updated 12/30/2008 4:51:30 PM ET 2008-12-30T21:51:30

Guests:  Richard Engel, Todd Purdum, Paul Krugman, Paul Rothstein, Kent Jones>

RACHEL MADDOW, HOST:  The George W. Bush legacy project breaks out their biggest guns of all: Secretary of State Condoleezza Rice and First Lady Laura Bush.  If there are more popular Republicans in America, I do not know who they are.  Tonight, we discover their very treacherous public relations mission, the Bush legacy project.

Meanwhile, President Bush himself is trying to take back a pardon that he just issued.  And the lights go out literally on Barack Obama‘s Hawaiian vacation.  Does somebody really oppose the big national infrastructure fix-it program?  Somebody does.  We‘ll get to all that tonight.

But first, you saw undoubtedly saw the headlines today.  Israel launches third day of attacks on Gaza.  Chaos in the Middle East; Arab-Israeli conflict erupts.  Again?  Yes, again.

Now, there‘s a reason these headlines are so familiar.  Here is where

Israel is.  It‘s a tiny country, a Jewish state, right smack-dab in the

middle of the Arab world, surrounded on all sides by Arab nations.  Many of

whom do not recognize Israel‘s right to exist

Israel was, in a sense, conceived by war.  A day after it declared its independence in May 1948, it was attacked by five neighboring countries, Egypt, Syria, Jordan, Lebanon, and Iraq.  What followed were decades of endless wars fought on and near Israeli soil.  A war with Egypt in 1956, another with Egypt and Jordan, and Syria in 1967, another with Egypt and Syria in 1973, one with Lebanon in 1982, and so on and so on and so on.

And on top of various military entanglements with its neighbors, Israel has also been embroiled in various uprisings within its own borders, among the Palestinian people.  You will recall that famous handshake at the White House, right?  Palestinian leader Yasser Arafat and Israeli Prime Minister Yitzhak Rabin, agreeing to a declaration of principles that said the Palestinians would be allowed to govern themselves in two areas: in the West Bank, a swath of land along Israeli‘s border with Jordan, and another tiny sliver of land along the Mediterranean Sea that‘s known as the Gaza Strip.

The war being fought at this hour is in that little sliver of land, the Gaza Strip.  It‘s actually only about twice the size of Washington, D.C.  Now, Israel withdrew from that land in 2005.  But they still control the airspace, the territorial waters, and the Gaza-Israeli border.  They are currently enforcing an embargo on the Gaza Strip.

Once the Palestinians achieved some degree of independence there, they did what independent people do.  What the U.S., in fact, encouraged them to do, they held elections.  And in those elections, the ruling nationalist party, Yasser Arafat‘s party, Fatah, was defeated soundly by Hamas.

Now, Fatah that was no “league of women” voters, but say what you will about them, they did begrudgingly, accept theoretically, Israel‘s right to exist.  Hamas, not so much.  Not so much at all.

The charter of Hamas explicitly calls for the destruction of Israel.  Hamas is listed as a terrorist organization by the both the United States and the European Union.  The net result of that election for Israel, yet another neighbor bent on its complete destruction.

Israel says rockets and mortars lobbed from Gaza into Israel killed nine Israeli civilians since the beginning of this year.  A shaky ceasefire between Gaza and Israel that had been brokered by Egypt, that expired just a little more than a week ago.  On Saturday then, there was a surprise broad daylight coordinated air assault by the Israeli military on what Israel says were military targets in Gaza.  Another round of headlines that scream, “Chaos in the Middle East,” “Chaos in the Middle East erupts again.”

More than 300 dead on the Palestinian side in the last three days.  Three confirmed dead, so far, on the Israeli side.  Israel‘s critics decry a disproportionate response to the rocket fire.  An emboldened Iranian Ayatollah Khomeini says that any Muslim who dies in defense of Gaza would be deemed a martyr.

Israel‘s defenders decry the Hamas government‘s refusal to recognize Israeli‘s right to exist.  And, of course, the unprovoked missile fire into southern Israel.  Today, Israel‘s United Nations ambassador said the goal of Israeli‘s military offensive is to, quote, “destroy completely” Hamas.  Meanwhile, Palestinian rocket fire into Israel continued despite the massive Israeli military attack.

Now, as President Bush refuses to interrupt his last vacation as president to say anything about the Middle East tender box, he purports to focus on so intently, is there hope that our new presidential leadership in our country could make a difference there?  Or is this a situation in which there will always be violence which precludes a political solution?  And without a political solution, we can‘t ever have anything but more violence.  Do you think that our kids and their kids and their kids will inexorably, inevitably read the same headlines from the Middle East that we do now and that we have for so many years?

Joining us now is NBC chief foreign correspondent, Richard Engel.

Richard, thanks for being here.

RICHARD ENGEL, NBC CHIEF FOREIGN CORRESPONDENT:  So, I have to sort out the Middle East?

MADDOW:  Yes, so you got a couple minutes, hit it.

ENGEL:  Exactly.  To get right into it -

MADDOW:  Please.

