chicago at the end of the month. so i know that the party will can ask the supreme court to rule on an expedited basis on this. ballots have to be printed soon. the court has systems for dealing with emergency hearings. i don't have a timetable for you right now exseptember to say soon. this won't linger. >> rose: we conclude with former secretary of the state, secretary of the treasury, secretary of labor and director of the office of management and budget george schultz. >> people always said "what's your foreign policy and i always said "i don't have one, the president has one. my job is to help him carry it out." but, in all those private discussions of negotiations and what's coming up and so on i got a real feel for how he goes about things, how he thinks about it. so i felt as though i was better positioned to... real validity to negotiate on his behalf. >> rose: the state of the union, the race for mayor in chicago and words from a statesman when we continue. maybe you want school kids to have more exposure to the arts. maybe you want to provide meals for the needy. or maybe you want to help when the unexpected happens. whatever you want to do, members project from american express can help you take the first step. vote, volunteer, or donate for the causes you believe in at membersproject.com. take charge of making a difference. >> rose: we begin evening with the state of the union and a very important speech for the president of the united states. tomorrow evening, president obama will deliver his second state of the union address before a joint session of congress. is he will face the house of representatives where republicans are now in the majority. the president expected to focus on job creation, competitiveness and investments in education, infrastructure, and research. congressman paul ryan, the new chair of the house budget committee, will deliver the republican response. the speech comes as president obama has recast his presidency in staff and in themes. joining me now from washington is al hunt. he is executive director of bloomberg news and julianna goldman, she covers the white house of bloomberg news and bloomberg television. i'm pleased to have both of them on this program. albert, let me start with you. how important is this for this president to sort of redefine himself, if that's what he intends to do? >> well, he redefines the moment charlie. it's very important politically. actually, the state of the union address is rarely memorable. most of the speeches that we think about are inaugural addresses or moments of crisis or special subject speeches and it's not state of the union. that's because... the reason it's important is as you mentioned in the introduction, this is the first time he's really addressed the changing circumstance, the house republican majority. it's very important he position himself right now. he wants to be on the offensive, he wants to frame issues in the terms that are the most stranges you to the white house. a similar problem that bill clinton faced in 1995, actually took clinton a while longer to get to that position for all the nice kumbaya moments they're going to sit together and everything, most house republicans have no interest in finding common ground. they came here to change washington, not to reach compromise. so what bill... so really the task that faces the president tomorrow night is to frame these issues in such a way that makes them look like they're rejectionist and he is the sensible center and that's what i think he's going to try to do. >> rose: julianna, how will he do it? >> well, essentially the president is going to be outlining. the tag line is going to be "winning the future." and we're going to hear from him sort of five pillar in how he is going to set out a long-term vision to doing that. it's going to mean... central to that is making sure that the u.s. stays on competitive footing against the economic rivals like china and india so those five pillars it's going to be making investments in innovation, education, building, so infrastructure, high-speed rail, also reforming government and also, of course, cutting the deficit. but, of course, deficit cutting and spending republicans now are saying well, investing is key word for spending. and there's an inhernlt conflict there. the white house, what they're saying is the president really is laying out areas where the u.s.... where they aren't going to be able to trim from the deficit. where education, infrastructure, those are areas where they cannot scale back spending and so when al talks about ways to paint republicans as obstructionists in the party of no, the white house is saying "well, they're saying they want cuts across the board and these are areas that are vital to ensuring that the u.s. keeps its competitive edge." >> rose: so that's the debate, al, between investment and spending? >> yeah, and to pick up on julianna's point, if the issue is cutting spending, even if you take education the republicans win. if the issue is cutting pell grants and cutting support for community colleges, that's a different pop sigs. so what obama's task is to spell out and not... and when i say detail not we're going to have this $17 billion program but what the stakes are in some of these issues. and to put the republicans on the defensive. he has a chance to do that and there are contradictions, as julianna said, between some of those pillars, but he will try to weave a tapestry that says it all makes sense for americans' competitive advantage over the long run. there will be, i am sure, invocations that the chinese are doing it and if we want to compete with the chinese we have to do it. there may even be a little teeny bit of china bashing tomorrow night for all the nice talk with hu jintao last week. >> rose: juliana, the president... whether it's