updated 10/28/2008 1:14:01 PM ET 2008-10-28T17:14:01

Guests: Bob Shrum, Tom Rath, Arne Carlson, Ron Fournier, John Harwood, Tony Blankley, Eugene Robinson, Douglas Holtz-Eakin

DAVID GREGORY, HOST: Tonight, decision and distraction in the 2008 campaign. Deepening fear about a global recession rocked the stock market again today as the candidates seek to pass that leadership test on the economy, while a McCain volunteer creates headlines with a fake story, it turns out, about being the victim of a politically motivated attack by an African-American man So what are voters going to be thinking about as they go to the polls? The RACE FOR THE WHITE HOUSE rolls on. Eleven days to go in the race to the White House. Welcome to the program. I'm Dave Gregory. My headline tonight, "Rocky Road."With the now familiar backdrop of troubling poll numbers, Senator McCain spent the day in the hotly-contested Rocky Mountain battleground of Colorado in a full-out Friday sprint on what continues to be an uphill terrain. Although McCain's campaign began today focused on fear, calling into question Obama's readiness to handle an international crisis, McCain's message on the trail stayed sharply focused on the economy for the balance of the day. In Denver, he accused Senator Obama of planning to put the middle class vote "through the wringer" and hammered home the theme that his rival's tax plan misses the target.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R-AZ), PRESIDENTIAL CANDIDATE: They had there are a lot of very rich people out there. Rich for Senator Obama and the Democratic Congress means change in your pocket. Remember, the alternative minimum tax? You probably do. You probably do if you're one of the more than 30 million Americans currently threatened by it. That targeted tax was originally aimed at just 155 specific people. Once enacted, taxes have a way of spreading and rising.

(END VIDEO CLIP)

GREGORY: Meanwhile, Senator Obama took a daylong detour from the campaign trail to visit his ailing grandmother in Hawaii. Michelle Obama stood in for her husband in Ohio today, speaking passionately about the personal toll these tough times bring.

(BEGIN VIDEO CLIP)

MICHELLE OBAMA, BARACK OBAMA'S WIFE: We feel it every day when we go to fill up our gas tanks, and just not getting much out of the pump from that little $20 that you could put in. We feel it when we go to the grocery store with the same check we've been taking for years, and finding that it's not buying what it used to buy. We definitely feel it for those of us who have kids in our lives when we tuck our kids into bed at night and we wonder, if things are this bad now, how will it be in 10, 12, 15 years if we don't make a change?

(END VIDEO CLIP)

GREGORY: As the anxiety on Main Street stays sky high, it was a wild day on the floor of Wall Street. Futures fell 550 points this morning, triggering a freeze in selling before the markets even opened. The Dow Jones fell 500 points in the first minutes of trading. Stocks ended the day significantly lower, with the Dow finally closing down more than 300 points. Joining me now is John Harwood, CNBC's chief Washington correspondent and a political writer for "The New York Times." John, as I watch the markets today, I am struck by the fact that the conversation on the campaign trail, the conditions, the dynamics on the campaign trail, have not changed now over the past month. And what McCain -- what he really does need is a change in the dynamic.

JOHN HARWOOD, CNBC CHIEF WASHINGTON CORRESPONDENT: Absolutely. This market turbulence is exactly what he doesn't need. Now, he's probably doing the right thing by sticking on the tax issue. That may be the best bullet he still has got in the gun left to fire. But it's very, very difficult for him, because the more anxiety people feel-and now we're seeing, David, the credit market has thawed somewhat. And now this turbulence we're seeing on the market is a reflection of pessimism about the real economy, the economy that's likely to send the unemployment rate rising to 8 percent or more in the next several months or the next year or so.

And all that is bad news for John McCain, because the more people feel things are bad, they're getting worse, the more they're inclined to change. And change in the context of this election mean a Democratic president, not a Republican one.

GREGORY: And now let's bring in the rest of the panel. Joining me here, Eugene Robinson, columnist and associate editor of "The Washington Post," and an MSNBC political analyst. Tony Blankley also here tonight, syndicated columnist. Tony, can you remember a time when the direction of the country and voters' anxiety about the state of the country were more prevalent? And for John McCain in this kind of environment, at the end of this campaign cycle, won't this question of proximity to George Bush, President Bush, be the most decisive issue?

TONY BLANKLEY, SYNDICATED COLUMNIST: Yes. I mean, I can't remember 1932, which would be the equivalent.

GREGORY: I wasn't suggesting you could.

BLANKLEY: This will be the first election in my memory in which the presidential campaign is not the first or second story of the night. It's the economy.

GREGORY: Right.

BLANKLEY: It continues to be. It sucks all the oxygen out. And it's going to be almost impossible for McCain to get any traction on anything he says, even as Obama does not get that much traction. At this point, the public is focused on that by 2-1. They blame

Republicans. And by 60-40, they equate Bush with McCain. Throws some are iron number for McCain to try to manipulate. It's going to be very hard.

