'This Week' Transcript: NEC Director Larry Summers

April 4, 2010 — -- TAPPER: Good morning, everyone, and happy Easter and Passover.You have to go back three years -- to March 2007 -- to find the lasttime the U.S. economy created as many jobs as were created last month,three years. And yet the 162,000 new jobs did not put a dent in theunemployment rate, which remains at 9.7 percent.

Fifteen million Americans were still looking for work in March,and of those, 6.5 million have been unemployed for more than 27 weeks.And the broadest measure of unemployment, those who have given uplooking for a job or cannot find a full-time job, bumped up to 16.9percent.

Joining me now, the president's top economic adviser, Dr. LarrySummers.

Dr. Summers, thanks so much for joining us.

SUMMERS: Good to be with you, Jake.

TAPPER: Now, if you remove the temporary census worker jobs,48,000, you're left with 114,000 new jobs. Big businesses haveretained earnings. They are not spending that -- that money oncreating new jobs. They're investing abroad. They're buying theirown stock. They're buying other companies. Why are they not creatingnew jobs?

SUMMERS: They're starting to. We're in a very different placethan we were a year ago. A year ago, we were losing 600,000 jobs amonth. Now the process of job creation has started. We expect thatit will accelerate.

But we've got to do more to make sure that there's demand in thiseconomy that will create more jobs. We are in no position to rest orto be complacent just because of this jobs report.

That's why the president thought it was so important to sign intolaw the incentive program two weeks ago that allows the waiver ofpayroll taxes for companies that hire an unemployed person. That'swhy the president is pushing for spending on new constructionprojects, new infrastructure projects. That's why we've got to focusparticularly on small business at this point.

You know, if you look at the data, the situation with largebusinesses is serious, but the situation in small business isdevastating. That's why the president put forth proposals in Decemberand wants to see Congress act on his measures to increase the flow ofcredit to small business. That's why it's so important that we'reseeing a big increase -- more than 10 percent -- in the tax refundsthat Americans are getting this April, which will put them in aposition to spend -- to spend more and start that process of jobcreation.

That's why it's so important to have passed health insurance,which is going to give a tax credit that's actually retroactive toJanuary to small -- to small businesses. We've got to do everythingwe can to provide the incentives, to create the framework for more jobcreation in this economy. We cannot rest where we are.

TAPPER: Now, you said that you think it's going to accelerate.You guys have been touting a bar graph showing job losses during theprevious administration, job gains since the stimulus passed. Do yousee that progress continuing? Or can we expect that there might besome dips even into negative job growth in the coming months?

SUMMERS: Jake, the numbers fluctuate from month to month, and nogood business runs itself based on every weekly or monthlyfluctuation. And the president's focus is on building a strongereconomy so we don't have debacles like the last couple of years again.

TAPPER: So there might be some dips?

SUMMERS: But I think -- but my expectation would be that thetrend is going to be upwards. We talk a great deal to businesses. Wemonitor all the statistics. And the steps that the president istaking should bring about an increased level of employment.

But, look, we don't have enough in place. That's why thepresident has put forward measures to the Congress for the credit forsmall businesses, for incentives that will let people spend money andput people to work retrofitting their homes to make them more energyefficient, to preserve jobs on the front lines for teachers and forpolicemen.

What happens will depend on choices we make, and there is muchmore that we can do, and the president is pushing for the adoption ofthose measures, even as we focus on implementing and continuing toimplement the strong set of measures in the president's Recovery Act.

TAPPER: Where do you think we're going to be in September? Arewe going -- are we going to still be at 9.7 percent unemployment or isit going to go down a little?

SUMMERS: You know, the -- the good news is that, if you look atwhat's happened in the first quarter of this year, it's hardlysatisfactory, but it is running somewhat ahead of what theadministration was forecasting, because our forecasts wereconservative. And I'd expect continued progress in job creation.

As you see progress in job creation, you tend to see unemploymentgo down. It's not quite as simple as some people think, Jake, becauseas conditions get better, more people decide to look for work and arecounted as in the labor force. So sometimes it's frustrating and theprogress doesn't show up immediately in the unemployment rate, butit's progress nonetheless in giving jobs to people who need them.

That is what is the president's top economic priority for thisyear. You know, all of us -- I mean, the president talks about thiswith us each week. The letters that he receives from the familieswhere kids are worried about whether their parents are going to beable to hold onto their job...

TAPPER: Well, if I could...

SUMMERS: And that's why we're so focused on this jobs issue.

TAPPER: There are a lot of members of Congress who are concernedabout jobs because of China, because of what they see -- themanipulation of currency by China. The Obama administration hadscheduled a semi-annual report to Congress on currency, in which itwas going to state whether or not the Obama administration believesthe currency is being manipulated. That report, we learned thisweekend, is going to be delayed.

