'This Week' Transcript: Chicago Mayor Rahm Emanuel

AMANPOUR: Should he have gotten more involved?

KRUGMAN: No. It wouldn't have done anything. The point is the GOP comes into this with a view that we have a terrible deficit problem. And in dealing with that deficit problem, we must maintain tax rates on the wealthy at pretty close to their lowest in 80 years. This is not -- this is -- you're not going to have a deal.

(CROSSTALK)

AMANPOUR: We want to learn more about axes, because Senator Pat Toomey, the most conservative on the super committee, did came up with a lot of revenue. Is this sort of now an internal debate?

DOWD: The gulf that we have here is Democrats on one side say that you can't cut any expenditures during a time of economic turmoil. That's what Democrats say. They're economic theory is based on that. Republicans' economy theory, you can't raise taxes at a time of economic turmoil.

Two people with a huge gulf in between, both of which are operating on things that are not historically true. You can cut expenditures during an economic problem. And you can raise taxes through an economic problem. That's the problem.

KRUGMAN: Let me pull authority and say you're totally wrong.

Actually we have a long term deficit problem. And part of the problem is this got framed in terms of short-term austerity. And so actually, I'm celebrating the fact that this committee has not reached a agreement.

WILL: The Bowles-Simpson commission that the president called into existence and then ignored recommended a package that had 30 percent deficit reduction through new revenues and 70 percent straight cuts.

The Toomey proposal was 24 percent through revenue and 76 percent through cats very similar to Bowles-Simpson and the Democrats ignored it.

AMANPOUR: So no shift in sort of the Republicans when it comes to...

WILL: Some shift -- oh, it's a significant shift. Sure. Absolutely. New revenues are on the table.

NOONAN: It certainly is, particularly from someone like Pat Toomey.

But let me speak to Matt's point, people are looking at this, I think, and they're going to see two things. One is, this feels like Greece two years ago. This is like a country that's not able -- even in a small way, $1.2 trillion out of 44, to make a little step forward. It makes the government look bad. It's just not a good thing.

DOWD: The president loses in this. Democrats in congress lose in this. The Republicans in congress lose in this and the country loses in this.

KRUGMAN: But this was fated to happen. This was just a terrible idea.

DOWD: Which is a horribly tragic thing.

KRUGMAN: Because it's a political issue. The question -- it's not a technical issue. It's not a small compromise. We have to make a decision of what kind of country we're going to be. And that's something that needs to be resolved...

(CROSSTALK)

AMANPOUR: ...election. How will it become in a year?

KRUGMAN: I think it will be, because we'll have at least some direction. We'll know which way the public wants to go.

DOWD: We thought we had some direction eight years ago. We thought we had some direction ten years ago. Every time the country turns and say I don't like what you guys are doing, get together, work the problem out, the country goes back, the congress goes back to this polarized atmosphere.

KRUGMAN: And (inaudible) a couple of years, fine, because austerity in the middle of an economic slump is a bad idea.

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