updated 10/21/2011 11:01:25 AM ET 2011-10-21T15:01:25

Guest: Paul Krugman


RACHEL MADDOW, HOST: Good evening, Lawrence. Thanks.

And thanks to you at home for staying with us for this next hour.

This is how Secretary of State Hillary Clinton found out that Moammar
Gadhafi might be captured or dead or captured then dead. At the time
earlier today, it was unclear which.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, U.S. SECRETARY OF STATE: Wow. Huh!

UNIDENTIFIED MALE: Unconfirmed.

CLINTON: Unconfirmed, yes. No.

Unconfirmed reports about Gadhafi being captured. Unconfirmed. Yes.
We`ve had too many -- we`ve had bunch of those before. We`ve had, you
know, had him captured a couple of times.

(END VIDEO CLIP)

MADDOW: That very, very, very pregnant woman you saw handing
Secretary Clinton her BlackBerry there in that footage, that`s Huma Abedin,
famous for being one of the secretaries senior aides for a long time now
and also famous incidentally for being married to Congressman Anthony
Weiner. I know, like a weird detail. But it was a small snapshot, a
strange set of detail we got thereabout how the news of Moammar Gadhafi`s
capture or death spread around the world, even at the highest levels of
government.

And once the news was confirmed that Gadhafi was not just captured but
in fact dead, it immediately came clear that there would never be an
Isratine. Remember Isratine?

Isratine was Gadhafi`s personal solution to decade-long Israel-
Palestine issue rather than negotiating a two-state solution, an Israel and
a Palestine, Gadhafi`s big innovation was that he would combine them, he
would combine Israel and Palestine into a new thing that Gadhafi said
should be called Isratine.

Gadhafi also once decided he did not like the names of the months. So
he took a look at the calendar and renamed a couple of the months. August
became Hannibal, named after his son, Hinabal, I guess. July renamed
Nassar, in honor of Egypt`s second president.

Gadhafi delivered the Isratine speech at the United Nations in New
York back in 2009. That was the very first and the only time Gadhafi ever
visited the United States. In that speech, he spoke at great length, 90
minutes. He did the whole Isratine thing. He pretended to rip up the U.N.
charter.

Gadhafi also made a lot of New York area local news on that 2009 trip
because he has said he wanted it stay in a tent instead in a hotel to room.
He wanted to pitch that tent in Central Park in New York City. He was
frankly interested in doing that, but New York was not interested in having
him -- thank you very much.

So the colonel ended up pitching his sleeping tent on some property
north of the city. Some property incidentally that was owned by Donald
Trump.

The process that resulted in Gadhafi finally being allowed to come to
New York and pitch both the idea of Isratine and a tent at Trump`s place,
that process started right after 9/11. Gadhafi was one of the first Arab
leaders to denounce the 9/11 attacks. He shared intelligence with the U.S.
about al Qaeda and then he made an agreement with the Bush administration
to give up his weapons of mass destruction program.

In return, what U.S. trade for all that was bringing Gadhafi
essentially in from the cold. We pretended like Gadhafi wasn`t a murderous
rogue dictator and narcissistic freak show, in exchange of a sort of
alliance, a pretend relationship, a facade of an effort to treat Libya like
a normal country with a normal president.

But Libya, under Moammar Gadhafi, was not a normal country and he was
not a normal president. Libya under Gadhafi had blown up a Pan Am 747 over
the town of Lockerbie, Scotland, in 1988. All 249 people on board were
killed. Eleven people on the ground were killed by falling debris.

Libya under Gadhafi also blew up a French passenger jet over Niger in
1989. Another 170 people killed there.

He was behind the hijacking of Achille Lauro, an Italian cruise ship.

And in 1984, officials in the Libyan embassy in London or at least
somebody inside the Libyan embassy in London fired at protesters, shot at
protesters and killed a police officer.

Gadhafi is also reported to have had forces storm a prison near
Tripoli and massacre more than a thousand prisoners there.

But then the American relationship with Gadhafi went from us bombing
Libya in 1986 because he was that kind of country and that kind of tyrant,
it went from us bombing them in 1986 to this kind of thing -- an official
visit by a delegation of American senators led by Arizona Republican John
McCain who even tweeted about this trip, tweeted about staying up all night
with the colonel and what an interesting man Gadhafi was.

Today, in response to the news of Gadhafi`s death in Libya, Senator
McCain said, quote, "I think it`s a great day."

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: I think it`s a great day. I think the
administration deserves great credit. Obviously, I had different ideas op
tactical side. But this is -- the world is a better place and the Libyan
people now have a chance. But this is just the beginning.

(END VIDEO CLIP)

MADDOW: The ambassador of the United States from post-Gadhafi
government in Libya was asked for his response to Gadhafi`s death. He said
this.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Thank you very much, America. Thank you. You
took the right decision.

(END VIDEO CLIP)

MADDOW: Thank you very much, America. You took the right decision.

