'This Week' Transcript: Gov. Schwarzenegger

George spoke to California Governor about the economy and the GOP's future.

ByABC News
November 16, 2008, 11:04 AM


STEPHANOPOULOS: Good morning and welcome to "This Week."

Our exclusive headliner, Arnold Schwarzenegger.

SCHWARZENEGGER: Good to see you.

STEPHANOPOULOS: On more government bailouts for the economy.

STEPHANOPOULOS: President Bush is resisting that. So are your Republican colleagues.

SCHWARZENEGGER: I don't care about what anyone's philosophy is.


SCHWARZENEGGER: If they want to go and talk about core values, I think it's all nonsense talk. I think we have to just talk about one thing -- what do we need now.

STEPHANOPOULOS: And our next president.

STEPHANOPOULOS: Do you think he'll have to challenge you on the basketball court? Plus...

SEN. HILLARY RODHAM CLINTON, D-N.Y.: I'm not going to speculate or address anything.

STEPHANOPOULOS: ... will Hillary be Madam Secretary? That and the rest of the week's politics on our roundtable, with George Will, Sam Donaldson, Cokie Roberts and Paul Krugman of the New York Times. And as always, the Sunday Funnies.

UNKNOWN: Barack Obama met with Hillary Clinton on Friday to see if she would be interested in a role in his administration. Of course, said Hillary. I'll take president.

STEPHANOPOULOS: Before Sarah Palin came along, no Republican could match Arnold Schwarzenegger's star power. He's still the GOP's most powerful governor. But Schwarzenegger did not join his peers at the conference in Miami this week, so we went to him, for a wide-ranging conversation on the economy, the election, and how his partycan come back. When we sat down Friday afternoon in Los Angeles, the governor was dealing with two emergencies -- more devastating wildfires, the worst near Los Angeles in four decades; plus, a budget crisis that's forcing him to abandon his "no new taxes" pledge. That's where we began.

SCHWARZENEGGER: Through global warming, we have now a fire season all year round. We used to have fire seasons only in the fall. But now the fire seasons start in February already. So this means that we have to really upgrade and have more resources, more fire engines, more manpower, and all of this, which, of course, does costextra money.

But I think that that's what -- you know, why you have reserves in the budget.

STEPHANOPOULOS: But you have a budget crisis now.

SCHWARZENEGGER: When we have such things as the -- but we have a budget crisis as many other states have. It's simply because, you know, this is a different world now. We have been hit first by an economic slowdown. And then, because we are relying through our tax system, that is relying heavily on income tax and capital gains tax,that we have a flat economy, but our revenues took a dive by 10 percent. So that means that all of sudden, we have $11.2 billion less than anticipated. And so now we are in a special session to bring Democrats and Republicans to lead us together, and it's to cope with those kind of things through revenue increases and also makingadditional cuts.

STEPHANOPOULOS: Yet, your critics say that this one-and-a-half- cent sales tax is the most regressive form of tax. It's going to hit the people who are going through the toughest times right now the hardest.

SCHWARZENEGGER: Well, no one should be that worried about any of that, because remember, the way it works is that the governor puts up a proposal, and then the legislative leaders go and start debating over that and looking into it, if they maybe have a better idea or a different idea. So we have a very collaborative kind of approach tothe whole thing. So they may come up with different type of taxes.

I totally agree with you. It is very hard when you have to increase taxes, no matter when you have to increase taxes...

STEPHANOPOULOS: You don't want to do it.

SCHWARZENEGGER: I don't want to do it. I hate taxes. I hate the word "taxes" and all of those things. But there's certain times when you have to forget about the ideology, and, you know, all of this, and fix problems...


SCHWARZENEGGER: Because people want their fixed problems.

STEPHANOPOULOS: That is exactly the same debate that's going on in Washington right now. And there's this question whether the federal government should step in and throw a lifeline to the automobile industry, the domestic automobile industry. Should they?

SCHWARZENEGGER: Well, first of all, I think the important thing for the federal government is to look and follow through with what they intended to do in the first place with the $700 billion. I think the key thing is to show consistency to the financial community and to the American people, so you don't have to, you know, going back andforth and changing too many times, and also to show to the world's financial community that America has its act together. We know there's a problem in the economy, and here's how we fix it. So that's number one.

Number two, I think it's important for the United States and Washington to look at the states, which states are struggling, and maybe helping them out.

Number three, if they go in the direction of helping companies like the car manufacturers, I think it's very important to not just put money in, but let's go and see if they have been fiscally responsible, and if they're really operating the right way. Because right now, all of those -- you know, if you pay the auto workers or the benefits and all of those things, are maybe too high. Right now, if you compare it to Germany and to Japan and to other countries, theycan build cars cheaper, and they don't have that overhead with the amount of what they pay to the workers, the benefits they provide.

SCHWARZENEGGER: We have, like, in America, you sell a car, and you have $2,000 of each car just goes to benefits.

So I think that there's a way of reducing all of that, make them more fiscally responsible. And then, if they have to act together and have renegotiated those deals, then, yes, you can go in there and help them out, financially.

STEPHANOPOULOS: So Democrats have said that some of that $700 billion should be used for the auto industry. You're for that if the auto industry agrees to make some changes?