GREGORY: Gene, it's interesting. Hearing Michelle Obama on the campaign stump, we haven't seen a lot of her in a high profile way. Obviously, Senator Obama is visiting his grandmother. That's why we're seeing her at this critical time. But she talks about the economy in a very empathetic way. The contrast in terms of the sound that we chose for that particular segment was McCain really focused on policy, tax policy. But she's talking about how people are hurting out there. That has a lot of resonance right now because it just underlines the change message.

EUGENE ROBINSON, MSNBC POLITICAL ANALYST: Absolutely. And remember that she grew up in a lower middle class or working class family in the south side of Chicago, a real bootstrap family that worked its way up and claimed its piece of the American dream. Her father pulled himself to work every morning, even though he had MS. I mean, she has a compelling story to tell. And she seems to tell it well, or seemed to be telling it well today. It seemed that she connected with that audience, and while Barack Obama is away.

You know, you're looking for historical parallels. Maybe 1980. That was certainly a change election, or feeling that the country really was ready for change. Certainly within my lifetime, this feels more like that year than anything else.

GREGORY: John Harwood, let me get quickly to the new-there is a new ad from the McCain campaign about the notion of Obama being tested. I want to show that for our viewers and then talk about it for just a moment.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Listen to Joe Biden talking about what electing Barack Obama will mean.

SEN. JOSEPH BIDEN (D-DE), VICE PRESIDENTIAL CANDIDATE: Mark my words, it will not be six months before the world tests Barack Obama. The world is looking. We're going to have an international crisis to test the mettle of this guy. I guarantee you it's going to happen.

UNIDENTIFIED MALE: It doesn't have to happen. Vote McCain.

(END VIDEO CLIP)

GREGORY: Look, it's a political argument. It seems to be a very effective one. But the question in my mind, John, is the tests we know about right now, that leadership test, is about the economy. And the polls show us that John McCain is coming in second in terms of passage of that test.

HARWOOD: You were reading my mind, David, because I think what voters are processing right now when they look at an ad like that-and I agree with you, it's an effective ad, it's a legitimate ad-is that Americans feel like they've been living through a crisis for the last couple of years. First on the Iraq war, which they turned pretty decisively away from and against in the last couple of years. But now on the economy and the feeling that their kids are not going to have the same kind of outlook that they did. Their retirement funds are down.

They think that we're being tested by crisis right now. And so the idea of trying to raise the specter of something in the future that might happen, you have to wonder how much people are going to say, oh, well, now I'm really worried about Barack Obama? Because right now, they're worried about Republican control of Washington.

GREGORY: Let me continue on this theme. And I want to turn now to Douglas Holtz-Eakin, senior economic adviser to the McCain campaign, who joins us this evening. Douglas, good to see you.

DOUGLAS HOLTZ-EAKIN, MCCAIN SR. ECONOMIC ADVISER: Good to see you, David.

GREGORY: Let me follow on this point and this ad that the McCain campaign is running in the context of an international crisis. Let me ask you the question in terms of an economic crisis. You've seen the polls. I don't have to remind you of those. The advantage on taxes and the economy goes to Barack Obama. That's in our poll. So if it comes to a test, what do you point to that shows the voters, the undecided voters, that John McCain has passed and that Obama has not?

HOLTZ-EAKIN: I think there are really three key points here. I mean, the first is that Barack Obama is thoroughly aligned with the Bush administration and not getting it that the key to this financial crisis is taking care of the housing market. Keeping people in their homes will help stabilize the real economy, help keep unemployment from going up, keep consumer spending. Stabilizing the housing market will take care of the banking sector. And the idea that you just want to throw cash at banks is really an incomplete and mistaken policy.

I think the second major point is, on the substance, Barack Obama is bad news for the economy. The kinds of things he wants to do, misplace tax policies to hurt small businesses, trade policies that are protectionist, bad health policies, are all going to hurt jobs. And John McCain is not going to turn this recession into a depression the way Barack Obama is. The third key point is, you know, Barack Obama has got more money. He gave up the pledge for public financing in the general election. He is trying to buy this election by running misleading ads about all this, and the question is, can he get away with it?

GREGORY: Let me ask you the question about tax policy and the debate that's being framed here in the closing days. Explain to me why this pitch about Joe the plumber and about tax cuts is anything more than a play for non-college-educated working class voters in a state like Pennsylvania, which is key on the electoral map for the McCain campaign?

HOLTZ-EAKIN: People tried for months. This campaign included to get Barack Obama to reveal, A, the details about what he really planned to do. And B, what exactly was the philosophy that somehow underpinned it without success? I mean, you still cannot get the Obama campaign to tell you, what is the definition of a small business that gets differential tax treatment? They refuse to actually come clean. Joe the plumber in Ohio got Barack Obama in a moment of losing his verbal eloquence to actually lay it out, what he believed. And the American people don't like his agenda. That's not a judgment made by this campaign. It's a judgment made by the American people.

