Reaction to Washington’s turmoil— from Wisconsin to Wall Street

MS. DIANE REHM

10:06:54
Thanks for joining us. I'm Diane Rehm. It was just a week ago that Congress and the president finalized a deal to raise the debt ceiling. Since then, we've seen a rollercoaster stock market, a credit downgrade and a recall of two state senators in Wisconsin.

MS. DIANE REHM

10:07:18
Joining me to talk about the wide-ranging reactions to Washington's turmoil, Norman Ornstein, resident scholar at the American Enterprise Institute, Stuart Rothenberg, he's editor and publisher of The Rothenberg Political Report, and James Fallows of the Atlantic Monthly. As always, your comments, questions are an important part of the program. Call us, 800-433-8850.

MS. DIANE REHM

10:07:56
Send us your email to drshow@wamu.org. Join us, as many of you have already done, on Facebook, or send us a tweet. Good morning to all of you.

MR. NORMAN ORNSTEIN

10:08:14
Good morning, Diane.

MR. STUART ROTHENBERG

10:08:14
Good morning.

MR. JAMES FALLOWS

10:08:14
Good morning.

REHM

10:08:16
Stuart Rothenberg, turnout was high in Wisconsin yesterday, and lots of money spent on that election. What does it tell you? And what does it mean for the state of Wisconsin?

ROTHENBERG

10:08:32
Well, briefly, the results were, in six recall elections, Democrats won two. Republicans won four. The -- some Democrats are stressing their gains as good news, as an indication of voter dissatisfaction with the governor, Republican Gov. Scott Walker. But, frankly, most Democrats are disappointed that they didn't win three and get control. What did the results show?

ROTHENBERG

10:08:55
I think they show how polarized the country is and how important politics is, or at least was in this instance. You're right, Diane, huge turnout. Everybody expected the Democrats to get good turnout because they were the ones who were angry. They were fighting against Walker and Walker's policies on collective bargaining and the like. But Republicans responded with equally enthusiastic turnout.

ROTHENBERG

10:09:21
We have a very polarized situation here, as we do nationally. I think it tells us that the country -- Wisconsin is divided. When you look at all the numbers, the country is divided. Wisconsin is something of a microcosm here as we head into the 2012 elections.

REHM

10:09:37
Jim Fallows, anger seems to be fueling so much of certainly what happened in Wisconsin. There were claims of fraud. There were claims of gift buying for votes. What happened?

FALLOWS

10:09:54
I think, in the larger sense, I defer to my two politically expert colleagues on the details of the Wisconsin election. But, I think, more generally, there have been two historic sources of real anger in American politics. At least one is cultural tensions or racial tensions or immigrant tensions of a sort. The other is economic stagnation or decline.

FALLOWS

10:10:12
I think what we've seen the last two or three years -- you know, over the last 20 years, we've had a median income in the United States that has been stagnant or going down as the country itself has gotten richer, as the top 5 and 1 percent have gotten very, very much richer. In the last two or three years, many people have felt pressure of all sorts. Their investment holdings are under stress.

FALLOWS

10:10:31
The housing market, of course, is a disaster every place. And so it is, I think, tragically, not surprising, that we have this angry a tone of politics at a time of economic struggle for most Americans.

REHM

10:10:43
Norm Ornstein, what do you think Wisconsin is really about?

ORNSTEIN

10:10:48
Let me focus on a couple of things, Diane. The first is Wisconsin had -- this was six Republican state senators. We've got two more Democrats who have been -- were recall elections next week. We had some before, had more recall elections in Wisconsin than we had collectively around the country in decades. And it tells you something, that people are now bypassing the normal process.

ORNSTEIN

10:11:10
The normal representative process: you elect people, you give them a term in office and then you judge them. The sense of a challenge to the legitimacy of the system that comes when people believe that their elected representatives are acting in a fashion that is so far out of the stream is an unusual phenomenon. And maybe it's not a harbinger of things to come, but it doesn't leave you feeling very easy.

ORNSTEIN

10:11:35
Now, the other strain is, what does all of this mean? I do believe that if Democrats had won three of those seats and turned the Senate around in Wisconsin, it would have had significant reverberations for Republicans around the country. Mitch McConnell and John Boehner would have, at least, spent some time thinking about...

REHM

10:11:55
Thinking.

ORNSTEIN

10:11:56
...what the consequences are of an overreach. But this is also one of the incidences to use the cliché, if you're going to go after the king, you better kill the king. And capturing two is pretty impressive at one level.

ORNSTEIN

10:12:08
But at another level, with all the money and effort poured into this by Democrats, given the high levels of anger, if they fall short of winning back the majority in the Senate, it's going to have Republicans saying, geez, you know, we want to be -- maybe tone down the rhetoric a little bit. But what this tells us is you can be incredibly bold, and you'll get a flesh wound, not a mortal one.

REHM

10:12:30
But you have another recall election next week facing Democrats, Jim Fallows.

