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updated 9/14/2012 11:17:46 AM ET 2012-09-14T15:17:46

THE ED SHOW with ED SCHULTZ
September 13, 2012

Guests: Heather Hurlburt, James Mann, Jared Bernstein, Dave Weigel

EZRA KLEIN, GUEST HOST: Good evening, Americans. Welcome to THE ED
SHOW. I`m Ezra Klein, in for Ed Schultz tonight.

It is 54 days until the 2012 election. And protests in at least six
American embassies have the nation on edge.

As the situation in the Middle East continues to simmer, Mitt Romney
has tripled the doubt on his claim that President Obama is appeasing the
attackers. Tonight, we`ll dig into Romney`s foreign policy and into his
leadership.

As Ed would say -- let`s get to work.

Protests continued in the Middle East today as fury over an anti-Islam
film fomented anger in the Muslim world. We`re looking at live pictures of
Tahrir Square in Cairo, Egypt, where demonstrations turned violent as
protesters clashed with Egyptian security forces.

Earlier today in Yemen, protesters stormed the U.S. embassy compound
in the capital city of Sana`a. Security forces used tear gas to disperse
demonstrators after fires were set and rocks were thrown at the compound.

We are going to keep monitoring this situation for you throughout the
show tonight. If anything happens, we`ll go to it live immediately.

But as the situation becomes increasingly volatile and traumatic
overseas, the stakes have been quite raised for the presidential candidates
here at home. And this is actually -- this has highlighted a central thing
the campaigns are there to do for us, for the American people. We are
considering people who haven`t been president before, who have never woken
up or been woken up in the middle of the night by a call that says, sir,
we`ve got a dozen diplomats trapped under gunfire in a Libyan consulate.

That`s part of what a campaign is, trying to figure out how these men
and women will respond to that call. You probably remember this ad during
the `08 Democratic primaries. It put this choice in fairly stark terms.

(BEGIN VIDEO CLIP)

NARRATOR: It`s 3:00 a.m. and your children are safe and asleep. But
there`s a phone in the White House and it`s ringing. Something`s happening
in the world. Your vote will decide who answers that call, whether it`s
someone who already knows the world`s leaders, knows the military, someone
tested and ready to lead in a dangerous world.

It`s 3:00 a.m. and your children are safe and asleep. Who do you want
answering the phone?

(END VIDEO CLIP)

KLEIN: Now, that ad, funny story, it was created by current secretary
of state to undermine the candidate who went on to become president. So,
it didn`t work out all that well. It was a good ad, maybe the best of its
cycle. It made a real point about being president.

The way the Obama campaign answered that ad in 2008, at least in part,
was by running a disciplined, methodical, organized and calm campaign. The
medium was a message, so to speak.

And this is part of what campaigns are there to do. They`re these
long grueling pressure cooker tests of the candidates. The candidates have
to deal with all sorts of issues. Crises, challenges, bad news, new
situations, unexpected questions, new policy ideas and they do all of it on
very little sleep and in front of cameras.

It is not a terribly pleasant process for them, but it`s one that
reveals important things to us about who they are and who they are in
particular under horrible pressure. In fact, one of the decisive moments
in the 2008 campaign came about four years ago this very week. No one had
had any questions when the election began about whether John McCain was
prepared for the presidency. I mean, he`s John McCain.

But as the polls began to turn against him, McCain began making
increasingly erratic decisions. For instance, he picked Sarah Palin to be
his vice president. You might remember that.

And then right around this time in 2008, Lehman Brothers fell. And
McCain tried to cancel the first debate and put the entire campaign on
hold. He rushed back to Washington to participate in meetings over TARP,
but it quickly leaked out that he didn`t have much to say or add in any of
them.

The whole thing came off looking like a stunt and deeply
unpresidential one at that and it was devastating for his campaign. Of the
two candidates, it was Obama, the relative political newcomer who seemed to
master these issues quickly and seemed calm under fire who ended up looking
more presidential.

The question now is whether Mitt Romney`s comments about the attacks
in Libya and the mobs in Egypt were just kind of a campaign gaffe, an
intemperate comment, or whether they were a Lehman-like moment for him, a
moment under serious pressure, he displayed a lack of judgment that voters
should really care about.

James Fallows in "The Atlantic" wrote of Mitt Romney`s, quote, "3:00
a.m. phone call" moment. He said, "Often the most important immediate
decision is not to react immediately." And that`s a test, Fallow argued,
that Romney failed in this particular case. President Obama followed with
a similar line when speaking to "60 Minutes" yesterday.

(BEGIN VIDEO CLIP)

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: There`s a broader
lesson to be learned here. You know, Governor Romney seems to have a
tendency to shoot first, name later. And as president, one of the things
I`ve learned is you can`t do that. That, you know, it`s important for you
to make sure that the statements that you make are backed up by the facts
and that you`ve thought through the ramifications before you make them.

(END VIDEO CLIP)

KLEIN: That line of thinking is the conventional wisdom now, that the
problem for Mitt Romney was he acted too hastily.