(CROSSTALK)

GREGORY: Right. Well, but you say they don't like his agenda on taxes. On general handling of the economy, Barack Obama gets the higher ratings. The polls show that.

HOLTZ-EAKIN: Barack Obama has gotten the higher rating, but this electric is not over. If you look at the only poll, the only poll that called the 2004 election right, Investors Business Daily, this is a two-point race. And we shall see whether Barack Obama, by revealing exactly what he is up to, which is, let's spend a lot of money, let's raise taxes to pay for it, and let's not worry about economic growth, let's not worry about prosperity that's generated by having a job, saving for college, saving for retirement, we'll see if that plays so well.

GREGORY: Right.

You know, I was asked by a voter the other day who was not necessarily coming from the other side of the aisle, but who said, look-because I often will say in covering the Bush White House that I can remember well John McCain bucking President Bush and bucking the Republican Party. But yet, the facts are also clear-I remember covering John McCain when he did talk about voting with the Bush administration 90 percent of the time. So how do you reconcile that? And our polling shows nearly six in 19 voters think that McCain would be more of Bush at a time when you're saying the Bush administration doesn't get it. You're going for separation pretty late in the game.

HOLTZ-EAKIN: Well, I mean, the reality is it's not the number of votes. It's what votes matter. At key moments, John McCain has in fact done the right thing, standing up to the Bush administration. He's done the right thing at times in standing up to the Republican Party. And he will continue to do that for the American people. That's the key moment. The leadership moments, that's what the ad was about today. Barack Obama has never displayed one moment of leadership. When he said to his party, or his political backers, no, I won't do that for you because there is an important issue that the American people need for me to deliver on, he's never shown any ability to do that. And without that, he is truly untested and dangerous.

GREGORY: All right. We're going to leave it there. Senior adviser on the economy, Doug Holtz-Eakin. Doug, good to see you. Thank you for being here.

HOLTZ-EAKIN: Thank you.

GREGORY: Coming next, national polls show voters view Governor Sarah Palin more negatively than not. But she has energized the Republican base. Is Palin helping or hurting McCain's campaign at this point? We'll deal with that when THE RACE returns right after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP, "SATURDAY NIGHT LIVE")

TINA FEY, ACTRESS: We are going to get 'er done.

WILL FERRELL, ACTOR: My God you are folksy.

FEY: Thank you, Mr. President. I like to think I'm one part practice folksy, one part sassy, and a little dash of high school bitchy.

(END VIDEO CLIP, "SATURDAY NIGHT LIVE")

GREGORY: That, of course, Tina Fey doing Governor Sarah Palin from the special edition of "Saturday Night Live" last night. Will Ferrell doing President Bush. Governor Palin has shaken up this race more than once. And she may not be done yet. This morning, Palin gave her first policy speech outside of Pittsburgh. The McCain campaign is hoping she will have some crossover appeal in Pennsylvania, particularly with those working class Democrats who voted for Hillary Clinton back in the primaries. This afternoon, Governor Palin was in Missouri. Republicans are hoping strong turnout from the base will keep that battleground state in the GOP column. Still with me now, Gene Robinson, Tony Blankley and John Harwood. John, let's play sound from Governor Palin today talking about school choice and special needs kids. Let's listen.

(BEGIN VIDEO CLIP)

GOV. SARAH PALIN (R-AK), VICE PRESIDENTIAL CANDIDATE: Under reforms that I will lead as vice president, the parents and caretakers of children with physical or mental disabilities will be able to send that boy or girl to the school of their choice, public or private.

(APPLAUSE)

Like John McCain, I'm a believer in providing more school choice for families. And the responsibility for the welfare of children rests ultimately with mothers and fathers. And the power to choose should be theirs as well.

(END VIDEO CLIP)

GREGORY: Very interesting framing, John, for this, a policy speech, a different tone. It wasn't a rally. She is talking about something that she cares about, that she is experiencing on a personal level. She also talked about, I believe, at least $15 billion in new funding for special needs kids, when Senator McCain talked about a spending freeze if he got into office.

HARWOOD: Well, I was going to say, given-I mean, as a reflection of the difficulty politically that the McCain campaign is in, she both had to gesture toward the school choice movement, which is important to the Republican base, but also she's talking about new spending, which is not so popular with the Republican base. But I think this was a smart way to use her. It's an issue, as you said, David, that she's got a lot of expertise on, and a particular personal stake in. It's nice to have her-from their point of view, to have her in a more sober setting and let her present some policy. I believe she'll do it again. A McCain adviser told me there will be another one next week, perhaps focused on energy, which is another particular specialty of hers. But you know, they've got to do something at the end. And certainly, Sarah Palin has been juicing up the Republican base in event after event. And this is a way to sort of fill out that portrait of her.