FALLOWS

10:12:37
Yes, in Wisconsin with the two senators who are there, and this will be a replay. It's -- the same stakes are not there -- well, the stakes are grave for the Democrats in this case because they came within one vote, as Norm said, of one seat of taking control of the Wisconsin legislature, which would have had these ramifications. What strikes me again a connection between these financial markets, which are, again, are in gyrations as -- even as we speak.

FALLOWS

10:13:00
And this volatility in the political world, where the resort to the recall is since we're -- the realities of public life in America, both political and economic, are not changing day by day and week by week. But our institutions have now become hardwired to have these wild swings up and down, which have their own induced effects.

FALLOWS

10:13:19
When political sentiment, through these recall elections and the rest, is so extreme from one bank to the other, it does have a destabilizing effect, much as the stock markets are having.

REHM

10:13:31
Stu.

ROTHENBERG

10:13:31
I just want to add two quick things. First of all, yes, there are recalls next week, two Democratic state senators. But the early polling suggests that the Democrats will hold those seats, that they will not lose them. Anything can happen in the next week. But the Republicans are not expecting to gain seats.

ROTHENBERG

10:13:45
The second thing I just wanted to add -- and I agree with everything my colleagues here said -- is that it is interesting -- and, I think, it's important to note -- while there's a lot of anger out there, there is dissatisfaction with our institutions, some fundamental distrust with entire system, it's not coming from one sector of the country or the electorate. Democrats totally distrust Republicans and Republican control of institutions.

ROTHENBERG

10:14:12
And Republicans distrust Democrats. It's not as though there's -- the outs are angry at the ins. Some of the ins are angry at the outs, and the ins are different, in different places.

REHM

10:14:26
In fact, a new USA Today and Gallup poll found that just 24 percent of people said that members of Congress deserve to be re-elected. James.

FALLOWS

10:14:43
And you can understand the reason for that because, I think, the last month or two, and much of the last six months, has been as dysfunctional a period in American history as any of us can remember. Norm Ornstein wrote a piece to this effect not long ago. Again, there always are worse examples. We did have a Civil War, et cetera.

FALLOWS

10:15:01
But we've seen with the charade of this debt ceiling negotiation, where -- it's important, I think, to emphasize this was not purely a -- there's blame on all sides situation. The new Republican forces in the House decided they could turn what had always been a routine exercise of just keeping the nation's business going into something much more than that, where they could really push for maximal demands. And that had bad effects.

REHM

10:15:25
Norm.

ORNSTEIN

10:15:25
Yeah, I think if you look at the Standard & Poor's report, off basis, it is, in some respects, and an attempt not to particularly point a finger. There was a very clear finger pointed at the congressional Republicans since -- and I think what you have to say is, if the debt ceiling had been treated as it has always been treated in the past -- which is game-playing and posturing.

ORNSTEIN

10:15:50
But everybody knows it's going to be done routinely and with no strings attached. There wouldn't have been any chance of a downgrade at this point. So this was an artificially caused phenomenon.

ORNSTEIN

10:16:00
But on the larger point that you made, Diane, I believe that, while we've descended into a kind of tribal politics over the last number of years -- and it's -- it started at the elite level and it's starting to metastasize to the mass level -- there is still a strong, if inchoate, desire for the people we send to Washington to transcend the tribes, work together and solve problems.

REHM

10:16:23
But do you see any indication?

ORNSTEIN

10:16:24
And -- well, you know, I think the 2010 elections were as much about that as anything else. But what voters are seeing now is the opposite. And the anger that's growing -- it's hard to imagine a frustration level higher with elected officials. What we can't figure out, what I can't figure out -- maybe my colleagues can -- is, how do you express that anger in 2012? Where do you point the finger?

ORNSTEIN

10:16:51
It's not as easy when you've got a Democratic Senate, a Republican House, a Democratic president, to decide which rascals you're going to throw out. And it may reverberate in ways that are very difficult for us to predict right now.

REHM

10:17:05
Stuart.

ROTHENBERG

10:17:07
Well, it is a good question, and it goes back to this argument or this issue, is, are we going to have an anti-incumbent election? Is it going to be directed against one party or the other? I agree that there is anger across the system, but, I think, when we get into an election, what you're likely going to find is, Republican voters voting Republican, Democratic voters voting Democratic, independents, probably confused, more likely to see the president as the person in charge. And there's more Democratic risk than Republican risk.

FALLOWS

10:17:41
There is on other worse of all world's possibilities we might as well consider here, which is that the polls in the last couple of days suggest that President Obama has come out less badly from the showdown anybody else had. The Republicans, in a sense, won, but lost in terms of their disapproval rating going up more. And so the president could go into re-election as the least bad of alternatives.

FALLOWS

10:18:01
But that's not very reassuring, win or lose, for him. I'm just saying, well, I'm not as bad as the other guys.

