ABC "This Week with George Stephanopoulos" - Transcript
MR. STEPHANOPOULOS: Good morning, everyone. The presidential candidates are sprinting to Christmas and several will like what they see in this morning's papers. On the Republican side, John McCain was endorsed by both the "Des Moines Register" and the "Boston Globe," which is read across New Hampshire. "Of all the party's candidates," they wrote, "McCain has the greatest potential appeal to independent voters." Barack Obama was the "Globe's" Democratic pick, but the more coveted "Des Moines Register" endorsement went to Hillary Clinton. "Every stage of her life has prepared her for the presidency," they wrote. "That readiness to lead sets her apart from a constellation of possible stars in her party."
Our headliner this morning got something of a consolation prize -- the cover of "Newsweek." They call him "the sleeper," and Senator John Edwards joins us now. He's in Clear Lake, Iowa.
Good morning, Senator.
SEN. EDWARDS: Good morning, George.
MR. STEPHANOPOULOS: Four years ago, the "Des Moines Register" picked you. They said, his time is now, and it clearly gave a boost to your campaign then. So this endorsement of Hillary Clinton is a blow this morning.
SEN. EDWARDS: I think the "Des Moines Register" is a great newspaper with good people. There are good people there. I think it remains to be seen how important it turns out to be, but congratulations to Senator Clinton. I didn't consider it a consolation prize. I'm excited about being on the cover of "Newsweek." The only thing I would add is we did have a very serious debate when I was at the editorial board about a really fundamental difference that I have with them, which is I do believe we have to take on a very serious issue of too much influence of corporate power in Washington and how it affects the public policy in this country.
MR. STEPHANOPOULOS: I wanted to get into that, because here's what they said in the editorial this morning. They noted that they endorsed you four years ago, but then they went on to say this, "We too seldom saw the positive, optimistic campaign we found appealing in 2004. His harsh anti-corporate rhetoric would make it difficult to work with the business community to forge change." How do you answer that charge?
SEN. EDWARDS: Well, we just -- that's what I just said. They have a position; I respectfully disagree with it. I think that if we're going to have serious change in this country -- universal healthcare, attacking global warming, a tax policy that works for most Americans instead of just a few, a trade policy that creates jobs instead of costing jobs -- all those things are going to require us to have a president of the United States who's tough and willing to fight these powerful corporate interests that stand between us and the change that we need. And I think the notion that you can sit at the table and negotiate and compromise and these powerful interests are going to give away their power I think is a fantasy. If they were true, they would have been working over the last few decades, and it does not. I think we have a huge fight, an epic fight on our hands against those powerful interests. Not against politicians, nobody cares about politicians fighting, but I think we need a president who's tough enough to take these people on and win and I've been doing it my whole life.
MR. STEPHANOPOULOS: Our next guest, Alan Greenspan, seems to be concerned if you actually did achieve what you were setting out -- not specifically, but in his new book "The Age of Turbulence," he talks about the dangers of populism and he says he fears populist politicians will take counterproductive actions that could turn a state of bad feelings into an economic crisis, and I think he was referring specifically to the kind of approaches you've taken on taxes and trade. How do you respond to that?
SEN. EDWARDS: My response is if you look at what's happened with trade policy in America, we've had trade deals like NAFTA and CAFTA, a whole series of trade deals that have clearly been beneficial to big multinational corporations. Their profits are at record levels, but they have not been beneficial to working middle-class Americans. That's why we've lost millions of jobs. That's why middle-class families in this country are struggling so much. Tax policy -- exactly the same thing is true. We've had tax policy that favors and helps the profits of big corporations, favors and helps the very wealthiest Americans, but has not given the help and incentive that our middle-class working people need.
So I think my point is I think the way we grow and strengthen this economy in a sustainable way is we strengthen and grow the middle class with jobs, healthcare, tax policy that works, trade policy that works. Those are things that actually create a sustainable over the long term economic growth.