SCHWARZENEGGER: Make, really, changes that are fitting our time today. This is a different world. Anyone that wants to go and think that they don't have to shift down and make changes -- if it is states; if it is local government;if it is the auto industry, or any other industry, as far as that goes, they're living in a dream world or in a fantasy world.

You've got to recognize that this is the time, now, to renegotiate and to work in a different way -- like we have proposed a furlough to have, you know, our state workers, for instance, not work one day a week and not get paid for that day.

We've got to find ways to cut down, because there's not that much money around, right now. It's a different world.

STEPHANOPOULOS: So reform, but if they reform, then they can get some of the federal money?

SCHWARZENEGGER: Then I'm fine with that, yes.

STEPHANOPOULOS: You mentioned a stimulus, aid to state and local governments, as well. You've actually petitioned President Bush and leaders in Congress, saying that they should pass a stimulus package.

Now, yet President Bush is resisting that. So are your Republican colleagues in the Congress.

SCHWARZENEGGER: Well, I think that there's different ways of thinking. You know, that doesn't mean that when I, as a governor, who have my stated interest -- you know, I represent the state. You know, I don't care about what anyone's philosophy is. I will fight for the State of California. And so I proposed that we should get help from the federal government, if we can -- again, also, like the car manufacturers -- can prove that we have our fiscal house in order, and that we can solve our problems ourselves.

But give us, in this emergency kind of a situation, or in this crisis, some additional money. Help us with Medi-Cal and with some other kind of things that -- because, remember that Washington is collecting from California so much money that they are, you know, giving us 80 cents on the dollar.

So I think, when we are in a state of emergency like this, I think that Washington can give some of that money to the state. And we're not talking about a lot of money, but maybe $5 billion a year, for the next three years, until we get out of this economic crunch that we're in.

STEPHANOPOULOS: The economic advisers to President-Elect Obama see this emergency, as well. And some of them say, you know, next year we're going to have 8 percent or 9 percent unemployment in thiscountry.

The Federal Reserve is out of any room to maneuver. And they say that it might even be necessary to consider a stimulus package of $500 billion, $600 billion. Do you support that?

SCHWARZENEGGER: Well, I cannot get into the numbers, you know? But I can tell you one thing.

The most important thing, right now, is to recognize the fact that this is not the end of the economic slowdown. There is no sign that shows that there's an upswing next year.

So when you come up with rescue packages, or with economic stimulus packages and all those things, don't think just about now. Think what will happen within the next few months or the next year. Things will get worse. Unemployment will get worse. The housing crisis will get worse. The mortgage situation is going to get worse.

So what we have to do is we have to plan for that worst situation, rather than always one month at a time. And then, each month, we have to make the adjustments and adjustments and adjustments.

And that's when the people of the United States and of the various different states start losing faith in government. They say they don't have their act together. They change all the time. They change the package all the time. They have a rescue package number one, and number two, number three, and number four. Why not just comeup with a good program?

And of course, there is a good reason, because I think that no one really knows what's going to happen to the economy, 100 percent. I mean, you know, as you could see with the stock market, one day it's up 500 points, the next down -- it's down 500 points, and all of this. But I think that it is wise, and I have told our legislativeleaders to plan for the worst.

STEPHANOPOULOS: President Bush, yesterday, gave a speech, where he warned against too much interference in the market.

PRESIDENT GEORGE W. BUSH: History has shown that the greater threat to economic prosperity is not too little government involvement in the market. It is too much government involvement in the market.

SCHWARZENEGGER: Well, the sad story, here, is that it was government that created the problem in the first place. And so I think that...

STEPHANOPOULOS: What do you mean by that?

SCHWARZENEGGER: I think that government is responsible to help. But then it depends to what extent.

Well, you know, I think that all the housing crisis, the mortgage crisis, and all of those things with Fannie Mae and Freddie Mac, and the way they were pushed to give everyone the chance to be part of theAmerican dream.

It's a nice thing; it's wonderful to strive for everyone having -- being part of the American dream and have home ownership.

SCHWARZENEGGER: But you got to look at can people afford it? Who can afford it? You cannot go and give someone that has no, you know, proof of a regular income, and has no assets, and has no equityin the house, and just give them a loan, and just throw the loan after that person and hope for the best, just so that you can bundle up all those mortgage deals and sell them to someone else, and sell them to someone else, and sell them. So now we don't even know who owns what.

STEPHANOPOULOS: Yes, but those buyers and lenders bear responsibility for that too. Don't they?

SCHWARZENEGGER: No, everyone has a responsibility. Even the lender has a responsibility. Everyone was irresponsible. But I think that the whole push was -- on Fannie Mae and Freddie Mac was by government. And I think that we -- a big mistake was made in Washington by the very same people now that scream let's bail out andlet's bail out. So I think, since government has already been responsible for creating this problem, I think that government is responsible to help along. And from then on, it is a matter of what is your definition of helping along? I think the key thing is no matter who you help, they themselves first, before you give them anything, have to show fiscal responsibility, and that they have to act together.

You cannot let them abuse the system. You cannot go and give corporate America and Wall Street and everyone these billions of dollars. And then they grab, millions of them, you know, pay themselves with the great benefits and all of this, and go off and have great vacations. That's not fair while someone else is getting kicked out of their home.