ENGEL:  I think the situation in Gaza is explosive.  It appears to be contained.  But people in Gaza and in Israel expect that there will be ground offensive and it could be fairly soon, that it could come in the next 48 hours or so.

MADDOW:  Does that mean that this is going to go on for a very long time?  Is there any possibility that that could be even—if it is a massive ground incursion—could it be a short one?

ENGEL:  Probably, the Arab world, it seems that a lot of Arab states, in particular Egypt, Saudi Arabia gave a green light to this offensive.  So, while there‘s a lot of uproar in the streets, the Arab governments aren‘t saying very much.  And Israel‘s foreign minister was in Egypt, meeting with Egypt‘s president the day before Israel began this offensive.

So, there is a lot of uproar on a popular level because the media, the television, all the newspapers.  It‘s a constant drum beat of horrific images coming out of Gaza.  So, the Arab governments can only tolerate so much for so long.

MADDOW:  Why would they have green light on something like this?

ENGEL:  They don‘t support Hamas.  They preferred the Fatah government, Palestinian authority which rules the West Bank.  If you look at the map which you‘ve provided me, again, I‘m so sorry about this.  There is Hamas government there.  And then, in the West Bank, you have the Palestinian authority.

So, two governments, two rival states in a state that isn‘t even connected to itself.  And the moderate Arab states, the U.S. allies, the Sunni states in general, support the government in the West bank, and not Hamas.  Hamas is really close friends, have turned out to be Iran and Hezbollah, and some friends in Syria, and that‘s about it.

MADDOW:  So, the Palestinian leadership in the West Bank, which is we‘re seeing—as we can see on the map, is a much larger territory than the Gaza Strip.  They are not on Hamas‘ side.

ENGEL:  They were shooting yesterday at demonstrators—Palestinians who are coming out in support of Hamas.

MADDOW:  Are we in a situation here, both in the Palestinian territories and in the surrounding governments where the people want something very different than the leadership?

ENGEL:  The people across the Arab world, I think there‘s a big disconnect between what the people want and what the leadership wants.

MADDOW:  Yes.

ENGEL:  Unfortunately, it is a region where there‘s a large problem of ignorance, of poverty, of chauvinism, of all the terrible things that you have in the developing world, and the leadership of an elite that is mostly western-educated.  So, there is a huge discrepancy.  And that comes out when there‘s a time of crisis like you have now where there are millions of people in Egypt who are horrified and want to act by what is going on in Gaza.  But, the leadership in Cairo is in a position where they don‘t want that.

MADDOW:  Right.  And we see these giant demonstrations in Beirut.  We have the Yemeni government say that they had a million people turnout demonstrating in support of the people of Gaza.

ENGEL:  You will not see Egyptian F-16s flying over Gaza anytime soon nor will you see the Jordanian military invading to—to take off military pressure.

MADDOW:  But yet, we have this situation in the Gaza Strip, which is a small area, very densely-populated area, where the Israelis say Hamas is firing rockets under cover of the civilian population.  And if there are civilian casualties, it‘s because Hamas is essentially hiding among the civilian population there.

ENGEL:  Well, Hamas‘ members are civilians.

MADDOW:  Yes.

ENGEL:  So, that distinction is not a uniformed army.  There are probably, according to U.S. intelligence estimates, 10,000 fighters.  And then there‘s another 15,000 or so people who belong to the Palestinian security services.  So, we‘re talking about 20,000 to 25,000 fighting force, 10,000 of which are dedicated directly to Hamas.  But these are people who are from Gaza.

I spent a lot of time in Gaza, it‘s a densely populated.  It‘s one of the most densely-populated in the world.  So, if you‘re fighting from northern Gaza, most of this fighting—the Israelis have their positions around the edges of Gaza—and most of the fighting has been, so far, in this northern portion of the Gaza Strip up there.

MADDOW:  So, looking at the geographic considerations here, to think about the political considerations here, what‘s already happened, the divides that we know are there, the fact it is a hot war right now, there‘s bombing going on right now, and there are casualties still unfolding.  We‘ll be looking at more if there is a ground incursion.  Is there any point where it‘s possible for there to be a break in the violence-retaliation, revenge-retaliation violent cycle?

ENGEL:  I think that this will be left up to—and a lot of it has to come down to American leadership, and it has to come down to what is now the new administration to be coming in.  And If I were in their position, and I‘ve heard grumblings that they are interested in doing this, you might want to dust-off that Baker-Hamilton report, the Iraq study group report which was criticized at the time because it didn‘t call for the surge in Iraq.  And a lot of people didn‘t agree with the fact—since it was against the surge, people have tried to discredit it.  A lot of the rest of that report, I think, is very interesting and has some incredible value to it.  And it talks about a grand bargain in the Middle East.

And if you look at the map, you‘re talking about this dangerous geography we have.  Gaza is just one of the main contentious points.  Then there‘s the West Bank, the Golan Heights.  It‘s mostly about land and about creating some sort of bargain.