Is it going to be delayed because the Obama administration needsChina's cooperation on other things, such as sanctions against Iran?

SUMMERS: No.

TAPPER: That's not the reason?

SUMMERS: No, it's being delayed because that's part of ourinternational economic dialogue, which is directed at supporting acrucial issue for jobs creation, doubling our level of exports, andthat depends on what other countries do.

We've got three major meetings, a meeting of the G-20 financeministers, our strategic dialogue that takes place every year withChina, and then the president's meeting, building on the forum hecreated in London and Pittsburgh last year of the G-20 countries.

Those are opportunities to engage with China, to engage withother countries that have large trade surpluses, other countries whothink they can continue to rely on the United States as an importer oflast resort. And Secretary Geithner's judgment -- and I think it wasthe right one -- was that we could report and recommend to Congress,you know, a much more effective way after we had had those meetingsand taken stock of what kind of measurable progress we were able togenerate out of those dialogues.

But, look, at this point, given the seriousness of the recessionthat we have been through, given the number of Americans who are outof work, the economic issues have to be at the center and will be atthe center of our diplomacy.

TAPPER: OK. The president has said he wants -- in the next fewweeks, he wants the Senate to pass financial regulatory reform. Firstof all, just quickly, do you guys have the 60 votes to pass SenatorChris Dodd's bill on financial regulatory reform?

SUMMERS: I expect that reform is going to pass. It's not easy.You've got $1 million being spent per congressman in lobbying expenseson this issue. Industry has four lobbyists per member of the Houseand Senate working on this.

But the case for basic consumer protection, the case forregulating institutions that are able to bring the economy down andnot leaving them completely unregulated, the case that we've got to beable to handle the failure of an institution without a major bailoutthrough so-called resolution authority, the case that we can't letinstitutions choose their own regulator -- play one regulator off --against another to reduce standards -- that case is so compelling thatwe are confident that a sufficient majority will see that case andwill vote to support financial reform.

We've come a -- we've come a -- come a long way on this issue.We're now in the final stages. Our expectation is that we will getthere, and there's no question, I mean, how can anyone take a positionafter what has happened, after -- I mean, it's not the first thingthat's happened...

TAPPER: Well, some -- some -- some Democrats... SUMMERS: ... that we don't need -- that we don't needcomprehensive financial reform.

TAPPER: Well, some...

SUMMERS: Probably (ph) work on the details, but not compromiseon the principles.

TAPPER: Some Democrats say it doesn't go far enough. Here'sDelaware Democrat Ted Kaufman talking about the Dodd bill.

(BEGIN VIDEO CLIP)

KAUFMAN: Unless Congress breaks up the mega-banks that are toobig to fail, the American taxpayer will remain the ultimate guarantorof an almost certain to repeat itself cycle of boom, bust and bailout.

(END VIDEO CLIP)

TAPPER: Senator Kaufman is saying that there isn't being --enough being done about too big to fail. In 2000, you said, quote,"It is certain that a healthy financial system cannot be built on theexpectation of bailouts." Can you honestly say that the Dodd billchanges that?

SUMMERS: Yes, I can. It changes -- it reduces the expectationof bailouts by insisting that institutions have much more capital sothey won't need to be bailed out. It eliminates the prospect ofbailout by creating a framework in which a failure can be managed withcreditors taking responsibility.

It restricts -- and this was the important point that former FedChairman Paul Volcker has stressed -- it restricts the so-calledproprietary trading activities, some of the most risky activities ofthese institutions. So, yes, this bill is a direct attack on toolarge to fail by making failure a possibility, as it has to be in amarket system, and by making these institutions much safer and muchsounder. Senator Kaufman is exactly right.

TAPPER: Lastly -- we only have a minute left -- but there havebeen reports lately that you're -- you're thinking of leaving. Are --I know you've -- you've said that the reports are not true, but areyou committed to staying in your current position throughout at leastNovember 2012?

SUMMERS: Jake, you know that in this town, when it comes topersonality stories, usually it's the case that those who talk don'tknow and those who know don't talk.

TAPPER: Well, you know...

SUMMERS: I am very -- I am having an enormously satisfyingexperience working with this president, and that's what I'm committedto doing and serve at his pleasure.

TAPPER: Until November 2012? SUMMERS: Serve at his -- serve at his -- I serve at his...

TAPPER: Assuming that he would like you to serve until...

SUMMERS: I serve at his pleasure. I don't get into hypotheticalquestions. I'm having an enormously satisfying experience.

TAPPER: All right, Dr. Larry Summers, thank you so much.

SUMMERS: Thank you.

TAPPER: And joining me now, the former chairman of the FederalReserve, Dr. Alan Greenspan. Dr. Greenspan, thank you so much forjoining us.

GREENSPAN: It's a pleasure being with you, Jake.

