December 20, 2014

Transcript From The Economic Patriots Dinner and Award Presentation

Mr. Peter G. Peterson: It is my special pleasure to chair a dinner for a special friend and a great American. 

I find on occasions of this kind, that, if you wish to make a point, sometimes it's best to use an anecdote, and if it's a bit humorous, so much the better. Perhaps that will make the point a bit more memorable.

So, let me start with an anecdote about the famous trial lawyer who saved the lives of many clients, Clarence Darrow.

On one such occasion he again won a not guilty verdict. The family, weeping with joy, asked Mr. Darrow how they could possibly express the depth of their emotion. Darrow responded dryly, “I have yet to experience an emotion that could not be expressed in money.”

So that's how I feel tonight. You have expressed the depth of your emotion about John McCain and The Concord Coalition by helping us raise over $700,000, a clear record. So thank you and thank you, John. (Applause.)

A second anecdote took place when I was in corporate life in Chicago and there was some transcendent issue, that was so transcendent I can even remember what it was – (laughter) – but at the time it was transcendent and it was very important to my company to get a bill passed. Senator Everett Dirksen was our senator from Illinois, and he had promised me that he would support this bill, but when it came time to vote he voted no. So I of course went to see the senator, and before I could say anything to him he said, Pete – you all remember his bass voice – he said, you probably are wondering whether I am a man of high principle. I said, Senator, as a matter of fact, yes, that thought had passed my mind. He said, I am a man of very high principles, and my first principle is total flexibility. (Laughter.) Now, John, you remember Everett Dirksen, and, remembering his bass voice, all you could do was laugh and say, okay, let's go on. 

Well, John McCain is simply inflexible when it comes to a matter of principle. His recent vote on the Medicare prescription drug bill is typical because he, like many of us, feels the costs of the current Medicare program are unsustainable. He felt it did not make sense to vote for a new benefit that would make Medicare even more unsustainable until costs of the existing program had been reduced so he simply voted no. 

Finally, a third anecdote. President George Bush, Sr., was being pilloried in one of these Washington roasts, and he was being roasted for his changed position on such subjects as voodoo economics and several other subjects. So President Bush stood up before this group and said, “I know what you're thinking. You're thinking that in view of my changed position on voodoo economics and this and that I don't have the courage of my convictions.” He pounded the lectern and said, “I want you to know I do have the courage of my convictions; I just don't happen to agree with them!” (Laughter.) Well, John McCain not only agrees with his convictions but most certainly has the courage of his convictions. He has that courage in all of its dimensions: political, moral, and obviously physical courage.

Now, who could more appropriately present the Economic Patriot Award than Warren Rudman, another co-founder and one of John McCain's dearest friends? And speaking of courage, given the White House's, shall we say, rather restrained enthusiasm for Warren's being chairman for the McCain for President campaign in the year 2000, I'm happy to present to you Warren Rudman, our courageous co-chair and co-founder of The Concord Coalition. 

Warren Rudman. 

(Applause.) 

SEN. WARREN B. RUDMAN: Thank you. Pete, thank you very much. You know, when you look at American political history you find that a few times in every century, someone comes along that truly electrifies the American people, irrespective of their party, where they are from, be they conservative or liberal; there's just something about the person that electrifies people and they go down in history as being extraordinary members of the government, in this case the United States Senate. 

When I first met John McCain when he came to the Senate, I realized that this was a very rare individual, someone who had deep beliefs and was not at all reticent about expressing them. But the most extraordinary experience that I had, one that I will remember fondly my entire life, is our trip through New Hampshire together, starting in the late fall of '99 and into the winter and the election of 2000 in which John overwhelmingly won the New Hampshire primary. During the tour we rode on a bus that was called the Straight Talk Express. And John did over 100 town meetings and I attended a large number of them, and one of the things that I will never forget was the intensity of the audiences as they finally met John McCain and recognized this was a different kind of a political figure, someone who answered questions not as the listener might want, suggested in the questions, but what John believed. 

And those who know him and know him well – and I certainly do – will tell you that he is truly an extraordinarily important treasure to this country. He is getting this award for a number of reasons, but his standing up for fiscal sanity through his entire Senate career has been extraordinary. John McCain believes in doing what is right for the American people and he doesn't care what power interest, political or private, that he goes up against if he believes that he's right. 

And of course his personal story is one that needs not be repeated here. John McCain has a personal story that is truly incredible but he has a wonderful sense of humor about it. I remember one day in Bedford, New Hampshire – and John may remember it – in which a man who was a veteran of the Vietnam War got up and said, Senator McCain, I just want to tell you that all of us think that you are a real hero and the six years you spent in prison in Vietnam were just extraordinary, and your refusal to be repatriated because you didn't want favoritism and all of those things, and he said, you're just a terrific hero. And John looked at him with a perfectly straight face and said, let me tell you something: It doesn't take a great deal of courage to get shot down by a Russian missile. (Laughter.) 

That is typical of John McCain, who truly I don't think himself realizes how much he is adored, loved, and respected by people across this country, and thus it is my pleasure, on behalf of The Concord Coalition, all that are here, to present to John this year's Economic Patriot Award. 

(Applause.) 

SEN. JOHN MCCAIN: Thank you very much. Warren and Pete, thank you. They are two men who not only have my admiration, respect, and affection, but, I keep in mind from time to time when I'm faced with a tough decision, two people that I am committed to not disappointing in my actions. And by the way, I will not be elected Miss Congeniality again this year in the United States Senate. (Laughter.) And by the way, I was with the president yesterday and discussing issues, and of course the deficit came up, and I strongly recommended – as I recommend to you if you haven't read it – Pete's book, Running on Empty. It's really an important document, I think, that is a blinking red light that those of us in Congress and the American people should be very much aware of. 

First of all, thank you, Warren, for those kind words. It's much nicer than the introduction I got at the Scottsdale Rotary Club last week. They guy said, “Here's the latest dope from Washington: Senator John McCain.” (Laughter.) So I thank you for that. On the way in here tonight this guy said, “Hey, anybody tell you you look a lot like Senator McCain?” I said, “Yeah.” He said, “Doesn't that make you mad as hell?” (Laughter.) I said, “I think so.” So I want to thank you, Warren, and I want to thank you for all your friendship. 

Warren was talking about New Hampshire and our magic moment there, and obviously – I'll never forget it. The first guy up there was Morris Udall. He ran in 1976 against Jimmy Carter and he finished second in 15 different states, and he was a funny and lovely man. And many politicians have stolen his trademark joke where he said he walked into a barbershop in Manchester, New Hampshire and said, “Hi, I'm Morris Udall from Arizona and I'm running for president of the United States,” and the barber said, “Yeah, we were just laughing about that this morning.” (Laughter.) When we started our campaign, with Warren's assistance, I had very similar experiences. 

Another Mo Udall one – and I know all of you are familiar with the intensity in the personal contacts of the campaign in New Hampshire. Mo said that a guy said to another guy in Manchester, “Hey, what do you think about Mo Udall for president?” He said, “I don't know; I only met him twice.” (Laughter.) And it's so true. Bob Dole tells the story about – he was in someone's home and was giving his talk and there were 20 or 30 people there, and after he finished, this woman came and said, “Now look, that's great but we're really angry that you're not coming to our neighborhood and you were talking here in this neighborhood.” Bob Dole got all excited. He found out the lady lived two blocks away. (Laughter.) 

