updated 5/21/2012 2:58:50 PM ET 2012-05-21T18:58:50

Guest Host: Ezra Klein
Guests: Melissa Harris-Perry, Paul Krugman, Tom Coburn


EZRA KLEIN, GUEST HOST: Good evening, Ed.

And thank to you at home for staying with us for the next hour.
Rachel has the night off.

So, in this election, everything old is new again. For example, they
claim that candidate Mitt Romney flew from Jacksonville to Palm Beach in
Florida yesterday. That wasn`t the only 2008 flashback this week.

(BEGIN VIDEO CLIP)

SEAN HANNITY, FOX NEWS: Now, I do believe the economy, jobs, national
security are by far the most pressing issue facing the country today. I
also feel that every candidate, though, needs to be fully vetted. That`s
something the mainstream media failed to do back in 2008 with Barack Obama.

(END VIDEO CLIP)

KLEIN: That is the conservative narrative about what went wrong the
last election, that Barack Obama was never properly vetted, that the media
never fully checked him out. The McCain campaign flopped numerous
opportunities to prove that he was distant from American values, radical in
his politics and worrying in his personal allegiances. That if the
American people only known the truth back in `08, they would have never
made the terrible decision to elect him as president -- which is perhaps
why so much of this news felt oh so very familiar.

(BEGIN VIDEO CLIPS)

REP. MIKE COFFMAN (R), COLORADO: I don`t know whether Barack Obama
was born in the United States or not. I don`t know. But I do know this,
that in his heart, he`s not an American. He`s just not an American.

(APPLAUSE)

SECRETARY OF STATE KEN BENNETT (R), ARIZONA: I believe that the
president was born in Hawaii. Or at least I hope he was. But my
responsibility as secretary of state is to make sure that the ballots in
Arizona are correct and that those people whose names are on the ballot
have met the qualifications for the office they are seeking.

ALEX JONES, INFOWARS.COM: There`s been big breaking news, ladies and
gentlemen. It`s on DrudgReport.com right now. It`s on Breitbart. Barack
Obama, the first African-American president of Harvard Law Review was born
in Kenya and raise Indonesia and Hawaii.

That`s actually what the research shows and this is from? It`s from a
book promotion put out by his literary agent that Barack Obama approved of.

(END VIDEO CLIPS)

KLEIN: In spite of a confession from the book agent that the error
was hers alone, the birth certificate the Obama administration released
last year, birtherism is alive and well. Also bubbling up from last
election cycle, Obama`s long severed connection with Pastor Jeremiah
Wright, an ad featuring that relationship getting pitched to his super PAC
billionaire guy, who reportedly saw an unaired McCain ad from `08 featuring
Jeremiah Wright and he exclaimed when he saw it, quote, "If the nation had
seen that ad, they never have elected Barack Obama."

And the reemergence of Reverend Wright in a recent book interview has
now spawned the reemergence of another 2008 conspiracy, that Obama is a
secret Muslim meme.

(BEGIN VIDEO CLIP)

ED KLEIN, AUTHOR: When I asked the Reverend Wright about this whole
question of Islam and Christianity, he said, well, you know, Barack Obama
was steeped in Islam. He knew a lot about Islam from his childhood. He
knew very little about Christianity. And I made it easy for him to feel
not guilty about learning about Christianity without turning his back on
his Islamic friends.

SEAN HANNITY, FOX NEWS: What does that mean?

KLEIN: Then I said to him, did you convert him from --

HANNITY: You did ask him that. I remember.

KLEIN: Yes. I said did you convert him?

KLEIN: He said it`s hard to tell.

(END VIDEO CLIP)

KLEIN: So Barack Obama, once again a secret Muslim born in Kenya,
heavily influenced by an anti-American pastor. It is all new again.

Now, to be clear: this is not what Mitt Romney wants his campaign to
be about. He`s way too smart for this. He does not want to hit redo on
the wackiest parts of 2008.

As "New York" magazine`s Jonathan Chait points out today, the Romney
campaign is firmly focused on making this election be about what is
happening now, making this about the economy. The last thing Romney wants
to be doing, which he had to do yesterday, is talk about things that
distract from that message. Things like Reverend Wright.

But you know what? That`s like 2008, too. This was the exact same
tension that John McCain had to deal with in `08, distancing himself from
the attack lines that the exact same conservatives for the most part wanted
to resurrect, like Reverend Wright.

(BEGIN VIDEO CLIP)

HANNITY: He`s been going to the church for 20 years. His pastor, the
church gave a lifetime achievement award to one of biggest racists and
anti-Semites in the country, Louis Farrakhan. Would you go to a church
where your pastor supported Louis Farrakhan?

SEN. JOHN MCCAIN (R), ARIZONA: Obviously, that would not be my
choice. I do know Senator Obama -- he does not share those views.

(END VIDEO CLIP)

KLEIN: Senator McCain paused for the long sigh. The McCain also had
to reject the nescient birther argument back in `08. And John McCain had
to defend his opponent in the he`s a secret Muslim line of attack.

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE: I can`t trust Obama. I`ve read about him and
he`s not -- he`s -- he`s an Arab. He`s not --

MCCAIN: No, ma`am.

