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updated 2/2/2010 11:14:36 AM ET 2010-02-02T16:14:36

Guests: Peter Orszag, Rep. Jeb Hensarling, Jay Newton-Small, David Corn, Anne Kornblut

HOST:  The battle over numbers. Let‘s play HARDBALL! Good evening.  I‘m Chris Matthews in Washington.  Leading off tonight:

Budget baloney.  President Obama‘s face-off with House Republicans on Friday remains one of the most remarkable political performances we‘ve seen in memory.  One Republican who got smacked down by the president was Jeb Hensarling of Texas.  He‘ll join us in a minute and we‘ll give him another chance.  We‘ll ask him whether it‘s fair to blame President Obama for trillion-dollar deficits when the president inherited trillion-dollar deficits.

President Obama answered questions this afternoon on YouTube just days after his bravura performance with Republicans and his well-received State of the Union address.  It may be to early to say, but has the president got his groove back?

Plus, Andrew Young is certainly getting even with his former boss, John Edwards.  If Young‘s out-of-school tales about Edwards‘s cheating and serial mendacity are true, we have to ask, How did this man become a leading presidential candidate?

Also, why are so many conservatives bagging this week‘s tea party convention?  And how did the Democrats lose Massachusetts?  Well, check out “Saturday Night Live‘s” take.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  Our nominee, Martha Coakley, was the single most incompetent candidate ever to seek a public office in this nation‘s history!

(APPLAUSE)

UNIDENTIFIED MALE:  Shame on you, Martha Coakley!

(END VIDEO CLIP)

MATTHEWS:  A lot more of that in the HARDBALL “Sideshow.”

We start, however, with Peter Orszag, who‘s director—was the director of the Office of Management and Budget.  Sir, you‘ve got a big job, so I‘m going to ask you a big question.  The American people are hurting right now.  You‘re in charge of the budget.  How do you use the budget to get the unemployment rate down from 10 percent while we‘re all still alive?

PETER ORSZAG, DIR., OFFICE OF MANAGEMENT & BUDGET:  Well, two things.  First, we need some additional job creation measures now.  For example, the president put forward a new jobs and wages tax credit, which will help spur hiring and wage increases among small businesses.  And then we need to get the deficit down over time to make sure that job creation can continue and private sector activity can expand.

MATTHEWS:  I‘ve always wondered, since this administration took office, why you don‘t use the oldtime religion.  Why don‘t you do what they used to do, get all the public works projects which are backed up, have all been approved but haven‘t been funded, go to every state that wants a bridge that‘s below code, everywhere that‘s below code—and there are a lot of them out there—and say, Go build them, go fix them?  Why don‘t you start with Monahan (ph) Station in New York?  Why don‘t you build that?  Why don‘t you start building rapid rail from our big cities so we can catch up to the Europeans?

ORSZAG:  Well...

MATTHEWS:  Why don‘t we do big stuff in the federal government anymore, like Eisenhower did, like Lincoln did?

ORSZAG:  That‘s exactly what we are doing in the Recovery Act.  There are billions and billions of dollars in transportation investments that will be—that are building bridges and roads.  And with regard to high-speed rail, the Recovery Act included more than $7 billion in investments in high-speed rail in this budget, continues that by providing another billion.

MATTHEWS:  Well, where are they?  OK, we‘re in Washington, D.C.  Point one out to me.  Where can I go tonight and see rapid transit?  Where can I see bridges being built, roads being—I don‘t see them.

ORSZAG:  The Department of Transportation—in fact, the president was down in Florida last week, making an announcement about some new plans.  This does take time to build the high-speed rail of the future, but it‘s a good investment to make.

MATTHEWS:  Yes, I‘m still not hearing it yet, sir.  I think we need more volume and more activity and not just a pilot project to connect Tampa to Disneyland.

ORSZAG:  They‘re not—no, no.  These are—they‘re not pilot projects.

MATTHEWS:  Really?

ORSZAG:  These are billions of dollars of investments in the future of our rail system.

MATTHEWS:  OK, let me ask you about...

ORSZAG:  It‘s exactly what you‘re calling for.

MATTHEWS:  ... this freeze we‘ve got.  I know.  I want more, OK?

ORSZAG:  OK.

MATTHEWS:  You‘re not going to make me happy, but that‘s not your job anyway.  You can try.

ORSZAG:  OK.

MATTHEWS:  Let me ask you about this problem with the freeze.  It seems to me, if you look at the new budget, it‘s got $3.8 billion in outlays.  If you look at what‘s left in the budget, after you take out the security issues—defense, veterans, energy, Homeland Security—after you take out the entitlements, Social Security, Medicare, Medicaid, if you take out interest payments, all that‘s mandatory—you‘re left with about 10 percent of the budget that you can freeze, am I right?

ORSZAG:  A little north of that.  It‘s 14 percent.  But OK, let‘s—continue.  Yes.

MATTHEWS:  OK.  So how can...

ORSZAG:  It‘s not the majority...

MATTHEWS:  ... really restrict federal spending if you‘re only restricting 14 percent of it, its growth?  How much are you really holding down on federal spending?

ORSZAG:  Well...

MATTHEWS:  If I said, I‘m only going to take one seventh of my income and start spending less than that, people would say, That‘s not really...

ORSZAG:  That‘s not all we‘re doing.

MATTHEWS:  OK.  Tell me what you‘re doing.

ORSZAG:  No, no.  That‘s not all we‘re doing, so...

MATTHEWS:  OK.

ORSZAG:  The freeze on non-security discretionary spending will save $250 billion over 10 years.  That‘s only part of the $1.2 trillion in deficit reduction that is part of this budget.  So look, we never said it was the end-all, be-all.  It is an important step, but it‘s not the only step.

MATTHEWS:  So you‘re going to save about what, $25 billion a year?

ORSZAG:  From that step, yes, an average of $25 billion a year.

MATTHEWS:  So you‘re going to save $25 billion a year on a $3.8 trillion budget.