So we had some wonderful experiences, but more importantly, what the campaign did for me was give me an increased ability to influence the legislative process. And that's why we go there. At least that's why I hope we go there. So I'm very honored by this award. 

Pete asked me to mention – you know, there was all this conversation and there's a Newsweek story out about John Kerry offering me the vice presidency, and then the rumors that Cheney was going to step down and I was going to be offered the vice presidency. You know, it's nice to appear in both candidate's commercials but – (laughter). I was on Jay Leno I think – or Conan O'Brien; I've forgotten -- and he said, “What's this about you being vice president?” I said, “Look, I spent all those years in a North Vietnamese prison camp, kept in the dark, fed scraps; why the hell would I want to do that all over again?” (Laughter, applause.) 

And so I feel very strongly that there are priorities that we have for the country – and Pete describes them far more eloquently than I do. We've gone from multi-trillion-dollar surpluses to multi-trillion-dollar deficits, and we are really mortgaging our children and our grandchildren's futures, and we need a greater awareness. And without talking very much longer, our problem is we won't make tough decisions; we won't make tough decisions in Washington. Anything goes. And one of the reasons why I voted against the tax cuts is I said, look, we don't know what the war is going to cost but I can guarantee you one thing from my study of history: it's going to cost a hell of a lot more than we think so. Guess what? The president is coming in next month, asking for $70 billion more -- $70 billion more! And, my friends, if somebody sees a quick way out of this war in Iraq, I'd like to talk to you. I'd really appreciate the encouragement and the knowledge of it. So we're going to have to get the situation under control. I believe that the president talked to enough Americans in this campaign that he realizes that he has to do it. 

We had an appropriations bill and I like to pick out certain favorite pork projects. My favorite one used to be the $2 million we gave to Iowa State University to study the effect on the ozone layer of flatulence in cows. Now, I was always wondering about the testing procedures on that – (laughter) – but my favorite one lately is the $2 million we gave to study the DNA of bears in Montana – study the DNA of bears in Montana. I don't know if that's a paternity issue or a criminal issue – (laughter) -- but you've got to ridicule them. You have to ridicule. You get mad or you make fun of it, and I've chosen to do both, but it's important to do that. 

Finally, I want to just mention that none of this can be discussed without the backdrop of the conflict that we're in. A big battle is taking place in Fallujah. Veterans Day is coming up tomorrow. If you get a chance, there is an HBO special that's very gripping that's a film about the families of those who have been killed in combat. It's probably the most gripping thing that I have seen. I saw it at HBO in Washington recently and I'll tell you, it's as gripping as anything that I have ever observed, and I was there with some of the families who made this film. 

So the reason why I mention that is that here's these young 19, 20-year-old kids making the ultimate sacrifice and risking their very lives and futures in order that someone else might be free. It seems to me at least we might have the obligation to give them the kind of future that we have. And that's why I'm especially grateful for this award tonight because I view it as an added obligation because of the very difficult war and conflict that we must win that we are going through today, and it increases my sense of responsibility to the American people and to these young people who are doing so magnificently as we speak. 

Thank you. I'm very honored. 

(Applause.) 

MR. PETERSON: Thank you, John. 

Please enjoy your dinner. And we're going to have the usual custom at these dinners: several of our wisest Americans are going to join me and we'll have an interesting discussion. So thank you again very much. 

(Break for Dinner.) 

MR. PETERSON: I'd like to start with one of my old stories. My wife would tell you they're all old, but at least I try to make them relevant, as I said earlier. When I came to this city in 1973 it was very important for me to get to know a lot of the other business associates in New York, so as part of that ritual I attended about two of these dinners every night for about 90 days, and at the end of 90 days I knew more about how the audience felt than anybody in America. So about that time I'm asked by the CEO of a company I was on the board of if I would chair one of the dinners, and remembering my experience over the 90 days I said to this group that I'll do this because he's a good friend of mine, but only on one basis: the evening will be over at 9:30. 

These gentlemen explained to me that this might be true for other evenings, but at this event, people really look forward to hearing a half-dozen speeches or so – (laughter) – and it's true that it went on until 11:15 or so, but people so look forward to this evening. I said, I'll tell you, my research indicates just the opposite – (laughter) – and if you don't mind – or even if you do mind -- if you want me as chairman, that is the condition: the evening will be over at 9:30. So after much sturm und drang they finally agreed, very reluctantly. So I stood up at the beginning of the evening and I said, based on my vast audience research that I've been doing for the last 90 days, I have a feeling that what I'm about to tell you may interest you as much as anything that you're going to hear this evening: we're going to be over at 9:30, at which point I got the only standing ovation I have ever gotten in my life. (Laughter.) So I want to assure you all we're going to be out of here by 9:30. We've got a wonderful group of friends and colleagues here, and my role is just to ask them questions. 

John, I might start with you. Our party, my party, the Republican Party, has always been known for its fiscal responsibility and yet we have become a party of theological tax cutters who have never met a tax cut they didn't like, big spenders – indeed, big government conservatives, which used to be an oxymoron. Furthermore, it was our party that got rid of spending caps and pay-as-you-go that worked so well. And as for our president, he's the first president since John Quincy Adams who did not veto a single bill. So do you have an explanation – (laughter) – of how this has come about? We like to start with the softballs. (Laughter.) Do you have an explanation of this? What happened? 

SEN. McCAIN: I do not. (Laughter.) 

MR. PETERSON: Do you want to take the Fifth? (Laughter.) 

SEN. McCAIN: I sometimes wonder what happened to the old “lockbox.” Remember that? (Laughter.) Remember the lockbox? Remember that? We were going to take your Social Security and put it into an account with your name on it. Remember that? Well, I think that there are three kinds of senators in the Senate: Republican senators, Democrat senators, and appropriators. And I really don't think that they care as much about – I'll try to be brief. I think we were lulled into a sense of complacency that we never came out of when we were running surpluses. We lost the discipline then when we were running surpluses. Then we have not seemed to be concerned about the deficits, nor have any of the administration economists voiced any real alarm about it, including, by the way – I don't think Alan Greenspan has certainly given it the importance that – he talks about it but he hasn't given it the importance that I think that it deserves. 

And finally, we don't want to make any tough decisions, and we're also in the day of sound bite television spots where if you vote against any bill it turns into a commercial. I don't like to harken back to the year 2000, but in this state, commercials were run all over this state that said, “John McCain voted against breast cancer research funding.” I voted against a defense appropriations bill that was loaded down with pork and had breast cancer research funding on it. I voted for years for breast cancer research funding. So they're afraid of the sound bite as well. 

And finally, it just takes leadership from the president to say, we've got to stop this. 

MR. PETERSON: Do you think it's going to be different in this term or not? 

SEN. McCAIN: Yes. Yes. 

MR. PETERSON: And why do you believe that? 

