Meet the Press Netcast   |  October 25, 2014

Summers, roundtable

As the nation's economic recovery remains in flux – and many Americans have yet to see signs of improvement – we sit down with one of President Obama's key advisers charged with getting things back on track: National Economic Council Director Larry Summers. Plus, insights on the politics of the health care and a gripping look inside the 2008 presidential race with Dan Balz & Haynes Johnson, authors of new book, "The Battle for America 2008"; Fmr. Rep. Harold Ford Jr. (D-TN); and Fmr. Rep. J.C. Watts (R-OK).

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MR. DAVID GREGORY: This Sunday: Has the great recession found a bottom?

PRES. BARACK OBAMA: We may be seeing the beginning of the end of the recession, but that's little comfort if you're one of folks who've lost their job and haven't found another.

MR. GREGORY: If this is recovery , has the administration misread the stimulus plan's impact on the economy and jobs? And is government playing the most effective role? Our guest, the president's top economic adviser, director of the National Economic Council , Larry Summers .

Then, the fight over health care , will the White House prevail? And the president's conversation about race held over a high-profile beer. Plus, a special look inside the 2008 race for the White House and how some battles of the campaign are front and center today. We're joined by the authors of the just-published book, "The Battle For America2008 ," Dan Balz and Haynes Johnson , and two former congressmen, Democrat Harold Ford Jr . of Tennessee and Republican J.C. Watts of Oklahoma .

But first, the president's chief economic adviser, the director of the National Economic Council , Dr. Larry Summers . Welcome back to MEET THE PRESS .

DR. LAWRENCE SUMMERS: Good to be with you, David .

MR. GREGORY: So the big news this week is that the economy shrank in the second quarter of the year, but less than expected; and, as so many Americans know, unemployment is still a big problem . Is the recession over?

DR. SUMMERS: We're certainly in a very different place than we were. Six months ago, the economy was in a nosedive, people were talking about the possibility of another depression , the statistics all suggested a vertical decline. None of that is the situation right now. We're certainly starting to see a turnaround, a turnaround in production that leads most professional forecasters to expect that if you look at economic output over the next six months, it's actually likely to start to increase. Now the jobs picture's going to be serious for a long time to come. The best that can be said so far is the rate at which we're losing jobs is declining; but there, too, the picture is improving. We've got a long way to go , we're going to need to carry through with the full program that the president has put in place . We're going to need to continue to take steps to stimulate the economy , like the very successful Cash for Clunkersprogram , so that we're keeping at doing everything we can to push this economyforward. But we are in a very different situation. We have walked back from what we were facing six months ago, and that is because of the policies that were put in place .

MR. GREGORY: When do you think the economy starts growing again?

DR. SUMMERS: I think if you look at the overall output statistics, the GDP , as economists call it, a very great likelihood -- and this is what most professional forecasters say -- is that we'll see growth going forward in the second half of this year. Why? Inventories have been run down and firms are going to have to build those inventories back. The evidence is that from a very, very low base housing production, automobile sales are likely to start to increase, and the recovery and reinvestment program is going to gather force over the next six months, that people are able to spend more of the extraordinary tax assistance they've received as more and more of the 3,000

projects come on line and start to spend out. Already in Florida you've seen 14,000 teachers' jobs that wouldn't have been there this spring preserved as a consequence of the Recovery Act . So all these factors, the rising impact of the Recovery Act , inventory accumulation, what's going to happen in housing and automobiles, these all are leading -- and, you know, don't trust those of us in the administration , most professional forecasters, too, expect output growth . Now, historically -- and this is why we are absolutely not complacent, we continue to be just very dissatisfied with where the economy is -- historically, increased hiring typically lags increases in output, so it's going to take time before you see it in the unemployment and the employment statistics, so we've got to keep pushing.

MR. GREGORY: I want to stop you on that point because I want to return to jobs in just a moment. The question is when there's recovery in the economy . One economist this week, who's been rather skeptical all along, has said it's going to feel a lot like the recession. To that point, you've got housing prices that are down 17 percent from where they were a year ago. And here's the headline in the lead story in The New York Times today, "Prolonged aid to unemployed is running out." Is the administration to this point going to have to extend those unemployment benefits ? It's already been expended at a historic level. Will there have to be further extensions?

DR. SUMMERS: We'll work with Congress to make sure that unemployment insurance continues to perform its basic function of protecting the unemployed. That was an important element in the recovery and reinvestment program . It's helped people who've become unemployed; it also helped the economy by maintaining spending. And we'll do what's necessary to make appropriate, appropriate unemployment benefits available. We're seeing -- you mentioned housing -- already 200,000 Americans have seen modifications under the president's program , it's increasing by 30,000 or more a week. We expect it to be half a million by November 1st . And we're going to be holding the banks accountable for performance under that program . Just this week, you're going to see for the first time publication of data, institution, banking institution by banking institution on how much they're doing, what fraction of their mortgages are, are being adjusted. So we're very focused on making sure that we implement as vigorously and with the best possible management accountability all of these measures.

MR. GREGORY: The criticism of this administration is that it has misread the impact of the stimulus on the economy , and here are the raw numbers when it comes to the unemployment rate . As of February 17th of 2009 , the day that the stimulus plan was signed, unemployment was at 7.6 percent, it's now at 9.5 percent. Experts like yourself believe it's going to go up over 10 percent. Roughly two million jobs have been lost since the stimulus came on line, after this administration said in a report that if you pass a stimulus plan, we'll hold unemployment steady at 8 percent. What went wrong?