GREGORY: You know, Tony, I remember watching Sarah Palin during the convention, and I made the observation that might it be possible that McCain's greatest gift to his party was a future? And that with all the excitement surrounding Governor Palin, that that future might indeed be her? You wrote about the future of the Republican Party in "The Washington Times" yesterday. I want to put up a portion of what you wrote and then we'll talk about it, you and Gene. "Palin's conservative critics all cast their admiration for Obama in contrast with Sara Palin-whom they mischaracterize through a process of intellectual and historic dishonesty tempered by cultural snobbery and fear. It will be precisely Sarah Palin and others like her who will be among the leaders of the about to be reborn conservative movement-plainspoken and socially networked up from the Interneted streets, suburbs and small towns of America." Expand on that a little bit, Tony.

BLANKLEY: Yes. I think she is a compelling personality. She has taken a lot of abuse this season, but I think that her ability to talk clearly, in normal American language, and not in Washington speak-and she is simply someone who's sort of politically a powerful presence. Now, she's going to have to learn to talk more about Washington policy if she wants to be a national leader. But I think she is quite capable. If you actually look at the debate, when she had to be parachuted in, essentially, no Washington experience in five weeks, and she was able to handle herself without any deer in the headlights moment, I think she's got a lot of potential. She's been bloodied up a little bit in this election. I think she's clearly a heartthrob for the cultural conservative base in the country. And if she wants to, she'll be an contender and a voice, a leading voice in the coming years.

GREGORY: Gene, quickly on this point, she does have the potential with this kind of platform if she is suffering for lack of qualifications in the minds of a lot of voters, should they not prevail in this election, she does the have ability to work the grassroots, to work the Republican establishment, and to really go to work herself in further developing a view of government and the world.

ROBINSON: Yes. I would take issue with only one thing Tony said, which is if the Katie Couric interview wasn't a deer in the headlights moment, I don't know what was. By the same token, she has great presence. She has determination. She has ambition. She has all the things, or most of the things that a successful politician needs to have, a leader of the conservative movement. She's going to have to become though what she claims to abhor now. She's going to have to become more of a pointy head, and understand and be able to speak about the intellectual currents that run through the conservative movement, I think, if she's going to be seen as a credible leader. And she hasn't done that now. Perhaps purposefully. But that's why she's being rejected by that wing of the conservative movement.

GREGORY: Quickly.

BLANKLEY: I was just going to say that...

HARWOOD: I don't think we can underestimate the damage that she sustained in this introduction to the American people. Dan Quayle was never able to get past what happened to him in 1988. I think it's going to be very, very tough for Sarah Palin to do that, even though she is a compelling presence.

BLANKLEY: But Dan Quayle never had these political skill that she has. He was constantly a deer in the headlights. She's got tremendous capacity.

GREGORY: All right. I've got to get a break in here.

BLANKLEY: Yes.

GREGORY: We're going to come up here next and share a story with you that has made some international news, a politically-charged attack on a white McCain volunteer in Pennsylvania. It turned out to be a hoax. It's on THE RACE's radar tonight. We'll share it with you right after this.

(COMMERCIAL BREAK)

GREGORY: We're back now with a look at what else is on THE RACE's radar tonight. It turns out 20-year-old McCain volunteer Ashley Todd's allegation that an African-American man beat her, scratched a backward "B" into her face with a dull knife, and according to our Pittsburgh affiliate, WPXI, sexually assaulted her, is not true. It was a hoax. Todd admitted to police that she made up the story. But she says she still isn't sure how the "B" got on to her face. According to police, she has a history of mental problems. Still with me now, Eugene Robinson of "The Washington Post." Gene, the reality is that there are all kinds of ugly racial overtones to this story, down the stretch of this race, in a very important state, Pennsylvania. Do you know of any evidence that the McCain campaign thought it was important and actually pushed for people to cover this before they had a real firm sense of what it was?

ROBINSON: Well, there are some reports this afternoon, and not confirmed, as far as I know. The allegations are that someone in the McCain communications operation in Pennsylvania was flogging the story to the local TV stations, a most incendiary version of it. And as you said, the racial overtones are quite ugly. Obviously, this is a disturbed young woman, and we hope she gets helpful. But painting this picture of a menacing black man attacking this young white woman in that way, carving this "B,", somehow carving it backwards in her face, and only about one millimeter deep, it made no sense to police, it seems, from the beginning and it was quickly debunked.

GREGORY: Right.

ROBINSON: But I think there will be more reporting in the coming days as to whether or not anyone from the campaign-and again, it's unconfirmed - was pushing the story as a way to gain political advantage.

GREGORY: Yes. And again, both campaigns want to be focused on issues right now that they think advantage them and not on distractions like this. OK. Got to take another break here.Coming next, another national poll out today shows Obama way ahead. But the question about voters and race is a potential warning bell, a warning sign to the Obama campaign. We're going to talk about it when we come back after this.