SEN. McCAIN: Because I think the president realizes that if there is an area of concern he has with his base, the conservative Republican base, it's the deficit. And I think he's also genuinely concerned about how you're going to save Social Security, for example if we're running these kind of mammoth deficits. And finally, I think he also realizes, as I said earlier, that the Iraq conflict is going to be very long and very expensive. 

MR. PETERSON: Warren, you got anything to add to that? 

SEN. McCAIN: The words of Chairman Mao: “It's always darkest before it's totally black.” (Laughter.) 

MR. PETERSON: Warren, do you have anything to add to it? 

MR. RUDMAN: Well, you know, John had one comment there at the end which was a very interesting comment, and I'd just go back and visit on that comment. He said there were a lot of conservative Republicans who are very concerned about the deficit, and that's absolutely right. 

It's interesting. The Senate, in my view, or even the House – the Republicans – are really not as conservative as the conservatives out there in the country who have been true fiscal conservatives for a long time. They're just not. As a matter of fact, the ideology that is very hard to understand, but I believe it's honestly held, is that these people still believe, after it's been disproved, that their supply side theories work, to a point. They'll work to a certain point but beyond that they just don't work. And when you look at one number and one number alone – and we've talked about this, Pete, and The Concord Coalition has talked about it – the number is so staggering as to be almost incomprehensible, but let me try. 

At the current moment, we have unfunded liabilities in this country for obligations to people that are alive today – not future generations; today – of somewhere between $50 trillion and $65 trillion. And how the supply-siders, who know that figure, can continue to believe in tax cuts, I'm not sure. And I would say to John that I would agree with him on one point: I don't think we're going to see this administration pushing for a lot of tax cuts. I truly don't believe they will. I really do wonder, though, whether or not they're willing to confront the entitlement issue, which is in many ways far more important than even the discretionary spending issue. That I don't know. I mean, we're going to just have to wait. 

MR. PETERSON: All right. Now, while the media and other people focus on the budget deficit, some of us worry more about the current account or foreign deficit. As some of you or all of you know, this number has now reached levels that were unheard of. It's nearly 6 percent of the GDP. We're borrowing $2.5 billion every workday from foreigners, and I know of no economist who believes it's sustainable. And you remember the immortal words of Herb Stein, the Nixon humorist – which will strike some of you as an oxymoron probably – (laughter) – who once said, “If something is unsustainable, it tends to stop.” (Laughter.) And he says – if you don't like that one -- “If your horse dies, I suggest you dismount.” (Laughter.) So the question is, are we going to get off this horse gently or are we going to get thrown off? 

So, Paul, you've done as much thinking about the sustainability or unsustainability of current account deficits as anybody I know. What do you say? 

MR. PAUL VOLCKER: It's not sustainable. (Laughter.) 

MR. PETERSON: Okay, so they're not sustainable. 

MR. VOLCKER: The question is, of course, how do you get off it? 

MR. PETERSON: So then what? 

MR. VOLCKER: Let me give a more general picture, if I may. I was thinking about this coming down from Toronto this afternoon, and these two deficits are related. And why don't we worry about the deficit, because if you're an ordinary person like me and not a politician, you say, what's the problem? Interest rates alone; the economy is rising. What's all this deficit business? What are you worrying me about? Now, the current account I think is a bigger evidence of something out of whack. It's a bigger number, actually, and this involves a buildup of foreign debt, but it's still very nice. What are you worried about? It's nice to buy all this stuff from China at cheap prices, and it keeps the prices down here and there's no inflation. Everybody wants to lend us money. What's the problem? 

And you look at the other side and who's lending us all this money and then we simplify it. It's the Chinese, and they like it too. We like to spend; they like to sell. We match up perfectly. They like to invest; we're perfectly happy to borrow. So we're all together and we like to – they employ 30 million people a year, so they like to sell to us. And then I like to think, in terms of its sustainability we're kind of in a death grip with each other. We like it the way it is but can it last? But maybe the right simile is we're kind of two drunks holding each other up, and I think there's some truth to that. But so long as they're willing to finance us, we're willing to spend, and they like to invest and they're using our money to invest. What's the problem? 

MR. PETERSON: Our friend Fred Bergsten once said he finally understood supply side: they supply the goods and they supply the money. And there we are. 

MR. VOLCKER: There we are, and we're both happy. 

MR. PETERSON: Paul, let's go through the various possible scenarios. What is the scenario that worries you the most with regard to how this unsustainable thing works? 

MR. VOLCKER: Well, in my experience, most of the time – but I'm prejudiced by my own experience, and there are other examples you could take – when unsustainable things change, when it's inflation – when it was the dollar back in '71 when we devalued, and we had a nice, orderly devaluation that ended up in a 30-percent decline in the dollar for a while; it got rather uncontrollable. We decided, I think, it was unsustainable. We did something about inflation. It was a tough three or four years. 

We've had international debt problems that looked – you know, you could sit there and say they're manageable if you push this button, that button and the other button, but they get out of control, and then – Asia in the late ‘90s, what started out as a nice, orderly, advised by the IMF and all other wise men – there was some debate whether the devaluation in Thailand ought to be 7 percent or 9 percent. That's the way it started out. It ended up at 52 percent, or something like that, because the market gets out of control when things happen. 

So I think our worry is if the dollar does begin falling, then you get, repeatedly, a kind of mass rush for the door, and the speculators go one way very forcibly and then suddenly it doesn't look so nice to keep investing in the United States. Now, maybe that won't happen, but I think that's a risk at some point. 

MR. PETERSON: Let's talk about entitlements and Social Security. The president has made some kind of a proposal. The Concord Coalition and Bob Bixby and others have raised questions about it because while it reduces the revenues it doesn't do anything about the benefits, and there are estimates that the transition costs are up to $2 trillion that gets added to the deficits and the debt. 

What's the reaction to this idea? John, you're in the Congress now. How do you think this idea is going to work? 

SEN. McCAIN: Well, in the president's first press conference just right after the election, one of the reporters asked him, he said, how do you arrange for this transition? And he didn't answer. I don't know if you saw that part. I don't know how you do that. I think when we had surpluses, some of us supported the idea you took a trillion or $2 trillion out of the surplus and put it into Social Security to balance it and then allow people to have private savings accounts. I don't know how you make the transition. Maybe Paul or Bob or Warren does. I don't know how you do that, but I do believe if you look at 1982, the last time we, quote, “saved” Social Security – or was it '83? I've forgotten. 

MR. PETERSON: 1983. 

SEN. McCAIN: 1983 – there were some other changes as well, including changes in retirement age, increases in taxes, et cetera. It was a package deal. And the reason why the American people bought it is because Tip O'Neill and Ronald Reagan put their arms around each other and said, America, this is the only way we can, quote, “save” Social Security. 

I don't know – maybe Bob can answer that. I don't know where you get the Democrats who – 

MR. PETERSON: Well, I was going to say, Bob served on a commission and has had proposals on the area, but I would say those proposals were made at a time when we were looking at surpluses that would be coming on and now we're in a different spot. I wonder how you feel about it now. 