The actual timeline, however, is at odds with this theory. The
initial statement from the U.S. embassy at Cairo came at 6:17 a.m. Eastern
Time on Tuesday September 11th, 6:17 a.m. So, this was even before the
protesters breached the embassy wall. It was after 10:00 p.m. Tuesday
night, almost 16 hours later when the Romney campaign released their
statement. That`s a fair amount of time to think it through.

So, Romney`s response, whatever it was, was not a spur of the moment
response. It was deliberated over the better part of an entire day. And
Romney`s policy director Lanhee Chen told "The New York Times," quote,
"While there may be differences of opinion regarding issues of timing, I
think everyone stands behind the critique of the administration which we
believe conducted its foreign policy in a feckless manner."

So the Romney campaign evaluated the situation and they decided coolly
this was a way they wanted to respond. This was the appropriate path, the
right path to pick. They doubled down on it and tripled down on it.

And this is part of a broader pattern here where in recent months, the
Romney campaign has become unpredictable as polls turned on them. Instead
of sticking to their strategy of making the election a referendum on the
Obama economy, Romney picked Congressman Paul Ryan, switching to a choice
between two very different and competing economic visions.

During a trip abroad, Romney made a decision to criticize his host
country of England for their preparations surrounding the London Olympics.

During a political convention to introduce the candidate to the
nation, Romney chose to have an unvetted Clint Eastwood engage in
performance art for a primetime audience on the night of his speech.

And with the polls turning against him, they begun switching hastily
from issue to issue, moving from the economy to welfare to Medicare, and
then in recent days, of course, trying to turn the campaign to foreign
policy. Mitt Romney under the pressure of the campaign has begun to
crumble a little bit and this is frankly a surprise. Mitt Romney`s
business career, and his time in Massachusetts, have pointed to a man
obsessed with data -- an ultra cautious adherent of the cost/benefit
analysis way of life.

David Brooks wrote, Romney was, quote, "extremely detail-oriented in
his business life." He once canceled a corporate retreat in which Abba had
been hired to play saying he found the band`s music too angry. Abba?

The biographical video shown at the Republican National Convention
painted a picture of the CEO driven to make the right calls at the right
cost with the right information.

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Why would anybody want to save on envelopes and
file folders? Mitt is a cheap son of a gun and if he can save 50 cents on
paper clips he`d drive a mile to do it.

(END VIDEO CLIP)

KLEIN: The question we`re left with, which of these is the real Mitt
Romney? The guy with tons of high-pressure business experience he handled
very well? The governor of Massachusetts who passed a bipartisan health
reform bill he`s now disowned as a national model? Or the guy running this
campaign who seems at this point to be anything but methodical and data
driven?

To help us answer that question, we`re going to turn to my friend and
colleague at the "Washington Post", the very wise E.J. Dionne.

E.J., it`s good to see you.

E.J. DIONNE, THE WASHINGTON POST: It`s great to be with you. Thank
you.

KLEIN: So, let me first ask you, because you covered both
presidential campaigns than me, I think it`s fair to say. Do you agree
with the basic idea that campaigns are the place where we see the
underlying qualities of the candidates or do you see them sort of more as a
political show that tests unrelated attributes to the presidency?

DIONNE: No, I think almost by accident they do exactly what you said
they do, because you get to see people react in situations that they didn`t
predict, couldn`t predict.

And I`ve heard your example of McCain back in 2008 after Lehman
collapses is a good one. I always thought what was decisive there is not
that McCain -- just that McCain said, let`s stop the campaign, let`s stop
the debate, but that about a half hour later, Barack Obama said, no, we`re
going to have the debate. And we had the debate and I think it was kind of
a test of strength and Obama won it and I think a lot of voters saw that.

And I think in this case, it`s going to be very interesting if voters
-- Romney clearly is data-driven, as you suggest. They must have some data
somewhere that says this whole apology argument, that Obama apologizes, and
let`s just say for the record that none of these apologies actually
happened. There`s an untruth underlying this whole argument, but
nonetheless, they must have polling that says people will respond to this.

But to do it in the middle of a crisis like this, to do it at a moment
when we have just lost three people who are serving our country, I`ve got
to think a lot of voters who may not particularly like Barack Obama said,
gosh, that looks awfully political to me and not in the best sense of the
word political. I think it does have an effect on how they see Romney.

KLEIN: And do you think, even aside from how it makes people see
Romney, whether or not that`s breaking through, do you think it has an
effect on how people should judge Romney? I mean, your point here which is
an interesting one, is maybe they do have data. Maybe this is a plan, it`s
just a bad one.

So that would seem to be sort of for the argument that, look, this is
all just the campaign, you`re not seeing anything different about Romney
here, they didn`t read the polling data right or the statement got out of
control a little bit. Not that what you`re seeing is a tendency to see
these crises and then move too quickly or not fully wait for the
ramifications before trying to enter them. Jumping to a political
advantage before seeing what the actual substance of it is.

DIONNE: Well, you know, more than a year ago, somebody said, watch
Mitt Romney, because he spent his life as a deal maker, and what a deal
maker does is he does whatever it takes to close the deal. And what
Romney`s campaign has looked like is somebody who will say a certain number
of things to close a deal with the voters in Massachusetts, when he ran for
governor, and say other things to close the deal in a Republican primary,
and now, he`s got to say yet another set of things to close the deal with
the independent voters he needs.