So we have to have a balance. And I think that, besides just making the decisions, you have to have great follow-through. And you have to have someone in charge that then goes and really does it theright way. Because it's always one thing to make the decisions, another thing to actually then execute that vision and that bailout all the way through.

STEPHANOPOULOS: How about your party? At the Republican Governors' Association meeting this week, a bunch of governors got up, and it was like a litany of postmortems on the election.

UNKNOWN: Obama was going to get elected president unless the American people came to the conclusion he was unacceptable.

UNKNOWN: We're going to have to be bold. We're going to have to be aggressive.

UNKNOWN: They fired us with cause. We gave them reason to fire us.



SCHWARZENEGGER: Well, yes. I mean, if you look at it in a political way. I think that, you know, that everyone will have a different take on what happened this last election. I think you can also make it very simple, and that is, you know, that Republicans have not provided for what the people need. And I think that's why Jindalis partially right on that, or he's right on that, because, you know, it is all about what the people of America need right now, and have we provided that as a party?

And to me, I of course go way beyond all of that. Because to me, I think it's a bunch of nonsense, talking about parties and all of those things -- because in the end, the American people are not that interested in Democrats versus Republicans and them arguing in Washington about is this a Democratic principle or is this aRepublican principle.

Let me tell you something. When it comes to building roads and people driving on the roads -- it's Democrats, Republicans, independents, decline to state -- everyone wants to use those roads. Everyone's kids -- Republicans' kids, Democrats' kids -- everyone is in the school. They want to have great education. When it comes to clean air and protecting our environment and fighting global warming, everyone in America wants to be part of that.

So I think that it's only the politicians that always divide things up and they draw and line and say this is a Republican idea and this is a Democratic idea. And in the meantime, it doesn't help the people to stay in their homes.

STEPHANOPOULOS: That sounds like Barack Obama.

SCHWARZENEGGER: Well, it may sound whoever it sounds like, but I just think that we are too, kind of, preoccupied with this Democrat versus Republican.

I, when I make decisions as governor here in California, I have my Republican principles, but I don't make decisions based on just Republican principles. I make decisions on what do the people need?

Right now, the people need to stay in their homes. So I want to go and renegotiate and have them work on the loan agreements and see how do we bring the payments, the monthly payments, the mortgage payments down, so they're affordable for the people. They can go and lower the interest rate. They can go and throw off the payments. Instead of 30 years, 40 years or whatever maybe the method is, but let's help the people.

And I don't analyze, wait a minute, is this a Republican idea or a Democratic idea?

STEPHANOPOULOS: But you are a Republican. So how does your party do that? You know, Governor Tim Pawlenty says Republicans need a Dr. Phil moment. We have to recognize we are not speaking to thefastest-growing voter groups -- Hispanics, young people, professionals.

SCHWARZENEGGER: Well, you know, again, if I start to calculate of what can I do specifically for the Latinos? What can I specifically do for the African-Americans? And what can I do specifically for this group and that group and for the Austrian-born body builders, and all of those kind of things, I will go crazy.

I got to think about California. What can I do for the California people? So this is why a lot of times when Latinos come to me and say, "What have you done for us?" I say, "You benefit when we get a better education system. You benefit when we rebuild California and when we build the infrastructure of California; when we fix ourlevees and we don't have the huge floods if there's an earthquake; when we build extra schools. Everyone benefits from it.

SCHWARZENEGGER: Latinos benefit. African-Americans benefit. Everyone benefits from that," as I said. So I don't go and make decisions based on what I do specifically to pass legislation that helps Latinos. That's all wrong dialogue.That's divisive. We are all Americans, all Americans. I'm for those Americans, being an Austrian, as I want the Latino to feel American, as I want the blacks to feel American. Everyone, we all want in one pot and we're all together. There's one big mosaic that is all coming together.

STEPHANOPOULOS: Do you think that your party sends that message?

SCHWARZENEGGER: Well, no. Many times they don't. But I mean, you know, so that's what they have to learn. Remember that so many times there's dialogue about, you know, we have to go back to our corevalues.

What is that? What is core? How far does core go back in history in America, the word core? Does it go back 30 years? Does it go back 50 years? Because we know that Teddy Roosevelt talked about universal health care. So they're off the core for a long time ago already. He has talked about protecting our environment. So they'vebeen off for a long time on that.

I mean, let's be honest. Ronald Reagan -- let's go to Eisenhower, for instance. Eisenhower has built the highway system in America and he's poured billions of dollars into infrastructure. Where Republicans today say, well, that's spending. We shouldn't spend. That's not spending. That's investing in the future of America.

So there's a lot of things that they have been off on, if they want to go and talk about the core values. But maybe their definition of core values is maybe different.

But I mean, so I think it's all nonsense talk. I think if they just talk about one thing, what do we need now?

Now, America needs to be rebuilt, because we haven't really rebuilt America for decades. So we need to rebuild America, fix the bridges, fix the highways, fix the buildings, tunnels and all of those kind of things we need to do. And then we have to go and create great relationships with our partners overseas, with the world, and to buildthose relationships again. And we have to take care of health care. We have to take care of our environment. And we have to build an energy future. Those are the things that people want right now.

And I know in the poll numbers in America -- I mean in California, that's what the people want.