ORSZAG:  But that, again, is only part of the deficit reduction that we‘ve put forward.  We‘ve put forward more than a trillion dollars in deficit reduction over the next decade.

MATTHEWS:  OK.  Let me ask you about how you make calculations because you‘ve got a very tough job.  I mean, I used to work at OMB.  I used to work on the Budget Committee.  I know how hard it is.

ORSZAG:  You used to work at OMB?

MATTHEWS:  Yes, I was on the Government Reorganization Project...

ORSZAG:  OK.

MATTHEWS:  ... in ‘77 to ‘78, ‘79.  Let me ask you this...

ORSZAG:  Who knew?

MATTHEWS:  And I got to be a speech writer, which was a better job.

ORSZAG:  OK.

MATTHEWS:  Let me ask you about this question.  How do you deal with the threat—the Chinese have a lot of our paper.  We‘re borrowing a lot from abroad.  What‘s the tipping point where we‘ve just run too big a deficit for too long?  We‘ve got about 1.6 looking at us now, it was 1.2.  How do we know we‘re at the point where nobody‘s going to buy our paper, we‘re going into debt, but we‘re going so far into debt that people aren‘t buying our debt anymore?  And that‘s when our dollar shrinks.  When do we reach the point of no return, or well, diminishing returns in terms of budget and deficit?

ORSZAG:  Well, we need to get ahead of that problem.  Right now, what‘s happened is private sector borrowing has collapsed.  And that‘s a big reason why, despite these deficits, the 10-year Treasury is yielding less than 4 percent.  It‘s because Treasury securities remain the safest in the world and investors are seeking that safety and security...

MATTHEWS:  I see.

ORSZAG:  ... while other private borrowing has collapsed.  As borrowing picks up in the rest of the economy, there will be upward pressure on Treasury securities, and we need to get ahead of that.

MATTHEWS:  OK.  Well, I hope we don‘t reach that point.  I ask you about it only...

ORSZAG:  I agree.

MATTHEWS:  ... of fear that we don‘t want to be where we can‘t borrow anymore.  Thank you, Peter Orszag.  You‘ve got a tough job, OMB director at the White House.

Well, now we‘re going to have some fun here.  Republican congressman Jeb Hensarling of Texas told President Obama at Friday‘s House Republican retreat—it turned out not to be a retreat—that the old annual deficits under Republicans have become the monthly deficits under Democrats, an assertion that the president shot down.

Do you still argue, sir, that the monthly deficits of Barack Obama are equal to the Republican annual deficits?

REP. JEB HENSARLING (R-TX), BUDGET COMMITTEE:  Well, that‘s not what I said.  I said Democratic deficits.  Chris, you know, you‘ve been in Washington.  only Congress—only Congress...

MATTHEWS:  Right.

HENSARLING:  ... can pass spending bills.  I‘ve got a chart that shows it right here.  If you take the 12 years that Republicans were in control of Congress, you had budget deficits of roughly $104 billion a year.  Now, listen, I‘m embarrassed about that.  But in the three years that Democrats have been in charge of Congress, what you have is actually budget deficits that are approaching $1.1 trillion.  So yes, I stand by the assertion.

MATTHEWS:  Well let me explain this...

HENSARLING:  Maybe the president misunderstood me.  Otherwise, he has his facts wrong.

MATTHEWS:  Well, let me go this way.  If you look at the deficit as it‘s grown over time—as you know, it‘s grown over time—by the time this president took office, the FY, I guess, 2010 budget was already up to $1.2 trillion.  He‘s now causing—he‘s now calling for a budget deficit of $1.6 trillion.  So he‘s basically taking it from $100 billion a month to $133 billion a month.  That‘s about a third increase per month.  That‘s really what the increase has been under his watch, right?

(CROSSTALK)

MATTHEWS:  No, let‘s just talk about this president because that‘s the guy you were debating.

HENSARLING:  Well, again, Chris, all the president can—no, no, no, no, no.

MATTHEWS:  Huh?

HENSARLING:  No.  No.

MATTHEWS:  But isn‘t that factually correct?

HENSARLING:  Read the transcript, please, of what I—what I said.

MATTHEWS:  No, I‘m—look, I‘m not arguing...

HENSARLING:  You‘re switching my words.  The Congress is the one...

MATTHEWS:  OK...

(CROSSTALK)

MATTHEWS:  Let me ask you a fresh question...

HENSARLING:  ... the president inherited a deficit, but he inherited it from the Democratic Congress.

MATTHEWS:  Oh, OK.

HENSARLING:  He inherited it from the Democrat Congress.

MATTHEWS:  So...

HENSARLING:  He came in—look at what happened at FY ‘09.  Look at what he does over 10 years, what he proposes over 10 years.  And although he wouldn‘t answer my question, or he declined to answer it on Friday, once again, we see his budget will triple the national debt over the next 10 years.  And frankly, it‘s just unacceptable.

MATTHEWS:  But you know, it is true we inherited a $1.2 trillion deficit that‘s gone up to $1.6 trillion.  That‘s really what he‘s inherited, right?

HENSARLING:  Well, again, if he inherited it, he inherited it from the Democratic Congress.  The point is, are you going to make the situation worse or are you going to make it better?

MATTHEWS:  OK, let‘s talk...

HENSARLING:  It still triples the national debt.  In his proposed budget over 10 years, he increases the size of government from roughly 20 percent of the economy in his budget window...

MATTHEWS:  OK...

HENSARLING:  ... to 25 percent of the economy.  That‘s the question I asked on Friday, and he declined to answer it.  But today, with the release of his budget, he does obviously answer the question, and the answer is yes.  You can‘t say, I‘m going to be fiscally responsible, and do these kind of things.  I mean, you can‘t have it both ways.

MATTHEWS:  This blame game—under President Bush, I don‘t think the president was known for vetoing spending bills, was he, President Bush.

