-- THIS IS A RUSH TRANSCRIPT FOR 'THIS WEEK' ON JANUARY 10, 2016 and it will be updated.
But can he stop Ted Cruz in Iowa?
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SEN. TED CRUZ (R-TX), PRESIDENTIAL CANDIDATE: I think my record is stronger than his.
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ANNOUNCER: And is this man the Republican establishment's last best hope?
Plus, Hillary's surprise battle with Bernie, as Sanders surges in the early states. The gloves are off.
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ANNOUNCER: Senator Sanders is with us live.
And an exclusive inside look at what Iowa voters think about both sides of the race.
And a brand new forecast on Iowa and New Hampshire from the man who got them all right in 2012.
From ABC News, THIS WEEK WITH GEORGE STEPHANOPOULOS begins now.
GEORGE STEPHANOPOULOS, ABC HOST: Good morning.
It has already been one of the most volatile and unpredictable primary campaigns ever. And now, the first votes in the race for president are coming fast.
With just three weeks until Iowa, we start out with an exclusive look at how Iowa voters are thinking about this race.
Here's Jon Karl.
JONATHAN KARL, ABC NEWS CORRESPONDENT: With just 22 days until voting in Iowa, this weekend, frontrunners Donald Trump and Ted Cruz barnstormed the Hawkeye State. While Trump still holds his national lead, Cruz is on top in this year's first poll of Iowa voters. And now Cruz is questioning whether Trump has what it takes to win in Iowa.
CRUZ: It's very time intensive. It's labor intensive. You don't do it sitting back in the easy chair. You don't do it from a TV studio in Manhattan.
UNIDENTIFIED MALE: How many of you say Trump is going to win?
Raise your hands.
Oh, he won't be happy with that. Only two of you.
How many of you say Ted Cruz is going to win?
If Trump is the nominee, is there anyone in this room who would not vote for him?
UNIDENTIFIED FEMALE: Unfortunately.
KARL: But others find a lot to like about him.
UNIDENTIFIED MALE: The man knows how to negotiate. He knows how to find the right people.
KARL: Trump's first television ad, promoting his Muslim ban, generated the expected buzz.
UNIDENTIFIED MALE: But does he do it in a way that's constructive?
UNIDENTIFIED FEMALE: No.
UNIDENTIFIED MALE: No.
UNIDENTIFIED FEMALE: No.
UNIDENTIFIED MALE: Absolutely not.
UNIDENTIFIED FEMALE: (INAUDIBLE).
KARL: With this group, Trump's questions about whether Cruz was born in Canada to an American mother, is eligible to be president, actually appeared to backfire.
UNIDENTIFIED MALE: It exposes Trump as not serious. Just a few months ago, he said his strongest lawyers said it's a settled issue and Cruz is eligible.
KARL: One candidate in the back of the pack is getting a second look.
Raise your hands.
UNIDENTIFIED FEMALE: Christie is incredibly articulate. He thinks fast on his feet. He has dialed back his sarcastic outbursts.
KARL: But some are skeptical of Senator Marco Rubio.
UNIDENTIFIED MALE: For me, it's the whole Obama II thing. And I think we've suffered through that the last eight years.
UNIDENTIFIED FEMALE: I like Rubio. My main concern with him is the fact that he doesn't have years and years and years of experience.
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KARL: Keep in mind, that was a focus group of Republicans in Iowa, which may be the only state in the union where Donald Trump doesn't lead in the polls.
Trump still thinks he can pull off a win there. And over the weekend, he was practically taunting Republicans in the state, saying, quote, "Iowa, you haven't been good at picking winners, folks. If you pick me, you're going to pick a winner" -- George.
STEPHANOPOULOS: OK, Jon.
Thanks very much.
KARL: That's right, George.
Now, primary contests are notoriously hard to forecast. But FiveThirtyEight is, for the first time this cycle, breaking down the chances each candidate has to win in Iowa and New Hampshire. They're doing it by combining all the latest polling numbers with data on how the various polls and endorsements have predicted or failed to predict results in the past.
Well, Senator Ted Cruz and Donald Trump are neck and neck in the polls, as of today, FiveThirtyEight gives Cruz a 44 percent chance of winning the Iowa Caucus. Trump comes in second, with a 21 percent chance of winning.
And here's a surprise. Based on recent endorsements and momentum in the polls, FiveThirtyEight gives Senator Marco Rubio a 20 percent chance of winning in Iowa. Jeb Bush, Ben Carson, trail far behind to round out the top five.
Now, over in New Hampshire, Trump leads by a wide margin in every poll and FiveThirtyEight puts him as the clear frontrunner with a 34 percent chance of winning. FiveThirtyEight gives Rubio a 26 percent chance of winning in New Hampshire. They are trailed by Cruz, John Kasich and Jeb Bush.
And George, despite some momentum, FiveThirtyEight is giving Chris Christie only a 7 percent chance of winning in New Hampshire.
STEPHANOPOULOS: OK, Jon Karl, thanks very much.
Let’s take this now to Senator Marco Rubio, who joins us from Miami this morning.
You saw those projections right there, Senator Rubio.
Thank you for joining us.
What do you make of them?
And what do you need to do to overtake Donald Trump and Ted Cruz?
SEN. MARCO RUBIO (R-FL), PRESIDENTIAL CANDIDATE: Well, we’re going to keep doing what we’re doing now. Look, there’s a lot of voters in these early states, particularly in Iowa, but also in New Hampshire, that are going to make their decisions very late. They’re still shopping. You can see it. You can sense it in your conversations.
We’ve gotten some people that are starting to make firm commitments, but there are others that are still looking.
Look, three weeks for an Iowa caucus-goer is a long time. And they’re going to be very careful about making their choice. They have only one vote. They know the important role they play. And we feel very, very confident about where we stand and where we’re going to be when this is over.
STEPHANOPOULOS: You heard those Iowa voters. Some concerns about your experience, one voter calling you Obama II. And that attack has been picked up by Chris Christie, Governor Christie, who’s also hitting on your experience.
He’s made a point about you in a pretty graphic way this week.
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GOV. CHRIS CHRISTIE (R-NJ), PRESIDENTIAL CANDIDATE: This guy’s been spoon-fed every victory he’s ever had in his life.
Is that the kind of person that we want to put on the stage against Hillary Clinton?
I don’t think so. She'll pat him on the head and then cut his heart out.
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STEPHANOPOULOS: Cut your heart out.
What do you make of that?