SEN. BOB KERREY: Well, I might do it the way Paul just suggested. The mood is to borrow more money. You can always borrow $2 trillion more and hope you can get by with that. I mean, that would be the only option because there's no available cash in the so-called Social Security Trust Fund, which is nothing more than an IOU to the General Fund. So there's no money there to do it. You've got to either do it with tax revenue, which I think won't happen – unless you've got a crisis. That's what we had in '83; you had a crisis. We weren't able to write the checks. I don't think you could do the '83 deal today with so many people having taken a position against any tax increases under any circumstances, no matter what's going on, and on the other side people saying, no cuts in benefits – ever, ever, ever will I ever vote for that. It's back to sound-bite stuff. 

I mean, I think the horse is going to have to die, myself. (Laughter.) And I hate to say it, but I don't see the mood being there to say to the American people, here is the truth and we've got to act upon the truth. And absent that I think you've got to either borrow another $2 trillion or wait for the horse to die. 

MR. RUDMAN: When we first started the coalition, I remember Paul Tsongas and Pete, and we were talking about this at, I think, the very first dinner that we talked about, and that was in '94. And it seemed like a long way off, but the fact is that that impact on Social Security and Medicare is not a long way away. It's roughly four years away before it starts impacting. 

So my view has been that if we wait – to use your words – for the horse to die, then more than the horse is going to die. I mean, we're going to be facing currency devaluation, which you talked about last year on this platform the year before – which you talked about, Paul, as being a very real risk. And what concerns me is unless we're willing to start doing something to eliminate that long-term out-year liability, then we are simply telling the financial markets that we're just going to crash into the iceberg and see if we can float. 

MR. PETERSON: You know, now there's at least some talk about Social Security but virtually nothing is said about Medicare, which is well over 80 percent of the unfunded liabilities, and in many ways presents – I don't know whether you'd agree, John – far deeper moral, ethical, philosophic issues, and nobody's talking about this. What's the outlook for that program? I mean, we talk a lot about adding benefits but I mean about genuine reform. I haven't heard much. 

SEN. McCAIN: I think they have stayed away from it because it's far more complex. I think Bob just laid out a solution, the choices we have on Social Security. I think they're fairly clear. On healthcare issues we get, as you said, quickly in the moral, religious issues. We all know that a huge percentage – I've forgotten exactly – of an individual's healthcare costs are incurred in the last 90 days of their life. We all know that every one of us wants healthcare costs down until our own health is involved, and then there's no expense that we won't go to. And we've just seen a 17.5 percent increase in Medicare premiums. And if you get a 2.7 percent increase in your Social Security cost of living adjustment and a 17.5 percent increase in your Medicare payments, it doesn't take very long to figure out what that ends up doing. 

I don't know the answer to a lot of the problems but I do believe that the pharmaceutical companies have a much greater influence in Washington than they should, and I believe that costs of pharmaceuticals are a major part of the problem. I also think that malpractice insurance reform, although helpful, is not the panacea that many think it is, although it's very important. And I think we will enact medical malpractice insurance reform. We came two votes short last year; we should be able to do it this year. 

But then at some point we're going to have to have a great national discussion about issues such as quality of life and those things that we generally leave up to families and individuals, and I don't know how that debate comes out. 

MR. PETERSON: You're mentioning how much we spend at the end of life. In one of my earlier books, I interviewed at some depth a head of neurology at New York Hospital, just to illustrate the point. And I'd been in the intensive care units at our hospitals and I was just astonished at the number of people in the eighties who were getting heroic intervention techniques with a quality of life that was de minimus. And in talking to him – his name is Dr. Fred Plum, the leading stroke expert perhaps in the United States – I said, “How do they handle these cases in Great Britain?” Fred said, “Well, in Great Britain it's a very different situation.” If the neurologist decides that a patient has had a totally debilitating stroke with a minimum quality of life, they turn the patient over to the general practitioner, who sends them home, and they die the old man's death that the very old used to die. 

Well, I've been responsible for more people losing elections than anybody in America perhaps. I pointed this out to Dick Lamm – you remember? – who dared bring up the subject, and he got literally clobbered. 

Well, why don't we move to politics? 

SEN. McCAIN: Could I just ask – maybe Bob or Paul have a view on that, because that's obviously the other part of the stool that we don't have a leg – 

MR. VOLCKER: Bob's got all the answers, but I – 

MR. KERREY: No, I mean – look, the four years means that anybody running for president can say, I don't have to talk about it in the next presidential cycle. And you've got two House cycles within that four-year period and 67 percent of the Senate that'll be up for reelection, and they're going to be able to say that we'll grow our way out of the problem somehow, because there aren't very many answers other than either raise taxes or cut spending. I mean, you've either got to pull the benefits down or you've got to generate additional revenue. You can stop all federal spending for the next 25 years and only accumulate a reserve necessary to cover Medicare. 

And you still hear in the debate it's caused by liberal Democrats or right-wing Republicans. It's a demographic problem, and it's a very large issue for me because I watch the audience continually being talked to by most politicians, who, with the exception of John and others, will not tell them the truth. They suffer the illusion: I paid into it all my life and I'm just getting back out what I paid in. They don't understand that it's a transfer program, that it's social insurance, that it depends heavily upon the income-producing power of the people in the workforce, and I've got three per beneficiary today and we'll only have two in 20 years, and it's back to – 

MR. RUDMAN: And you had 21 just a few years ago. 

MR. KERREY: Yeah, so it's back to Paul's statement. They basically say, well, hell, it's working somehow; let's wait for the horse to die. And I'm sad to report – I mean, I don't see anything short of a crisis that's going to interrupt this trend, or some remarkable, independent, straight-talking political leader running for president, getting in the bus again – (laughter) – and telling the American people the truth, and it's hard as heck. 

MR. VOLCKER: Where do they exist outside this room? (Laughter, applause.) 

(Cross talk.) 

MR. PETERSON: Let's talk a little bit about politics. 

MR. KERREY: Paul's not pessimistic – 

(Cross talk.) 

MR. VOLCKER: I want to make a comment relevant to you, Mr. Chairman. You're always telling me about all this great expense in the last year of life and if we could only deal with that thing, and I was so impressed I talked to my doctor I know and respect, and I said, “Look, we're spending all this money on the last year of life; can't we do something about it?” And his comment: “Ah, if we only knew which was the last year.” (Laughter.) And I think that's your problem. 

But I can't believe that these problems – you know, it takes political leadership. And I know what you're talking about, but this country has got a lot of wealth, it's got a lot of growth. There is some mechanism by which we can afford a reasonable Social Security program and a reasonable Medicare program. It's not easy to figure out, but I don't think these calculations – 

MR. RUDMAN: Well, before we leave the subject, there have been a number of people, including – although a lot of his op-ed piece I didn't agree with – but many of you know Lawrence Kotlikoff up at Boston University, who has written some incredibly good things about generational inequities in this country, and one of the things that he talked about – and he's not the first to talk about it – is to find a different source to fund Medicare and Social Security, to take it away from what we know with FICA and to do it with a national value added tax, for instance, to be a sole funding mechanism for Social Security and Medicare. We well might have to do something like that, because I don't think that politically you could even sustain the kind of increases that CBO will show you are going to be necessary five to six years from now in the FICA tax. 

MR. KERREY: I wouldn't want to run on that. 

MR. RUDMAN: Say again? 