UNIDENTIFIED FEMALE: No?

MCCAIN: No, ma`am. No, ma`am. He`s a -- he`s a decent, family man
citizen is that just have disagreements with on fundamental issue and
that`s what this campaign is all about. He`s not. Thank you.

(END VIDEO CLIP)

KLEIN: If I can go back to 2008, that was sort of tumbler of John
McCain looking pained while people threw conspiracy theory at him.

Anyway, Mitt Romney now finds himself not only in the same plane, but
actually in the same boat as his predecessor.

Joining us now is the host of "MELISSA HARRIS-PERRY" on MSNBC, Melissa
Harris-Perry.

MELISSA HARRIS-PERRY, MSNBC HOST: Funny how that works.

KLEIN: It is. Good to see you.

HARRIS-PERRY: Thank you.

KLEIN: Why is this coming back? What do -- what do folks feel the
actual upside is going to be? In `08, the idea was they didn`t have much
to attack him on, so they needed to find things. Here, he`s got a record.
He`s been president for a while.

HARRIS-PERRY: Yes. I think that`s part of what, if I wanted to tell
sort of the most reasonable story, a story that didn`t include my own
version of this sort of narrative of people being out to get you then my
story would just say, look, the fact is that the economy is getting better
in ways that point toward re-election. He`s moving down towards that 8
percent unemployment which he himself sort of set out and the Romney
campaign set out. He`s had significant foreign policy successes.

And so, when looking at the domestic and foreign policy successes of
this president, they figure better to kind of go on the attack of him being
scary and foreign.

But that is me being the most charitable that I can possibly be. In
fact, I suspect, it`s actually a little bit worse that that. That there`s
an assumption that the American people are still very swayed by the most
sort of base and crass emotional sort of racial attacks and attacks that
are about making the president seem as though he`s, as we heard, not an
American.

KLEIN: See? I actually wonder at times if it`s really so cynical.
It`s really so thought out. I mean, I think one of the challenges Mitt
Romney has in the election, or the Republicans have in the election, is
that there`s kind of conservative echo chamber and the vision they have of
president, whether you like him or dislike him, has become so divorced from
reality, he`s a guy who needs a teleprompter to speak.

HARRIS-PERRY: Yes.

KLEIN: He`s a guy who is deeply distrusted who is somehow not truly
an American. And that vision of him has sort of led them in odd direction
strategy wise. The things they feel about him, these attacks all make
sense in that world. But when you go to middle America, when you go to
people who are not in that echo chamber and launch this kind of thing, it
turns them right off.

HARRIS-PERRY: I do think, though, some of this has to do -- I agree.
I also think, as I watch John McCain in that moment, or when I remember
John McCain`s speech in 2008, despite the fact that that`s a candidate who
I certainly never supported and with whom I disagree on fundamental issues,
I can actually look at that and smile. I can say that`s a good moment for
that candidate. That`s a person behaving as a state`s person.

And so, I do have to ask, what is it about President Obama that makes
it so difficult for his opponents to see any sort of humanity or any sort
of American shared identity because it`s part of what President Obama did
so beautifully in 2008 as candidate was to take his own biography and make
it shared biography among many Americans.

KLEIN: Right. What`s so interesting about 2012, of course, is that
over the last three years, now, Americans have a shared biography him.

HARRIS-PERRY: Yes.

KLEIN: Part of the story.

And so, I guess that is what I can`t figure out, is that I do think a
lot of it is very sincere. But what I can`t figure out is why the cynical
part of their brains hasn`t taken over yet. If the secretary of Arizona is
going to try to make an issue of this and kick him off the ballot, it`s
going to be a huge issue that is going to derail Romney possibly for weeks.
I mean, it seems out of party loyalty, he would quiet down.

HARRIS-PERRY: Well, maybe so this is good. I mean, maybe we could
actually try to think about it. Maybe the idea of is to get us confronting
this instead of something else. So, you know, obviously, we`re going to
talk tomorrow about -- on my show -- about the Jeremiah Wright moment,
about, you know, sort of recalling.

But we`ll also point out that maybe the leak is the story. That it
was never going to be a strategy, but it really was just a leak to get
these days of coverage, to get us to be the ones talking about it. Perhaps
there`s something else we are not talking about, as a result we`re talking
about.

KLEIN: Twelve conventional chess.

HARRIS-PERRY: Yes.

KLEIN: Melissa Harris-Perry, host of the "MELISSA HARRIS-PERRY" show,
I will see you tomorrow morning.

HARRIS-PERRY: Yes, I`ll be glad to have you.

And, of course, you can catch the show Saturdays and Sundays from
10:00 to noon Eastern. Thank you so much for being here.

HARRIS-PERRY: Thanks, Ezra.

KLEIN: Still ahead, Nobel Prize-winning economist Paul Krugman will
be here. Plus, a real live Republican senator. And when it comes to
Facebook IPO, you shouldn`t click "like" quite right.

Stick around.

(COMMERCIAL BREAK)

KLEIN: Mitt Romney, let me introduce you to how things in the economy
really are. Things in the economy, let me introduce you to Mitt Romney.
That`s coming up next.