TAPPER: I know that you agree with Dr. Summers that jobs willcontinue to -- job growth will continue to accelerate. Do you thinkit will accelerate enough that it will make a dent in unemployment,that is, that we see the numbers of 300,000 jobs created a month, asopposed to just 100,000, which basically is treading water?

GREENSPAN: I'm not sure, but I don't think it's impossible byany means. There is a momentum building up which is really justbeginning, and it's got a way to go.

There are certain critical issues here. First, we have toremember that the capital gains on 401(k)s are $600 billion. And aswe saw when money was being evaporated in those particular accounts,people pulled back their consumption. They're now moving forward in amore positive direction.

Secondly, capital investment, which had been extremely depressed,is still depressed for real estate, but equipment is coming back in afairly substantial way.

But most important of all is this incredible increase in thedifficulties -- I should put it this way -- the increase in the leadtimes that it takes purchasing managers to get new materials forinventories. What that necessarily means is that they're going tohave to build inventories to protect their production lines at anever-increasing pace. And that is a self-reinforcing cycle.

So I think the particular area of the economy which people arenot putting enough -- I should say -- enough focus on is howsignificant this rebound of inventories is going to be after such anextraordinarily dramatic decline that occurred through all of lastyear.

Remember, as of now, inventory change is zero, the level ofinventories is at the absolutely low level, and all of the people whoare in the business to see what the tightness of markets are, aresaying effectively that there's a shortage of inventories out thereand we're on the edge of a significant build-up.

TAPPER: As the -- you mentioned real estate. And I've heard alot of economists talk about their fear of the -- the commercial realestate bubble popping. How concerned are you by that?

GREENSPAN: Well, I think it's already popped, in a sense. Imean, real estate prices generally are down almost 50 percent. Andthey've come back a little bit...

TAPPER: I mean the kind of crisis that we saw with the -- withthe subprime housing and personal housing.

GREENSPAN: Yes. Yes, with prices already down and adjusted, ifwe were going to get severe secondary reactions, they would havelikely -- would have occurred, and they would have occurred if itweren't for the fact that the rest of the economy is showing somedegree of buoyancy.

TAPPER: Now, Dr. Summers didn't really answer the question, but-- but I was wondering your thoughts on whether or not we can expect,if there is accelerated job growth, whether or not you think therewill be any dips in that, including into negative job growth, or ifyou think it's just going to be a straight line.

GREENSPAN: You mean month-by-month increases?

TAPPER: Yes, month-by-month.

GREENSPAN: I suspect it's month by month. I mean, it's -- I can-- you know, a statistical aberration possibly, but the momentum isvery clearly there, and I doubt very much that we're going to run outof that momentum until very late in the year.

TAPPER: So no double-dip recession?

GREENSPAN: I think the odds of that have fallen verysignificantly in the last two months.

TAPPER: The president signed massive health care reformlegislation into law a few weeks ago. You have expressed concernabout the legislation, as it was making its way through the process,about whether or not it did enough to contain costs. What did youthink about the final legislation? Does it contain costs enough?

GREENSPAN: Well, the CBO, incidentally, Congressional BudgetOffice, which is really a first-rate operation, says that it does.The problem is not their estimates, but the range of potential errorin those estimates.

And when you're dealing with an economy in which debt is becoming-- federal debt is becoming ever increasingly a problem, it strikes methat when you're dealing with public policy and you're in a positionwhere you have to ask yourself, "What happens if we are wrong?"

In other words, in the case now, where our buffer between ourcapacity to borrow and our actual debt is narrowing, for the firsttime, I think, in the American history, there's a question, supposingwe are wrong on the cost estimates, and, indeed, they are actuallymuch higher than the best estimates can generate, the consequences arevery severe, whereas if they are too high, it's very easy to adjust.

So I think it's -- it's -- there's an issue over and above thequestion of what's the best cost estimate. There's a policy strategyhere which I think requires us to lean in an ever more conservativearea with respect to judging...

(CROSSTALK)

TAPPER: So it might have been too rosy, the projections, you'resaying?

GREENSPAN: Possibly. I don't know that. But I do know that theprobability that it might be is much higher than we would like.

TAPPER: You have said recently that if institutions are too bigto fail, they're too big. Do you support the Volcker rule, whichwould limit some of the transactions that commercial banks can do?

GREENSPAN: Well, I think the point that he is making, thatdeposit funds which are subsidized should not be employed forspeculative purposes, I would agree with. The problem basically withthe Volcker rule is it's very difficult to apply in a general way, andI think that's why there's been considerable resistance to it, not theprinciple, but the issue of being able to segregate the types oftransactions which are helping customers and those which are strictlyproprietary. Until they do that, I think it's very difficult toimplement.

TAPPER: You'll be testifying about the financial crisis onWednesday before the Financial Crisis Inquiry Commission. When youtestified before Congress in October, you said that you finally saw aflaw in -- in the way that you looked at markets, that markets cannotnecessarily be trusted to completely police themselves.