MR. KERREY: Well, I mean – 

MR. RUDMAN: You would or you wouldn't? 

MR. KERREY: Wouldn't. 

MR. RUDMAN: You would not. 

MR. KERREY: I mean, look, I always hear this – and Kotlikoff is quite expert on this subject matter – you always hear people say, “Well, relatively small changes in Social Security would fix it for 75 years.” And I said, “Well, what is that relatively small change you have in mind?” “Oh, if you just raised the payroll tax 2 percentage points it would fix the whole thing. It only takes 2 points.” I said, “Geez, only 2 points; it's all I've got to vote for? It's a $160 billion-a-year tax increase. All in favor, say aye.” And maybe if you're in this room you'd raise your hand, but if you're in Congress you aren't going to get very many hands go up, Democrat or Republican. 

You can say, well, okay, then let's go to the benefits side. Let's move the eligibility age back. Let's put some sort of test of means on the proposal. All in favor say aye. And you'd get hands to go up in intelligent rooms like this, but if you've got to run for reelection, the hands aren't going to go up because there's no current crisis. The crisis is for anybody under the age of 35. You're hosed if you're under 35. And guess what? You don't vote, so you're not going to vote for another 20 years – (laughter) – and so we're not going to worry about you. I mean, that's the deal. And they're all afraid, and the Republicans are worried: oh, my god, young people are going to get their cell phones and they're going to vote like mad. They didn't vote and they're going to continue to get screwed as a result of it, in my view. (Applause.) 

MR. PETERSON: You're right. 

(Cross talk.) 

MR. PETERSON: Okay, let's talk a little bit about politics. There used to be two leading indicators that everybody assured us were very good predictors: one, the percent of Americans who thought the country was headed in the right direction. I think this time it was pretty close to only 40 percent. Another one was that the president had a favorable rating of at least half. He did not have a favorable rating of at least half. And the president had certainly a spotty economic and jobs record. We're not the most beloved nation in the world, to put it gently. Iraq is quite a mess, and on and on – 

MR. KERREY: How did he do it? 

MR. PETERSON: -- and yet he won – yet he won. Now, why did he win under these – why did he win in spite of all these predictors? 

MR. RUDMAN: See, Pete, I don't think it's that much of a mystery, and I think the pundits are absolutely off base. They're talking about the fact that it was the Christian right and it was this and it was that. When you looked at the campaign objectively, although you could find a lot about George Bush that you could disagree with, many Americans looked at these two men and they saw in John Kerry a lack of passion and a lack of certainty on a lot of issues they thought were important, and they were not comfortable with that because he seemed to be all over the place on so many different issues. 

And so I think it came down to the fact that when you had more Hispanics, more blacks, more people of the Jewish faith voting for George Bush than had ever voted for a Republican president before, then you come to the final conclusion that it was based on the simple words leadership and character. I think that's what it was about. I don't think it was anything other than that, that the American people didn't want to entrust this nation to John Kerry because he didn't give them anything to feel good about other than his criticism of Bush. He didn't come out with a program that people could comprehend. 

And I like him personally -- I've known him for 25 years – but quite frankly that was the most passionless campaign I've ever seen. I'd be interested in what Bob thinks. Bob's a Democrat, worked hard for John Kerry. 

MR. KERREY: Let's say we've got a debate going here and you're Kerry; I'm Bush. And I say to the audience, I'm going to keep you safe, you can trust me to do that; he's a waffler. Make your case. That's the debate right there. So John Kerry comes back, takes 30 minutes to explain he's not a waffler and the audience is saying, he sounds like a waffler to me. (Laughter.) I mean, Americans wanted to be safe and they wanted the certainty of that. 

And the second thing is, out in my neighborhood – your neighborhood as well, former neighborhood, in Nebraska – they saw him windsurfing and snowboarding and wearing Hermes ties and they said, what is that all about? (Laughter.) 

MR. PETERSON: They don't windsurf – 

MR. KERREY: Pete asked me earlier – he said, I was going to ask you on the stage, when did you become such a pain in the neck – (laughter) – and I told him, it was right after I'd started hanging out with him a lot. (Laughter.) Well, the truth is, in Nebraska people believed that – not Pete, but they think there's something on the East Coast that's kind of strange, and John reinforced that by going windsurfing and snowboarding and wearing Hermes ties and sort of looking like an elite snob. I don't think he is an elite snob but it doesn't matter if you look like one. People are going to judge you that way. 

And I think both on national security – I think he lost that one overwhelmingly – and I think on – not abortion and homosexuality, which are huge issues – 

MR. RUDMAN: I agree. 

MR. KERREY: -- but just, “is he like us? I don't think so.” 

MR. PETERSON: He went hunting. 

MR. KERREY: Huh? 

MR. PETERSON: He went hunting. 

MR. KERREY: Yeah, but, geez – (cross talk) – and camouflage hats. (Laughter.) And late in the campaign – I mean, geez, you know, just smear some blood on your face if that's what you're going to do. (Laughter.) It just didn't seem to sell 

MR. PETERSON: What do you think, John? 

SEN. McCAIN: I agree with everything that's been said. I would point out that John Kerry squandered the Democrat convention by all this stuff about Vietnam and reporting for duty. In the Republican convention – I say this in a self-serving fashion – we were able to frame the national debate on the issue of the war on terrorism, and if that's the issue, the president wins every time. If it's the economy or maybe other issues, then maybe the president doesn't, particularly when you look at right-direction, wrong-direction tracking. 

There's always events that shape elections, too. The “First I voted for it before I voted against it;” I saw Karl Rove on – I've forgotten what show I saw him on last Sunday – when he was taking his victory lap. He said, “That was the gift that kept on giving.” (Laughter.) I mean, it really was, because you cannot justify that vote, on any grounds other than political. And the reason why he voted against it? Because it was the only way that he was going to get the nomination from Howard Dean. 

MR. KERREY: Absolutely. 

SEN. MCCAIN: And he couldn't say that, but it kept – and that's how we got flip-flop and all that. 

I think another aspect of this that was – because you can't poll it – is intensity. I'll never forget being with the president on a bus driving across the panhandle of Florida. It was pouring down rain and thousands and thousands of people lined the highway to wave at the bus that went by, jumping up and down – jumping. He called and he said, “look, they're jumpers!”; jumping up and down and waving, just for a brief glimpse at the bus carrying the president of the United States. Polls don't gauge that kind of intensity. 

I did a veterans event for the president in Jacksonville. They said afterwards, would you come over to Duval County headquarters and say hello to the volunteers and thank them? I said, sure. I went over to the Duval County headquarters and there were some 400 volunteers there on a Saturday afternoon. I mean, this grassroots thing. 

And finally, people pick new presidents, as they did Ronald Reagan, because, one, they rejected Jimmy Carter, but also, after their debates they bought Ronald Reagan. John Kerry was never able to sell himself. That's basically what Bob was saying. And I think that if you look at tactical errors, he made a terrible mistake by not responding immediately to the Swift Boat ads. You should never let a charge go unanswered. 