In February, against the backdrop of the popular uprisings all over
the Arab world, the Arab spring, right, the ouster of the longstanding
dictator in Tunisia, the fall in just a matter of days of seemingly
permanent dictator Hosni Mubarak in Egypt, the people of the one country
that borders of both of those other places are the people of Libya took to
the streets against their own seemingly permanent, seemingly omnipotent
dictator.

In response, Gadhafi called his own people rats, and cockroaches, drug
addict and terrorists. He promised he would crush them.

Whether or not the rebels had the option was clear from the outset in
Libya that there was never going to be peaceful demonstration, sit-in type
protest movement to try to get rid of Gadhafi, it was pretty clear from the
very beginning that it was going to be an armed conflict. It was always
going to be a military conflict.

And although there were high level defections of Libyan officials
early on, Gadhafi turned the might of the military, including the militias
run by his sons, against his people, against the rebels who were rising up
against him.

Early on, the rebels did not have the skills or the training to fight
very well, no matter how hard they wanted to fight, no matter how much they
were willing to sacrifice.

(BEGIN VIDEO CLIP)

RICHARD ENGEL, NBC NEWS (voice-over): Another rebel showed me he
isn`t actually armed at all.

(on camera): It`s a toy gun. This is amazing. He just handed me his
gun. I didn`t realize until he put in my hand. It`s actually just made of
plastic. It`s a toy.

(voice-over): The rebels have no communications, no commanders. But
they do have weapons. Artillery, mortars, even surface-to-surface rockets,
but no idea how to use them.

(END VIDEO CLIP)

MADDOW: Faced with the likely and promised prospect that Gadhafi`s
military would destroy the rebel-held city of Benghazi in Libya, the United
States agreed to take part in but not lead a military mission to
essentially take the rebel`s side. The United Nations authorized to
protect Libya`s civilians, which meant, of course, protecting civilians
from Gadhafi. Although President Obama pledged repeatedly that the U.S.
would not lead that military effort, that the United States would just be
one player in an ensemble effort, in fact, the U.S. was in the lead,
especially in the first weeks of the operation.

We spend more on our military than all other countries in the world
combined. And we have been at war constantly for the last 10 years. We
have military and technological capacity that other countries do not have.

So, when it comes to drones and command and control and some
intelligence and targeting and surveillance, the United States was in the
lead. But over time, compared with other NATO countries, the proportion of
Americans, say, air sorties, the proportion of U.S. responsibility in that
NATO military effort declined. And no U.S. combat troops were ever
deployed in Libya.

By August, Gadhafi has fled his home in Tripoli, in Libya`s capital
city. And the rebels gleefully overran his compound in Tripoli. Since
then, since taking Tripoli, the rebels consolidated their gains. They took
control of basically every city and every region in Libya, except for
Gadhafi`s hometown of Sirte.

Well, today, Sirte fell to the rebels. And reportedly while fleeing
Sirte, Moammar Gadhafi was killed.

Now, I want to show some of what we know happened today. Fair warning
here, some of these images are a little bit graphic. We will not show them
for very long.

These images show Gadhafi apparently wounded, maybe still alive. But
captured in the back of some vehicle. You can see Gadhafi raising his arm
here. See? As he is being pushed around. The people around him taking
pictures with him.

You can hear gunfire, presumably celebratory gunfire, although we
don`t know, in the background. Other footage, obviously chaotic, shows
what appears to be Gadhafi`s dead body on the ground.

After a lot of conflicting reports of exactly how he died, there now
is no ambiguity about the final results. Moammar Gadhafi is now dead.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: When Gadhafi and his
forces started going city to city, down by town to brutalize men, women and
children, the world refused to stand idly by. Faced with the potential of
mass atrocities, and a call for help from the Libyan people, the United
States and our friends and allies stopped Gadhafi`s forces in their tracks.

Without putting a single U.S. servicemember on the ground, we achieved
our objectives. And our NATO mission will soon come to an end.

Working in Libya with friends and allies, we have demonstrated what
collective action can achieve in the 21st century.

(END VIDEO CLIP)

MADDOW: What collective action can achieve. Collective action for
problems for which the world takes collective responsibility --
responsibility to protect civilians. If there is an instance in which the
world agrees, the civilized world agrees, the organized civilized world
agrees, that something needs to be done that requires force -- the United
States will take part as part of collective action.

The president today not only reflecting on the death of Gadhafi, but
using the Libya example to explain American foreign policy now, to explain
American use of force, in a world in which we are the biggest and most
capable military in the world, but in a world where we have questions about
how frequently and where we should use that military might.

We will act when there is a problem in the world that requires force
to address it. The U.S. will be involved. We will help organize. We will
even lead when necessary. But we will act collectively. We will act with
others.

Vice President Biden put it more bluntly and more simply when he said
this today about Libya.

(BEGIN VIDEO CLIP)

JOSEPH BIDEN, VICE PRESIDENT OF THE UNITED STATES: As an example of
how the world is beginning to work together.

