperately, to basically fund the high health insurance policy of GM workers — Americans who don’t have health insurance themselves?
So, my point is simply, if you want a bailout, OK, of GM, show me a plan, OK, GM. Show me not just a plan to get you till February, because that’s when your cash burn runs out.
And basically, they came to Washington, Fareed, and said, “Bail me out, or I’ll bleed to death on your steps.”
They didn’t come to Washington and say, “We have a plan. We have a plan to make General Motors, Chrysler and Ford the best auto companies in the world. We’re going to make the cleanest, greenest, most competitive, high design cars. We’re going to make the Apple iPod of cars. This is so exciting.”
No, they came and said, “Give me some money, or I’ll die on your doorstep, and bring down three million more Americans with me.”
Who wants to give money to those yo-yos? We shouldn’t be talking about bailout for them. We should be talking about bail, OK.
Because that’s really what they deserve.
ZAKARIA: All right. Now, I assume that you’re even more extreme. You would say, even if you had the best …
Even if you had the best plan in the world, why the hell should the American taxpayer bail out this particular industry?
NIALL FERGUSON, PROFESSOR OF HISTORY AND FINANCE, HARVARD UNIVERSITY: Well, I mean, obviously, there’s a technical problem here. And that is, it’s quite hard to go into bankruptcy if credit markets have completely seized up. This would not be a painless process in the way that …
ZAKARIA: Well, explain that. Explain that
FERGUSON: … bankruptcy is supposed to be.
But you can’t actually finance a bankruptcy, if you’ve got a major financial crisis going on, as it were, center stage.
My objection is not to there being some kind of temporary bridging finance to avoid a complete crash in Detroit. My objection is that we’re losing focus.
We’re thinking that the bailout — that $700 billion magic number — is for everybody. But it’s not. It’s supposed to be for the financial system. It’s supposed to be to get the banking system going again. And we still haven’t achieved that.
I mean, the banks are still in free-fall. Look at the stock price this week. They’re not making new loans.
The only interest rate that’s come down is the federal funds rate. Nearly all the other rates that matter — like the mortgage rate, the commercial bills rate — these rates are actually still higher than they were when this crisis began.
ZAKARIA: And credit is not flowing yet.
FERGUSON: Not at all. ZAKARIA: I mean, if you look at the yield on a three-month Treasury, now, if you buy a three-month Treasury, you get as your interest three one-hundredths of one percent.
FERGUSON: And people would rather have that than go and risking their money in any private sector securities.
So, the problem is one of focus. It’s a separate issue how you keep the automobile industry from imploding. But the fatal thing is for us to think, “Wow. This $700 billion sounds like a big number. We should be able to help everybody in trouble.”
But everybody’s in trouble, because the banking system has broken down. Until we fix the banking system, we’re going to be running around treating the symptoms.
And it won’t just be the automobile industry. There’ll be a line three times around Capitol Hill of every sector of the U.S. economy saying, “I’m going to bleed to death on your doorstep,” because they all will until we solve the banking problem.
ZAKARIA: Anne Marie, can a President-elect Obama, Democratic president, Democratic Congress, big Michigan delegations — can he resist the pressure to bail out the auto industry?
ANNE MARIE SLAUGHTER, DEAN, WOODROW WILSON SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON UNIVERSITY: I think he can, if you make the distinction between bailing out the industry, or the companies, and bailing out the workers.
It is quite possible to think about offering a plan that would say, all right. We are not going to let the workers be turned out onto the streets. We’re going to provide unemployment benefits. We’re going to provide retraining. We’re going to basically get those workers through until either the companies have a plan, or those companies come apart, and different entrepreneurs buy different parts of those companies and start producing the kinds of new technology we need to.
So, if he can separate the idea that the American auto industry has to be the Big Three, versus taking care of those workers — and particularly at a time when bankers are being bailed out, or at least that’s the way it looks politically — then I think he’s got more room than the conventional wisdom suggests he does.
ZAKARIA: Tom, is this a big moment for Barack Obama, a kind of testing moment?