ORNSTEIN

10:18:07
You know, it's been interesting. I think the approach that the president has taken politically is based on what Stu just said. It's aimed at those independents who do want the two parties to come together. And he has really tried to be the conciliator and the compromiser. The danger for him is that you can look weak in this process, that you are just standing by helplessly while others basically rip your house apart.

ORNSTEIN

10:18:31
And if you don't show that you're a leader in some fashion and angry about what's going on, then you may lose the advantage with those independents that, perhaps, you otherwise could gain.

REHM

10:18:42
And there are a lot of people wondering whether the president is going to take a vacation in Martha's Vineyard. Short break here. We'll be right back.

REHM

10:20:03
And welcome back. Joining me now is Gretchen Morgenson, Pulitzer Prize-winning business reporter and columnist for The New York Times. She's co-author of the book "Reckless Endangerment." Good morning, Gretchen. Thanks for joining us.

MS. GRETCHEN MORGENSON

10:20:22
Good morning. Thanks, Diane.

REHM

10:20:24
Stocks roared back at the end of the day yesterday. This morning, they're down again. What's going on?

MORGENSON

10:20:34
Well, there's just a height of uncertainty here about whether or not we are going back into a recession, what they call a double-dip, having emerged from it, the 2008-2009 crisis. And, I think, people are just really unsure about the direction we are headed in, both economically and politically. And that, I think, is really the key to this upheaval.

REHM

10:21:03
It's interesting. The Federal Reserve said it would hold interest rates near zero until mid-2013. Doesn't that offer corporations, small business the certainty that they were asking for?

MORGENSON

10:21:24
Well, they've had them at these rates, Diane, for a very long time. And the fact that that has not translated to economic growth is what worries people. The part of the message that, I think, the Federal Reserve had yesterday, that is very disturbing to people, is that they seem to see, you know, looming economic slowdown. And that is why they have agreed to keep the rates so low.

MORGENSON

10:21:54
If growth were picking up again, then they would not have made that statement. And so, clearly, they're concerned about the economy. And even though keeping rates low will help, it really, really hurts savers and punishes people who are living on fixed income.

REHM

10:22:13
There was also some small hope, expectation that there might be quantitative easing for the third time. Why do you think that did not happen? Do you think there is still a possibility it could?

MORGENSON

10:22:32
Well, I think so. They did mention in their statement yesterday. They made a couple of vague references to other tools that they would use, which, I think, was a signal to the markets that, you know, if things got particularly grim or worse that they could reach back into some of the programs that they had put in place immediately after the crisis really started to go wild in '08.

MORGENSON

10:22:59
So, I think, there's that likelihood -- or possibility, certainly -- that they will restart some of the programs that have concluded.

REHM

10:23:09
It's interesting you mention that the Fed statement gave a dismal outlook for the economy. Three members of the Federal Reserve dissented. How unusual is that? Can we read anything into it?

MORGENSON

10:23:29
Well, it is highly unusual, Diane. This is an entity that really likes everyone to be on the same page. And so consensus is huge, you know, and a very important aspect of Federal Reserve action. So the fact that three people dissented was important. It hasn't happened since 1992 under Alan Greenspan.

MORGENSON

10:23:54
But what it's sensing, I think, what it's telling you now is that there are people on the Federal Reserve Open Market Committee who are concerned that these low, low interest rates will fuel either a return to risk-taking by people who desperately need income generated on their investments and will possibly create other bubbles, such as those that we've seen in the commodities area.

REHM

10:24:23
Aren't they also worried about inflation?

MORGENSON

10:24:27
Absolutely. Once you get inflation going, it's very hard to rein it in. So while a little inflation might help certain aspects of the economy by allowing companies to raise prices, et cetera, it really is something that you're playing with fire because, once it gets going, it can really, really go haywire and be very difficult to stop.

REHM

10:24:54
Goldman Sachs has said there is a one in three risk of renewed recession. From your reporting, how do you see it?

MORGENSON

10:25:08
Well, I think that we have a number of headwinds, as they call it, in the economic world. We are dealing with unemployment that is very high and very disturbing to a lot of people. That will definitely continue to put pressure on consumers. Consumers often are the ones who take our economy out of recession.

MORGENSON

10:25:31
And because consumers are so indebted still and are so troubled and harmed by high unemployment, by the continuing housing crisis, they really can't bail the economy out. They can't fuel any kind of growth. So we are really in a different type of situation than we've been in for a while. So it does appear that another recession is very possible.

REHM

10:25:58
Gretchen Morgenson, she's a reporter and columnist for The New York Times. Gretchen, can you stay on with us for a bit?

MORGENSON

10:26:09
Yes, I can, Diane.

REHM

10:26:10
Okay. And, Norm Ornstein, what's your reaction to what the Fed did?

ORNSTEIN

10:26:18
Well -- and I think we see with the markets the last couple of days that there's a bit of floundering around out there. It is striking to see these dissents, although I think, you know, you've got some people who are willing to take a risk of a recession to keep inflation down. That's the three dissenters. I think you see more of a sense from Bernanke and his colleagues that, perhaps, they didn't do quite enough with the second quantitative easing, and they want to leave the door open for another.