(COMMERCIAL BREAK)

KLEIN: On Tuesday of this week, the Republican presidential campaign
of Mitt Romney made a big high profile campaign stop in Des Moines, Iowa.
The campaign billed the event in Iowa as a major policy address by Mr.
Romney about the sorry state of the U.S. economy.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL CANDIDATE: America counted on President
Obama to rescue the economy, to tame the deficit and help create jobs.
Half the kids who are graduating from college can`t find a job that uses
their skills. Half.

The length of time it takes an unemployed worker to find a job is the
longest on record.

We can prosper again with a powerful recovery we`ve all been waiting
for. The good jobs that so many still need.

(END VIDEO CLIP)

KLEIN: President Obama has failed on jobs. That was the message from
Mitt Romney in Iowa. It was a message, though, that was just slightly
undercut when news organizations began pointing out that actually, the Iowa
economy is not so bad. Iowa, in fact, has one of the lowest unemployment
rates in the country. The unemployment rate in Iowa has dropped to 5.1
percent from 5.9 percent just a year ago.

Earlier this month, Mitt Romney took his campaign to Portsmouth,
Virginia. While they`re in Virginia, Mitt Romney again railed against
President Obama for how horrible the economy is right now.

(BEGIN VIDEO CLIP)

ROMNEY: He said he measures progress by whether we`re creating jobs
that allow people to pay mortgages. Well, he hasn`t been creating jobs.
They have not been doing what they do to create jobs here in Virginia.

(END VIDEO CLIP)

KLEIN: President Obama has failed to create jobs in Virginia. That
is a good sounding message. It is a good campaign.

But it is massively undercut by the fact that the unemployment rate
has actually fallen from 7.3 percent at the beginning of 2010 to 5.6
percent now.

Virginia Governor Bob McDonnell who is standing next to Mitt Romney
when he said has actually just released $400,000 worth of TV ads in
Virginia talking about how great the economy is there.

So, Mitt Romney`s a bit of a problem right now. The message of his
campaign, the basis for his candidacy, that the economy is worse than it
was when President Obama took office, or at least made it worse by Obama`s
policies and we should hire Romney to fix it.

But in all of these states that he`s traveling to, not only is the
economy is getting better, but there are Republican governors in those
states who desperately want to take credit for that. That really awkward
dynamic played perfectly during a trip that Mitt Romney took to
battleground state of Ohio a month ago. Mitt Romney and Ohio`s Republican
governor, John Kasich, met with a group of college kids there.

And Mr. Romney, pushing the "economy is awful" message tried to prod
the college kids into talking about just how awful it is.

(BEGIN VIDEO CLIP)

ROMNEY: You know, I`ve seen some numbers that were just published
about the number of young people graduating from college that are getting
jobs, and that are getting jobs that are consistent with their skill level.
It says only about half of America`s graduating seniors are able to find
work or find work that`s up to their skill.

Are you seeing a better record than that or from Otterbein, or are you
seeing a lot of folks finding it difficult to find a good spot?

(END VIDEO CLIP)

KLEIN: Right. Probably a lot of folks difficult finding a good spot.
Right. That is the message. The economy stinks. There are no available
jobs.

And then Ohio Governor John Kasich stepped in and stepped all over
Mitt Romney`s message.

(BEGIN VIDEO CLIP)

GOV. JOHN KASICH (R), OHIO: We have a Web site called Ohio Needs
Jobs. There`s probably about 80,000 jobs listed on there where there are
openings. So, you need to tell your friends and -- Ohio Needs Jobs. And
if you look through that, you`re going to find a lot of real exciting
opportunities.

(END VIDEO CLIP)

KLEIN: You can almost see the pain on Mitt Romney`s face as John
Kasich is talking about how many jobs are available in the state. It`s a
totally contradictory message from the one that Mitt Romney is trying to
push, actually was pushing right there.

Governor Kasich was actually asked about that clear contradiction
after the event.

(BEGIN VIDEO CLIP)

REPORTER: It`s almost like there were conflicting messages. Romney`s
message was we got to bring jobs here. We`re really hurting. Obama
administration has failed everywhere, including Ohio. Then you`re saying,
hey, kids, we got all these jobs going on.

KASICH: Yes.

REPORTER: We`re creating jobs like crazy.

KASICH: I`ve told -- first of all, we are creating a lot of jobs.

(END VIDEO CLIP)

KLEIN: He`s right. Ohio is creating jobs. The unemployment rate in
Ohio is slowly ticking down as it is all over the country. Forty-eight
states have seen a drop in unemployment rates over the past 12 months.
This can be an inconvenient truth particularly if you are Mitt Romney. Not
only is the economy getting batter, but it`s Republicans in these states
that are proclaiming the economy better.

It`s Republican Governor John Kasich of Ohio. It is Republican
Governor Bob McDonnell of Virginia. Republican Governor Terry Branstad of
Iowa. Republican Governor Rick Schneider of Michigan. Republican Governor
Scott Walker of Wisconsin.

It may be even worse than he thinks. Earlier today, the conservative
Texas Public Policy Foundation attempted to brag about how great the
economy is right now under that state`s Republican governor and former
presidential aspirant, Governor Rick Perry.