HENSARLING:  No, he wasn‘t.  And frankly, it‘s one of the reasons that

Republicans were let out of office.  But again, when it comes to spending -

listen, there‘s—there‘s blame on my side of the aisle.  I fought my own party leadership on these spending items.  You can look at the record.  I‘ve introduced budget legislation to ensure that the cost of government, the federal budget, doesn‘t grow faster than the family budget.  I‘ve actually written budgets in Congress.

But again, what was annual budget deficits under Republicans have become monthly budget deficits under Democrats.

MATTHEWS:  OK.

HENSARLING:  When it comes to...

MATTHEWS:  Let‘s—let‘s...

HENSARLING:  ... spending and deficits, Republicans are rank amateurs compared to Democrats.

MATTHEWS:  OK, let‘s talk about what you would do.  We have a budget

of about $3.8 billion (SIC) in outlays that‘s been proposed by the

president today.  Once you take out Medicare, Medicaid, Social Security,

interest payments, all the security issues, you‘re left with about 14

percent of the budget you can actually cut.  If you get rid of basically—

we‘re looking at a pie chart here.  You‘re familiar with it.  Once you get

rid of all that non-security discretionary spending, get rid of all of it -

you‘d have to get rid of all of it to balance the budget, wouldn‘t you.

HENSARLING:  Well, Chris, what you‘re going to ultimately have to do is reform entitlement spending for future generations.  People who are retired, or soon to be on retirement, I mean, they need the same deal that they‘ve counted on their whole life.  But otherwise, you know, somebody‘s going to have to shoot straight with the American people.  And ultimately, what Republicans will be proposing is, you know, to some extent we want to make sure you have the same retirement plan and the same health care plan that your member of Congress has.  As you well know, that‘s the federal Employee Health Benefit plan.  It‘s the thrift savings plan.  It‘s essentially a defined contribution.

It‘s the only thing to keep us from bankrupting this economy and being the first generation in America‘s history to leave the next generation with a lower standard of living.  As we all know, ultimately, you have to reform entitlement spending, but the president steps backwards.

MATTHEWS:  OK...

HENSARLING:  He adds new entitlement programs, new entitlement spending.  He takes a bad situation, he makes it worse.  And that‘s one of the reasons we continue to have sluggish job growth...

MATTHEWS:  OK...

HENSARLING:  ... in this economy because people are wondering, How are we going to pay for all this debt?

MATTHEWS:  OK.  Are you speaking for Eric Cantor and John Boehner and the Republican leadership?  Are you speaking for them when you say you want to restrict the growth of Social Security benefits?

HENSARLING:  What I said was, everybody who‘s presently on—and I speak for nobody but Jeb Hensarling.  What I said was, for people who are presently on Social Security and Medicare, they have to have it, those who are close to it, 55 and above.

But those under 55, we have to start a transition to a new system that will save America from bankruptcy and a lower standard of living.  I‘m happy to say that.  I believe they have said it.  And you know, I would hope that the president would want to lead on this.

MATTHEWS:  OK, but...

HENSARLING:  But instead, he says, Well, what I‘m going to do is freeze the budget.  But he doesn‘t do it.

MATTHEWS:  So what it all comes down to, sir, is after all this arguing and back and forth last Friday up in Baltimore, the difference between the Republicans and the Democrats—between you, sir, and the Democrats—is that you‘re willing to say on national television, as you are right now, you are willing to restrict growth in future Social Security benefits.  You‘re willing to say, for people who make less than 55 -- or less than 55 years old, you would give them lower Social Security benefits than now projected.  You would cut them.  You‘re one to say that, and they‘re not.  That‘s the difference between you and them.

HENSARLING:  Well, I would say that—I‘m willing to say that that part of the social contract is going to have to be reengineered.  Listen, people under 55...

MATTHEWS:  You use clever...

HENSARLING:  ... know that the present system...

MATTHEWS:  You‘re using—oh, here we go with...

HENSARLING:  ... is going bankrupt.

MATTHEWS:  ... Latinate words!

HENSARLING:  You know...

MATTHEWS:  The Latinate words.  This is why people don‘t trust politicians, including you, sir.  “Reengineer, reform”—you mean cut Social Security benefits as a way of balancing the budget.  That‘s what you just said three times.  Do you want to say it a fourth time?

HENSARLING:  I think—no, no, no, no, no, no, no, no, no...

MATTHEWS:  Reengineer, reform—what‘s your next Latinate word going to be?

HENSARLING:  No, what I‘m saying is, if you would look—if you would look—ultimately, ultimately, ultimately, I believe you can get better health care and better retirement security if you go to a defined contribution plan.  We had this debate in Social Security a few years ago.  Now, ultimately, we weren‘t victorious.  There will be a transition.  If you want to say that those under 55, as a transition, are they going to get the same deal as their parents?  No, probably not.  But the question is...

MATTHEWS:  OK.  Probably not.  So you‘re probably...

HENSARLING:  ... sure, we can get that generation...

MATTHEWS:  ... going to cut the Social Security benefits...

HENSARLING:  ...  (INAUDIBLE) parents, but ultimately...

MATTHEWS:  ... future benefits...

HENSARLING:  But ultimately...

MATTHEWS:  ... and you‘re going to privatize the plan.

HENSARLING:  ... what will happen then is that your children—your children won‘t be able to go to college.  Your children won‘t be able to have the same opportunities that you had.

MATTHEWS:  OK...

HENSARLING:  Now, what the big difference is here is, Chris, is that the Democrats are proposing to triple the national debt over the next 10 years.  You cannot bail out, borrow and spend your way into economic prosperity.  That‘s why we continue to be mired in 10 percent unemployment in this economy.

MATTHEWS:  OK.  Thank you.

HENSARLING:  And the Republicans propose an actual freeze on non-defense discretionary and to keep spending at its historic levels.  I mean, there was a time that Steny Hoyer, the Republican—rather, the Democrat majority leader...

MATTHEWS:  OK...

HENSARLING:  ... when deficits were $160 billion, said, This is fiscal child abuse.

MATTHEWS:  OK...