MR. STEPHANOPOULOS: Hillary Clinton has been sharpening the contrast with both you and Barack Obama in these closing days leading into the Iowa caucuses. She did it in a debate on Thursday. She also repeated the framing of the debate yesterday in New Hampshire. Take a listen.
SEN. HILLARY CLINTON (D-NY): (From videotape.) Some believe that you can get change by demanding it and some believe you can get change by hoping for it. I believe you get change by working hard. (Applause.)
MR. STEPHANOPOULOS: It's pretty clear who she's talking about there -- Barack Obama is the candidate who's hoping for change, she's the one working for it, you're the one demanding it. She says that approach simply isn't going to work.
SEN. EDWARDS: Well, I would respectfully disagree with Senator Clinton. I think -- I don't really disagree with the frame. I think the frame is correct. I think what she says is she's going to work within a system that I think is broken and try to manipulate her way through it to get a result that's okay.
Senator Obama I think talks more about bringing people to the table, compromising, and trying to reach a result that's acceptable. I just don't think either one of those things would work. If they would work, we would have had change a long time ago. We would have had universal healthcare. We would have had all of the changes that America needs.
I think what we ultimately have to be willing to do is have a president of the United States, a Teddy Roosevelt kind of president who's tough, who has what it takes to engage this fight and to be successful with it and to galvanize the American people in this cause.
I think without it, the big substantive things, whether it's attacking poverty, inequality, global warming, healthcare is very, very hard to get those things done.
MR. STEPHANOPOULOS: But Teddy Roosevelt also knew when to settle, when to work with both sides, bring them both to the table and get something done. And even in the best of circumstances, if you're president next year, you're not likely to have more than 60 Democratic votes in the Senate, you're not going to have a huge majority in the House. That's going to require that you work across party lines.
SEN. EDWARDS: Well, absolutely. I would do that. That's not the question. First of all, I think if I'm the Democratic nominee, we are going to have more than 60 Democratic senators and we'll have a much bigger majority in the House because based on all the polling data, I could strengthen our candidates in swing districts -- not only win the White House, but strengthen our ability to have more Democrats in both the House and the Senate. So I think that's the first point.
But secondly, I want to be really clear about this, George, because I think it's confusing sometimes. I'm not talking about battling and fighting with politicians. You have to as president of the United States take a responsible leadership position and work with the leaders in the Congress and those who are important in the voting process. What I'm saying is I'm going to be the president, like Teddy Roosevelt and like others like him, Harry Truman, who understood that there is an important battle against those interests well financed, well entrenched that prevent the kind of change that the country needs. It's for the greater good. It's for the greater good of the American people. That's the battle I'm talking about and that's the fight that I'm going to take on and win.
And those who think you can do it by making a deal with them or compromising and conciliation -- what possible reason do they have to give their power away voluntarily? They will not do it until you've effectively taken their power away from them.
MR. STEPHANOPOULOS: It's pretty clear that the argument the Clinton campaign is making against Barack Obama is that he's untested, unexamined and ultimately unprepared and unelectable. Are they right?
SEN. EDWARDS: Oh, I wouldn't say those things. I think that Barack Obama -- I've gotten to know him during the course of the campaign. He seems to be a good man. He's thoughtful and I have respect for him. The only point I would make is the one we've already been making in this discussion. We do have a fundamental philosophical difference, which I think both of us recognize, by the way, and that philosophical difference is the difference between somebody who thinks we're going to have to battle and fight for the change that this country needs with somebody -- I'm 54-years-old, I've been engaged in this fight my whole life from the time I was young, fighting for myself, and then most of my adult life fighting for others and being successful at it -- and somebody who believes that you can compromise and work with these people and get these things done. If that worked, we'd already have all these changes. I don't think it will happen.
MR. STEPHANOPOULOS: Bill Clinton is stepping up his activity on the campaign trail. He was on Charlie Rose on Friday night and he was actually talking you up. Listen.