But isn't it -- isn't it more than a flaw? Isn't it anindictment of Ayn Rand and the view that laissez-faire capitalism canbe expected to function properly, that markets can be trusted topolice themselves?

GREENSPAN: Not at all. I think that there is no alternative, ifyou want to have economic growth and higher standards of living, in ademocratic society, to have competitive markets. And, indeed, if youmerely look at the history since the Enlightenment of the 18thcentury, when all of those ideas surfaced and became applicable inpublic policy, we've had an explosion of economic growth, andespecially in the developing countries, where hundreds of millions ofpeople have been pulled out of poverty, of extreme poverty andstarvation, basically because we have competitive markets.

So it's not the principle of competitive markets which really hasno alternative which works. It is a strict application -- as Ipresented in a Brookings paper fairly recently on a somewhat technicalarea, the major mistake was assuming what the nature of risk would be.And the reason it was missed is we have had no experience of the typeof risks that arose following the default of Lehman Brothers inSeptember 2008.

That's the critical mistake. And I made it. Everybody that Iknow who works in this business made it. And it means that basicallywe have to work our way back to understanding what went on. And as Iargue, what we need is far more required capital for financialinstitutions than we've had.

TAPPER: There's -- as you know, Michael Bury (ph), who is ahedge fund manager in California, who made a lot of money looking atthe subprime mortgage situation in the previous years and -- andsaying to himself, "This is crazy. It can't continue," and he betagainst it and made a lot of money, you were asked about it lastmonth, and you referred to him as a statistical illusion.

He -- he has an op-ed in today's New York Times in -- in which hequestions whether or not you should be taking him more seriously. Andhe says, "Mr. Greenspan should use his substantial intellect andunsurpassed knowledge of government to ascertain and explain exactlyhow he and other officials missed the boat. If the mistakes wereproperly outlined, that might both inform Congress's efforts toimprove financial regulation and help keep future Fed chairmen frommaking the same errors again."

Why are you not more interested in hearing what he has to say?

GREENSPAN: Well, on the contrary -- first of all, I was notreferring to him specifically. There are three -- three -- three (ph)groups of people, those who got -- those who got it wrong about whatthe complexity was about to emerge in the -- that's the vast majorityof people, myself included.

TAPPER: Right.

GREENSPAN: Then there's a group -- a relatively small, but notnegligible group, who got it surely by luck. And then there's a verysmall group -- most of whom are my friends -- who got it right for theright reasons and that have done it time and time again.

I don't know Mr. Bury (ph). But he basically may very well be inthat third group. I don't know that.

But the problem is, he in that article, which I read quickly thismorning, is actually making the case that it's a very small group,because he says effectively that no one agreed with him. Well, hemade his money -- properly, in my judgment, and I think verysuccessfully -- by effectively selling subprimes short. Now, ifnobody...

TAPPER: He was betting against subprime mortgages working.

GREENSPAN: Exactly. And if everybody agreed with him or a largeproportion of people agreed with him, he wouldn't have been able tosell those contracts, the short contracts, so to speak, which workedtheir way through credit default swaps and technical jargon. Therewould be nobody to buy it, because they would agree with him.

So it required a very large proportion of the investing public,sophisticated investing public, to disagree with him. And I think --I don't know whether or not he is in that extremely small group, whichmay -- may, in fact, be really exceptionally adroit at these things.

As I said a minute ago, I know four or five people who are reallygood. I don't know six, seven, eight or nine.

TAPPER: All right. Dr. Alan Greenspan, we'll have to leave itthere. Thank you so much for coming...

GREENSPAN: My pleasure.

TAPPER: ... and talking to us today. The roundtable is nextwith George Will, Matthew Dowd, Karen Finney, and Robert Reich. Andlater, the Sunday funnies.

(BEGIN VIDEO CLIP)

FALLON: Hey, guys, baseball season starts next week, andPresident Obama is going to throw out the first pitch at the Nationalsgame. Meanwhile, Joe Biden will be on hand to make the first error.

(LAUGHTER)

(END VIDEO CLIP)

(BEGIN VIDEO CLIP)

(UNKNOWN): The Republican National Committee approved nearly$2,000 in expenses at this West Hollywood sex-themed nightclub...

(UNKNOWN): The one person who was not there was Michael Steele.

(UNKNOWN): There's people involved with really bad judgment.It's something that should not have happened. It's on Michael'swatch.

ROVE: Somebody ought to lose their credit card, their RNC creditcard. Pull that. Find that pervert and get his card.

(END VIDEO CLIP)

TAPPER: "Find that pervert and get his card," says Karl Rove.And we'll get to Michael Steele and the RNC in a second.

