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updated 2/4/2013 12:14:16 PM ET 2013-02-04T17:14:16

THE LAST WORD WITH LAWRENCE O`DONNELL
February 1, 2013

Guests: Sarah Kliff, Jessica Vaughan, Marielena Hincapie, Spencer Ackerman

EZRA KLEIN, GUEST HOST: Do you think government spending is the big
problem, the thing that is really holding the economy back? If so, then
you had a bad week.

(BEGIN VIDEOTAPE)

CHRIS JANSING, MSNBC ANCHOR: The economy is back in the spotlight.

UNIDENTIFIED MALE: One hundred fifty-seven thousand jobs were added
in January.

JANSING: The first jobs report of the year.

JARED BERNSTEIN, MSNBC CONTRIBUTOR: It`s not gangbuster by a long
shot.

UNIDENTIFIED MALE: Fourth quarter GDP numbers are down.

UNIDENTIFIED FEMALE: What`s going on?

UNIDENTIFIED MALE: The Republican Party cannot move forward.

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: We don`t need to be
spending this money that we don`t have.

UNIDENTIFIED MALE: Government spending actually does help the
economy.

BOEHNER: A trillion dollar stimulus bill that was supposed to create
jobs.

UNIDENTIFIED MALE: Three million jobs are created because of the
stimulus.

SEN. MITCH MCCONNELL (R-KY), MINORITY LEADER: We need to start
solving the actual problem --

REP. PAUL RYAN (R), WISCONSIN: We need to cut spending.

MCCONNELL: -- which is spending.

UNIDENTIFIED MALE: Cutting Head Start indiscriminately.

UNIDENTIFIED FEMALE: Cutting very popular social insurance programs.

UNIDENTIFIED MALE: Services that people rely on.

UNIDENTIFIED FEMALE: Medicaid, health insurance, Social Security,
Medicare.

BARACK OBAMA, PRESIDENT OF THE UNITED STATES: There is another
economic reason why we need reform.

UNIDENTIFIED FEMALE: Immigration is going to be really interesting.

OBAMA: Let`s help to build the greatest economic engine the world has
ever known.

UNIDENTIFIED MALE: As Congress gets ready to tackle the immigration
reform, there could be a snag.

UNIDENTIFIED MALE: There`s a still a wing in the Republican Party.

UNIDENTIFIED MALE: The Republican Party cannot move forward.

UNIDENTIFIED MALE: It doesn`t want to do anything on comprehensive
immigration reform.

UNIDENTIFIED MALE: The issue that both parties are trying to grapple
is.

JON STEWART, COMEDIAN: What would you do about immigration?

UNIDENTIFIED MALE: How to deal with border security.

OBAMA: First, we strengthen the borders.

UNIDENTIFIED MALE: They`ve also got to be reasonable about how they
do it.

OBAMA: We define ourselves as a nation of immigrants. That`s always
been one of our greatest strengths.

UNIDENTIFIED FEMALE: How would you describe what played out today?

JANSING: The economy is back in the spotlight.

UNIDENTIFIED MALE: Government spending does actually help the
economy.

UNIDENTIFIED FEMALE: Immigration is going to be really interesting.

OBAMA: It keeps our country on the cutting edge, helping us grow our
economy and strengthen our middle class.

(END VIDEOTAPE)

KLEIN: Your economic theory, your theory of what is holding the
American economy back -- if that theory is we have just way too much
government spending and way too high taxes and if we would just cut that
spending, then we`d have this big recovery -- if that is your theory, and
it is pretty much the theory of one of the major two political parties
right now, I will not say which one, then you had a bad week.

We got two pieces of big economic news this week. One was very bad,
one was pretty good.

One was the economy shrunk in the fourth quarter of 2012. That is the
first time has happened since 2009. That is the bad news.

The other is that the economy added 157,000 jobs in January. But --
and this is actually even more important -- it added 127,000 more jobs than
we thought in November and December.

So altogether, today`s jobs report added more than 280,000 jobs,
280,000 to the economy. That`s pretty good.

But it was what those reports said about the debate we are having in
Washington that was really interesting. When we measure economic growth,
we`re not measuring all that many things. It`s only four main things, at
least in category. There is consumer spending, what you and I buy. That
went way up.

There is investment, so factoring in getting a new machine. That was
very slightly down. There`s trade, the stuff we export, minus the stuff we
import. That was again a little bit down.

And government spending, all levels, state, local, federal. And that
was way down.

The economy didn`t shrink by much in the fourth quarter, only a tenth
of 1 percent. But almost all of that shrinkage came from the government
cutting back, mostly because of cuts in defense spending.

If government spending simply had not changed, the economy wouldn`t
have shrank at all. It would have grown by about 1.23 percent.

There is a lesson here. Austerity does hurt economies. And in
particularly, austerity has been Obama`s economy, not just last quarter,
but for years now.

Government spending and investment has gone down in 10 of the last 12
quarters. Under Ronald Reagan and George W. Bush, you will find this part
of economic growth -- government and spending -- is pretty much all growing
under the two Republicans. You can see this on this graph.

