AMANPOUR (voice-over): Welcome to viewers here and around the world. I'm Christiane Amanpour. And at the top of the news this week, a "This Week" exclusive, inside North Korea, Bob Woodruff from Pyongyang, as the country prepares for a new leader, and taking it to the mat in Connecticut. (on-screen): They say a vote for Linda McMahon is a slap in the face for Connecticut women. (voice-over): How has the multimillionaire pro wrestling CEO turned a state's Democratic Senate seat into a battleground? (on-screen): Is anybody worried? (UNKNOWN): You have to ask them. AMANPOUR: Are you worried? (voice-over): On the campaign trail with Republican Linda McMahon and Democrat Richard Blumenthal. Then, the jobless recovery. OBAMA: The most devastating recession of our lifetimes. AMANPOUR: But are spending cuts in Europe holding back growth here? Christine Lagarde, the French finance minister, defends austerity. And Pakistan on the brink. More alleged terror plots, more U.S. strikes. The country's former president has harsh words for the United States. General Pervez Musharraf, a "This Week" exclusive. Plus... O'DONNELL: I'm not a witch. AMANPOUR: ... all the week's politics on our roundtable with ABC's George Will, political director Amy Walter, Paul Krugman of the New York Times, and Tavis Smiley of PBS. And the Sunday funnies. FALLON: President Obama was giving a big speech, and the presidential seal fell off his podium. They tried to put it back on, but Hillary had already grabbed it and run away. (LAUGHTER) (END VIDEO CLIP) ANNOUNCER: From all across our world to the heart of our nation's capital, ABC's "This Week" with Christiane Amanpour starts now. AMANPOUR: Hello again. And we start with some developing news from Pyongyang. For the first time, Kim Jong-il and his son, his heir apparent, appeared live on television together at a massive military parade to celebrate the 65th anniversary of the state's ruling Workers' Party. A handful of journalists from around the world were invited to attend and to try to decipher the signals. One of them was our own Bob Woodruff. (BEGIN VIDEOTAPE) AMANPOUR: Joining us now, Bob Woodruff. Bob, what do you see? It's a spectacle behind you. It looks amazing. What did you see there that was new? WOODRUFF: Well, first of all, this is just so loud, I've got to actually hold this microphone right here next to my mouth. But we did see some really -- some very new things, Christiane, which we've never seen before. For one thing, when -- when Kim Jong-il actually -- Kim Jong-il came in and sat down about two seats away from his son, Kim Jong-un, there was a general sitting in the middle. And the general at one point actually turned and saluted to Kim Jong-il, and then he turned and saluted his son, which is a first indication that he could be actually in power here one of these days. There's also the concern about health of Kim Jong-il. We know that he had probably a stroke a couple of years ago. He might be suffering from diabetes. But we also saw some evidence of this for the first time I saw. As he's walking on his exit along the balcony holding onto the rail, he actually started to limp. He really looked like maybe he was, you know, getting older every single day. So it looks like the health issue is certainly a big one. AMANPOUR: And what do we know about Kim Jong-un? What do we precisely know? Any more about him now? WOODRUFF: Well, you know, even to this day, it's -- it's a massive mystery. We know that his age is 27 or 28. We don't even know if he was born actually in 1982 or 1983. We do know that he has actually studied in Switzerland for a very short period of time, so we know that he's speaking English and probably even some German and some French. He is the youngest son of Kim Jong-il's of his three. And we also heard that he actually likes basketball. In fact, Michael Jordan may be the one that he really wants to see. AMANPOUR: In a word, Bob, do you think this will bring more stability to the region or not? WOODRUFF: You know -- you know, we know that any time a government is changed, you got someone else coming in to power, you really can't figure out exactly what the answer to that is. But there's -- without question, South Korea is very concerned about it. They, too, don't know much about Kim Jong-un, and so when he comes into power, whether he's going to be exactly like his father was or his grandfather was, we still -- we still just don't know. AMANPOUR: Bob Woodruff there in Pyongyang, thanks so much for joining us this morning. AMANPOUR: And now we move on to politics. And who would have guessed the three weeks out from the midterm elections the Connecticut Senate race would be so hotly contested? The seat has been held by a Democrat for nearly 50 years, but this is a tough year. Connecticut has lost more than 100,000 jobs since the start of the recession, and a wealth Republican candidate has spent tens of millions of dollars of her own fortune to get elected. This week, Sarah Palin declared her a "mama grizzly." I went on the campaign trail to Connecticut to find out why it's become a key state in the fight for control of the Senate. (BEGIN VIDEOTAPE) MCMAHON: An entrepreneur takes a risk. BLUMENTHAL: I'm not going to be an entrepreneur as a senator. AMANPOUR (voice-over): With the race tightening, both candidates were on the attack this week. MCMAHON: We cannot afford another tax-and-spend senator in Washington. We can't afford you, Mr. Blumenthal. We have enough of you already. BLUMENTHAL: My opponent actually buys through WWE most of her products manufactured overseas. She sends jobs overseas. AMANPOUR: Linda McMahon may be a political novice, but she's a business