(COMMERCIAL BREAK)

DAVID GREGORY, MSNBC ANCHOR: Another national poll shows Barack Obama with a double-digit lead. But the numbers inside reveal some potentially troubling sign about race and readiness. Senator McCain rolls out a new ad himself highlighting Joe Biden's warning about Obama and an international crisis. But are 11 days enough time to change the debate? McCain has a history of comebacks. Could the Arizona senator become a political phoenix again? "RACE FOR THE WHITE HOUSE" continues. We are back now with "RACE FOR THE WHITE HOUSE" the back half. I'm David Gregory. Good evening. VP nominee Joe Biden may have given the McCain campaign the opening it needed to talk about national security. McCain seized on comments that Senator Biden made at a recent fundraiser on the trail in Colorado today.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN, ® PRESIDENTIAL NOMINEE: He guaranteed, he said, "mark my words" that if senator Obama is elected, we will have an international crisis to test America's new president. We don't want a president who invites testing from the world at a time when our economy is in crisis and Americans already fighting in two wars.

(END VIDEO CLIP)

GREGORY: The McCain campaign is hammering that message home in a hard-hitting new TV ad. Is this the opportunity that he needed to give voters a reason to give him another look? Joining me now, Bob Shrum, Democratic strategist and Tom Rath, Republican strategist. We're in the "War Room" here guys. And let me start with you on this, Bob. The issue of testing and crisis on international affairs, you can remember back to the 2004 race and how powerful that was. The difference now is, both these leaders are being tested and the crisis is the economy.

BOB SHRUM, DEMOCRATIC STRATEGIST: Yes and I think people have moved on. The simple raising of the terrorist issue doesn't help Republicans the way it used to. And I think McCain almost assumes, when I hear that argument, that the American people are dumb. That they don't understand that what Joe Biden was saying is that every new president gets tested. From what they've seen so far both in term of handling the economy and in terms of these debates, if you look at the internals of all the polls, people have a lot of confidence in Barack Obama's ability to handle this kind of danger.

GREGORY: Tom?

TOM RATH, REPUBLICAN STRATEGIST: Well, I think the poll actually says more than that. I think what Senator Biden said was more than. That he was saying that Senator Obama is not a well-known figure around the world other than in a sort of a celebrity fashion.

And he does go back to the fundamental concerns that have been raised. Not by the McCain campaign but by voters across the country during the time that Senator Obama was campaigning for the nomination of his party. Is he ready? Is he prepared to be tested as president of the United States in a very difficult world?I mean, it wasn't the McCain campaign that changed the subject. It was Joe Biden that did.

GREGORY: Well, that's true that Biden did give him an issue that I'm sure Obama would have rather he not.Tom, let's talk about the state of this race right now. And if you're inside the McCain campaign, where do you see daylight? You're looking for the light here in this dark room. Where is the light coming from? What is the path?

RATH: I think you have to go back to the Bush map of 2004. You have to look at that map and say we have to carry almost everything that President Bush carried when he got reelected. You have to look at the states that are really in jeopardy from that map and try to replace them with something. I think two of the key states left in the map that the McCain people feel pretty good about, or at least very competitive about; one is where I sit tonight in New Hampshire. The other is Pennsylvania. I think they have got to try to get, they can pick those with up, that's about 32 votes would replace about 30 votes that they might lose in contested states like Colorado and Iowa maybe.

So you have got to go back to the Bush map. You got to stick to the Bush map and try to carry those states.

GREGORY: But Bob, the problem for him is that you go back to that bush map. There are at least ten states that Bush won in 2004 where Obama is either tied or ahead. That means that Senator McCain has got a lot of holding on to do in some states that are in real jeopardy here. And again, you go back to Pennsylvania. I've been hearing Republicans now in 2000. Namely one Republican and that's George Bush, thinking that he was going carry Pennsylvania and he's lost it twice.

SHRUM: Yes, look. I think they're as delusional about Pennsylvania as they are about this commander-in-chief issue which has already been decided in people's minds. It was decided in the first debate. But there's a kind interesting conspiracy of convenience between the two campaigns right now. The McCain campaign wants to say, look, we have a chance. Maybe we can take Pennsylvania even though poll after poll after poll shows them ten behind. Then the Obama campaign doesn't want to fight back against that because they don't want complacency. They want their voters to think that this election is very much in doubt. Very much on the line; they want them to turn out.

So it's kind of interesting. And if you're not spinning for them, then you look at all the number and you say, this thing looks like it is pretty done. Republican strategists say that to me privately, a lot of them.