HENSARLING:  And now they‘re $1.6 trillion and they‘re singing “Che Sera Sera.”

MATTHEWS:  OK, well, sir, you‘ve got a lot of guts to come on and talk about cutting future Social Security benefits.

HENSARLING:  So that‘s the difference!

MATTHEWS:  And that‘s what you‘ve done.  That separates you from your leaders because I‘ll bet you by tomorrow morning, you‘re going to hear from Eric Cantor and you‘re going to hear from John Boehner, Are you crazy for calling for cuts in Social Security benefits?

Anyway, thank you for doing so because it shows your point of view on how to balance the budget.  But that‘s tough stuff and people aren‘t going to like hearing it.  Anyway, thank you, Jeb Hensarling...

HENSARLING:  No, what I said...

MATTHEWS:  ... a true Phil Gramm.  Coming up...

HENSARLING:  ... is number one, you can‘t do it without reforming...

MATTHEWS:  OK...

HENSARLING:  ... entitlement spending.

MATTHEWS:  OK.  OK.

Just days after President Obama‘s State of the Union and his showdown with House Republicans, is the president beginning to get his groove back?

You‘re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED FEMALE:  President Obama, record numbers of young people elected you in support of a clean energy future.  If money is tight, why do you propose wasting billions in expensive nuclear, dirty coal and offshore drilling?  We need to ramp up efficiency, wind and solar, that are all economically sustainable and create clean and safe jobs for our generation.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES:  Well, you‘re not going to get any argument from me about the need to create clean energy jobs.  I think this is going to be the driver of our economy over the long term.

(END VIDEO CLIP)

MATTHEWS:  Welcome back to HARDBALL.  That was President Obama today taking questions submitted to YouTube. 

January‘s been tough for President Obama.  And, lately, he‘s been pushing back at his critics and showing some of the old energy he had when he first came into office a year ago.  Can his new energy help him?

Chuck Todd is NBC News chief White House correspondent, political director.  And MSNBC political analyst Eugene Robinson is a Pulitzer Prize-winning columnist for “The Washington Post.” 

Chuck, I guess one of the goals of the president was to—sort of to smoke out the Republicans, make them come up with proposals.  We just heard one.  Jeb Hensarling of Texas says, cut Social Security benefits.  You‘ve got to wonder that would be one of the goals, force the Republicans to offer alternatives which are painful and unpleasant—Chuck.

CHUCK TODD, NBC NEWS POLITICAL DIRECTOR:  Well, I‘ll tell you, I know that is one of the goals of the White House, is try to figure out how to either force Republicans to defend votes, essentially, because the first year has been all about a referendum on Democratic control of government, because they have had 60 Senate seats for, you know, about four or five months of the Senate, that large majority in the House. 

And, of course, they control the White House.  And, so, it‘s all about a referendum on Democrats.  And, obviously, the White House, with the loss of the one Senate seat, number one, they do need to figure out how to find a Republican every now and then on different—as long as they have the 60-vote threshold that is needed to govern in the United States Senate. 

And, two, they want to figure out how to—how to force the Republicans to defend it, create a choice environment, because, you know, one of the biggest problems—and I remember this was a problem for the—for the Bush White House back in ‘04, and they changed it—was how to turn a political environment that‘s a referendum into a choice election, where...

MATTHEWS:  Right. 

TODD:  ... voters sit there and pick A or B. 

And it‘s been very difficult.  You know, the Democrats in the House do not make these Republicans do the tough votes that Republicans used to make Democrats do. 

MATTHEWS:  You know, it‘s interesting. 

Gene, you and have been through this a few times.  Every time the Republicans touch what we call the third rail...

EUGENE ROBINSON, MSNBC POLITICAL ANALYST:  Mm-hmm. 

MATTHEWS:  ... they get electrocuted. 

(CROSSTALK)

MATTHEWS:  This fellow, in a very clever way, kept saying, reengineer, reform, lower the benefits. 

ROBINSON:  It‘s going to sound...

MATTHEWS:  Privatize the program.  That was what killed a lot of Republicans over the years, including all kinds of Republicans we know, who have been losing their seats over that. 

ROBINSON:  No.  And that‘s what it sounds like, is the old Bush proposal, privatize Social Security, essentially...

MATTHEWS:  As a way of balancing the budget. 

(CROSSTALK)

ROBINSON:  ... private accounts to balance the budget. 

Make it like the federal savings program, which is you know, the next step along that route, certainly.  And let‘s see how that goes over.  You know, we know how it went over the last time.  It‘s—it‘s—that is a third rail issue. 

MATTHEWS:  Yes. 

It‘s interesting that when you ask Republicans, like him, who are ideologues, and smart ones, their first instinct when you say, how do you balance the budget, after all this loose talk about deficits and debts, how do you actually cut it, they can‘t get into the discretionary.  It‘s too difficult.  They say Social Security, reform it.  They go right for the old third rail.

(LAUGHTER)

MATTHEWS:  Here‘s President Obama in his State of the Union last week. 

Let‘s listen to his approach to this. 

(BEGIN VIDEO CLIP)

OBAMA:  And if the Republican leadership is going to insist that 60 votes in the Senate are required to do any business at all in this town, a supermajority, then the responsibility to govern is now yours, as well.  Just saying no to everything may be good short-term politics, but it‘s not leadership. 

(APPLAUSE)

(END VIDEO CLIP)

MATTHEWS:  Chuck, he‘s trying to say to the public, it‘s no longer OK for the Republicans to go sit in their corner and let the tea party people battle it out with the Democrats.  They‘re not in their corner.  Because of the 60-vote rule, they‘re basically junior partners in letting the government work.  They can‘t sit on their hands, or else the government won‘t work, and it‘s their fault. 

TODD:  Well, and that seems to be the message out of this White House, when you look at Friday, when he went to the House Republican retreat and had that back-and-forth on various policy questions, and what you saw simply not just out of the State of the Union, but out of Robert Gibbs today, when he talked about how, hey, the American people want, he said, both parties to work to govern. 