RUBIO: Well, look, Chris doesn’t want to have a debate about his record. I -- you know, it’s not personal, but Chris’s record, for a Republican, is what we not need. He’s a supporter of common core. He’s personally given a donation to Planned Parenthood. He’s a supporter of gun rights. That’s why -- gun control. That’s why he got into office to begin with, was to run for gun control.
I mean, the last thing we need in our Republican nominee is someone who agrees with Obama and Hillary Clinton on many of the key issues before this country.
So he doesn’t want to have a debate on those issues, so he says these sorts of things...
STEPHANOPOULOS: But what do you -- what do you make about that?
RUBIO: The bottom of line is...
STEPHANOPOULOS: What do you make about that experience that you're coming...
RUBIO: Go ahead.
STEPHANOPOULOS: -- coming -- coming from the voters, worried that you don’t have the experience, or that you could be another Obama?
RUBIO: Well, first of all, Obama’s not a failure because he was a senator. Obama’s a failure but he’s had seven years of presidential experience and he’s still making enormous mistakes. So clearly it wasn’t experience. It was his ideas and his ideologies are flawed.
But the broader point is it is true there are people running for president that have lived longer than I have. But there is no one running as a Republican for president who has more experience, has shown better judgment or has better understanding of our national security issues than I do.
And that’s the number one job of a president, is to be the commander in chief. And none of these other people running have more experience on that issue or have shown better judgment, especially over the last five years, than I have.
And so I’m confident that, as we continue to make that argument, the people who are troubled by that will move on and come to support us.
STEPHANOPOULOS: You’re getting hit pretty hard by Ted Cruz on the issue of immigration, taking on your support of that bipartisan Gang of Eight compromise in the Senate.
And this week, a new issue cropped up, an article in "The Daily Beast." And here’s the headline.
It says "Marco Rubio in 2004: Cheap College for Undocumented Immigrants."
They’re talking about in the Florida statehouse, you co-sponsored legislation to provide in-state tuition for undocumented immigrants.
What was your thinking then?
And do you -- do you stand behind that position now?
RUBIO: Well, first of all, a lot of these attacks are exaggerated. I don’t support amnesty. I think there has to be real consequences for violating our laws.
I continue to support and have supported and sponsored the largest border surge in American history, 20,000 new border agents, 700 miles of fencing and walls, a mandatory e-verify system, entry-exit tracking system to prevent visa overstays.
On the bill you talked about, it was a very narrowly drafted bill. You had to have a certain GPA, you had to live in the U.S. a long time, you had to graduate from a Florida high school.
It was very narrowly tailored to high-performing students who found themselves in a situation where they were brought here by their parents when they were 5, didn’t even speak another language except English and therefore couldn’t attend college because they were being charged like they were from out of state.
They still had to pay for college but they paid for what people paid when they lived in Florida.
STEPHANOPOULOS: So you stand behind that --
RUBIO: They had to be high school graduates of Florida.
Yes, of a narrowly tailored bill like that, absolutely. In fact, the Florida legislature came back years later, after I had left the legislature and passed it with a vast majorities of Republicans voting for it and a Republican governor signed it. That’s different -- we didn’t legalize anybody. That’s the issue here.
And the truth is, when it comes to Ted, he has changed his position on immigration all over the place. I mean, he used to be against birthright citizens -- or he used to be for birthright citizenship; now he says he’s against it.
He used to be for legalizing people that were here illegally. Now he says he’s against it.
He used to be for 200 percent increases in green cards, doubling them; now he says he wants none.
And he said he used to be for a 500 percent increase in guest workers. And now he says he wants zero.
So this is not consistency; this is calculation, as he’s changed this position on these issues as we get closer to Election Day.
STEPHANOPOULOS: You’ve also engaged in the national security debate with Mr. Cruz, saying the USA Freedom Act reforming America’s surveillance capabilities, that he supported, is going to make it harder to protect the homeland. Here’s what you said this week.
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RUBIO: If ISIS had lobbyists in Washington, they would’ve spent millions to support the anti-intelligence law that was just passed with the help of some Republicans now running for president.
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STEPHANOPOULOS: That language about lobbyists for ISIS is pretty tough, but the bill was also supported by Iowa Senator Charles Grassley, New Hampshire Senator Kelly Ayotte and almost 2 dozen members of Congress who support you.
Are they all in league with lobbyists for ISIS?
RUBIO: No, but they’re named for two things: the names you just mentioned supported it not because they thought it was a good idea but because if nothing passed, it would’ve expired.
And second, they’re not running for president. We’re running for commander in chief here.
And, no, we should not have a commander in chief that wants to weaken our intelligence programs.
But my quarrel with Ted on these issues of national security are not limited just to the intelligence bill. If it was just that, you can have an honest disagreement. We are already cutting military spending --
STEPHANOPOULOS: So you stand behind that language?
The lobbyists for ISIS?
RUBIO: Absolutely. There is no doubt that groups like ISIS will benefit from us having a diminished intelligence capacity.
We are now at a moment in this country where we don’t just need to keep the authorities we already have, we need to add to these programs.
Look at what happened in Philadelphia on Friday. That was a terrorist attack. The White House refuses to call it a terrorist attack. The attacker says I did this for ISIS. I’ve been inspired by ISIS.
And we have a White House that refuses to acknowledge it as a terror attack. It was a terror attack. And this is the kind of threat we now face in this country. We need additional tools for intelligence.
And my last point I want to make about this: I never believed Edward Snowden was a good public servant the way that Ted Cruz once said, that he had done a public service for America.
Edward Snowden is a traitor. He’s a -- he took our intelligence information and gave it to the Chinese and gave it to the Russians. We cannot afford to have a commander in chief who thinks people like Edward Snowden are doing a good public service.
STEPHANOPOULOS: President Obama made a brand new bid for background checks on gun sales this week. And one of your recent ads said that President Obama’s plan would take away our guns. The president took on this argument this week. Take a look.
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BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The conversation has to be based on facts and truth and what we’re actually proposing, not some, you know, imaginary fiction in which Obama’s trying to take away your guns.
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STEPHANOPOULOS: Fact checkers have called you out on that as well.
Where has the president called proposals for taking away guns?
He has not done that.
RUBIO: Well, his proposal for everything is to -- is to infringe on the Second Amendment. There’s a terrorist attack in San Bernardino; before even the facts are known, he immediately jumps and says, we need gun control.
STEPHANOPOULOS: But take away our guns?
RUBIO: This is what he always resorts to.
Well, if he could he would. Obviously he knows he’s constrained by the Second Amendment so what he tries to do is chip away at it every chance he gets.