And I think a new administration that goes in with a more pragmatic approach, not trying to conquer and achieve peace through ideology, through spreading democracy, but looking at the actual real estate that needs to be swapped, the people that need to be the aggrieved populaces that need to be addressed.  I think there is a chance to start a new approach, and eliminating as a direct threat, Hamas and its missiles from the Gaza Strip in an odd way could end up helping moderates if this operation doesn‘t prove to be a terrible, bloody massacre.

MADDOW:  Richard Engel, NBC chief foreign correspondent.  I want to talk to you about Somalia, too.  I want to talk to you about Pakistan.  I have a lot of things on my list.  I hope you‘ll stay around and just hang out with me after the show or something.

ENGEL:  (INAUDIBLE), there‘s a lot to talk about.

MADDOW:  There‘s a lot.  Thank you, Richard.

Laura Bush and Condoleezza Rice took starring roles in ongoing Bush legacy makeup pageant—I mean, Bush legacy project this weekend.  They have been tasked with selling us the parts of the Bush legacy that are really, really hard to sell.  “Vanity Fair‘s” Todd Purdum is here.

And later, President-elect Obama wants to ring in the year with a big, fat economic stimulus plan.  But Republican Party poopers are trying to block it.  Nobel laureate, Paul Krugman, will be here.  He is really good at explaining these things.

But first, one more thing, it looks like the Iraqi reporter who threw his shoes at President Bush has found a little copy cat behavior and at least one other budding democracy.  According to Georgia‘s “Alia” tabloid newspaper, Georgian President Mikheil Saakashvili, seen here chewing his tie before an interview with the BBC, he reportedly punched his country‘s prime minister and threw a telephone at him for reasons unknown.  When asked about the incident, the president said the story was a complete, that it‘s quote, “complete nonsense and deserves no comment.”

At least President Bush had a good comeback after his embarrassing incident.  Remember when he said, “I saw his sole”?  Good homonyms can defeat all political enemies.

(COMMERCIAL BREAK)

MADDOW:  Congratulations are in order for Bristol Palin.  The 18-year-old daughter of former vice presidential candidate, Sarah Palin, gave birth yesterday to a healthy seven-pound, four-ounce baby boy.  That‘s according to “People” magazine.  The mother and baby are both reportedly doing well.  His name is Tripp Easton Mitchell Johnston.

And he can presumably see Russia‘s—you know what?  No jokes about the baby.  Congratulations to all the Palins and Johnstons.  It‘s very exciting news.  Our best wishes for you and your new baby boy.

(COMMERCIAL BREAK)

MADDOW:  The last month has given us the wonder of exit interviews from President Bush and, more recently, Vice President Cheney.  Bush stuck to the “I‘m a nice man who loves my family and loves God” theme.  Light on the details, heavy on the “Oh, come on, you‘d like me if you met me” stuff.

The vice president on the other hand?  You know, he just doesn‘t care. 

“Yes, we waterboarded.  You don‘t like it, indict me.”

The Bush legacy project, thus far, gets across the board A‘s for audacity and a few F‘s for what are you freaking talking about.  This weekend, though, the revisionist history unit broke out the heavy-hitters, the two most popular Republicans currently drawing breath—Laura Bush and Condoleezza Rice.  Their assignment?  The extra-heavy legacy-lifting.  They picked Mrs. Bush, for example, to try to shine up our memories of the administration‘s performance during Hurricane Katrina.

(BEGIN VIDEO CLIP, “FOX NEWS SUNDAY”)

LAURA BUSH, U.S. FIRST LADY:  I feel terrible about Hurricane Katrina and I‘m sad that the response, it wasn‘t faster.  The other thing that happened right after it was—really not true reporting.  There was—the reporting was ended up being not really factual.  But many, many people heard the first reporting and that‘s what they think happened, that 10,000 people died or, you know, whatever that things were, that were not true.

(END VIDEO CLIP)

MADDOW:  You know, I feel a little awkward debating the first lady about this, but if you‘re going to put her out there to talk policy and history, then we all get a chance to talk back.

Madam First Lady, I don‘t think the fact that it was 1,800 deaths instead of 10,000 deaths in any way makes Americans feel better about Katrina and gross government incompetence, neglect, and negligence.  We would not feel better about Katrina if the death toll hadn‘t been inaccurately estimated at first during the crisis.  Really, trust me.

As for Secretary of State Rice, the PR strategy was largely confined to the really, really, really, really long view of history.  Here she is defending the Bush administration‘s foreign policy.

(BEGIN VIDEO CLIP, “CBS SUNDAY MORNING”)

CONDOLEEZZA RICE, U.S. SECRETARY OF STATE:  It‘s not a popularity contest.  It is to lay a foundation for where this will all come out.  I know that your business is to report today‘s headlines and I respect that.  But my business is to lay a foundation for history‘s judgment.

(END VIDEO CLIP)

MADDOW:  Yes.  We‘ll all have to wait until we are long gone to know how it really went down.  Rice did get specific in her interview with CBS, which took place a week ago.  She offered particular praise for the Bush administration‘s work in the Middle East.  I‘m not mispronouncing that.  It‘s not a typo in the teleprompter machine.

According to an interview transcript from the State Department, Rice says this, quote, “We are leaving a negotiating forum where Palestinians and Israelis have said they have confidence that they will reach agreement and decent Palestinians of governance going up.  I think this is in much better shape than we found it.”