And, so, they are trying to figure out how to, politically, put Republicans in—in this—in this judgment box, if you will, on governing, so that the country sees—sees them as part of this, too. 

What we haven‘t seen out of the leadership, on the congressional Democratic side or the congressional Republican side, is that, right now, when you look at the Senate Democrats, they seem to fear losing votes sometimes. 

This deficit commission was the first time that they—that they brought up a vote they knew they could lose, because they seemed to want to prove a political point.  That doesn‘t always happen. 

Over the first year, it seemed as if the Senate leadership wanted to bring up votes that they—only bring up votes they thought they could win, and not highlight losing.  I think you may see a different tactic this year, because they want to try to highlight what the Republicans are doing. 

MATTHEWS:  Is it going to work, Gene? 

Do you think what he‘s doing the last week of really being out there, being energetic, and gung-ho and engaging the Republicans, is that going to give him any ground?  Is it going to help him get anything done?  Or just blame the Republicans? 

(CROSSTALK)

ROBINSON:  Well, will it immediately help him get anything done?  I‘m not sure.  I think it‘s a better posture for him. 

It—it—it heartens the—the Democratic base to see him out there fighting.  And I think it—it does have an impact.  It does point out to people that, well, you know, there‘s the Republican Party.  And they can participate in this, too...

MATTHEWS:  Yes. 

ROBINSON:  ... or not.  And, if the answer is not, or if the answer is privatize Social Security, then that...

MATTHEWS:  Yes, well...

(CROSSTALK)

ROBINSON:  ... casts a whole different light on the choice that people are going to make in November. 

MATTHEWS:  Well, here‘s President Obama at that Republican meeting Baltimore—in Baltimore.  We covered it, Keith, Rachel, and I, on Friday night in a two-hour special.  But let‘s listen.

It was really history-making for a president to go into the lion‘s den and take on every question that the people in that room had for him and get kind of combative.  Here he is. 

(BEGIN VIDEO CLIP)

OBAMA:  The only thing I don‘t want—and here I am listening to the American people, and I think they don‘t want either—is for Washington to continue being so Washington-like. 

They didn‘t send us to Washington to fight each other in some sort of political steel cage match.

(END VIDEO CLIP)

MATTHEWS:  Last question for Chuck. 

I get the feeling part of this is charm offensive.  The president‘s strength is personal.  People like him.  Doing all this stuff, going to Baltimore with the Republicans, going to the Duke-Georgetown game on Saturday with Joe Biden...

(CROSSTALK)

(LAUGHTER)

TODD:  You‘re right.  Sure.

MATTHEWS:  You‘re laughing, but isn‘t this all part, Chuck—isn‘t this all part of just reminding people we like them? 

TODD:  Well, I think this is about, look, fixing his own political—look, if he—if he fixes his own political problems with the middle right now, right, where we have seen him lose sort of independents, or lose sort of casual Washington observers, meaning folks that are fed up with what was going on in Washington in ‘06, ‘08, voted for change, and now aren‘t really pleased with what‘s going on now, he seems to be trying to fix himself with that part of the electorate a little bit. 

The question is, can he fix his own politics—does fixing his own politics with independents, which calls for looking like you want to do more partisanship, does that help the congressional Democratic cause?  In some cases, it will, but, in some cases, they at cross-purposes.

So, that is going to be an interesting dynamic to watch, because, clearly, I think we‘re seeing the very, very beginnings of Obama trying to right himself in time for 2012. 

And the question is, does doing that help?  It should help a little bit on the margins for 2010, but does it help all the way, or does it sometimes undermine a little bit of what congressional Democrats want to see done, or at least some of the more rank-and-file on the left?

MATTHEWS:  OK.  Got to go.

Chuck Todd, thank you.

Eugene Robinson, sir, thank you very much. 

Up next: “Saturday Night Live” takes on how the Democrats lost in Massachusetts, how they secretly call this one.  They blame it on her.  Check out the “Sideshow” coming up next. 

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

(LAUGHTER)

MATTHEWS:  Back to HARDBALL.  Time for the “Sideshow.” 

Now, there‘s some fun this weekend: “Saturday Night Live”‘s opening sketch of the State of the Union, with the president saying what Democrats really think, actually, in this city about Massachusetts and what went wrong up there. 

(BEGIN VIDEO CLIP, “SATURDAY NIGHT LIVE”)

FRED ARMISEN, ACTOR:  Now, that election didn‘t go my party‘s way. 

(LAUGHTER)

ARMISEN:  So, naturally, all the pundits have their different theories on what it all means. 

The fact is, no one knows. 

(LAUGHTER)

ARMISEN:  But there‘s one thing we do know. 

Our nominee, Martha Coakley, was the single most incompetent candidate ever to seek public office in this nation‘s history!

(CHEERING AND APPLAUSE) 

ARMISEN:  Shame on you, Martha Coakley. 

(APPLAUSE)

ARMISEN:  How do you not know that Curt Schilling pitched for the Red Sox? 

(APPLAUSE)

ARMISEN:  Martha Coakley, you are a disgrace. 

(APPLAUSE)

ARMISEN:  You couldn‘t beat Dick Cheney for mayor of Berkeley. 

(APPLAUSE)

(END VIDEO CLIP)

MATTHEWS:  Well, you see the lesson in politics.  Democrats kill their wounded like Martha Coakley.  Think of what they did to Mondale, to Dukakis, to Al Gore, even to John Kerry to some extent.  What do Republicans do to their losers?  They run their losers in the next election.  Think of Nixon, Dole, McCain.  And here comes Mitt Romney.  They have different approaches. 

(LAUGHTER)

MATTHEWS:  Up next:  Former John Edwards aide Andrew Young is throwing the book at his former boss.  But if Young‘s accounts of Edwards‘ transgressions are true, how did John Edwards manage to be such a prominent figure in Democratic presidential politics?  Get ready for the sleaze. 

You‘re watching HARDBALL, only on MSNBC.  