STEPHANOPOULOS: Proposition 8 here in California, it passed, defining marriage as exclusively for men and women. I know you've said you hope the court overturns it. Will you join Democrats who arefiling a challenge in the court?

SCHWARZENEGGER: No. I mean, I have been asked to join this fight, and I had my own fight with Proposition 11, and that's what I've focused on.

But I made it very clear. I personally am -- for me, marriage is between a man and a woman. But I don't want to ever force my will on anyone.

I think that the Supreme Court was right by saying that it's unconstitutional. And that everyone should have the right, just like we had the battle in 1948 and the Supreme Court decision came down, that, you know, it was unconstitutional for blacks and whites not to be able to get married with each other, and they overturned that. Andsince then, that has been taken care of.

And now the Supreme Court says that it's also unconstitutional to not let gay people get married, the same-sex marriage. So to me, that is the important decision here, and everything else is not that important. So people can pass initiatives, like Proposition 187 passed under Wilson that said we should not give, you know, Latinos and those that are illegally here any educational services or any kind of medical services. The Supreme Court said,well, the people maybe had some intentions there, but it's unconstitutional.

STEPHANOPOULOS: So you think the courts should overturn Proposition 8?

SCHWARZENEGGER: The court has overturned it. And now they went back. And the people have voted for it again, against the gay marriage. So the Supreme Court, you know, I think ought to go andlook at that again. And we'll go back to the same decision, basically.

STEPHANOPOULOS: And you believe they will.

SCHWARZENEGGER: I think that they will. And I think that the important thing now is to resolve this issue in that way.


CROWD (chanting): Marriage is a civil right!


SCHWARZENEGGER: In a peaceful way, rather than, you know, going out and protesting, and going out and boycotting and all those things. I think that's not the best way to go about it.

STEPHANOPOULOS: In the meantime, some legal experts have suggested that you should, if you believe that, issue an edict, a ruling, that says that the marriages that have already taken place in California are absolutely legal. Will you do that?

SCHWARZENEGGER: Well, I have to get together with Jerry Brown, our attorney general, and see what the legal opinion is, because he's my lawyer, basically. And so, we always do those things together.

STEPHANOPOULOS: But you're inclined to do it?

SCHWARZENEGGER: It's a conversation that I can have with him about the -- if that's the legal way to go.

STEPHANOPOULOS: How about Proposition 11? The opponents of Proposition 11, which will set up this independent commission to draw up the congressional districts, haven't given up the fight yet. Do you think they actually have a chance of still winning?

SCHWARZENEGGER: In Proposition 11? This is over. Proposition 11 has won. And there will be the next time redistricting by the people, by ordinary people of California, and it is taken out of thehands of the legislature.

And thank God. I think the people of California were very smart in this, because five times before it has not succeeded.

SCHWARZENEGGER: And, you know, people asked me, over and over, and said, "Why would you go back and try it again?"

And I said, you know, that, whenever you lose, you analyze why you have lost. What have you done wrong? Because the idea is not wrong. It's just the way you went about was wrong. And, for instance, in 2005, I tried that same battle. And I was not inclusive enough. I didn't bring in -- brought all the stakeholders in and marched with them together. I went out there by myself. And so we lost. And we went back again, regrouped, brought all of the people from Common Cause to the League of Women Voters, to the ACLU, the NAACP andall of those different organizations we brought in. And we won.

STEPHANOPOULOS: So have you talked to President-elect Obama?

SCHWARZENEGGER: I have not had a chance to talk to Obama. But I did say, and made it clear that, even though I was for McCain, that I am the first one to go and do everything that I can, as governor, andas a state, to support his administration and to -- because we have done a lot of studies and work on health care.

If he wants to do health care, then we want to be his partners and help with the health care reform. If it is environmental issues -- all the kind of things -- high technology, power technology, anything that he needs to do in a state, in the whole country or in the whole world, we want to participate.

And I want to be personally helpful for that, even though I'm not looking for a job...

STEPHANOPOULOS: You're not going to go to Washington?

SCHWARZENEGGER: Well, I made it very clear that I want to stay in California for the next two years and finish my term here, because there's still a lot of things that I want to accomplish. This is a great state.

And there's wonderful things -- we want to still get the health care reform done. We want to continue fighting on environmental issues that is important in creating the renewable portfolio of creating renewables 20 percent by the year 2010, and then, of course, 33 percent by the year 2020; and bringing our budget system back inplace where it belongs, and then start working on career (ph) education and in other educational areas.

STEPHANOPOULOS: You poked some fun at the president-elect in those final days of the campaign.


SCHWARZENEGGER: We're going to make him do some squats.


And then we're going to go and give him some biceps to beef up those scrawny little arms.



STEPHANOPOULOS: Do you think he wants to challenge you on the basketball court?

SCHWARZENEGGER: Look, I've seen him playing basketball. He's a better basketball player than I am. But I think that no one should take that joke that seriously, because Columbus, Ohio is the place where they have the world championships in lifting and in body building every year.

And so, this is one of those jokes that, when they were very (inaudible) or when you talk about body and legs and skinny and all -- pumping up, and all of those kind of things.

So this was not meant to be an insult in any way. It was meant to be to lighten up the place and to make everyone laugh a little bit.

