'This Week' Transcript: Obama Senior Adviser Dan Pfeiffer; Two Powerhouse Roundtables

NEW YORK, April 7, 2013— -- A rush transcript of "This Week with George Stephanopoulos" airing on Sunday morning, April 7, 2013 on ABC News is below. This copy may not be in its final form and may be updated.

STEPHANOPOULOS: Good morning, and welcome to This Week. On the edge.

(START VIDEO CLIP)

HAGEL: Some of the actions they've taken present a real and clear danger.

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STEPHANOPOULOS: North Korea's drumbeat of threats. Is their puzzling young leader spoiling for war? Can President Obama do anything to stop him? Our Martha Raddatz is just back from a tense border. Plus...

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(UNKNOWN): 88,000 jobs last month.

(UNKNOWN): This is a punch to the gut. I mean this is not a good number.

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STEPHANOPOULOS: Congress returns from Easter break to a grim jobs report. A new White House budget with cuts in Social Security and Medicare, and a showdown on guns.

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OBAMA: We hear some of these quotes, "I need a gun to protect myself from the government." The government is us.

LAPIERRE: He said personally, I'll never try to ban your rifles, shotgun, and handgun. Now he's trying to ban all three.

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STEPHANOPOULOS: We'll tackle all of that this morning with the president's new top strategist, Dan Pfeiffer. And our powerhouse roundtable with George Will, Nobel Prize winner Paul Krugman of the New York Times, and Greta Van Susteren of Fox News.

ANNOUNCER: From ABC News, This Week with George Stephanopoulos. Reporting from ABC News Headquarters, George Stephanopoulos.

STEPHANOPOULOS: Hello again. This week began with new threats of war from North Korea, ended with President Obama apologizing for a compliment. In between, he pushed his plans on guns, and the budget, both uphill fights in Congress. And riding herd on all of it, the president's top senior adviser, Dan Pfeiffer. Welcome to This Week.

PFEIFFER: Thanks for having me, George.

STEPHANOPOULOS: Let's begin with the budget. It's going to come out on Wednesday, and will include for the first time, cuts in Social Security and Medicare. The president's put them on the table in negotiations, never put them in a budget before. But already House Speaker John Boehner has dismissed them. And a lot of Democrats are worried that the president is turning his bottom line in negotiations into an opening bid. How do you respond to that concern? And do you really think that this budget is going to change the dynamic, increase the chances of a big deal?

PFEIFFER: Well it's important to understand that what's in the president's budget is the offer that he put to Speaker Boehner in December when we were trying to have a fiscal negotiation. And what this does, is it shows: One, that the president is serious about trying to find a balanced solution to our deficits, and have a comprehensive economic plan. And shows that we don't have to choose between deficits as far as the eye can see, and job creation, and economic growth. You can do both.

Our budget includes investments in infrastructure, bringing jobs back to America, you know, preschool for our -- for -- for everyone, while still bringing our deficits down to the -- our debts down to levels that are talked about by commissions like Simpson-Bowles.

STEPHANOPOULOS: But it hasn't seemed to change the dynamic at all, at least so far. Here's what part of what Speaker Boehner said. He said, "If the president believes these modest entitlement savings are needed to help shore up these programs, there's no reason they should be held hostage for more tax hikes. That's no way to lead, and move the country forward." If they're good ideas, he says, why not just do them?

PFEIFFER: Well there's -- there are a couple -- couple things here, George. First is, the House has passed a budget, the Senate has passed a budget. The hope is that those houses can then come together and work to try and find a compromise. The president's focused, in addition to the regular order process that members of Congress say they want, is to try to find a caucus of common-sense. Folks who are willing to compromise, who don't think compromise is a dirty word, and try to get something done. And -- but, if Speaker Boehner's position, as he said in that statement, remains his position, then -- then we will not make progress.

Because what this president will not do is come in right after getting re-elected, and enact the Romney economic plan, which is what the Republicans in the House are proposing.

STEPHANOPOULOS: Are you getting any feedback from these Senate Republicans, and the president is going to have dinner again with them this week, that suggests that this will create the possibility of a deal?

PFEIFFER: Well, we have had good conversations with them. We had a good dinner a few weeks ago. The White House has been in contact with a lot of those folks, a lot of the Senate Republicans that we had dinner with, and so there's an opening there. Is it going to be easy? Absolutely not. But there's a possibility. But it's going to require both sides to compromise, and both sides being willing to accept the...

STEPHANOPOULOS: What are the odds there's a deal this year?

PFEIFFER: Well look, based on my bracket, I don't think I should be in the predictions business. But there's a -- there's a good chance both sides are willing to compromise. If the Republicans, particularly in the House, take a my way, or the highway approach, then we're not going to get a deal. Simple as that.

STEPHANOPOULOS: But you're also going to have a lot of resistance from the Democrats and independents, including Bernie Sanders. He was taking a lot of exceptions, says he's going to block any bill that includes these changes in Social Security that the president is calling for. Here's his Tweet, he says "Two-thirds of seniors rely on Social Security for more than half their income", and it -- and we are seeing this problem with the long term unemployed.

Particularly those who are near retirement. They're going to be facing a real squeeze in the next several years, and this will be an additional significant cut, won't it?

PFEIFFER: Well, a couple of things. One, Senator Sanders is a passionate advocate, and has been a big supporter of the president. This president will -- this -- this chained CPI that's being referred to here, is something the president will only accept on two conditions. It's something Speaker Boehner and -- and Senator McConnell asked for in the context of the original negotiations, and those two conditions are, one, It's part of a balanced package that includes asking -- closing tax loopholes to benefit the wealthiest, and, two, that it has protections for the most -- for the most vulnerable, including the oldest seniors.

STEPHANOPOULOS: So there will be some carve outs there?

PFEIFFER: Absolutely. And look, this is compromise. And compromise means there are going to be some folks on both sides who are not happy.

