David Axelrod: I think the country has fiscal crisis fatigue

>>> welcome back to " morning joe ."

>> look how beautiful. it's beautiful everywhere.

>> gorgeous.

>> john heilemann's style with us.

>> can we go back to that shot? so when are they going to put the barricades up around the washington monument ?

>> okay, stop it. i know what you're getting at.

>> the bricks are already falling off the side of it. after the sequester, the thing is just falling apart.

>> parents, do not let your children go inside any of those buildings today.

>> joining us on set, former senior adviser to president obama and director of the institute of chicago politics and msnbc contributor, david axelrod .

>> he's been running around intimidating everybody.

>> i think he's going to say something to threaten me.

>> as a friend, don't point at me.

>> and bless your heart.

>> i just say this as a friend.

>> bless your heart. aren't you something?

>> what, are you southern now?

>> yeah, that means you're dead and i don't like you. i do. i got that when i went to the south. and i realized i was in big trouble .

>> oh, bless your heart.

>> former director of the white house domestic policy council and ceo of melody barnes solutions, good name. melody barnes joins us as well. all right.

>> how you guys doing?

>> we're great.

>> good.

>> it's friday. it's going into effect. you should be freaking out.

>> are you a little nervous?

>> about --

>> did you fly in here? the sequester? did you fly in here?

>> i snuck in here yesterday.

>> there's a chance with all the airline delays you'll never get back to chicago. you might be stuck here.

>> no, i rented a car.

>> oh. you know, the toll booths aren't working.

>> we're going to be walking back.

>> just drive through the gates.

>> i'm confused. you're kind of making fun of it, too.

>> well, look. i think one of the -- i've said this before. one of the dangers of this whole debate is i don't think "a," i think the public has fiscal crisis fatigue. and i just don't think that they are -- i think they've tuned out to a lot of this. and i think the second piece is that -- and melody knows this well, she's a veteran of government, this isn't going to be a slow-rolling deal. this is not going to be a deal where everything happens at once and people are going to recognize the difference at once. some communities and some sectors will, but not most.

>> so melody, i remain an optimist. what i find is every time --

>> when did that happen?

>> -- i stop being optimistic -- now, come on. i think you're a guy, at the end of the day , who's going to do the right thing.

>> and you like him.

>> and i like him. i find every time that the eternal optimist, i finally give up hope, that's when great things happen. and i just feel like, you know, it's one crisis after another. and like david said, we have this fatigue. maybe, just maybe, at the end of all of this, the two sides can come together and have a grand bargain. the president started talking about it a couple of days ago.

>> right.

>> maybe that happens after we give up hope that washington can function.

>> well, i hope so. like you, i'm an eternal optimist as well. i always see the glass half full . after 20 years in government, i've always seen a solution come at the last minute. so this is highly disappointing, actually. but i know and david knows from our years working in the white house that the president certainly is there. and i also believe that there are people on the other side of the aisle, and once people start to feel this in communities, over time , it will be an accident that happens in slow motion , that that will start to galvanize the country around a serious conversation. and the president has said entitlements and closed loopholes, we've got to take these issues on. we also have to make smart investments at the same time so we can grow our economy and prepare our people for that new economy. it has to happen. otherwise we are rome.

>> some people like paul krugman don't believe that medicare and medicaid are a crisis. he says let's wait till 2025 , wait till the programs start going under, then we can address it. just to be clear, that's not the president's position, right? he knows we've got to take care of entitlements before 2025 ?

>> he's started to do it. we started to do it in the affordable care act .

>> that, in fact, was one of the rationales behind the affordable care act , to try and reduce the cost of medicare , reduce the cost of health care and extend the life of medicare , did by ten years, as you know, governor romney ran around the country attacking the president for cutting medicare during the campaign.

>> the president understands, we still have to go back and take -- hold on. let me ask this because i want to get it on the record here. the president does understand -- and this is -- you know, we've talked privately.

>> yes.

>> you've assured me for four years that he does understand that we have an entitlement crisis, that it squeezes out funding for defense, that it squeezes out funding for the poor, that it squeezes out funding for education. he does understand that, right?

>> it's beyond that. if you care about medicare , then you have to do some things to make sure that medicare is strong and solvent for the future. he understands that. the question is just how you do it. but the president, even in his proposals, has committed himself to significant reduction in medicare costs. he's committed himself to changing the way we calculate social security . and melody can tell you that that hasn't pleased everyone on our side.

>> certainly not.

>> but in this discussion, why did we get to this point? i think as you know, joe, that there was a lot of disquiet in the republican caucus about the vote for the tax increases. i think in certain ways the republican leadership felt they had to go through the sequester point because they would have had a rebellion among some of their troops if they hadn't done that. and the question is, where do they go now? they dug a hole so deep, they can't get back from it. because we do need a balanced answer. we do need a balanced answer.