Under Reagan, it added on average, in his first term, a bit more than
6/10 of a percentage point. Under Bush, it`s about half a percentage
point. Under Obama -- under Obama, it`s been negative. If Obama is a
socialist, he is terrible at it.

But here is the interesting thing, even if the economy is shrinking
because the economy is shrinking, we were adding jobs in the private
sector. We now know we added almost 250,000 jobs in November. We added
almost 200,000 in December. And we added more than 150,000 jobs in
January.

What is amazing about this is that this period was fiscal cliff-
palooza, it was a period when everybody was saying, what the economy really
needed was deficit reduction and certainty from Washington. And this was a
period in which we didn`t come to a big deficit reduction deal.

You know what we did? All we did was raising taxes, which cut the
deficit a bit, but it was not a big deal that people said the markets
wanted.

And so, what happened to the markets? Yes. Somehow we kept adding
jobs and the stock market did really well. It all worked out reasonably
OK.

So here`s what we`ve learned. Cutting government spending, it does
hurt economic growth. There is no doubt about it. That means doing it in
a bad economy may be not such a good idea.

But increasing taxes a bit, not coming to that big deficit deal, the
private sector and even the markets don`t seem all that concerned.

The last week, in other words, should cause a lot of people in
Washington to re-think what they`re doing. I am not optimistic that will
happen.

Joining me now is former economic adviser to Vice President Joe Biden,
and senior fellow to the Center of Budget and Policy Priorities, Jared
Bernstein, a man who is always re-thinking what it is that he is doing.

How are you, Jared?

BERNSTEIN: I`m fine, Ezra.

KLEIN: So, first, what else did you see in these reports? You got a
good eye for this data. What caught yours?

BERNSTEIN: Well, one of the things I saw was the revisions to last
year`s employment growth was such that I thought we were adding 150,000
jobs a month in 2012. I thought that was OK. It`s kind of trend growth.
It turns out we`re adding 180,000 jobs per month last year. So we did a
bit better, over 2 million jobs over the year.

Now, on the GDP side, you pointed out that there was a slight
contraction on the fourth quarter -- most economists, myself included,
don`t think that`s going to stick. I think it`s volatility. I think there
were some unusual things that happened.

In those quarter to quarter changes, it`s better to look year over
year.

KLEIN: And just real quick, you mean that what will happen -- do you
mean that will happen in a month or two, we`re going to get the updated
numbers and it will say we grew by 0.4 or something?

BERNSTEIN: Well, probably more than that. But that`s exactly what
I`m saying. They have the advanced measure and there are two more.

KLEIN: These initial measures are usually off by about 1.3 percent.
So, we should say this is all preliminary.

BERNSTEIN: So, what I would like to do is instead of just looking
into quarterly changes, I go year to year, 1.5 percent is the GDP growth
year to year.

Now, if GDP is growing around 1.5 percent, which I think it probably
is, that is probably too slow to really knock the unemployment rate down,
which is what we really need. And kind of like what you said in your
intro. There are some good things happening out there, but the
unemployment rate is stuck at around 8 percent.

KLEIN: And so one thing is coming up next, coming up in this next
couple of months, is a lot more pain coming from the government. Now, some
of it isn`t coming from spending cuts. The payroll tax cut this year, and
that`s going to be a big hit. But also we now have a lot of people really
thinking the sequester is actually going to happen.

So these kinds of defense cuts which we were seeing, which seem like
were maybe a bit of an aberration, maybe a little bit of weird quarter,
could become much more normalized throughout this period. So that could be
a big hit. And it seems like even as economy is gathering some amount of
steam, we keep weighing it down in Washington.

BERNSTEIN: Exactly. And so, what I took from your introduction is
not that the defense cuts in the fourth quarter are necessarily going to
stick, as we both said, they were somewhat anomalous. But if that -- yes,
when you cut government spending, in a time where the private sector isn`t
back up and running the way we need it to be yet, guess what happens? The
economy grows more slowly. Government is a significant part of the
economy.

And if we learned anything from Europe, which you again unfortunately
suggested we haven`t, but if we were going to learn anything from Europe,
what we would learn is that, in fact, you cut the government spending at a
time like this, you`re going to grow more slowly. Now, the sequester
threatens $85 billion of cuts in 2013. And most estimates are that could
take another half of a percentage point off of GDP growth.

Like I said, if we`re already growing at somewhere around 1.25 percent
we can`t afford that.

KLEIN: Right.

And why is the market so calm in all this? The Dow hit 14,000 today.

BERNSTEIN: Yes.

KLEIN: It`s doing very, very well.

BERNSTEIN: I think I can explain it.

KLEIN: Explain it, enlighten me.

BERNSTEIN: Well, so far, we have been talking exclusively about the
United States, although I did mention austerity and Europe. The reason the
market is doing so well is because corporate profitability is doing well,
which by the way is distinct from jobs, the middle class income and wages.
We know all that is kind of the inequality story.