(END VIDEO CLIP)

MADDOW: Joining us now is NBC News chief foreign correspondent,
Richard Engel, who is in Libya when the rebellion began and was there to
see Tripoli fall in August.

Richard, thanks for joining us tonight.

ENGEL: Well, thank you very much. And I was here in New York when I
got the call early this morning that there were these reports that Gadhafi
was captured. And I think I`ve been in this building ever since.

MADDOW: We sort of knew this day might be coming. It seemed like the
fall of Gadhafi became inevitable at some point during this uprising.

A year ago today, could you have foreseen a populist, popular uprising
in Libya toppling him?

ENGEL: Absolutely not. Gadhafi was strong. After the Iraq war, when
he decided to give up his weapons program, he was emerging as an
international figure again. He`d come in from the cold. He was making
better relations with the United States. Better relations with Europe.

Gadhafi`s position a year ago looked pretty strong.

MADDOW: Let me ask you if you think this is over now. Do you expect
there could be more violence, that there could be left over elements of the
Gadhafi regime or from anyone else who might mount a sort of insurgency
against the new government in Libya?

ENGEL: Well, the war is over. And the war against Gadhafi and his
regime ended today. There could be some elements who decided to set off a
car bomb in Tripoli or Benghazi. That`s possible. You don`t need very
many people to carry out a couple of terrorist attacks or open fire some
place.

But a war that involves rebel columns moving to advance, to drive back
cities and take over cities. No, I think that phase is over.

MADDOW: What do you know? What do you expect about what this new
government will be like toward its own population, but also
internationally, toward potentially extremist groups and toward the United
States?

ENGEL: Well, it will be a religious government. The people are Libya
are quite religious. It is no doubt that every time you hear the rebels
say something, they say, Allahu Akbar.

So, there will be definitely more Islamic character going forward in
the Libyan state. And that`s going to be the same case in Tunisia. There
are elections coming up in Tunisia and it looks like Islamic parties are
going to win, probably the same situation in Egypt.

But it will also be in Libya, I expect, a very pro-American
government. Right now, this rebel movement is the most pro-American
movement in the entire Middle East. When I was there, journalist, American
journalist, Americans, or anyone from NATO country, could basically do no
wrong.

We -- I don`t remember paying for a single coffee when I was in Libya.
You know, you`d go and you try and pay and somebody would come up and take
your bill for you.

So, it is a country that definitely appreciates the support that it
got from the West, from America in particular, from France especially, and
we`ll try and engage them in their foreign policy.

MADDOW: Libya, of course, and we`ve talked about this before, Richard
-- Libya is just crawling with weaponry. Gadhafi stockpiled weapons beyond
any reasonable military need whatsoever. The country is stuffed with RPGs,
assault rifles, land mines, these surface-to-air missiles, shoulder-fired
missiles.

What do you expect is going to happen there? Does Libya just become
the world`s arms bazaar for a while? Or can there be some sort of effort
to secure all of that?

ENGEL: Well, they need to start securing that right now. And there
are some efforts under way and luckily there are two cooperative countries
on the borders. There are, you know, we have Tunisia and Egypt, both of
which don`t want to see massive amounts of illicit arms trafficking
through.

The problem is you have Algeria and Nigeria and Sudan, all along the
southern border, which basically don`t control borders or don`t care if
weapons come through. And I know people in the military and intelligence
communities are deeply concerned that groups like al Qaeda in North Africa
are getting already some of the weapons that have gone missing in Libya.

So that is probably the biggest problem that the region will face is
that Gadhafi just bought so many weapons. New weapons, from Italy, from
the U.K. And people don`t know where these weapons are going.

MADDOW: NBC News chief foreign correspondent Richard Engel, who`s job
on a day like this is to explain how important this all is to Americans. I
know have you been doing this all day, Richard, but it`s been really,
really helpful.

ENGEL: Can I throw one thing in? A little factoid. I think you`ll
like it.

MADDOW: Of course.

ENGEL: You talked about Iraq and you talked about how Gadhafi wanted
to come in from out of the cold. Well, the reason he decided to reengage
the United States was when he saw Saddam Hussein in that hole being pulled
out by the Americans. That was his epiphany moment when he decided, you
know what, I better get rid of my weapons, I better get rid of this
Lockerbie situation and he reengaged the West.

Yet, today, he was pulled out after drainage pipe by rebels who then
smacked him around, pulled his hair then ultimately put a bullet in his
forehead.

MADDOW: NBC chief foreign correspondent Richard Engel -- Richard,
thank you. Appreciate it, my friend.

Some of you may remember, there is a little used space on THE RACHLE
MADDOW SHOW. It is THE RACHEL MADDOW SHOW man cave. I know, awesome.

It is the place reserved for conversations just with the fellas.
Conversations with the fellas that are about the ladies, and how the ladies
work.

Mitt Romney, I`m officially inviting you to THE RACHEL MADDOW SHOW man
cave. As of today`s news about you, it is clear that there are gaps in
your knowledge about basic lady physiology. Come on over. I have an Xbox.
Come on.