STEPHANOPOULOS: This could also be a decisive week on gun legislation. It's already clear the ban on assault weapons isn't going to get through the Senate. Most likely the ban on large magazine clips is in trouble, as well. You've been struggling to come up with a compromise on background checks. It seems like the president's friend, Senator Tom Coburn, is no longer part of the compromise. Is that true?

PFEIFFER: Well, no. We're -- the White House is still talking to Senate Republicans, including Senator Coburn, and Senate Democrats. And I know that -- that folks are still talking. But let's talk about -- well...

STEPHANOPOULOS: Do you think you're going to get a deal?

PFEIFFER: Well the -- the -- if people are willing to compromise, yes. This is a -- an issue that has 90 percent support. What the president wants is to sign a strong bipartisan bill that has enforceable background checks. And we can get that done. One of the problems is that Senate Republicans -- some Senate Republicans are insisting on a filibuster. They're insisting on trying to make it harder to require 60 votes.

And if you remember during the State of the Union when -- with the families of Newtown in the audience, every member of Congress stood up and applauded when the president called for an up or down vote on these measures. Now that the cameras are off, and they're not forced to look the Newtown families in the face, now they want to make it harder, and filibuster it. We can't have -- if we have a simple up, or down vote, we can get this done.

STEPHANOPOULOS: You have a lot of Democrats though against the assault weapons ban, and other provisions. When you talk about enforceable background checks, the issue is record keeping. Whether records should be kept. The president wants a bill that keeps record for sales in gun stores, that's law right now. Expands it to gun shows. Does he also believe that it must include paper records for private sales between individuals?

PFEIFFER: Well look, I'm not going to negotiate the bill right here with you, George as fun as that might be. But he's going to -- we're working with both sides to try to get the strongest bill we can, that has enforceable background checks to ensure that you're going to get a background check whether you buy it at a gun store, or a gun show.

STEPHANOPOULOS: Would he sign a bill that didn't include that?

PFEIFFER: I'm going to -- I'm not going to make a -- I'm not going to make any predictions here, but we -- we're going to try to get the strongest bill we can. And there's no reason that we can't have one -- this is a 90 percent issue. You can't get 90 percent of Americans to agree on the weather.

STEPHANOPOULOS: But it has been difficult right now, and -- and a lot of gun -- gun control advocates are worried that you're waving the white flag when you say the president is simply going to sign the strongest bill he can.

PFEIFFER: What the -- what the president is trying to do, is actually make progress here. And we're -- he's going to push very hard. He's going to make the case. Every Republican, every Democrat, this is the right thing to do. There is nothing inconsistent between being a strong supporter of the Second Amendment, and wanting a strong -- some of these measures like universal background checks.

STEPHANOPOULOS: But wouldn't it be an incredibly disappointing failure if in the end, a bill came to the president that didn't include universal background checks, didn't include an assault weapons ban? Didn't include a ban on large ammunition magazines?

PFEIFFER: Well, it's going to be disappointing to the American people, there's absolutely no question about that. They feel very strongly about this. The president was in Denver last week, meeting with some of the families who were victims in the Aurora shooting last year. And the people in the country will not understand why Congress would turn their back on a 90 percent issue.

STEPHANOPOULOS: But the president might sign the bill anyway?

PFEIFFER: The president is going -- is going to -- let's focus on trying to get the best bill we can out of the Senate right now, and that's his focus.

STEPHANOPOULOS: Before you go, let's talk about North Korea. How worried is the president now? We've seen this escalation of threats and counter threats. The president and -- and the Pentagon have moved assets into the region. How worried is the president that war is going to break out right now?

PFEIFFER: Well, look this is absolutely a concerning -- situation of concern. There -- this is a -- but this is a pattern of behavior we've seen out of the North Koreans many times.

STEPHANOPOULOS: Not from Kim Jong-Un.

PFEIFFER: But from -- from the -- for the North Koreans for many, many years. Provocative actions, bellicose rhetoric. And the key here is to -- is for the North Koreans to stop their actions, start meeting their international obligations, and put themselves in a position where they can achieve what is their stated goal, which is economic development, which will only happen if they re-join the international community.

STEPHANOPOULOS: But does the president believe that Kim Jong-Un is calling the shots here? And is acting rationally?

PFEIFFER: Well, what he believes is that North Korea needs to stop -- stop its actions. We have taken the steps we need to -- to be able to protect our allies, protect the homeland. And the real focus, and the onus is on North Korea to do the right thing.

STEPHANOPOULOS: Lots of talk about a possible missile test within days. If North Korea launches a missile, will the United States shoot it down?

PFEIFFER: Well look, the -- I'm not going to get into hypotheticals here, but we've seen the reports about the North Koreans moving missiles. And we wouldn't be surprised if they -- they did a test. They've done that in the past. Like I said, this is something that's been going on with North Korea for many, many years, long before President Obama...

STEPHANOPOULOS: So it would not necessarily provoke a military response?

PFEIFFER: Well, I -- I'm not going to make any predictions like that here on Sunday, George. But it wouldn't be a surprise, no.

STEPHANOPOULOS: Dan Pfeiffer, thanks very much.

PFEIFFER: Thank you.

STEPHANOPOULOS: The roundtable to talk about North Korea is right here. And as they take their seats, take a look at ABC's Chief Global Affairs Correspondent, Martha Raddatz on the North Korean border with American Commander, James Thurman trying to unpack the true intentions of an unpredictable, and inexperienced dictator.

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RADDATZ: What do you think the likelihood is that Kim Jong-Un will act militarily against South Korea?

THURMAN: I'm not sure we know what his true intentions are, because he's kind of reckless right now. If they decided to, you know resume hostilities, I think we've got to be ready to go. If you ask every one of the soldiers that are out here, it's about fighting tonight. And that's not a bumper sticker. It's -- we got to be able to do that.

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STEPHANOPOULOS: And Martha joins us now. Welcome back. Along with George Will, Greta Van Susteren from Fox News and David Sanger of New York Times. His new book -- his book "Confront and Conceal" out in paperback now deals with the North Korean nuclear program.