STEPHANOPOULOS: So you can see --
RUBIO: -- he wants this debate to be about -- George, if he could he would. And let me tell you what he’s trying to do. He is trying to keep guns out of the hands of law-abiding citizens by continuing to put new restrictions on our gun rights.
Let me give you an example. He says he wants -- Barack Obama says he wants this debate to be about fact and truth. Good. Let’s have it about fact and truth.
Here’s the fact and here’s the truth: none of the attacks that he is talking about, none of these horrible, horrifying tragedies that have occurred that he cites as the rationale for these measures that he’s taking, not a single one of them would have been prevented by anything he’s proposing.
And the reason why is because killers and criminals do not care what the gun laws are. They are not going to go to someone that conducts background checks. They will continue to get their guns the way they have always gotten their guns: from the black markets, stolen guns, et cetera.
So this is absurd. And the only people that are going to follow this law are law-abiding people. This is nothing but an effort from the Left to continue to chip away at the Second Amendment rights of law-abiding Americans.
STEPHANOPOULOS: Finally, Senator, we heard this news overnight that Sean Penn, the actor, interviewed the Mexican drug leader, El Chapo, a few months back and had follow -- several follow-ups, interviews. The Mexican authorities are now investigating.
Do you have any problem with what he did?
RUBIO: Yes, I’m not -- look, I think Sean Penn is not someone I spend a lot of time thinking about. I didn’t even know he was still around. I think he made movies a long time ago or something.
I don’t -- he interviewed El Chapo, we, I’ll guess, use the interview that he had in order to find him. That’s -- the Mexicans did, that’s fantastic. I hope they extradite El Chapo to the United States.
And, you know, if one of these American actors, who have benefited from the greatness of this country, who have made money from our free enterprise system, want to go fawn all over a criminal and a drug trafficker in their interviews, they have a constitutional right to do it. I find it grotesque.
STEPHANOPOULOS: Senator Rubio, thanks for joining us this morning.
RUBIO: Thank you.
STEPHANOPOULOS: The Democrats up next. Brand-new polls out this morning show Clinton and sanders neck-and-neck in both Iowa and New Hampshire. That as the Clinton campaign launching new attacks and Bernie Sanders join us live in just two minutes.
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UNIDENTIFIED MALE: Think about it:
UNIDENTIFIED MALE: I would bomb the (INAUDIBLE) out of them.
UNIDENTIFIED MALE: Wonder if he's Republican?
UNIDENTIFIED MALE: Carpet bomb them into oblivion.
UNIDENTIFIED MALE: Could actually be president?
UNIDENTIFIED MALE: Sit down and suck up.
UNIDENTIFIED MALE: They're backward, even dangerous.
So ask yourself: who's the one candidate who can stop them?
(END VIDEO CLIP)
STEPHANOPOULOS: Brand-new ad for Hillary Clinton on the issue of electability as we have brand-new polls this morning, showing tight, tight races in both Iowa and New Hampshire.
Here they are from NBC, the Iowa caucuses show that Hillary Clinton holding just a 3-point lead over Bernie Sanders, 48-45, and in New Hampshire, Bernie Sanders ahead, 50-46 over Hillary Clinton, Senator Sanders joins us this morning from Iowa.
Thank you for joining us this morning, Senator. Neck-and-neck race.
SANDERS: It is. You know, George, when you consider how far we have come over the last eight months, it really is incredible. We started at national polls at about 3 percent. I think most of the recent polls have us ahead in New Hampshire.
I think we're gaining steam here in Iowa. I think we have an excellent chance to win here. And I think our message, the message that there's something profoundly wrong with the middle class continues to decline and almost all new wealth and income is going to the top 1 percent, that is a message that is resonating.
People are tired of establishment politics, establishment economics. They want change and that's what we're fighting for.
STEPHANOPOULOS: It does appear that Secretary Clinton could hit a nerve, though, with this issue of electability. You know, we did this -- conducted this focus group over the weekend, Frank Luntz (ph) conducted it.
And some of the voters had some concerns about you and the electability issue. Let's listen.
UNIDENTIFIED FEMALE: My biggest thing is Bernie being (INAUDIBLE).
UNIDENTIFIED FEMALE: I (INAUDIBLE).
And I see how that office ages people. Bernie won't make it.
UNIDENTIFIED MALE: Can he go the distance?
Is in my mind, no.
UNIDENTIFIED MALE: One of the biggest flaws of Bernie Sanders was this --
UNIDENTIFIED FEMALE: Yes.
UNIDENTIFIED MALE: -- or state that he was (INAUDIBLE).
UNIDENTIFIED FEMALE: (INAUDIBLE) Communism.
STEPHANOPOULOS: There was issues of socialism, Communism and age getting in the way of your electability.
How do you reassure those voters?
SANDERS: Well, for a start, I would urge those voters, the voters all over this country, to take a look at recent polls in which Bernie Sanders is matched with Republican candidates Trump on down. Hillary Clinton is matched with Republican candidates.
And do you know what?
In many of those polls, including the major recent one, the Quinnipiac Poll, we beat Trump nationally by 13 points. Secretary Clinton beat him by 7 points.
Look at a recent New Hampshire poll, just in New Hampshire. We did much, much better against the Republican candidates than did Hillary Clinton.
So if people are concerned about electability, and Democrats should be very concerned, because we certainly do not want to see some right-wing extremist in the White House, I think Bernie Sanders is the candidate.
We're doing much better with Independents. We even draw a little bit better with Republicans.
So I believe, quite honestly, that with the enthusiasm that we are generating, with the kind of voter turnout that I think we can bring out -- look, Republicans win when people are demoralized and the voter turnout is low. Democrats and progressives when I when working people and low income people and young people get involved in the political process.
SANDERS: George, I think any objective look at our campaigns would suggest we have the energy, we can drive a large voter turnout.
STEPHANOPOULOS: So the fact that you're a democratic socialist, the fact that you'll be 75 on Election Day, not an issue?
SANDERS: I think the fact that we are bringing forth a message on issue after issue that are -- are being supported by the American people, whether it's job creation, raising the minimum wage, climate change, making public colleges and universities -- public colleges and universities tuition-free, those are the issues that the American people are being galvanized around.
They want us to take on the billionaire class and the greed of corporate America. That's what our campaign is about. And that's why I think we have the momentum.
STEPHANOPOULOS: That issue does seem to be working for you.
Secretary Clinton making quite an issue of your background on gun control, particularly the vote you had back in the past, I think it was in 2005, to shield -- to give immunity to gun manufacturers. She actually called in to "Hard Ball" just the other day.
Here's what she said.