Josh Trevino, their vice president of communications, tweeted, quote,
"Texas has been adding jobs now for 21 consecutive months," 21. That is
impressive, 21 straight months of job growth is impressive.

But it`s Benjy Sarlin of the Web site Talking Points Memo pointed out
in response to that, quote, "It`s been 26 months nationally."

Now, part of this simply goes to show that politicians are always
lying and exaggerating and spinning when they take sole credit for jobs and
blame others entirely for job loss. The economy is driven by much more
than the decisions of politicians. Europe, for instance, as you`ll hear
about later in the show, is going to have a lot to do with our job creation
this year.

But Mitt Romney can hardly say that. He could say that while the
economy is getting better, it`s getting better more slowly than any of us
will like but saying, quote, "I think under different policies, job growth
could have been faster" does not have the ring of saying, as Romney does,
that Obama hasn`t been creating jobs. And as my colleague at "The
Washington Post" Greg Sargent pointed out, Mitt Romney has been very
reticent about what he would have done differently in the crisis to create
more jobs.

So, Mitt Romney has got a bit of a messaging problem. Maybe he should
consider looking at Obama birth certificate thing.

(COMMERCIAL BREAK)

(VIDEO CLIP PLAYS)

KLEIN: Once upon a time, Stephen Kreiger held the Guinness world
record for the farthest flight by a paper aircraft. At the age of 15, he
perfected his paper airplane fold. He gave his plane a name out of token
Sorolach, that apparently translates to "leaping flame," which I did not
know.

He spent the entire summer working on his throwing arm and in
September `03, he set a record of 207 feet and four inches. The record
held for nine years until this February.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: There it is. There it is. We are all over that
one. That`s going to do it. Get up there, get up there.

(CHEERS)

(END VIDEO CLIP)

KLEIN: That thrower is 27-year-old Joe Ayoob. A former quarterback
at Cal-Berkeley, a place where very serious football players play ball. He
threw that plane 226 feet and ten inches. I`ll do the math for you,
beating Stephen Krieger`s plane by 19 feet, six inches. Huge and
straightforward. You hold a record and a better guy comes along and takes
it from you.

But here`s the thing, 51-year-old John Collins, the guy on the right
in the blue shirt, he`s one that actually folded that paper airplane.
Collins is known as the paper airplane guy. He`s designed lots of
different kinds of aircraft. He`s published two books of design and he`s
put his own paper airplane app out.

But John Collins said he didn`t have a good enough arm to go the
distance. So, he outsourced it. He recruited Ayoob to throw it from.

Now, the quarterback and the paper engineer share the Guinness record
for farthest flight by a paper aircraft.

And Stephen Krieger is a little miffed. The now 23-year-old
mechanical engineer is not calling the new record invalid, bringing in a
proxy to the paper airplane throwing doesn`t sit right with him.

Krieger told the "Wall Street Journal," quote, "Competitive paper
airplane flying had always been in any mind, what can one person do with
one piece of paper." "Using a ringer," he says, "is problematic. I don`t
really think that is the spirit of the competition."

John Collins didn`t break any rules. In fact, some call his decision
to outsource this throwing arm a clever way to win the record.

What this paper plane kerfuffle comes down to is not just what is
fair, but what feels fair. Not all playing fields are level. Sometimes
you think you`re throwing a cleverly folded 8 1/2 by 11 piece of paper
under the same circumstances as everybody else, and suddenly you find
you`re not.

There`s other news out today -- bigger news that brings up questions
of fairness and playing fields, or whether we are all in fact playing the
same game. That`s coming up later in the show.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Don`t look now but there`s something funny going
on over there at the bank, Judge. I`ve never really seen one but that`s
got all the earmarks of being a run.

(END VIDEO CLIP)

HAYES: That`s a clip, of course, from the Christmastime classic, "It
is a Wonderful Life."

But it`s also a time capsule, to look back at the Great Depression.

Frank Capra released "It`s a wonderful Life" in 1946. That means he
shot in the early to mid-1940s, just a few years after the end of the Great
Depression. He remembered what it looked like, in other words. It had
just happened. And that clip is what a lot of it actually looked like to
ordinary America American.

That is a bank run, and the Great Depression had a lot of those. A
bank run is a self-fulfilling collapse of confidence. People, for whatever
reason, maybe a rumor, maybe an actual global financial crisis, become
worried that the bank won`t have enough money to pay them back. It won`t
be able to give them their money.

And so, they run to take it out of the bank. But banks aren`t like a
giant safe where everyone`s money sits. A lot of money in any given time
is loaned out.

Here is Jimmy Stewart explaining why his bank couldn`t give everyone
their money back.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: I`ll take mine now.

UNIDENTIFIED MALE: No. You`re thinking of this place all wrong as if
I had the money back in safe. The money`s not here. Your money is in
Joe`s house. That`s right next to yours, and the Kennedy house and Mrs.
Makelin`s house and the hundred others.

(END VIDEO CLIP)

KLEIN: And so, whether the bank run was justified in the first place,
the fact of a bank run makes the fears valid. It makes them real. Even if
everything had been just fine, now the bank can`t pay everyone back because
they never expected everyone to demand their money all at once, and so the
bank collapses.