DR. SUMMERS: David , I, I think that's really very, with great respect, I think that's really a very misleading way of putting it. The administration 's report was very clear that the stimulus would build over time, that less than 10 percent of the job creation would take place during 2009 , that the largest impacts would be felt as the program took effect, as all of those projects got started. So we forecast that there would be a meaningful impact felt right away, but that that effect would increase very substantially.

MR. GREGORY: Wait a minute, that -- is that fair to say I'm misleading...

DR. SUMMERS: And that's what's -- and that's, and that's what...

MR. GREGORY: ...when he says he would keep it at 8 percent?

DR. SUMMERS: ...and that's what's happened. Now, it's true that unemployment is higher. It's higher than almost anyone forecast at the beginning of the year; and it's higher because, frankly, what we inherited was much worse. Most of the surprise increase had already taken place by March, and you can hardly hold the administration accountable for that. It turned out that businesses were even more scared than we realized; and, therefore, relative to past recessions, as demand for their products declined, they were much quicker to lay people off than they, than they have been. And so there was a surprise in the employment statistics, but that didn't have to do with the impact of the stimulus . That had to do with the baseline that we were dealing with. You saw that. You see evidence for that also, David , in this last economic report. In addition to giving us the data for the second quarter, which is what everybody's talked about, the negative 1 percent, it also gave us data on revisions of the whole history of GDP . And what those revisions showed us is that last winter the economy was much weaker than we thought it was at the time.

MR. GREGORY: OK, but, Doctor...

DR. SUMMERS: So, yes, there's been a surprise.

MR. GREGORY: OK.

DR. SUMMERS: But it's got nothing that bears on what the impact of the stimulus has been as distinct from an uncertainty we very much recognized, which is the uncertainty about how bad the economy is...

MR. GREGORY: All right. But wait, but wait a second.

DR. SUMMERS: ...and what the baseline was.

MR. GREGORY: But, Dr. Summers , wait a minute. You say it was misleading to bring up the 8 percent. The reality is that you wanted near-term economicimpact from the stimulus . You gave a speech within the last two weeks during which you said unemployment is a real problem , that it was a surprise. My question is if you didn't get the near-term economic benefit that you wanted , you were surprised by that, does it have an impact on whether or not the president would consider repealing any of the long-term spending, given the deficitproblem?

DR. SUMMERS: The president is very focused and will come to this, I hope, on the long-term deficitproblem; but he is very committed to carrying through on the Recovery and Reinvestment Act , which is really a program over the next two years. Let me say, let me say it again, because this is an important point for your viewers, the economy surprised on the downside. We didn't know how bad it was last winter. That's what we've learned from the data revision. Because we didn't know how bad it was, unemployment is high. That does not speak to the efficacy, the extra impact that we've gotten from the administration 's program . That's right on track. You can count the jobs, the 14,000 jobs, teacher's jobs in Florida , the jobs saved across the country of cops and teachers. You can see it in the other people whose state and local governments haven't laid off. You can see it in the contracts and the hiring for construction projects. You can see it in a sign

that consumer confidence , which had been collapsing, as people have gotten used to having higher pay checks, consumer confidence has improved somewhat. So, yes, the situation's even worse than we thought , but that actually makes the kind of recoveryprogram, the investments in the country 's future, the measures to support the financial system not less important, but actually much more important.

MR. GREGORY: So you stand by your claim that this stimulus act will create three to four million jobs when it's all said and done.

DR. SUMMERS: This stimulus , this stimulusprogram will create more jobs. We were always very careful, very, very careful to say we'll save or create. What that was intended to say very clearly is relative to what would have taken place in its absence. We recognize nobody can know where the economy is going to be with any precision, but what we can know is that if we prevent cops and teachers from being laid off, if we enable consumers to spend more, if we put people to work investing in weatherizing 75 percent of federal buildings, then more people are going to be working than if we don't do any of those, any of those things.

MR. GREGORY: So you can't......those three to four million jobs.

DR. SUMMERS: No. We can predict that there will be three to four million more jobs than there otherwise would've been, but we can't predict what the baseline is with great precision. We were always clear in saying that.

MR. GREGORY: I -- you bring up near-term economic interests. This is a big, a big factor, and I want to get to that in just a minute. But, actually, I don't want to let one point go, which is this long-term spending picture, the investment part of the stimulus plan, which the president and you have said "very, very important." I just want to go back to that point. If the near-term impact is not as great, do you consider repealing any of the longer-term spending given the deficitproblem?

DR. SUMMERS: The stimulus bill is a bill that's going to largely play out in the next couple of years. The long-term deficit 's a central problem . That's why we need to reform health care . We need to reform health care in terms of the ways in which we reimburse for Medicare . We need to reform health care in terms of the ways in which we encourage preventive care , the ways in which we do research to assure that people get the care they need, but you don't have the kind of care situation where people are getting three times the rate of some type of surgery in one city as they are. That's why the president has made health care a central issue in long-term deficit reduction. It's going to be the largest part of the federal, the federal budget . It's the thing that's most important for business's competitiveness and for workers' take-home pay. So we're going right at the deficit , but we're going at the issue that's measured in the hundreds of billions of dollars , federal dollars , which is federal health care spending. And that's the big fight the president's committed to.