But first, we're going to start with jobs. We're going to talkto our roundtable, George Will, as always, Matthew Dowd, former Bushstrategist, Robert Reich from the University of California, Berkeley-- that's a mouthful. I'm just going to say "Berkeley" from now on --and former Democratic strategist -- or current Democratic strategist,former Democratic National Committee spokeswoman Karen Finney.

Thanks so much for joining us.

George, the president says he's encouraged by the job numbers.Are you?

WILL: He's easily encouraged. The economy began to grow ninemonths ago. The usual pattern since the Second World War is that asharp downturn is followed by a sharp upturn, including a sharp upturnin hiring. It takes more than 100,000 jobs just to stay even in thiscountry because of immigration and natural growth of the workforce.

So of the 162,000, subtract maybe 110,000 just to cover naturalgrowth, then subtract 48,000 temporary census workers, and what youget is, nine months into a recovery, essentially no meaningful jobcreation. Furthermore, the average unemployment today is 31 weeks,much the highest since that record began to be kept in 1948. TAPPER: Matt, this is a -- it was positive news. It might nothave been as positive as some would like or all of us would like, butit was positive news. Is it good politics for Democrats?

DOWD: Well, it was positive news. Obviously, job gains -- nomatter how small or better job loses -- the problem is, the countrydoesn't believe that there's good news right now, that they have atotal disapproval of the president on the economy, which is a reallybig problem he has going into the midterm elections, let alone goinginto 2012. They don't believe their own finances have recovered.

They don't see any private-sector jobs having gotten created,even though this was the first time that some private-sector jobs havegotten created. And the other political problem he has is, of all the51 jurisdictions in the United States, the only jurisdiction that hasactually gained jobs in a year is the District of Columbia. And inthe public mind, that is not necessarily a good thing.

And so I think it's still a huge political problem for theDemocrats. I don't think they have time for any real, meaningfuleconomic growth to happen to change the public's view on confidence inthe economy before the midterms. So I think it's still a hugealbatross around the Democrats' neck.

TAPPER: Bob, Summers and Greenspan seemed to be rather bullish,but there are economists who feel like we still might be headedtowards a double-dip recession, especially as stimulus money runs out.Are you concerned at all about that?

REICH: There is reason to be concerned, Jake, that as stimulusmoney runs out and also as the Fed naturally begins to tighten,because the Fed has got to reduce the money supply and raise interestrates at some point -- otherwise, there is going to be a fear ofinflation out there -- that you don't have enough demand in the systemto keep any kind of a recovery going.

And I agree with George on this. This is not a recovery yet.People are right now very scared, understandably, of getting theirjobs back. And even when you have a full-fledged recovery of 2million a year, think about how far behind we are. That's five yearsbefore we even get back to where we were before the Great Recessionstarted.

TAPPER: And yet, Karen, you -- you feel like this is good newsfor Democrats as the midterm elections approach?

FINNEY: Well, I think it gives Democrats at least the startingpoint for a narrative that they can go to the American people and talkabout job creation, the president can talk about tax cuts for smallbusinesses towards hiring. We talk about the Hire America Act.

And I think one of the problems that the Republicans have had isthey don't have a consistent narrative that they can talk about beyondthe policies of George Bush as to what they want to do for theeconomy, moving it forward. So at least Democrats have something tohang their hat on. I agree that these numbers are, you know, cautiously optimisticand we need to see better growth, but at least -- it gives Democratssomething to talk about heading into 2010 and some accomplishments totout, whereas, again, I think all you're hearing from the GOP, itsounds a lot like what we already tried that didn't work.

TAPPER: But take a look at this number. We have these pollsfrom Gallup that indicates that, for the first time in several years,Republicans actually lead Democrats when asked who in Congress woulddo a better job with the economy, Republicans leading Democrats forthe first time in several years. So even if Republicans aren't makingthe arguments that you -- that you think would be compelling to theAmerican people, the fact is, the voters seem to be turning towardsthem.

FINNEY: You know, it's interesting. I went and looked at thenumbers from this period in 2006, when I was at the DNC, and actually,they were -- we were about even with Democrats and Republicans, andnobody at that point in time thought that Democrats were poised totake over control of the House and Senate.

I say that to say that there's a long time between now andNovember. A lot can happen. Certainly, I think it's a good thingthat the president has been out on the stump talking about and tryingto tout some of these accomplishments and trying to sell theseprograms. I think he didn't do that early enough, frankly, with thestimulus package, and that was a mistake that I think they'verecognized.

So, again, I think there's a lot that can happen. We'll see.

DOWD: Well, I think -- here's the difficulty that the Democratsare in, I think, is the Republicans don't have to really have aproactive message in order to win elections in -- in this year.

TAPPER: (inaudible)

DOWD: All they have to be is not them, and that is a fine in theshort term. In the long term, they definitely have to have a moreproactive, more affirmative message.