But I think what you`re seeing here is a Romney campaign that sees the
race getting away from them since the convention. And they`ve done a
number of things that suggest that. They put Romney on "Meet the Press,"
something they avoided. They put Ryan out the same day. You don`t take
risks like that if you think things are going swimmingly.

A pollster put out a memo, their pollster, Neil Newhouse, saying,
don`t panic. That usually means they`re panicking when they put out memos
like that. So, clearly, he`s in a mode that says, I have to shake this up,
and the Democrats scored some points on him on foreign policy at the
convention and he wants to score some back.

KLEIN: Yes.

DIONNE: I think he`s taken a lot of risks doing that. I think this
was a dangerous circumstance in which to do that. But I think that`s what
they decided to do.

KLEIN: The sage E.J. Dionne -- thank you very being here tonight.

DIONNE: Great to be with you.

KLEIN: A quick note. Just a few moments ago we identified live
pictures of Cairo being Tahrir Square. The live pictures we`re monitoring
are shots of the protest in the area outside the U.S. embassy in Cairo. We
apologize for that.

Coming up next, Mitt Romney`s comments that you`re hearing about, the
ones that started all this, they`re not the most important comments
Governor Romney has made in the last 48 hours.

We are going to tell you what those are.

(COMMERCIAL BREAK)

KLEIN: Coming up, Mitt Romney rips a page from the Bush playbook on
foreign policy.

And we`re going to update you on the growing anti-American protests in
the Middle East.

And later, Jared Bernstein and Dave Weigel on today`s major news from
the Fed. If you care about jobs and job creation, today was an absolutely
huge day and we`re going to explain it all.

Stay tuned. You`re watching THE ED SHOW. It is on MSNBC.

(COMMERCIAL BREAK)

KLEIN: Welcome back. You`re looking at live pictures from Cairo,
Egypt, right now, just outside the U.S. embassy. Protesters are still
massing at this hour. If anything happens, we will bring it to you
immediately.

But to go back to the underlying policy of the pictures you just saw,
you know the comments here that are getting all the attention are Mitt
Romney`s original comments attacking the Obama administration for a press
release, released by the Egyptian embassy before the attacks in Libya had
even begun. But when I went back through all the things that were said
here last night to prepare for today, that wasn`t the comment I found most
extraordinary and it`s not even the comment that I think should be most
meaningful to this election.

Yesterday, at his press conference, the one where he doubled down on
these remarks, Governor Romney, he said something else, something that
deserves a lot more attention than it`s gotten. He want to take this
moment, he said, to draw a contrast between his foreign policy and
President Obama`s. And then he gave one of the clearest statements we`ve
heard from him on exactly what his foreign policy would be.

(BEGIN VIDEO CLIP)

MITT ROMNEY (R), PRESIDENTIAL NOMINEE: My foreign policy has three
fundamental branches.

First, confidence in our cause -- a recognition that the principles
America was based upon are not something we shrink from or apologize for.
That we stand for those principles.

The second is clarity in our purpose, which is that when we have a
foreign policy objective, we describe it honestly and clearly to the
American people, to Congress, and to the people of the world.

And number three is resolve in our might. That in those rare
circumstances, those rare circumstances where we decide it`s essential for
us to apply military might, that we do so with overwhelming force, that we
do so in the clarity of a mission, understanding the nature of the U.S.
interest involved, understanding when the mission would be complete, what
would be left when it is -- what will be left behind us when that mission
has been terminated.

(END VIDEO CLIP)

KLEIN: Governor Romney basically said there that his foreign policy
is America is awesome. And it needs to be confident in how awesome it is,
clear in communicating its general awesomeness and when we go to war,
quote, "overwhelming" in the use of force to promote or defend that
awesomeness.

It is a vision of how to conduct foreign policy that bases itself
entirely on beliefs about America and our intrinsic goodness and it`s a
vision that to some degree we just tried. Remember when we went into Iraq
and we were told that the people of Iraq would know we were doing it for
the right reasons and we would be greeted as liberators and there`d be
flowers and candy and we would use overwhelming force at the beginning? It
was called shock-and-awe back then. But then we`d be out of there pretty
quickly.

It didn`t work out that well. And one of the guys who`s most
responsible for it not working out that well was Don Rumsfeld who, hey,
what a coincidence, just came to Romney`s defense on these comments today
saying on a radio show, it was, quote, "The responsible thing to do" to
make this argument.

And this gets back to the real underlying point Romney was making in
his statement. Romney said he made that statement to show there was a real
foreign policy divide between him and the Obama administration. But what
that statement really was about was a divide between Romney and the people
on the ground. The press release Romney`s attacking came from folks
trapped in the Egyptian embassy, fearing an angry mob and who were trying
to understand why that mob was angry and also how to calm it down.

Saying here in America that America is great doesn`t do all that much
for you when you`re in Egypt and the angry guys with guns outside your
window don`t instantly agree. The last few years I think have been a
repudiation of the idea that we can deal with the world entirely on our own
terms, but that is clearly not the lesson Governor Romney has taken from
them.

For more on the lessons Governor Romney has taken from them, we turn
to Heather Hurlburt, former assistant and speechwriter for President
Clinton. Now executive director of the National Security Network.