MR. GREGORY: But I'm asking about the spending in the stimulus -- there's long-term spending in the stimulus plan.

DR. SUMMERS: The -- there's -- actually, the vast majority of the stimulus is actually relatively short-term. There are some measures, for example, providing over five years for computerized

medical records at a time when the average supermarket has more information technology in it than the average doctor's office. No, the president's not going to think about repealing that.

MR. GREGORY: OK.

DR. SUMMERS: That's a hugely important investment in the future. No, the president's not going to think about repealing substantial increases in solar energy and wind energy which are crucial to reducing our dependence on foreign oil . No, we're not going to abandon the effort to modernize schools at a time when we tell our kids that their education is the most important thing and paint chips are falling off the walls in their, in their classrooms. No. Those fundamental kinds of investments in the country 's future, which -- some of which are going to take more than two years to accomplish, are crucial aspects of a kind of foundation that the president's trying to lay for the country 's future.

MR. GREGORY: Given the deficit , how big the deficit is, how big it's projected to be, can there be sustained growth in this economy unless the deficit is reduced?

DR. SUMMERS: Certainly there can be sustained growth , and we can start laying a foundation for sustained growth in the next couple of years by making sure that there is an adequate level of demand in the economy . For the medium term, the way in which we need to make sure that that growth is stable is to do something about the deficit . But the way you do something about the deficit , David , is you go and you look at the large sections of the federal budget . You look at health, you look at health care , as I talked about. You look at entitlements. You look at the presence of substantial loopholes that, for example, enable some companies to hide income overseas and not pay taxes on it to the United States and actually get an economic incentive to move some of their production abroad.

You look at those kinds of fundamental issues. And that's what we've already started doing with great emphasis in health care . That's what, as we move towards the president's 2011budget, we're going to be doing, you know, more systematic, in a more systematic way. But we're not -- but we are going to recognize that the budget deficit is absolutely crucial. But so is the deficit in what this country 's done in education; so is the deficit in what this country 's done in, in infrastructure. There are a number of deficits that we have to address if we're going to compete going forward , and the president's committed to doing -- to addressing all of those deficits.

MR. GREGORY: You -- you've said in, in a speech recently that there's a danger -- this is what you said in -- July 17th , "Experience during the U.S. Depression and in Japan during the 1990s teaches the danger of premature declarations of victory and withdrawals of stimulative policy." It's difficult, because there's a lot of opposition to the stimulus , how much federal money is being spent. We're seeing that playing out in the opinion polls as well. Do you think there's going to be a need for additional stimulus , and is there the political will for it?

DR. SUMMERS: As I said, as I said a little earlier, David , our stimulus is going to increase with the passage of time because some of the money that's already spent is going to have an impact with a lag, and because more money's going to be spent going forward , and some of the biggest employment creating projects took some time to get started. So the focus for now needs to be on implementing the Recovery and Reinvestment Act , carrying through on that foreclosure relief

program , whose numbers will grow rapidly, continuing to support the flow of, the flow of credit in the economy .

We've got the right framework in place . We're seeing results of that framework. The economy is no longer in free fall . Outside observers are looking towards, towards, towards growth . People are speculating about when the recession is going to end rather than about whether it's going to turn into a depression . The priority has to be to go with a plan that's working and implement it as vigorously as possible.

MR. GREGORY: Let me ask you a couple of questions about health care . The difficulty of deadlines being missed and more public opposition to health care leads to the question of whether or not the president is losing the economic argument, that is the argument that health care is essential as an economic fix.

DR. SUMMERS: It is essential as an economic fix. It's essential because of how much of the federal budgethealth care represents. It's essential because it's so important for the competitiveness of American businesses. You know, for some of the automobile companies, the health insurance companies are actually their largest supplier. And it's essential to slow the growth of health costs if American families are going to see rising wages that rise ahead of inflation. So it is essential.

MR. GREGORY: But is the president losing that argument?

DR. SUMMERS: What's, what, what about, what about the, what about the argument -- there has been, there have now been healthcare bills voted out of four congressional committees . That is four more congressional committees than have voted, that have voted comprehensive healthcare legislation in the last, in the last generation. Yes, it's going to take time to work out, to work out the argument. Yes, there are continuing controversies, as there should be. But let's not forget that we are closer to comprehensive healthcare reform than this country has ever been. Let's not forget how we're doing it. We passed tax cuts at the beginning of this decade. We passed a prescription drug benefit at the beginning of this decade. Nobody even thought about the question of how they were going to be paid for. Nobody set an aspiration of doing it in a balanced-budget way. Yes, we're having a lot of arguments about how best to do it in a balanced-budget way, and there's tension in those arguments. But how much better it is to be doing these things this way, the way this president is doing it, by insisting on the pay for, by insisting that it be done in a balanced-budget framework...

MR. GREGORY: Well, let's talk about that point.

DR. SUMMERS: ...even recognizing that's going to lead to some arguments.

MR. GREGORY: That's a very important point, and yet the CBO , the Congressional Budget Office , has looked at this, a nonpartisan actor in this debate, and has said there is a shortfall in paying for it even over the first decade, and that shortfall grows in subsequent decades. As you look at these healthcare plans, do there have to be fundamental changes if you're going to avoid adding to the deficit down the line?