ORNSTEIN

10:26:45
But, I think, among the headwinds that we should talk about are Europe in particular and what's happening around the rest of the world. The riots in England have to take us all aback. That they were spontaneous and spread across the country suggests a level of unease and distemper that I suspect is not going to be limited to Britain.

ORNSTEIN

10:27:07
And at the same time, my colleague, Desmond Lachman, at AEI, who has been spot-on about our economic problems three and four years ago and about the disaster in Greece and spreading to other countries, has been even more gloomy about the future of the euro. So, you know, we're hanging by a thread here, I think, from a serious crisis in Europe that might make our own situation worse soon.

REHM

10:27:32
Jim.

FALLOWS

10:27:33
Yes. What strikes me here is the -- a term we often use, which is disconnect -- which is disconnect between the main discourse in Washington over the last two or three months, which has been this supposed emergency of deficit spending and the actual emergency for the U.S. economy and much of the world economy, which is this chronic, very, very high unemployment and the threat of a new worldwide recession, which would make these problems worse in every country.

FALLOWS

10:27:55
And I think that's what the financial markets are responding to now more, not the political crisis of the debt ceiling, but rather the genuine economic crisis.

REHM

10:28:03
Stuart.

ROTHENBERG

10:28:04
Just to echo Jim's comment on the debt ceiling, I'm often amused how we -- when we're in a middle of a domestic issue in this country, we act as though that is the only issue that we will ever have. And we're totally consumed by it. I think, very quickly, we're moving past that into the larger economic and financial concerns, and I think that's problems for the president and politicians going into 2012.

REHM

10:28:27
And, Gretchen, for you, what could -- what one thing could the president do now to ease or begin to ease some of these concerns?

MORGENSON

10:28:41
Well, that is a tall order because he doesn't really have a lot of room to maneuver here. I mean, they must absolutely focus on jobs. And to hear him talk more about what he is going to do about unemployment, I think, would at least provide a little cover for him. But it really has to be done quickly, and it has to be done soundly, not sort of a halfway measure, which I'm afraid we've seen a lot of coming out of the White House.

REHM

10:29:11
Gretchen, what about the S&P credit downgrade? How much has that affected not only the markets, but the outlook?

MORGENSON

10:29:23
I think that the markets fully understood what S&P was saying long before S&P put out its downgrade. I think what disturbs some of the people in Washington -- and perhaps rightly so -- is S&P's speculative nature of, you know, it really wasn't just about the numbers. It was about the political infighting.

MORGENSON

10:29:45
And S&P's downgrade assumed that that political infighting would continue and that nothing would get done. And that's a sort of a level of guesswork, or speculation, that I think a lot of people are right to question.

REHM

10:29:59
Jim.

FALLOWS

10:30:00
Yes. I would agree with that. I think S&P has been under a lot of, in my view, very justified criticism for its performance on what it's actually supposed to do over the last 10 years in judging bond worthiness and all the rest. And for it to start offering a political opinion -- sure, we all have them, but we're not pronouncing on the credit worthiness of the United States.

REHM

10:30:16
What about that so-called $2 trillion error, which then caused S&P to shift its rationale for making that judgment?

ORNSTEIN

10:30:29
Well, you know, it was pretty outrageous. But even more outrageous is they then went back and took this report, excised that section, but didn't bother to read the rest of their own report, which included a series of references to that section that had been excised. So you think about the most momentous decision that could possibly be made -- the first time you downgrade the United States, reverberations all throughout the world.

ORNSTEIN

10:30:53
And it's something at which if I were doing a term paper, I'd give them a D to begin with because you don't even read your own paper. You don't...

REHM

10:30:59
How about a D minus? Gretchen, what did you think when you read that report?

MORGENSON

10:31:06
Well, it just was evidence of, I think, again, this consideration, too heavy a consideration on the political back and forth that was going on. I mean, I expect S&P to crunch the numbers and to give an outlook based on that, not really on these more kind of emotional issues.

REHM

10:31:27
All right. Gretchen Morgenson, she's Pulitzer Prize-winning reporter and columnist for The New York Times. She is co-author of the book "Reckless Endangerment." We're going to open the phones. Let's go first to Pensacola, Fla. Good morning, Mike. You're on the air.

MIKE

10:31:50
Good morning, Diane. How are you doing?

REHM

10:31:51
Fine, thanks.

MIKE

10:31:53
I'm enjoying your show. One thing I noticed. I think we're not keeping this -- the topic as simple as we need to. I don't understand why the Republicans have done this to our economy, you know, just in -- bringing every -- threatening the economy to protect tax breaks for wealthy folks. You know, I was reading this morning, like, corporate America is sitting on, like, $1 trillion in cash that they don't know what to do with.

MIKE

10:32:25
And wealthy people, the top 1 percent, are now bringing home 24 percent or 25 percent of the total income, yet they're still protecting, you know, their sacred tax breaks they got under George Bush. I don't see it as a -- I don't -- and the majority of Americans, you know, want those tax breaks reversed. It doesn't seem like they're representing the people or the country.