(COMMERCIAL BREAK)

JULIA BOORSTIN, CNBC CORRESPONDENT:  I‘m Julia Boorstin with your CNBC “Market Wrap.”

Stocks kicking off the new month with a rally on a stronger-than-expected report on manufacturing, the Dow Jones industrials surging 118 points, the S&P 500 adding 15 points, the Nasdaq gaining almost 24 points. 

Industrials one of the strongest sectors today, after a report showing faster-than-expected growth in U.S. manufacturing.  Aluminum giant Alcoa and DuPont chemicals finishing at the top of the Dow. 

But report also showing a surprise drop in construction spending, home-building, state and local government construction all on the decline in December. 

Energy stocks another bright spot today after a better-than-expected earning reports from ExxonMobil.  A 23 percent drop in profits was still less than analysts had predicted. 

And the Commerce Department reporting personal income and spending were up for the third straight month in December, those gains in line with last week‘s reported uptick in the GDP. 

That‘s it from CNBC, first in business worldwide—now back to

HARDBALL. 

(BEGIN VIDEO CLIP, “20/20”)

ANDREW YOUNG, FORMER AIDE TO JOHN EDWARDS:  He had just gotten this musical system put in.  (INAUDIBLE) was there, C-SPAN was on, you know, NPR, so and so forth.  Here we had some rock music blaring.  He was sitting on his back porch watching the rain.

And the wine kept on pouring.  And they started talking about, you know, “Once Elizabeth was gone,” and the comment was made, “You know, this is the way it should be.  And, once Elizabeth is gone, this is the way it will be.”

(END VIDEO CLIP)

MATTHEWS:  The comment was made?  The comment was made? 

Welcome back to HARDBALL.  That was former John Edwards‘ aide and former loyalist—former loyalist—Andrew Young this past Friday On ABC‘s 20/20 describing a conversation he said he saw between Edwards and Rielle Hunter, obviously Edwards‘ girlfriend. 

Young‘s new book is called “The Politician.”  He will be here on HARDBALL Wednesday.  He‘s making a lot of allegations.  But, after staying silent for so long, what is his goal by talking so much now and why didn‘t he speak up when John Edwards was actually going to be possibly our president, our vice president, maybe our attorney general, or anything important?

Anne Kornblut is a reporter for “The Washington Post,” the author of “Notes from the Cracked Ceiling.”  And MSNBC political analyst Richard Wolffe is the author of “Renegade.”

First of all, a quick review from the start.  What do we make of somebody who didn‘t talk when it mattered to us, and only talks now, when it matters to him? 

Anne? 

ANNE KORNBLUT, “THE WASHINGTON POST”:  Well, the whole thing is obviously very distasteful. 

And, yet, it‘s hard, I think, for John Edwards to push back at this point.  And some of the allegations, if not all of them, seem believable, given what we know about what went on in that marriage.  So, as horrifying as it is, it has a pretty big car wreck quality to it, which is, you don‘t want to keep looking, but you can‘t help it. 

MATTHEWS:  What do you make of this verb form, “Then the comment was made this is the way it should be”?

KORNBLUT:  Oh, the passive...

MATTHEWS:  No, but him hanging around—him hanging around with his girlfriend, not his wife.  “This is the way it should be.  The comment was made, you know, this is the way it should be.”  How about that for a verb form?  It didn‘t say who make the fricking comment. 

RICHARD WOLFFE, MSNBC POLITICAL ANALYST:  And there seems to be so many of these collective things that were going on with, what would life be like after Elizabeth left?

And this was a—clearly a group of people, a group enterprise, as one...

(CROSSTALK)

MATTHEWS:  To write this book?

WOLFFE:  No, not to write the book.

MATTHEWS:  Oh, OK.

WOLFFE:  To have these conversations.  And, I mean, a lot of people knew what was going on.  And...

MATTHEWS:  So, you‘re—you‘re making the point that this is good—this is good reporting, that this is probably what happened? 

WOLFFE:  Well, Young was there, right? 

MATTHEWS:  Yes, I‘m saying, he was...

WOLFFE:  He‘s a firsthand source. 

MATTHEWS:  Yes?

WOLFFE:  I mean, this is—this is a witness statement.

MATTHEWS:  Don‘t we usually go with the Woodward and Bernstein, two sources to know what happened? 

WOLFFE:  You know, listen, the—the—the statement coming out of Edwards was, this guy is just out for the money and the fame. 

MATTHEWS:  Let‘s listen to more of Young‘s account.  Here he is on ABC describing how he says Edwards convinced him to help him cover up getting Young—him—to say he was the baby‘s father of this love child, and getting Young‘s family to let Hunter move in with them.  Let‘s listen. 

(BEGIN VIDEO CLIP)

YOUNG:  -- that this is bigger than any of us.  This is what we‘ve fought for for so long.  He would always bring back in Elizabeth doesn‘t have long to live.  I know y‘all have differences with her, but I love her, and I don‘t want her to go out this way. 

BOB WOODRUFF, ABC NEWS ANCHOR:  You had a chance to say no? 

UNIDENTIFIED FEMALE:  I had a chance to say no.  It wasn‘t that easy because I didn‘t feel like I could say no. 

(END VIDEO CLIP)

MATTHEWS:  This is so murky.  This is a guy saying he‘s willing to say he‘s the father of this love child, to use a common expression, so he could protect his boss‘s wife, who was in very bad health.  Your thoughts? 

KORNBLUT:  I mean, sure.  Look, political aides go to bat for their bosses all the time.  They probably crossed some ethical lines at times.  But at a certain point you have to ask, was he not thinking about the country?  John Edwards was going to run.  And yes, it was potentially very upsetting for Elizabeth Edwards.  But they were running to be president of the United States.  Did he not—did it not ever occur to him he might call his boss out or say, no, I‘m not going to cooperate in all of this. 

Obviously, the appeal to a greater cause is—this is not the first time a politician has said it‘s not about me, it‘s about the people.  But some of the other things that go on really cast that into doubt that that was what he was after. 