DR. SUMMERS: CBO said that about one of the bills that's passed, one of the committees. This is why the discussions are continuing. No bill is going to move forward that is not over the first 10 years scored by the CBO as budget neutral. But the president's, in addition to insisting on budget neutrality, which we didn't use to do, the president's doing another important thing. It's what we've called a belt and suspenders approach. There's some things -- how we pay drug companies , for example -- where you can do the accounting very accurately and you can see what happens to the deficit . There are other things -- encouraging prevent, encouraging preventive care , taking the whole reimbursement system out of politics -- where it's much more difficult to do the exact calculation. And so the CBO doesn't give us any credit for them even though most people would say that, over time, they're likely to have some benefit. And so we're doing both sets of things. And so I think we've got a lot of basis for being optimistic that, whatever the CBO says, it's going to end up better. But we're being very conservative. That's why it's belt and suspenders. We're not taking any account of that second set of changes, the preventive care and all of that.

This is the most fiscally responsible approach to introducing a major structural change in the economy that's ever been pursued. If you look at what happened with Medicare , if you look at what happened with prescription drugs , if you look at what happened when food stamps was introduced, there has never been this degree of careful scrutiny of long-run, long, long-run cost impacts. And it's right because the center of this has to be containing healthcare costs, otherwise it's not going to work for most families.

MR. GREGORY: Before you go, I do want to ask you about the banks. One of the things we're seeing on Wall Street is that bonuses are back, a lot of people making a lot of money. You said recently that banks should never lose sight of their obligations to their fellow citizens. Are they meeting their obligations?

DR. SUMMERS: Some are. Some aren't. All need to pay attention to it. How? They need to make sure that they are cooperating and setting up the kind of financial regulatory system that will make sure there're the right risk controls and things like this don't happen again. They need to each do their part with respect to foreclosure relief. And we'll see how different banks are doing when the numbers are reported this week. They need to recognize the needs of their communities as they set lend, as they set lending strategies. But they need to recognize what's happened, how -- what a near miss it was. And we hope they will join us in working to create the right kind of regulatory system.

And a crucial part of that regulatory system is an agency that protects consumers, that has as its focus not the health of banks, but something we haven't had before. And if we had, we wouldn't have had these subprime mortgages in the same way, we wouldn't have needed to pass a credit cardreform bill to stop outrageous escalations in rates, which is a consumer financial protection agency. And I hope and trust that the banking industry will join, join in supporting that regulatory step and other regulatory steps to contain the risks so that never again do we have the problems we've seen in the last two years.

MR. GREGORY: Would you like to be chairman of the Federal Reserve ?

DR. SUMMERS: I am totally consumed by all the issues that we've talked about -- the issues of energy, the issues of long-run structural planning. That's where my all my focus is, David .

MR. GREGORY: You're confident in Chairman Bernanke ?

DR. SUMMERS: David , I'm very -- totally focused on the work, on the work that I'm doing.

MR. GREGORY: All right. Dr. Larry Summers , thank you, as always. Appreciate it. Thanks very much.

Coming next, the fight over healthcare reform , a conversation about race, and inside the battle for America2008 . Our roundtable weighs in -- Dan Balz , Haynes Johnson , Harold Ford Jr. and J.C. Watts . Only on MEET THE PRESS .

MR. GREGORY: Our roundtable with Dan Balz , Haynes Johnson , Harold Ford Jr. and J.C. Watts after this brief commercial break .

MR. GREGORY: We are back with our roundtable, former Congressmen J.C. Watts and Harold Ford Jr. ; and authors of the new book, here it is, "The Battle For America2008 ," Dan Balz and Haynes Johnson .

Welcome to everybody. I want to get to the book and some other aspects of the president's performance, and let's start on the economy .

Harold Ford , what's interesting is you hear Dr. Summers very much defending both the near-term impact and the long-term impact of this stimulus plan on the economy and talking about, you know, really, the beginnings of a turnaround.

FMR. REP. HAROLD FORD JR. (D-TN): You got to appreciate the fervor and the passion from Dr. Summers . Two things. One, there was a promise that this stimulus would, would have a bigger and faster impact . In fairness to them, this Cash for Clunkersprogram is starting to work; 30,000 projects have been funded, and it's likely more will be funded going forward . Three, when you look at the 6.4 percent contraction in the economy at the beginning of the year, the last quarter of last year, 5.4 percent contraction , a 1 percent contraction this year, these are a bunch of numbers for the American people ...

MR. GREGORY: Yeah.

FMR. REP. FORD: ...but it means things are getting better . Unemployment is not where we want it, but this president inherited a mess. And to his credit, even when they talk about deficit numbers, remember, they put the war cost on the budget for the first time -- Bush didn't do that -- and they've also included the actual cost of health care and other things going forward . So I applaud them for their honesty. We may need a second stimulus . I was curious to hear Summers kind of dance around that a bit. Maybe a payroll tax holiday, more unemployment benefits , and maybe even a tax cut for small businesses to get more confidence there and to simulate job creation on that front.

MR. GREGORY: But this is what's interesting, Congressman Watts , which is the, the lack of faith on the part of the American people , if you see in the poll, in the government 's ability to handle a program as big as the stimulus and to handle a program as big as health care . Those fights haven't gone away.