Days after she made that proud proclamation, of course, Hamas put the rockets into Israel and Israel with the bombs into Gaza.  And now, the expected ground incursion into Gaza.  Yes, very awkward.

As for Iraq, Rice confirmed her words to Bob Woodward that she would liberate Iraq a thousand times again.  And asked about historians who rate George Bush as one of our worst presidents ever, Secretary Rice said they, quote, “aren‘t very good historians.”

Joining us now is Todd Purdum, the national editor at “Vanity Fair” magazine.  His new history, a retrospective look at the Bush years with a lot of incredible, on the record, eyewitness, insider quotes, appears in the magazine‘s February issue.

Mr. Purdum, thanks for coming on the show tonight.

TODD PURDUM, VANITY FAIR:  Thanks for having me, Rachel.

MADDOW:  I know how I feel about the end of the Bush administration,

as a citizen, but you spoke to a lot of eyewitnesses, numerous former

senior Bush administration officials, and their reactions were surprising -

a lot of regret.  A lot of, I guess, a sense of lost opportunity.  Is that how it seemed to you?

PURDUM:  Yes, I do think there‘s a lot of regret.  President Bush‘s former pollster and 2004 campaign strategist, Matthew Dowd, said the headline of this presidency would have to be “Missed Opportunity.”  And, you know, the segment you just had made me wonder what might have happened if President Bush have listened more and earlier, and more often to Mrs.  Bush and Secretary Rice.  He might have gotten some better advice than the advice he initially got.

MADDOW:  Dan Bartlett, in your article about Katrina, he says, “Politically, it was the final nail in the coffin.”  Matthew Dowd called it, “the tipping point.”  We are now hearing, strangely, from the first lady, spin that it maybe wasn‘t that bad as people initially thought that it was.  Is there a consensus even on how Katrina should be discussed, if there were lessons learned from Katrina?

PURDUM:  I think there‘s certainly a consensus that the whole system was broken.  And both Matthew Dowd, and into a lesser degree, Dan Bartlett, think that was partly because the Bush administration was already sort of too closed in in its thinking about how it would react to the crises like that.  I know Matthew Dowd felt that there just was not enough effort to get the real ground truth to the president in a timely way.

This is always been a president or whatever they say, who has resisted getting bad news from his advisors.  He doesn‘t like to be contradicted.  He doesn‘t like to have bad news.  And I think it was very hard for them to sort of break through—you know, they have been through so many crises.  That‘s the other thing that emerged.  He drew the most unlucky straw in terms of the sheer mass of events that happened between, especially, September of 2001 and, you know, 2005.  But that, you know, that doesn‘t solve the problem or an excuse of the managerial lapses that which were profound and severe.

MADDOW:  I think that‘s—I think that‘s maybe why—where I come down maybe to—not in the center of the American public on this issue because I don‘t look at it as drawing short straws.  I look at it as leaving us unwarned and unprotected on 9/11, completely blowing Katrina and then invading Iraq without getting bin Laden.  It all seems to be not stuff that happened to them but stuff they screwed up.  But even when they are being self-critical, they are still talking about this stuff as if it was just external events that they had no role in propagating.

PURDUM:  Well, I think some people do have that view.  But I think the more honest people, the people that have distance on it, are quite harsh in saying the responsibility that the administration bears for its own troubles.  The responsibility it bares for, you know, embarking on what was an elective war, basically.

The responsibility it bears for not changing the tone in Washington, whatever they may feel about how the Democrats were behaving.  I mean, Matthew Dowd told me, you can‘t—it‘s not like you‘re in “Star Trek” or some room makes your behavior change, you still have the power to rise above it if you‘re a good leader, and you have the will power to try to change it.

MADDOW:  Let me ask you about one quote that jumped out to me, I think that it jumped to a lot of people when they read the article in “Vanity Fair.”  It was from Lawrence Wilkerson, and he was, of course, chief of staff to Secretary of State Colin Powell.  He called President Bush a “Sarah Palin-like president” when he came into office.  What does he mean by that?

PURDUM:  Well, that struck me, too.  I think it probably will strike to a lot of people.  I think what he meant was the consensus when the President Bush came in was this to be a “steady as she goes leadership” and however untested he might be.  He had the A-team of foreign policy experts around him.  It will be the best foreign policy team maybe since, you know, the Truman administration or something like that.  It obviously turned out to be not a team at all.  It turned out to be totally dysfunctional.

And President Bush, at some level, you can debate, you know, how level, was not capable of mediating those disputes.  He let the feud between the State Department and the Defense Department go on so long that some of the conservatives in the administration used to joke that John Bolton at the State Department amounted to the American intersection.  You know, and that kind of dysfunction should not be allowed in any government.

MADDOW:  To say the least.  Todd Purdum, national editor for “Vanity Fair,” incredible sourcing on this article.  Thanks for your work and thanks for coming on the show tonight.

PURDUM:  Thanks for having me.