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HILLARY CLINTON (D), PRESIDENTIAL CANDIDATE: When it really mattered, Senator Sanders voted with the gun lobbies and I voted against the gun lobby. So this is a significant difference and it's important that, you know, maybe it's time for Senator Sanders to stand up and say I got this one wrong. But he hasn't.
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STEPHANOPOULOS: Did you get it wrong?
SANDERS: Well, what you had was a complicated piece of legislation. There were aspects of it that were absolutely right. There were aspects of it of -- that were wrong.
But as the Secretary knows, that for many weeks now, I said of course I'll be happy to take a look at that complicated piece of legislation and deal with it and get rid of those parts of...
STEPHANOPOULOS: Can you say right now...
SANDERS: -- parts of it...
STEPHANOPOULOS: -- that you would vote for it?
SANDERS: -- that are wrong.
I will vote to revise that bill. There are parts of it that made sense to me.
Look George, if you have a small gun shop owner in Northern Vermont who sells a gun legally to somebody and then, you know, something happens to that guy, he goes nuts or something, and he kills somebody, should the gun shop owner be held liable?
I think not.
On the other hand, if you have a manufacturer that is sending guns into an area and really knows that those guns are not being used by the people or bought by the people in that area but are being sold to criminals, should we hold that manufacturer liable?
So I think, you know, I am absolutely willing, as I've said for many, many weeks, if not months, to take another look at that piece of legislation...
SANDERS: But by the way, you know, I would ask Secretary Clinton why she is not supporting legislation that I've introduced that would lift the cap on taxable income for Social Security so we could expand Social Security benefits.
Why is she not supporting a major piece of legislation in the House and the Senate for paid family and medical leave so that moms who have a baby can get three months off with pay?
I wait to hear for Secretary Clinton to tell us why she is not supporting that legislation that the American people want to hear.
STEPHANOPOULOS: It's clear the debate is going to be joined on many issues. But just to be clear on this issue, you can't say today that you would vote for that 2005 legislation, you'd vote for some revisions on the manufacturers, but you're not prepared to say that the vote you made back in 2005 was wrong?
SANDERS: Look, I've cast over 10,000 votes in my life and many pieces of legislation are complicated. They have good stuff in it. They have bad stuff in it.
I am absolutely willing to take another look at that legislation and get rid of the onerous provisions. When gun manufacturers, for example, are selling guns into an area and know that those guns are gg into the hands of criminals, absolutely, those gun manufacturers should be held accountable.
STEPHANOPOULOS: Finally, do you have any problem with what Sean Penn did with "El Chapo," that interview in "Rolling Stone?"
SANDERS: I haven't really thought about it much. I've been kind of running around Iowa. I saw just -- I read a little bit about it. So I have nothing much profound to say about it, except that I'm glad this, you know, this drug cartel leader has been caught. People like him have done incredible harm to people in our country and to his own country.
STEPHANOPOULOS: Senator Sanders, thanks very much for your time this morning.
SANDERS: Thank you.
STEPHANOPOULOS: When we come back, the White House chief of staff and Senate majority leader, Mitch McConnell, ahead of President Obama's final State of the Union Tuesday night.
And later, the Powerhouse Roundtable on a rollicking first week of Campaign 2016.
STEPHANOPOULOS: The birther issue is back.
Donald Trump and John McCain question whether Ted Cruz is eligible to be president.
The roundtable weighs in on that and all the week's politics, when we come back.
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OBAMA: I have no more campaigns to run. My only agenda -- I know, because I won both of them.
(END VIDEO CLIP)
STEPHANOPOULOS: There is President Obama from last year's State of the Union and ahead of this year's final State of the Union, we talked to the White House chief of staff, Denis McDonough.
Denis, thanks for joining us this morning.
You and your colleague have said that the president's speech on Tuesday is going to be non-traditional.
What does that mean?
How will it be different?
DENIS MCDONOUGH, WHITE HOUSE CHIEF OF STAFF: Well, George, thanks for having me on the show.
He gathered us together late last year and he said, look, he doesn't want this to be your traditional policy speech that outlined a series of proposals. We'll have a lot of policy during the course of this year.
Rather, he wanted to step back and take a look at the future of this country, the challenges we're going through, making sure that we're focused on an economy that gives everybody a fair shot, this changing economy, making sure that we're using all the elements of our national power to keep the country safe.
And, most importantly, I think, in this election year, making sure that we have everybody able to take part in our democracy, not the select few, because he knows -- and this is what he’ll talk about on Tuesday night thematically -- the United States succeeds when we draw on all 350 million Americans that we have in this country, wherever they come from, whatever walk of life they are, whatever party they are.
So he’ll be talking about the future. He’ll be very optimistic. He’ll be very action-oriented. But it won’t be your traditional policy speech per se.
STEPHANOPOULOS: Is he focusing on the long term because he knows he can’t get much out of Congress this year?
MCDONOUGH: Well, you know, where we’ll get some stuff out of Congress this year, if you look back a year ago when everybody on these shows was telling us that we were gone after the midterms, we obviously went out and got ourselves a climate deal, a historic one at that.
We got out an Iran deal. We got a very good budget deal that invests in middle class families. And we got a Cuba deal, for example, during the course of the last year.
So we have just as high hopes for this year. But what he wants to do on Tuesday night is talk about the kind of country that he hopes will be present, not just during the course of this year and this election year, but rather over the course of the next 20 years.
And he feels very optimistic about this future. And that, by the way, is something that’s a little different than some of the doom and gloom that we hear from the Republican candidates out there every day.
STEPHANOPOULOS: They’ve also promised to undo what the president has done on climate change, on immigration, on guns.
How worried are you that the progress that you just cited is ephemeral?
MCDONOUGH: Well, look, we -- my job is to worry, George, so I worry every day about a lot of different things.
But I think what the next president is going to find when they come in here is that that climate deal united the world for the first time on one of the major challenges we face.
On the Iran deal, Iran now does not have a nuclear weapon and has no -- if we get all these steps now in the next several weeks ironed out, that they have to carry out to get to what we call implementation day, all their paths to a nuclear bomb will be blocked.
So we feel really good about these deals and we think the next president’s going to come in here and pick them up where we leave them.
STEPHANOPOULOS: The president also pushing hard on the issue of guns. We just spoke with Senator Marco Rubio. He said that if the president could take away our guns, he would.
MCDONOUGH: Boy, you know, it’s hard for me to keep these guys apart. I’ve been following all morning on these shows. And the doom and gloom that they’re pitching to the American people is both counterfactual and not consistent with what we see every day.