And, James Mann, author and residence at the John Hopkins University
School of Advanced International Studies and author of the book "The
Obamians." And also before, "The Rise of the Vulcans: The History of
Bush`s War Cabinet."

It`s great to have you both here.

JAMES MANN, JOHN HOPKINS UNIVERSITY: Great to be here.

KLEIN: James, I want to start with you actually. Because you`ve been
looking into Romney`s candidate -- I`m sorry, his sort of foreign policy
advisers. How much overlap, how much similarities is there from the Bush
team?

MANN: You know, there`s a common saying that I hear around town that
I actually don`t agree with, that the Romney foreign policy team, when you
look at his formal list of advisers, is all neocons, and I find that it`s a
blend.

The problem that I see, and we`ve seen it in the last 48 hours, is far
more at the top. I would be much more worried about Romney and his own
instincts. The formal campaign advisers, first of all, are all over the
lot.

And second of all, before, even before the last 48 hours, on issues
like Afghanistan, on, like, China, declaring China a currency manipulator.
The foreign policy advisers say, we don`t know where that came from. It
didn`t come from us. It`s Romney and the political people around him,
above all.

KLEIN: Heather, in terms of the way Romney laid out his vision for
foreign policy, was confidence in American values, clarity in communicating
them, and overwhelming force when we need to prosecute them militarily.
You`ve, however, gone through his foreign policy in much greater detail.
The white papers and all the rest of it.

Is that -- is that really what it`s based on? Does that hold true in
the nitty-gritty specifics?

HEATHER HURLBURT, NATIONAL SECURITY NETWORK: You know, Ezra, when I
heard that yesterday, my first thought was, I like kitties and puppies
also. There are not that many nitty-gritty specifics to get into. You
know, I get calls from reporters, can you explain this, explain that? I go
through the details.

For example, Romney wants to add 100,000 troops to the military. He
can`t explain what he`d do with them. One of his advisers said in Tampa,
well, maybe we`d need them for all the new aircraft carriers we`re going to
build.

Well, you know, how many troops -- how many aircraft carriers would it
take for 100,000 troops? Sixteen -- which is more than we have.

So there is no -- there is no there, there. That kind of vague
platitude is what we have of Romney`s foreign policy. We don`t know what
he`d do in Afghanistan. His advisers don`t agree. Some of them want to
pull out now. Some of them want to stay.

He`s been on both sides of the original intervention in Libya.

His advisers are all over the map on what we should do in Syria.

He wants to sanction China his first day in office, except when he
wrote his book he said he was completely opposed to trade sanctions with
China.

So I can`t tell you what he would do.

KLEIN: One of the things he`s been specific on, though, James, is
this apology tour argument. That Obama`s gone around apologizing. That`s
not literally true. But you would notice -- what is that attack about?
What is the genesis of it in Republican foreign policy circles?

MANN: It clearly forms, was formed by Romney years ago, because he
called his book --

KLEIN: "No Apology."

MANN: -- "No Apology."

It`s an old troupe that they charge Republicans for being weak on
national security. It doesn`t seem to work or fit that well this time.

Let me say this about apologies. It`s important. First of all, no
one can find in the record any formal apology by Obama for anything.

Second of all, if we`re talking about a loose expression of contrition
or regret, you know, George W. Bush apologized to the Chinese for the
Hainan plane incident, if we have a loose apology. He apologized for Abu
Ghraib, as certainly he should have, to the king of Jordan. He apologized
for slavery in Africa.

The idea -- why we think that an American president should never
express some kind of regret, we need other countries` cooperation on things
like sanctions. That`s, you know --

KLEIN: Right.

And, Heather, real quickly. Would there have been a different way the
Romney administration could have dealt with the last 48 hours? It mostly
seems to be fast-moving events on other continents.

HURLBURT: No, your only choice really is what you say and do you show
an image of resolve and do you show the people who are protesting, not the
people who are killing Americans which is totally indefensible and there`s
no excuse for, but do you also try to send a signal that says, hey, we have
this wonderful Constitution which guarantees freedom of speech but which
doesn`t tolerate abuse of other people`s religions? That`s not what we are
in America.

And I`m not sure an Obamney -- a Romney administration would have been
adroit enough to do both of those things judging by the governor`s
performance.

KLEIN: Heather Hurlburt of the National Security Network, James Mann
of Hopkins University -- thank you for being here tonight very much.

HURLBURT: Thanks for having us.

KLEIN: Coming up, new details on the attacks that killed four at the
embassy in Libya. These protests are both spreading and intensifying even
as we speak. The president`s response when we come back.

(COMMERCIAL BREAK)

KLEIN: We have breaking news out of the State Department right now.
NBC News has confirmed that U.S. investigators have now identified the
third and fourth American victims in that attack. Both served as Navy
SEALs, 41-year-old Tyrone Woods, worked for a private security firm, so did
42-year-old Glen Doherty from Winchester, Massachusetts. Defense officials
are not telling us much about how they died.

But Doherty`s sister said he`d only be in Libya for one week.

Meanwhile, there`s a growing --

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: Glen lived his life to his fullest. He was my
brother. If you ask his friends, he was their brother as well.