REHM

10:32:49
Norm.

ORNSTEIN

10:32:50
You know, I agree in a couple of ways. There's a kind of reckless tunnel vision here. It gets back to something Stu said about, focus on one thing. And if -- The Washington Post last Sunday had a very big story from the front page that detailed how this was a plan for two years, that Eric Cantor had come up with, to use the debt ceiling in this fashion as a hostage-taking mechanism.

ORNSTEIN

10:33:12
And that term hostage-taking is one that now Mitch McConnell has said, boy, that worked well. We'll use it going forward. Now, look at what happened with the FAA. At a time of a weak economy and a jobless economy, one representative, John Mica of Florida, acting out of peak, moves outside the regular order and decides to do some blackmail with the Senate.

ORNSTEIN

10:33:32
We shut down 80,000 jobs, including 75,000 or so construction workers at the height of the season, and cause other kinds of harm. And now we're heading towards appropriations for 2012. And we may see a similar kind of disruption that may cause other ratings agencies to rethink things.

REHM

10:33:50
Norm Ornstein. And you're listening to "The Diane Rehm Show." Jim, did you want to add to that?

FALLOWS

10:33:58
Yes. I agree very much to what Norm said. There's one other factor in why -- the questioner was asking why the Republicans were doing this. And part of it is, I think, they have convinced themselves or just believed incorrectly that United States is now on a record period of extremely high taxes when it's, in fact, historically low taxes we're in the middle of. But a significant portion of the public simply does not believe that, and that makes that many logjams flow from that.

REHM

10:34:24
Stu.

ROTHENBERG

10:34:25
Well, I knew I was going to be forced into this position that I didn't want to be in, but -- seeming to defend the Republicans here. But I simply would respond to Mike -- Mike posed the question, why are the Republicans doing this to our economy? The Republican response, I think, would probably be, we didn't do this. We are being forced to take these dramatic steps because of the conditions of debt and deficits that we have.

ROTHENBERG

10:34:51
Norm earlier talked about that the Republicans took -- I think it was you. If it wasn't, I apologize -- a routine exercise of something -- to something else. So they took raising the debt ceiling, which is a very routine thing in this country, and they redefined it. They made it a fundamental fight. I think the Republican argument is they have to do that.

ROTHENBERG

10:35:13
There are no other ways to force what they would say is the president and Democrats to address debt, spending, entitlements and the growing responsibilities of government. That would be their argument. You don't have to agree with it, but that's certainly their argument.

FALLOWS

10:35:28
And, certainly, you can describe that as their argument. I think it's important to add that it's an incorrect and unfair argument. It would be just as legitimate when the next military appropriation is to come up to say, well, we think we should be getting out of Afghanistan sooner, so we're not going to pay any soldiers starting tomorrow. That would be just as legitimate a hostage-taking exercise, but it would be a real departure from the normal order of business.

REHM

10:35:51
Gretchen, I know you have to leave us, but I want to give you a last comment.

MORGENSON

10:35:59
Well, I think that what your caller was referring to -- and I think it's really at the undertone of all of these conversations -- is that the middle class in this country has been really, really hammered by a lot of what has gone on. And they are feeling the pain from this zero interest rate policy by the Fed. They have had their house values decimated. And the big banks have gotten a lot of the bailout money and a lot of good treatment from the government.

MORGENSON

10:36:29
And I think that that is feeding into this notion, which, I think, is very damaging, and plays into the political crisis that there are two sets of rules in America and that the average everyday main street American really is sort of left to his own devices to fix his problem while the big institutions, that helped really drive this problem that we are all suffering, get, you know, great big bailouts and special treatment. I think it's unfortunate, and I think we really have to address that as well.

REHM

10:37:01
Of course, the Atlantic Monthly has its cover story on the loss of the middle class, Jim.

FALLOWS

10:37:08
Yes. It's a wonderful story by our Don Peck, taken from his new book "Pinched," essentially saying that over the last generation, and especially the last three or four years, the prospects for America as a whole have improved. But for most Americans, they've been under terrible pressure.

REHM

10:37:22
James Fallows of the Atlantic Monthly. Gretchen Morgenson, thank you so much.

MORGENSON

10:37:29
Thanks, Diane.

REHM

10:37:30
And we'll take a short break here. When we come back, we'll go back to the phones and your email, your Facebook and Twitter postings.

REHM

10:40:03
Welcome back. Our three guests here in the studio: Jim Fallows -- he is national correspondent for the Atlantic Monthly -- Stuart Rothenberg, editor and publisher of The Rothenberg Political Report, a twice-weekly columnist for Roll Call, Norman Ornstein, resident scholar at the American Enterprise Institute, co-author of the "The Broken Branch: How Congress is Failing America and How to Get It Back on Track." Let's go now to Remus, who's out in Wichita Falls, Texas. Good morning to you.