But Martha, let me begin with you. Just back from North Korea.

We heard the general right there, says they're ready to respond. Do they think they're going to have to?

RADDATZ: I don't think they want to respond. I think they're trying to talk the South Koreans out of responding if one of those mid-range missiles is launched, tested and it falls in the water. I think the biggest fear of the United States right now is that South Korea will respond in some way, that they'll be provoked to respond. And that that's exactly what...

STEPHANOPOULOS: Won't South Korea have to try to shoot it down if there's a test?

RADDATZ: Would they have to?

STEPHANOPOULOS: Won't South Korea have to try to shoot it down if there's a test?

RADDATZ: Not if it goes nowhere, not if it goes into the water. And if you think about it, that's a perfectly good strategy for Kim Jong-un, because he can say it was just going into the water. We were testing a missile. It was just a mid-range missile.

So South Korea responded to that without any danger coming their way, then they would be the ones accused of...

STEPHANOPOULOS: So the best outcome would be a failure by North Korea.

David you have got a piece coming out in the "New York Times" where you talk about how the United States can calibrate its response. There is a plan for all-out war. I think it's called, what, 5027?

RADDATZ: 5027?

STEPHANOPOULOS: But it's tricky figuring out how to step-up possible responses.

SANGER: Well, you know, 5027 is a very old plan. It's been around for 60 years. It's been updated and updated and updated. It's also the least likely occurrence.

STEPHANOPOULOS: All out war.

SANGER: So, what we have seen over the years from the North Koreans have been provocations like the sinking of a South Korean ship three years ago that killed about 46 sailors. The shelling of a lightly populated island. And I think the big question right now, with the very untested new North Korean leader is, what do you do if something that happens? You don't want not respond to it. But as Martha points out, big fear about whether the South Koreans could go too far. And you don't want to trigger the bigger war by responding to...

STEPHANOPOULOS: And it does seem to be -- the United States does seem to taken some steps to ratchet things down a little bit after putting a destroyer in the region and aircraft carriers in the region, after putting anti-missile defenses...

SANGER: And sending that B-2 from Missouri all the way...

RADDATZ: Stopping a missile test. They're stopping missile testing unrelated. But I think you'll see in did coming days more defensive measures. I've been told that in the next couple of days that Secretary of Defense Chuck Hagel may announce more defensive measures, more PATRIOT missile batteries.

STEPHANOPOULOS: The big problem here, George Will, is really no one knows anything much about Kim Jong un.

WILL: When Donald Rumsfeld was secretary of defense the second time around, he had in his Pentagon office on a table under glass, a satellite photograph taken at night of Korean peninsula, it's ablaze of light right up to the 38th parallel and then it's dark. Up dim, it's dark.

It tells two things. First, it's primitive country, can't even have electricity. And metaphorically it's dark. We have no idea what's going on in there.

The problem is deterrence depends on rationality, it depends on a certain threshold of rationality and a certain threshold of concern for the lives of your own citizens, which his regime shows precious little of..

STEPHANOPOULOS: Greta, you are one of the few Americans who have actually been inside North Korea, not once but three times, most recently a couple of years ago. This is a population that is always on war footing.

VAN SUSTEREN: Oh, absolutely. In fact, the whole time we were there, all we saw was preparation for war. You know, we tend to look at North Korea as Americans from your viewpoint, sort of a sense of like why would they do anything, like why would they provoke the world? If you go inside, they have been at war with us since the early 1950s. They think that every single one of us is spending every Saturday night sitting around planning how to get them while we're busy ordering pizzas and Chinese food carryout, they think that we're getting ready for war.

Even their performances in terms of -- I went two performances of 130,000 people -- it's all nationalistic, we're beating the Americans, they're coming to us, we're fighting -- and I think they'll see those ships as not -- as U.S. naval ships as provocation. And you've got the other problem that April 15th is Kim il-Sung's birthday. And they're going to want to do something spectacular for the birthday.

STEPHANOPOULOS: Yeah, so they might test then.

WILL: What's sort of scary about what Martha and David say is we've got these plans for incremental responses and finally calibrated steps up the escalation ladder. Next year, we will commemorate the 100th anniversary of the greatest miscalculation in human history, the beginning of the First World War when events just cascaded entirely out of control, partly because they had plans, mobilization got started and the railroads couldn't stop them. The whole Europe collided and fought for four years.

STEPHANOPOULOS: And David, isn't that the big concern inside North Korea that the new leader gets pushed into a corner and feels that he has to respond?

SANGER: That's right. Because he has to establish himself with a North Korean military leadership that views him as a 28-year-old, 29-year-old kid -- know exactly how old he is. Who is himself untested. And so he feels as if he's got to show himself to be the kind of war hero that his grandfather was. And you'll notice that even his personal appearance has been changed to look more like Kim il-Sung, the country's founder -- the hair, the whole bit. He actually bears an uncanny resemblance to his grandfather.

The question is, does he bear an uncanny resemblance to his grandfather's impulses? I mean, in 1950 nobody thought the North Koreans would go over the border and attack South Korea. And it was a series of miscalculations in Washington.

You could argue that for the past 15 years, from the Clinton administration through the Bush administration and now, we have also made a series of miscalculations about how far and fast their nuclear program would go.

STEPHANOPOULOS: Add to the degree of difficulty a new leader in South Korea who may have to prove herself as well.

RADDATZ: Exactly. You've got these two new leaders -- and the one thing I say you have to -- you can't lose sight of here, is that everything's different with Kim Jong-un. He may be trying to be like his grandfather, but he had a successful nuclear test, he had a successful long range missile test. And they believe he has a long-range mobile missile, which General Thurman told me is a game-changer. It's a game-changer because you can hide those missiles. And they believe those missiles could hit the United States.

STEPHANOPOULOS: We've been having trouble following the mid-range mobile missiles.

RADDATZ: Exactly, can't follow those. And certainly the long range would be much, much more frightening.