FMR. REP. J.C. WATTS: They haven't gone away. And I think it's going to be interesting over the next 30 days , as members go home to their districts to, to hear from the American people , to see what they're saying; and right now they're not saying very good things. Seven hundred and eighty-seven billion dollars in stimulus , you've only, only spent -- or you've spent less than 10 percent into the economy . Seven hundred dollars -- $700 billion bailout for the banks, not lending to small business . That's a problem when you consider that small business created about 80 percent of the jobs in the country . You've got health care , you've got cap and trade, you've got all these things that are out there that's costing billions and billions of dollars , raising billions of dollars in taxes and fees. The American people are concerned. They don't see any results, and the two million , two million jobs that's been lost since the stimulus passed, those jobs are going to have to be made up, and then, I think it's fair to say, OK, what is the count in terms of the jobs that's been, that's been created? But you've got to make up for the jobs that's, that's been lost.

MR. GREGORY: Let, let's pull back a little bit and look at where the president's performance is right now. The Wall Street Journal reflecting our poll, the NBC News / Wall Street Journal poll this week said this on Thursday:"Overall, Mr. Obama 's ratings fell on a series of measures. Job approval now stands at 53 percent, that's down from a high of 61 percent in April. ... The proportion of people who said it was very or fairly likely that Mr. Obama would bring ` real change ' dropped to 51 percent from 61 percent in February. The share of those who said he could be trusted to keep his word fell to 48 percent this month from 58 percent back in April." Dan Balz , Peter Hart , one of the pollsters who, who works on this poll said, "You know, you've got two things going on, the president's embroiled in all of the legislative fights; and, at the same time, he doesn't have as much to show on the economy as he may like."

MR. DAN BALZ: Well, and, and I think all of the polling that we've seen over the latter part of July indicates what a rough patch he has encountered at this point. He obviously took on huge problems, and he's tried to deal with them in a very ambitious way, and there are now concerns on the part of the American people about whether he's going to be able to deliver on that. It's very interesting, the poll numbers tell you one thing. Peter Hart did a focus group this week that both Haynes and I attended up in Towson , Maryland , 12 independent voters. What we found there was, while people have real concerns -- they think he's going too fast, they're not sure he's as strong as he needs to be on foreign policy -- but, at the same time, there is still a reservoir of good will among these independents for him. So the end of this story hasn't been written.

MR. GREGORY: Here's something that comes out of the book, and that is the, the, the fight to -- "The Battle for America2008 " -- it is the president right after the election, Haynes , talking about the role of government , it's interesting. This is what he says to you:"But I do think [what we're seeing] in the end -- is an end, rather, to the knee-jerk reaction toward the New Deal and big government . I think what you saw in this election was people saying, `Yes, we don't want some big, bureaucratic, ever-expanding state. On the other hand, we don't want a state that's dysfunctional, that doesn't believe in its mission, that can't carry out some of the basic functions of government and provide services to people and be there when they are hurting.'" And yet here

we are with this continuing debate about big government , the role of government in our lives, effectiveness of government when it comes to these big programs.

MR. HAYNES JOHNSON: It's the most important issue we have in the country , and it's been not a new one. It's been going on for a long, long time: What is the role of government ? Is it big, small, liberal, conservative, moderate, or is it government that works? And this was what the election was all about and what Dan talked about at the focus group with Peter . The country now has a feeling they have comfort with Mr. Obama . They're not sure about the policies, they're afraid, they're not comfortable, they don't know where we're going, and there's a great deal of anxiety. But the role of government is not this big, huge, liberal, inordinate group that can take over the country your, your own standing. It is the fact that does it work? And that's what this is all about. And what you, what you talked about earlier on health care , on the economy , everything else, what is the role of government ?

MR. GREGORY: But, but Congressman Ford , are we making real progress here? You talk about health care , it's becoming less popular in the public's eyes. And look at this from our poll, handling of health care in terms of job approval overall, president is at 41 percent in July of '09. Look where Bill Clinton was at, 43 percent in June of 1994 . That's not a place where the White House wants to be on health care .

FMR. REP. FORD: Probably not. But the president made clear from the outset of this debate about health care , he wanted to accomplish three things: one, expand coverage; two, control costs; and, three, pay for it . And you have to applaud him for that. Remember, when we passed the prescription drugpackage -- J.C. and I remember this, in Congress several years ago -- we didn't pay for it . We've added -- we added to the deficit going forward . So whatever you want to debate and however you want to criticize this president, he is paying for it. August is critical, the war room in the White House which is generating ideas and responses to the Republicans , who, frankly, have created a war room not to generate new ideas but to generate a way to kill this bill. It's my hope that the president will take seriously what the Blue Dogs have put forward . I was a Blue Dog member in the Congress . I think their efforts have been constructive. They've allowed principal reform to come forward , they've allowed us to confront the challenges facing everyday Americans , small businesses across the country . And it's my hope that a public health option is included in the final package, that we get closer to Max Baucus ' bill. Remember, the CBO , the impartial, nonpartisan group, has said that Max Baucus ' $900 billion healthcare bill will actually lower, lower deficit costs starting in 2019 , will expand coverage and achieve the goals of this president. If we're able to get that message out as a party over the next month, we will have a healthcare bill. If not, the Republicans will succeed not in generating a new idea, an alternative, but in actually killing a healthcare reformpackage, which I think will hurt Republicans in the long term.

MR. GREGORY: Congressman Watts , you did have Senator DeMint saying this is the president's Waterloo .

FMR. REP. WATTS: Well, I'm...