MATTHEWS:  Wait until you catch the bad ethics involved in this one, Richard.  Respond to this little clip.  Here‘s Young, on ABC again, describing what Edwards wanted him to do when they heard that Hunter, the girlfriend, was pregnant.  Let‘s listen to this intrigue.

(BEGIN VIDEO CLIP)

YOUNG:  He asked me and Fred Baron to arrange for a fake paternity test. 

WOODRUFF:  A fake one? 

YOUNG:  A fake paternity test.  Fake paternity—get a doctor to fake the DNA results.  And he asked me and Sherri to steal a diaper from the baby, so that he could secretly do a DNA test to find out if it was, indeed, his child. 

(END VIDEO CLIP)

MATTHEWS:  Fake a paternity test and then steal a diaper to try to avoid DNA evidence.  This guy—you‘ve got to look back at some of his legal cases after you look at this methodology, don‘t you? 

WOLFFE:  Number one, this is even more sordid and squalid than the affair itself.  Number two, what did he to to anger Young to make him this annoyed that he would want to have this retribution?  And number three, when you look back at some of the earlier interviews that we saw here, Young seems to be saying that his motive was—he was told other candidates were doing this, too, that other people had skeletons in their closet.  To answer Anne‘s point earlier, he believed everyone was doing this stuff. 

MATTHEWS:  Doing what, having children with—

WOLFFE:  They all had something to hide.  So Edwards was no worse than anyone else.  What kind—How low do they have to think politics has sunk to think everyone is stealing diapers? 

MATTHEWS:  Anne Kornblut, is it this bad that they had a case of everybody does it? 

KORNBLUT:  Look, we know he‘s not the first politician to cheat on his wife.  And obviously this is a case of the extreme, given that they had a child.  But Richard‘s point is exactly right.  When did Andrew Young exactly turn?  He talks in the interview, the clip you just played, as though he‘s shocked by what a creep John Edwards is.  This is obviously the same person he had worked for for quite some time.  And it seems like it was a slippery slope that he evolved over time into this person, but that Andrew Young just had this great awakening.  I can‘t wait for you to interview him, Chris. 

MATTHEWS:  He was trying to make this guy president of the United States.  He wasn‘t just hanging out with him.  Here‘s Young, by the way, making an allegation about John and Elizabeth Edwards‘ conversations.  This is so strange.  He‘s talking here now about the conversation between his boss to candidate and his wife, after they announced that she had cancer and had returned.  Let‘s listen to this part.

(BEGIN VIDEO CLIP)

YOUNG:  In that press conference, it seemed like Elizabeth was going to die within the week.  Within 12 hours, they were openly talking about how her cancer prognosis was going to help them in the polls. 

(END VIDEO CLIP)

WOLFFE:  OK so I actually think this book, with the exception of this piece of it, is better for Elizabeth Edwards.  Faced with what her husband was up to, with her own cancer, with the tragedy in her life, losing a son, you can understand why this woman would be behaving in such an extreme fashion. 

This kind of politicking about her illness is so distasteful.  It is hard to match up, more than anything else coming out of this—hard to match up with that public image. 

MATTHEWS:  I want to talk to her some time.  I‘m not sure.  I rendered my own person—I always liked Elizabeth.  Maybe I‘m dead wrong.  But I‘ve always like her.  Thank you, Anne Kornblut.  Thank you, Richard Wolffe.

Up next, for a political movement with so much bluster, why are so many big name conservatives bagging—I love the phrase—somebody wrote this here, “bagging this year‘s Tea Party convention.”  Get it?  Bagging, tea party?  This is HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back in time for the politics fix.  David Corn is Washington bureau chief of “Mother Jones Magazine”, and Jay Newton-Small is Washington correspondent for “Time Magazine.”  Thank you both. 

This craziness of this for-profit, apparently, Tea Party convention down in Nashville coming up this weekend—you know, here she is, the wife of—the co-organizer, wife of the organizer of the National Tea Party Convention, responded to the criticism in a blog.  A lot of criticism coming from people like Michele Bachmann and all, who don‘t want to go.  She wrote, one of the co-organizers, “we have been refrained from responding to many of the attacks that have been thrown at us from other Tea Party groups in the belief we do not want to spread the divisions that are already hurting this movement.  Even though that does not seem to be the consideration of others involved in this movement.” 

This movement‘s just begun.  Somebody‘s trying to make money on it and somebody else doesn‘t like it. 

DAVID CORN, “MOTHER JONES”:  What happened was they set up this group.  It was a for profit operation.  They never said where the money was going, if they made any money.  They were dodging what they were paying Sarah Palin.  “Mother Jones,” we got some internal planning documents saying she will be making 115,000 dollars. 

MATTHEWS:  Thank god for “Mother Jones,” right? 

CORN:  Thank god for that, yes.  They pay me less than that.  But thank god for that.  Sarah Palin won‘t specify where that money is going either.  But I think the thing that really ticked off the Tea Party people themselves is that they were charging 550 dollars a head; the dinner is going to be serving steak and lobster.  And the Tea Party people, I may disagree with them, but they tend to be modest income grass roots activists at the core—at the heart of the movement. 

MATTHEWS:  The dinner costs 200 bucks, just the dinner.

CORN:  It looks like somebody is trying to make a buck off of them. 

MATTHEWS:  Here‘s Sarah Palin—I want you in Jay.  Here‘s Sarah Palin first—Governor Palin speaking about speaking at the convention.  Let‘s listen. 

(BEGIN VIDEO CLIP)

SARAH PALIN, FMR. GOVERNOR OF ALASKA:  You betcha I‘m going to be there.  I‘m going to speak there because there are people traveling from many miles away to hear what that Tea Party movement is all about, and what that message is that should be received by our politicians in Washington. 

I‘m honored to get to be there.  I won‘t personally gain from being there.  The speaker‘s fee will go right back into the cause.  I‘ll be able to donate it to people and to events, those things that I believe in, that will help perpetuate the message; the message being, government, you have Constitutional limits.  You better start abiding by them. 