The problem the president has -- has had is, since he's been inoffice, the economy has lost 4 million private-sector jobs. We arenot going to gain back, as far as I know, which I would love for it tohappen, that in any -- any distant future right now to gain that back,and so the Democrats who now have an unpopular health care package,that they have -- that now don't have time to sell before the electionand probably want to get off of it as soon as possible, they have aneconomy where the public thinks they are not performing well on, theonly interesting issue that the president seems to be doing well overthe Republicans on is terrorism, which is actually a reverse from whatit was four or five years, when the president, President Bush, wasbehind Democrats on the economy and ahead on terrorism. Now that theeconomy's the dominant issue, Democrats are behind.

REICH: And, look, the key point, I think -- and the Democratsare hoping for this -- is that, despite the high level ofunemployment, which is almost inevitably going to be with us goinginto November and possibly also with us going into the generalelection, that the direction is correct and that the public is lookingand will look more at the direction of the economy than at theabsolute level of how bad it is.

We don't know. We don't have data, because we haven't been herebefore, as to whether that hypothesis is correct.

WILL: But economics, Bob, is always a science of singleinstances, that is, you're -- you only need economics as a scienceparticularly urgently when you're in a situation you've never been inbefore. So we are at sea here.

So we look around for what we can predict. You've predicted onething, which is interest rates will not be essentially zero forever,and when they change, they'll go up, and that has to be somewhatadverse to economic growth.

There's another thing about to happen, absolutely certain, inless than nine months, we have a huge tax increase hits the economy,as the Bush tax cuts expire, and that's not going to be helpful.

REICH: Well, that tax increase is only on the people who haveonly $250,000 or more in earnings. And let me just say, demand in theeconomy, where it comes from is the middle class, people who areearning anywhere between $40,000 and $90,000 a year. They have beenhit extraordinarily hard. They will not get hit hard by a taxincrease. Their medical bills will be lower. And hopefully, theywill feel a little bit more confident.

WILL: Which is to say, most of those affected by the Bush taxcuts are going to still get the Bush tax cuts, is what you're saying.

REICH: No.

TAPPER: But if I could move on to one thing, I know one thingthat they're worried about at the White House right now is thisconcept of hyper efficiency, that is, that the companies have shedjobs and they are learning how to function without these employees,which might mean even more prospect of a jobless economy. Howconcerned are you about that?

REICH: Jake, I'm very concerned. This is the long-term problem,and it's a problem for Democrats, Republicans, for Americans, formiddle class. You see, as globalization has proceeded and astechnological change has proceeded, many Americans without the rightskills -- and most Americans, you know, they have college degrees --most Americans have high school degrees, but not everybody has acollege degree, nor should they -- but, you see, we don't have theskills that we need to keep up in a global economy.

And, therefore, when the dust settles, maybe people will havejobs, but they're not going to have very good jobs. They have pricedthemselves out of a global economy. And that is going to lead to evena wider gap between people at the top and average working Americans. WILL: Bob mentions globalization. One of the most fascinatingdevelopments in recent months was the announcement this week that inMarch General Motors sold more -- a lot more cars in China than it didin the United States.

REICH: George, that's what the big companies are doing. Bigcompanies are doing well globally. They're not doing well in theUnited States. They're hiring like mad abroad. They're not hiring inthe United States. And we are beginning to see now something thatsome of us predicted years ago, and that is a really decoupling of thestrategies of big companies, big global companies headquartered in theUnited States, from the American economy.

TAPPER: There's one other thing I wanted to ask before we -- wetake a turn to Michael Steele's job, which seems to be at issue, andthat is, I could almost hear your teeth gnashing in the Green Roomwhen I was interviewing Summers and Greenspan on the subject offinancial regulatory reform.

REICH: Well, look, the fact of the matter is that Alan Greenspanand Larry Summers and Bob Rubin all, if any trio were responsible forderegulating this financial economy, whether you're talking aboutgetting rid of the Glass-Steagall Act that separated commercialbanking from investment banking, or you're talking about saying toBrooksley Born at the Commodity Futures Trading Commission, "No, youmay not regulate derivatives," it's those three.

TAPPER: But those -- and those two moves the Obamaadministration is looking to undo. They want to regulate somederivatives, and they want to put a wall between commercial andinvestment banking activities, not to the degree that existed before.

REICH: This is my -- my worry. Everybody is enthusiastic -- oreverybody who says that they're looking at financial reform isenthusiastic about doing something about the too-big-to-fail problem.But when it comes right down to it, if you look at the details, thereis nothing in the hopper right now that is going to fundamentallychange the situation so that, 5 or 10 years from now, you don't have afew big banks making wild bets with other people's money and thenexpecting to be bailed out by the federal government.

TAPPER: OK. I want to move on to the Republican NationalCommittee and Michael Steele's job. Tony Perkins, who is the head ofthe conservative Family Research Council, is now telling Republicansand conservatives, "Don't give money to the RNC." Here he is.