Well, if you`re a multi-national corporation that can sell into
developing economies in Asia, for example, then your profitability doesn`t
depend on the United States getting it right. It doesn`t depend on the
Congress rejecting austerity as anti-growth measure. What it depends on is
your availability to go overseas and sell where there is growth.

KLEIN: That is a very good point.

BERNSTEIN: Sure.

Jared Bernstein, the man who makes many good points, thank you for
being here tonight.

BERNSTEIN: Thank you.

KLEIN: If you are not around here, but you were watching Chuck
Hagel`s confirmation hearing, you probably thought the defense secretary
was in charge mainly of Israel policy or the surge in Iraq. He is not.
But he is in charge of other important things. Chuck Hagel, the director`s
cut, is coming up.

(COMMERCIAL BREAK)

KLEIN: The Obama administration`s health care policy insures pretty
much every woman has access to contraception coverage. But what happens if
you work for a religious organization? Now, then, it gets a little more
complicated. We will explain the new rules, next.

(COMMERCIAL BREAK)

KLEIN: Today, the Obama administration released its new and improved
rules for contraception coverage under the new Affordable Care Act. Yay,
new rules.

The general gist is this: everyone with health care insurance does get
access to contraception. The catch -- the catch is religious employers
wouldn`t have to, quote, "contract, arrange or pay or refer for any
contraceptive coverage to which they object on religious grounds."

So, this compromise basically is the administration`s attempt to have
it a bit both ways on this issue.

(BEGIN VIDEO CLIP)

JAY CARNEY, WHITE HOUSE PRESS SECRETARY: The president has been very
clear on these issues. He`s been clear about what he believes are two
compelling interests, which is the necessity of and the appropriateness of
providing preventive services to women across the country, including
contraception, and making sure that we are mindful of religious liberty.
And he has instructed those who work for him on this issue to be cognizant
of those criteria as they develop the rules.

(END VIDEO CLIP)

KLEIN: The way this ends up working is a little bit weird. Religious
employers, including houses of worship and faith-based nonprofits like
universities or hospitals and charities, they don`t have to provide the
contraception coverage for their employees, but -- but but but -- their
employees would still be able to get free contraception through outside
private insurance agencies that the government contracts with.

So, essentially, if you are a religious employer don`t want to cover
contraception, your employees still get it, you just don`t have to be
involved yourself.

Reaction to proposal quite a bit more positive among folks who support
access to birth control than those who don`t. The United States Conference
of Catholic Bishop said it would take the time to go over the new
regulations and give a detailed statement later.

Progressive women`s groups like NARAL Pro-Choice and Planned
Parenthood, they praised the changes. Planned Parenthood president Cecile
Richard said this policy delivers on the promise of women having access to
birth control without copays no matter where they work. This policy makes
it clear that your boss can`t decide whether you can birth control.

Meanwhile, the conservative Susan B. Antony List writes, "Once again,
President Obama`s so-called compromise is unacceptable. Religious and
moral freedom is not up for negotiation, there must be no religious test by
the government as to who and what types of entities are entitled to a
conscience."

Sarah Kliff, a health reporter for "The Washington Post" and somebody
who gets more excited at new health care regulations than anyone I have
ever known.

Sarah, it`s good to see you.

So how does this actually work in practice? So, let`s say that you
work for religious organization, and you want to have access to
contraception. How do you find that insurance? Where does it come from?

SARAH KLIFF, THE WASHINGTON POST: Well, actually it will find you, in
a way. The insurance will find you.

What happens is let`s say, you know, that Catholic university says, I
oppose it, I never provided birth control. They tell the insurance
company, the insurance company is then required to automatically enroll you
in the stand alone birth control plan. You mentioned earlier, you know,
the Catholic university doesn`t have to do anything, you are automatically
enrolled just by them notifying your insurance company.

KLEIN: And so, who pays for it? At some point, somebody has to pay
for the extra coverage. Is it the employer, still, or is it coming out of
a bigger pot?

KLIFF: That depends on who you ask. So, according to the
administration, it`s essentially the insurance company that are paying for
this birth control. But they`re also going to reap some rewards, you know,
by providing birth control, they might prevent some births, and, you know,
the administration argues it is cost neutral.

One of the big concerns that religious organizations have is that
there`s no wall between these stand-alone birth control plans and, you
know, the insurance they`re providing. So they worry that, you know, at
the end of the day, as some money moves around, they could ultimately end
up paying for the birth control plans.

KLEIN: And so, there are a number of private companies in the country
that are not specifically religious, but are run by very religious
founders, and see the work in their company as in some way furthering their
religious believes. Hobby Lobby is a great example of this. Obviously,
Chick-fil-A has come under fire recently.

How are they treated? If it is a private company and they say, I`m a
devout Catholic, you`re a for-profit private company, do you get special
treatment under the rules?

KLIFF: That`s one easy question answer -- no, you don`t. No
exception for the Hobby Lobby and Chick-fil-As, and companies of the worlds
that might say their faiths-driven, the administration says you know,
you`re a private employer and this is a regulation, you have to comply by
it.