pro, running as a successful CEO who created jobs and balanced the budget of a billion-dollar company. MCMAHON: What I created over (inaudible) AMANPOUR (on-screen): You talk a lot about reducing the size of government and reducing spending. What precisely would you tackle in order to reduce the massive trillion-dollar-plus budget deficit? MCMAHON: The reason I've not been specific as to particular programs -- and I've dealt with it in terms of rolling back non- defense discretionary spending to 2008 levels -- because that was an approach that I took as a CEO. You look at, OK, how are you going to cut costs and cut expenses? You can look at a 10 percent cut across the board. AMANPOUR: Everybody's busy trying to do the math right now on all the campaigns and regarding the budget deficit. The latest shows the Republicans can come up with something like $100 billion in cuts, which is a lot, but a pittance compared to the trillion... MCMAHON: ... $1.3 trillion deficit... AMANPOUR: Yes, exactly. MCMAHON: ... and over $13 billion debt. I get that. AMANPOUR: Exactly. So the big issues that take up most of the spending are, obviously, defense -- some 20 percent... MCMAHON: Sure. AMANPOUR: ... Social Security and Medicaid. Is that where you would cut? MCMAHON: Let me just name a couple of other things, too. I just think we should freeze the federal hiring and freeze wages again, not going to make a big dent. However, I do believe we should take the balance of the stimulus money and pay down the debt. AMANPOUR (voice-over): Her lack of specifics is countered by her claim as an outsider who will impose her own term limit. (on-screen): So how much can you really change? MCMAHON: All we can do is try. And I would only seek a second term if I really felt I'd been effective in a first term. AMANPOUR (voice-over): Battling to reach Washington, she's also having to overcome controversies over past allegations of a steroid- fueled wrestling ring and the promotion of sexist and violent behavior while she was managing the WWE. Criticism has come from Mothers Opposing McMahon, a group funded by Democrats. (on-screen): They say a vote for Linda McMahon is a slap in the face for Connecticut women, the whole issue of the women in the ring and the -- what they call degrading and demeaning behavior towards women. I mean, I'm a woman; you're a woman. What do you really think when you see some of that go on in the ring, the girl who was told to get on all fours, I think by your own husband, and bark like a dog? Are you comfortable with that? MCMAHON: Well, WWE programming has changed from being TV-14 over the years, which -- that's the time you were talking about. It was called the Attitude Era -- into now being PG, rated by the networks as PG. I'm happy with the content today. AMANPOUR: As a senator, if you could stop it, would you stop that kind of depiction against women on -- on the public airwaves? Would you at least lobby your campaign against it? MCMAHON: I do believe in the First Amendment rights and content... AMANPOUR: So you don't think there's anything wrong with it? MCMAHON: Well, content providers are clearly creating scenarios. From an entertainment point of view, I think that you either elect to go to a movie or you elect to watch a program, so I'm a strong proponent of First Amendment rights. At the same time at WWE, women really are powerful women, and the programming content, as I've said, has changed from TV-14 to TV-PG. I much prefer it today. BLUMENTHAL: You know we can make a difference, and we will make a difference. We will make a difference this November. AMANPOUR (voice-over): For his part, Richard Blumenthal, a five- term attorney general, is banking on being a familiar face, even as he's painted as the establishment amid national anti-Washington fervor. BLUMENTHAL: My biggest strength is that the people of Connecticut know me, they know me as a fighter, someone who has been on their side. They can count on me. And I have been with them for 20 years. AMANPOUR: Why, then, has a 41-point lead diminished so -- so dramatically since January, if they know you and they trust you and -- and they know what you've done for them? BLUMENTHAL: We've said from the beginning that this would be a tight, tough, competitive race. And a $50 million negative attack machine is bound to narrow the polls, and we expected it. It's happened. AMANPOUR: Why did you think it was going to be so tough, given that this is a Democratic state? No Democrat expects to lose this; no Republican is supposed to win it. BLUMENTHAL: What I know about people is that they vote for the person, not necessarily the party, and that is increasingly true these days. AMANPOUR (voice-over): McMahon has outspent Blumenthal 16 to 1, she told me roughly $25 million to $30 million of her own personal fortune. And those millions, according to voters I spoke to, have had varying effects. (UNKNOWN): You can't just have someone who's made a fortune (inaudible) in my opinion, that's what she represents. (UNKNOWN): The money's an advantage, because she can get her word out, but the business experience I think is equally part of it. We want someone in there who can balance a budget. AMANPOUR: But Blumenthal's lead has also narrowed because of statements he made misrepresenting his military service in the Vietnam War. All of his Marine Reserve duties were in the United States. BLUMENTHAL: ... since the days that I served in Vietnam... (UNKNOWN): He lied about Vietnam. What else is he lying about? AMANPOUR (on-screen): How badly has that hurt you? BLUMENTHAL: I have answered the question about Vietnam saying that I am sorry that I inaccurately described my military