(BEGIN VIDEO CLIP)

PERKINS: What appears to be excessive spending at a time ofeconomic hardship for most of the country, at a time when theRepublicans are complaining about the spending in Washington byDemocrats, look, if you can't run a party, you certainly can't run acountry.

(END VIDEO CLIP)

TAPPER: George, is this the right job for Michael Steele?

WILL: No. He has fundamentally misconstrued his job, which isto be the face and the ideological spokesman for the Republican Party.There are a lot of people who do that. The best party chairmen arelike major league umpires. If at the end of the game they go backinto the dressing room and no one has noticed them, they've done theirjob brilliantly. They strive for anonymous perfection, and thatshould be the role of the party chairmen.

The best Republican Party chairman, Ray Bliss of Ohio, whorebuilt the party after the Goldwater meltdown, Bill Brock, formersenator from Tennessee, who built the party up on the eve of theReagan triumph, they were perfectly anonymous. And I'm not sure thatthis man has understood that.

DOWD: You know, obviously, I'm not a rocket scientist, but whenyou have lesbian bondage strip club associated with your name, it'snever a good thing for anybody...

TAPPER: In politics.

DOWD: ... unless you're employed at the strip club. You know,the only difference between Democratic officials at a strip club andRepublican officials at a strip club is Democratic officials say hi toeach other.

I think the problem is hypocrisy, is purely hypocrisy. It's notthe strip club and all that. It's Republicans go out there and talkabout fiscal responsibility and they talk about family values, andthey have a party leader and party officials who go to a strip club,who are involved in this process, that say that their private actionsor their actions of donors' money does not match what their messageis, and that's the problem.

TAPPER: But, Karen, in addition this problem, tell our viewerswhat American Crossroads is.

FINNEY: So, American Crossroads is an organization that is beingformed by, you know, Republican Party stalwarts like Karl Rove, Jo AnnDavidson, a former co-chair of the RNC, Ed Gillespie, among others,essentially with the goal of raising money to support candidates goinginto the next election.

TAPPER: It's a shadow RNC.

FINNEY: Exactly. And so when you have this -- and I -- youknow, this is really not about the strip club expenditures. This isabout a chairman who doesn't understand his job. And when you are theparty out of power, your job is to raise money, to win elections, andbuild the party infrastructure.

On the one hand, when you talk to folks at some of the otherRepublican committees, sure, will the money help from the shadow RNC?Yes. But you need a strong RNC during a midterm election to do theground game and to do GOTV activities. And it is an embarrassment for the Republican Party to have totalk about an expenditure. It's not just about going to strip clubs.It's about, when Michael Steele walks into a room with a donor andasks for a big check, and that donor is looking at an FEC report thatshows travel on jets and travel in limousines, what am I giving youthe money for?

REICH: Well, you know, there's obviously a kind of an off-message problem here for the Republicans. And, Matt, when you talkabout hypocrisy, yes, but hypocrisy is not exactly something new inthis town. I think there's -- there's a larger issue...

DOWD: Which is why this town's ratings are so bad.

REICH: But there's -- I wanted to get to that, because I thinkthat voters -- and it's not just Tea Parties -- voters all over thiscountry right now are saying, as they've said before -- but I thinkwith a greater sense of commitment and intent right now -- they'resaying, the establishment politicians just don't get it. They don'tknow where we are. They don't understand what we're suffering withregard to unemployment or the economy. They don't understand fiscalresponsibility. They don't -- they don't get any of the -- anythingthat we are talking about in our families and among our friends.

And this is bad. It's bad for Democrats. It's also bad forRepublicans.

DOWD: Well, I agree. I think the -- I mean, the big...

REICH: Incumbents. It's bad for incumbents.

DOWD: The big problem today is a total lack of public trust thepublic has of trust in Washington, whether it's Democrat orRepublican. This is not a partisan problem, is when you have corruptscandals with Charlie Rangel and all of that, just who have come up --Republican scandals and new Republican scandals, is which is why theCongress as a whole is rated at the lowest point it's ever been rated.President Obama's numbers are dropping. There is a lack (ph) of totaltrust in the institution of politics in Washington.

REICH: And Washington is just totally out of -- out of -- out ofkeeping with America.

FINNEY: Of course it is. But there is a deeper problem that theRNC has. Let's be honest. Any time when you have the first African-American president and the first African-American chairman of theparty of a party with a very dwindling base, you may be able to winrace by race with the Tea Parties, but you cannot win a nationalelection if you can't bring in a broader coalition of voters.

Privately, people have admitted that -- and, you know, this isnot the first time Michael Steele has been an embarrassment or hasmisappropriated funds or not done what he's supposed to be doing.Privately, people have admitted that part of the reason, in additionto the technical aspects of two-thirds vote to vote him out, he's anAfrican-American, and you have to be very careful about, what signaldoes that send, if you were to remove an African-American, again, at atime when the base of your party is dwindling?