MADDOW:  Coming up later: Another edition of THE RACHEL MADDOW SHOW‘s lame duck watch.  Tonight, President Bush pardoned someone, and then unpardoned him.  Even admitting his mistakes, he makes mistakes.  Genius.

(COMMERCIAL BREAK)

MADDOW:  We‘ve got Nobel Prize winner Paul Krugman coming up on the show shortly, to talk about one of my favorite subjects—infrastructure.

But first, it‘s time for a few underreported “holy mackerel” stories in today‘s news.  The “Washington Post” front-pages a story today on the Occupational Safety and Health Administration, OSHA, the part of the federal government that deals with workplace safety.  They provide information about workplace hazards.  They regulate workplace conditions so that they are safer.

Of course, in the Bush administration, OSHA does a lot less of that.  They do 86 percent less of that, if you want to be precise here.  OSHA under President Bush issued 86 percent fewer significant workplace safety rules and regulations than OSHA under Bill Clinton.  Now, that‘s not necessarily a big political surprise.  Republicans are the pro-corporation, anti-regulation party even when they can‘t really agree on anything else.

But what is a surprise about OSHA under President Bush which we learned in today‘s “Washington Post” is—I‘m not actually sure that I can improve on the facts as they are presented in today‘s “Washington Post” article by the reporter, R. Jeffrey Smith.

Quote, “In 2006, Bush‘s first OSHA director, a former Monsanto employee was replaced by Edwin G. Foulke Jr., a South Carolina lawyer and former Bush fundraiser who spent years defending companies cited by OSHA for safety and health violations.  Foulke quickly acquired a reputation inside the Labor Department as a man who literally fell asleep on the job.

Eyewitnesses said they saw him suddenly doze off at staff meetings, during teleconferences, in one-on-one briefings, at retreats involving senior deputies, on the dais at the conference, at an awards ceremony for a corporation, and during an interview with candidate for deputy regional administrator. 

His top aides said they rustled papers, wore attention-getting garb, they pounded the table for emphasis or gently kicked his leg, all to keep him awake.  But if these tactics failed, sometimes they just continued talking as if he were awake - ‘We‘ll be sitting there and things will fall out of his hands; people will go on talking like nothing ever happened,‘ said a career official, who spoke on the condition of anonymity because he was not authorized to talk to a reporter. 

In an interview, Foulke denied falling asleep at work, although he said he was often tired and sometimes listened with his eyes closed,” end quote.

Listening with his eyes closed?  The man George Bush put in charge or keeping your workplace safe, America.  Twenty-one days left - 21 days. 

And the Republican Party is having a little bit of trouble settling on its leadership for its post-Bush, post McCain-Palin rebuilding period.  There are, at last count, roughly 400,000 people running to be the next chairman or chairwoman of the Republican Party, if you round off for the nearest 400,000. 

Honestly, I don‘t know.  It‘s very hard to tell how many people are actually running for RNC chair.  But there are a lot, and it‘s turning out to be sort of an exciting race.  One reason why is that RNC chair is the only national leadership job in the Republican Party now. 

The White House and House of Representatives and the Senate will all be headed by Democrats starting very soon.  Also, the question of whether or not Republicans can find their voice as the loyal, honorable opposition to the nation‘s first black president is turning out way more comically difficult for them that might have been expected. 

First, there was the South Carolina Republican Party chairman who had to resign his long-term membership in a whites-only country club.  Now, another candidate, the former Tennessee party chairman, has sent out as a holiday gift, a parody song about Barack Obama called “Barack the Magic Negro.” 

RNC candidate Chip Saltsman‘s defense to the inevitable outrage here is that “Barack, The Magic Negro” is hilarious.  You stay classy, GOP, don‘t ever change.    

(COMMERCIAL BREAK)

MADDOW:  OK.  So here is an awkward moment in the political news world.  As everybody is waiting for the still-president to exit stage right, we are obsessively following every move of President-elect Obama.  The result is that pretty much the entire national press corps has been following almost-President Obama around during his vacation in Hawaii, hoping maybe simply by virtue of his being president-elect that some news might sprout up around him. 

When it didn‘t happen, we got the distinct privilege today of reading about an Obama family bathroom break and a presidential tuna sandwich ordered without mayonnaise.  Paging the National Archives. 

But then, news did actually happen.  A thunderstorm crashed through Oahu on Friday, and the whole island lost power, which left the first family to be without power for about 11 hours.  So we now know the soon-to-be-president is capable of lighting some candles, firing up some flashlights and roughing it during a black out. 

But the Hawaiian power failure is, of course, also a very appropriate allegory for the power politics going on in Washington about Obama‘s economic stimulus plan and the increasingly obvious need for that plan. 

When candidate Obama appeared on this show in October, he talked about his desire to rebuild our country‘s infrastructure.  He specifically mentioned the electrical grid.  Hawaii, are you listening? 

But the need for immediate infrastructure help is apparent all over the country.  In Michigan, more than 413,000 people lost power yesterday because of high winds.  Yes, wind is, apparently, our electrical grid‘s kryptonite now.  Tens of thousands of Michiganders, still without power as of this afternoon. 