record. I'm proud of having served in the United States Marine Corps Reserve. And I think the voters of Connecticut are concerned about the real issues, and I believe that those are the issues that will be center in the election. My opponent may have more money, but I've got 20 years' worth of friends. AMANPOUR (voice-over): The president has campaigned for him. The first lady is on her way. And the Democratic Party is pumping in $2 million, which means less money for their candidates in true swing states. (on-screen): Is anybody worried? BLUMENTHAL: You'd have to ask them. AMANPOUR: Are you worried? BLUMENTHAL: I always run like I'm an underdog, like I'm 10 points behind. But I think there is a very clear contrast between someone who has been a CEO, claims to create jobs, and has treated people in a way I don't think the people of Connecticut would want anyone representing them to treat them. MCMAHON: I've been bankrupt. I've lost everything along the way. And I've had an opportunity, and sometimes it sounds a little bit hokey to say you're lived the American dream. I have. I've been totally down and out, able to come back. And I want to make sure -- I mean, this is -- this is the greatest country in the world, and I really want to make sure we preserve that opportunity. (END VIDEOTAPE) AMANPOUR: And we'll discuss that race and all the other midterm politics on our roundtable later in the hour. AMANPOUR: The unemployment report Friday showed September was the fourth month in a row that the economy lost jobs. The U.S. treasury secretary and finance ministers from around the world met in Washington this weekend to try to find a way to get the global economy moving again. The United States is very worried that if Europe cuts government spending too much, it could severely hurt economic growth right here. So earlier, I spoke with the French finance minister, Christine Lagarde, a proponent of European austerity about whether growth is at risk. (BEGIN VIDEOTAPE) AMANPOUR: Minister Christine Lagarde, thank you so much for joining us. There seems to be tension between the United States and Europe over what's the most sensible way to deal with the current lack of growth. The U.S. wants Europe to continue pushing money into the system; Europe is talking about a lot of austerity. LAGARDE: In terms of growth versus austerity, it's a policy that we've adopted in pretty much all European countries. But we need to address both issues. If we do not reduce the public deficit, it's not going to be conducive to growth. Why is that? Because people worry about public deficit. If they worry about it, they begin to save. If they save too much, they don't consume. If they don't consume, unemployment goes up and production goes down. So we need to attack that circle from the deficits. AMANPOUR: But you took -- you called it a circle, and there is a circular argument about it, because, in fact, many economists, particularly American economists, are saying that Europe is... LAGARDE: Some of them. AMANPOUR: Many of the prominent ones are saying that Europe is, in fact, going around it the wrong way, that, in fact, it needs more stimulus to provide more growth and then to attack deficits from a period -- from the position of strength. Why won't Europe do that? LAGARDE: Because if I look at my numbers, which is better than, you know, theories and -- and -- and speculations, if I look at my numbers, we've stimulated the French economy massively in the year 2009, end of 2008, 2009. And my numbers are now going up. I've got growth up 1.6 percent from negative 2.6 percent. I've got unemployment down from 9.6 percent down to 9.3 percent. And I've got deficits down, as well, from 8.2 percent, where we thought it would be down to 7.7 percent. So the numbers are good. Unemployment is going down. Why would I inject more public money into the system when private investment is picking up? AMANPOUR: And there are tens of millions of people out of work all over the world right now. They seem to be having to pay for the excesses of the bankers, the billionaires, the speculators. How can you have fiscal discipline and make it fair? LAGARDE: We make it fair by two ways. Number one, we have a volume of shock absorbers, if you wish, that help the least privileged and the poorest in the country, where unemployment benefits, welfare, and so on and so forth, actually help them go through difficult times. That has worked well in 2009. We continue to sustain and support those programs because it's needed. The second thing that we did -- and that was decided in Sweden, in the U.K., in Germany, and in France -- we're going to impose a systemic tax on banks, for instance. Our banks had to borrow from the state. They have refunded, most of them, and the state, which means our taxpayers, have made a profit in the process. AMANPOUR: There is a new film that's coming out this weekend here in the United States called "Inside Job." You were interviewed for that film. And you were asked about the collapse of Lehman Brothers. (BEGIN VIDEO CLIP) (UNKNOWN): When were you first told that Lehman, in fact, was going to go bankrupt? LAGARDE: Oh, after the fact. (UNKNOWN): After the fact? LAGARDE: Yes. (UNKNOWN): Wow, OK. And what was your reaction when you learned of it? LAGARDE: "Holy cow." (END VIDEO CLIP) AMANPOUR: So let me ask you, what is there to prevent another "holy cow" moment? Do you believe that the right kind of -- of regulation against this -- this potential disaster is in place across the board now? LAGARDE: I should hope so. We... AMANPOUR: But is it? LAGARDE: We've been working really hard in the last two months to put in place what our leaders decided was needed: an alert control system, a supervisory system, discipline in the markets. But it's a constant job, because markets are very agile, and they reinvent new schemes, they invent new channels, new circuits. So we need to be careful for the whole public, not just for Wall Street, not just for the city, not just for the stock markets. We need to protect individuals. AMANPOUR: You talked about markets. To quote Joseph Stiglitz, apparently, he says that trying to appease the markets is like trying to reason with a crazy man. Do you think you're trying to appease markets in a way that actually won't protect the public interests? LAGARDE: Well, you talk about the crazy man. We don't necessarily want to put an actual straightjacket on everything that they do. But we need to put them under supervision. And we need to set rules and regulations that if they violate such rules and regulations, they are really hammered. And that's -- that's what's needed. AMANPOUR: Let me ask you about one of the things your own government is trying to do and that's raise the retirement age... LAGARDE: Yes. AMANPOUR: ... from 60 to 62. LAGARDE: And 65 to 67... (CROSSTALK) AMANPOUR: Is that going to happen? LAGARDE: Yes, it -- yes, of course. AMANPOUR: In France and across Europe, there have been huge political pressures because of the protests by so many people converging. Can France withstand that political pressure of the protests? LAGARDE: We have to in the interests of the next generations. It's a demographic issue that we have to deal with. It's an economic challenge. And we can't answer that by reducing pensions. We can't abandon the system as we have it at the moment. So the only way to fix it and to make sure that it's financially stable and -- and sustainable is to increase the retirement age by two years. It's only two years. And in the last 50 years, people have gained 15 years of longevity. AMANPOUR: I want to ask you about being a woman finance minister. You were a former CEO. Do you think women have a -- a different way of -- of approaching business or approaching the public sphere? LAGARDE: Yes. AMANPOUR: In what way? LAGARDE: I think we -- we inject less libido, less testosterone... AMANPOUR: Less libido? LAGARDE: Yes, and less testosterone into the equation. AMANPOUR: And how does that help? LAGARDE: It helps in the sense that we -- we -- we don't necessarily project our own egos into cutting a deal, making our point across, convincing people, reducing them to, you know, a -- a partner that has lost in the process. And it's probably over generalized what -- what I'm saying. And I'm sure that there are women that operate exactly like men. But in the main, and having had nearly 30 years of professional life, a bit more than that, actually, and getting closer to 60 than 50, I -- I -- I honestly believe that there is a majority of women in such positions that approach power, decision-making processes, and other people in the business relationship in a slightly different manner. AMANPOUR: On that note, Minister Lagarde, thank you very much for joining us. LAGARDE: Thank you. AMANPOUR: Thank you. (END VIDEOTAPE) AMANPOUR: And the other big news this week is Pakistan. The United States apologized to Pakistan this week for firing missiles into its territory. And this weekend, Pakistan reopened a border crossing used by NATO and U.S. supply convoys headed in Afghanistan. Relations between the two countries are deteriorating, as the United States blames Pakistan for not doing enough to take on extremists in the border region with Afghanistan. In a moment, I'll talk to the former Pakistani president, Pervez Musharraf, who was a key U.S. ally after 9/11. But first, with new terror plots surfacing, ABC's Nick Schifrin reports from Pakistan's Swat Valley. (BEGIN VIDEOTAPE) SCHIFRIN (voice-over): The rugged, difficult terrain that runs along the Afghan-Pakistan border is the epicenter of global terrorism. It's here in North Waziristan that German, British and Arab militants plotted attacks in Europe, where Faisal Shahzad received bomb training and where a terror group, led by Jalaluddin Haqqani plots attacks on U.S. troops in Afghanistan. All are largely left alone by the Pakistani military. And so the U.S. relies on its own aerial assaults, unmanned CIA drones, as many attacks in the last two months as in all of 2008 and recently helicopter strikes from Afghanistan. Those attacks have killed hundreds of militants, but they have also devastating side effects, sometimes killing civilians and Pakistani troops, enraging the Pakistani military and public. That anger led directly to this, a campaign to destroy trucks carrying U.S. supplies destined for Afghanistan, including one during a BBC reporter's standup. (on-screen): And that anger at the U.S. is transferred onto an already unpopular government here, blamed for being too close to the U.S. and blamed for a weak response to the country's largest ever natural disaster. (voice-over): This was Upper Swat two months ago. Here is the same valley today. Ask anyone here, and they'll say the government has abandoned them. Shah Batcha (ph) runs a clothes shop. He's lucky to make $3 a day, since he has to shut early. There is still no electricity here. (on-screen): Has the government helped you at all? (voice-over): "The government is only concerned about themselves," he says. "They keep conditions bad so they can pocket foreign aid." The U.S. spends billions to help the poor here and try and repair its reputation, but you don't see much evidence it's working, and you don't see much support for going after all those militants who continue to use Pakistani soil to plot attacks. Nick Schifrin, ABC