That`d be bad enough, but bank runs trigger other bank runs. They are
contagious. People in the next town hear about the bank collapsing and
they worried will happen to them. And so, they run to get their money out
of the bank, taking down another and taking down another and another.

The United States used to have a lot of bank runs but after the Great
Depression, we ended them once and for all. FDR created the Federal
Deposit Insurance Corporation. The FDIC ensures all bank deposit even
today, if your bank collapses, the government gives you your money back.
And so, we don`t have bank runs anymore.

What`s going on in Europe right now is bank run with a twist. It`s a
country run. The run began with Greece. They lied about their budget
situation.

It turned out they were deep, deep, deep, deep into debt. But at the
beginning, this didn`t scare investors too much. They thought the eurozone
had an FDIC. They thought the European central bank or rich countries like
Germany would always make sure they got their money, but they were wrong.

So, there`s a run now in Greece. The run is partly in the financial
market, where investors don`t want to loan them money and in their banks
where ordinary Greeks took out 7 million euros on Monday alone.

But Greece is tiny, so what cares if it defaults? Well, you have to
think back to the terrifying logic of bank runs. If one indebted European
country goes down, will the next? And that`s the worry. If Greece can
fall or run, what about Portugal or Ireland or Spain or Italy?

Today, Paul Krugman wrote in "The New York Times," quote, "Suddenly,
it has become easy to see how the euro, that grand flawed experiment in
monetary union without political unit could come apart at the seams. For
not talking about decent prospect either, things could fall apart with
stunning speed in a matter of months, not years. And the cost both
economics and arguably, even more important, political, could be huge."

Joining us now is Paul Krugman, Nobel Prize-winning economist and
Princeton professor of economics and international affairs, and the author
of "End This Depression Now". It`s a new book which I`ve read, which is
fantastic, and which you should all read.

Thank you for being here, Paul.

PAUL KRUGMAN, PRINCETON UNIVERSITY: OK. Hi.

KLEIN: So, first, because you`re smarter than me, and you know this
issue better than me. Are there any corrections or clarifications? Did I
horribly mislead the audience about what`s going on in Europe?

KRUGMAN: The one thing I would say is that this is not Jimmy
Stewart`s bank. This is -- the trouble is that there are problems. It`s
not just that there`s a crisis of confidence. although that`s happening,
too. It is that Greece is probably fundamentally incapable of paying. And
unless there`s a change in European policy, so are Spain and Italy.

So, this is -- there`s a panic, but it`s a panic on top of an
underlying problem of bad policies, not so much on the part of the Southern
Europeans, the Greeks accepted, but on the part of the Europe as a whole.
So, this isn`t just a matter of calming things down. They`ve got to change
things in a much more fundamental way.

KLEIN: What happens to us if the euro falls apart? If Greece has to
leave in a disorderly way and that we`ve seen bank runs, I`m sorry, country
runs, and they`re not able to stop them.

KRUGMAN: OK. So, the first question is: where does it stop? If it`s
just Greece, then that`s bad. But it can be contained. If it spreads, the
worry is this will take out Spain, Italy and Portugal, which will happen if
the bank doesn`t provide trillions of euros of cash and if they don`t at
the same time say, OK, you know, enough of this austerity business, we`re
going to provide some growth so you can grow your way out of this. If that
doesn`t happen, the whole euro breaks up.

Then two things happen. It`s going to be bad for the European
economy, at least initially. It`s going to be a hit to the economy --
which is going to hit U.S. exports, which is serious because we export a
lot but not that much. We only sell about 2 percent of what we make to
Europe. So that`s manageable.

The question is does this spread to where it disrupts financial
markets here, too? Does this turn into a super version of the fall of
Lehman Brothers. And I guess think that`s not going to happen. I think
that European Central bank can contain that bit. I think the Federal
Reserve can probably contain it here.

I wish I was 100 percent certain of that, I`m talking along here. But
the last thing to say is the political consequences. The European project,
Europe as place of prosperity, peace and democracy, that`s a crucial part
of this world we`re living in. If that falls apart, boy, it`s going to be
uncomfortable place for the next generation.

KLEIN: One thing that I think has been somewhat confusing to people,
you`ve been talking about how in order to get past this crisis, Germany and
the European central bank need to become more comfortable with inflation.
I think folks normally think of inflation as always an everywhere bad.

So, how would inflation help? What would that do?

KRUGMAN: It`s -- OK. The most important thing right now is that
there was a huge bubble, not so different from the bubbles here. But there
was a huge bubble in housing and in other things in southern Europe, which
led to their costs and their prices getting out of line.

So, right now, you have Spain is probably 30 percent too expensive
relative to Germany. That needs to come down. But if it comes down
through d deflation in Spain, that`s devastating. That means years of very
high unemployment. It also means that the burden of their debt becomes
worse.

If instead, a significant part takes place not through deflation in
Spain but through inflation in Germany, the Germans won`t like it, but
that`s probably a much more feasible solution. So, a higher overall weight
of inflation in Europe turns -- it`s still going to be painful for Spain.
It`s going to be painful for Italy. But it turns it from pain that will
kill their economy to pain that might be tolerable.