STEPHANOPOULOS: And maybe he'll laugh about it, too?


STEPHANOPOULOS: Governor, thanks very much for your time.

SCHWARZENEGGER: Thank you very much. Thank you.

GEORGE STEPHANOPOULOS: The roundtable is next with George Will, Cokie Roberts, Sam Donaldson andPaul Krugman. And later "The Sunday Funnies."

DAVID LETTERMAN, 'LATE SHOW": Joe Biden turns to Cheney and he says, "Dick, tell me, what's it like being second in command?" And Cheney said "well, hell, I don't know, ask Bush."

*********VIDEO: CAROLYN WASHBURN, EDITOR: With relatively little foreign policy experience of your own, how willyou rely on so many Clinton advisers and still deliver the kind of break from the past that you're promising voters?


SENATOR HILLARY CLINTON: I want to hear that.

SENATOR BARACK OBAMA: Well, Hillary, I'm looking forward to you advising me, as well.

GEORGE STEPHANOPOULOS: Who knew that was a year ago "The Des Moines Register" debate, Barack Obama and Hillary Clinton facing the same questions today. We're going to debate it on our roundtable this morning with George Will, Paul Krugman of "The New York Times" and Princeton, also the author of a new book, "The Return of Depression Economics." You see right under there, it says winner of the Nobel Prize in economics. You got that just hoursafter your last appearance on "This Week."



GEORGE STEPHANOPOULOS: We're your lucky charm.


PAUL KRUGMAN: There we go.

COKIE ROBERTS: We take responsibility.

GEORGE STEPHANOPOULOS: And also welcome back to Sam Donaldson.

SAM DONALDSON, ABC NEWS: And I got to argue against him on economics?

GEORGE STEPHANOPOULOS: Well, at your peril, Sam. But go ahead.

SAM DONALDSON: I never refuse a challenge.

GEORGE STEPHANOPOULOS: You didn't even let me introduce Cokie, but, Cokie, welcome to you,as well. And let's begin with this buzz about secretary of state. Potentially Hillary Clinton. Clinton and Obama met on Thursday. George, everything I'm hearing is that both sides want this to happen. One big complication in that is the work of the Clinton Foundation, whether or not it can be structured in such a way so that there aren't conflict ofinterests if indeed she is secretary of state.

GEORGE WILL, ABC NEWS: Yes, the Clinton Foundation, her husband's foundation and some of his business dealings I should think would also warrant scrutiny and get it if she's nominated. The most famous political ad of the year was her ad saying, the 3:00 AM phone call, who do you want to answer it? Well, she might be making the 3:00 AM phone call to a sleeping president. She's one of those who passed through the furnace of that protracted campaignand did come out enlarged and looking tough enough for this job. Another thing that this suggests is they couldn't put a Republican in as secretary of state if they were going to keep a Republican Gates at defense. Andthis might mean that for the transition, which means for the transition out of Iraq, they might keep Gates at defense.

GEORGE STEPHANOPOULOS: And Cokie, George says she was enlarged by the campaign. I think Barack Obama was also impressed by how hard she worked over the course of the general election.

COKIE ROBERTS: Oh, she was the - and in the primary campaign. I mean, even though he was working against her, it was a very impressive performance. And, look, she's got followers and she's got followers both in this country andabroad. And so I think that from his perspective it's a very smart appointment. But this question of how do you separate former President Clinton has been her problem all along this year. You know, that she - if she were just sort of on her own, this would be an easier - she would have had an easier campaign, and she'd have an easier appointment.

GEORGE STEPHANOPOULOS: And if she did take the job and did get it, Sam Donaldson, this would firmly establish her independence.

SAM DONALDSON: Well, it would establish her independence in a sense but the president still is the chief foreign policy officer. He makes the policy. She's very tough...

COKIE ROBERTS: You mean independence from Bill or from...


SAM DONALDSON: Oh, from Bill. I love the questionnaire, 62 questions you have to fill out if you're going to be considered for a top post in the Obama administration. One of them, is there anyone or any organization whoovertly or covertly, fairly or unfairly, might be able to attack you, please name them. You know, Rush Limbaugh, Sean Hannity, go down the list.


SAM DONALDSON: But I think she's imminently qualified, no question. But Barack Obama loves to quote Lincoln and how he surrounded himself with his enemies and turned them into his great supporters. I liked Lyndon Johnsonbetter. More earthy. It's better to have them inside the tent peeing out rather than outside the tent peeing in. He checkmates her if in fact he doesn't do well and we come to '04 and she says I can do what TeddyKennedy didn't. He checkmates her.


PAUL KRUGMAN: You know, there's all this – but no, I mean the Democratic Party is making this big push for unity. And I think this – you know, it would leave kind of a warm glow. There would be a few people who would be outthere saying, ooh, you know, Bill. But I think it's probably good for the party. I don't know if it's good for her. But it's good for the party.

COKIE ROBERTS: Well a warm glow in Washington, I'm not sure it would be so warm in the net roots that the people who have been very enthusiastic for Obama, have really worked in his campaign, who see the Clinton administration and Hillary Clinton as too right wing on foreign policy, too ready to be in Iraq in the first place, too unwilling to talk to Iran, all of those things and I think that that could be a problem.