(END VIDEO CLIP)

KLEIN: Meanwhile, there`s a growing threat at embassies across the
Middle East. You can see the outrage and peaceful protest like this one in
Peshawar, Pakistan, but also in the angrier clash in Cairo outside the U.S.
embassy overnight. At least 224 people have been injured there so far.
There are fears the protests could intensify tomorrow after Friday prayers.

As we`ve been reporting, those demonstrations and others in at least
six Middle Eastern countries are reaction to a crude anti-Muslim video that
was made in America and posted on YouTube.

In Yemen`s capital, this mob actually managed to storm the U.S.
embassy today before police could beat them back. No Americans were hurt.
But security is stepped up and diplomats say they are bracing for more.

Their boss, Secretary of State Hillary Clinton, agrees with the
protesters that the video is offensive, but she says violence in response
to speech is not acceptable.

(BEGIN VIDEO CLIP)

HILLARY CLINTON, SECRETARY OF STATE: We do not stop individual
citizens from expressing their views no matter how distasteful they may be.

(END VIDEO CLIP)

KLEIN: Meanwhile, Libya now says heavily armed militants used a
protest as cover so they could attack the U.S. consulate in Benghazi
Tuesday. Libya said it has arrested four suspects and is interrogating
more. Ambassador Chris Stevens and three other Americans were killed in
the attack.

And now we`re getting a grim first look at what the mob left behind.
Witnesses say the Americans left bloody hand prints on the walls. A fire
gutted the complex and vandals trashed everything that didn`t burn.

Tonight, U.S. embassies all over the world lowered their flags to
half-staff. The Pentagon deployed two U.S. warships off the coast of
Libya. And the president is promising to bring the killers to justice.

(BEGIN VIDEO CLIP)

OBAMA: I want people around the world to hear me, to all those who
would do us harm, no act of terror will go unpunished. It will not dim the
light of the values that we proudly present to the rest of the world. No
act of violence shakes the resolve of the United States of America.

(END VIDEO CLIP)

KLEIN: Coming up, turns out there is a superpower greater than the
ability to fly. And today Fed Chairman Ben Bernanke reminds us what it is
as the Federal Reserve moves in a dramatic way to shore up and accelerate a
slow recovery and help the unemployed. Jared Bernstein will join me next.

And later, Ron Paul may be leaving Congress, but his campaign to end
the Fed is alive and well in the Republican party. Dave Weigel is here to
discuss it.

(COMMERCIAL BREAK)

KLEIN: Today the unemployed received the best news they`ve gotten in
a very long time. This guy has decided he is on their team. That bald
bearded professor looking guy, that is Ben Bernanke. And looks are not
deceiving. He is, in fact, a former professor. He taught economics at
Princeton. He`s also bald and bearded.

But he`s now the chairman of the Federal Reserve. That makes him the
single most powerful economic policymaker in America, maybe even in the
world. And today he made a game changing announcement.

Now, I have to start here by saying a word about the Federal Reserve
and why it`s so powerful. Imagine, as I often do, that you got a choice of
superpowers. You could be invisible, you could fly, you could be really
strong, you could -- or you could create unlimited amounts of money
whenever you wanted. You might well choose the money one.

The other ones are cool for a bit, but they`re not all that versatile
and they probably get you into a lot of trouble. The Fed actually has that
superpower. It can create as much money as it wants, real American
Dollars. And they don`t need anybody`s permission to do it. They don`t
need 60 votes in the Senate. They just create the money.

That makes them incredibly powerful. It`s not like when the president
says he wants to do something like the American Jobs Act that you have to
ask, well, what does Congress think? Or when John Boehner wants to pass
something and you have to ask, what does Harry Reid think? The Fed can
just do the thing.

But as Spiderman would say, with great power comes great
responsibility. And so the Fed is very cautious in the use of its powers.
By law, they need to try to keep unemployment and inflation low. But over
the last two years or so inflation has been very low and unemployment has
been very, very high. And they`ve not been doing all that much about it.

Earlier today, however, Bernanke said, finally, that the Fed has
decided to do something big about unemployment, something big enough that
it might actually help. He said they were going to buy hundreds of
billions of dollars of government and housing bonds and keep buying them
for as long as it takes to get the recovery back on solid footing, and then
keep buying them as long as it takes after that to be sure the recovery is
on solid footing.

The way their plan works, if it works, is that by buying all of these
bonds, they`re going to drive down long-term interest rates, which will
give businesses and investors more reason to spend the money now as opposed
to sitting on their money waiting for later. And by buying the housing
bonds, they`re going to make mortgages cheaper, which should accelerate the
housing market`s recovery, which is already happening.

But the other part of their plan, and this part is really important,
they just sent a signal to businesses and investors and the market and
frankly everyone else in the economy. And they said, we`re going to use
our powers in a big, unusual way to get this economy moving. And that is a
hugely important statement for them to make.

Imagine a business trying to decide whether it should hire new
workers. The basic question it needs to ask is, will people be buying a
lot more stuff next year than they`re buying this year? If they don`t see
any good reason to think the economy will improve, then the answer is
probably no, people aren`t going to be buying more stuff next year, as
there`s no need to hire more workers you don`t need.