This kind of stuff appears to work for their politics but is not based on any reality. And this assertion that he made to you that somehow the president is going to do that is just not right.
STEPHANOPOULOS: Finally, this issue about Chapo, perhaps (INAUDIBLE) the United States, Sean Penn doing that extraordinary interview with him for "Rolling Stone."
Senator Rubio called that "grotesque."
What is your response?
Mexican authorities are investigating.
Do you think the U.S. should investigate as well?
MCDONOUGH: What I think is it’s very good news that El Chapo is back behind bars. I was appalled by his bragging, in particular, George, about an epidemic that’s sweeping this country on heroin addiction.
I was appalled by his bragging to the interviewers in "Rolling Stone" that he moves more heroin than anybody in the world.
We are seeing an epidemic of heroin and opioid abuse in this country. The president’s going to get that back in the box.
And we hope that Senator Rubio, if he is appalled about this, will stop those in his party who would repeal the Affordable Care Act, which has done more for mental health treatment and addiction treatment and substance abuse treatment than anything that we’ve seen in decades.
And that’s the kind of real policy question I’m focused on today. We’ll let somebody else sort out what Sean Penn did and didn’t do. El Chapo is where he should be. He should stay there. And we got to get this heroin off American streets.
STEPHANOPOULOS: Mr. McDonough, thanks very much for your time this morning.
MCDONOUGH: Thanks so much, George.
STEPHANOPOULOS: Let's get a response now from the Republican side. We're joined by the Senate majority leader, Mitch McConnell.
Senator McConnell, thank you for joining us this morning. You just heard Mr. McDonough there, saying it's going to be a non-traditional State of the Union, non-traditional response?
SEN. MITCH MCCONNELL (R-KY), MAJORITY LEADER: Well, look, the president is going, I assume, to talk about the future and try to paint a rosy picture where one does not exist. What we'd love to hear from the president is a real plan to defeat ISIL.
Instead he withdrew troops from Iran and from Iraq, entered into a very bad nuclear deal with Iran, the whole Middle East is in terrible shape. Let me just refer to what Jimmy Carter said at the beginning of the summer, when he was asked about the president's foreign policy.
He said he couldn't think of a single place in the world where we were better off now than we were when the president came to office.
So I'd like the president to step up here in the last year and lay out a plan for the defeat of ISIL. It's a good starting place.
STEPHANOPOULOS: Will the Senate give him new authority to fight that?
Or is as Speaker Ryan is saying, perhaps he wants to schedule a vote on that.
Will the Senate do that as well?
MCCONNELL: Well, the problem will -- is -- what the president submitted for authorization to use military force restricted what he could do. I can't imagine that I would be voting for an authorization to use military force that Barack Obama would sign because the one he submitted for us to take a look at restricted his activities, what he could do based upon conditions on the ground.
But I don't want to tie the hands of the next president. The next president may want to actually defeat ISIL. And I think an AUMF, an authorization to use military force, that ties the president's hands behind his back is not something I would want to do to a new president who's going to have to clean up this mess, created by all of this passivity over the last eight years.
STEPHANOPOULOS: What's the most important piece of legislation you could put on the president's desk this year that he will sign?
MCCONNELL: Well, look, I think if this may be a little bit boring to the public, but we haven't passed every single bill that runs the government, the appropriation bill, since 1994. We've already agreed that what we're going to spend next year in our continuing effort to end dysfunction in Congress, which we made a huge step forward on in 2015, I think we ought to on a bipartisan basis step up to the challenge of getting every single bill that funds the government passed individually, not in a big clump of bills at the end, and get it on the president's desk.
That would be noteworthy and hasn't happened in two decades.
STEPHANOPOULOS: Back in 2008, there was bipartisan legislation passed unanimously in the Senate declaring that Senator John McCain, who was a natural-born citizen, even though he was born in a territory, I know you don't like to get in the middle of a 2016 campaign, but there have been questions raised about Ted Cruz's eligibility to be president.
Will the Senate pass legislation saying that he is also a natural-born citizen?
MCCONNELL: Well, you're right. I've made a point of staying out of the presidential race. These guys are all running their races as hard as they can and --
STEPHANOPOULOS: -- responsibility --
MCCONNELL: -- to the -- I don't think the Senate ought to get in the middle of it.
STEPHANOPOULOS: Even though they did in 2008?
MCCONNELL: I just don't think the Senate ought to get into the middle of this. These guys are all slugging it out in Iowa and New Hampshire. We'll have a nominee hopefully by sometime in the spring.
STEPHANOPOULOS: Sometime in the spring. But you know, this has been kind of an extraordinary race, as I know you know. You see Donald Trump and Ted Cruz at the top of the primary field. Senator Cruz has called you a liar. Trump has accused you and Speaker Ryan of gross incompetence. There seems -- they seem to be tapping into a real anger at the Republican leadership out there in the country.
What does it say to you that they're the front-runners for the Republican race right now?
MCCONNELL: It says that we ought to do our work, that the American people were elected us to do and let the presidential race play out.
STEPHANOPOULOS: No worry that Donald Trump would put your majority at risk?
MCCONNELL: We're going to do the job the American people elected us to do and presidential candidates will all slug it out and at some point this year, hopefully, we'll have a good nominee.
STEPHANOPOULOS: You are disciplined, Senator McConnell. Thank you very much for joining us this morning.
MCCONNELL: Thank you.
STEPHANOPOULOS: The roundtable's up next.
Plus, our Powerhouse Puzzler inspired by this week's State of the Union Address.
Which president gave the first televised State of the Union?
The answer when we come back.
(BEGIN VIDEO CLIP)
DONALD TRUMP (R), PRESIDENTIAL CANDIDATE: He was born in Canada. And I say to Ted -- and as a Republican, I say it, because I think it's very important, you've got to get it straightened out.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
SEN. JOHN MCCAIN (R), ARIZONA: I think there is a question. I am not a constitutional scholar on that, but I think it's worth looking into. I don't think it's illegitimate to look into it.
(END VIDEO CLIP)
(BEGIN VIDEO CLIP)
CRUZ: Well, I've Tweeted out a response to Donald Trump's raising questions about my natural-born citizenship. It was a link to Fonzie jumping the shark and I think I'm going to let my response stick with that story.
(END VIDEO CLIP)
STEPHANOPOULOS: Who knew that "Happy Days" would come back in 2016, those questions about Ted Cruz's eligibility on the trail this week?
Let's talk about it now in our roundtable.
I'm joined by our political analyst, Matthew Dowd; television and radio host Tavis Smiley, also the author of "The Covenant with Black America -- Ten Years Later"; Hugh Hewitt, host of "The Hugh Hewitt Show"; and our own political analyst, Democratic strategist Donna Brazile.