GEORGE STEPHANOPOULOS: Just too many Clintonites overall in the administration.

COKIE ROBERTS: Well that's a bigger question.

GEORGE WILL: But that's what always happens is you draw from the existing talent pool. I remember when Jimmy Carter got elected as the farmer from outside Washington. Hamilton Jordan, the late Hamilton Jordan said you won't see the Brzezinskis advances in this administration. His first two appointments were Brzezinski advances.

COKIE ROBERTS: But you know...

PAUL KRUGMAN: And one of the great advantages that Obama has coming in is that he actually follows not too long after a successful Democratic administration.


PAUL KRUGMAN: So it's not like Clinton coming in in '82 with nothing.

COKIE ROBERTS: That's a big difference. That's right.

PAUL KRUGMAN: He's got a big backlog of people who know how this town works and know how to get things done. So it's a good thing.

COKIE ROBERTS: Well that is...

SAM DONALDSON: But I take your point about competency and people who know how to do it but you dance with the people who brung you and the people who brung Mr Obama to the presidency are the minorities to a large point. I mean the data is clear. So all the names we've been hearing about and he may not appoint these people I understand, most of them are white and most of them are Clintonites.


COKIE ROBERTS: And most of them are men.

GEORGE STEPHANOPOULOS: Well he appointed Valerie Jarrett...

SAM DONALDSON: And most of them are men.

GEORGE STEPHANOPOULOS: ...his senior adviser inside the White House, also a new deputy chief of staff, a woman today and, you know, one other person mentioned for a possible job, Susan Rice for a top foreign policy job.

GEORGE WILL: Well the fundamental attribute of leadership is capacity for robust disloyalty, Sam.

SAM DONALDSON: No, no, excuse me. If you're going to keep Gates and we know who he is and you're going to put Senator Clinton in as secretary of state, who's gonna be secretary of treasury? Larry Summers? He has experience. He was Clinton's secretary of the treasury.


SAM DONALDSON: I don't know. Go down the list.


SAM DONALDSON: For you to say that Jarrett who is very - I understand she's going to be very close and very powerful somehow balances the top members of the cabinet, I don't think it balances out in the country.

COKIE ROBERTS: You know what I find really interesting in this scenario if it comes to pass is that Bob Gates as secretary of defense would end up being the dove in the group. He has been so interesting on the question of publicdiplomacy and soft power and really has attracted a tremendous amount of support, both in this country and the...

GEORGE STEPHANOPOULOS: I completely agree with that, although that is the kind of rhetoric that all Democrats have used. It just gets less attention when the Democrats...

COKIE ROBERTS: Well, but he has really been, you know, he's been out there doing it and trying to make it happen and working with the State Department to do that and with foreign entities. So I think that would be a fascinatingthing to watch play out.

GEORGE WILL: It's also interesting for two centuries we had white male secretaries of state. Now if you go back to the beginning with Madeleine Albright...

COKIE ROBERTS: That's right.

GEORGE WILL: ...Colin Powell, Condoleezza Rice and Hillary Clinton, you could have 18 years without.

GEORGE STEPHANOPOULOS: Paul, how about what Sam brought up about Larry Summers? Does it make this more difficult if Senator Clinton becomes secretary of state for Summers to become secretary of treasury? And if so is that a good or a bad thing?

PAUL KRUGMAN: It might make it more difficult. It would be just a little too much maybe like just recreating and, of course, Larry Summers has vocal opponents. You know, this is my bailiwick and I can't get really excited abouttreasury thing because...


PAUL KRUGMAN: Because there is really not an ideological hairs worth of difference among the various people. Geithner is a Summers protege. Tim Geithner,New York Fed president whose the likely alternative. They all basicallyplayed the same role. Other people who are on the list, possibly Paul Volcker as a temporary or Jon Corzine, they're all, you know, they're all basically the same position. So it's not clear it matter that much. But it might be a little harder to put Larry Summers in that role if Hillary is there.

COKIE ROBERTS: Also, think about the African Americans on the Harvard faculty and Larry Summers. I mean I think that's a real problem for him.

PAUL KRUGMAN: I have to say Larry is the Henry Higgins principal from "My Fair Lady." He insults everybody. So he really is equal opportunity. There's nothing about that.

SAM DONALDSON: I hate to repeat myself but then what else is new? You got to dance with the people who brung you. He has got to have, all right, he's got to have diversity and not just one or two women. Not just one or two African Americans. He represents something different and new. We can argue maybe later on how long that would last, but he's got to fulfill that promise.

COKIE ROBERTS: And can't be less...

GEORGE STEPHANOPOULOS: Well, no, but don't...

COKIE ROBERTS: And can't be less diverse than the Bush administration which has been very diverse and to have the first African American president come in and...

GEORGE STEPHANOPOULOS: I guess I don't disagree with that except you have to focus on excellence first and they're not incompatible in any way but you can't say that diversity should be the control rationale right now.

SAM DONALDSON: But George, I know you don't mean to make this argument, but are you saying these other people I've talked about aren't excellent.

GEORGE STEPHANOPOULOS: No, I said exactly the opposite actually.

SAM DONALDSON: Thank you. Scramble back on here.