But if businesses think the recovery is going to come, if they think
people will be buying more stuff, then they need the workers. They don`t
want to be caught without enough product. Then their competitors are going
to get all the sales. And so what the Fed is trying to do here is
influence that decision. They`re saying we`re going to use all our power
to make sure there are people out there buying your stuff. So go hire, go
do it now, we are behind you all the way.

Think of it like this. The Federal Reserve is kind of like the
economy`s tough older brother. If the economy is having problems with kids
at school and the tough older brother is kind of distant or uninterested or
just says this is your deal, the economy`s kind of into some trouble. But
if the tough older brother makes it clear that he`ll be there to back up
economy up, come what may, and even say that he`s going to have a talk with
some of these kids at school tomorrow, then the economy is going to be a
lot more confident walking to school from now on.

Right now, what the economy needs more than anything is confidence.
You know, you wouldn`t look at this guy and think he`s tough. But then
that`s before you knew he had a superpower.

Joining me now is Jared Bernstein, former chief economist and
economics adviser to Vice President Joe Biden, now a senior fellow at the
Center on Budget and Policy Priorities, and an MSNBC contributor. Jared,
good to see you.

JARED BERNSTEIN, CENTER ON BUDGET AND POLICY PRIORITIES: Good to see
you, Ezra.

KLEIN: Let me start with the big question here. Will it work?

BERNSTEIN: First I have to work out this thing of tough Ben Bernanke
protecting his younger brother on the way to school. I think it will help.
I think it will work in the sense of boosting economic growth a bit and
probably shaving a bit off the unemployment rate.

But I`m afraid that it`s more a little bit than a lot. So if there`s
enough bullies picks on that little brother, Ben might have more trouble
than you might expect.

KLEIN: Right.

BERNSTEIN: And here`s the thing. What these actions do, as you just
described, is they lower interest rates, they create more liquidity in
mortgage markets, things like that. And that`s helpful. But in an economy
that -- where demand is still weak, it`s kind of like you`ve set the table
but you don`t really have the customers in there.

KLEIN: Yeah.

BERNSTEIN: Interest rates can be very low. Frankly, they`re already
quite low. There can be -- there`s lots of cash sitting on the sidelines
that aren`t really taking advantage of the low rates we have. So monetary
policy gets you part of the way there, but you also need fiscal policy to
help generate demand, give the low interest rates a bit more traction.

KLEIN: This is what Bernanke has been saying for a long time --

BERNSTEIN: He, himself.

KLEIN: He`s been begging Congress to act, to do fiscal policy. But
the thing is Congress just isn`t acting.

BERNSTEIN: Right.

KLEIN: So I think one of the questions is whether or not we`ve hit
sort of a hinge point in the Congress where it can work. The reason I`m
personally optimistic about it is that I think the housing recovery, which
is where recoveries tend to come from --

BERNSTEIN: Right.

KLEIN: You know better than me -- has begun to take hold enough that
this could really be an accelerant. If this is an accelerant of it, that
is the real economy. That`s just not liquidity and interest rates
somewhere off in --

BERNSTEIN: Right. So you`re a little more bullish on this as I am.
I`m bullish. I`m not as bullish as you. Here`s why: first of all, you`re
absolutely right. Bernanke has been calling for more fiscal policy because
he recognizes the following thing. Absent more demand, more consumer
demand, more investors feeling like there will be returns on their
projects, the low interest rates simply don`t have the traction that they
would have otherwise.

So people are -- the businessperson you described earlier, sitting
there on the sidelines deciding whether to make an investment, the interest
rate looks good, but they don`t have the customers coming in the door. So
unless we have -- this is why Bernanke himself has been calling for this.
Unless we see more action on the demand side, the estimates I`ve seen for
what the Fed did today is that maybe it will raise GDP by half a point.
Maybe it will shave as much as 0.3 of a point off the unemployment rate.

That ain`t nothing, but it`s not the difference between a slog and a
great economy either.

KLEIN: But one of the things that people have been saying, and one of
the reasons I`m optimistic about it, is that the big argument is that this
is the Fed saying, we`re going to help now, and if we need to do more
later, we`ll do more later. I agree there are limits to monetary policy
Why did it take them so long to say, we`re going to switch gears?

BERNSTEIN: It`s a good question. By the way, it`s not just that
they`re saying we`re going to help now, because they`ve said that. They
say, we`re going to help and we`re going to keep helping. Everything has
been time limited. By the way, same thing in Europe. You actually have
central banks now swinging for the fences with these kind of unlimited bond
buys.

So they`re saying, we`re going to keep helping until things get
better. Why did it take so long? I think there are two reasons. One, you
said it yourself, they`re cautious. They are not -- they worry about
distorting the market. They worry about inflationary pressures down the
road. They`re not going to do this unless they think it`s safe.

Secondly, there happens to be this election out there. The Fed often
gets pilloried for moving in an election year. They usually don`t do it.
So he had to get consensus on the committee. Eleven out of 12 people voted
for this today. That shows he did get that consensus.