And Matthew Dowd, let me begin with you.
Boy, the law does seem to be pretty settled on what a natural-born citizen is. That doesn't mean it's not an issue in this presidential race.
MATTHEW DOWD, ABC NEWS POLITICAL ANALYST: No. There's -- like many of the issues that have come up in this presidential race, even if we think it's settled, even if we think, even if the candidate himself who raised the issue said it was settled, it doesn't seem to be settled.
This is, I think, we're -- we're in a campaign in a time where a series of these events are going to keep happening over and over and over again over the course of the next year.
STEPHANOPOULOS: Hugh, you're tapped into the Republican base, the Republican primary voters. They're listeners of yours, as well.
How does an issue like this get traction?
HUGH HEWITT, HOST, "THE HUGH HEWITT SHOW": It doesn't. It -- there's no debate. There's one single legal scholar in America who believes this is an open question if Ted Cruz is qualified.
But I am reminded of, when I was a lad, there was a series of three fights between Joe Frazier and Muhammad Ali. And they were epic battles. And I think Iowa, New Hampshire and South Carolina, between Ted Cruz and Donald Trump, are going to be that kind of slugfest.
And, on the other side, there's who's got the George Foreman line?
Someone is going to emerge on the other side but...
HEWITT: -- but those two are just going to...
STEPHANOPOULOS: -- it brought back memories for me to listen to those fights on...
UNIDENTIFIED MALE: -- boy, George.
STEPHANOPOULOS: But meanwhile, you know, you hear talks about this epic battle right now.
Donna Brazile, you see Donald Trump at the top of these polls, especially in New Hampshire, holding so strong.
DONNA BRAZILE, DEMOCRATIC STRATEGIST: I mean no one is a bigger birther than Donald Trump. I mean he did it with President Obama and now he's doing it to Ted Cruz.
And it puts Ted Cruz in a very awkward position, as somebody who once peddled that kind of hysteria, as well.
I mean he's running as the son of an immigrant, a proud one, an American success story. And he's running as a fierce opponent of immigration reform.
So here you have now Ted Cruz trying to prove that his mother Eleanor has a -- has an American birth certificate from Delaware. It's -- it's ironic. I'm going to give into the -- I'm not going to mess with the Republican primary, but let them...
UNIDENTIFIED MALE: I'm sure you're not...
BRAZILE: -- fight it out.
But I do think he's qualified. That doesn't mean that I believe he would make a good president.
STEPHANOPOULOS: Are you going to mess with the Republican primary?
TAVIS SMILEY, HOST, "THE TAVIS SMILEY SHOW": I'm happy to see Donald Trump go after Cruz on this issue because, to Donna's point, they did it so...
STEPHANOPOULOS: Even though there's nothing to it?
SMILEY: -- well, they did it so -- there's nothing to it, but let me be clear, there is nothing to it. But they were so aggressive...
SMILEY: -- going after President Obama on nothing to that, either a few years ago. So I'm tickled by it.
What troubles me, though, is that Trump is still, to my mind, at least, an unrepentant, irascible religious and racial arsonist.
And so what about how Donald Trump is rising in the polls. He can't do that absent the kind of campaign he's running, the issues that he's raising. And for us to just say Donald Trump is rising in the polls and not connect that to the base message that he's putting out there, I think...
STEPHANOPOULOS: Well, that said, let me just ask you...
STEPHANOPOULOS: -- Matthew Dowd, I was surprised this week to talk to a top Republican strategist who said, for the first time, you have to accept the fact that of all the candidates out there, Donald Trump is the most likely to be the nominee based on today's facts.
DOWD: Well, and I said that, you know, because you and I have talked about it, I said this then over the summer. When you look at the data over the course of the primaries that have been held by Republicans, he is most in line with a candidate who's won the nomination, not somebody that's fallen off in the course of this.
But I think it's really important to understand, I think, what's going on on both sides of this. And Donald Trump is represented on one side and Bernie Sanders is represented on the other side of this, for totally different reasons, with totally different supporters.
There is an unbelievable frustration with the duopoly of the two parties in this country and the establishment of the two parties in this country.
People don't like what's happened. The middle class are pissed off. They've been angry for 25 years. They've seen no rise in their income. And they think Washington, DC only serves a small group of people, whatever that may be.
And Bernie Sanders is gaining the benefit of that against Hillary Clinton, the establishment candidate, and Donald Trump, for everything you say about him, for the crazy stuff he says...
DOWD: -- he does represent a group of voters in this country who are angry at what's going on in Washington...
SMILEY: I hear your point, Matthew. And I am tickled by the fact that the establishment candidates are not running (INAUDIBLE) as strong as they have in the past. I'm OK with seeing somebody from the outside do well.
But I get tired of, respectfully, of us lumping Trump and Sanders in the same group. I take your point. They are two different kinds of candidates. You're right. They're appealing for different reasons.
But one of these guys is being covered, but he's not being condemned. I'm talking, of course, about Donald Trump. That is not the message that Bernie Sanders is putting out. They're two different (INAUDIBLE)...
UNIDENTIFIED MALE: Of course I'm not going to condemn him, Tavis, because he's talking about issues that no one else will talk about. Donald Trump is going to win New Hampshire on the basis of candor, not -- and his combativeness.
SMILEY: And hate.
UNIDENTIFIED MALE: This morning...
SMILEY: And hate.
UNIDENTIFIED MALE: And this morning, on every national show, I'll bet you no one brings up 18 USC 1924, a statute that former Secretary of State Clinton almost certainly broke, as was released on Friday. I'll bet you it's not discussed anywhere, but that Donald Trump will discuss it.
And when he does that...
STEPHANOPOULOS: Can you explain what the statute is (INAUDIBLE)...
UNIDENTIFIED MALE: The statute prohibits the misuse of classified information. And she directed Jake Sullivan to alter and send over a non-secure system secure communications.
It's clearly a felony. I think that she's going to be indicted.
Nevertheless, no one is going to talk about that and because Trump will, he scores, not because of hatred, but because of candor.
BRAZILE: Oh, my God. You can't -- he has demonized just about every group of Americans. He's demonized immigrants. He's demonized -- and banning Muslims. He's essentially insulted women, even in trying to defend him -- his own record on sexism, he went one step further with vulgarity.
Look, Donald Trump might be appealing to those -- to a vast majority of Republican base voters, but I still have a problem with the way in which he goes out...
UNIDENTIFIED MALE: And I fought with him.