In Savannah, Georgia this morning, underground electrical cables exploded, blowing manhole covers into the air and starting several fires in the city‘s downtown area. 

And in Tennessee, remember last week‘s spill of coal ash?  It has spilled - now they say it‘s about 1 billion gallons of toxic sludge threatening residents and their drinking water some 40 miles west of Knoxville, Tennessee. 

We are, in fact, at a moment, when we have an actual infrastructure crisis on our hands, and we need to spend money to fix it.  The good news, and it‘s not so much the good news as it is the good news part of the bad news, is that the solution to our economic crisis is widely-considered to be self-investment, putting money into our own physical circumstances - infrastructure. 

But even though we clearly need it, there is building political resistance among some Republicans to the idea of an infrastructure stimulus plan. 

John Boehner, the Republican leader in the House, is asking Democrats to not bring an infrastructure spending bill to the House floor until, quote, “there have been public hearings in the appropriate committees, the entire text has been available online for the American people to review for at least one week, and it includes no special-interest earmarks.” 

Senate Minority Leader Mitch McConnell is also firing off an “I‘m digging my heels in” warning shot saying, quote, “The American people need to know if their money is spent on mob museums and waterslides,” obviously trying to alleviate the fear that when Mr. Obama says electrical grid, roads and bridges, he secretly means oceans of fun waterslides and shrines to Vinny the Chin. 

Joining us now is Nobel Prize-winning economist, Paul Krugman who has written extensively on the economic and infrastructure crises in his columns for the “New York Times.”  Mr. Krugman, thank you so much for coming back on the show. 

PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST:  Great to be on. 

MADDOW:  Is there a principled economic argument against infrastructure spending as economic stimulus as a way of helping us out of this crisis? 

KRUGMAN:  Well, you know, there are economic theories that say that demand is not the problem, that problem - we don‘t need more spending.  You know, University of Chicago economists recently said the real problem is that, for some reason, people don‘t want to work.  Add that to your theory then, you know, economic stimulus is not going to help. 

But, there is no coherent theory being offered by Mitch McConnell or John Boehner or these people.  They don‘t really have a story.  They‘ve got more slogans, you know.  Government is bad.  Big spending is bad.  Watch out for the earmarks. 

And, you know, this is not really a story, but they are putting up roadblocks, and the way of doing this is kind of some, you know, politics plus suspicion. 

MADDOW:  You have been arguing that the stimulus plan may need to be bigger than has previously been grappled with politically.  Why does it need to be really big and what is really big? 

KRUGMAN:  OK.  I mean, the thing - one way to say this -Obama has been saying three million jobs, which sounds like a big deal. 

MADDOW:  Yes.

KRUGMAN:  But we have lost two million in the last year.  And since we need more than one million extra jobs just to keep up with population, we are already down three million jobs right now.  We are losing jobs at the rate of at least 500,000 a month, probably faster than that.  By the time a new stimulus package, you know, gets going, really, we are going to be way down in the hole. 

Three million is not actually going to be enough to close the gap.  So we need - you know, the numbers, when you start to do them, get huge.  You know, Larry Summers talked in a recent op ed about us being $1 trillion under capacity in the U.S. economy.  How much money does the Federal Government need to spend to, you know, use up that capacity?  Not the full trillion, but a good share of it.  So it‘s very easy to come up with numbers that are like, you know, $600 billion, $700 billion in one year.  And of course, we are talking about at least two years of doing this stuff. 

MADDOW:  We are thinking about the need to create jobs for an economic purpose ...

KRUGMAN:  Right.

MADDOW:  ... as well as a social purpose here.  Are there more jobs-intensive ways of spending money on economic stimulus and less jobs-intensive ways?  Is that the way that we should measure good infrastructure-spending, good stimulus-spending as opposed to bad? 

KRUGMAN:  You know, there are two objectives here and they don‘t perfectly coincide.  One thing we want to do is we want to - you know, we want to make sure that we don‘t have exploding manhole covers, right?  And that is stuff that‘s important because it‘s important for the future. 

And there is stuff that we want.  We want to create jobs.  We want to keep this economy from going into an even deeper tailspin than it is in.  And those are not the same thing.  The things that you want to do for the future might not be the kinds of things that would come online fast that would give us a lot of jobs by May or June of 2009. 

So the Obama administration - they have to try and make some compromises between those two.  The one thing we know is that the good thing about federal spending is it‘s actually spent, that it actually does boost the economy.  And if it‘s infrastructure, it also leaves you with something of value afterwards. 

Whereas if you do it the way the Republicans want to do it, which is always tax breaks, first of all, it might not be not be spent or it might not help the economy at all.  And then, you‘ve got nothing to show for when the thing is over.

MADDOW:  In your column today in the “New York Times,” you wrote that the nation‘s governors are essentially behaving like 50 Herbert Hoovers for cutting spending during this economic downturn.  Many of them, of course, have to contend with not being able to deficit-spend.  What should governors be doing differently?  What should states be doing differently than they are doing right now? 

KRUGMAN:  Oh, this wasn‘t actually a call to the governors.  You know, I think most of them got no choice.  I mean, as I said in the column, you know, governors are not stupid, or at least, not all of them.  They are under constraints.  They have balanced budget rules.  And also, they are not being very successful. 