STEPHANOPOULOS: I want to go to Greta, but just quickly you're -- to be clear, they believe that this long-range missile, if it works, could hit the United States?

RADDATZ: That's what General Thurman told me, that they're not certain it couldn't.

VAN SUSTEREN: Well, the other thing, to your conversation, we don't even -- we're always surprised by everything the North Koreans do. It's not like we have a lot of intelligence about what's going on inside there. And when they do their nuclear test we know it afterwards, we don't know it before. So our intelligence is very poor.

And you talk about provocation. From their perspective, they are winning this big war against us. And we're terrified of them. And now what we have done, we have sent B-2 bombers over there for military exercises. We've done -- send an F-22 over there. The South Korean president, as you notice, she probably thinks she has to do something if there's any provocation, because two years ago, when they sunk that ship and 46 sailors were lost, nothing happened and the South Koreans were all upset.

So this is a tinder box.

STEPHANOPOULOS: Meanwhile, George, a new leader in China as well, just came in in October. Tom Donilon, the U.S. National Security Adviser says China's position on North Korea is evolving. If so, pretty slowly.

WILL: Yes, it better evolve fast because they're right next door. And this is really a test of whether China is going to be helpful or not. Because it's in their neighborhood. It's -- the evidence is clear, if anyone has leverage over that -- over North Korea it is China.

STEPHANOPOULOS: What's your sense?

SANGER: Well, I think the Chinese would like the North Koreans to go back to a status quo, because the Chinese fear is that if North Korea collapses, we're right up on their border. But at this point, the Chinese influence on the North Koreans is fairly limited unless they decide to use their one true card, which is turn off the oil. They could end this whole thing, you know, sort of right away.

I think that...

STEPHANOPOULOS: But they're not going to do that?

SANGER: They're not going to do that.

And Kim Jong-un knows that. He's playing the Chinese very well. And he knows one other thing, which is that while the United States still talks officially about denuclearizing the Korean peninsula, he takes a look at the world and he says, you know, Gadhafi gave up his nuclear weapons program and look at what happened to him.

Saddam Hussein never had a nuclear weapons program and look what happened to him.

So tell me, again, why I'm supposed to give up this small arsenal of nuclear weapons? It's the only thing that's keeping him in place.

STEPHANOPOULOS: And Martha, you have to think while this is all going on, the nuclear talks with Iran basically failed again. And you have to believe Iran is watching this as well, and says, he's got nuclear weapons, he has a stronger hand.

RADDATZ: Not only watching it, but I think there's cooperation between North Korea and Iran. In fact, that's something else General Thurman and other U.S. officials have told me.

STEPHANOPOULOS: What kind of cooperation?

RADDATZ: Cooperation on a nuclear program. Certainly North Korea wants money. And Iran wants nukes.

WILL: It could be that one of the baleful effects of the Iraq war is a lot of people around the world drew the conclusion that had Saddam Hussein developed nuclear weapons he would still be in power.

VAN SUSTEREN: I think we've got to stop looking at North Korea from our viewpoint, though, that they why in the world would they do anything that would be against their self interests as we see it, is that they do not feel that way. They feel that they're on a mission, the people feel they're on a mission. They feel like we're awful, horrible people.

When I've been there and I've spoken to them, they get nervous and they shake, because I looked a little different than most of them. And they see Americans as the worst enemy for 50, or 60 years every single day, they think we're about to kill them. And they all think that way.

STEPHANOPOULOS: And to wrap this up, Martha, real quickly. Test this week -- missile test this week from North Korea?

RADDATZ: I suspect there probably will be. It will probably be those mid-range missiles, a couple of those mid-range missiles and possibly shorter range missiles as well.

VAN SUSTEREN: On the 15th. On Kim il-Sung's birthday to celebrate.

RADDATZ: I may be going for the 10th.

SANGER: That might be the way out in that...

RADDATZ: That saves face, it does. It saves face for him and doesn't...

SANGER: A test that went right into the water would be the best thing that could happen. It's better than sinking a ship...

RADDATZ: As long as no one responds.

SANGER: Yeah.

RADDATZ: That would be best.

STEPHANOPOULOS: Thank you very much. Martha and David, thank you. Greta and George are going to stick around for our politics round along with Arianna Huffington and the two men burning up the blogosphere this week: Paul Krugman and David Stockman debate Washington's response to our economic crisis when we come back.

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MARK SANFORD, FRM. SOUTH CAROLINA GOVERNOR: I hurt a lot of good folks. And all I can say is that I apologize.

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STEPHANOPOULOS: Who could forget that press conference. South Carolina governor Mark Sanford explaining that his hike on the Appalachian Trial was was actually a visit with his Argentina. Well, she's his fiancee now and was by his side when he won last Tuesday's GOP primary for a seat in congress.

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SANFORD: I thank you. I guess to my fiancee Belen who is right here behind me for her long suffering as she put up with me being on the road for more than just a few months. And I thank you for that as well.

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STEPHANOPOULOS: It has always been a safe Republican seat, but some GOP leaders worry that Sanford has too much baggage to carry it.

And the Democrat, Elizabeth Colbert Busch is getting some fundraising firepower from her famous brother Stephen Colbert.

It's a race to watch and we'll be back with more roundtable right after this.

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HILLARY CLINTON, FRM. SECRETARY OF STATE: Vice President Biden and I have worked together on so many important issues and I know what a personal victory it was for him to see the Violence Against Women Act reauthorized last month.

JOE BIDEN, VICE PRESIDENT OF THE UNITED STATES: There's no woman like HillaryClinton. Hillary Clinton -- and that's a fact...

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STEPHANOPOULOS: They shared a stage this week at the Kennedy Center. Will they be sharing a debate stage in just a couple of years? We're going to get into that in just a little bit.

Let me welcome back our roundtable, George Will again, Greta Van Susteren from Fox News, Arianna Huffington head of the Huffington Post, David Stockman, former Reagan budget director, author of a new book called "The Great Deformation: The Corruption of Capitalism in America" sparking a big debate, including with Paul Krugman of The New York Times. We're going to get into that in just a second.