REMUS

10:40:49
Good morning. A great show. I've been waiting a long time to make this comment, so I hope you're patient with me.

REHM

10:40:54
Surely.

REMUS

10:40:54
You know, it's very funny. All these callers and all these intelligent people, none of them are willing to say -- talk about one simple solution, jobs to China, okay? It doesn't matter that you give almost zero interest loans to banks and institutions. If I own a business and I don't have demand for my product, you think I'm going to borrow money? No. The only institutions that are borrowing that cheap money is the big ones.

REMUS

10:41:22
And they take it to Brazil, where they can get 11 percent. They invest it in commodities which is going up, and the prices are inflated, okay? The key here, over a million jobs, if I'm not wrong, or more than that has gone to China. The buying power of the average American is gone. I got news for Wall Street, if I don't have a paycheck, I'm not going to shop.

REHM

10:41:46
All right, sir. Jim.

FALLOWS

10:41:48
Yes. I've been spending a lot of my time over the last few years in China. And I think that, on the one hand, any economist will tell you, just as Remus says in his call, that a trade deficit equals lower demand in your own economy. It's better for your consumers. Their buying power goes further, but you have fewer jobs within your own economy.

FALLOWS

10:42:06
And so redressing the trade deficit with China and much of the rest of the world is an important part of a jobs policy. So I think that is -- that's one thing -- one way to -- that U.S. needs to address the jobs issue. And creating demand at home and finding ways for it to stay at home is also part of the jobs solution.

REHM

10:42:25
Norm, during the break, you were talking about the damage to the entire system by this low operating economy and the high jobless rate. What do you mean?

ORNSTEIN

10:42:43
Well, the Atlantic also had a really penetrating piece a couple of years ago about what happens -- we have lots of studies -- if people at the early stages of their careers are pushed out of the job market for a year or two or more. And what happens is people, when they do get back on the ladder, never climb as high as they would otherwise. They never reach the level of economic success.

ORNSTEIN

10:43:07
There are higher levels of depression, alcoholism, suicide. So we now have a problem with not just high unemployment, but persistent, chronic high unemployment, and it's hitting particularly African-Americans and Latinos at a younger age. And this is a social problem for decades to come. We ought to be focusing much more now on jobs, not just jobs going to China, but getting people some way back into the stream of jobs.

ORNSTEIN

10:43:35
And that means infrastructure. It means public employment, probably. The real problem has not been the growth in private employment. Interestingly, it's been the decline in public employment. But a number of things that we ought to be doing, in the short term and in the long term, to build a jobs economy. The idea that we're focusing on debt right now to the exclusion of jobs, after an election in 2010 that was about jobs, jobs, jobs, is bizarre, frankly.

REHM

10:44:01
All right. To Galveston, Mo. Good morning, Todd.

TODD

10:44:07
Good morning, Diane. Hi. It's actually Galveston, Texas, but I live in St. Peters, Mo.

REHM

10:44:11
Sorry.

TODD

10:44:11
That's okay. I just want to say I listen every day. But I would say there's a distinct lack of diversity of thought on today's panel, you know, that you guys keep talking about that if only we had passed the normal order of business of raising the debt ceiling. Well, the normal order of business has gotten us $17 trillion in debt and $60 trillion in unfunded entitlement debt. You know, so it's -- and all the rating agencies said we needed to have a $4 trillion savings.

TODD

10:44:45
So when Norm Ornstein said, there wouldn't have been a downgrade, that's just patently false. Without $4 trillion in deficit reduction, there was going to be a downgrade. And I expected it, and a lot of people did.

REHM

10:44:58
Norm.

ORNSTEIN

10:44:59
Well, I actually think we do need a $4 trillion package and...

REHM

10:45:02
And that's what President Obama and John Boehner apparently had some agreement on.

ORNSTEIN

10:45:10
Well, we also had an agreement on it in the Simpson-Bowles Commission, a $4 trillion package that all three House Republicans voted against. And it needed a supermajority, so we couldn't get there. We've got it in the Gang of Six. You know, a part of the dysfunction of the political process is every group that includes current and former bipartisan legislators and others has said the same thing.

ORNSTEIN

10:45:33
But, of course, a good part of that problem goes way back. And we know, from what the Pew study has shown, is if you parse it out, the single largest component of the debt problem that we have right now -- the $60 trillion obligations in the entitlements is a huge part of it -- but the debt problem now was the Bush tax cuts and their extension.

ORNSTEIN

10:45:52
We also know that if we simply keep current law as it is, if nothing happens, that that debt problem, in terms of the debt as a share of GDP -- because the Bush tax cuts would all expire -- actually goes down to manageable levels after 10 years.

REHM

10:46:07
Do you think they will expire in this kind of environment?

ORNSTEIN

10:46:12
What I hope will happen, frankly, is that we get a larger deal, whether it's with the super committee or somewhere else, that brings us significant tax reform with lower corporate and individual rates in return for enough revenue that we actually move beyond this point, where we're at a 70-year historic low in revenues and you get a better match. And, of course, that's got to include some changes in the major programs.