News in the Swat Valley, Pakistan. (END VIDEOTAPE) AMANPOUR: Joining me is former president General Pervez Musharraf. He's in self-imposed exile in London, but now he's planning a political comeback. (BEGIN VIDEOTAPE) AMANPOUR: Mr. Musharraf, thank you for being with us. MUSHARRAF: It's my pleasure. AMANPOUR: I want to start by asking, since you were a key U.S. ally, particularly in the post-9/11 years, the U.S. has put out a very damning and explosive document accusing Pakistan of not doing enough to go after the terrorists, to go after Al Qaida and other militants. Why is that still happening nine years into this war? MUSHARRAF: Pakistan has always been accused of not doing enough, but I totally disagree with this statement. Pakistan is doing enough. AMANPOUR: Well, Mr. Musharraf, clearly the United States thinks that it's not doing enough in Northern Waziristan in -- to go after, for instance, the Haqqani network, to the extent that over the last several days and weeks it stepped up by a massive amount its drone strikes and other attacks across the border into Northern Waziristan, where a lot of these terror plots are being hatched. MUSHARRAF: There are many, many fronts that we are battling against. And I think we should be proud of that army which is battling against Al Qaida, against Taliban, against Taliban migration (ph) spreading into settled districts. And they want to defeat Al Qaida and Taliban. Now how they intend doing it, what is their plan, as you are saying, that they are not doing enough in North Waziristan? To at least say that -- at least say that they are not doing enough in North Waziristan, but don't generalize the statement that Pakistan army is not doing enough. They have suffered over 2,000 casualties. What do we mean by not doing enough? AMANPOUR: Another criticism by the White House is that the -- a spy agency, the ISI, continues to give sustenance and support to the Taliban. How can that be happening, again, nine years into this war, and after billions of dollars that the U.S. is pouring in to the Pakistani government and its military? MUSHARRAF: I take very strong exception to these statements which have been going on maybe since 2004 because of a misunderstanding of ground realities and which I used to be saying, after defeating the Taliban after 9/11, I always was of the view that we need to change strategy, we need to go in for deals. So my strategy always was to strike a deal, strike a deal to win away Pashtun (ph) from the Taliban. This is, in my view, are vindicated now when everyone is talking of going into some political agreements with moderate Taliban. Now, how is it different from what I was saying and try to do from 2004 onward? AMANPOUR: Why is Pakistan still a place where terrorists can plot and try to execute attacks against the West? MUSHARRAF: Yes, there is -- there are problems that Pakistan is facing, that we have extremism in our society. We have Al Qaida and Taliban. But what we need -- we are not understanding -- are what are the causes behind terrorism is always a symptom. We should know that. So we -- we must understand problems, and they're what hurts Pakistan, and every leader in Pakistan is certainly when they are blamed. Everyone in the world starts blaming them, while we are suffering casualties. We are suffering hundreds of people dying from bomb blasts and suicide bombs, and yet we are the rogues (ph). So, I mean, what is the issue? Let us -- let Pakistan alone, and let us -- let us deal with the situation. It's critical. AMANPOUR: OK. MUSHARRAF: And it is in our own interest to deal with it. We don't want United States to help us. We -- it is critical for us. AMANPOUR: Again, despite the billions of dollars that the U.S. is pouring in -- and considering Pakistan a strategic ally -- the latest poll says that Pakistanis have a deeply unfavorable view of the United States. For instance, 17 percent of Pakistanis only have a favorable view. And when asked whether the U.S. is more a partner or an enemy, 59 percent of those Pakistanis polled say that the U.S. is an enemy. How do you account for that? MUSHARRAF: Yes, I mean, that -- those are the ground realities. Which -- you've taken the poll -- there is a -- there is a odd situation that (inaudible) situation. If you go to ask Pakistanis, are you -- would they like to defeat Taliban and Al Qaida and terrorism and extremism, I think vast majority will say, "Yes, we do." But when you ask them about United States and the coalition forces in Afghanistan or the attacks across the border, certainly 100 percent will oppose it. So this is because of the -- what they have suffered historically and what is going on and a lack of understanding on both sides of the ground reality. AMANPOUR: You decided to form a political party and, you say, to go and contest the elections back in 2013. And a lot of the military are basically saying that they don't want you back, and a lot of people are saying that your time is past, you were yesterday's man. Why do you want to go back and contest the elections? MUSHARRAF: I see the condition of Pakistan. And I see that Pakistan is suffering. And in this darkness that prevails in Pakistan, I don't see any political party which can show the light. I don't take views from others that I am a past man or anything. I understand better what is a ground reality instead of listening to people from abroad who don't know Pakistan. AMANPOUR: You are abroad, and you are in London, and you made your announcement about your political future outside of Pakistan. Why aren't you there? Why aren't you going back right now? MUSHARRAF: I have to create an environment of popularity, of political clout, and