KLEIN: Got it. And there is another exemption I don`t understand,
for large self-insured companies. So, a lot of companies, they end up
taking on the risk of their employees themselves. They don`t really --
they contract with the insurers, but the insurer doesn`t bear the risk.

They have something different happening here?

KLIFF: They do, this is confusing, so try to stick with me. So, what
happened, it`s a bit similar to those stand-alone plans we talked about
earlier. The problem is that they`re not contracting with the insurance
company. So there`s no Aetna for them to say, I`m not providing birth
control.

So, what happens is, most large companies that have a self-funded
plan, they`re not good at managing benefits themselves. They contract with
what we call a third-party administrator. They essential tell the third-
party administrator, hey, we`re not doing birth control. This third party
organization is then responsible for going out and finding an insurance
company to provide this plan.

The financing is a little complex, I don`t know if we want to get into
that or don`t want to get into that, but essentially it just puts one more
layer of bureaucracy in it.

KLEIN: But the workers for that company, they still end up having
access to contraception?

KLIFF: They do, and it`s the same automatic enrolment that were
applied to the other plans we talked about.

KLEIN: So, in the end, there`s not actually any workers who are
getting -- who are getting insurance from an employer who will not have
access to contraceptive coverage?

KLIFF: There`s actually a small group, if you work for a church, or
basically a house of worship. They are allowed to have an exemption from
the mandate altogether. So that`s the one tiny exemption where you may not
get contraceptive coverage.

KLEIN: Got it. Sarah Kliff, thank you so much for walking us through
the thick --

(CROSSTALK)

KLIFF: Thank you.

KLEIN: Coming up, the one thing you`re going to hear over and over
again while we debate immigration reform.

And the thing you should have heard over and over at Chuck Hagel`s
confirmation hearings.

(COMMERCIAL BREAK)

KLEIN: Scott Brown today released a statement saying he would not run
in the special election this June to replace John Kerry in the United
States Senate. But it was weird. He released that, and it just -- it
didn`t feel like news to me. Somehow I felt like I had heard it before.
Where had I heard it before? Oh, yes, I remember.

(BEGIN VIDEO CLIP)

LAWRENCE O`DONNELL, MSNBC HOST: And, you heard it here first, which
is to say you`re hearing it right now. Scott Brown probably won`t even run
against Ed Markey. Scott Brown would be much happier running for governor
when Deval Patrick leaves office next year, a race Scott Brown would have a
much better chance of winning and a job he would love -- I mean love,
compared to the Senate which according to my sources, he doesn`t really
like.

(END VIDEO CLIP)

(COMMERCIAL BREAK)

KLEIN: At the core of the current push for immigration reform is a
grand bargain. It is a path to citizenship but only, only after we secure
our 169,000 mile border with Mexico. This is not a new bargain.

(BEGIN VIDEO CLIP)

GEORGE W. BUSH, THEN-U.S. PRESIDENT: America needs to secure our
borders, yet we also need to acknowledge that we will never fully secure
our border until we create a lawful way for foreign workers to come here
and support our economy.

(END VIDEO CLIP)

KLEIN: President Bush`s push for immigration reform ended with a
bill, supported principally by Democratic Senator Ted Kennedy and
Republican John McCain. It died because of, well, you know?

(BEGIN VIDEO CLIPS)

LOU DOBBS, TV HOST: There are rising concerns tonight that that
amnesty compromise could threaten the nation sovereignty and security, as
well, opening our borders, if possible, open further with Mexico and
Canada. Those fears, part of wider concerns the Bush administration is
hell-bent on creating a North American union.

TOM TANCREDO: Hi, I`m Tan Tancredo, and I approve this message
because some needs to say it.

UNIDENTIFIED MALE: There are consequences to open borders beyond the
aliens who want to come take our jobs.

UNIDENTIFIED MALE: Islamist terrorists now freely roam U.S. oil.

UNIDENTIFIED MALE: The price we pay for spineless politicians who
refuse to defend our borders against those who come to kill.

(END VIDEO CLIPS)

KLEIN: Yes, whatever would we have done if somebody had not stood up
to say that.

The Kennedy-John McCain comprehensive bill included both security and
a path to citizenship. In fact, it was written in the bill that none of
these citizen provisions could be enacted until five very specific
benchmarks on border security were achieved.

But here`s what`s really interesting. Though the bill died we
actually made a lot of progress on those provisions anyway. The border
security part of the bargain has largely gotten done, even as the path to
citizenship part got completely and utterly left behind.

Provision number one, 100 percent operational control of the border
between the U.S. and Mexico. Operation control was never really defined.
One definition said the whole border had to be under government
surveillance. The Government Accountability Office says that is actually
true. The southwest border is 100 percent monitored.

Another definition says we need to be able to quickly respond to any
activity, any activity on the border. By that definition, we`re up 57
percent up to 31 percent in 2007. But getting that up to 100 percent,
experts think, is just unbelievably, prohibitively expensive, possibly even
impossible.