That is a longer-term problem than simply going to a strip clubor spending money on jets.

DOWD: I'm not going to argue against the liabilities that theRepublicans have and their lack of a real strategy and their lack of areal program. The interesting thing...

FINNEY: Or message.

DOWD: The interesting thing to me, granted all those things?They're going to pick up 25-plus seats in the House this year.They're going to probably pick up five or six or seven seats in theU.S. Senate. They're going to pick up governors races.

As of right now, Barack Obama could not get re-elected, if theelection was held today, based on his approval ratings and based onhistory. And so Republicans have all those problems? Democrats havea bigger set of problems, because they own the levers -- they own thelevers of power in a town in a time when people are fed up with it.

REICH: I don't -- I don't think that's -- that's right. If --if the Republicans have an alternative, whether it be health care orthe economy, and Americans really understood that there was analternative, and the Republicans were articulate about advancing thatalternative, maybe you would be right, but there -- we've -- I don'tremember a Republican Party that was just as consistently negativeabout everything.

The public knows that there are deep problems that have to befaced, and the Republicans are...

(CROSSTALK)

TAPPER: ... you're shaking your head that the Republican Party-- you don't buy that they are perceived as negative about everything?

WILL: I would set up Congressman Paul Ryan of Wisconsin'sroadmap for tax reform, job growth, and entitlement reform...

TAPPER: You embrace that more than John Boehner does, though...

WILL: Well, that -- that could well be. I'm right, and he'swrong. But...

(LAUGHTER)

(CROSSTALK)

WILL: ... against all the so-called ideas, these recycled GreatSociety, New Deal ideas, of which my friend, Bob, is so enamored.

TAPPER: I just want to change to one topic, and it's a -- it's a-- it's a, I will admit, a rather uncomfortable topic on this Easterday, but we have two Catholic roundtablers here from opposing pointsof view politically, and I want to talk about the fact that theVatican is having some serious trouble right now on this EasterSunday. A cardinal today diminished the criticism -- disputed thecriticism against Pope -- the pope, saying it was gossip.

Matt and Karen, I'd like to get your thoughts on this. Karen,where is the disconnect between Rome and American Catholics in thepews today?

FINNEY: Yes. You know, Rome is doing what it has done forcenturies, and that is, it's protecting itself. And I think thedisconnect is that, in Rome, the Vatican is treating this as a crisisfor the institution and not a crisis for the faithful.

You know, the mission of the church is to serve the faithful andto serve the innocent, not to leave children to be preyed upon bysexual predators, and that is essentially what is happening. That'swhat happened in the United States. Now we're learning that it is amuch bigger problem.

And so I think this is a very -- I will be going to church afterthe show today, and I go to church with a very heavy heart. This is areal crisis of faith for many of us who are questioning, what is themission of the church if we can't protect children from within ourmidst?

For American Catholics, look, the Catholic Church in America hasa very different political reality to deal with than the Vatican does,and so what I think you've seen this past week in some of theirstatements is, they're kind of trying to figure out how to deal withtheir political reality in the United States, recognizing that theycan't quite totally come out against the pope in Rome.

You know, the Catholic Church in this country has wielded a lotof power. And now that American Catholics are having this crisis offaith, that is a real challenge to the power of the church.

TAPPER: And, Matt, you and I were talking about some pollnumbers about the pope and the fact that, actually, his unfavorablesare going up and undecideds are increasing.

DOWD: Yes, his numbers today (inaudible) approval of how he'shandled this, which in my mind, if you're a P.R. person, he's --they've handled it worse than Toyota handled their recall situation,much worse than Toyota handled the recall situation, and farther worsecharacteristics.

You know, I -- I -- I was an altar boy, grew up in Catholicschools, went to Catholic college, am a Catholic. To me is we --there is a ton of great, wonderful priests and a ton of great,wonderful bishops. And I think the pope in his own way has tried tohandle this in a forthright way, more so than John Paul did in -- inwhat happened on.

The problem is -- and I agree with Karen -- the problem is, it'san institutional problem. It's an institution that, in my -- my view,has grown so big and so unwieldy and now only feeds itself, onlyserves to feed its own self and has forgot about the flock, thebillion people out there that are Catholics.

What Christ's actual mission was 2,000 years ago, which wasn't tocreate an institution that is based in Rome, that serves -- that isonly there to serve the priests or serve the bishops, but is to servethe flock. So at a time of Easter, I believe that we have to havesome serious renewal of that institution, in many ways like ithappened 700, 800 years ago during the Protestant Reformation, becausetoday, it's an entirely huge institutional problem.

TAPPER: We have to leave it there, unfortunately. I know theroundtable will continue talking in the Green Room. And you can watchthat on abcnews.com. And you can get political updates all week longby signing up for our newsletter also on abc.com.