That`s next.

(COMMERCIAL BREAK)

MADDOW: Mitt Romney has only taken four questions from his traveling
press pool this month. So maybe he is getting a little soft. I say that
because today in Sioux City, Iowa, a woman attending a Mitt Romney town
hall asked him a question about one of his own positions that seems to have
stumped Governor Romney.

It`s sort of weird that he did not have an answer prepared for this.
I`m personally sure that his campaign knows this question is out there,
even just because this show has been e-mailing his campaign trying to get
an answer on this issue for sometime now. And I know that other news
organizations have been asking him too. Other news organizations have
written that they have asked for comment on this issue, too. So they know
there are questions about this.

But Mitt Romney seems to have no idea.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: You are on Governor Huckabee`s show a few weeks
ago. And one of the things that you folks talked about, was that you
support a life begins at conception amendment. Now, that would essentially
mean that banning most forms of birth control. Ninety-eight percent of
American women, including me, use birth control. So, can you help me
understand why you oppose the use of birth control?

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: I don`t. I`m sorry. Life
begins at conception. Birth control prevents conception.

(END VIDEO CLIP)

MADDOW: Mr. Romney went on to explain he is anti-abortion and he
wants Roe versus Wade overturned so that individual states can outlaw
abortion if they want to. But this voter in Iowa was not asking about Roe
versus Wade. She was asking about this.

(BEGIN VIDEO CLIP)

MIKE HUCKABEE, FOX NEWS: Would you have supported the constitutional
amendment that would have established the definition life at conception?

ROMNEY: Absolutely.

(END VIDEO CLIP)

MADDOW: Absolutely. The life begins at conception amendment, these
personhood amendments that Mitt Romney and Mike Huckabee now say they
support, these amendments do not just ban abortion. I mean, they do ban
abortion. They ban abortion outright.

But in addition to that, if any fertilized egg is considered a person,
a miscarriage would be cause for criminal investigation as a potential
murder. And as that Sioux City voter asked about, a law like this could
also outlaw some forms of birth control.

People facing the prospect of one of these amendments understand that
it could potentially ban birth control. These images from the rally to
save the pill in Oxford, Mississippi, this week.

Mitt Romney apparently does not understand that this is what he says
he supports, absolutely -- a birth control ban. That is what these
personhood amendments are designed to do. There`s one on the ballot in
Mississippi. That`s what it is designed to do.

But whether or not Mitt Romney understands his own position, thanks to
this awesome hero after voter in Sioux City, Iowa, today, Mitt Romney at
least can no longer avoid the question.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I don`t know if you want to have some staff look
into this, but hormonal forms of birth control work a little differently
and so they actually prevent implantation, not conception. So it would ban
hormonal forms of birth control, which is what most women use. So, I don`t
know if you want to look into that.

But as someone who uses birth control, this is a terrifying prospect
to me. So, I hope that you can, you know, you look into that, I guess.
So, thank you.

ROMNEY: Thank you. Appreciate that.

(END VIDEO CLIP)

MADDOW: Appreciate that.

Mitt Romney may appreciate that but I don`t think he understands that.
The woman trying to explain to Mitt Romney that his position does mean that
birth control could be outlawed.

Seeing that happen today, in Iowa and seeing that Mitt Romney just
move on and not address what she said about birth control is one of those
moments -- I watched this thing three or four times today. And it just
keep -- what is this -- you know what it is getting at for me? Because one
of those moments in American politics and you look around and you realize,
you know what? Politics is mostly guys. And the media is really mostly
guys. And the way we talk about politics is mostly guys.

And sometimes guy in politics nevertheless talk about uteruses and
sometimes I`m not sure they really get it. So, we have done this one time
on the show before. We got tons of criticism for it. But I think it is
warranted.

Ladies, women who are watching this show, you can take a powder. You
guys can leave for a second. We`re going back to the man cave set. Do we
got the man cave?

All right. I`m just going talk to the fellas here for a second. This
is our virtual man cave set.

Actually, do we have the special -- didn`t would he w dough a special
Mitt Romney edition to make Mitt Romney feel more at home here? Do we have
that?

Oh, yes, Harvard, see? Harvard. Salt Lake City Olympics. Do we have
that one? Oh, yes, there we go. All right. Oh, oh, and a beer. And so
everybody is OK it is near beer. All right, fellas.

This is just for the guys now. It is very simple. This is how a baby
is made. Here is the basic idea. Egg gets produced in the ovary, which
then starts moving on up thanks to your old pal, the fallopian tubes, all
right?

If that egg happens to meet up with sperm, that`s where you guys come
in. If that egg happens to meet up with sperm and the egg gets fertilized,
it heads on into the uterus and attaches itself to the wall in there. If
all this goes well, it emerges about nine months later as a lovely baby --
or in my case, as an angry red screaming thing look that looked like a
(INAUDIBLE) about 14 months old and had black hair that stood out like
this.