Plus, overall, a lot of debt is taken. A little bit of inflation
reduces that burden of that debt everywhere. This has been the way we`ve
gotten out of a lot of debt problems in the past. So, inflation helps
there too. That`s the reason why we could use a bit more inflation too.

But the Europeans crucially, they cannot make this adjustment. If the
European central bank says that overall inflation is going to be below 2
percent for the next five years, then that`s the end of euro. This thing
cannot survive with that low an inflation rate.

KLEIN: Paul Krugman, "New York Times" columnist and author of "End
This Depression Now" -- thank you for much for your time.

KRUGMAN: Thank you.

KLEIN: Still ahead, I will talk to real live Republican senator about
stuff we might actually agree about.

(COMMERCIAL BREAK)

KLEIN: If you updated your status today to say I just made a gillion
dollars on Facebook`s IPO, then you and Facebook aren`t friends, you are
best friends. What that means for the rest of us is coming up next.

(COMMERCIAL BREAK)

HAYES: There`s a kind of war going on in the Republican Party over
the question, what do Republicans care about more -- reducing the deficit
or cutting taxes? See, things two things are in conflict because in order
to reduce deficit, Republicans need to make deals with Democrats. They
need to get that grand bargain.

And in order to cut deals with Democrats, they`re going to have to put
revenues on the table. Democrats will not be willing to do major spending
cuts to programs for poor people and senior. If Republicans simply say, no
sorry, the rich are not going to pay even a dime more.

Those Republicans who are solely concerned with taxes have a leader.
They have a general, a powerful unelected enforcer who has achieved a
mythological status in Washington. He is the second most famous Grover in
America -- he is Grover Norquist.

(BEGIN VIDEO CLIP)

REPORTER: Since creating tax reform at Ronald Reagan`s behest back in
1985, Norquist has been responsible, more than anyone else, for rewriting
the dogma of the Republican Party.

GROVER NORQUIST: Republicans won`t raise your taxes. We haven`t had
a Republican vote for a income tax increase since 1990.

REPORTER: And this was your doing?

NORQUIST: I helped. Yes.

REPORTER: It began with a simple idea of getting Republicans all over
the country to sign a note called the Taxpayer Protection Pledge, promising
their constituents that they would never vote for anything that would make
their taxes go up.

NORQUIST: Speaker Gingrich`s tax pledge back in 1998.

REPORTER: And once they sign the pledge, Grover Norquist never
forgets. The more signatures he`s collected, the more his influence has
grown.

NORQUIST: I think to win a Republican primary, it is difficult to
imagine somebody winning a primary without taking the pledge.

(END VIDEO CLIP)

HAYES: That was CBS Steve Kroft talking to Grover Norquist back in
November. Since then, in Indiana, Republican incumbent senator, Dick
Lugar, faced a primary challenger. That primary challenger`s name was
Richard Mourdock.

Now, Senator Lugar was one of the Republicans who had refused to sign
Norquist`s pledge. And so, Norquist endorsed Mourdock. And last week,
Mourdock defeated six-term Senator Dick Lugar in the Indiana Republican
primary.

Now, we don`t know what Grover Norquist`s impact on this race was.
After all, he only endorsed the challenger a week before the primary. But
still, every time there`s another entry on this guy`s win column, his no-
taxes pledge gets a public relations boost. Republicans become more afraid
of it. It becomes more powerful.

Now, that pledge, Grover Norquist`s pledge, says not only can you not
raise the tax rate, but even if you close a tax loophole, so you close a
loophole for oil or for jets, that money can`t go to the deficit. It has
to go back into a tax cut or else Grover Norquist will consider that a tax
mike.

For years and years and years, Norquist was an unchallenged force
within the Republican Party, a unilateral kingmaker. Over a thousand
lawmakers have signed his pledge as probably (INAUDIBLE) among Republicans.
At least it was until about a year ago, when arguably the most conservative
Republican in the Senate broke rank.

(BEGIN VIDEO CLIP)

DAVID GREGORY, "MEET THE PRESS" MODERATOR: If people`s taxes go up in
some way, it would appear to be a violation of the pledge that you sign,
with well known Americans for Tax Reform Taxpayer Protection Pledge, this
is a group you signed the pledge with. The second piece of this is that
you vow to oppose any net reduction or elimination of deductions and
credits unless matched dollar for dollar by further reducing tax rates.

If taxes end up going up in some capacity, would now not be in
violation of that pledge?

SEN. TOM COBURN (R), OKLAHOMA: Which pledge is most important -- the
pledge to uphold your oath to the Constitution of the United States or a
pledge from a special interest group who claims to speak for all American
conservatives when, in fact, they really don`t?

(END VIDEO CLIP)

KLEIN: A lot of people thought Coburn was crazy for launching this
fight, but increasingly he`s not alone. In "Politico," Kate Nocera reports
that, quote, "a small but increasingly vocal group of freshman Republicans
are probably rejecting the idea that they are beholden to Grover Norquist`s
Americans for Tax Reform pledge."

There aren`t many of them yet. Norquist knows that only six House
Republicans have refused to sign the pledge.