PAUL KRUGMAN: Be part of what Obama is – what people are looking for is not just ideology, not just identity, but they're also looking for somebody that can actually run the country. You know, that's sort of what we've beenlacking.

GEORGE STEPHANOPOULOS: Number one. But let's talk about some of the challenges they are going to face, specifically on the economy. The Congress is going to face this week the issue of whether or not to send a lifeline to the auto companies. We heard what Arnold Schwarzenegger said about it. Here is Governor Jennifer Granholm of Michigan.

GOVERNOR JENNIFER GRANHOLM, DEMOCRAT The auto industry would crumble if one of them went into bankruptcy. If GM is not buying from suppliers, those same suppliers are supplying to the rest of the auto industry too. But if they see a major collapse in their major customer, then they are not going to be able to survive.

GEORGE STEPHANOPOULOS: Some estimates, George Will, that a collapse would cost the federal government in the long run $200 billion.

GEORGE WILL: Yes, because among other things the pensions would then go to the Pension Benefit Guaranty Corporation which is already $14 billion in debt. But earth to Governor Granholm, she said the automobile industry would crumble. It's crumbled. It's collapsed. People who say General Motors is too big to fail have not noticed that it has failed. This week a statement from General Motors, official statement said that General Motors' board sees nothing, nothing in the performance of its management team to cause them to lose confidence in it. How about the complete evaporation of shareholder value?

PAUL KRUGMAN: You know, this is an agonizing thing. If this were any - if it were any kind of normal time, the answer would be clear. Let the thing go into bankruptcy, Chapter 11, continues to operate, restructure a lot of stuff. There are two reasons why this is a big problem now and why I'm kind of very reluctantly screaming in favor of some kind of bailout. One is that the credit markets are frozen. So normally a company can keep operating,declare Chapter 11 but keeps operating but that depends on being able to continue to get credit lines to do business. And you can't do that right now. So Chapter 11 quickly becomes Chapter 7 which is liquidation. So weactually see the thing disappear and then we're talking about a million plus jobs probably disappearing. The other is we're in the middle of this terrible, terrible slump and letting GM go under is an enormous anti-stimulus policy. It would be working towards a major negative blow to the economy just, you know, so we're really in St Augustine territoryhere. Grant me chastity in continence, but not yet. You know, this is not a good time to stand on principle and say we shouldn't bail these guys out.

SAM DONALDSON: Well, thank goodness I can take a forthright position. I'm with both these guys. In the long run - George is right - in the long run we need to preserve the marketplace philosophy of how we've run all theseyears. In the short run I think Paul is right. If we don't try of get hold of this tape worm with this terrible medicine right now because the medicine is not something we want to keep in our system, believe me, I think the tape worm can consume enough that we're going to be for years regretting it. It's better to put money into it now and people say, well, they'll be back in a year, they'll be back in a year for more. They may be.

COKIE ROBERTS: But that, there was – there is...

GEORGE STEPHANOPOULOS: And that's the real problem. That somehow the money won't workanyway.

COKIE ROBERTS: That's the problem is that they're basically saying, trust us, and you know, they're saying, don't use the 25 million that we've already got in the pipeline because that is there to have us get more fuel efficientcars. And we have to have more fuel efficient cars in order to survive. So let's keep going with that money to do the thing that will be a long-term survival and give us some short-term money to keep us up and going. But that means you have to trust them that they're going to do the right thing and have the...

SAM DONALDSON: Well, we have to have strings, Cokie.

GEORGE WILL:We would also have to trust the Congress which gave us Amtrak that it's - they know how to design automobiles. That's what they're doing in that building behind us is deciding what automobiles ought to be designedon what timetable and will the market buy them? Well, they've already decided the market won't buy the Volt, the electric GM car, because the Congress has already written in a $7,500 tax credit to try and bribebuyers for this otherwise unsaleable product.

SAM DONALDSON: How do you know? It's not out. It won't be out till next year.

COKIE ROBERTS: Until the end of next year.

GEORGE WILL: They've already written it in. They know.

GEORGE STEPHANOPOULOS: But it leads to a separate question because it does look because of these complications like Congress probably will not act...



COKIE ROBERTS: That's right.

GEORGE STEPHANOPOULOS: And then nobody is back until January 20th. And I guess one of the questions I have is can GM especially last until January 20th? And if they go into bankruptcy, will consumers just say, wait a second, there is no way I'm buying a car from a bankrupt company.

PAUL KRUGMAN: Right. This is, you know, from a political point of view almost if you're a Democrat, you say this is good because the issue will be taken out of our hands by force. But from the point of view of the economy,it's another major blow. So I think you have to - if I were Democratic congressional leaders, if I were Obama, I would say you have to make every effort to get something in place because, you know, this is - the troubleis the economy is in a deep nose dive right now and this is adding to it. This is just a really bad time to be doing long run virtuous things.

GEORGE WILL: Paul, one of the arguments made against bankruptcy this week was that that would obviate and perhaps, shred the existing labor contracts, under which GM retirees get health care. And it was said in print thatwould be terrible because that would hurt retirees too young for Medicare. Why are there retirees too young for Medicare? If people want to retire before 65 or 35, that's their business but it is not a national crisis.

PAUL KRUGMAN: Well, there's - that's - there are a lot of reasons why that happens. It's too complicated to get into.