But Paul, let me begin with you on these economic numbers, the jobs numbers that came out Friday. Only 88,000 jobs created last month. 500,000 people left the work force. Is this a sign of one of these another spring swoon?

PAUL KRUGMAN, NEW YORK TIMES: It could be. I mean, the usual stuff, one month's numbers don't mean much. A lot of noise in the data. It might be revised up and all that. But yeah, I mean, what people forget, is two things. One is that the -- we say we avoided the fiscal cliff. But to larger extent we did not. In fact, payroll taxes went up. We had a pretty big hit to working Americans' incomes starting in January.

And the other thing is sequester is starting to hit and businesses have already been making adjustments in anticipation of that. So, we're actually pursuing a lot of fiscal austerity right now. You look at the CBO numbers on cyclically adjusted budget balance, which is your best measure. And we have had basically a contraction of about 3 percent of GDP since 2011, which is bigger, that's more anti-stimulus than the stimulus ever was. We're doing a lot of contraction on the fiscal side. And, you know, why should we surprised if that shows up in an economic slowdown?

STEPHANOPOULOS: I can see David Stockman itching already.

I should say your book -- and I don't want to -- I want to try to get it right, 734 pages, but to sum it up, you believe basically everything that Washington has been doing since the crisis is hurting lot more than helping, including these efforts by the fed and others to stimulate the economy.

DAVID STOCKMAN, FRM. REAGAN ECONOMIC ADVISER: Yeah, I think the machinery of government is massively failing, and that's the problem we face. And it's a real threat to the mainstream economy. And that's why the numbers are far more serious that you heard Friday than is being suggested by the White House.

The truth is, if we were still counting the labor force the way we did in 2000, the last time the stock market was where it was today, the unemployment rate would be 13.1. But we've had such a massive drop out of the labor force, and not from retirement. I know they keep saying that, it's not true. We've had such a massive dropout from the labor force that we're not even beginning to appreciate the harm and the damage and the hurt that's going on in Main Street.

We've had the lowest economic growth in the last 12 years of any time other than war time for a century.

STEPHANOPOULOS: Respond to this point, then I want to bring in the other two.

KRUGMAN: There is a discouraged worker effect. So the, you know, unemployment didn't really go down this month. But a lot of it is the aging of the workforce. It's not, if you just look, if you do an age-corrected labor force participation rate, it's not looking nearly as bad. About half of the decline in labor force participation that we've seen is, in fact, just demographics.

There's a big problem with lots of stuff. The fact of the matter is it's not just people hitting 65 but people often tend to retire before then so the numbers are not that bad. This month is bad, but the numbers, over the past year and a half have shown significant improvement, once you correct for the demography.

STEPHANOPOULOS: And George Will, the President will be dropping his budget into the middle of this, the middle of this right now. And he is already facing (inaudible) I talked to Dan Pfeiffer about, for including these cutbacks in Social Security and Medicare in his opening bid.

WILL: Particularly changing the so-called Chained CPI that calculates the cost of living. Well the fact of, the baby boomers are retiring, bless their hearts. But the fact is 496,000 people left the workforce. We have the lowest workforce participation right, since 1979, which cannot be explained by the baby boomers retiring.

Usually after, an average, after the 11 recessions after the Second World War, we are back within 24 months to the pre-recession employment high. We're not 60 months and counting. The recovering will be four years old in two months.

STEPHANOPOULOS: But this was an unprecedented, since the Depression, financial crisis.

HUFFINGTON: Yes but I think what David is saying and what George is saying, is absolutely true. This is a real jobs crisis. And the urgency of the jobs crisis is not reflected in the President's budget. There is a real disconnect between where the real crisis is and what his priorities are. And I know Don said that we can do both, we can reduce the deficit and we can grow the economy, but we can't. We haven't been able to.

And even Ben Bernanke warned the Senate Banking Committee last month that all these measures, all these deficit reduction measures are having a terrible impact, what he called headwinds.

STEPHANOPOULOS: So you agree with David Stockman's analysis but not his prescription?

HUFFINGTON: No but I think his analysis is key. And I think there's been a lot of attacks on David's boo, which I'm missing, the central point of the book which is his analysis. And at the heart of his analysis is the disconnect between the real economy and the financial economy.

Everything we're doing has been good for Wall Street, quantitative easing, all the stuff that the Fed is doing. But not good for Main Street. And that's really the heart of it.

KRUGMAN: All right --

HUFFINGTON: And the President announced that he's going to have this initiative to map the brain, I would like to see that initiative can help us understand this disconnect in the way we are approaching these two issues.

KRUGMAN: Can I just --

VAN SUSTEREN: And you talk about the Main Street, is that we're strangling small businesses. I mean everyone, no is paying much attention to these small businesses. The regulations start strangling them, some are laughable and silly, but they have profound impact on the job creators, those who are making jobs. They can't afford to hire people.

KRUGMAN: There's been, there's been tons of work on this. And what's holding small business back is not regulations, it's the fact that they don't have sales.

VAN SUSTEREN: It's not all, it's some of it.

KRUGMAN: There's not, there's no correlation looking across, which parts of the economy do small businesses complain about regulations? Which don't they? There's no correlation between that and actual job --

(CROSSTALK)

STEPHANOPOULOS: Let me ask Paul a question and then I'll bring you in. I just want to ask you one question. Is the one exception to that perhaps on health care? Where firms that are greater than 50 people have to pay more. Don't you see some firms cutting off at 49?

KRUGMAN: There might be, but you can't see that in the numbers. And the overwhelming fact of the matter --

VAN SUSTEREN: Well you talk to them. Instead of looking at just numbers, why don't you sit down and talk to them. And if you actually talk to these people, and you go and talk, a lot of them are struggling with this. They don't understand a lot of things that happened to them, they don't understand a lot of things that happened in Washington.

They're very cautious because they see a real dismal economy out there, and that does have an impact.