UNIDENTIFIED MALE: I'm the only one here who's been in a knock-down...
UNIDENTIFIED MALE: -- I've got my Trump...
STEPHANOPOULOS: You're not the only one.
UNIDENTIFIED MALE: Let's just make it clear, as -- if I say that Donald Trump could be or would be or will be the GOP nominee and he represents some anger in this country, it does not mean I support what Donald Trump says and does...
UNIDENTIFIED MALE: And I think Donald Trump, just like George Wallace, the 1972 and 1968, just like many other candidates, he speaks for a certain number of issues. He does represent a certain level of this country that we all don't want to see happen in the course of the presidency.
But I think Donald Trump, you have to acknowledge the tectonic shifts that are going on in this country that allow somebody like Donald Trump to rise and somebody like Bernie Sanders to take on the dominant character in this race, Hillary Clinton, and probably beat her in Iowa and New Hampshire.
That represents a huge amount of frustration in the country.
STEPHANOPOULOS: (INAUDIBLE) so close in Iowa, Donna. I mean it looks like a real race right now, a real race in New Hampshire.
BRAZILE: I've been to both states, George. And let me just tell you this. Bernie Sanders is running a textbook campaign. He has, you know, 28 offices across the state. I've run Iowa, so I know a little bit about how to win it.
He has 101 field staff. More importantly, he has advertisements and he has momentum. He is trying to do what President Obama did in 2008, large scale elected, try to get young voters, try to get disaffected voters and non-traditional Democratic voters to join him in his cause and it is a cause.
It's not a --
BRAZILE: -- it's a cause.
STEPHANOPOULOS: The Clinton campaign seems to be bracing for losses in Iowa and New Hampshire. They still hope they can pull out. Iowa next year a lot of talk about how this delegate fight is going to take a long time.
UNIDENTIFIED MALE: I think you're right about that. His Duncan Mike's (ph) going to take a while. I think with respect to your (INAUDIBLE) Bernie Sanders is (INAUDIBLE) conversation. I think he answered the question in a way (INAUDIBLE) from me, but he gets asked this question about his age.
The answer is about 75, 85 or 95 on connecting to it on energizing young people. That's the answer. And he ought to start saying that.
STEPHANOPOULOS: That's what he's doing next week. (INAUDIBLE) --
STEPHANOPOULOS: -- (INAUDIBLE).
Meanwhile, she said what happens over on the Republican side?
Ted Cruz still ahead in Iowa. There's a big open question in Iowa, big open question whether Donald Trump's support actually measures actual caucus voters and caucus (INAUDIBLE).
What happens if Cruz wins Iowa?
What does that do to Donald Trump?
UNIDENTIFIED MALE: Ted Cruz is going to win Iowa. And every single person I've talked to says on the ground the organization's so massive and (INAUDIBLE) what it means. But I think Donald Trump's leading New Hampshire significant. So they go down to the South. And the South -- I had John Kasich tell me this week on the show he's got a firewall built in Mississippi because of Trump lies. I thought that sounded a little bit odd.
But nevertheless, there's Massachusetts on this thing. It's a wild free-for-all that could go on for a long time. Best race in my lifetime.
STEPHANOPOULOS: Room for Rubio in that?
UNIDENTIFIED MALE: Your conversation with Marco Rubio reminds everyone -- I'll go back to my boxing analogy. When we were done with all those heavyweights, you know who showed up? Sugar Ray Leonard, a generational change occurred that completely shifted the dynamics of the sport.
And it think that Rubio and, to a lesser extent, Cruz are doing that on the Republican side.
UNIDENTIFIED MALE: And I think that one of the interesting things on an Iowa caucus night and the New Hampshire primary night is this obviously we'll be looking at who won and (INAUDIBLE) but who finishes third in Iowa. It's really important. And who finishes second in New Hampshire is really important.
STEPHANOPOULOS: Does Marco Rubio -- let's say according to the polls we just saw today, Marco Rubio comes in third in Iowa and second in New Hampshire --
UNIDENTIFIED MALE: And basically John Kasich, Chris Christie, Jeb Bush and all the rest have to drop out of the race. They now understand there's no room left on for the race and that support provides Marco Rubio an opportunity to go one-on-two, one-on-two with Ted Cruz and Donald Trump in the course of this race.
UNIDENTIFIED MALE: I don't want to be left out. He knows everything. He's right about the posting --
UNIDENTIFIED MALE: And I do not think those other guys are going to get out that quickly --
UNIDENTIFIED MALE: -- my gut says to me as long as this day is shifting the way it is, those guys aren't getting out --
UNIDENTIFIED FEMALE: -- there's no reason to get out until the end of March. Give us something.
How many candidates have you worked for that -- ?
UNIDENTIFIED MALE: John Kasich can win Ohio in March 15th, take delegates from an open convention and have a --
UNIDENTIFIED FEMALE: And Jeb Bush can get his second win --
STEPHANOPOULOS: And let me just ask you, (INAUDIBLE). (INAUDIBLE) describing as (INAUDIBLE) perhaps wins Iowa.
You are talking about a very long fight.
Does that mean that no single candidate has the delegates they need going into (INAUDIBLE)?
UNIDENTIFIED MALE: It does; 12,000 -- 1,237 are necessary. It means the best convention that's in Cleveland, the best city and the best state and the best football team. And so we would love to have an open convention open for two weeks rather than one week.
UNIDENTIFIED FEMALE: I thought it was 1,324 but that's -- OK. All right, one, two, three, OK. There. Well, look, here's the point, George. It's going to take a long time for the Republicans to sort it out (INAUDIBLE) the establishment lane should be an accident scene because you have so many candidates vying for that third place.
And when you're vying for third place, it's a long way home to be number one.
UNIDENTIFIED MALE: The problem that I think the Republicans have is there's likely going to be an uncontested convention where nobody goes and where the majority -- the problem is there's no more brokers in the country. There's no more establishment does not run the Republican Party anymore. They do not run the convention.
So at that point in time who puts the -- who puts the majority together to make it work?
That's the problem I think the Republicans have.
UNIDENTIFIED MALE: Someone's going to figure out who is what they want to be when they grow up --
UNIDENTIFIED MALE: And what they stand for --
UNIDENTIFIED MALE: -- and what they stand for.
STEPHANOPOULOS: I got to say it, there's also the tidbit in "The New York Times" this morning (INAUDIBLE) Mayor Bloomberg. Those in your former mayor of New York, here -- thinking the possibility that Donald Trump could be the Republican nominee, Hillary Clinton the Democratic nominee, as done from polling I'm told, Hugh Hewitt, that that point shows legitimate three-way race.