china bashing or how he defines himself, is he a changed man because of the midterm elections? >> well, this white house has certainly gone through quite a process since the midterm shellacking. but one of the things that we are likely to see is a more centrist president, a more pragmatic, a more business-friendly president tomorrow night. we've seen a lot leading up top this, especially since president had his asia trip. right, i remember... i was on that trip and back on the airplane just as we were landing back into andrews the president came to the back of the plane and he started this narrative of what we saw while we were in asia is that they're not cutting on investments in high-speed rail, they're not cutting on investments when it comes to education. so the challenge is going to be to make sure that the u.s. stays competitive. >> rose: at the end of the day, is he a centrist? >> well, this is a president who has always been a compromiser. even back to the days of... in the illinois state senate during the... during his presidential campaign he was always willing to compromise and we saw that, for example, he was against offshore drilling but then there was the opportunity for an energy bill where offshore drilling was a component of it and the president said he wasn't going to let perfect be the enemy of the good. and that's what we saw with the tax cuts. that's what we saw also with the south korea free trade agreement. so this is a president who's always been willing to compromise and isn't really the liberal progressive that maybe republicans try and paint him out to be. >> rose: >> charlie, let me pick up on that for a second. i went to a wonderful event last thursday night celebrating the 50th anniversary of j.f.k.'s inaugural and obama gave a marvelous speech about j.f.k. and one line that he used that you could see he just loved and he was almost... it was almost as if he were talking about himself was jacqueline kennedy's great quote about her husband that he was an idealist without illusions and it was quite clear that obama very, very much identified with that description. and i think julianna has it so right. she's written about this before. he is a pragmatist. he is a progressive pragmatist. his views are progressive. they're left of center, if you will. but he's never let them get in the way of getting things done. >> rose: some people are speculating he may talk about taxes in terms of a big-ticket reform over the next two years. is that reasonable dorr you expect to see that? >> well, so far what we're hearing is that the president will address corporate tax reform. it won't in the context of deficit reduction, but he will talk once again about how... what he'd like to see this year and over the next years is to begin a dialogue on corporate tax reform. >> and, charlie, the difficulty with tax reform for this administration is they also face as julianna said earlier, this huge demand to do something about the deficit reduction. tax reform is not for the faint hearted. it's tough. there are all kinds of competing interests and there are people who say "gosh, why do you want to do it if you're t going to raise money? you're going to go through this angst and it's going to be deficit neutral, it's not worth the effort." and i think's been a great debate in this administration not so much along ideological grounds but whether it's worth the effort. the early compromise is let's have a conversation and see how it unfolds. >> rose: do you believe that the president stayed with his base or does he consider his base the independents that he's reaching out? >> the greatest asset the president has with his base-- who's unhappy and a good politician usually has a base that's a little unhappy, but the great strength he has with the base is that the alternative is the republican party. and the republican party, every time they go out and do something they strengthen obama with his base. it's the same thing happening with bill clinton, actually, 15 years ago. so i don't think you take the base for granted if you're obama but i think every move he's made since mid-november has been directed at those independent centrist voteers that deserted the democrats in high numbers last november. >> rose: well, it's interesting, one of the signs that david plouffe is back in the white house is all the social networking that we've seen surrounding the state of the union. so for example over the weekend the president released a four minute video previewing the major themes of the state of the union to democratic supporters. there are all sorts of twitter parties and facebook watching parties and it's so reminiscent of the 2008 election. remember two years ago... everyone was saying the so-called list of over a million donors, remember, the small money donations that obama got, that that was going to be so helpful for maintaining this grass-roots organization to help him for major initiatives, health care, regulatory reform, it really didn't do what they had been expecting. >> rose: do people around him and people who cover him from the white house perspective see him as more confident and more... oh, more comfortable? >> certainly when you think about the press conference that the president gave the post-shellacking press conference where we first heard "shellacking" for the first time to now there has certainly been an evolution in this white house. i remember coming back from the asia trip there was just this feeling that oh the president was on the international stage and china criticized them for the quantitative easing policy of the federal reserve and the president was embarrassed at the g-20. you know, then he came back and he got the south korean free trade agreement, he got the tax cut deal. david axelrod, he often says president obama is usually... he's like michael jordan