KRUGMAN: I have talked to them, that's not what they say --

STOCKMAN: I'd like to jump in here. You know we can debate this regulatory issue forever. The thing is, the main thing we're doing is not working, the serial bubble machine coming out of the Federal Reserve.

Zero interest rates are basically crucifying the savers of America on a cross of ZIRP as I call it. It is not, all this money is not getting out of the canyons of Wall Street. It's going into Wall Street right back to the, as excess reserves on the balance sheet of the Fed. It allows speculators to borrow money for nothing overnight. And we get bubble, after bubble, after bubble, but it is doing nothing for the Main Street economy.

STEPHANOPOULOS: If it wasn't for that quantitative easing, wouldn't unemployment being higher today?

KRUGMAN: Yes. Just back up, take away all that and say, you really think we should be raising interesting rates with high unemployment?

STOCKMAN: I think --

KRUGMAN: You really think that?

STOCKMAN: I think it's insane to have zero percent interest rates when interest rates are the price of money when our economy has massive amounts of debt built up over --

KRUGMAN: Okay --

STOCKMAN: -- three decades. We don't need more debt. And debt isn't a good thing. I know we owe it to ourselves. Maybe we owe it to green Martians. Still it is a burden on the people who owe it, whether it's government, whether it's households who are buried in credit cards or mortgages or whatever. That is hurting and making more of it through zero interest rates is absolutely counterproductive.

KRUGMAN: This is actually, this is the core of my problem with David's book. Which is yeah, we have huge debt numbers. But there's a huge misunderstanding of what those numbers mean. People look at the big numbers, debt is 3.6 times GDP and say we're broke, the country has been living beyond its mean. We need to pull it back. But that's not what it means. It's a little known fact that America actually earns more on its investments overseas than it pays to foreigners, right? We're not deeply in hock to the rest of the world.

What has happened is that we've complexified (sic) our financial system. So it used to be that Jimmy Stewart's bank made a mortgage loan and that was it. Now some mortgage originator makes a loan, repackages the loan, borrows money using those mortgage security as collateral, so you can count the same debt twice and sometimes three times.

So we have this overly complex financial system which is why we need financial regulation to bring it back to simplicity. But it has nothing to do with excess. It has nothing to do with zero interest rates.

The big increase in debt took place during the years when the interest rates were reasonably high. So this is a terrible misunderstanding. And again, do you really want to raise interest rates in a deeply depressed economy?

WILL: David and Paul can argue about whether we should have zero interest rates now. No one believes we're going to have zero interest rates forever. And when the cost of government goes back to anything like the post-war normal, 4, 5, 6 percent, the debt itself will be the big driver of the debt. That is --

STEPHANOPOULOS: Making payments on the debt?

WILL: Just servicing our debt.

HUFFINGTON: Yeah but that's --

(CROSSTALK)

STOCKMAN: The CBO projections, if I might say, the CBO projections are rosy scenario if there ever was one. If you believe over 10 years we're going to create 16-1/2 million jobs when in the last 10 year we're only done two; if you think we're going to go 14 years without a recession when from time immemorial we've had one every 50 months, you can believe that.

If you do a realistic cut and paste, what we've done for the last 10 years projected forward, the forward deficit we're facing is $15 to $20 trillion, we're going to have $25 to $30 trillion in national debt. When the interest rate normalizes as George is talking about, it will, the debt will soar, the interest cost will soar --

(CROSSTALK)

STEPHANOPOULOS: Arianna then Paul.

HUFFINGTON: The CBO has also predicted there is going to be another 750,000 jobs lost this year alone because of the sequester. And there is absolutely no plan by the administration to deal with the jobs crisis. I think this is something --

STEPHANOPOULOS: (inaudible) they have a Congress that's not going to pass any stimulus they propose.

HUFFINGTON: But they haven't even introduced a plan. You know George you can't say that the Congress wouldn't pass it, they wouldn't --

(CROSSTALK)

KRUGMAN: If I could interrupt this debate for a second and respond. The administration, they have a difficult choice to make. Do they talk about what they should be doing? Or do they talk, do they position themselves? In fact, nothing is going to happen.

And what they chose to do is not to talk about what they should be doing. They chose to do, if you like, a halfway cut between what we should be doing and what's actually going to happen, which is nothing at all.

(CROSSTALK)

HUFFINGTON: You're basically saying that it's okay for the administration to simply position themselves --

KRUGMAN: I'm not so sure that's a good idea

HUFFINGTON: instead of trying to do something for the real crisis?

KRUGMAN: I've talked to them. They understand this right? I'll say a word on their behalf. They understand that we should be doing more stimulus, we should not be doing all this austerity --

HUFFINGTON: Well they don't, they talk about it?

STEPHANOPOULOS: They know they won't get it. Greta.

VAN SUSTEREN: But the concept that nothing is going to happen suggests to me that no one is even bothering to try. And that I think is a real disconnect between Washington and the rest of the country. You know they see their politicians not even trying.

If you say that sequesters is causing tall this problem, well who created the sequester problem in the first place? They did. Because they didn't do their job. And what are they doing now? Most of them are on recess. They're not even taking care of a lot of the problems.

So they created a lot of these problems. This happens to be their job and they should at least be working towards fixing it.

(CROSSTALK)

STOCKMAN: They're paralyzed.

VAN SUSTEREN: They ought to try.

(CROSSTALK)

STEPHANOPOULOS: Here's where people are trying. Here's where people are trying. I want to bring this to George. You saw Dan Pfeiffer talk about the common sense caucus. The President is trying to reach out to Senate Republicans who might be willing to be part of a deal. And I tend to agree that it's going to be very, very, very difficult to get one.

But you have the debt limit being hit again in mid-May, sometime in the summer. And a lot of people do believe that might finally force some kind of compromise. You don't?

WILL: I don't. For two reasons, the President, on the left has people objecting to anything as mild even as changing the way we calculate cost of living increases for entitlement programs. And on the right, the Republic position, and its set in stone, is that the President got his revenues, end of story.