Provision number two, staff enhancements for border patrol to 20,000
full-time agents. Check, there are currently 21,400.

Number three, strong border barriers, which included at least 607
miles of physical barriers, plus 105 radar and camera towers and at least
four -- four unmanned aerial vehicles to monitor the border, immigration
drones. We currently have 651 miles of fencing built, which covers almost
the entire area from California to Texas.

Customs and Border Protection has nearly 300 surveillance systems in
operation. And there are currently five, one more than four, unmanned
Predator drones patrolling the border. So pretty good on that.

Number four, catch and return, as opposed to catch and release. In
other words, every person caught crossing the border illegally would be
detained. It has also called ICE, Immigrations and Customs Enforcement, to
have the resources to detain as many as 31,500 people a day ICE can
currently detain as many as 33,400. So again, check.

And by the way, related to that, deportations are up. The Obama
administration deported nearly 410,000 people in 2012, a 25 percent
increase since 2007. And a new report projects the Obama administration
will have deport two million people by the end of next year.

And number five, finally, workplace enforcement tools to verify the
immigration status of workers. This is the one where we`ve really fallen
short. All federal agencies and federal contractors have to use a tool
called e-Verify, which is what the executive branch can without a law from
Congress making the practice nationwide. E-Verify allows you to check the
Social Security number and other data of on applicant.

But it is not a very good system. Even in its limited reach, a 2009
government study of its effectiveness found that, quote, "the inaccuracy
rate for unauthorized workers is approximately 54 percent, due primarily to
identity fraud."

Now it is not that there is no more to do. But based on what we
thought made sense to do in 2007, which was not all that long ago, there is
not all that much more to do. But the difficulty here is in order to seal
this grand bargain, we are going to have to do enough more that folks
worried about the border really feel like they got something out of it.
Hence the bargain part.

That could mean a genuinely, truly militarized border, one that wastes
a lot of money. And the question lurking behind all of this is whether
this kind of militarized border is even a good idea, or whether the real
way to make the border more secure is to make it much harder for employers
to hire people without provable citizenship and to make it much easier for
them to find legal labor.

Joining me now to discuss it is Jessica Vaughan, the director of
policy studies at the Center for Immigration Studies, and Marielena
Hincapie, the executive director of the National Immigration Law Center.
Thank you both for being here.

Jessica, I want to begin with you. I believe you feel we need to do
more. So what more do we need to do? What would make you feel that this
was secure?

JESSICA VAUGHAN, CENTER FOR IMMIGRATION STUDIES: Well, I don`t see
how anyone can make the statement that the border is secure enough already,
when we have hundreds of thousands of people able to cross every year,
bringing with them illegal drugs and other contraband. We need to finish
the infrastructure. We need to give the border patrol access to the lands
that they don`t now have access to patrol well, such as in our national
parks, which are getting trashed by illegal entrants and the smugglers who
are bringing them over.

We also need additional layers of security, for example, at the
transportation hubs, because most of the traffic now is brought in by
smuggling organizations, organized crime. We need to tackle it like
organized crime.

And of course the big thing that is missing is adequate enforcement at
the work place, to turn off the job magnet that would -- you know, when
that gets shut down, then fewer people are going to want to come
altogether. But there is much more that can be done. And we have made
good progress. But -- and we`ve seen some of the benefits.

I mean, there -- one key indicator has shown that the illegal traffic
across the border went up last year.

(CROSS TALK)

KLEIN: But that was after a number of years, though, in which it has
fallen quite precipitously. Although obviously people argue about why.
Maria, I want to go to you on this, as well. And in particular, a question
I wanted to ask about it, is that this sort of output based measures,
right, that we still do have people crossing a 1,900 mile border illegally.
We still do have some amount of crime, even though it`s dropped.

There is no city in the country that is perfectly safe. There is a
real tension at some between how you can effectively militarize and at what
point you`re just spending money for very diminishing returns. So where do
you think we are on that spectrum?

MARIELENA HINCAPIE, NATIONAL IMMIGRATION CENTER: I think that`s
absolutely right, Ezra. I think the Obama administration has done more
than any other prior administration. Our border today, we are spending
over 18 billion dollars just last year alone in the interior and in the
border. That is more than all federal criminal law enforcement agencies
combined. More than the FBI, more than the DEA, AFT, Secret Service. I
mean, you name it.

I mean, that is pretty incredible. And we are currently at net zero
unlawful migration from Mexico. So again, that is not the focus. We have
done so much on border and interior enforcement. And the piece that has
been left undone actually is that there has been no path to citizenship.
There is no road map to citizenship. There aren`t any legal mechanisms for
people to -- who are either currently in the United States to become
citizens, despite the fact that they may have been here for five, 10, 15,
20 years, or for family members to come to the U.S. through a lawful means,
without waiting a decade or two decades.

KLEIN: Jessica, on that point, your organization is very dedicated to
stanching that flow of illegal migration at the border. But one thing that
people argue about, getting tougher border security, a much larger and
longer fence, making it much harder to cross back and forth, is that you
end up having two things happen. One is that a lot of the cross border
traffic ends up moving to coyotes and other sort of more -- essentially
counter-militarized ways of getting around, which are more dangerous, bring
more crime.