FALLOWS

10:46:37
Just to make two quick points. One, it can't be said often enough about this debt ceiling controversy, as the caller brings up. It's about money Congress has already voted to spend and tax cuts they've already decided to give, not future spending. So it's agreeing to pay money that you've already committed. The other, I think, is the caller Todd does clarify what could be the access of the oncoming political discussion.

FALLOWS

10:47:00
Either you think that the major threat to United States is a combination of these future deficit totals, plus protecting tax cuts, or you think the major threat is the kind of joblessness and recession that Norm was describing, that Don Peck also wrote about in the Atlantic. So I think that's a pretty clear choice. I believe the major threat to the U.S. is joblessness and recession, but that's an argument to have.

REHM

10:47:22
All right. To Floyds Knobs, Ind. Good morning, Ed.

ED

10:47:28
Good morning. I'm calling because I have a comment about the fact that raising taxes on the wealthiest in our country is something that's pretty much supported across the board. I mean, even Republicans are in favor of this. It's not going to hurt jobs at all. And the other thing I wanted to mention was that wanting to preserve Social Security and Medicare is not a left-wing radical concept.

ED

10:47:59
This is something that most people consider a contract, not an entitlement, and I really resent that, which brings me to the point of being fair and balanced in our discussion. As a letter writer in The New York Times wrote Sunday, some of these talk shows -- fair and balanced is an argument between a slaveholder and an abolitionist. I'll take my answers off the air. Thank you.

REHM

10:48:23
Thanks for calling. Stuart Rothenberg, raising taxes, he says, is not going to cost jobs.

ROTHENBERG

10:48:33
I don't know about that, but I know it's not going to happen. And that's -- from my point of view, that's important because I'm a political analyst. I try to explain what's happening and what might -- and what the options are. The Republicans simply have taken that off the table, the House Republicans. It is remarkable, I think, if we set back and we think 20, 30 years ago, how many of us would have expected that debt and deficit would have trumped jobs as an issue, ever?

ROTHENBERG

10:48:57
I can remember when I was in my early years in graduate school and the like, we used to joke about deficits as an issue. Politicians, Republicans would complain about it. But at the end of the day, the voters voted on jobs, the economy and economic growth. That has changed fundamentally.

FALLOWS

10:49:12
But Ronald Reagan and George W. Bush, like Bill Clinton, voted for tax increases in the name of trying to cope with deficits while keeping the economy growing. I think part of the argument is that balanced approached is now, as you say, off the table for the current Republican congressional leadership.

REHM

10:49:27
Here's an email from Jay, who says, "As a political science major, I was taught that one way to gain control is to divide and conquer. My question is who is doing the conquering? Who gains by the country's polarization?" Norm.

ORNSTEIN

10:49:49
I don't think either party, frankly, is going to end up gaining from this. And we see everybody kind of sagging in the process. A part of what's going on here, Diane, is, I think, we're engaged in a War of the Roses. If you remember that famous book and movie where...

REHM

10:50:02
Horrible movie. Horrible.

ORNSTEIN

10:50:03
Yeah, yeah. Yes. But it's basically two sides who are so intent on damaging the other that they were oblivious to the damage they're causing overall. That's what the permanent campaign has done to us. And when you're in a situation -- and Mitch McConnell has now said it repeatedly. He said a couple of things, one, that his number one goal is to make Barack Obama a one-term president.

ORNSTEIN

10:50:25
The second is, well, of course, we didn't work with the president in the first two years -- he said this, actually, in an interview with the Atlantic -- because if we had, you know, things might have happened, and he would have gained from them because they would have been popular. If that's the kind of approach that we see, the mindset, and it bleeds over on both sides, then it's going to be hard to see anybody gaining, except those who are gleeful that the United States is losing its status.

REHM

10:50:52
All right. To Cuyahoga Falls, Ohio. Good morning, Richard.

RICHARD

10:50:58
Good morning. And good morning to all the panelists. Two quick points, E.J. Dionne, in his column yesterday that -- in our local paper, it was titled "Can America Still Lead?," made two points that, I think, people ought to talk about a bit more. One, he quoted Rep. Jason Chaffetz, Republican from Utah, who said, we weren't kidding around either. We would have taken it down.

RICHARD

10:51:25
And then Mr. Ornstein says, this is patriotism? The other thing he talked about, that I agree with and I'd like to hear your guests discuss, we have lost the focus of what we should be doing. Instead of fixating on ideological debate over the -- over government spending, we ought to be looking at creating jobs, restoring growth, dealing with the housing mess and the personal debt that have destroyed millions of households. And I'd be happy to hear your columnists or your guests' response.

REHM

10:52:08
Jim.