(END VIDEO CLIP)

MATTHEWS:  So, Jay, she‘s going to get 100 percent tax write off, because she has already committed the money—but she does say cleverly, I‘ll be able to donate, not that she‘s going to.  I don‘t want to parse it too tightly here. 

JAY NEWTON-SMALL, “TIME MAGAZINE”:  There‘s a controversy—right—about how they‘re going to use this money.  Maybe she wants to donate it back to this particular group.  Maybe it will be another group.  Maybe it will be her own PAC, which is going to do all kinds of things to help the parties.  We don‘t know where she is going to give the money.  She‘s just giving it to the movement, quote, unquote.

But it certainly is sort of a weird juxtaposition to say, we‘re going to have a national Tea Party meeting, when the whole point of the Tea Party is to be grass party roots.  It‘s to be bottom up, rather than top down, saying this is what we are and this is who we are.  That‘s where I think a lot of the struggle is coming from.  It‘s people saying, you‘re not speaking for me.  I‘m a Tea Party activist and I‘m not going to this thing.  So there‘s a lot of anger.  There‘s a lot of sort of struggling to define themselves here. 

MATTHEWS:  Who do you think the Tea Party people are?  Do you think the Tea Party people are also the real angry people on the far right who don‘t like Barack Obama because where he comes from?

CORN:  I think there‘s a lot—I think there‘s a cultural aspect to this, that he doesn‘t represent their vision of American.  On the Sarah Palin question, what she‘s going to do with the money, the news also came out today that her PAC, Sarah PAC—Sarah Palin‘s PAC—has spent more money buying copies of her own book than giving contributions to candidates.  So she can take that 100,000 dollars, buy copies of her book to give to people in the movement—

MATTHEWS:  It‘s one way to make the best sellers‘ list.  We‘ll be right back with David Corn.  We have a new way to do it.  Start a movement and they will pay for the books.  Jay Newton-Small, she‘ll join us back with “Time.”  You‘re watching HARDBALL, only on MSNBC.

(COMMERCIAL BREAK)

MATTHEWS:  We‘re back with David Corn of “Mother Jones” and “Time Magazine‘s” Jay Newton-Small.  This weekend, as I mentioned earlier in the program, President Obama and Vice President Biden, his buddy, went to the Georgetown/Duke basketball game here in Georgetown, which Georgetown won, beat the Blue Devils.  Here‘s some commentary from the president, while he explains a failed under the basket shot back in 2008. 

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE:  Well, we showed this once, if you‘d like to see it again. 

OBAMA:  That‘s heartbreak right there.  Oh.

UNIDENTIFIED MALE:  That was a nice move, though, Mr. president.

OBAMA:  I was sure that was going in.

UNIDENTIFIED MALE:  You‘re obviously a left hander.  Do you have any problems at all going to your right?

OBAMA:  I went to the Republican House caucus just yesterday to prove that I could go to my right once in a while.  But there‘s no doubt that I have a stronger left hand. 

(END VIDEO CLIP)

MATTHEWS:  There‘s an interesting metaphor, Jay.  What do you make of that?  He was quick to switch from basketball to politics. 

NEWTON-SMALL:  Clearly, we had nearly two dozen debates during the primary season.  Remember what a bad debater Barack Obama started out in the primary season, how everyone was saying he was really wooden on stage?  I think Hillary did him a really good turn, because now it looks like he can get on stage and debate with the best of them.  It really brought out the best of the president.  Going into the State of the Union, things weren‘t that great.  By the end of the cycle, he was coming out on top. 

MATTHEWS:  So it‘s Hillary we give credit to for this weekend‘s basketball take?  Some of these people are amazing, how they can find Hillary did it again.  What a great Saturday it was for Hillary Clinton.  She got Joe—Oh, she made that—I‘m just kidding.  I‘m teasing. 

CORN:  But even before that Saturday, it was a great Friday for Barack Obama.  When he went before the House GOP and they had the Q&A, that left me, to some degree, breathless. 

MATTHEWS:  I thought so.

CORN:  That was one of the best—

MATTHEWS:  Jay, what are your thoughts on that?  That Friday night performance, we did a special on it we thought it was so important.  What did you make of it? 

NEWTON-SMALL:  I thought it was great.  Look, there‘s a great tradition in England where you‘ve got the prime minister and he goes up and debates parliament.  And he‘s challenged every day and he‘s questioned.  I wish we had that more in the United States.  And you really saw a great exchange of ideas, a great platform from both parties to express what they felt, what they wanted to do.  And please, more, more. 

CORN:  I think in the next couple of days there will be pressure being put on the White House and the GOP to do more of these.  I really think it resonated with people on the left and the right, people who Twitter, people who don‘t.  And I think—I would be surprised if you see some movement soon for people to say, hey, let‘s have our own version of question time here. 

MATTHEWS:  What was that story, the great story by Swift about the guy who goes off somewhere—

CORN:  “Gulliver‘s Travels.”

MATTHEWS:  -- where the guys is tied down by all of the midgets.  What did you think—did you see that out there Friday night, Jay?  All the little Efusians (ph) grabbing him and tying him down.  Doesn‘t it seem like he was struggling to get up and the big giant—what did you make of that dimension? 

NEWTON-SMALL:  but he wasn‘t trying too hard not to squash them.  He definitely had some good zingers in there. 

MATTHEWS:  I think it was a good week for the president.  He‘s had a bad month, but a good week.  Anyway, thank you very much, David Corn of “Mother Jones,”—congratulations on you scoop about the 115,000 dollar honorarium that Sarah Palin says she‘s going to put to good causes for her speech this weekend in Nashville.  Jay Newton-Small from “time Magazine,” Thank you for joining us. 

Join us again tomorrow night at 5:00 and 7:00 Eastern for more HARDBALL.  Right now it‘s time for “THE ED SHOW” with Ed Schultz. 

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

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