Now, here`s the really difficult part -- second beer for this one.
Here`s the really difficult part. Sometimes, people like to engage in acts
that result in sperm getting near these parts and the eggs and everything.
Even though the people involved in those activities would not like to
result in pregnancy.

I know this is a very, very upsetting concept. But we are talking the
vast majority of straight ladies who at some point in their lives want to
do the kind of thing that means you may encounter sperm in these there
relevant parts but despite the fact that sperm is going to be around, they
do not want to get pregnant. It happens. People feel that way.

The most commonly used contraceptive methods in this country, so you
can have sex without getting pregnant, the most commonly used contraceptive
methods in this country, particularly for younger women were be hormone
based contraceptives.

OK, fellas, how am I doing? Put my hand up if you are lost at this
point. I know this can be upsetting. It can be too much.

Here, watch this.

(VIDEO CLIP PLAYS)

MADDOW: OK. Excellent, right? Come on. Yeah, all right. One more?
Can we have one more picture? Yes. Vince Wilfork, 330 pounds running the
ball down the field after getting an amazing interception against San
Diego. I know, right?

OK, hormonal birth control. The way most hormonal birth control works
is that it causes changes in a woman`s body so that even if there is sperm
in the right neighborhood, a pregnancy does not result. This kind of birth
control works in a few different ways actually. Up in this part, up here
up north, it works to stop ovulation to stop the production of eggs.

But that is not the only thing it does. It also changes this other
part here to stop sperm from getting to the very important part of the lady
parts where that egg just might be.

It also changes this part, so that if somehow an egg is produced and
if somehow a sperm still does get to that egg, that fertilized egg will not
implant in this part of the body and start to grow into an embryo.

This is how the birth control pill works. It`s how the IUD works.
It`s how the morning-after pill works. This is how that ring thing your
girlfriend told you about that you didn`t totally understand, this is how
that works.

This is how birth control used by the vast majority of American women
works. This is how hormonal birth control works.

This is how birth control works that Mitt Romney told Mike Huckabee he
would like to make illegal when he supports a life begins at conception
constitutional amendment. And that`s why people are making signs like
these in Mississippi.

If that sperm and that egg happened to get in that specific
neighborhood together and that egg becomes fertilized and that`s a person,
then anything that keeps that fertilized egg from being implanted could be
illegal. So, the pill, illegal. IUD, illegal. That ring thing, illegal.
Hormonal birth control, illegal. At least if Mitt Romney gets his way.
And state constitutions are amended to get the government involved in
litigating the secretary second by second legal status of what is happening
in somebody girlfriend`s uterus on Friday night.

So, OK, out of the man cave. But I`m keeping the beer.

Ladies, you can you come on back. I know is awkward to talk about
these things sometimes. Do you believe that this is getting talked about
on cable news at 9:00 on Thursday? I know, right.

But this is what man caves are for. We have to do this even though
it`s awkward. Criticize away.

Right now, Mitt Romney`s stated position is that he would absolutely
support a constitutional amendment to bake birth control illegal. When
confronted with that position today, he said he does not want to make birth
control illegal.

This woman in Sioux City Iowa called him on it. She called him on it
in a purely, factually correct way. And she did notice, by the way, that
he never answered the question.

(BEGIN VIDEO CLIP)

REPORTER: Were you satisfied to your question on birth control
rights?

UNIDENTIFIED FEMALE: Well, I mean, the question wasn`t on abortion
rights, it was on birth control. I think is troubling that someone running
for president doesn`t understand how birth control works. I think that`s
part of the problem.

You know, they are campaigning on these extreme bills that would say
life begins at conception and not contemplating the consequences.

(END VIDEO CLIP)

MADDOW: Iowa town hall hero. Even if Mitt Romney does not understand
he wants to ban birth control, that woman in Iowa understands that that is
Mitt Romney`s position. Mitt Romney does not seem to be taking questions
from news organizations on this topic. Ever since he told Mike Huckabee he
absolutely would favor a constitutional amendment to ban birth control. He
doesn`t seem to be taking questions from news organizations on this.

But you know what? Mitt Romney does have to take questions from
voters. So ,tonight at our Web site you will be able to find and print
your own copy of THE RACHEL MADDOW SHOW man cave not too upsetting guide to
the down-there parts.

You can you print it out. You can keep it in your pocket. In case
you run into Mitt Romney somewhere, maybe can you point out the relevant
parts to him and get him to understand.

(COMMERCIAL BREAK)

MADDOW: Here is some uncomfortable news. The billionaire Koch
brothers have decided to go after a producer on this show by name -- a
producer who neither printed, nor uttered a single inaccuracy about the
Koch brothers. People as big financially as the Koch brothers can`t really
pick on someone their own size because nobody is their own size. But
picking on my staff, singling them out by name, that I have a response for
-- a loud one. That`s coming up.