But "Politico" reports that, quote, "Other freshman members privately
told Politico they have been struggling with the pledge."

It`s always been understood that you don`t want to be the only House
Republican to break the pledge. But you can be one of many who jump to
make a deal. If everybody is a heretic, then nobody is.

And it seems that more and more Republicans might be mentally
preparing themselves to make that jump down the road.

Joining us now is Oklahoma Republican senator Tom Coburn, a member of
the Simpson-Bowles Commission of the finance committee and author of "The
Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America."

Senator, thank you very much for being here.

COBURN: Good to be with you, Ezra.

KLEIN: Now, you`re a conservative guy. You`ve got conservative
constituents in Oklahoma. What do they say about your attitude towards
Norquist`s pledge?

COBURNK: It`s a nonfactor, just some constructive criticism. I think
it`s totally overblown by the press. We agree that the government
shouldn`t grow. We want the lowest tax rates we can have. We don`t want
to raise taxes on anybody.

But, you know, Pat Toomey put forward in the super committee, the
Simpson Bowles had me and Senator Crapo and Senator Gregg on it. We voted
for reforming the tax code which would raise revenues. We had 33 senators
vote to eliminate the ethanol blending tax credit.

It`s overblown. We want to fix the problems in the country and we`re
willing to have increase revenues for the government. And what we -- our
problem with the Grover tax pledge is he randomly picks what he decides is
a tax increase. I would tell you that eliminating tax credits and tax
gimmicks and loopholes is eliminating spending. It`s not raising taxes.

KLEIN: Well, I think this is actually an important point, right? So,
the tax code has these things called tax expenditures. They give people
money to help buy a house. They give oil companies money. They give money
for ethanol, and millions of other things. And they are bigger than
Medicare. They are huge. It`s more than a trillion dollars according to
Tax Policy Center.

Now, Alan Greenspan says he should be considering spending. And
Donald Marron, who`s a Republican and one of the heads of the Tax Policy
Center, says they should be consider spending.

So, do you consider them spending? Or are they just spending as parts
of the tax code?

COBURN: I do.

KLEIN: And one thing then that can be hard to figure out, because
given -- there`s been many Republicans, almost all of them who are
currently served in Congress, who have signed the pledge is, it is just
then a negotiating position? I mean, you mention that behind closed doors
and Simpson-Bowles in the super committee, there have been to varying
degrees willingness on the side of Republicans to raise taxes above where
they are now in part of a large deficit deal.

So, then how -- if it`s overblown, why -- how should people take of
the fact that so many Republicans have signed it?

COBURN: Well, I`m not sure. In the heat of the campaign, I would
tell you, Indiana, Grover had any bearing in Indiana. It was all -- most
of it was about repealing the Affordable Care Act, not about taxes. It was
about not spending money that we didn`t have on things we don`t absolutely
need.

And so, what I would say is the reason we`re stuck on senator isn`t
Grover. The reason we`re stuck on center is we haven`t heard from the
administration what they`re willing to give in terms of entitlement reform,
saving Medicare, saving Social Security and what can we do to reform the
tax code so the revenues to the government actually come up.

They are historically too low. Most people agree with that. The
point is, you know, what we have is tremendous advantage. This last week,
the flood insurance bill that I held up in the Senate, why did I hold it
up? Because it`s got a billion dollars worth of subsidies for flood
insurance for people second and vacation homes on the coast.

Should hard working American factory workers and service workers pay
and subsidize somebody`s second vacation home flood insurance? That`s
spending in the tax code. According to Grover, if you eliminate that
subsidy, you`re raising taxes.

KLEIN: You`re a member of the fiscal commission and of the gang of
six. Both of which were productive, both of which came out to some degree
with bills. So, let me ask you about the Democratic side of this, too.

When you and your fellow Republicans get together with Democrats
behind closed doors, is there more agreement than people just watching what
happens in public in Washington?

COBURN: By far, Ezra. When we all get together and talk and the
cameras aren`t rolling and the press isn`t there, everybody knows we`re
going to have to do a lot of changes to Medicare. Everybody knows we have
to reform Social Security to make it sustainable in the long run.

The question is, is how do you get the mix of change in the
entitlement programs and the reform and the tax code? Nobody said it
shouldn`t be progressive and how do we make sure someone on Social Security
has enough money to survive if that`s their own source of income? How do
we do those things and where is the bargain?

And we`re going to get there, because the rest of the world is not
going to loan us the money. The question is: why aren`t we doing it now
rather than piddle around from the politics of today.

KLEIN: Senator Tom Coburn, a member of the Simpson-Bowles commission,
Oklahoma senator, and author of "The Debt Bomb," which I have is very good.
And you guys should all take a look at it -- thank you very much.

COBURN: All right. Ezra, good to see you.

KLEIN: Coming up next, Facebook -- the haves and the have-nots.

(COMMERCIAL BREAK)

KLEN: You know who this guy is, right? Bono is one of the one name
wonders of our age. The singer and public presence of U2, enormously
successful rock band.

And Bono seems a genuinely nice guy. And I don`t mean like a
relatively speaking, like on a rock star curve, I mean, genuinely nice for
a human -- nicer than you and I probably are. He spends an enormous amount
of time raising money and doing activism for cause like AIDS in Africa and
had an enormous impact on these issues.