PRES. BILL CLINTON: (From videotape.) Edwards is really good. I'm telling you. You're underestimating the chance that Edwards --
CHARLIE ROSE: (From videotape.) I'm not underestimating anybody. I read the --
PRES. CLINTON: (From videotape.) -- Edwards might win in Iowa.
MR. STEPHANOPOULOS: He also went on to say that it would take a miracle for Hillary Clinton to win Iowa, and I wonder if you think there's a method to his magnanimity here. I talked to a lot of people around the Clinton campaign and it seems like if -- they want to win Iowa, but if they're not going to win, they prefer to face you. They'd prefer you win than have Barack Obama win on January 3rd.
SEN. EDWARDS: If that's what they think, I share their view. (Laughter.) I also want to win Iowa. It's one of the things the Clinton campaign and I would agree about. I think the bottom line is Bill Clinton is a master politician and he's obviously downplaying Hillary's expectations in Iowa. They've spent an enormous amount of time and an enormous amount of money here. I think any realistic assessment of Iowa right now is that it's pretty much a three-way dead heat. Depending on exactly how you test and poll, we're all very close to each other. And I think these closing days matter. I think people are looking for somebody with the toughness to fight, the vision, the very specific ideas about how to move this country forward and then I would add -- and I don't think it's a small thing because we saw what happened with John Kerry in 2004 -- they're looking for the winner. They're looking for somebody who they know can close not just in Iowa, but who can close in the general elections, and I just would point out as all the empirical data shows, I'm the Democrat who beats every single Republican in national testing. So I believe I am the person who can not only close here in Iowa, which I've done before, but I'm the person who can actually win the general election, and I am the strongest candidate in general election.
MR. STEPHANOPOULOS: We're just about out of time. The other campaigns are also buzzing with the rumor that you're going to get a major endorsement tomorrow from either the governor of Iowa or his wife. Any truth to that?
SEN. EDWARDS: No truth that I'm going to tell you on this show on Sunday morning. We'll just have to wait until tomorrow. We'll see what tomorrow brings.
MR. STEPHANOPOULOS: Well, I had to try. Senator, thank you very much.
SEN. EDWARDS: Thanks, George. Thanks for having me.
MR. STEPHANOPOULOS: And we are now joined by the former chairman of the Federal Reserve, Alan Greenspan. Thank you for coming on today, Mr. Chairman. He's also the author of the "Age of Turbulence," a "New York Times" bestseller right now, and I want to just start out with a response to Senator Edwards. You heard what he had to say about his defense of this populist rhetoric and his populist approach. He said average Americans are not winning in this current economy and the policies that we've been following for a long time are part of the reason.
ALAN GREENSPAN, FORMER FED CHAIRMAN: He's correct in the fact that there is a stagnation in the middle class economic growth, but his remedies will make it worse, not better. So the critical question the confronts us is to recognize the problem, which is increasing inequality of income which I've mentioned in some detail in my book and consider it in fact a major problem which will be out for an indefinite period of time. We have to address that.
MR. STEPHANOPOULOS: I wanted to get into that because you do talk about it a lot in the book and there was a statistic that came out this week from the Congressional Budge Office which was just stunning to me. It said that in the last two years, from 2003 to 2005, the increase in income for the top 1 percent exceeded the total income of the bottom 20 percent. Given that, what would be wrong with letting the tax cuts for the top 1 percent expire and plowing that money into education, which you think is part of the answer?
MR. GREENSPAN: Well, the problem is fundamentally that our fiscal affairs as we reach out into the next decade are awful, and indeed the Congressional Budget Office raised very serious alarms this week, but economists have been raising alarms for a long period of time, so I think we can't look at solutions without looking at the full context of how we're going to resolve the very large shortfall in Medicare and a lesser one in Social Security and looking at the total picture because you just can't look at individual problems without a fuller context of where this country is going fiscally.
MR. STEPHANOPOULOS: In that fuller context, then, if you have long-term problems in Medicare and then also in Social Security, wouldn't it make sense in addition to limiting them, as I know you would like to do, to limit the tax cuts and shore up the programs in that way.