>> do you think we can get a balance add approach if they don't go back and move on it and make some action? now we've had a fiscal cliff issue that was taken care of by all taxes. it looks like the sequester's going to be taken care of by all spending cuts.

>> and there were spending cuts a year, a year and a half ago. a trillion dollars in spending cuts.

>> do we move forward now to this balanced approach where we close tax loopholes for the super wealthy and we also take care of entitlement programs ?

>> well, i think -- i hope -- we small fractures have started to appear in the republican position. when the president went to newport --

>> democratic position on entitlements maybe, too? on both sides?

>> well, yeah. we had the leadership in the white house with the president in december saying, this deal's still on the table. and we have to start addressing entitlements, and we also have to close loopholes. he took representative reigle back down to newport news, a republican, that we have to start dealing with more issues and more revenue. lindsey graham said if entitlements are on the table, i'm open to more revenue. so these cracks have started to appear. and i hope that that is the beginning of something larger that brings both sides to the table. and brings a balanced approach.

>> did you see the floor yesterday?

>> i saw a little bit on the show.

>> have you built a bomb shelter yet?

>> no, i haven't built a bomb shelter yet.

>> al qaeda , the russians, zombies, we're in trouble.

>> yeah.

>> flesh-eating locusts.

>> flesh-eating locusts, frogs flying from heaven. don't you hate those?

>> but your hope for a balanced approach, you know what people are thinking? it can't be done. the sequester, sorry, or doomsday devastation machine, was set up so that this would be done. and it's not done. and david , how do both sides not suffer even more in terms of faith in government and in washington and in congress after missing this deadline. and by the way, being seen on video last night walking home from their long break out of the halls of congress looking happy that they're going to be going home for the weekend.

>> well, look. if you look at the numbers of the republicans in congress, they're about as low as they can go. but as you guys have discussed on this program, many of them come from districts that are homogenous where their only concern is a primary challenge. and so they're pinned down in those positions. look, i think part of the issue here is, i don't think they view -- i don't think the leadership of congress viewed -- you say this was the sort of watershed moment.

>> wasn't it?

>> i see this as part of a continuum, and i think we've got a long way to go before it plays out.

>> i don't think it's a watershed moment. i think this is one more chapter that hopefully gets us to a better conclusion.

>> you think about what's happened here in these last two battles, there are two things that are kind of interesting. one is that republicans who had ever accepted a tax increase for a very long time did in december under force, but they did. now you've learned of the sequester thing is that what was supposed to keep this from happening on the republican side was republicans were supposed to be so concerned about defense cuts that they would never let the sequester happen. so we've now learned that republicans will accept the tax increases they did in december, and they now have acknowledged tacitly that they're actually open to defense cuts. they're not -- they did not -- if they had been so paranoid about the defense cuts that it worked the way it was supposed to work, we wouldn't have seen the sequester. you've got a couple of sacred cows that are no longer so sacred. and actually, if you think about it in the long run and you get to the next debt ceiling debate where are the consequences for the economy unlike the sequester which is not going to kill the american economy , where if we hit the debt ceiling and exceed it, you can imagine as we're moving in a very ugly, very pointless, very frustrating way towards a situation where the stars might align, and we might be able to finally get that grand bargain.

>> everybody knows what the solution is. everybody knows that it's a combination of additional revenue that comes through tax reform , closing tax loopholes. boehner said last year that he could identify $800 billion in loopholes that he was willing to close. and some entitlement reform. everybody understands what the deal is. the question is whether i think it's mostly on the republican side , whether they can manipulate the politics of their own caucus to get there.

>> but david and melody, tax reform is not going to get us to where we need to go to save entitlements.

>> and no one's saying that it is.

>> but the president's saying --

>> here's the thing, though.

>> the president is saying some reform on medicare , but you look at what allen binder said, what other economists are saying, democrats are wrong when they say we can take care of the entitlement crisis by raising taxes . that's not the answer.

>> joe, no one is saying that. what we're saying is that if you're going to ask democrats to vote for entitlement reforms, that you have to at the same time have revenue increases on the other side of the equation in order to move forward.

>> jump ship together. think about it. a year, year and a half ago, people would have said immigration reform , absolutely not going to happen. things change . it is a chemical situation. the election happened. people are looking at demographics.

>> can you not say a chemical situation, john heilemann? start shuffling through his pockets.

>> sweating.

>> it does change, and i think this, as we've said, is the chapter as the american public gets galvanized around this, that we'll start to