And so, therefore, until the debates – and the reason why the debate was such a turnaround is that when John Kerry performed reasonably well in the first debate, Americans said, hey, maybe this guy isn't the flip-flop, softie, effete snob that we've grown to believe that he is. And then he had another opening and he was unable to take advantage of it. 

But one of the reasons why I feel so sorry for John Kerry was, thanks to the, quote, “exit polls,” he was absolutely convinced for six hours that he was president of the United States. This is the weirdest thing I have ever seen in observing political races. Every pundit in America, in this town, in Washington, were convinced that John Kerry had won that election, including John Kerry. It was a remarkable scene, and you could see it in the commentators who were – it was really incredible. I've never seen anything like that. 

Do you want to say something? 

MR. KERREY: I want to add two things. One, because you talk to the president and I don't – (laughter) – and that is that – 

MR. McCAIN: Is that by choice, Bob? 

MR. KERREY: Well, I don't know why. It's the way it is, you know? 

MR. McCain: Well, I have no trouble – (inaudible). 

MR. KERREY: (Laughs.) Well, President Clinton didn't either, so that – look, the intensity on the other side was great as well, and I heard the president – I mean, John Kerry got more votes in a losing race than anybody in the history of the country. Any other presidential race, he wins. 

MR. McCAIN: I agree. 

MR. KERREY: And when I heard the president at the press conference say, we're going to reach out to everybody who agrees with our goals, I said, geez. I mean, there are a lot of people, John – the president's got to know it – if he wants to unify the country, he's going to really have to make an effort to do it, and I think it's going to be darn hard to do Social Security because I don't think Democrats are going to trust him. And there's no reason to trust him on political issues like that. And I think the country wants to be unified. I was an advocate of you being John Kerry's vice president because – I mean, I think the country needed a unity government, and it would have been a unity government if it would have been possible to do it. 

The second thing I want to say is that I became governor of Nebraska in 1982 because of Paul Volcker. 

MR. VOLCKER: It was the best thing I ever did. (Laughter.) 

MR. KERREY: Although five years earlier you almost put me out of business, because I had signed a variable interest rate note and he crushed inflation and almost crushed me, and it crushed a lot of people in Nebraska and it was a good moment for a Democrat to run and I won. (Laughter.) It was a good thing. 

MR. VOLCKER: I had it all planned. 

MR. KERREY: No, no, I'm glad we're through with all of that. 

MR. VOLCKER: That's funny. 

MR. KERREY: I almost lost my race, John, because people thought I was John Kerry in 1982, because of what he said and did in '71. And my advice to him, untaken, was to tell the story of what you, he, and George Bush's father did to get peace in Cambodia and get peace and a normalization agreement going and resolve the POW/MIA issue. And I honestly – the worst thing about this campaign for me was watching all this hatred that you saw when we were on the POW/MIA Commission come right back to the surface again, because it is absolutely true – and Americans need to understand that – that John Kerry, John McCain, George Bush's father, and Bill Clinton ended the Vietnam War in the 1990s, and they ended it by first bringing peace to Cambodia – 300,000 refugees now back into Cambodia. Three elections – you can say it's not perfect democracy and you're right, but you can fly into Phnom Penh and drive to – (unintelligible) – if you want to. And in 1990 you'd be dead if you tried to do it. The Khmer Rouge is gone; Pol Pot is dead. And we stayed, all the way down that roadmap, with a president who had not served, and it would not have happened without John Kerry and John McCain all the way along. 

And it was a great foreign policy success story and it wasn't told in this campaign. And it needs to be told and understood by Americans because I think a lot of people missed it, frankly. I think a lot of people missed – 

MR. PETERSON: And all they could think about was that testimony that he gave. 

MR. KERREY: Yeah, and that testimony hurt a lot of people. I mean, he didn't have to apologize for it but he did need to understand that it hurt a lot of people, and at least say you're sorry for that. Anyway, I just – 

MR. PETERSON: Let me ask you a question about something that's getting a lot of attention these days, this survey that indicated that 22 percent of the people cited moral values as the principal reason for their choice at the polls, and I hear some pundits from the public opinion business saying it's just a lousy question. 

What do you people think about this moral values issue, and how important do you think it was, and what does it mean, exactly? 

MR. RUDMAN: Pete, if you look at all of the work that's been done over the last 50 years by political scientists and historians about presidential elections, they will tell you in the final analysis that presidential elections mostly are about character and leadership – read values if you wish. I don't think that that number – everybody jumped to that number. That didn't surprise me at all. I think it's always been that way. In fact, I think it may be higher in some years. 

I mean, if you look back at the Eisenhower election, look back at the Kennedy election, you read the history of those campaigns and those elections and people were voting because they believe these men had character, leadership quality – read values. So I don't really think it's that remarkable, and I don't get quite as upset as some who suddenly think that we've got a group of people out there who are trying to impose their moral values on the rest of us. I don't think that's it at all. 

MR. PETERSON: But, Warren, what about the theory that the gay marriages issue, which was brilliantly exploited throughout many states with amendments, was a significant factor in Hispanics, for example, voting – 

MR. RUDMAN: And African American voting as well. 

MR. PETERSON: Yes. Now, you wouldn't call that leadership – what would you call that? 

MR. RUDMAN: Well, certainly that was unusual this year, that issue, but I think that issue really gets to the heart of a lot of people who are – a lot of them are hardly conservative. I know many people I would call moderate to liberal who hold the same view, that marriage is for a man and a woman. They're not against gay rights or civil unions but they just don't believe in marriage. And that was an issue this year, but again, John Kerry totally mishandled that issue, because I think I know what he really believes but he could never say it in a way that people could understand. 

SEN. McCAIN: The media reports that Bill Clinton recommended that John Kerry support the ballot initiatives in the 11 states that affirm the sanctity of heterosexual marriage, and he refused to do that. Those are media reports. There's no doubt that a judge in Massachusetts had an effect on this election – 

MR. RUDMAN: No question. 

SEN. McCAIN: -- and the mayor of San Francisco did also with the hundreds of, quote, “gay marriages.” And I also believe that there are many in the states that President Bush carried significantly that don't want open marriages, – wife swapping, all the stuff that – they don't think it's healthy for their children, and that's why I think you see such an imbalance between married women's votes and unmarried women's votes. That had to be something of a factor. But I also believe at the end of the day people said, who is best equipped to protect me in the war on terror, and I still believe that that's the final, ultimate decision that drove the American voter. 

MR. PETERSON: Okay, let's talk a little bit about foreign policy in Iraq. Let me ask you, John, in particular, a hypothetical question. Suppose that George Bush – George W. Bush – had known that Iraq did not have weapons of mass destruction. Suppose he knew that Iraq did not try to buy nuclear cake, et cetera, from Nigeria. Suppose that he knew that Iraq was not closely affiliated with al Qaeda. Do you think he'd have gone to war anyway? 

SEN. McCAIN: Yes, I think he still would have known that Saddam Hussein had and used weapons of mass destruction against both his own people and enemies, that in '92 he had vast stockpiles of weapons of mass destruction, that if he were still in power he would be, over time, attempting to acquire and eventually use weapons of mass destruction. And it was not a question between the status quo and war. The sanctions were rapidly eroding. The sanctions were – Paul knows better than anybody – contaminated by this food for oil program, which I think – I'm not an expert; the expert is here – there is going to be a lot of interesting information coming out about it over time.