GREGORY: Bob, stay with me here on this. I want to show the "New York Times"/CBS poll that came out on the issue of race if we can get that ready because it is interesting what some of the number reveal. Do you know someone who won't vote for Obama who is black? Yes, 33 percent. 65 percent say no. So that 33 percent and then you look at the strategy in Pennsylvania if you're John McCain; Obama is up over 50 percent in the poll so that undecided number is rather small. But perhaps his more movable supporters are white working class voters that voted for Hillary Clinton and could be peeled away, particular with a Joe the Plumber kind of argument on tax cuts from Senator McCain. So you put all that together in the views about race. Does it create the potential for something unexpected?

SHRUM: Well, there's always the potential for something unexpected. But look, all the movement we've seen in Pennsylvania has been a movement toward Senator Obama. In 1960, 25 percent of people told pollsters they wouldn't vote for a Catholic for president and John Kennedy got elected. This is 33 percent of people I think describing folks who for the most part wouldn't vote Democratic any way.

In the end, I think McCain's big problem is that he has become John the bumbler. He bumbles from one tactic to another.

Today, he's talking about the dangers of one-party rule in Washington. Maybe he could have started making that argument three months ago, although it is historically wrong. Generally we've dealt with economic crises during a time of one-party rule. But to think that you can stumble into that today, say it for one or two days and then move on and make some progress, it's just not going to work.

GREGORY: Tom, one of the things from the 2004 campaign, with apologies to Bob here, one of the thing that Bush did so effectively in the final stretch of that campaign was frame the race so clearly; war on terror the big issue. And you can't trust John Kerry to give you the real deal and be tough enough and to give you a real answer on whether he's going to be tough enough on the war on terror, which is kind of a loose description of it. Do you think that McCain is doing as effective a job in trying to frame the argument against Barack Obama?

RATH: I think he has done a good job framing. He has been overwhelmed by externalities particularly the economic dominance in the news for the last three weeks. If we have ten to 11 days left, where we have a clear focus on who ought to be the president, and we're not hit with these constant externalities, I think McCain still does have that. And I will tell you, he is the best closer in American politics. I can prove it to you. I've been run over by him twice up here. And it is not over for John McCain until it is over. He is going to fight until the end. I think this remains a very competitive race.

GREGORY: You know if there is a strategy, Bob, from the Democratic side it's shock and awe, right? Use the money advantage. Use all the tools right now to try to push this across to victory. What does Barack Obama want people thinking about here? And how does he use that prime time or the 30 minutes he is expected to buy here next week.

SHRUM: That he's presidential. That he has a real plan to deal with the economy. That he's going to empower people and listen to them. That he can be commander-in-chief. All the questions he's answered in this campaign. And then he's going to one of the most effective ground games in history that I think is going to-we're going to see the results on Election Day. By the way, in 2004 -- and maybe this will happen again-Bush had some made, David, as you'll remember-Osama bin Laden and his tape framed that election in the last weekend. I don't think would it work again.

GREGORY: No, I agree with you. We had this conversation here last night. Don't you think that the response would be different? And you guys had a perfectly reasonable response, which was to be supportive of the president and to say how dare he try to influence the election. But you saw the impact in the polls almost immediately.

SHRUM: Right. At that point, people, we had actually reached the point where people were beginning to think a lot about domestic issues. Kerry was moving up in the polling. And suddenly, as you know, we just flat lined.

A - I don't think that's going to happen this year. B, Obama has a much bigger lead, with all due apologies to my friends in Chicago who want me to indicate that everybody has to vote and they do. He has a much bigger lead. It would be much harder to reduce that.

GREGORY: Okay. Thanks to both of you. Bob Shrum and Tom Rath up in New Hampshire. Appreciate both of you, have a good weekend. Coming up next, a former Republican governor who just announced yesterday, he is endorsing Barack Obama. He's going to join me on the "RACE" right after this.

(COMMERCIAL BREAK)

GREGORY: Back now on "RACE FOR THE WHITE HOUSE." Last week it was General Colin Powell; this week Scott McClellan, former Press Secretary to President Bush: a list of President Bush's one-time allies who are now endorsing Barack Obama is growing.

Joining me now is former Republican Governor of Minnesota, Arne Carlson, who is now backing Barack Obama for president.

Governor, welcome.

ARNE CARLSON, ® FORMER GOVERNOR OF MINNESOTA: I'm delighted. Thank you.

GREGORY: Why? Why are you for Obama?

CARLSON: Well, for a whole variety of reasons. I think it is incumbent upon a presidential candidate to lay out a national vision and when he selects a running mate, to select an individual who is eminently competent and taking over the presidency if the occasion arises.

And would have to say from the very beginning, Barack Obama did lay out a vision. It was based on bringing the nation together, blurring out red and blue and gave us really a sense of a national direction. I thought it was very frankly, very, very, impressed. I must admit my children sort of led the way and kind of dragged us into it. But I had hoped that McCain would have picked frankly a very capable running mate. I thought personally that Mitt Romney would have been the strongest because of his strength in finance both on the public and private sector. And although I disagree with him on the social issues, I think he is an eminently capable individual. The selection of Governor Palin was at best, very disappointing.