You know, the capital markets don‘t want to lend them money.  The rates of interest on state bonds are outrageous right now.  So, this is a call for Washington to come to the aid of the states.  I mean, the one thing you can do, the fastest thing to do in terms of economic stimulus is to avoid cuts. 

You know, we are having anti-stimulus taking place at the state level.  We‘ve got the state of California calling a halt to all construction projects because of the money situation.  That‘s crazy, from a national point of view, for that to be happening right now. 

So what we really need is aid from the Federal Government.  We need the Federal Government to pick up more of the tab for Medicaid, for unemployment insurance.  We need the Federal Government to be taking on some of the costs of these infrastructure projects that are already underway or already about to start, but which the states are now too cash-strapped to do.  So it‘s - you know, the state is the first place to look for something.  You can stop bad stuff from happening, which is always quicker than starting good stuff.

MADDOW:  Paul Krugman, Nobel Prize-winning economist, “New York Times” columnist, it‘s always nice to have you on the show.  Thanks for joining us. 

KRUGMAN:  Thanks. 

MADDOW:  Next, the White House pardons someone who broke the law which I then got very complicated and confused about, because after they pardoned somebody, they tried to un-pardon them.  They tried to take the pardon back.  I don‘t think they can actually do that.  “Lame Duck Watch” is next.  

(COMMERCIAL BREAK)

MADDOW:  Last Tuesday, on Christmas Eve, President Bush issued 19 pardons - 19 proverbial get-out-of-jail free cards.  Then last Wednesday, which was actual Christmas Eve, Bush took one of them back.  He took back a presidential pardon the day after he issued it.  Can you do that? 

It turns out, you maybe can.  Nobody‘s ever tried to take one back before.  Also it turns out that President Bush trying to take back this guy‘s pardon is one of the least weird things about this story. 

It is time for a special “Pardon Me Edition” of the RACHEL MADDOW SHOW‘s “Lame Duck Watch,” because somebody‘s got to do it. 

In 2003, Brooklyn real estate developer Isaac Toussie was convicted of mail fraud and making false statements to a federal agency.  The charge was that he intentionally misstated the financial situation of low income, mostly minority home buyers so they could get federally subsidized mortgages to buy lousy houses that he built. 

And he illegally inflated the value of land that his family sold to New York towns and counties.  In other words, he was convicted of being a real estate scam artist and a mortgage predator which makes it sort of gross that the president decided to pardon him in the midst of a massive financial implosion caused in part by seediness and predation and greed in the mortgage business. 

So that‘s the first suspect thing about this story.  This is a weird time to be publicly, presidentially letting people off the hook for ripping off their country and their fellow citizens as a mortgage crook. 

The second suspect thing about this story?  Political donations.  Mr. Toussie‘s His father, Robert, seen here with the man who pardoned his son, felt moved this year to start donating tens of thousands of dollars to the Republican Party and to lots of Republicans running for office. 

The White House says it does not consider political donations when considering pardon requests.  But there is that whole appearance of impropriety thing. 

You want more appearance of impropriety?  The third suspect thing about this story is the timing.  The Department of Justice is supposed to advise the president on who qualifies for pardons.  DOJ guidelines for pardons say you can only apply for one five years after your conviction or five years after your release from prison. 

Pay no attention to Scooter Libby, of course.  People who follow by the rules are supposed to wait five years.  But never mind Scooter. 

Anyway, Mr. Toussie, like Scooter, didn‘t wait five years, either, but he still got his pardon.  Why was he such a special case here?  And that brings us to suspect thing number four, which is that the Department of Justice never considered Isaac Toussie‘s pardon application.  It didn‘t go through the Department of Justice.  It just got sent directly to the White House. 

Toussie took his case right to the West Wing by hiring a former lawyer from the White House Counsel‘s Office, Bradford Berenson who had personal access to the president‘s most senior advisors.  Mr. Berenson brought the case to the Office of White House Counsel, Fred Fielding, who reviewed the application and advised the president to accept it, which he did, before reversing it the next day, and thereby shining a huge spotlight on this massively bizarrely bungled pardon situation, which he may or may not be constitutionally allowed to undo. 

Joining us now is Paul Rothstein who is a Constitutional Law professor at Georgetown University Law School.  Professor Rothstein, many thanks for your time tonight. 

PAUL ROTHSTEIN, CONSTITUTIONAL LAW PROFESSOR, GEORGETOWN UNIVERSITY

LAW SCHOOL:  Thank you, Rachel.  Thanks for having me.

MADDOW:  Has any other president ever undone a pardon before? 

ROTHSTEIN:  Well, they may have retracted it before they announced it

you know, changed their mind.  But what‘s really unusual here is that it was announced as a pardon and then there was a retraction.  That is very unusual.  It makes the president look like he doesn‘t know what he‘s doing. 

And the explanations that were given for this by Dana Perino and others from the administration was that, well, the president didn‘t know anything about the nature of his crime and he didn‘t know that the father had been a contributor and when he found that out, he withdrew the pardon. 