(COMMERCIAL BREAK)

MADDOW: Here was the headline on MSNBC at 12:35 Eastern Time this
afternoon: Gadhafi body now in Misrata.

Here was the headline on CNN at the exact same time: Moammar Gadhafi
is dead.

Here is the headline on FOX News that exact same time: Rick Perry
backs flat tax. Hey, look, there`s Steve Forbes.

This tripartite screen shot was posted at "Daily Kos" today.

In Republicanland, Gadhafi shmadafi. This flat tax thing, this is the
big news. This guy that was supposed to be the front-runner but isn`t, has
decided to take a page out of the playbook of the guy who wasn`t supposed
to be the Republican front-runner but now is.

He`s using on the popularity of Herman Cain`s 9-9-9 plan, Perry now
announced that he, too, wants a piece of that sweet, sweet, simplified tax
plan action.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R-TX), PRESIDENTIAL CANDIDATE: The long-term growth
strategy requires a fundamental reform of our tax code. It starts with
scraping, excuse me, you might want to scrape it too -- but scrapping the 3
million words of the current tax code, starting over with something
simpler. A flat tax.

(END VIDEO CLIP)

MADDOW: A flat tax. Rick Perry will apparently announce the details
of his flat tax next week during a speech in South Carolina.

Rick Perry was supposed to be in first place by now, wasn`t he? He
was supposed to save the Republicans from Mitt Romney.

Rick Perry is the jobs governor, right? Rick Perry has never lost an
election if his life. Rick Perry is the Southern religious right guy with
all of the conservative bona fides and a ton of money. And yet, look at
where Rick Perry is now, polling in a state like Iowa. He is polling sixth
behind Newt Gingrich and Michele Bachmann.

Rick Perry`s appearance yesterday in Nevada did not seem to do him any
favors in that early caucus state. "McClatchy`s" report on that campaign
stop, quote, "There was little enthusiasm for Perry`s candidacy."

This is not to say that Rick Perry won`t have a resurgence in months
ahead, but if he is going to have a resurgence, it is going to need some
fuel. It doesn`t look like it`s going to happen on its own -- which brings
us to the flat tax, Rick Perry`s attempt to steal some of Herman Cain`s
mojo by offering his own 9-9-9 type tax plan. Mr. Cain`s plan has been
received well politically on the campaign trail.

But this week, it did finally get scored in terms of what it would do
economically. Jared Bernstein posted on his blog today a rally helpful
graph from the Tax Policy Center showing the impact of 9-9-9 on different
income groups.

Look at this. It`s kind of amazing. Under 9-9-9, the bottom 20
percent of Americans will see their taxes go up by about 1,800 bucks per
year up. Taxes on the second 20 percent would also go up by about $4,000 a
year. The middle 20 percent, that`s $4,300 tax hike, please.

Under this 9-9-9 version of the flat tax, the lowest income Americans
would see their taxes go up, all of them, right?

But the richest Americans on the other hand, look what happens for the
top 1 percent richest Americans. That would be a tax cut of $238,000.
Thank you, Herman Cain. And then there is the top 0.1 percent. Check out
what their tax cut would like under this plan.

We scroll down to see how far -- keep going. Still going. Still
going. Still going.

Keep going, going, going. Come on, scroll faster. Jeez. Yes.
That`s still their tax cut.

Oh, there we go. OK. Under this sort of flat tax, the top 0.1
percent of Americans would get a tax cut of $1.3 million. So, wow! Yes!.
Look, that`s how small you have to make it in order to get it to vaguely to
scale.

Rick Perry, are you sure you want to jump on the flat tax bandwagon
right now? Now that people are finally figuring out what that would
actually look like? Wow.

Nobel Prize-winning economist Paul Krugman joins us for the interview
tonight. And that is next.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

PERRY: Our long-term growth strategy, requires a fundamental reform
of our tax code. It starts with scraping -- excuse me, well you might want
to scrape it too. But scrapping the 3 million words of the current tax
code, starting over with something simpler, a flat tax.

(END VIDEO CLIP)

MADDOW: A flat tax. The flat tax is the new P90X. It`s like this
year`s red tie, white shirt, blue jacket for the Republican candidates.

The defining feature of the most expensive failed vanity Republican
presidential candidacy of 1996 -- hi, Steve Forbes -- it`s back. And these
guys think that it`s money this time.

Could the flat tax do for Rick Perry what 9-9-9 has done for Herman
Cain?

Joining us now for the interview is Nobel Prize-winning economist Paul
Krugman, who is a columnist for "The New York Times."

Mr. Krugman, thank you for your time tonight.

PAUL KRUGMAN, NEW YORK TIMES: Hi. Hi there.

MADDOW: Politically, everybody is poised for the inevitable Rick
Perry campaign come back. Next week in South Carolina, he is due to unveil
his plan for a flat tax. How would that work? What would you see the
impact of that being, given its popularity among the Republican candidates
right now?