GREGORY: Disappointing because of what you thought it reflected about John McCain's judgment? Or because of her views?

CARLSON: Yes, absolutely. No, absolutely, because of his judgment. He has made it very clear that he would always put the national interests first. I think he made a substantial compromise when he made the selection of Palin. From there on in, we've seen the campaign basically go down all sorts of side roads. It is sort of like Alice in Wonderland. If you don't know where you're going, any road will get you there. To be perfectly blunt, that seems to be what's happening. I think Obama has stayed on the course. He has really focused on the war. The White House is now negotiating a timetable for withdrawal. He is trying to grow the middle class. He has the focus on that. I'm very impressed with his position on the environment as it pertains to global warming and the need for green energy resources. And he sees the tremendous job potential in America that can come from our investment in that area.

GREGORY: Governor, let me ask but the future of the Republican Party. If McCain and Palin do not prevail in this election, what is the new direction? How does the Republican Party become reborn after this?

CARLSON: Well, I think that's a very, very compelling question. What my hope would be, would be that the social conservatives would sit down with the more traditional conservatives and the moderate wing of the Republican party, and have a very meaningful dialogue. By that, I mean getting back to what used to be the strength of the Republican Party. When I came into the Republican party, I was very impressed with their structure and dedication to balanced budgets, to making sure that we don't spend more than we take in, and we don't create deficits that we pass on to our children. I think that has to be the mainstay of the Republican Party. And secondly, I thought Harold Stassen, a great Minnesotan working in the Eisenhower administration, defined the role of America in a global climate being able to build the kinds of partnerships and alliances that's are necessary; very cautious on the issues of war. And thirdly, the Theodore Roosevelt legacy on the environment, so if we could bring those together, I think we would be fine. Personally, I prefer the government stay out of the bedroom. But that will always remain a ticklish issue.

GREGORY: Governor, finally and more briefly here, if I can ask you- George W. Bush ran as a uniter and not a divider. There are similarities with Obama in that message. What makes you think that Barack Obama is going to lead a nation that's any less divided going forward?

CARLSON: Well, I think that's a very fair question. Frankly, from what I'm seeing in terms of his advisors, I am very, very impressed.

He has really brought together divergent views. I like the way he handled the crisis on Georgia. I liked the way he handled the crisis on the economy. He consulted other people, worked together in a very deliberative style and I thought handled himself in a very presidential way.

GREGORY: Okay. Governor Arne Carlson, former Republican governor of Minnesota, now backing Barack Obama. Governor, thank you for being here, a pleasure.

CARLSON: My pleasure. Thank you.

GREGORY: Coming next previewing the final week of this very exciting presidential campaign; where the candidates are going. What the final arguments are going be for those undecided voters. Ron Fournier, the big bureau chief of the Associated Press, one of the best in the business, will be here to talk me through it when "THE RACE" returns.

(COMMERCIAL BREAK)

GREGORY: Back on "RACE FOR THE WHITE HOUSE" here. Our remaining moments with political guru, the bureau chief of the Associated Press, Ron Fournier. Ron, good to have you back here.

RON FOURNIER, BUREAU CHIEF, ASSOCIATED PRESS: Guru?

GREGORY: Guru, that's what I could come up with on short notice. Let's talk about this race. We were just talking about the polls and whether this is double digits. You guys had a poll that had it at one point. There is certainly fluctuation and in states there are fluctuations. The reality is even the McCain campaign would concede this is at least a five, six, seven-point race. Where do you think it is?

FOURNIER: I think this week we're probably around four, five, six points. But as you know the national polls don't matter; it is the state polls. And anyway you look at the map right now we're going to have a poll next week of eight states. It will be interesting to see what comes out of those. But right now, that map is hard to see how McCain wins this thing.

GREGORY: But if you look at the map, the big ten polls, according to polls, the spreads are huge in these states. And then there are other polls. It's confusing if people are watching and they say, how can it be, Mason Dixon has McCain up one. There's another, Quinnipiac has Obama by four or five. How are we supposed to make sense of that?

FOURNIER: You can just look at what the McCain people are saying. They recorded the other day, one of their advisors saying we're having a hard time in Colorado, Nevada and Virginia but if we can hang on to those and win Pennsylvania, which is the only Kerry state, the only blue state that McCain's fighting, maybe we can win. The problem with that is he is down anywhere between eight and 11 points in Pennsylvania. And Colorado and Virginia are just about gone. I'm almost convinced Colorado is gone. Even if he was able to pull this off, though, he is able to win Colorado, Nevada and Virginia, if he lost those and he won Pennsylvania, he is still going to lose the election. It is a tough map for him right now.

GREGORY: And what I keep coming back to is that this 2004 map for Bush, you've got at least ten states because there's some question I guess about states like Montana or North Dakota. But you have at least ten states where Obama is either tied or ahead. The pressure that puts on McCain is tremendous because the strategy where they talk about picking off Pennsylvania that assumes that he holds Ohio. It assumes that he holds Florida. It assumes that he holds North Carolina. And he is up against a guy who has nothing to do but spend money right now.