And the other is that you have more folks who come here illegally, but
also stay because they can`t get back and forth to their families along
with the flow of jobs. Do you worry about any of that?

VAUGHAN: Well, no. what I worry about are the Americans who are
displaced by the illegal immigration, and by people who are threatened by
this criminal activity that goes on in the southwest border region. I
mean, that is what we should be most concerned about. We have a pathway to
citizenship. And it happens by people being sponsored by a relative or by
an employer. That is the legal system that we`ve set up.

And it`s limited. The numbers are limited because, let`s face it, our
country has a limited carrying capacity in terms of the labor market and in
terms of our resources. So, you know, once we agree that you have to have
limits on immigration, then the question becomes how do we enforce those
rules in a way that`s fair for the people that we have decided to welcome.

And the immigration reform proposals that were put out this week
simply don`t meet that test.

KLEIN: And one thing about those immigration reform proposals, Maria,
is that one argument they`re making is that in order to actually get this
kind of illegal migration down, you need to do a couple of things. But
foremost among them is, A, get a real sort of national ability to check the
citizenship status of folks applying for jobs. And B, also to get a more
sort of sensible system in which it is easier for employers to get more
labor, even foreign labor, in order to deal with the changing labor market.

And until you do those things, the idea that you can just militarize
the border and stop the problem is not reasonable. I mean, it is a very
dangerous crossing now. And people do it because they see opportunity on
the other side. Unless there is a way to get those jobs filled in a
different way that employers prefer, it is never going to stop.

HINCAPIE: Well, Ezra, I think there are a couple of things. One is
people are crossing -- and it is both the financial cost to cross to the
United States, but it`s also the human impact, right, that the people who
are dying on the border. But people are coming to be reunited with their
family members.

I mean, Jessica said that there is currently a path to citizenship.
But the reality is our system is completely outdated and irrational. There
is actually consensus on that in the country. The majority of Americans
believe that the 11 million people who are here deserve to have a road to
citizenship.

And now we actually have bipartisan consensus on that, as well. The
question, I think, becomes will that road to citizenship be a clear and
direct one, where people actually will be able to become citizens and be
part of our democracy and participate fully in our democracy, or will it be
such a long, legal limbo, with so many roadblocks, that we will continue to
have second class citizens in this country.

KLEIN: Jessica Vaughan of the Center for Immigration Studies and
Marielena Hincapie of the National Immigration Law Center, thank you both
for joining me tonight for this debate.

HINCAPIE: Thank you.

VAUGHAN: Thank you.

KLEIN: Coming up, you probably don`t think of immigration policy is
an economic policy. I will tell you why you should.

(COMMERCIAL BREAK)

KLEIN: Here is a clip you probably saw from Chuck Hagel`s
confirmation hearing.

(BEGIN VIDEO CLIP)

SEN. JOHN MCCAIN (R), ARIZONA: I disagreed with President Obama, his
decision to surge in Iraq, as I did with President Bush on the surge in
Iraq. Do you stand by that -- those comments?

CHUCK HAGEL, FORMER SENATOR: I`ll explain why I made those comments.

MCCAIN: I want to know if you were right or wrong. That is a direct
question. I expect a direct answer, I would like to answer whether you
were right or wrong. And then you are free to elaborate.

HAGEL: Well, I`m not going to give you a yes or no answer.

MCCAIN: Let the record show that you refuse to answer that question.
Now please go ahead.

HAGEL: Well, if you would like me to explain why --

MCCAIN: Well, I actually would like an answer, yes or no.

HAGEL: Well, I`m not going to give you a yes or no. I think it`s far
more complicated than that. And as I`ve already said, my answer is, I will
defer that judgement to history.

(END VIDEO CLIP)

KLEIN: The surge was seven years ago. But this is what we tend to
get out of confirmation hearings, the moments of confrontation, the moments
when someone performed really well or really badly. By now, you know that
Chuck Hagel did not give a great performance before the Senate. But I
don`t want to focus on his performance. I want to focus on his substance.

My question about the hearing is if you had sat and watched every
second of it, and if you really knew these issues, what were the parts that
really taught you something about Hagel and the job he is actually going to
do? As it happens, I know somebody who does really know these issues and
did sit and watch every second of it.

And so I asked him to pick the three moments that were the most
revealing, the three moments people should see and should think about. And
very kindly he agreed.

So joining me now is Spencer Ackerman, senior writer for "Wired
Magazine," also a writer for "Wired`s" blog "The Danger Room," and a man
who sat through every moment of the Hagel hearings, and actually understood
them. Thank you for being here.

SPENCER ACKERMAN, "WIRED MAGAZINE": Thank you. It was painful.

KLEIN: So let`s go to your first clip here. I want to roll that.