then I will go. I will be there before the elections. AMANPOUR: Mr. Musharraf, thank you very much indeed for joining us. MUSHARRAF: Thank you. (END VIDEOTAPE) AMANPOUR: And you can see more of those interviews this morning at abcnews.com/thisweek. And when we come back, politics on our roundtable with George Will, Paul Krugman, ABC political director Amy Walter, and PBS's Tavis Smiley. (COMMERCIAL BREAK) (BEGIN VIDEO CLIP) GREEN: Mr. Iott is the Republican House candidate from the Ninth District in Ohio. There's a picture of him there from his Web site. You might recognize... MAHER: Oh, he looks like a perfectly nice guy. What could be the problem? GREEN: Well, the problem is Mr. Iott has an unusual hobby. He's a Nazi re-enactor. MAHER: Wow. (APPLAUSE) (END VIDEO CLIP) AMANPOUR: That was journalist Joshua Green on the Bill Maher show revealing another bizarre departure, the campaign trail. There have been no shortage of them this midterm season. And we're going to discuss that. Joining me this morning, George Will, Paul Krugman of the New York Times, Tavis Smiley, host of "The Tavis Smiley Show" on PBS, and ABC News political director Amy Walter. Thank you all for joining us. So, what do you think of that -- of that image cropping up now? How bad? WALTER: Well, it's not great for Mr. Iott, and it's probably good news for Marcy Kaptur, the Democrat there. But this wasn't a race that was considered particularly competitive before this picture came out. It certainly won't be now that the picture has come out. But it does reveal sort of a big issue in this campaign, which is the fact that you have a lot of first-time candidates running. Very few have been vetted. Very few have gone through this process before. And so now, when you get a whole bunch of new people in the process, you're going to find some people that have done some very not great things. AMANPOUR: Well, let's talk about that, because that obviously is the big momentum of this election season, the Tea Party and all of these new candidates. Christine O'Donnell, who also has been a victim or a beneficiary of the attention that she's getting from Bill Maher, has put out a new ad this week. Let's just put that up and discuss it. (BEGIN VIDEO CLIP) O'DONNELL: I'm not a witch. I'm nothing you've heard. I'm you. (END VIDEO CLIP) AMANPOUR: George, what -- what is going on here? There are so many of these candidates who are being credited with a huge amount of momentum, of expanding the enthusiasm gap. Why does she need to go and do that? WILL: Well, because of what occurred on the Bill Maher show and the fact that when 20 years ago or something like that she had dabbled with witchcraft because of some boy she was dating, I don't know. The fact is, the Tea Party is, as I've said here before, an enormous net benefit to the Republican Party, because it's brought out an energy that the Democrats can only at this point envy. AMANPOUR: It is. It's brought out a huge, huge energy. And they're saying -- in fact, the latest articles -- that the Democrats are fairly sort of stable as to where they were in '08, but it is the Republicans who've spread this massive gap of enthusiasm. SMILEY: A couple things with regard to that commercial specifically. When she says, I am not, you know, what they said about me, I'm not what you heard about me, let's be clear: She got herself in this mess. She's the one who did every -- every "Politically Incorrect" episode that Bill ever invited her on and made these comments herself, so she's having to defend herself against statements she made, not against stuff that Bill Maher or anybody else is making up, number one. Number two, with respect, I'm not so sure that I agree with Mr. Will here, who I obviously respect immensely. I think the GOP has a problem here trying to navigate its way forward, given what the Tea Party has done to put it in a particular box, number one. And, thirdly, I don't want to -- I don't want to -- I don't want to ignore the angst of the Tea Party. This economic angst that they feel, many of us feel, so this is real. But their tactics ought to be questioned, number one. The candidates they've put forth aren't the best candidates, I think, in the long run. And most importantly (inaudible) these Tea Partiers are probably somewhere sipping tea when the last administration was running up these deficits? They all of a sudden show up now. And, again, I don't want to underestimate their concern and their issues, but where were they when the deficit was being run up by the last administration? KRUGMAN: The Tea Partiers may be helping the GOP, probably will be in this election. They might help in the next election. However, they make the GOP even less able to actually function as a governing party. If we have a Republican Party that actually takes the White House, actually has control of Congress, but contains a large (inaudible) of these people, it's going to be incapable of making real choices. These are people who are -- who are as irrational as they seem in these ads. AMANPOUR: George? WILL: I don't think they're irrational at all. I don't think that the Tea Party is doing anything other than asserting something deep in the national political DNA, that is, a suspicion of the central government and a belief in limited government. And by the way, while we're on the subject of ads, in the interest of being fair and balanced, let's notice five interesting Democratic ads. There's a group called -- what's it called -- FactCheck.org, that checks the truthfulness of these ads. There are five freshmen Democratic congressmen -- that is, the people who came to Congress in January 2009 -- who are running ads claiming that