FOURNIER: Right. Obama might be able outspend him seven or eight to one the next couple of weeks. But, there's a couple of things going on. One, he is a relatively inexperienced candidate in a time of war. When people these last couple of weeks, when they really get down to the decision, will that hurt him? We don't know. And two, race is still a factor out there. It is still a very serious factor in the country. And we really don't know how that is going to play. So I don't think this thing is over. But McCain really has to draw it inside straight.

GREGORY: Talk about issue wise. Let's talk about why McCain is choosing this Joe the Plumber strategy and a strongly ideological argument on tax policy for a guy who's been a maverick and been more of a centrist Republican to a lot of people. Why is this the final argument?

FOURNIER: Well, you can argue over the bottom lines in these polls but one thing they all show-certainly the AP-Gfk poll showed-that white voters, especially married couples, and people earning less than $50,000, start moving toward McCain after he did the Joe the Plumber thing. He is talking to that demographic. The white, relatively lower middle class voter. It has had some effect.

And he is hoping to keep peeling those folks away because who are they? A lot of them are the people who voted for Hillary Clinton in the primaries. A lot of them are people who have some misgivings on racial issues. He's hoping to peel those away and we don't know if it will work or not.

GREGORY: But they may be more loosely tied to Obama right now. In other words, if they're in West Virginia, if they're in western PENNSYLVANIA, they might be really concerned about the economy and thinking, we have to have some kind of change. But they're not strong Obama people at this stage.

FOURNIER: If you ask people are you undecided, you only get maybe 5 percent or 10 percent of the public who says they're still undecided. But if you really dig down, there's as much as a quarter of the population that is still persuadable.

And when you still have that volatility, when you have people moving back and forth, it is not out of the question that McCain can find a way to win this.

GREGORY: In a state like Pennsylvania, we talk about western Pennsylvania, working class voters, aren't the independent voters really the key there; still the ring of counties that are around Philadelphia that have moved away from the Republican Party? Doesn't he still need those counties combined with aspects of western Pennsylvania to pull this off?

FOURNIER: One way to look at it is that those are-a lot of those folks are the old soccer moms-whatever happened to the soccer moms. They've gotten older. Now they're the boomer women. And that demographic is the most volatile right now. They are the most persuadable demographic. About 44 percent of them right now are persuadable. They've been moving very strongly towards Barack Obama. McCain has to find a way to peel some of those away; white boomer women.

GREGORY: What is the judgment about the impact of Sarah Palin?

FOURNIER: You know at the end of the day, my guess is the VPs aren't going to have a lot of direct impact because they never do. Except did it hurt McCain's brand. Here was a guy who was supposed to be all about strength and experience and he picked someone who had no experience and looked kind of weak. On the other hand, Barack Obama was supposed to be all about change and new direction and he picked somebody who has been in the senate 35 years. They both kind of went counter-brand.

GREGORY: Is there another change in the dynamic left in this race?

FOURNIER: Is there a possibility for him you mean?

GREGORY: Yes, I mean, in other words-we've looked at the economy being dominant now for over a month and we don't see any real change from that. You had Biden introducing this foreign test idea or a crisis idea for Obama. But there's nothing. We can still see an Osama bin Laden video or something like. Do you really see another dynamic shift in the race?

FOURNIER: I can't predict it but I'm sure not going to rule it out. Who would have guessed that in the closing days of the 2000 election that is George Bush would-an old DWI charge would pop up on Friday night and actually affect the election. It did.

We just don't know. Something could happen that breaks Obama's way and we have a huge landslide. We don't know.

GREGORY: What are you going to be looking at on election night? What are the telltale signs for you?

FOURNIER: You're kidding right?

GREGORY: What other computers are you going to be looking at that's going to tell you how this night's going to go?

FOURNIER: Well, you do have those early states on the East Coast.

GREGORY: North Carolina, Florida.

FOURNIER: If he wins North Carolina, it is over. If Obama wins North Carolina, it is over. If he wins Florida, it is over. If he wins Pennsylvania, it is probably over.

GREGORY: And Virginia?

FOURNIER: Definitely Virginia. Virginia and North Carolina, though, we're looking at a land slide, 350 electoral votes probably.

GREGORY: Wow. Okay. Ron Fournier with the AP, thanks buddy. Thanks for being here. Appreciate it, have a good weekend.

That is going to do it for "RACE FOR THE WHITE HOUSE" for tonight. Just 11 days before Election Day.

I'm David Gregory. Thank you for watching. Have a peaceful Friday night. See you back here on Monday night, same time, 6:00 p.m. Eastern on MSNBC; the place for politics. Stay where you are. "Hardball" with Chris Matthews is coming your way right now. Good night.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

END

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