FRIEDMAN: I think it’s not just a big moment for him, Fareed. It’s a huge moment for America and the global economy.
I think we should seriously consider moving up the inauguration date, because I don’t know that we have two months to have a political vacuum, at this moment, in this economic crisis.
I mean, to Niall’s point, the financial system is the heart. It pumps blood to the industrial muscles of the economy. It’s not working.
We’re supposed to sit around now for two months and wait for the new administration to get in? Because this administration has kind of checked out. They’re not going to do anything big.
And so, I don’t think people fully have grasped the fact — I’ll tell you, Fareed, you know, I go into restaurants and I look around. To your point earlier, Anne Marie, I want to come up to people and say, “You shouldn’t be here. You should be home having tuna sandwiches. What are you doing here? Don’t you understand?”
There is a storm coming, OK, and it hasn’t hit yet.
And I believe the decisions made, possibly in these next two months, could determine the next four years. This administration could be over before it starts — over in the sense that it will spend the next four years digging out of a hole that has been created right now, that may be deeper and darker than anyone realizes.
ZAKARIA: So, what do we do, Niall? Because you’re right. The bank bailout hasn’t worked. They’ve used $350 billion. It seems as though it just isn’t enough capital.
FERGUSON: I think it’s not been enough, because the losses are still much bigger than anybody’s acknowledged. If you figure out how much has been lost — the Bank of England came up with a ballpark figure for the global financial system of $2.8 trillion. Well, the write-downs that have been acknowledged so far are a fraction of that.
So, part of the problem is the banks don’t trust one another, because they know that there are many more bodies buried out there than have yet been exhumed.
My working assumption is that we probably need double that amount of capital to get the banks’ balance sheets into any kind of shape. I mean, some of the big banks are leveraged now at something more than 100-to-one. I mean, these are zombie banks.
I agree with Tom. This is the heart of the system. The heart has basically stopped. The patient’s not been declared dead, but there’s not a whole lot of activity going on there.
So, we haven’t yet done enough. And that’s why I worry about the focus drifting into other sectors.
You know, there are some important British lessons to be learned here. Britain’s made all these mistakes before. I mean, we used to have the reserve currency that the world preferred.
We used to have an automobile industry. We tried to keep it on life support throughout the 1970s. I was there. It failed. It cost a lot of taxpayers’ money, and it didn’t make British Leyland produce good cars.
But one thing the British do do right. And here I agree with Tom. When we change governments, we change governments. We have an election. You lose, you’re out. The new guys are in — day one.
ZAKARIA: Can he do anything in a situation where he doesn’t have authority, where he’s not president? I mean, should he have attended that summit? It struck me as a difficult situation, because he’s not president.
SLAUGHTER: The transition is totally focused on getting the right team for the next four years, the next eight years, and they’re not actually in crisis mode. And I don’t know what it takes to get that message across.
I mean, the idea that, wait a minute, you know, we’re …
ZAKARIA: And in a way, that makes sense, given that they have no authority right now. There’s no point being in crisis mode when you are still an observer, I mean, unless we take the Friedman suggestion and actually move up the inauguration.
FRIEDMAN: You only have — we only have one president at a time. We also have only one depression at a time. It comes about once every century. And we may be in that moment.
You know, a question I’ve been asking myself. Who are the two smartest investors I’ve ever met in my life? Prince Alwaleed of Saudi Arabia, Warren Buffett of Omaha. Let’s look at their behavior.
Last January, Prince Alwaleed bought into Citibank. He put — he bought in at $30. He thought he’d swallowed the canary, thought he got the bargain of a life. Citibank today? Four dollars. OK?
Six months later — Warren Buffett was patient. And there’s no smarter investor than Warren Buffett. I’m not trying to be critical, but it shows you what’s new. He bought into Goldman Sachs at $115. And he got warrants and all this other stuff. Never mind. Goldman Sachs today, in the 50s? I don’t know, high 40s?
So, you have to say to yourself, something’s going on that the smartest investors in the world didn’t see. And I think what’s going on is the combination of four chemicals we haven’t seen before at this speed, scope and scale.