He acts like a profoundly decent family man and he has been making
great, great, great music with his band, U2 since before Ronald Reagan was
elected president. Bono has been making music since this kind of hair was
fashionable the first time.

This is U2`s firs big hit, before "Beautiful Day" and "I Still Haven`t
Found What I`m Looking For". There was this very young Bono with a leather
pants and a mole and a bit about your eyes make a circle. I don`t actually
know what that means in English, but apparently it translates into a lot of
record sales and a fair amount of money.

Today, the middle age Bono with the good words for humanity and a nice
family and the endless hits and the large sized fortune, he became
incredibly fantastically rich, quite possibly the richest musician in the
world, passing Paul McCarthy.

And it`s not as a reward for philanthropy and weirdly, it`s not of his
music. It`s because of this. Facebook went public today. The company
sold stock for the first time. Its initial public offering, its IPO, the
term of art, or the acronym of art.

In an instant, Facebook became a $100 billion company. And along with
other lucky people, that made Bono richer than rich. In Bono`s case, it`s
because his use of wealth, he already had to fuel a private equity fund
called Elevation Partners. He`s invested in technology start ups like Yelp
and Dropbox and, of course, Facebook.

Bono`s firm bought a small stake in Facebook a few years ago for a
small fortune of $90 million.

Depending on how Facebook fares on Wall Street, that stake stands to
be an enormous fortune now, well more than $1 billion. Bono being Bono
says he`ll use most of the money for his charity work in Africa. And in a
very real sense, what Bono and Elevations Partners and all the other early
investors on all other (INAUDIBLE) are doing is good for the economy. It`s
great even.

Their willingness to risk their own millions helping companies get off
the ground is often what gets those companies off the ground. The investor
Mark Zuckerberg might just have been another kid in a dorm with a good idea
that kept crashing the servers.

One of the distinguishing features of the Facebook IPO today is the
company did set aside some stocks for ordinary folks to buy. With the
trading account and 40 bucks or so, you could conceivably have bought a
splinter, not even a sliver, but a splinter, maybe a hair of Facebook
stock.

But to have gotten a big chunk, to have gotten it early when Facebook
wasn`t already a $100 billion company, which is when Bono bought, you have
to be rich and well-connected like Bono, you have to have millions to begin
with, and you have to be the kind of guy that every entrepreneur in Silicon
Valley would do back flips with to make a meeting.

Bono on line tree, you`d talk that call. Everybody would take that
call.

And this really is a story of modern equality in America. The rich
and the powerful and the well-connected getting richer and more powerful
and more well-connected. When you hear that line, the rich getting richer,
this is actually how they do it.

When I say the story of Facebook is a story of modern income
inequality, what I mean is that the people who got rich today in the early
investments in Facebook are not necessarily smarter than everyone else.
They don`t necessarily work harder than cops and teachers and truck
drivers, and doctors. Most of them or many of them don`t even know how to
code. You can lock them in a room for a year with a computer, they would
never merge with anything approach the Facebook that launched 1,000
fortunes.

Consider the twins that stole the Winklevoss twins who once say Mark
Zuckerberg stole their idea for Facebook. They wouldn`t be in the story at
all if they hadn`t won the socioeconomic lottery landed in the upper
echelons of an elite school like Harvard. And now, they made many, many
millions of settling lawsuits over having their ideas supposedly stolen.

And if you haven`t checked in with them lately, they are making even
more money wonderful selling pistachios on TV because they are the really
rich, really famous Winklevoss Facebook guys. Pay them more. Put them on
TV.

There is no moral judgment here. It is not a moral question why it is
the wealthy musician like Bono all gets to be a technology mogul. That is
not a matter of right and wrong. Bono has done nothing wrong.

But you and I couldn`t invest in Facebook three years ago. That is a
thing about saying you don`t need to worry about inequality of income. You
just need to worry about inequality of opportunity. With enough inequality
of income, there is nothing approaching equality of opportunity.

That is what income does, it buys you and your children opportunities.
I don`t mean to pick on Facebook here. I love Facebook and I use it every
day. In fact, you can like my page. It is Facebook.com/EzraKlein. I beg
you to like my page.

But today, in addition being a site I`m addicted to, Facebook is also
the metaphor for the insider/outsider dynamic at work in our economy. You
and I and millions of other people create the content that gives Facebook
value. Every time we post a picture or send a message or like things or
share things or play games or change our relationship status, Facebook
gives us a way to do that. And we the public, hundreds of millions of us,
give Facebook value. We made it a $100 billion company.

But it is "the insider" who got the cash money out of the value. It
is not in the main your aunt or your uncle who hopped on the Web and bought
a couple of shares today. It`s Bono and its investment partners. It`s the
Winklevoss twins with their lawsuit and their wonderful pistachios.

It is the rich now getting much richer. I don`t want to like that.

That does it for us tonight. Rachel will be back Monday night. Until
then, you can check out my work at "The Washington Post" and at
Wonkblog.com. And follow me on Twitter at Twitter.com/EzraKlein.

And now, because you know exactly what you have done, it`s time you
went to prison.

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

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