Scarborough: Why can't we grapple with long-term debt now?

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>>> all right. let's see what's in the news. the pope resigned. oh, lord.

>> oh, wait. okay. here's something fun. north korea successfully launched a nuclear -- nope. never mind.

>> remember that olympic sprinter who ran on blades?

>> amazing story. so uplifting.

>> absolutely. well, it says here that -- no, no.

>> you guys think you might have it bad, but do you have it worse than 4,000 stranded on nightmare cruise? that is about us.

>> that's us. that's enough. enough with the headlines.

>> oh, that's pretty good. that's a good clip. i like that.

>> that's funny.

>> welcome back to " morning joe ." remember that big story about the cruise ship ?

>> i do. we didn't have the cnn helicopter. fortunately nothing happened in the world over those five days. the anchors were saying, this is sort of like katrina. the guy was like, we're on a cruise ship . it's not like katrina. we're good.

>> the whole thing cuts to primal fear . a lot of people are like, you have this visceral reaction to the notion of being stranded on a cruise ship .

>> you know what i have a visceral reaction to? being on a cruise ship .

>> yeah, don't go on one. that's the first mistake.

>> i totally agree.

>> being trapped.

>> trapped in tiny rooms and then, like, herded like cows to the food.

>> how would you like to go on a cruise --

>> with william f. buckley ?

>> i would do it with william f. buckley .

>> mika, surely you would celebrate the all you can eat buffet.

>> there's no joe scarborough cruise?

>> there will not be.

>> we could do a new kind of cruise where people actually exercise. okay. it's president's day, obviously. you can see we're stretching. really, really stretching here. joining us onset, co-anchor of cnbc's " squawk box ," andrew ross sorkin. how are you?

>> i missed you guys. usually i have to watch you from a monitor on the side because we're on at the same time. now they're running infomercials.

>> you get president's day off?

>> the markets are closed.

>> do you get arbor day off? i want this schedule. we love having you here.

>> the normal people are home today.

>> even the mark people are home today, which are not normal people.

>> nothing normal about them. also, let's go to washington . we have bob woodward . the author of the book "the price of politics." i was fascinated by your discussion yesterday. we're talking about sequester. it's going to happen most likely. both sides are furiously trying to blame each other. you said this idea started out at the white house . give us the background.

>> yeah, it really did start out at the white house . it was in the end game on the fiscal -- on the debt ceiling negotiations in 2011 . literally july 27th , 2:30 in the afternoon, jack lew, who's in the white house chief of staff , rob neighbors, the head of congressional relations for president obama , went to see harry reid and proposed sequester. of course, everyone signed up to it, but it was designed to not happen. the cuts were perceived to be so draconian in domestic policy and in defense issues that no one would ever let this happen. it was the super committee, as you may remember, that was supposed to come up with more rational budget cuts. they failed. so we're stuck with -- it's kind of like being on a cruise ship with no power.

>> where you have the captain and crew fighting each other and going around in circles. i don't get this, bob. you write this book about how the president and congress talk past each other. we have an election. we hear they might start talking together in a more positive sense . yet, here we have a situation that the defense industry hates, that advocates for the poor hate, that economists hate because you're going to cut wildly, some say, defense, cut wildly these programs for the poor, and slow down the economy when we're already in negative growth. so how do they not -- i just -- i can't get it through my head. how do they not get together and fix this? it seems like that's the only option.

>> you're asking the right question. part of the answer is last week harry reid and speaker boehner met, i understand, and harry reid , the democratic leader in the senate, majority leader, said, look, let's postpone this for a year and literally said to john boehner , you can't let this moment go by. i don't think boehner wants to let it go by, but he took a real hit on the tax increases for the rich when they did the fiscal cliff negotiations. another one main this sequence. they won't give, at least at this point. it truly is government at its worst.

>> so andrew ross sorkin, play this out for us. if they put this off, is anyone ever going to take washington seriously again, and what's at stake?

>> does anybody take them seriously?

>> 9% of americans do.

>> the 9%.

>> that's probably a fair issue. one, what does it do to the economy in the long term and short term? most economists now are saying, as bad as the defense industry believes it's going to be, as bad as you could argue it's going to be for some of the poorest people in this country, if you have the discussion we were having during the commercial break about krugman and how much debt you want to have, there is an argument to be made that if you want to start tackling it, tackle it, and the world is not going to stop. there is an argument to be made about that. the question is, when do you want to tackle it? some people would say, start tackling it now. but if you don't want to tackle it now and you want to push it out a year, you know, how much does that really advance the cause?

>> you bring up krugman. he says let's not tackle it until 2025 .

>> he wouldn't tackle it for a very long time.