KRUGMAN: Wow. I mean, I can`t predict what Republican base is going
to say. I mean, it`s -- the Cain plan looks like a total disaster from the
point of view of most Americans and that almost has to be true of anything
Perry proposes as well, right? A flat tax almost by definition will be a
big tax increase for the poor and middle class.

MADDOW: In terms of pulling ourselves out of the economic hole that
we`re in, stemming a second recession, as far as I understand it, we really
have a demand problem. We sort of desperately need to put some more demand
into the economy so businesses have a reason to hire people because they`ve
got people to sell to.

What would a flat tax achieve in that regard?

KRUGMAN: I mean, to a first approximation, nothing but to a second
approximation, it will make things worse. I mean, to the extent, it`s
going to matter at all, people are going to be hit by it who are going to
be made worse off are the people living closer to the edge and will
therefore cut spending. And the people benefiting are the people who have
plenty of money already and are now going to spend the extra windfall.

But, you know, the real question is why on earth are we talking about
this right now? We`ve got 14 million unemployed people. Tax policy is
something that if it`s going to have any impact at all, it`s going to be
long-term.

You know, even if you thought that this kind of tax reform was a good
idea, which you shouldn`t, this is not the time. We should be focusing on
the unemployment problem.

It says something about the GOP right now, that this is what they are
arguing about.

MADDOW: In terms of unemployment, you have been early and off then
persistent critic of President Obama on economic policy, on whether or not
he is focusing enough on bringing unemployment down. President Obama is
now barn storming the country with a pretty populist economic message.

Are you feeling encouraged at all, economically speaking, by what you
are seeing from the White House, or do you think it`s -- or do you think
it`s not enough?

KRUGMAN: Well, I mean, the new jobs plan is a funny thing. It`s a
lot better than I expected and it is greatly encouraged. It`s also vastly
inadequate to the problem.

So, on one hand you say, well, look, this is about a quarter of what
we really need. But on the other hand, at least it`s a quarter of what we
need, h is a lot closer certainly to anything the Republicans are saying
and closer to where we should be than where Obama was not long ago.

So, at least he`s got the right message new. Since it`s not going to
be enacted, the numbers in a way don`t matter that much.

MADDOW: In terms of the right message and basically having the right
conversation about the right problem, I know that you went down to "Occupy
Wall Street" protests tonight to see the demonstrations down there. Do you
feel like that has had any affect at moving the conversation at least to be
framed on the right problems, if not the right solutions?

KRUGMAN: Well, you know, conversation changed a lot in just the last
month or so. You and I are both people who track this a lot.

And just six weeks ago, it was all deficit, deficit, deficit -- which
is the wrong subject and no talk about jobs. All of a sudden we are
talking about jobs. Some of that is Obama. But I think a lot of it is
"Occupy Wall Street" stuff. And it`s amazing actually.

These are such a good-natured, mild-mannered group of demonstrators.
This was not the -- these were your neighbors basically down at Zuccotti.
But just because somebody finally stood up and said, hey, the real problems
are not the things you guys are talking about seems to have made a big
difference to the country.

MADDOW: Paul Krugman, Nobel Prize-winning economist, always a valued
guest on this show. We`ll talk to you whenever you`ll talk to us, Paul.
Thank you.

KRUGMAN: OK. Thanks a lot.

MADDOW: Thanks a lot.

All right. It turns out that the Koch brothers of all people are very
mad at me, mad at us as a show -- which is so weird and also sort of
awesome. My response to them is next.

(COMMERCIAL BREAK)

MADDOW: Koch industries, the Koch brothers are mad at us. Christmas
comes early.

Koch Industries is the second largest privately held corporation in
the country founded by -- let`s call him dad -- founded by Fred Koch in
1940. The company is still in the family. It makes chemical, runs
refineries, has its sketchy overseas subsidiary, do business with Iran even
though that`s supposed to be illegal for Americans.

Koch Industries is doing great. They`re doing great for the Koch
family. For the Koch brothers who inherited the company from dad, the Koch
brothers are richer than Warren Buffett now, a combined fortune of more
than $50 billion.

And as the brothers have become richer and richer and richer in the
past few years, they have also fired thousands of Koch Industries
employees. Now, remember, Koch Industries is private. Profits do not go
to people who buy stock in the company on the stock exchange or something.
The profits go to the brothers, to Charles and David.

And the brothers have done great recently. And as they have done
great, as they have done greater and greater and greater in the last few
years, they have been firing American workers by the thousands.

But now, they are mad at me, at this show, which is exciting for all
of us here, I will not life. The Koch brothers have always used their
enormous inherited fortune to dabble in politics. In 1980, David Koch ran
for president on the libertarian ticket.

(BEGIN VIDEO CLIP)

REPORTER: The party can afford to go it alone financially because its
vice presidential candidate, industrialist David Koch, is loaded. And
under campaign law, he can spend as much as he wants.