So when the President comes back for more revenues, all of which is to reduce the deficit $600 billion over 10 years, that's $60 billion a year. It's a rounding error.

STOCKMAN: Can I just say Social Security CPI saves $100 billion over 10 years. It's one percent of the problem. The machinery is paralyzed. The Republicans can't own up to the fact that we need major new revenue sources. The Democrats keep saying Social Security isn't busted. It's busted. It is already running a $50 billion deficit a year. There is nothing in the trust fund. It's confetti.

KRUGMAN: I disagree with everything my colleague just said. But let me say, this is not about machinery. This is about people and it's about visions. We have two parties that have fundamentally different visions of what America should be.

We have Democrats who want an expansion of the safety net and have gotten it, mostly in Obama Care but they want it to be, you know, even more. And we have Republicans who want to dismantle a lot of the legacy of both the Great Deal, the Great Society and the New Deal. And of course we have, it's a paralysis because the parties do not agree at all on which direction this country should take.

HUFFINGTON: But Paul that's not true.

KRUGMAN: And the last election was not, unfortunately did not resolve it one way or the other.

(CROSSTALK)

HUFFINGTON: That is not true, that there's a clear distinguished vision at the moment. We have a 64 percent increase in suburban poverty, we have a doubling of people on food stamps and disability payments. We have millions of people's homes underwater.

And the administration is ignoring this crisis because they are prioritizing deficit reduction. They have bought into the Republican talking points. And this is not a right/left point, they are ignoring what's happening in Europe. The eurozone has now the highest unemployment rate it has had. All the austerity measures and the deficit reduction measures have not worked in Europe. They are not working here. And yet the administration is not putting forward a coherent vision that prioritizes jobs and growth.

VAN SUSTEREN: The reason we have paralysis is because we don't have the money. And I think people want to take care of people. I don't think people want to take the safety net away from people who really need it. Because Americans are really good, decent people.

If we didn't have a revenue fight in terms of how much money we have, the condition of the economy, the condition of the national debt, we wouldn't be having half of these fights. And the two parties might be able to come together a little bit better if we fundamentally got this economy up and roaring, we'd be fighting a little bit --

STOCKMAN: The two parties do the same thing. They're glorified concierges that introduce politicians to money. They don't stand for anything, they don't believe in anything. If the Democrats did, why do we have still have ""too big to fail"?"

We allegedly had a heart attack several years ago and the banks are bigger than ever. Why don't the Democrats do something to break them up and cut Wall Street down to size?

STEPHANOPOULOS: That is going to have to be the last word on that for now. I want to move on. Hillary Clinton back on the stage this week. We saw her with Joe Biden, gave another speech at a women's conference here in New York. And here was her plea,

(BEGIN VIDEOTAPE)

HILLARY CLINTON: Let's keep fighting for full participation. And let's keep telling the world, over and over again, that yes, women's rights are human rights, and human rights are women's rights, once and for all.

(END VIDEOTAPE)

STEPHANOPOULOS: Arianna she also announced that's she writing a memoir of her time at the State Department. Chelsea Clinton on the cover of "Parade" magazine this week. A Super PAC supporting Hillary has already begun.

Do you have any doubt that at some point she's back in?

HUFFINGTON: No, no. She's obviously running. But what I was hoping is that she would have taken to more time to become what she called herself, untired.

STEPHANOPOULOS: Untired.

HUFFINGTON: Untired. That was her term, you know? She wanted to sleep in. To be able to recharge herself. She hasn't given herself that time. And I think that's sending a bad message to women that the only way to succeed, the only way to run is to drive yourself into the ground.

After all she collapsed, she had a concussion. And right now you see a greater debate among corporations among corporations, among individuals, how can redefine success? How we can actually reduce stress and burnout? Which is having a terrible impact on our health care system.

VAN SUSTEREN: But you know what though --

HUFFINGTON: Seventy-five percent of health care costs are because of chronic, preventable diseases, many of them brought about by stress. She could be an incredible leader in helping us do our life and our success differently. Not just for women but for men.

VAN SUSTEREN: She's not going to wait for the 10-count. She hit the mat in December when she got sick. She got up before the starter got to number two. Hillary doesn't give up. She's done this for the last 40 or 50 years. She's not going to --

HUFFINGTON: I'm not suggesting giving up --

VAN SUSTEREN: No, no, but I don't think --

HUFFINGTON: I just think she should (inaudible) recharge.

VAN SUSTEREN: I don't think, Hillary, she's out, she's out there all the time. She's not going to, she can't sit home and do nothing.

STEPHANOPOULOS: George Will, Steny Hoyer, the number two Democrat in the House, says that if Hillary gets in she clears the field. Do you buy that?

WILL: Heavens no. The consensus among those who think and talk about presidential politics ad nauseam, is that she is the prohibitive favorite. So the question is, when is the last time a prohibitive favorite for the Democratic nomination lost it? You have to go all the way back four years to 2012, '08 rather, when she lost.

STEPHANOPOULOS: Fifty point lead in the spring.

KRUGMAN: I want to say this, things are different now. I watched the whole reaction to Hillary and I think, have I slipped into this alternate dimension? Sort of Spock with a beard territory? Because we had the Democrats tremendously loving this candidate, tremendous unity among the Democrats.

Fractured Republicans, disorganized, wait who switched the labels on the parties right?

STEPHANOPOULOS: Could be true.

STOCKMAN: I'm under the impression that we have massive problems of governance in this country and why are we worried about 2-16 (sic) election?

KRUGMAN: Fair enough.

STEPHANOPOULOS: It is very, very fair. It actually leads to, you can admonish me for this as well. But true enough it created a controversy, at least online, at the end of the week.

The President going out to California and praises the Attorney General of California, Kamala Harris. From the stump he says, "She is brilliant and she is dedicated and she is tough. Exactly what you want in anybody who is administering the law. She also happens to be, by far, the best looking Attorney General in the country."