MR. GREGORY: ...and that if we can stop him here, we can, we can really kill him. That was the view that he expressed.

FMR. REP. WATTS: And, and, David , I'm not concerned about all this going on as a Republican citizen, I'm concerned about what's going on as an American citizen . You know, when, when you look at cap and trade that will create jobs supposedly in the alternative energy , energy field but will eliminate jobs in our domestic energy, in the oil and gas field , that's a zero sum game . And an, an energy package that doesn't work is, is not a good energy package. If, if you look at health care , I want a healthcare system that works. And a health care system that jeopardizes a doctor's relationship with their patient, a health care system that takes 300 and something billion dollars out of Medicare , a health care system that doesn't create, in my opinion- -I would hope that we would say health is a part of health care . We can't -- if we want, if we want health care , we have to take some responsibility for what we eat, what we drink. Bill Clinton said we don't have a, a health care system in America , we have a sick care system in America .

FMR. REP. FORD: But...

FMR. REP. WATTS: So people want things that work. That's what I'm asking for.

FMR. REP. FORD: But we, we can't...

FMR. REP. WATTS: That's what I'm asking for, something that works.

FMR. REP. FORD: We can't get around the fact that what he -- what Obama 's trying to do with this health reformpackage is realign financial incentives to actual outcomes in hospitals and doctors offices. We can't get around the fact that insurance companies deny coverage to people who have pre-existing conditions, that they cut families off from their coverage when they face an illness, let alone a catastrophic illness. That's what this bill is trying to correct. I think the -- that the points that J.C. raises are ones that should be addressed, but we should not kill a healthcare reformpackage because the arguments that you're making, which have been around forever, cannot be address. I think they can be addressed and should be addressed.

FMR. REP. WATTS: David ...

MR. GREGORY: But...

FMR. REP. WATTS: ...you were around, in 1995 , we slowed the growth in Medicare from 7.9 percent to 7.2 percent, we got blistered. Newt Gingrich and Bob Dole had hundreds of thousands of commercials run against them. And now we're taking money out of Medicare to make it stronger when we got blistered in 1995 . What's different? It's bad -- if it was bad in 1995 , it should be bad today.

MR. GREGORY: Haynes , what you're seeing, it's interesting, tactically out of the White House now, going in more of a strategy where they're taking on the insurance companies ...

MR. JOHNSON: Right.

MR. GREGORY: ...which may be the new message for the fall.

MR. JOHNSON: Right.

MR. GREGORY: You know, Nancy Pelosi saying they're acting immorally. Is that the new tack that the administration has to take to sell health care ?

MR. JOHNSON: Well, it looks like it, but I've got to say, going back to the where we are in health care , this is not a new story. Every president since Theodore Roosevelt , Woodrow Wilson , Franklin Roosevelt , tried...

FMR. REP. WATTS: You have a little more perspective on that than me.

MR. JOHNSON: Yeah. I was there when Lincoln , I mean, you know? But it really, if you look, they all tried to get universal health care . Roosevelt got Social Security because he couldn't get universal health care . And it took Lyndon Johnson , finally, after Vietnam , the tragedies, the riots, the assassinations, to get Medicare . And now the role is, people talk about Medicare , that's "Keep your hands off my Medicare . I don't want the government involved in Medicare ." It's a government -run program . So you, you have this difficult...

MR. GREGORY: Right.

MR. JOHNSON: ...terribly important -- it's 20 percent of the American economy -- at a time when people are losing jobs, anxious over the future, they don't know where it's going, they want to keep what they have. It's the hardest thing in our public life to reach an agreement on.

MR. GREGORY: Let me ask you this, Dan Balz , the president as salesman. I want to go back to something that you write in the book because, again, I think there's some -- the periods in the campaign that were difficult for then candidate Obama that are playing themselves out now. This is writing about one of the debates and some of the advice that the president got. "[Democratic presidential candidateJohn] Edwards offered Obama advice during the debates. `You've got to focus, you've got to stay focused,' he said he told Obama during a commercial break in Philadelphia . Later, he told us that Obama would come prepared to confront [ Hillary Clinton ] but then back off. `He'd do it and then he'd shift back to the intellectual, detached kind of way of talking about things while I was pounding away on her and [stayed] very focused on her.'" I read that, and I thought about the president's last press conference where he held forth and spoke about health care , in frankly, a pretty dry, professorial way. And then he was concerned and frustrated afterward, I'm told, that the message wasn't getting through. Is he falling into that trap again?

MR. BALZ: It's a very good point, David , and I think one of the things as you -- as we did the book, to understand more about Obama . Everybody feels he's a terribly familiar figure, and yet there is much that we didn't really understand about him until we went through the book, and one of these is when he gets into trouble, how he responds. There was a period, literally two years ago this time, 2007 , when he was struggling with his message for the campaign, and it took him not days or weeks, it took him a couple of months before he figured that out. He's clearly going through the same thing here. And dealing with health care , as we've made clear already this morning, is the most complicated domestic issue to talk about. How do you figure out how to sell that in a simple, direct way? They haven't done that yet, they're clearly working on the message, the effort to go after the insurance companies , but I still think there's more to it that he has to do, and he hasn't quite gotten to that point.