The first is the degree of leverage that’s out there. Second is the globalization of it. The third is the complexity of it — the fact that it’s in instruments that people didn’t understand how they worked on the upside, let alone the downside. And it started in America.
When one of these crises starts in Thailand, when it starts in Mexico, we can insulate ourselves from it. When it starts in America, no one can insulate themselves.
You put this much leverage with this much globalization, with this much complexity, and start it in America, and I tell you, you are at a play you haven’t been to before. Your grandmother’s investing wisdom doesn’t necessarily apply right now.
ZAKARIA: And we will be right back.
ZAKARIA: And we’re back with our panel, Niall Ferguson of Harvard University, Anne Marie Slaughter of Princeton University, and Tom Friedman of the “New York Times” and lots of other things.
Niall, the United States’ economy, we’ve discussed, is in perilous shape. Are the Europeans any better? Are the Japanese any better?
FERGUSON: Well, you would think so, because the Europeans are pointing the finger and chortling at the terrible mistakes made by the wicked American free market. This is the great nemesis. I think that was what “Der Spiegel” called it in Germany. And indeed, the German finance minister crowed that this was the end of American financial superpower.
Oops! Wait a minute, guys. Take a look at your own banks, because it turns out that all that wonderful European regulation didn’t prevent European banks becoming even more leveraged than American banks. In fact, the ratios are higher in Europe.
In Germany, they’re the highest of all. Deutsche Bank turns out to have been on some kind of crazy leverage spree.
And this is the big story that’s waiting to break. Not only do the Europeans have a bigger financial problem than the United States, they do not have the tools to deal with it. Yes, they have a single currency, which covers most members, though not all of the European Union.
They don’t have a European treasury. So they can’t have a European bailout, and they can’t have a European stimulus package. It’s every man for himself at the fiscal pumps.
And those countries with really big financial systems — like Britain, for example — are in fact staring the fate of Iceland in the face. I call the United Kingdom Greater Iceland now, because the relationship between the financial sector and the economy as a whole is pretty much the same. This is a huge financial monster that sits there in the City of London.
ZAKARIA: And of course, that is the British economy. The British have no auto industry to bail out.
FERGUSON: No, not many cars being made. It’s mostly financial services now. And if — to borrow a phrase from President Bush — if that sucker goes down, then Gordon Brown isn’t going to look so clever.
So, I think there’s a kind of illusion at the moment, that Europe isn’t in such a bad place. And in fact, the European problems are going to intensify really, really seriously in the coming months — to the extent that one may even be looking at the breakup of the euro zone itself. ZAKARIA: The one country that I think looks pretty good out of all —
after all this — is China. China has $2 trillion of foreign exchange reserves. It has a budget surplus. It’s doing a massive fiscal stimulus.
Growth is obviously going to slow. It’s been growing at 11 percent. Let’s say it halves to 5.5 percent. That’ll still be 5.5 times higher than U.S. growth, or European growth, most likely. Right?
Anne Marie, you were in China for the last year. What are they worried about?
SLAUGHTER: They’re worried about growth going below 6 percent. And I think the huge difference here between Europe and the United States is, no matter how bad it gets economically, maybe the euro zone goes, but nobody thinks there’s going to be riots in the streets, that it’s going to undo our political system.
The difference with China is, it isn’t about growth numbers as we look at them. It’s about that growth has to stay high enough to keep the jobs coming, to keep people who are moving from the country to the city still improving their quality of life. That can slow. The rate of improvement can slow, but it can’t reverse.
And under 6 percent, the predictions are, from the Chinese side, that’s the political threshold.
So, I actually am much more worried about China, and particularly worried about China connected to us, because I think then, what we really risk is the Chinese government feeling threatened and deciding that they need to drum up a kind of nationalist response to kind of distract the public from the economic woes, to try to shore up their support.
There are a couple of places that can go. There’s Taiwan. There’s Tibet. There’s a general sort of, this is American-style globalization that’s been visited on us.