KLEIN: Jared Bernstein, we`re going to have you stick around. We`re
going to be on a related topic coming up next. But even after that, could
the iPhone 5 be that extra push we need to rescue the economy? It`s
possible. I`m going to make the case.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

UNIDENTIFIED MALE: It is the most beautiful product we have ever
made, bar none. And this is iPhone 5.

(APPLAUSE)

(END VIDEO CLIP)

KLEIN: you probably already know the details. Apple`s latest
smartphone, the iPhone 5, it`s faster, sleeker than its predecessors.
You`ll need a new connector, which is kind of a bummer and a scam from
Apple. But you`ll have a larger screen.

But did you know this? The iPhone 5 could be more than just another
upgrade. It could quite possibly make a big difference in the economy in
the next quarter.

Here`s the explanation. In a new analysis, JP Morgan`s chief U.S.
economist, Michael Feroli, calculates that sales of Apple`s latest product
could boost economic growth in the fourth quarter by up to 0.5 percentage
points, half of one percent.

What does that mean in English? Could be a difference between another
quarter of bad results and a quarter of a little bit better results.
Feroli`s math is simple. The iPhone will sell for about 600 dollars a
unit. Subtract about 200 dollars for imported parts. That leaves 400
dollars to be added to the GDP.

If Apple sells eight million iPhones, that`s a 3.2 billion dollar
boost to the economy in that quarter. That increases annual fourth quarter
growth by about 0.33 percentage points. Factor in the notion that these
iPhones are cool in improvement and then there will be a lot of accessories
sold. And the numbers get even better, more around a half percentage
paint.

Now Feroli himself warns to be skeptical of these figures, but he
points to sales of the iPhone 4S, the last iPhone, as proof that his
projection is a real possibility. That iPhone way outperformed
expectations. And there was a lot less buzz around that product and it
wasn`t even the 5.

So the iPhone 5 could give the economy a much needed shot in the arm.
So thank you, Apple.

We are continuing to monitor the situation in Cairo, where protesters
are gathering in the streets. We`ll be sure to report the latest
developments as and when they happen.

Up next, Jared Bernstein and Dave Weigel will join me to discuss how
Ron Paul`s fight against the Fed has been catching on within the Republican
party.

(COMMERCIAL BREAK)

KLEIN: Today, something kind of amazing happened, something that
really tells you about what the Republican party is becoming. Senate
Minority Leader Mitch McConnell hired Jesse Benton to be his press
secretary. Now, you might ask, who is Jesse Benton?

Jesse Benton was Ron Paul`s press secretary in the 2008 presidential
election. He was Rand Paul`s campaign manager during his 2010 Senate run.
And then he was Ron Paul`s campaign manager during his 2012 presidential
run.

So this is a guy who has been as anti-establishment, and as pro-Paul
as any Republican in the country. In fact, for Rand Paul, the son, to get
to the Senate, he first had to win a primary against Mitch McConnell`s
hand-picked candidate in Kentucky. It was the true believer conservative
outsiders against that entrenched Washington establishment.

Now one of the truest of the true believers is moving into a key
position on McConnell`s campaign. But in some ways, the move shouldn`t be
too much of a surprise. To a degree people I think really don`t
appreciate, Ron Paul`s dramatically changed the face of the Republican
party, not on everything, of course.

His attitudes on foreign policy and on the drug war haven`t gotten him
very far. But his positions on the size of government and in particular on
monetary policy, on the Fed have basically won. I mean, the last book Ron
Paul wrote, the thing he really wanted people to know about him before he
ran for president in 2012 was called "End the Fed." That is one of his
core policy beliefs right there.

And on that issue at least, this is now Ron Paul`s Republican party.
You heard it from Rick Perry last year.

(BEGIN VIDEO CLIP)

GOV. RICK PERRY (R), TEXAS: Paul got me really intrigued with the
whole -- the Federal Reserve. And I`ve spent a substantial amount of time
reading about and "Currency Wars," the book by James Ricard -- but
Congressman Paul is the individual on the stage that got me most interested
in a subject that I found to be quite interesting and at the root of a lot
of the problems we have. And I thank you for that.

(END VIDEO CLIP)

KLEIN: You see it in Romney`s vice presidential pick, Paul Ryan.
"Reuters" wrote a great article on this subject, the headline of which was,
quote, "Ryan`s Fed Policy Views Well Outside Mainstream."

Then the article said, quote, "Paul Ryan doesn`t quite want to end the
Fed." That`s an endorsement. "But if Mitt Romney`s pick for vice
president had his way, he might curb the central bank`s powers enough to
make it harder for policymakers to respond aggressively to the economic
downturns."

Now you see it out of the Romney campaign, which responded to today`s
QE3 announcement by saying, quote, "the Federal Reserve`s announcement of a
third round of quantitative easing is further confirmation that President
Obama`s policies have not worked. After four years of stagnant growth,
falling incomes, rising costs and persistently high unemployment" -- here
it is -- "the American economy does not need more artificial and
ineffective measures. We should be creating wealth, not printing dollars."

Artificial and ineffective measures, that`s what they now think of Ben
Bernanke, a George W. Bush appointee originally, of his monetary policy.
Now part of this is convenience. It`s convenient for Republicans to oppose
further Fed action now, because if President Obama can`t act through
Congress and the Fed doesn`t act either, Obama and the economy are kind of
stuck until the election.