>> is 2025 an option for most of the people that you --

>> probably not.

>> probably not?

>> the problem is that confidence in the markets doesn't evaporate in years or months. it evaporates in weeks and days and minutes.

>> doesn't it evaporate when you lose confidence in washington ?

>> there's going to be a moment, and we don't know when the moment is. there will be a moment where somebody's going to wake up one morning and decide this is not cool anymore. you're going to tefeel it in the markets.

>> that will happen well before 2025 .

>> well before.

>> this is the thing. this is what makes it so hard for people. for the last ten years, people have been saying, wow, if we keep running these deficits and have this level of debt -- and i'm with you on the need to deal with entitlements. this is the hard thing. for the last ten years, people have been saying, well, eventually people are going to stop, the bond rates are going to spike, interest rates are going to spike, we're going to confront a sovereign debt crisis. every year, the bond market does not respond the way people have predicted for the last ten years.

>> bob woodward , you say every year the debt is going up exponentially and we've got to respond. we've got to plan ahead. tom friedman was talking about it yesterday. we've got to plan ahead.

>> well, you need some strategic thinking here. andrew 's idea of, well, at least we're going to cut something, it would be like in the family budget you have to cut. so you say let's do without food for a week. i mean that, makes no sense. when you get in -- "the new york times," on their editorial page yesterday, had a long list of the things that are going to be cut. it is idiocy. if you look at the national institutes of health , they're going to take a 5% cut. what it does to their grant programs is it takes a meat ax to them. this is the crown jewel of american science where the breakthroughs in a.i.d.s., heart disease , cancer have come through. if you put this to a vote to people and said, is this what you want to cut, i suspect 80 to 90% of the people would say no.

>> 80 to 90% of the people don't want to cut anything. if you get to a situation where we start thinking about a simpson-bowles program, it sounds nice in theory, but if you actually read it, which 90% of the people i would gamble have not, you realize there's a lot of stuff in there that hurts a lot.

>> there's a rational way to cut, and you can cut all kinds of things. if you look at the plans that have been discussed, as you well know, over the last couple of years, by the white house and by the congress, they don't start the cuts particularly on entitlements for years. you can do that and at least get that sort of bottom line number of we're doing something about this problem.

>> i think both sides would say there's a rational way to cut, but there's not a painless way to do it. that's what they don't want to be shouldering.

>> there's not a painless way to do it, but this is insanity. if you look at what's happening, what we're seeing unfold is exactly what i've been complaining about all along. you have both sides afraid to tackle long-term entitlement, so what do they do? they slash and burn the 10, 11, 12% of the budget, which is discretionary spending . bob talks about, you know, taking the meat ax to all of these programs that are actually important to a lot of americans . instead of, again -- mark, we've talked about it for five years. planning ahead. saying we understand we have a demographic explosion. we understand there are going to be 2 1/2, 3 people working for every one person on social security and medicare . we've got to plan ahead. we can plan the cuts seven, eight, ten years out, but if they don't do that, if there's no leadership on either side, then the alternative is going after discretionary domestic spending, which is not going to get you where you need to be in the end anyway. it's just going to hurt a lot of people in the short run.

>> and it's not going to produce economic growth . it might have the opposite effect.

>> it will have the opposite effect.

>> the white house made thedecouple the ta x increases from spending cuts. now you hear republicans saying no more tax increases. we're not going to raise new revenue without significant tax reform . harry reid says we're not going to cut entitlements without significant new revenue. those things now are totally decoupled. those were the ingredients of a grand bargain. that leaves the white house unable to substitute anything for the sequester cuts. they have no play right now, except to say gloom and doom, the sequester cuts would be a disaster. to say the country is going to be in huge trouble, i don't get the logic.

>> the white house has no plan "b." for five years barack obama 's been talking about let's tax the rich, let's tax the rich. if we just tax the rich. of course, those of us that have been saying, go ahead, tax the rich, but it's not going to take care of your debt problem, knew that was a short-run goal. they get taxes on the rich, and they're follow-up is, well, we're not going to do more cuts until we get more taxes on the rich. i'll even go there. let's do what warren buffett is talking about doing and have a minimum 30% tax rate for millionaires and billionaires. they shouldn't get 15, 16, 17% in taxes. i agree with that. guess what happens after that? loopholes. it still does nothing in the long run. you still have to cut. we were talking about allen blender last week. allen , the princeton economist, said, sorry, democrats. tax increases aren't going to fix this problem.

>> we have to get back to growth.

>> john, the white house is going to have to come to terms with the fact that cuts are the only thing, as professor blender says, cuts are the only thing that are going to save us . in the long run, that is what he says.