MR. GREGORY: It's interesting, another aspect of this, back in 2006 , Haynes , before he is a candidate, of course, his top strategist, then and now, is David Axelrod , and writes a memo about strengths and weaknesses. I want to go right to the weaknesses part because it's germane to this. In terms of strengths, he talks about this unique figure who can bring change and sort of shed some of the left/right dogmas of the past. But on weaknesses, he says this:"The disarming admissions of weakness in your book will become fodder for unflattering, irritating inquiries. ... This is more than an unpleasant inconvenience. It goes to your willingness and ability to put up with something you've never experienced on a sustained basis: criticism. ... I don't know if you are Muhammad Ali or Floyd Patterson when it comes to taking a punch." Patterson , of course, famously could take a punch."You care too much what is written and said about you." Is that playing itself out now?

MR. JOHNSON: Absolutely. That's the most prescient memo, and the advice he gave to Obama was terrific. And Obama still seems to be struggling with, "How can I overcome this staying back while feeling I'm not getting heard, not getting respect and all that?" At the same time, he is the -- people feel comfortable with him, he's eloquent, he's cool, as we say. But he's got this conflict, and that memo just defined the difficulties he's having as president, I believe.

MR. GREGORY: Congressman Ford , how do you assess performance from this point of view about the president?

FMR. REP. FORD: Look, I think part of that is a big positive for him because he, he's constantly looking for an answer. He's a different breed of president in many, many ways. Dan and I were talking in the, in the, in the green room . In a lot of ways Obama 's presidency and his election was characteristic of American politics . You vote against the guy who was in before. Part of what I think this White House is going to have to come to understand even better is that people were so fed up and so sick of the policies of George Bush , they wanted something very different, and he represents and embodies that change. He now faces what Axelrod said in the memo, a "tough political fight." You don't change health care just because you really want to. This is an ongoing fight, and I'm glad Mr. Johnson 's here to give us the historical context of what we're dealing with.

I hope they take August and understand that they are in, if they're interested and serious, which I know they are in changing this, if they're going to have to focus on J.C. 's comments. They have focused and answered many of the CBO realities that this is not going to lower the deficit cost going forward . Max Baucus has put forward a solid bill. And three, I think they made a miscalculation in giving too much of this to the Congress . The president's got to be for something. I thought when he struggled in the press conference the other night, he couldn't quite declare definitively, specifically in sustained way, "Here's what I'm for, and here's what want to sign." If he does that over August, you give cover to the Blue Dogs , to the progressives, and, for that matter, even some Republicans who want to support it. And I think we might even bring J.C. over, listening to him talk about Medicare because we can address those concerns in this bill.

MR. GREGORY: We can, we can work it out right here.

FMR. REP. WATTS: J.C., J.C. Watts is your least concern . You should care about the American people .

MR. GREGORY: All right, I want, I want, I want to move on to the, the, the very difficult subject of race, and it's something that the president has taken on, obviously, in the past couple of weeks. Here was the image this week, just a low-key get-together over some beers at the White House on Thursday with Professor Henry Louis Gates and Sergeant Crowley , going back to the arrest in, in Cambridge . Just a couple of guys having some beer and about 4,000 photographers. That's how it always is. But...

FMR. REP. WATTS: David ?

MR. GREGORY: Yeah.

FMR. REP. WATTS: That was the most famous sit-down for a beer in American history .

MR. GREGORY: Yeah, I think so. I think so. Everyone's wanting to know what they have. The issue of race, though, the president made a determination here that he was going to take on this issue head-on because -- particularly because it was a racially-charged incident. It seems like he regrets how he did it and made some missteps along the way.

But, Dan Balz , it's interesting, if you go back to the campaign, the issue of race, again, something the president took on head-on, and he had to deal with it with Reverend Wright, his preacher who said so many inflammatory things from the pulpit. He talked to you about that, and, and we actually have an audio clip of that. Let's listen to it.

PRES. BARACK OBAMA: What you had was a, a moment where all the suspicions and misunderstandings that are embedded in our racial history were suddenly laid bare. ... One of the experiences that I have as somebody who's got family of, of all races is ... a firm recognition that beneath the skin people are the same. They've got same hopes, same dreams. But, you know, there's a different language, there's a different lexicon, and, you know, there are real cultural differences .

MR. GREGORY: Was this another case of misunderstandings being laid bare that the president wanted to get out there?

MR. BALZ: Well, I think it was. But, interestingly, in that same interview, he said, "If we had not handled the Reverend Wright episode properly...

MR. GREGORY: Mm-hmm.

MR. BALZ: ...I think we could have lost." I think it's important and instructive to think about the way he has involved himself in race. He certainly did not run a racially-based campaign. He wanted to run a post-racial campaign. There was an episode that drew him into talking about race, but he talked about it, in part, because he had a deep, political problem . He was politically at risk because of Reverend Wright. He didn't want to initiate a conversation on race, he had to talk about it. I think the same thing is what's happened here. This happened, he was asked about

it, he made a misstatement, he made an impolitic statement at his press conference. And he realized that he had caused more problems, not only for that situation, but for himself politically, that it was getting in the way of dealing with health care . And so the famous beer summit was really a way for him to extract himself from a political problem . I still don't think he's really ready to carry on and spark a real engaged conversation on race at this point.

MR. GREGORY: I don't know. You know, I'm not sure that I, that I see it that way completely, Congressman Ford , because I do think that, that he recognizes he's in a unique position as the first African-American president. If not he, then who is going to speak out about these matters when they come up to, to make it a national conversation ?