(BEGIN VIDEO CLIP)

HAGEL: I had one fundamental question that I asked myself on every
vote I took, every decision I made: was the policy worthy of the men and
women that we were sending into battle, and surely to their deaths? I
always asked the question, is this going to be worth the sacrifice?
Because there will be sacrifice.

In the surge case in Iraq, we lost almost 1,200 dead Americans.

(END VIDEO CLIP)

KLEIN: So the goes to this McCain-Hagel confrontation, actually.
This is the broader answer to the point about the surge, right?

ACKERMAN: If Hagel had decided he was going to, you know, get a word
in edge-wise with McCain, if McCain had let him, that would be the answer
that Hagel gave, is he would have decided to provide. What he meant to
say, as he elaborated there, was this was the basis for his skepticism of
large commitments of ground troops for open ended purposes, for unclear
mission and for dubious gains.

That is why Hagel says he opposed the surge in Iraq, and even though
McCain kind of flubbed the intro, why he wasn`t on board with the surge in
Afghanistan that President Obama implemented. Hagel wanted to say that
while his experience in Vietnam doesn`t define him -- it`s not everything
about him. It is a fundamental part of his character.

And for a lot of us who have talked to Vietnam veterans, you kind of
hear this theme sounded a lot, that while in Washington talking about
restraint for military engagements seems to make someone something of a
dubious case or you seem sort of too dovish, it comes from a real place.
And that is sort of what Hagel wanted to express.

KLEIN: And this goes to an interesting question about the way we deal
with these strategic questions, right? Because when you take the surge,
there is a -- McCain`s line of questioning was based on the idea that, at
this point, the surge was self-evidently correct, because it did help
staunch the bleeding in Iraq. It did help move the war in a somewhat
different direction. Obviously there were other factors.

But the idea is you can`t possibly be a credible person and have
opposed it. And part of what Hagel is arguing here, right, is that not all
wars are, on some level, worth winning. We tend to I think in this
discussion, as long as we won, that is fine, that is good enough. And his
point is there is really a cost even to something that goes well.

ACKERMAN: And he expresses it really emotionally at a couple points
in the hearing, that it is not just the fact that you can staunch the
bleeding. It is the fact that you need to treat the wound. And that is
more where Hagel wanted to express that he was coming from, that there are
some engagements that just shouldn`t be done. And we shouldn`t think of
that, in his view, as something that should write us out of the main
stream. It should actually be a central part of discourse about national
security.

KLEIN: You also picked this clip of Hagel talking about what he wants
to do with the Navy, which I didn`t see really played almost anymore, but
it does strikes me as important, as well, really. If you could play that?

(BEGIN VIDEO CLIP)

HAGEL: The navy is an indispensable part of our security apparatus.
First, it is the one visible projection of power that we have in the world.
Obviously, our rebalancing of resources in the Asian Pacific region are
some indication of that. Persian Gulf, we have been talking all day about
Iran, about Israel, but specifically Iran in the Persian Gulf. You know,
we have our Fifth Fleet there in Bahrain. We have two carrier battle
groups in and out of that small, little area.

The flexibility, agility, missile defense, nuclear, all those
capabilities are within the Navy. So I am a strong supporter of advancing
our Navy technology and our efforts. And I will continue to do that if
confirmed.

(END VIDEO CLIP)

KLEIN: Now, that word re-balancing, that is an important word there.
So what does that have to do with the Navy?

ACKERMAN: It has everything to do with it. Everything that Obama is
trying to do in terms of grand U.S. national security strategy hinges on
the Navy in some way or another. We`re talking about getting out of land
wars that seem to last forever in the Middle East and South Asia, and move
towards where Obama now -- Hagel is committing himself to that there as
well -- a more central understanding of U.S. economic and security
interests, interlinked.

And that is basically where things are blue and wet. And that`s, you
know, not really something that you ever really heard Hagel express. It is
not really something that somebody from his military background -- he was
an Army sergeant -- is really, you know, expecting to have a lot of
understanding of.

Hagel is committing himself there to a really important debate in
national security circles about the importance of naval power. It is
something that kind of waxes and wanes periodically. But more than Israel,
more than what he said in his speech seven years ago, if Hagel is
confirmed, that is going to be what he will deal with. It got nearly no
attention during this hearing.

A lot of us who delve into these issues more deeply were kind of
concerned that Hagel didn`t have more specifics ready to discuss it. But
it at least is a framing of a conception of the national security that went
very, very well absent throughout eight hours worth of confirmation
hearings.

KLEIN: And speaking of the eight hours, this was, I think you said,
in hour five, the third clip. And it is something I didn`t notice at all
when it happened. If you want to play that?

(BEGIN VIDEO CLIP)

SEN. DEB FISCHER (R), ARMED SERVICES COMMITTEE: But when you co-
author a report, I think you should be able to answer if you agree with
statements that are made in the report.

HAGEL: I do not agree with any recommendation that would unilaterally
take any action to further reduce our nuclear warheads and our capability.
But again, that is not what the report said. But I do not agree with that.

Every action we must take to reduce warheads or anything should be
bilateral. It should be verifiable. It should be negotiated.

