'This Week' Transcript: Pelosi and Gates

So I think once you have a dialogue going with the Taliban, then you, I think, can go to the Pakistanis and the ISI and tell them, "Now, look, we're talking to the Taliban. This is the end game now. The surges will continue. Talks will continue. But you now have to give a deadline for the end of these safe havens for the Taliban leaders."

In other words, the Taliban leaders should know that their safe havens will only have a limited timeframe and negotiations will also have a limited timeframe.

AMANPOUR: Well, lots and lots to talk about on this particular issue, but let's move on a little bit. I actually asked Speaker Nancy Pelosi about Afghanistan, about the war vote, the war funding vote in the House, and whether she thought that the president needed to come out and speak more to the country about Afghanistan. This is what she said to me. Listen.


PELOSI: They're worried about their economic security, and that's what they want to hear from the president, is how we can increase -- create jobs in our country as we reduce the deficit.


AMANPOUR: So there you have it. Economic security, obviously, is the number-one preoccupation, as it always would be wherever there is these huge problems of unemployment. There is a huge debate right now, all leading economists basically disagree on how and what effect stimulus has had, what it means for future economic policy. Is it deficit reduction austerity? Is it more stimulus? Where do we go and what does it mean to people?

KRUGMAN: Well, what it means to people, I think, is a lot of confusion, which is -- which is a problem, right? They're not hearing any clear message.

You know, the way I look at it is that there are two sides in this debate -- I call them inflationistas and deflationistas -- that were -- one side, the inflationistas, have said, "Oh, god, we have this -- we have budget deficits. The Fed is printing money. We're going to have inflation. Interest rates are going to go sky-high."

The deflationistas have said, you know, that we've had a major financial crisis. In the fact of that, the Obama stimulus plan is too small, interest rates are going to stay low because nobody wants to spend, the -- you know, that the risk is deflation.

So far, the deflationistas have been totally right. What's interesting is that the political debate is being dominated by the people who've been wrong about everything up to this point, who said, well, you know, actually, interest rates are lower. They just hit a -- more than a year low just now.

But they keep on saying, oh, but it's any day now. We've got to be afraid of those people who aren't visible in the markets and so on.

But this is a -- there is this problem that people have got this austerity notion in their mind, not based on anything that's actually happening, but based upon this hypothetical notion and because it appeals to people who just feel that there has to be some reason to make people suffer even more.

AMANPOUR: Let me put up this graphic, talking about the gross domestic product of the second quarter. Growth is happening, but at 2.4 percent, which is slower than most people wanted. I see you shaking your head in this debate. The Financial Times is basically saying that the deficit talk is a phony, rhetorical war and that actually stimulus has had some effect.

You're shaking your head.

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