Our airplanes were being shot at on a daily basis, and the status quo was not prevailing. It was rapidly deteriorating, and I think that's why the president probably would have made the same decision. Now, would he have gone back to the U.N. another time – 18th or 19th or 20th time? I don't know, but I think that Saddam Hussein would probably have – that the president would have made the same decision. 

MR. PETERSON: You've made the point, as have others, that we didn't have enough troops there and because of that we couldn't protect sites, couldn't protect the weapons. I recall having dinner with the finance minister of Iraq and I asked him to do a critique of what we were doing, and he said, I really don't understand you Americans. You say you're there to get rid of the terrorists but they're pouring across the borders, and you don't have enough troops to protect the borders. Now, okay, you've made that critique in the past. Do you think with what the Iraqis are doing with their troops and what we have now, do we have enough troops, or are we going to have to get some more? And if we do, where do we get them? 

SEN. McCAIN: A guy that I pay a lot of attention to is Barry McCaffrey. I know many of you see him from time to time on television. He's not a Republican or a Democrat that I know of. He's a very thoughtful guy and he keeps very close connections with the active-duty military, particularly the Army. There's no doubt we need to increase the size, as he says, of the Army by 80,000 or 90,000 troops and the Marines by 20,000 to 30,000, and we're going to have to accept that. And we can recruit them. It's a marketplace issues. There's 280 million people that live in America; you can find 100,000 more to serve in the military. 

But I really don't know the answer. I think what happens in Fallujuh here is probably going to be important, although the smart ones already left, obviously, at Fallujah. That's why it's not as big a deal as we thought it might be. I don't know how it's going to come out and I don't know how much longer the American people will remain steadfast in the light of casualties, but the contemplation of failure – the consequences of failure are so profound that I cannot accept the belief that we might fail because the consequences of it – I live in a state where 2 million people came across the border – the Mexico-Arizona border – last year. We're not going to win the war on terrorism within the borders of the United States of America, and I think you'd see a fragmentation of Iraq that would be of incredible bloody consequences. 

We cannot afford to fail. If we succeed with a flawed democracy, that'll be two countries in a row – Afghanistan and Iraq – where we've seen at least a modicum of a democratic process, and it could set in motion some other successes if we succeed. 

MR. RUDMAN: John, if we're lucky – I don't disagree with a lot of what you've said, but we both talk to a lot of the same people and one of the unspoken fears amongst a lot of people is something that this administration cannot control, and that is the election in January. There are a lot of folks who know the region who are looking at the whole situation, much of it brought on by the inadequacy of U.S. forces there in terms of numbers. 

And so much has happened to the Iraqi people that there is a large body of thought that we're going to get an election in which you're going to get a Shi'a majority, obviously, but a Shi'a majority that is going to be more sympathetic to Iran and that model, and what do we do then, John? I don't know what we do then because when you talk about success, that election – once that election happens it can lead to incredible results, including civil war, and that's my concern. 

SEN. McCAIN: I think your concern is valid. I think Sistani remains far more popular than Sadr, and “Islamic government,” unquote, is not anything that we have to fear as long as it is moderate. 

MR. RUDMAN: Correct. 

SEN. McCAIN: There is an age-old enmity between Persians and Arabs which at some point plays in the relations with Iran, and I think what is more likely to happen is the Sunnis may take a walk, and then you've got a government which is not totally representative, but that would be a decision made by the Sunnis who, as we all know, were the top dogs during all the years of the Saddam Hussein regime. 

I have some confidence because every poll I see, everything I'm told that Sistani, a moderate cleric, is far more popular than Sadr is. Now, that could change, but the first order of business is to restore order in a hell of a lot of these places where there is not order today. You cannot conduct an election in many portions of Iraq today. I mean, that's just a reality on the ground. 

MR. VOLCKER: In the meanwhile, what do we do about Iran and North Korea, regardless of what happens in Iraq? 

SEN. McCAIN: I think Iran and North Korea are two of our very largest challenges, and we cannot act militarily, whether we want to say we can or not. We don't have the military force to do so even if we wanted to with the challenge we have in Iraq, which undercuts my argument for going into Iran, as we said. 

In the case of Iran, there's so many bad scenarios, including the Israelis deciding that it's in their self-interest to take out these facilities, which would certainly be an interesting – 

MR. VOLCKER: This is a matter of curiosity. After this war in Iraq – where we could be engaged for years – is it easier or harder to recruit people into the Army now than it was before the war? 

SEN. McCAIN: I think it's easy to recruit young people – there's still a lot of young men and women who have a sense of adventure – but the strain is now on the Reserve and Guard people. They did not sign up for these kinds of rotations and I think you can see a looming crisis in the Guard and Reserves. I don't like to keep digging for the pony, but I will say I think it's good to point out that a year ago there were a whole lot of experts on Afghanistan who said, “You'll never have an election in Afghanistan. The war lords control everything; Karzai's control doesn't go past the suburbs of Kabul, da da da da da da...” and there was great validity to those opinions, but the Afghan people showed that they wanted to have an election and they wanted to participate, and women wanted an education. 

I mean, this substantiates this idealism that a lot of us hold that all men and women are endowed by their creator with certain inalienable rights, and they want those rights as well. And I know that sounds utopian and idealistic but I happen to hold that profound belief. 

MR. PETERSON: What do you say, Bob? 

MR. KERREY: Well, I would propose something that – every time I use the word “propose” I remember a story that Warren Buffet once told about Richard Leopold – do you remember the Leopold and Loeb case? Leopold died in prison after approaching a man in a shower for sex, and the Chicago Tribune wrote in his obituary that “Richard Leopold, distinguished graduate in English from the University of Michigan, ended his sentence with a proposition.” (Laughter.) 

I mean, I propose, John, that first, the problem that we've got in Iraq is that – it seems to me – is after we stood down their army, we're having to be a surrogate police force, surrogate board of security and a surrogate army. And in the midst of that we have significant opposition to anybody who signs up to be a part of the Iraqi armed forces and police. 

SEN. McCAIN: If I could interrupt, that's why this Fallujah operation may be very full of meaning, to see how those Iraqis performed in Fallujah. 

MR. KERREY: I don't feel good about an outcome that doesn't make some declaration, especially to the moderate Muslim world, that you've got to become a part of this, because we can't sustain this over a long period of time; we don't have the force structure to be able to sustain it, and if you don't – 

SEN. McCAIN: Nor the national will. 

MR. KERREY: Nor the national will. I mean, I do think you're going to start, over the next couple of years, getting amendments on an appropriations bill to set a time certain being put up by conservative Republicans who are going to see the costs, are going to be talking to their Guard units at home, and they're going to find Democratic allies in the process. And it seems to me rather than making an appeal, the proposal I would make is that the president hold some kind of a summit, I would say in Istanbul, so you could say to the Turks, say to the Jordanians, say to the moderate Muslim world, we'd don't need your help in fighting this insurgency; we need your help in providing the stability necessary for, I would say, two elections: one in '05 and one in '06. We need that electoral stability and we need you to help us make that happen, and we're going to need your soldiers and your personnel on the ground in order to provide that kind of security. Absent that it's going to be exceptionally difficult to have the kind of election we had in Afghanistan because the scene on the ground is so much different. 