(END VIDEO CLIP)

MADDOW: When you are the richest man in New York City, say, when you
are one of the richest heir to an oil and chemical fortune in the world and
the law says you can spend without limits. Do you know things like this
for your campaign -- David Koch paid to mint dimes with his own face on
them. That`s him in the back as the vice presidential candidate.

David Koch minted dimes with his own head like he was Caesar. Koch
money, Koch bucks to promote him running for president in 1980. Since
then, David Koch and his brother have become Republicans. They fund
Republican candidates and they fund the big money Astroturf parts of the
Republican Tea Party movement.

All the Americans for Prosperity stuff in the Tea Party movement,
that`s Koch brothers and their Koch box.

But in the midst of all that Koch brothers conservative activism, the
brothers are still very busy. They still own dad`s giant oil and chemical
conglomerate, right? That`s graduation present ever. Keys to the kingdom,
operations in 60 countries give or take a republic or two.

Charles and David Koch are still running the empire that dad gave
them, only now, they are running it in ways that try to make not just money
but also political points.

And so, last week, Koch Industries posted this map of their job
openings in the U.S. to put your mind at ease -- 48 Koch jobs in Wisconsin,
one Koch job in North Dakota. And Nevada, Arizona, Utah, you don`t get any
Koch jobs. Sorry.

This is note they put one their map of job openings. It says, quote,
"For those concerned with jobs, Koch has some good news. It is looking to
fill 1,200 jobs across the country."

Now, to be fair, the Koch brother do think about jobs a lot. For
example, after Congress passed the first economic stimulus to create jobs
in 2009, the Koch funded Americans for Prosperity group ran ads attacking
Democrats who voted for it.

When the money from that stimulus started flowing to local governments
to create jobs, the Americans for Prosperity group demand that had local
governments reject that money. Now that we are facing a double-dip
recession and President Obama is calling on Congress to create jobs and
infrastructure and for cops and teacher and firefighters, the Koch
brothers` political arm is talking about the, quote, shadow of threats to
loom if the government creates jobs. If the government tries to stop
people being laid off to help the economy.

Backed by the Koch brothers, the Americans for Prosperity has been
driving around the company on a cut spending now tour. The message from
Koch on the face of the biggest jobs crisis since the Great Depression is:
don`t try to fix it.

If you`re worried about jobs, hey, come work for Koch. America
shouldn`t try to do anything to fix the economy or make jobs. If you`re
worried about jobs, we`re hiring a few people.

As we pointed out on you are blog last week, there are currently
almost 21,000 unemployed or underemployed Americans for every one of those
jobs listed on the Koch Industries Web site. Almost 21,000 people say for
that one Koch job in North Dakota. We pointed this out on our blog last
week.

Now, a couple of days ago, the P.R. department at Koch Industries
tweeted us a link. So we followed that link and up pops this angry Koch
industry message about THE RACHEL MADDOW SHOW. They write our point from
that blog post, quote, "appears to be that unless we offer enough job
openings to everyone that is unemployed, any number of openings is
objectionable."

That would be a strange argument if in fact it were the one that we
were making. To help with their argument which I think is that they`re
bigger than us, which we already knew, Koch also posted this animated map
so you can see how many job openings Koch Industries is advertising versus
how many MSNBC is advertising. And, obviously, Koch Industries has us
outnumbered by a factor of like infinity. MSNBC has not got even one job
in North Dakota and Koch Industries does have that one job there.

So touche, you got us.

You got us, multi-billion dollar corporation that laid off thousands
of workers while its corporate overlords grew even more enormously wealthy,
and then those same corporate overlords use their enormous resources to try
to keep Congress and the president from doing anything to create jobs.

If I had become billions and billions and billions richer while firing
thousands and thousands and thousands of Americans from their jobs, and
then I had decided to spend multimillion-dollar chunks of my fortune trying
to make sure that teachers and firefighters would get laid off and stay
laid off, if I was that kind of guy, if I was the kind of guy who minted
gold dimes with my own head on them, if I was the kind of guy who wanted to
take money out of my own pocket and see my own face looking back at me from
the money, if I was that kind of guy -- then maybe I would it was
reasonable to say: hey, if anybody is worried about unemployment, come work
for me. And otherwise, stay unemployed.

But even if I was the kind of guy who minted myself on to coins, even
if I was that kind of billionaire, I still cannot imagine using my multi-
billion dollar oil and chemical conglomerate to take shots, to take shots
by name, at a producer for this show who with 100 percent factual accuracy
simply reported what you did.

We got nothing wrong here. There`s no factual allegation that we got
anything wrong here. This was just a shot at me and specifically at a
member of my staff by name.

Charles Koch, David Koch, you are trying to intimidate the wrong
people. This kind of thing is as pitiful from billionaires as it is from
anyone.

So, I reiterate my many earlier invitations to you, guys. Come sit
for an interview. I would love you have to. Come sit for an interview and
let`s talk this out.

Rather than having daddy`s company attack my producers one by one by
name, feel free to man up any time. Your beef is with me. So, let`s do
this face to face right here any time. We would love to have you.

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

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