But even arguments assumed for convenience can become really genuinely
believed with time. I`m joined again now by Jared Bernstein, MSNBC
contributor, senior fellow at the Center on Budget and Policy Priorities,
and also joining us is my friend Dave Weigel, MSNBC contributor and
political reporter for Slate.com.

So, Dave, tell me, a few years ago -- you`ve been covering Paul for a
long time. When he really began coming up in the Republican party in 2006,
2007, where did his monetary policy views fit in the mainstream of the
party?

DAVE WEIGEL, SLATE.COM: Nowhere in the mainstream. Actually when he
left the race and Bob Barr started running as libertarian candidate trying
to capture the old Paul movement, remember him telling me he just wasn`t
that interested in the issue. He didn`t think it was a m majoritarian
issue. It became one because of the financial crisis, really. I think
that`s what brought everyone around.

And it`s not just superstition that got them paranoid about the Fed.
The Fed became more active as a response to the financial crisis. In the
Dodd/Frank bill, we saw Elizabeth Warren CFPB created inside the Fed.
There are a number of actions the Fed has taken that have, you know, had
them looking at Paul less like the crazy guy waving a stick and more like
Moses, frankly. I mean like somebody who was out there right about it the
whole time.

KLEIN: So -- but Jared, so let`s say he took the Paul prescription.
Before the crisis, you had ended the Fed. What would have happened?

BERNSTEIN: The crisis would be far deeper and longer lasting than it
was and remain so. I mean, if you look back -- we actually have history.
So if you look back before the Federal Reserve was in place, and you look
at indicators like output growth or inflation, they kind of look like the
EKG of someone who`s having a heart attack.

If you look at inflation over the last few decades, when the Fed has
been targeting it, much, much smoother. If you look at -- the conversation
we were just having a second ago, the economy is stuck. You mentioned
fiscal policy is stuck in gridlock. The Federal Reserve can come in and do
things to help boost the economy.

So central banks -- look at Europe. Central banks are critical to
growth these days.

KLEIN: And so one of the things I always the wonder when we start
seeing an argument like this migrate to the mainstream, is OK, the
Republican party is in opposition now. They don`t like anything that`s
happened over the past four years, even things they used to like. But if
Mitt Romney wins the election, Republicans return to power and now they
control the -- or they`re at least named the next chairman of the Federal
Reserve, although they did initially appoint Bernanke, will this dissipate
or will this remain a force in the party?

WEIGEL: This wasn`t the way they talked in the Bush years. I think
there`s a very cynical pro-Romney argument if you want the Fed to be more
stimulative, that this will dissipate as they take power. Paul Ryan was
back in Capitol Hill today and voted for C.R. to continue funding the
government because it`s politically not convenient for him. When it was
politically convenient to gum up the works, he voted against that. He
demanded more cuts.

The degree to which they are opposing this right now is really
striking. You were talking at the beginning. Paul really has captured the
Republican party on this issue. A year ago, Mitch McConnell and the rest
of the leadership of the Republican party sent a letter to Bernanke asking
him not to do differently the second round of quantitative easing.

And using the arguments that Paul -- not just that Paul`s been making
but that Romney is making today, that look -- it`s a bit of a paradox.
It`s artificial. It`s not going to help the economy, but we`re also
worried that it`s going to artificially stimulate the economy and help
Democrats get elected. The whole Democrats get elected thing, I think
fades away if Democrats don`t get elected.

KLEIN: Right. So if Mitt Romney comes in -- I`m curious on your take
on this. Do you think he`ll pick chairman out of the sort of mainstream
Republican economics wing of their party?

BERNSTEIN: Absolutely. I think if that were to pass, I think he`d be
looking at a much more dovish attitude toward the Fed, a kind of -- I`m
thinking a kind of Glenn Hubbard type economist who absolutely believes
there`s a place for a central bank in an economy like ours. I view this as
a kind of virulent sort of strain that`s gotten its way into the far right
of the campaign.

KLEIN: And that`s one of the interesting things about Romney right
now, real quick. One of his key adviser like Glenn Hubbard, and
particularly Greg Mankiw, his economic advisers are very traditional sort
of pro-Federal Reserve types, right? They`re still there. He`s not
abandoned them.

WEIGEL: He hasn`t. No. The Chen statement was -- I think Romney
when he`s talking about this -- talking more about this in interviews.
It`s just the argument that this isn`t working, not that politically no one
should ever do it. And the argument -- again, I repeat it, it`s a paradox.
They say that it`s not working, it didn`t lower unemployment enough. Then
they imply that it`s lowering unemployment.

So they`re talking to the Republican base, but they`ll stop talking
that way if he wins.

KLEIN: Jared Bernstein, Dave Weigel, thank you both for being here
very much.

That is THE ED SHOW tonight. I`m Ezra Klein in for Ed Schultz. You
can read more of may work at the "Washington Post" Wonk Blog at www dot
WashingtonPost dot com/wonkblog. Follow me on Twitter @EzraKlein and at
Facebook.com/EzraKlein.

"THE RACHEL MADDOW SHOW" starts right now. Good evening, Rachel.

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

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