So the proposal I would make is to make it clear, at some point, both to the moderate Muslim world and to our allies in the Middle East and to our allies in Europe: if you think it was bad that we went in there, wait until you see us move out before you want us to. You know the Germans don't want that, you know the French don't want that. And so the appeal has got to be, we are going to get out of there and we need your help so that when that withdrawal occurs you've had two stable elections, and the Iraqi people are now in charge of it, because if the Iraqi people are in charge of their own security, they would crush this insurgency without mercy. And if we crush the insurgency without mercy, we're going to be damned for doing so. 

MR. RUDMAN: We already have been. 

MR. KERREY: We're already being damned for it. So we're going to get damned if we do and damned if we don't – 

MR. RUDMAN: Exactly. 

MR. KERREY: -- it seems to me, as long as it isn't clear that what we need is two stable elections, and that after those elections we'll provide air support, we'll provide intelligence, but we're not going to have boots on the ground to provide your police force, your border security, and your national security. 

MR. PETERSON: Let me ask you kind of a provocative question. I think it's fair to say that the so-called neocons in this administration have made more than a few mistakes in the post-Iraq situation – that we were going to be greeted with flowers and that this number of troops was acceptable and on and on. 

What has the president learned from this advice, and do you people think the neocons are going to be as powerful in the second administration as they were in the first? 

SEN. McCAIN: The answer to your second question is no because they're not going to be able to – as long as we are bogged down in Iraq there are going to be no other foreign adventures, as I mentioned earlier. 

I just want to return to one thing that Bob said. American troops could be in Iraq for 50 years. That's not the question. The question is American casualties. We've been in Bosnia for 13 years, we've been in Kosovo for nine years, we've been in South Korea for 50 years. So the key to it is the Iraqis taking over their own law enforcement and military capabilities, and that's an open question. 

I think the neocons – and very few people identify themselves as such anymore – will probably have a diminished role. I think now the new rumor is that Colin Powell may be staying, at least for a longer period of time, whereas everybody was sure that he was leaving. I think that you will probably see a more influential Colin Powell in the coming months because the strategy we used in Iraq was a direct repudiation of the Powell Doctrine: overwhelming force. 

So, if Powell stays, he will be in the ascendancy because he was right and they were wrong. 

MR. RUDMAN: And you really have to think, John, how the president, when asked could he think of one mistake he made, during that press conference, couldn't. The fact is that this president and the people that are close to him, his long-time friends, have got to all recognize that they got some pretty bum advice from a lot people. They have to know that. I mean, they are not dumb people. They know that; they're just not going to publicly go out and admit it. And I don't think the neocons will have any substantial influence at all. 

And I agree with John that not only Colin Powell will have more influence but our force structure is such – it's a sad thing to have to say, but our force structure is such that, other than strategic bombing, we don't have what it takes for the kind of engagements that might well be urged on by some of these people. 

MR. PETERSON: The final area I'd like to talk about with Bob Kerrey here is intelligence reform. You were on that commission. (Cross talk.) You're being nice. I've never noticed that before.

MR. KERREY: I am, yes. How can I help you? (Laughter.) 

MR. PETERSON: Okay, next question. (Laughter.) A substantial number of secretaries of state and secretary of defense have expressed some anxiety about the intelligence reform ideas, or the pace at which they're moving. What's your assessment as to what's going to happen to your commission's proposals? 

MR. KERREY: You're talking about the guy that created the problem in the first place? 

That would be my first answer. Look, I mean, a lot of the reforms that we propose are little more than modifications of reforms that have been proposed in the past when there have been previous crises and they're little more than just sort of common sense when you're trying to organize the government. My own view is that the restructuring of the executive branch is of limited importance in some ways. I mean, I favor it although I would favor a completely different kind of thinking about how to organize the intelligence community. I do think much more of a clean-slate approach would have been preferable. That's very difficult for us to propose in particular. 

But far more important than reforming the executive branch is reforming the oversight of Congress. And I've served on the Intelligence Committee for eight years and was chairman for four; under the Senate resolutions, it is a very weak committee. You can say the members of the committee were weak as well if you want, but under the resolution – and that's what empowers every committee – this committee has limited capacity to get a full and complete accounting, to do the kind of oversight, to do the kind of budget analysis, to issue subpoenas that other committees have. 

And tonight The Concord Coalition gave Senator McCain our Patriots Award for his work on Medicare and other things, but I'll tell you that when he took on the Appropriations Committee and the Armed Services Committee, of which he's a member, saying that we've got to change the oversight committees themselves, it was lost on almost everybody how courageous that was. I mean, it's one thing to court disaster with people over the age of 65; you can actually survive that. But to court the enmity of the chairman and the ranking member of the Appropriations Committee would be seen by almost anybody who's been in the Senate very long, as suicidal, but that's exactly what John did. 

And the public, Pete, doesn't understand – I mean, I've not seen The Washington Post or The New York Times or The New York Daily News – I've not seen anybody editorialize on the importance of getting oversight correct. It's just been lost. And even if the conference committees reconcile the differences and come up with a strong national intelligence director and a national counterterrorism center, and all the other changes that are recommended, if Congress doesn't restructure itself, doesn't change the committee that has the oversight, in some ways you're better off not making the change happen. You may be worse off because you're going to have a stronger executive branch with the continuation of weak oversight. 

So, unless the American people start saying, we need more people willing to follow Senator McCain – and my guess is this isn't the last time he'll visit that; there will be future opportunities – unless that change happens, it's going to be, I think, very difficult to get from where we are to where we need to be, which is an intelligence community that functions better than – 

MR. PETERSON: John, what do you say about intelligence reform and where we stand? 

SEN. McCAIN: I agree with everything that Bob said and I would just add, members of the United States Senate place turf considerations above that of national security. 

MR. KERREY: What was the vote, 70 to 23, or – 

SEN. McCAIN: Yeah. 

MR. KERREY: It got 23 votes? 

SEN. McCAIN: Yeah. And so, it's just a fact. 

MR. KERREY: And let me tell you what it did. It said, the Intelligence Committee should have the capacity to appropriate funds for intelligence. Fairly simple. I would actually prefer a joint committee between the House and the Senate, which would require stepping on even more toes. All it said was, this committee will both authorize and appropriate. That's all it said. 

MR. RUDMAN: But, Bob, let me point out to you that it's been three years since we – after we did Hart-Rudman – and General Boyd is in the audience – we urged the Congress that it needed to do something with homeland security; that you can create a new department, but if you keep all of the authorization and appropriation of – (unintelligible) – with 37 different committees having jurisdiction, and that hasn't been done. 

MR. KERREY: We counted 88 committees. 

MR. RUDMAN: Well, you probably had more. 

MR. VOLCKER: It's true not just for intelligence and homeland security but a lot of other departments as well. 

SEN. McCAIN: Things don't change. 

MR. PETERSON: I guess we've reached the bewitching hour, perhaps a minute or two past. Join me, won't you, in thanking these four great Americans. (Applause.)