MR. GREENSPAN: Well, I've always said, in fact as soon as the budget surpluses disappeared, which was in 2002, I said, my support for the tax cut was contingent on pay-go actually taking (home?) meaning that offsetting reductions in spending or other tax adjustments have been made in order to finance that specific tax cut. I still hold that issue.
MR. STEPHANOPOULOS: So when Congress this week, and it appears like they're going to finalize it this week, fixes this patch in the alternative minimum tax -- a $50 or $60 billion hit -- and doesn't pay for it, increases of deficit, that's something you're against?
MR. GREENSPAN: Yes.
MR. STEPHANOPOULOS: It's a straight answer. Okay. I'll move on to the broader economy right now because there's a lot of concerns as you know that we may be heading into a recession. Several experts have shared, let me show some of them. Larry Summers, the former Treasury secretary says the odds now favor a U.S. recession. Morgan Stanley Research "a mild recession is now likely." Both Martin Feldstein and Joseph Stiglitz, who were the chief economists for Presidents Reagan and Clinton say that there's a "50 percent" chance of a recession now. Are they right?
MR. GREENSPAN: Well, that the probabilities of a recession have moved up close to 50 percent, whether it's above or below is really extraordinarily difficult to tell. I think it's correct. You know what the real story is with these extraordinary credit problems we're confronting why the probabilities are not 60 percent or 70 percent.
MR. STEPHANOPOULOS: Why aren't they?
MR. GREENSPAN: The reason, which is fascinating if you look at the data, is that because of the decline in long term rates, interest rates for a protracted period of time, American business was able to fund all of its short-term liability. Not all of it, but significant part of its short-term liabilities and take out low-cost long-term debt, so that the credit needs are such have not all been all that large and so with credit tightening, ordinarily, historically that would have been a very major problem for the American economy.
It is clearly less so today because consumption expenditures, even though they're being pressed by rising energy prices, are actually moving at a reasonably good clip and the economy, even though it is slowing down, and the way I'd put it going to stall speed and the rate of the growth is getting to levels which are such that like a human system, when you get vulnerable, you're essentially open to shocks of one form or another. In other words, when our immune systems go down, we get all sorts of diseases and an economy is similar to that.
MR. STEPHANOPOULOS: One of the shocks we saw back in 1970 I think for the first time was what became known as stagflation. That's when you had slow growth, rising unemployment, and inflation at the same time, and there were some signs this week again that inflation is on the rise -- core inflation is up, wholesale prices had their highest increase I think in a generation. That raises the specter of stagflation again. In your book, you write that when it hit back in 1970, it put policymakers at a loss. How worried are you about it right now and what should policymakers do?
MR. GREENSPAN: Well, I'm most concerned about it, as I pointed out in my book, in the sense that the period -- the last 20 years or so has been a remarkable period in which as we're not going into any of the tales, because of the tremendous geopolitical shifts that occurred with the end of the Cold War, we've had a period of remarkable disinflation. That period is now coming to an end and the evidence is clearly there in rising export prices coming out of China. It's showing in a slowed rate of productivity growth in the United States and elsewhere, and we are beginning to get not stagflation, but the early symptoms of it.
MR. STEPHANOPOULOS: And what do we do about it?
MR. GREENSPAN: Well, the one thing we can do is to recognize that one of the lessons of the last 20 years especially is that low inflation is the major contributor to economic growth overall, and that fundamentally inflation must be suppressed, and it's ultimately the Federal Reserve in this country which is the key architect of doing that and it's critically important that the Federal Reserve is allowed politically to do what it has to do to suppress the inflation rates that I see emerging not immediately, but clearly over the intermediate and the longer term period.
MR. STEPHANOPOULOS: Yet we're in a context now of a financial and a housing crisis. And you said that this current crisis isn't going to end until the prices of homes and equity of homes stabilizes. Some have pointed out, Paul Krugman in the "New York Times," that right now the historic ratio of price of homes to income and rents is about 30 percent higher than it is historically. Does that mean we have that far to fall in the housing market?