Well, that raises the question.  If he didn‘t know anything about the nature of the crime and there wasn‘t a political contribution motivation, what was the motivation?  What was the reason for granting a pardon?  It just seems very fishy and sort of incompetent to me. 

MADDOW:  And what‘s going on in the White House that the president is making decisions about these things without having been through some sort - them having been through some sort of process where he would be informed about those various factors? 

I mean, I know that the rules about pardons are just rules.  They‘re not necessarily laws.  But it has to be unorthodox, at least, for the White House counsel to have taken up this case without putting it through the Justice Department, isn‘t it? 

ROTHSTEIN:  Well, in recent years, that‘s been happening more.  I don‘t like that.  I don‘t think that‘s a good idea.  But the president‘s power that he‘s been granted by the Constitution - all presidents have it - is the closest thing to absolute dictatorial, monarchical power you have.  He doesn‘t have to have any rules.  He doesn‘t have to obey any rules.  He doesn‘t have to give any reasons.  He can do whatever he wants.  It‘s a truly an amazing power for the modern world. 

But it would be much better to have this thing fully vetted through the Justice Department before it‘s done.  It‘s just incredible.  I know other presidents have gone this route of directly granting it from the White House without the Justice Department. 

And other presidents have granted some very questionable pardons.  President Clinton did with Marc Rich.  But I think we need to regularize this process.  Even though the president can‘t be controlled by Congress in this, presidents ought to pledge to have some kind of regular procedure. 

MADDOW:  There is this thorny issue, though, of trying to un-pardon someone.  He may have monarchical power to be able to issue the pardon.  Once it is issued, though, there‘s no reason to believe he has monarchical power to un-pardon someone.  Does Mr. Toussie actually know whether he‘s been pardoned at this point?  Is it a settled constitutional issue? 

ROTHSTEIN:  It‘s not absolutely settled, but what seems to have been done here was that before the pardon was executed, there are some formal papers that have to be executed.  This pardon was withdrawn.  I would venture to say, knowing the way the law works, that you can change your mind before any document, any executive act is fully executed. 

But what is really remarkable - and I don‘t know of ever having seen this before or any historical precedent for it - is to actually announce the pardon and then withdraw it even though it hasn‘t been executed yet.  So that does present a little bit of a constitutional dilemma. 

MADDOW:  Paul Rothstein, Constitutional Law professor at Georgetown Law.  This is such a fascinating, weird case.  Thank you for coming on this show tonight to help explain it. 

ROTHSTEIN:  Thanks very much, Rachel.

MADDOW:  Coming up on “COUNTDOWN,” Keith Olbermann takes a look at this year‘s amazing election on “Countdown to November 4th.” 

Next on this show, I get just enough pop culture from my friend, Kent Jones.  Apparently, you can shoot the moon in professional football. 

(COMMERCIAL BREAK)

MADDOW:  Now, it‘s time for “Just Enough” with my friend Kent Jones. 

Hi, Kent.  What have you got? 

KENT JONES, POP CULTURIST:  Good evening, Rachel.  In Gallup‘s annual poll of the most admired people, President-elect Barack Obama was chosen as the most admired man in America, getting 32 percent.  President George W.  Bush, five percent.  John McCain, three percent.  This is the very first time a president-elect has topped the list since Eisenhower back in 1952.  But we‘re still a center-right country, Rachel. 

Meanwhile, over in Russia, the state television channel asked comrades to name the most popular Russian historical figure.  Coming in third on the list two lesser-known leaders in the west was Josef Stalin. 

MADDOW:  What?

JONES:  Famine, executions, gulags - that Josef Stalin.  And 50 million Russians just voted him third. 

MADDOW:  Wow.

JONES:  Lesson, legacy-polishing works, people.  Fight it, fight it, fight it, fight it.  Laura, Condi, right here.  Watching you. 

JONES:  Next, an unbelievable day in the National Football League yesterday - incredible.  The Detroit Lions went zero for 16 losing yesterday.  They are the first team in history to lose all 16 games in the season.  As a result, Lions coach Rod Marinelli, also Eric Mangini of the Jets and Romeo Crennel of the Browns were all fired today. 

Also, the Miami Dolphins made the playoffs, finishing 11 and five.  They were one and 15 last year.  What? 

New England won yesterday going 11 and five without Tom Brady, and yet no playoffs.  The first 11-win team to miss the postseason since 1985.  Huh? 

MADDOW:  Yes.

JONES:  Philadelphia stomped on Dallas 44 to six and kept them out of the playoffs, this when lots of preseason pundits picked Dallas to win it all. 

Also, Atlanta finished 11 and five and are headed to the playoffs after losing Mike Vick.  And the chargers won the AFC west despite only having a record of eight and eight.  So unprecedented failure, mediocrity rewarded, people losing their jobs and no one has any idea what‘s going to happen next.  Sports page, front page.  Front page, sports page.  Rachel.

MADDOW:  Thank you, Kent. 

Thank you for watching tonight.  We‘ll see you here tomorrow night.  “COUNTDOWN” with Keith Olbermann starts right now.  Good night. 

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