You think --
HEWITT: Please, God.
STEPHANOPOULOS: -- could happen?
HEWITT: Please, God.
HEWITT: But Mayor Bloomberg -- we're watching do it but putting in a sports metaphor, it --
UNIDENTIFIED MALE: I think that the opportunity of -- if Ted -- if Ted Cruz or Donald Trump is the Republican nominee and Hillary Clinton is the Democratic nominee, you're going to have the most unelectable candidates competing against each other. It does go by the lane for a third party. I don't know if a billionaire from New York, if the right candidate can go win delegate votes in Missouri. I just don't think that's the right guy.
STEPHANOPOULOS: Listen, we have our "Powerhouse Puzzler" at the beginning of the first televised State of the Union.
UNIDENTIFIED MALE: Lyndon Baines Johnson.
STEPHANOPOULOS: First one in prime time, the first televised actually (INAUDIBLE).
Thank you all very much.
Up next, two of America’s top economists weigh in on what to look for in the year ahead after a rocky first week in global markets. That's after this from our ABC stations.
STEPHANOPOULOS: Financial markets open the year deep in the red after a selloff in China on Monday sparked the same all over the world. The Dow ending the week down more than 1,000 points for the worst opening of the year, despite a blockbuster jobs report on Friday. It capped the best two years of job gains in America since the boom days of the 1990s.
So what's behind the bad news-good news first week? What does it mean for your money in the year ahead?
Here to discuss that, two of the nation’s top economists, Glenn Hubbard, dean of Columbia University business school, former chair of the Council of Economic advisers under George W. Bush, and Paul Krugman, a Nobel Prize-winning economist from the City University of New York and "The New York Times”.
And let me -- Paul, let me begin with you.
You took on this question of whether China's going to cause a global crisis in your column on Friday. You heard people like George Soros say this is as bad as 2008.
PAUL KRUGMAN, NOBEL PRIZ-WINNING ECONOMIST: Well, China is really, really messed up. I'm definitely buying into the hard landing for China story now. It looks like a bad mess. Looks like Japan, when it had this big bust up only worse without the social cohesion. So China looks bad.
The question is whether you can make that a story where the rest of the world gets dragged down. And the numbers make that a hard story to tell. Now even now, even with all the globalization, the United States only sells about $1 in $7 of what we made to other countries and most of that is to Canada, Europe not to China.
So it's a little bit hard sell that story. But like I said in the column, I don't have the courage of my complacency, even though the numbers don’t work --
STEPHANOPOULOS: Did the markets overreact?
GLENN HUBBARD, COLUMBIA UNIVERSITY: No, I am worried about China. I think Paul's right that our direct exposure to China in trade is small. Exports to China are only two-thirds of a percent of GDP. But that's a known known. The known unknown is the Chinese debt problem, which is very large. But the scariest is the unknown unknown. We all know that China has a lot of negative net present (ph) value investment, it’s an economic long-term basket case. We always thought we could manage through it, I'm not sure that the short run and the long run are too different.
STEPHANOPOULOS: Which is why you had the courage of you --
KRUGMAN: Yes, the Chinese debt, we have to bear in mind, it's owing to themselves. It's not money -- you know, it's an internal Chinese debt problem. There's not a whole lot of money at risk through equity. But the problem is the world is complicated; we've seen enough crises come out of left field that we're worried -- I still think by and large, no, not a grower (ph).
STEPHANOPOULOS: And how about the jobs issue? You know, we saw that strong jobs report, Glenn Hubbard, in 292,000 jobs in December. We've had recovery seems to be on track. Long and slow recovery but remarkable job creation record for the last several years.
How much longer can it go on?
HUBBARD: Well, I think the jobs report was basically very solid report and we're seeing the duration of long-term unemployment come down. But I'm worried about a couple of things. First of all, we're not seeing as many people come back into the labor force who left as we would like. And I'm worried about long-term productivity growth.
So I think that's what has markets rattled. We'll see pretty good jobs numbers. In fact the unemployment rate will probably fall to 4.5 percent or lower in 2016. But it doesn’t mean the labor market's (INAUDIBLE).
KRUGMAN: I think the interesting thing is since the bottom, until 2010, we've added 14 million private sector jobs. And we've done that despite Dodd-Frank, which was supposed to be job killer, tax hike on the top 1 percent, which was supposed to be a job killer, ObamaCare, which was supposed to be a job killer.
Funny: none of these job killers actually have seemed to kill jobs.
Now the U.S. economy looks fundamentally pretty good in that household debt is down --
STEPHANOPOULOS: (INAUDIBLE) feel, is that because of the wage -- lack of wage rate growth?
KRUGMAN: So inequality is rising; productivity growth has been slow. So we're not seeing incomes go up that much but we are seeing employment growth. And I don't see anything obviously wrong with this advantage and inflation is opting up. The flip side of that wage number is that there's no inflation problem. So I think we're looking at some outside of debt, like China possibly bringing an end to it.
HUBBARD: Well, I think an inside event too -- the huge political uncertainty that you talked about earlier on the show today, in the United States, I think is very disruptive. And I think it has people and markets rallied.
KRUGMAN: Maybe Trump can just say to the whole country -- you're fired.
STEPHANOPOULOS: So here's the Federal Reserve. Here's Janet Yellen looking at all this right now. You going to pay more attention to the strong jobs numbers or the anxiety over China?
KRUGMAN: Oh, if I were Janet Yellen, I would be holding my fire. I wouldn’t have done the rate hike they already did because if something does go wrong, we don't have any room to maneuver. The Fed should be waiting until it really clearly sees the whites of inflation's eyes because if they're wrong, if they hiked too soon, there may be no coming back from that.
STEPHANOPOULOS: Does that mean holding off for how long?
KRUGMAN: Until you see inflation actually pick up, which we haven't seen at all yet.
HUBBARD: I don't agree. I think the Fed did the right thing by hiking. I don't think they will hike again at this meeting; probably March or a little bit later. But I think the real recent story about misallocating credit and we will see in a year's time inflation pick up. So I think the Fed's on the right path.
KRUGMAN: And I've been saying that inflation pick up for years and years.
HUBBARD: I agree.
KRUGMAN: We have no idea really. We don't know that full employment is anywhere close.
STEPHANOPOULOS: OK, Paul Krugman, Glenn Hubbard, thank you both very much.
That is all for us today. Thanks for sharing part of your Sunday with us.
Tune in Tuesday night for President Obama's final State of the Union and enjoy our special coverage starting at 9:00 Eastern. I'll see you tomorrow on "GMA."