they voted against TARP, which was voted on months before they came to Congress. AMANPOUR: Fair point? KRUGMAN: That's not -- that's not the same. I mean, what -- we have -- and there are going to be bad ads -- but this is -- no, there are some seriously strange people running thanks to the Tea Party. And it's not just... (CROSSTALK) WALTER: But there are always seriously strange people... (CROSSTALK) KRUGMAN: No, I think it's stranger this time. And it's not just suspicion of government. We have people out there believing that this basically centrist, moderate president we have is a socialist bringing Sharia law to America. None of that is -- is -- is rational. WALTER: But I think we have to be very careful, because I do -- I do think that, you know, going to the point raised by Tavis earlier, there is -- there's the short term and the long term. But in the short term, there is a deep frustration, and it goes beyond just conservative Republicans. Look at where independents are today as -- as to where they were in 2008. They have moved decidedly away from the Democratic Party. Now, it's not simply because they're embracing Christine O'Donnell or witches or whatever else. What they're doing is they're saying, they're not happy with the direction that this country is going in. Now, where are they going to be in 2011 or 2012? That's an open question. But -- but the fact is, right now, for -- for the candidates themselves (inaudible) really focused on. But for voters, we're really focusing much more on the message, and I think that's -- that's important. AMANPOUR: Well, that's interesting, because we're reading and we're seeing that, in fact, a lot of these new candidates who are unknown -- I mean, we don't really know about them, they haven't been part of the political system -- and they're not doing a whole lot of traditional retail politics. People like Christine O'Donnell, it's said, is not seen much on the campaign trail. But the question really is, they apparently don't really need it, because the modern way of money and campaign finances and things coming in by Internet are -- seems to be replacing that need. KRUGMAN: Well, we have to be a little bit careful here. There is money coming in through the Internet. That certainly played a role in some of these primary upsets. But if we're looking about the general election, we're looking at huge amounts of money being poured in from the usual suspects, from the Koch brothers, from the -- you know, there's probably going to be more corporate money -- I'm sure there'll be much more corporate money in this election than in any midterm election before in U.S. history. So we can talk about all the grassroots stuff, but when it comes to the actual election that's being held in November, this is not going to be the little guy getting into politics. This is going to be the big guys, the billionaires. SMILEY: If I can augment that right quick, it's not just that we -- that many of us are concerned about the obscene amounts of money in -- in our politics, and so many us are still disappointed by that Supreme Court decision that allows corporations basically to own our politics. But now we learn over the last week that we have these anonymous donors, so there are people giving money, and we don't know where the money is coming from. That makes the situation even worse. AMANPOUR: Well, I actually wanted to go to that, and to that point. Let's play what President Obama said about that issue on the campaign trail this week, and we'll discuss that afterwards. (BEGIN VIDEO CLIP) OBAMA: Just this week, we learned that one of the largest groups paying for these ads regularly takes in money from foreign corporations. So groups that receive foreign money are spending huge sums to influence American elections. And they won't tell you where the money from their ads come from. (END VIDEO CLIP) AMANPOUR: George, I saw your head just about hit the table in frustration... (CROSSTALK) WILL: Well, he won't -- he won't tell us who he's talking about. He's talking about the Chamber of Commerce, which does indeed receive dues from foreign entities that are associated with American business, just as the AFL-CIO receives dues from foreign entities associated with it. And -- and the shock and awe that we're supposed to feel from this is somewhat selective. AMANPOUR: So is it much ado about nothing? KRUGMAN: No, except it -- things haven't changed as much as -- as the story suggests. We had the Chamber of Commerce, which draws in an enormous amount of money from multinational corporations. Some of those multinational corporations have headquarters in the United States; some of them have headquarters in other countries. It hasn't mattered. It's the -- the fact that some of them have headquarters abroad is not the important point. The point is that, actually, this is a huge amount of money from people who don't have that much of a stake in the things that American voters care about. AMANPOUR: Well, the thing is, why is such a huge, big deal being made out of it? Because, obviously, it's been in the press a lot this week, and there have been articles that have come up and checked it, and basically saying that it is coming from -- from all sides, and there's no real evidence that this is coming -- you know, nefarious... WILL: The question is, why is a huge deal being made of it? Because in 2008, the so-called independent groups outspent Republicans three to one. A big deal is being made of it now because Republicans are outspending... (CROSSTALK) SMILEY: I think, George, respectively, a big deal is being made and a big deal ought to be made of it, because the American people have a right to know where