FMR. REP. FORD: I think he'd feel strongly about those issues, but I think he probably regrets saying it like he said it at the press conference.

MR. GREGORY: Yeah.

FMR. REP. FORD: It distracted from the healthcareconversation. But he made the very best of it, brought all four -- brought the two of them to the White House . Their families toured the White ; that's at a minimum. Sergeant Crowley and Professor Gates both got to see parts of the White House they probably have never seen, and their kids as well. But it's time to move on . This president was elected not to be the first black president , the first African-American president, the first whatever. People elected him because they wanted a better job, they wantedhealthcare coverage, they wanted us out of these wars, and they wantedAmerica to be put on a safer and secure, more sustained course. So.

FMR. REP. WATTS: It, it's very difficult for political people to talk about the issue of race. And then that's, that's very sad. That's unfortunate. I do believe the president wants to talk about the issue. I think he mishandled the Crowley situation; and, and he, you know, said at the outset, "I don't have all the facts." He probably should not have commented on it. However, Professor Gates , as he said, was a personal friend. I think he wants to have this discussion. And this discussion is just too difficult to have in politics, and it's unfortunate. America should -- we put men on the moon, we, we can Google people, we've got BlackBerrys ; but it's still very uncomfortable for us to talk about the issue of race. And, you know, we've got an African- American in the White House , and we still -- we, we can't talk about it in our churches.

MR. GREGORY: Mm-hmm.

FMR. REP. WATTS: And I think that's, I think that's sad.

MR. GREGORY: We've just a couple of minutes left. Dan Balz , I want to get to this final section about the election horse race and the future of the Republican Party . First, when you think about the various...

FMR. REP. FORD: Can I, can I leave?

MR. GREGORY: No. You're, you're on the hot seat here.

MR. BALZ: We want to hear what he says.

MR. GREGORY: But, Dan , start, start us off. Start us off. What's the blueprint here for Republicans , first, as they look at the midterm race, and where are the vulnerabilities for this president?

MR. BALZ: Well, you know, the Republicans are obviously in a very difficult position, but they've been there before. You know, after Bill Clinton got elected, there were a lot of people who thought they were going to be in the wilderness for quite a while, and within two years they'd taken over the Congress . So I think what they have to do are a couple of things. One is they have to think in small steps . This is not going to come back for them in 60 days or 90 days. If they can win those two gubernatorial races that are up this year in New Jersey and in Virginia - -and they have a very good chance in both, they're very competitive races -- people will begin to look at the party a little differently. If, then, the economy is not very strong next year and people are still dissatisfied with the president's leadership, the Republicans could have a pretty decent year in 2010 . I'm not predicting that at this point.

MR. GREGORY: Right.

MR. BALZ: It's too early. So -- but they still don't have a set of leaders that people look to to trust or a defined vision of what they want to be in the 21st century .

MR. GREGORY: One Republican who gets a lot of attention right now is former Governor Sarah Palin . She stepped down as governor of Alaska . Here she was giving that speech on, on her last day. She was supposed to speak at the Reagan Library , decided that she would not do that in the date coming up on August the 8th. You write about this in the book, a conversation between candidate McCain and A.B. Culvahouse . This is from the book. "`What's your bottom line ?' McCain asked A.B. Culvahouse ," who was in charge of the vetting process. He responded, "`John, high risk , high reward.' McCain then replied, `You shouldn't have told me that. I've been a risk-taker all my life.'" Was it a risk that the Republicans should have taken, and will they take it again?

MR. JOHNSON: He thought -- McCainthought he was going to lose if he didn't do something dramatic.

MR. GREGORY: Yeah.

MR. JOHNSON: I mean, that was the whole problem . And so they're reaching around, grabbing someone. Here's Sarah Palin , a woman countering Hillary and so forth. They got that. It was a risk that failed. It turned out not to be the right choice. What the right choice would have been, I don't know. But he was in trouble at the time, and it just didn't work out for him.

MR. GREGORY: Congressman Watts , Sarah Palin as, as a leader for the party?

FMR. REP. WATTS: Well, I think there are many people out there that's on the move that I think can, can play a role. I, you know, I happen to believe that, as an American, I have a voice, I have a perspective. I've had, I have my own opinions and thoughts about things, and I look forward to sharing those. I think Sarah Palin can play a role. Will she be the next president or

next nominee for Republicans ? I'm not willing to go that far, but I do believe that she's going to, she's going to play a role over the next two or three years.

MR. GREGORY: Do you want to come back into politics?

FMR. REP. WATTS: I miss you guys about that much. Can you see through that?

MR. GREGORY: Maybe if you'd spend more time with us, you'd, you'd, the love would grow again. All right.

MR. BALZ: He's ready.

MR. GREGORY: All right. We're going to leave you all -- leave it there. Thanks to all of you. An interesting conversation . We're going to continue our discussion online with Dan Balz and Haynes Johnson and ask them some questions that our viewers have submitted via e-mail, Facebook and Twitter , and just walking down the street and asking people what they think. It's our MEET THE PRESS Take Two Web extra. Plus, find a link to excerpts of their book "The Battle for America2008 ," and look for updates from me throughout the week. It's all at our Web site , mtp.msnbc.com.

And we'll be right back after this brief station break.

MR. GREGORY: That's all for today. We'll be back next week. If it's Sunday, it's MEET THE