MR. GREENSPAN: There's a big dispute as to what the basic level will turn out to be. In my judgment, the prices will stabilize when the rate of liquidation of this very large overhang of newly built single family homes is at a maximum. Not when we completely get rid of the excess, but when we are well underway, then the market will begin to stabilize. And at this stage there is some evidence that sales of homes -- new homes, are beginning to flatten out, and if we can get a further drop in housing starts, in hosing construction, we can begin to really liquidate that excess of inventories.
When we've got that well in hand, then I think prices stabilize. And I think the ratios of income to rent, to all various other financial aspects is important, but not determinant.
MR. STEPHANOPOULOS: But you have said we're in for very large losses and a period of protracted adjustment. What kind of losses are we talking about? How long is it going to take?
MR. GREENSPAN: Remember, we have $900 billion worth of securitized subprime mortgages, and almost as much in what we call alternate A type of mortgages, which are basically undocumented, various different types of mortgages. There are going to be significant losses in those numbers, and there are loss ranges now, minimum now is $200 billion. But it's easy by some calculations to get to $400 billion. This is a worldwide --
MR. STEPHANOPOULOS: That's enormous.
MR. GREENSPAN: It is enormous. Except, we have to remember that as a result of globalization and this extraordinary growth of the last couple of decades, aggregate amount of what we call arbitragible (ph) long-term assets, which is also -- it's a financial instruments -- are close to $100 trillion. And while $400 billion is a very large number, we have to put it in the context of how much damage it can do in this very huge system.
MR. STEPHANOPOULOS: The political world is now looking at the immediate pain, and Senator Clinton has called for freeze on foreclosures, Senator Edwards has called for a rescue fund to be set up by the government for people who are facing these kind of foreclosures. What do you think about these ideas?
MR. GREENSPAN: Well, I think it's important to recognize that there are very large numbers of people who are in very major stress and having great difficulty in paying off the mortgages, and even when they've tried exceptionally hard. But when you think of how you come to grips with this, it's important to help those people outside -- without affecting the mortgage rates and without affecting the structure of markets. Cash is available and we should use that as in large amounts as is necessary to solve the problems of the stress, of the --
MR. STEPHANOPOULOS: Cash from the government?
MR. GREENSPAN: Cash from the government, yes. In other words, if you're going to do that, it's far less damaging to the economy to create a short-term fiscal problem, which we would, than to try to fix the prices of homes or interest rates. If you do that, it will drag this process out indefinitely.
MR. STEPHANOPOULOS: But by infusing cash, it sounds like you agree, then, with former Treasury Secretary Larry Summers, who says that right now, given this crisis, there has to be a bias towards activism.
MR. GREENSPAN: Depends what you mean by activism. If you mean doing something that works, absolutely. If you mean doing something just for the sake of perceptions, that's very costly.
MR. STEPHANOPOULOS: And you said you think that infusing cash right now would work.
MR. GREENSPAN: I'm saying -- I don't know if it would work, but it would certainly help people. It would help their incomes, it would help their personal state without affecting the structure of the way markets are behaving, and the way the adjustment process is going on. It's very critical that this thing reach a selling climax. If I may put it in other words, exhaust itself. It's only when the markets are perceived to have exhausted themselves on the downside that they turn. Trying to prevent them from going down just merely prolongs the agony.
MR. STEPHANOPOULOS: We're just about out of time here and we are in a political season. Which candidate do you think will be best for the economy, as a president?
MR. GREENSPAN: Well, I've taken very strenuous efforts to avoid answering that question --
MR. STEPHANOPOULOS: That's why I had to ask. (Laughter.) So, you're not ready to endorse anyone?
MR. GREENSPAN: I'm not ready to endorse anyone. Indeed, I suspect -- I don't get into that particular game. It's not my business.
MR. STEPHANOPOULOS: Mr. Chairman, thank you very much for coming by "This Week."
MR. GREENSPAN: It's been my pleasure.