this money is coming from, who's financing these campaigns. And the reality is this, Christiane: Nobody in this town, politically that is, has any vested interest in fixing this system. Our campaign finance system is broken. We've made a mockery of Feingold-McCain. And in an election that is this important, people have a right to know where this money is coming from, and nobody in this town wants to fix it. I don't mean, George, just Republicans. President Obama himself (inaudible) said, as we all recall, he would take the matching funds. When he realized he could outraise that, raise more money, they even did a 180 on their commitment. We need to fix this problem. WILL: You referred to this as money going into campaigns. It's not going into campaigns. That has been and remains illegal. This is going into independent expenditure for issue advertising. (CROSSTALK) KRUGMAN: ... actually irrelevant. (CROSSTALK) AMANPOUR: ... I want to ask you that the latest polls are showing that there's a race gap, that the Obama approval rating amongst non-Hispanic black people are 91 percent and non-Hispanic white 36 percent. I mean, why and how is that going to be changed? Why is that happening now? SMILEY: I don't know how it can be changed. I've said many times -- and I say again this morning -- that race is still the most intractable issue in this country, number one. Having said that, black, brown, it doesn't matter to me. As I talk to people across this country (inaudible) Christiane, in this particular part of the base, the black and brown part of the base, is that while black and brown folk have not turned against the president, they absolutely are concerned about this economy, like anybody else is. It's hard to motivate that part of your base. That's the enthusiasm gap you (inaudible) talking about in the green room. It's hard to motivate that particular group of people, and they happen to be the ones... AMANPOUR: Will they come out? Are they going to vote? SMILEY: I think -- I think there's disaffection there. I think there's disappointment there. They're the ones feeling the pinch the most of this bad economy. How do you motivate people who don't have a job? AMANPOUR: Well, talking about the economy, we're going to talk about what Christine Lagarde and, in fact, Alan Greenspan has said. But, first, I want to ask you, Christine Lagarde basically stated that deficits affect the public, that they get worried, consumers get worried, and so they withdraw. Is that the same for American consumers, American voters? WALTER: It is, but I don't think that's what's going on right now. I mean, there's certainly a big piece of that, especially for some Republican voters. But I do want to go back to an important point made about the black and white divide, as well, which was, you know, 47 percent of white voters in 2006 -- this was when Obama was not on the ballot, he wasn't even talked about a presidential candidate -- voted for Democratic candidates for Congress. So this goes beyond just it's President Obama, it's -- this is really about the economy. And I think that's what we really do have to keep focusing on. AMANPOUR: Well, let's just talk about the economy right now, because you heard what Christine Lagarde said, very, very tough on austerity, saying that her numbers show that it's actually working. Why should there be more stimulus? I just want to play what Alan Greenspan said about this also this week, and then we'll discuss it. (BEGIN VIDEO CLIP) GREENSPAN: I know everyone says, let's wait for a couple of years, keep the stimulus going, and then we'll solve the problem. I think that's a very risky strategy. I don't -- I don't deny that -- if I knew that was -- you could do that, that is obviously the best strategy. I'm not sure the markets are going to allow them to do that. (END VIDEO CLIP) AMANPOUR: Paul? KRUGMAN: Let me just -- I don't know quite how to say this. Christine Lagarde said, "Let's not talk about theory. Let's talk about the numbers." My numbers are not the same as hers. The European Commission numbers say that the unemployment rate in France is going up, not down. So I don't know where she's getting that from. And where she says people are worried about the deficit, the people who have a real stake in worrying about the deficit are investors, bond investors. Interest rates are at near record lows in all of the G-7 countries. I think she's got a fantasy, which is a popular European fantasy, which bears no relationship to what's actually happening. WILL: For 20 months now, we've had the most rapid expansion of federal discretionary spending in our history, not just in nominal dollars, but relative to the size of the economy. In that 20 months, private-sector non-farm employment has declined by 1 million jobs. We have a contrast. In 1983, when the Reagan tax cuts kicked in, we had a booming job creation which, relative to the size of this economy, would translate to 7 million new jobs. (CROSSTALK) KRUGMAN: All of this is -- that boom in federal spending never happened. Once you take out the stuff -- the special emergency spending, it just never happened. And, you know, Reagan had the help of a huge... (CROSSTALK) AMANPOUR: We are going to -- hope to have David Stockman on to talk about this sometime in the future, precisely all of this that we're talking about, because many people pointed to the Reagan years to talk about -- to talk about all of this, so we're going to try and ask him about what happened then and -- and the lessons for the future. Thank you all. This conversation continues in the green room at abcnews.com/thisweek, where you can also find our fact checks, in conjunction with PolitiFact.