PAUL KRUGMAN: But the point of the matter is, look, again, everything is - if this were 1999, and we had 4% unemployment and a booming economy, I would have no hesitation in saying let the thing go. Let the market work. But it's not.

COKIE ROBERTS: Also, the labor contracts have been renegotiated to be very much in line with the labor contracts of foreign car manufacturers. So they've been trying to solve those kinds of problems. I just think that what Congress needs to do is come back this week and do a quick public works public service bill like they did in 1982 in the lame duck session after that congressional election when unemployment was at 10% and they came back and, you know, quickly got some infrastructure stuff up and running. We can always use better roads and bridges and there you go.

GEORGE STEPHANOPOULOS: Well that may be what they should do but it doesn't look like that's gonna happen this week either.


GEORGE STEPHANOPOULOS: And now Sam, though, but because the problem is so great, economic advisers are telling Senator Obama, President-Elect Obama and I think Paul Krugman wrote this on Friday - $600 billion, that they're going to need a stimulus package far more than anybody talked about, $500 billion, $600 billion.

SAM DONALDSON: So, let's do it. So let's do it. I mean, again, this idea that somehow we shouldn't use extraordinary measures that we wouldn't ordinarily believe is good for us economically to try to stave off absolute disaster is nonsense. We need more, if that's what it takes. I agree politically, Cokie, it looks like nothing is going to happen in the lame duck session.


SAM DONALDSON: Now. But next year, I hope it's not too late. There should be a massive program and I'm for infusing it at the local level, for instance, mortgages, I want - I think John McCain had some sort of idea although hetook it - let's buy out the mortgages of individual homeowners rather than say to the banks, okay, here we are. We'll help you and see if we can't keep people this their homes that way.

GEORGE WILL: Sam, one of the ways we turned a depression into the Great Depression that didn't end until the Japanese fleet appeared off Hawaii was that there were no rules and investors went on strike because thegovernment was completely improvising. Net investment was negative through almost all of the '30s because, again, people did not know the environment in which they were operating because the government had thefidgets and would not let rules and markets work.

PAUL KRUGMAN: This is not the way - okay. Well, it's not the way I read the history. It's not the way - no.

GEORGE WILL: Am I wrong about net investment?


PAUL KRUGMAN: No, the negative net investment was because, you know, when you have 20% unemployment and all the factories are standing idle, who wants to build a new one? You don't need to invoke the government to explain that. No, what actually happened was, you know, there was a collapse of the financial system, which was not restored for a long time. There was a persistent deep slump in consumer demand and, therefore, no investment demand and so you were stuck in this trap. Roosevelt got the economy moving somewhat. By 1937 things were a lot better than they were in 1933. Then he was persuaded to balance the budget or try to and he raised taxesand cut spending and the economy went back down again and then it took a enormous public works program known as World War II to bring the economy out of the depression.

COKIE ROBERTS: Well, which is what Sam is saying. Throw anything at it that you can to try to stave off anything that disastrous.

GEORGE STEPHANOPOULOS: And that means most likely, Sam, though that the president-electwill have to put off any plans for tax increases.


COKIE ROBERTS: Or for health care or for a variety of other things.

SAM DONALDSON: George is right.

PAUL KRUGMAN: No, the way at least people like me are pushing, I think what will happen is there's going to be push for legislation to do things on health care. But that wasn't really ever going to happen. It wasn't ever going to gointo effect until 2011. Because we weren't going to so much raise taxes as let the Bush tax cuts expire.

GEORGE STEPHANOPOULOS: In 2010. So you have a year's grace period.

PAUL KRUGMAN: In 2010. And so, no, so it's not clear that - no one, no one was really going to talk about doing a lot of new spending of that kind, long-term spending next year anyway.

SAM DONALDSON: Excuse me, Paul. Who is no one? Barack Obama, while he didn't put a price tag on it and said, I will promise to spend this much money, his supporters, young people particularly, who saw him as walking on water may - you bring an interesting point - may be very disillusioned if he wisely cannot pursue all of these programs.

GEORGE STEPHANOPOULOS: But I think Paul does at least point the way towards a rhetorical solution. You say you're for health care. You introduce it. But you just…

COKIE ROBERTS: Don't pass it.

GEORGE STEPHANOPOULOS: ...well you don't pass it. Well it's going to take months to pass it anyway.


GEORGE STEPHANOPOULOS: But the mechanism is the expiration of the Bush tax cuts. You don'timpose any kind of a tax increase.

PAUL KRUGMAN: Yeah. The Bush tax cuts were written blessedly from the point of the view of the Democrats to turn to a pumpkin on the last day of 2010...

SAM DONALDSON: What am I listening to? I can recite people making over $250,000 a year, a very small percentage will only go back to where President Clinton's tax rates were and we need to do this out of fairness. I mean,I can recite his speech.

GEORGE STEPHANOPOULOS: But if that happened 2010 instead of 2009, that's a broken promise?

COKIE ROBERTS: Well, we'll see.

PAUL KRUGMAN: Yeah, I don't think it's...

SAM DONALDSON: Well, it depends.

GEORGE STEPHANOPOULOS: We'll see. That is the open question. You guys can debate it in the green room. And you all can join in later on ABCNews.com.

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