FALLOWS

10:52:09
Yes. I certainly -- I agree with the implication of what we've been saying and E.J. Dionne's column and your comments, that we have a destructive -- internally, just -- we're all going down, making it harder and harder to live. And if a number of the House and Senate Republicans actually believed that it was a matter of no consequence, you know, to call the U.S. credit into question for the first time in our history, that is a dangerous sign, too.

FALLOWS

10:52:34
I think -- just to add one political aspect here, President Obama presented himself through his campaign as being the force of conciliation, of being able to rise above these things. And the -- one of the dramas we're seeing played out now is whether that approach by him can work in this kind of environment. I think the evidence so far suggests that his approach is not working that well because people who are willing to take hostages are succeeding better than he is in this situation.

REHM

10:52:59
Stuart Rothenberg.

ROTHENBERG

10:53:00
Just two quick points. First of all, Jason Chaffetz likes to talk a lot and likes to get the media attention. But I'm not sure he necessarily represents the views of the entire Republican Party or even House Republicans or even Tea Party folks. Second of all, don't blame Norm.

ROTHENBERG

10:53:15
I was the one who said that Republicans are so frustrated they think that they absolutely have to change the direction of the country and, therefore, were willing to risk a default or a downgrade or whatever. But I think the important point is that the Republicans do have options. They're options that Democrats and many of your listeners don't like, frankly, Diane. But they are options -- cap, cut and balance -- and Boehner did pass the plan.

ROTHENBERG

10:53:46
So it's not as though they're saying, well, we don't want to do anything. It's just that they have a very different view than many others in this country about how to address the nation's problems.

REHM

10:53:57
Stuart Rothenberg. And you're listening to "The Diane Rehm Show." I want to take another call. This one from Jacksonville, Fla. Good morning, Elena. (sp?) You're on the air.

ELENA

10:54:13
Hi, good morning. Longtime listener, first time caller.

REHM

10:54:16
Glad to have you.

ELENA

10:54:17
And your show is great. I just -- I know I'm hearing a lot of excuses, in my opinion, but the thing of it is every single one of the people in Congress were sent there by us. And they've all forgotten that. They're all being ideologues, and they're more interested in pushing their own agenda than doing what's best for the country. And it just makes me sick. When Tip O'Neill was House Speaker, they would debate and disagree and argue.

ELENA

10:54:46
But at the end of the day, there was respect. They would go and have dinner together, and that was that. We have a two-party system for a reason, and the reason is compromise. And that's just not there anymore. And it's really discouraging as, you know, Joe voter out here.

REHM

10:55:00
I think Elena reflects the vote of -- and the feelings of many people out there, Norm.

ORNSTEIN

10:55:08
She certainly does. And for those of us who've been around for a while -- and I'd know, coming up on 42 years in Washington -- the fact that people had personal relationships and respect at each other -- something that Lee Berman, who was a social secretary in the Bush administration, wrote about in The Washington Post this last week -- is certainly one part of the problem.

ORNSTEIN

10:55:29
The bigger problem that, I think, Elena is getting at, though, is voters sent these representatives here. But it's mostly a sliver of voters, and that includes Senate as well as the House. And what representatives are listening to is not overall opinion that includes, for Republicans, overall Republican opinion. It's the narrower basis of the two parties. And we need to find ways to change the process.

REHM

10:55:55
Open primaries will be one.

ORNSTEIN

10:55:57
Well, the open primaries is one, although, you know, it's still an open question as to whether that would work. You know, my favorite, which is not getting much traction out there, is mandatory attendance at the polls so that everybody votes. And the focus turns not on the two bases but on the voters in the middle.

FALLOWS

10:56:13
Americans have historically looked with skepticism and mockery on the highly ideological politics of other countries: the French, the Italians, the Israelis, the Japanese -- it's not the Japanese -- but others. And we have prided ourselves on our pragmatism. We are becoming, now, the illustration of paralysis by extreme ideology, of parties willing to say, well, we had to destroy the village in order to save it. We have direct the budget in order to save it, and this is a cautionary sign, too.

ROTHENBERG

10:56:36
Just two quick points. First of all, I really liked Elena's comments, and I agree with her and certainly the comments about social relationship and personal relationships and ideology. I just want to take exception with one clause she referred to these politicians. She says, they're pushing their own agenda rather than doing what is the best for the country. I hear this over and over again. I would argue this. They believe that what they are doing is best for the country. They may be wrong, but they believe that.

REHM

10:57:03
All right. Last quick question for all of you, will President Obama go on vacation? Norm.

ORNSTEIN

10:57:12
I think not because he's too smart.

REHM

10:57:15
All right, Stu?

ROTHENBERG

10:57:17
They usually do go on vacations but figure out some way to stress that they're really working.

REHM

10:57:21
All right, Jim.

FALLOWS

10:57:22
Not Martha's Vineyard, lovely place but wrong symbol.

REHM

10:57:25
Jim Fallows of the Atlantic Monthly. Stuart Rothenberg, he's a twice-weekly columnist for Roll Call. Norm Ornstein of the American Enterprise Institute. Thanks for listening. I'm Diane Rehm.
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