>> i think the white house has come to terms with the notion that they believe that they need to do both. the president is not saying he won't do cuts. he's just saying he wants to do -- he still thinks you need to do a mix of those things. i don't think you can get where you want to go --

>> what are his cuts?

>> he put out a budget last year. it exists.

>> what are his cuts? you can't say because there are no specifics.

>> there's a bunch of medicare cuts laid out in that bill. there's all kinds of thing on prescription drugs. i don't have it at my fingertips at this moment, but they laid out a thing that had $800 billion, i think, in medicare savings over the course of the next ten years in their budget last year. it's not like the white house has said they won't do any cutting. they've said they won't do cutting in conjunction with new revenue because they think you need both to get to where you want to go over the long term. i think they're probably right about that. i don't think you can do it just on cuts or just on revenue. you've got to do both.

>> bob woodward , it would be great for us to lose some loopholes. you know, so they're not paying 14% tax rates .

>> that should have happened a long time ago. it's despicable it hasn't happened.

>> it's obscene it's happening. it's immoral it's happening that people that are making, you know, $50,000 are pay managing higher tax rates .

>> it's not a practical debate about it means to the economy.

>> that's the point i want to make to bob. that's not going to take care of our long-term debt.

>> yes, exactly. then you've got to go back into the history of this, unfortunately. it was the deal making between vice president joe biden and mitch mcconnell , the senate republican leader . aga again, in the end game of this in 2011 . the deal was that this phase of the deficit reduction was going to only be spending cuts, no tax increases. sot republicans have solid ground that the deal was no more tax increases on this. rationally, you need some sort of tax reform , but that was the secret deal between biden and mcconnell. once that is made, that sends you on the trajectory of the sequester, this super committee failing, and now we've got truly something -- if people understood it, they would be marching on washington and calling their congressmen and writing the white house . this is about as bad as governing can get.

>> i don't disagree with that.

>> andrew ?

>> i don't disagree. my only question is, when did you do it?

>> when do you do what? short-term?

>> when you do short-term anything.

>> as far as cuts go?

>> as far as cuts go.

>> probably not when the economy is upside down.

>> i'm not disagreeing, but there is an argument to be made that if you're not willing to grapple with it now, you're going to keep pushing it off. this is the argument.

>> wait, wait, wait, wait. if you're willing to grapple with what? why can't we grapple with long-term debt now?

>> we need to.

>> cuts that are seven years out.

>> you're looking at me like i don't want to. i absolutely want to.

>> you're saying maybe we can wait until 2025 . is that the position -- would you like to go back to cnbc and tell people, you know, maybe we can wait until 2025 ? how would that work out?

>> i'm not in that camp.

>> sounds like it.

>> no, no. i think you need to grapple with it. the question s how do you grapple with it? it's going to cost everybody. i'm not sure we realize the pain of what that ultimately means. if we can just figure out a way to get some sort of growth, which i think is what the president is trying to do. that does solve a lot of problems. growth solves a lot of problems.

>> this is allen blender, professor. january 25th , 2013 . princeton professor, former vice chair of the fed. pretty smart guy.

>> and the council of economic advisers .

>> the government can cover no more than a small fraction of the projected deficits by raising taxes . sorry, democrats, but republicans are right on this one. americans are used to federal taxes running at 18.5% of gdp. they won't allow it to go to 32%. he says, and this is what's so maddening, the health care costs over the next generation are going to bankrupt us. that's what the professor says.

>> there's no question about that. when i talk to president obama about it last year, he said the spending on these programs, medicare , medicaid, social security , is untenable. we have to get control over it.

>> so the president agrees then with this as well?

>> the president agrees, but i think if we were to take an extra hour here with andrew 's idea of you need to cut something now, and i think that's right, do you need to make a down payment and prove you're serious? but do it in a much more rational way. come up with a long-term plan. this could be done. it is not rocket science . it is not complex. you have a mix of cuts --

>> that goes back to what mark was saying. because the president just raised taxes now that, feels like it's off the table. how do you actually do that? how do you get to a brand bargain?

>> but he's talking about closing loopholes.

>> but it requires a little bit of all of this.

>> they're not be touted as the answer to all of this.

>> and they're talking about tax reform . one of the real experts on tax reform is dave camp , who's chairman of the house, ways, and means committee. if you empowered him and said, look, take some time and come up with something that makes sense, a lot of the things they would come up with the president would be delighted with, in fact, because they have to close these loopholes. there's just so much nonsneense in the tax code . again, that's another dimension of the governing tragedy we're living in.

>> all right. coming up on " morning joe ," former presidential candidate newt gingrich joins us. also, former senior adviser to president obama , david axelrod . up next, chuck todd . you're watching " morning joe ," brewed by starbucks. as