FISCHER: Every action that this country takes needs to be bilateral?

HAGEL: : I didn`t say that. I said in nuclear capabilities and our
warheads. When we talk about reducing warheads, as every treaty we have
signed with the Russians, has been bilateral. It`s been verifiable.
Ronald Reagan said it best, trust but verify.

(END VIDEO CLIP)

KLEIN: OK, verify it for me, what caught your eye?

ACKERMAN: So here is Hagel, who earlier -- I`m sorry, who last year
co-authored a really, you know, shocking report about cutting the U.S.
nuclear arsenal. The only reason why it is shocking is because it is so
banal. Nearly no one seriously in national security really believes the
United States needs something like that 700 delivery vehicles for nuclear
weapons, needs, you know, hundreds of actual nuclear weapons on hand.

Ultimately, you know, Hagel could have made a stronger case for
cutting the U.S. nuclear arsenal. And he decided, under questioning, you
know, that was not going to be the hill his confirmation hearing was going
to die on.

KLEIN: Yes, that is striking, and particularly given that Barack
Obama himself, back in the Senate, was a big supporter of nuclear
disarmament, and that was a key issues for him.

Spencer Ackerman, reporter for "Wired," thank you for bringing your
wisdom from the Hagel hearings to us tonight.

ACKERMAN: Thank you. I`m still trying to recover.

KLEIN: The economic policy you don`t know is actually economic
policy, immigration reform. That is coming up.

(COMMERCIAL BREAK)

KLEIN: Here is something I think people are missing. The most
important piece of economic policy we pass or -- its Congress -- maybe
don`t pass in 2013 is probably going to be something we don`t usually think
of as an economic policy at all, immigration reform.

I want to give you a few facts about immigrants and the American
economy. First, about a tenth of the U.S. population is foreign-born. But
more than a quarter, 25 percent of U.S. technology and engineering
businesses begun between 1995 and 2005 had a foreign-born owner.

In Silicon Valley, half -- half of all tech start ups had a foreign-
born founder. One quarter of all U.S.-based Nobel laureates over the past
50 years were foreign born.

Right now, about half of the PHDs working in science and technology in
America are foreign-born. Immigrants are 30 percent more likely to begin
new businesses. And they are three times more likely to file patents than
their native born counterparts.

And Congress finds that, on average, immigrants tend to lift American
wages.

The economic case for immigration is best made I think by way of
analogy. Everybody kind of agrees, they gets that aging economies with low
birth rates are in trouble. And so they get that if the birth rate goes
up, that is good for the economy. Immigration is essentially the
importation of new workers. It`s like raising the birth rate, but easier,
because the newcomers are old enough to work immediately. You don`t have
to teach them to walk first or eat with a fork.

And because living in the U.S. is considered such an unbelievable
blessing, the U.S. has an unusually amount to gain from immigration,
because when it comes to the global draft for people and for talent, we
almost always get the first round picks. At least we do if we want them,
and if we make it relatively easy for them to come here.

If you are worried about the deficit, more young, healthy workers
paying into Social Security and Medicare are an obvious benefit. If you`re
concerned about the slow down in start ups, which is a big deal, more
immigrant entrepreneurs should cheer you up.

If you`re worried about the lack of science and engineering majors in
our universities, eager foreign-born students desperate to come here and
major in those areas, it is the most obvious and clean solution you`ll
find.

Politicians of both parties recognize this. Even Paul Ryan makes a
point of pointing out the growth advantages of immigration.

(BEGIN VIDEO CLIP)

REP. PAUL RYAN (R), WISCONSIN: Our goal is to advance policies that
make a difference in people`s lives. That means we want to advance pro-
growth reforms that are good for the economy. You know, there are some
immigration things that I think are good for the economy.

(END VIDEO CLIP)

KLEIN: Immigration was the first policy he thought of when he talked
about pro-growth reforms. And he`s right. Some workers are hurt by
immigration. You don`t want to pretend that it`s costless. But these are
workers who are typically already struggling quite badly.

The best way to help them is with more training, better health care
and more generous earned income tax credit and things of that nature.
Those benefits become easier to provide in a growing economy with more
young workers, than in a sluggish, aging one with chronic budget deficits.

Immigration is not what ails those workers, and it is not what is
standing in the way of aiding them. Will immigrants use those same social
services, as some immigration opponents contend, adding to the cost of the
nation`s welfare state? Yes. But not as often as they`ll pay into it.

In 2007, the Congressional Budget Office found that legalizing
undocumented immigrants would increase federal revenue by 48 billion, while
costing only 23 billion in increased public services. And that is before
you get into any of the broader economic benefits.

There are very few free lunches in public policy. Usually it is a
realm of hard choices. But taking advantage of our unique position as the
country where the world`s best and brightest and hardest working
desperately want to go, that is surely correct.

And that is THE LAST WORD for this Friday. I am Ezra Klein, in for
Lawrence O`Donnell. You can read more of my work at the "Washington Post"
at WonkBlog.com.

"THE ED SHOW" is up next.

END

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