The Chinese government’s been pretty steady at the helm, but they’ve never faced this condition. And I’m quite worried about the prospect.
ZAKARIA: The one thing that they have to — they have to keep doing, is continue to buy American debt.
Niall and I were talking about this, and he made a very important point, it seems to me, Tom, which is, we talk about this big fiscal stimulus. We have a huge budget deficit already. Let’s expand it. Let’s go to $1 trillion. Let’s go to $1.3 trillion. You know, we have to do something to get this economy started.
That assumes that people are going to buy our debt. And if you remember, at the start of the Clinton administration, the big debate between Robert Rubin and Robert Reich was, can you have a fiscal stimulus? And Rubin’s point then was, look. The problem with having these large deficits is, at some point, people won’t buy your debt, your interest rates will go up, and it will actually turn into a vicious spiral downward.
This seems like we’re going to have the same debate all over again.
FRIEDMAN: Well, you know, I’ve heard Niall in his book talk about this Chimerica relationship. And I actually called it the Texas-Tiananmen bargain. And the Texas-Tiananmen bargain …
NIALL: (UNINTELLIGIBLE) bargain.
FRIEDMAN: Yes. I like Chimerica. I really do.
But basically, you know, we buy your tennis shoes, you buy our T- bills. That makes us — that enables us to have really cheap mortgages, and it enables you to have political stability.
And I don’t think that’s going to change, Fareed, because at the core of that really is the political survival of both countries. And I think China will do whatever it has to do. And I think that we will do whatever we have to do to keep that going.
ZAKARIA: So, this is our version, the 21st version of mutually assured destruction …
FRIEDMAN: Exactly. It really is. We found the weapons of mass destruction. OK? They’re derivatives, you know. And neither country wants them to go off.
But it does tell you what the next secretary of state and the next president are really going to be doing. They’re going to be managing weakness, not strength.
The next administration’s biggest foreign policy challenge is going to be managing weakness, but not like in 1989. The first Bush administration managed the weakness of post-Soviet Russia, and the weakness of post-Tiananmen China.
This is going to be managing weakness when we too are weak. Then, we were strong, and they were weak. Managing weakness when we are also weak is going to be a particular challenge for the next secretary of state.
ZAKARIA: Can Hillary Clinton do it?
SLAUGHTER: I think Hillary Clinton could do it. I think she could do it, because she has the philosophy that I think Obama has, which is a much deeper understanding of interdependence than even Bill Clinton had. And I think there’s a real understanding of that equation.
If you think about what Obama says, it’s, you know, the security and the prosperity of every American depends completely on the security and prosperity of people abroad. And I think they get that. They get that our weakness is their weakness, and their weakness is our weakness.
I think Hillary Clinton understands that. I think she’s a team player, above all. She, on her own — I think she and Biden and Obama himself could be a very powerful team.
But I think what we haven’t seen is the articulation of the sort of, not a grand strategy, but a framework of principles that are going to give all those people their marching orders.
ZAKARIA: What would be the grand strategy of weakness? What would you say? I mean …
FERGUSON: Well, you have to learn to sing. You have to learn the new depression anthem, “Buddy can you spare a trillion.”
You know, the next secretary of state is going to be making frequent visits to the People’s Bank of China, rather like an embarrassed debtor paying a visit to the bank.
It’s going to be difficult, and I’m not 100 percent convinced Hillary Clinton is the ideal person for this role. She’s a team player, but I think it’s Team Clinton that she still plays for.
This is going to be tough. I don’t know I entirely agree with Tom that the Chinese have to stay in Chimerica, they have to stay linked to America. They have a plan B, and they’re already talking about it in Beijing right now. And the plan B is, “Let’s devote our resources to expanding domestic consumption.”
If the export markets are heading south, if the Americans really aren’t going to come through as the buyers of last resort, the consumers of last resort, let’s make the Chinese buy Chinese products. Call it market socialism in one country. The stimulus package that they’re putting together has the look of something that shifts resources out of buying our Treasuries into stimulating Chinese consumption.