Check out the montage of reaction. San Francisco Chronicle, Politico, Christian Science Monitor, Washington Post. All kinds of outrage is seen. It was all over the Twitter sphere as well.

Arianna, should everybody relax or did the President really make a mistake here?

HUFFINGTON: Everybody should relax. Lighten up. It was an aside. It's unbelievable. George and I were talking in the green room about the GK Chesterton quote, "If there is one thing worse than the modern weakening of modern morals, it's the modern strengthening of minor morals."

Mock outrage. I mean I wish there was more outrage about the jobs numbers than there was about, than we had about Kamala Harris.

VAN SUSTEREN: It was a fun story. I think, it was a social comment. He made a comment about her. Although I do think that the Attorney General of Maryland who was an early supporter of President Obama --

STEPHANOPOULOS: Doug Gansler?

VAN SUSTEREN: Doug Gansler, he ought to be offended. He's a pretty handsome Attorney General. I thought he should be offended that he didn't get called out. But anyone, it was a social comment.

WILL: First, the President finally said something accurate and we should treasure him for this. Second, there is nothing, no growth industry in this country like the manufacturing of synthetic indignation.

We've always from time immemorial had that guy at the end of the bar nursing his third beer and venting his opinions. Now they do it, thanks to progress, on the internet. And it creates the (inaudible).

STEPHANOPOULOS: You were the victim of a lot of free speech on the internet.

KRUGMAN: This is, it was dumb. And it's right to slap him for it. But you know, there's a little bit of pig in all of us. I speak from personal experience. So there we are.

STEPHANOPOULOS: Before we go, before we take a break, George I do want to come to you on one sincere outrage this week. Down in Atlanta, 35 educators, including the former superintendent of schools, have all be indebted on conspiracy charges for trying to inflate the test scores of their students. And you're hearing a lot of education experts saying this is not an isolated problem.

WILL: It's not and there's, they change the answers on standardized tests. When you link teachers' compensation and job progress to the performance of students on standardized tests, you've put in place an incentive to cheat.

Beyond that, No Child Left Behind says that 2014, that's next year, we will have 100 percent efficiency in math and reading. The danger is that we will because we're going to so dumb-down the standards of proficiency.

So we've put in all kinds of perverse incentives, all linked to standardized tests.

SUS TURN: Let me just play lawyer for just a second at the table, is that they haven't been found guilty yet. However, and the evidence is quite overwhelming and they do have that presumption of innocent. I feel a little bit compelled to say it. However, if convicted, it is absolutely deplorable.

STEPHANOPOULOS: Thirty seconds.

STOCKMAN: Cheating is symptomatic of a huge cultural problem we have. The cheating we have that's going on in Washington today in terms of not being honest about the real choices, higher taxes for you, social security cuts for the affluent, big declines in defense, no there.

The cheating that's going on in terms of a financial system that's totally out of kilter and really needs to be fixed in Wall Street is not even being addressed.

So that is symptomatic of a huge national problem.

STEPHANOPOULOS: Have to take a quick break. Sunday Funnies and more roundtable coming right up.

(COMMERCIAL BREAK)

STEPHANOPOULOS: Final round here with the roundtable. I want to get everybody's pick on a story that really caught there eye this week. George Will?

WILL: Stockton, California, in the midst of one of the largest municipal bankruptcies in American history, we learned last week from the judge that the bondholders are going to take a sizable haircut in this.

Here's why this matters. Having made improvident promises in pensions and Medicare to the employees, the City of Stockton, as a lot of cities did, then sold bonds to get revenues that they would invest riskedly, to try to get a rapid return to try to pay for these promises.

Didn't work. They're bankrupt. From now on there is going to be a huge risk premium built into municipal borrowing.

VAN SUSTEREN: Sequester has hit these community cancer centers that deliver chemotherapy to people who are on Medicare and a number of these centers are going to have to stop giving chemotherapy to their Medicare cancer patients.

Congress needs to fix that. Fix it now and it's absolutely cruel that this is even happening and that they haven't fixed this. They should have been exempted under sequester and I defer my time to Arianna.

HUFFINGTON: College loan interest rates are set to double this summer. The growing crisis around student loans is incredibly troubling giving that right now student loads are cost over $1 trillion. This is now bigger than the credit card debt. And it's affecting the chances of kids just graduating from college many of them without being able to get a job.

STEPHANOPOULOS: David Stockman.

STOCKMAN: The President's budget is going to arrive two months late, dead on arrival. It will elicit a barrage of partisan noise. Essentially about pinpricks and rounding errors. That's a measure of the paralysis we have. This little CPI thing, we should do it and a lot more. Big revenue increases are needed to pay our bills.

That's a measure of where Washington is paralyzed why the budget is a Doomsday Machine and you're going to hear it this week in the noise.

KRUGMAN: Japan. And David will love this. After 20 years of being stuck in a deflationary trap, the Japanese are finally getting radical. They're doing a really, really massive monetary expansion.

I think it will work. I think it's a good idea. But it's a tremendous test. It will be a lesson to the rest of us to see how it plays out.

STEPHANOPOULOS: It's already fueled the Japanese stock market. A story that caught my eye this weekend "The New York Times" law enforcement experts studying mass shootings now say that if you're in a situation with a mass shooting, the best thing to do is not stand by, not do nothing, not be passive. Take action either against the shooter or to run or hide. Do not sit still. I think that's important scholarship that's going to make a big difference in a lot of people's lives.

Thank you all for this was a fantastic conversation today. Certainly very spirited. Appreciate it. And now we're going to honor our fellow Americans how serve and sacrifice.

This week the Pentagon released the names of two service members killed in Afghanistan.

And that is all for us today. Thanks for sharing part of your Sunday with us. And go to abcnews.com/thisweek for this week's web extra with Arianna Huffington. David Muir will be here tonight for World News.

And on this week's 45th anniversary of Martin Luther King's death we leave you with the powerful voice of Nina Simone. She sang "Why the King of Love is Dead" just two days after that heartbreaking shooting in Memphis.

END