Now, if they go down that route to try and insulate themselves from this nascent global depression, then I think we’re in a lot of trouble. And then it will be much, much harder to finance the enormous deficit that lies before us, other than by printing money, because that’s plan B.
If you can’t sell the bonds abroad, and there aren’t any savings at home, what you do is, you go along to the Fed and you say, “Buddy, can you spare a trillion?”
ZAKARIA: On that note, Tom Friedman, Anne Marie Slaughter, Niall Ferguson, thank you very much.
ZAKARIA: No story captured my attention this week like the hijacking of a Saudi oil tanker off the coast of Africa. But this isn’t just a thrilling tale of high stakes piracy. It’s a story that has deeper meaning for the whole world. Let me show you how.
Remember what pirates looked like? No more. This is the face of the modern pirate.
These guys have rocket-propelled grenades instead of cannons and cutlasses. They have speedboats, GPS and satellite phones.
And as you can see in this video, shot by the Somali pirates themselves, they are, like their historical predecessors, a ragtag bunch with a certain sense of style.
But they are dangerous. And now they’ve outdone themselves with the taking of the Sirius Star, the biggest ship ever to be hijacked, and one of the biggest ships in the world. And its cargo of Saudi crude oil is today worth $100 million. At the height of oil prices this summer, it would have been worth almost $300 million.
Somali piracy is now big business — dozens of hijackings this year alone. This business is said to have netted Somali groups as much as $150 million in 2008. And that’s before the ransom the hijackers will get for the Sirius Star.
But it’s not just millions of dollars at stake, it’s billions of dollars of international trade. The world needs to protect its trade routes.
The U.S. military has more than a dozen vessels in the region on a mission to protect those ships from piracy. NATO has ships there. E.U. forces will soon be there.
But the geography makes all of that muscle and all of that technology somewhat beside the point. Take a look.
The hijacking of the Sirius Star was the farthest-afield ever, 450 miles southeast of Mombasa, Kenya. The area that needs to be protected now is an incredible 1.1 million square miles.
That’s 10 times the size of Texas. That’s an extraordinary amount of open water, essentially impossible to protect. It’s the Wild West of oceans.
And the episode has drawn attention to the pirates’ homeland, the Wild West of nations — Somalia. It’s been called the most dangerous failed state on the planet.
So, if you ever wondered why we need to worry about small countries halfway around the world, or why a failed state on the coast of Africa is any concern of ours, remember the story of the Somali pirates. (COMMERCIAL BREAK)
ZAKARIA: And now, the question of the week.
Last week, I asked a question that our viewers enthusiastically embraced. “What book,” I asked, “would you recommend to President- elect Obama?”
First, I was struck by what a well-read audience we have. And I was gratified to see that many of the books you recommended were written by people who have been guests on this program.
Among the top choices who we’ve had on GPS, Tom Friedman, and his new bestselling book, “Hot, Flat, and Crowded,” led the pack.
Andrew Bacevich was right behind him. Viewers recommended his newest book, “The Limits of Power,” but also some of his earlier works.
Also, Greg Mortenson’s book about building schools in Afghanistan. And there were a number of votes for Jeffrey Sachs’ books, too.
So, my conclusion: President-elect Obama not only needs to read these books, he needs to watch this program.
Now, for next week, a question related to the debate over the bailout of Detroit. If you had to buy a car today, what kind of car would you buy, and why?
I look forward to hearing your thoughts.
And my book recommendation for this week, it’s just out, written by one of our panelists, Niall Ferguson. It’s terrific. It’s called “The Ascent of Money: A Financial History of the World.”
It couldn’t be more timely, but it’s also very illuminating. It tells you all about financial history, bubbles, market crises and how they have changed the course of world history.
He’s a great storyteller and a very smart guy. I know you’ll love it.
Remember, as always, you can visit our Web site, cnn.com/gps, for highlights from this program. You can e-mail me at firstname.lastname@example.org, and you can always find our weekly podcast on the Web site.
Thanks for watching. Have a great week.