who is always at his best at the free throw line. and that's the president. when everything is on the line he really tends to do his best. we've seen that since this midterm election. he's come back with a vengeance and that's something we tend to see from this guy. >> rose: julianne that, thank you so much for joining us. >> sure. >> rose: albert, thank you. >> thank you, charlie. >> rose: see you both tomorrow night. we'll be right back. stay with us. we continue with the race for mayor in chicago. earlier today an appeals court ruled former white house chief of staff rahm emanuel, a candidate for mayor, does not meet the residence requirement to run for mayor. from emanuel, who's been the front-runner of the race, he spoke at a news conference earlier today. >> i have no doubt that we will in the end prevail at this effort. as my father used to say nothing's easy in life. so nothing's ever easy. this is just one turn in the road. >> rose: joining me from washington is lynn sweet. she is a washington bureau chief of the chicago "sun-times" and she knows chicago politics. so, lynn, what do we make of this? >> well, as rahm said today in chicago, his father said life is never easy. this is throwing the race up in the air, goes directly to the illinois supreme court. emanuel's campaign is going to push very hard to say we will prevail and they're going ask for states to let the ballots be printed with his name on it. but i think in the meantime this has thrown a monkey wrench for the people in chicago who have been watching this legal case, charlie, this is not a big surprise. there is always a legal problem where you can argue it both ways and two earlier decisions were for rahm and now one is against him. >> rose: there was this question and this debate when he testified about the fact that he rented his house. if he had not represented his house to anyone and kept it there and occasionally went home would this not be an issue? >> well, if he had done that, he would have no issue at all because he would have had maintained a residence. he would have voted from a place he actually lived in. so, charlie, you once lived in chicago many years ago. >> rose: yes, i did. >> you still don't live there. that place is gone. >> rose: (laughs) >> you may want to try and vote from there but you don't live there anymore. in the case of emanuel, i always thought it was clear to me he intended to come back, there was never an issue about it, but he never foresaw that there was this in a sense a law since voting was never an issue. now it seems something that, gee one should have thought about it. but even if the tenant had left a few weeks into rahm's race i think he still might have had this legal program because the clock started february 22 is when the election is. so the problem exists and his opponents have already tried to name most of it apparently because they are so underfunded compared to rahm emanuel. so it... on the other hand, this is just not where he wanted to be on this day in this campaign. >> rose: so there's serious question as to whether he'll be on the ballot. >> well, i think it is an open question. because now you have an upper court ruling, the supreme court is not perceived as friendly. i would say when you asked about politics a few moments ago i think in chicago there's flix the d.n.a. of people who are appointed. >> rose: that's why we love chicago. >> right. it's just, you know, you split open a vein and there's political considerations that you can't really say anyone did anything wrong, it's just that when you have law that could be perhapsed look at both ways you might give the benefit of the doubt who-to-somebody who has a political edge. but in the appellate court the judges have no particular love lost-- well, two of them-- politically they meant nothing one way or the other to rahm and in the state supreme court where you have judges who are not all there chicago and, as i said, ann burke, who is married to one of the leading alder men who is the leading endorser of rahm's leading rival you're going to have a issue. >> rose: and when will all this take place? >> early voting starts in chicago at the end of the month. so i know that the party will ask the supreme court to rule on an expedited basis on this. the ballots have to be printed soon. the supreme court has systems for dealing with emergency hearings. i don't have a timetable for you right now exseptember to say soon. this won't linger. >> rose: great to see you. thank you for joining us. george schultze joins me here in washington. his long and distinguished career straddles academia and business and government. he has served as secretary of labor, director of budget, secretary of the treasury but most know him as president ronald reagan's secretary of state, he helped bring an end to the cold war. he's a gished well if low at the hoover institution where he's helped to rid the world of nuclear weapons. his new book is called "ideas and actions featuring his ten commandments of negotiations." i'm pleased to have him back on this program. welcome. good to see you. >> good to see you, charlie. >> rose: you just celebrated your 90th birthday. >> well, i'm still upright. still going. >> rose: (laughs) >> one of the problems is people tend to pat you on the head and say "nice game." i say "look, i'm still in the game there's plenty to do." >> rose: (laughs) indeed. how do you see u.s.-chinese relations over the next ten years? >> well, you expect in a visit like this to create a better understanding. when the heads of government are going to meet there's an awful lot of prepare torque work goes on and that if done well is constructive in nature. and you get a better sense of what the other guy is most worried about and you try to give name sense of your problems as you see it. so i think it's a chance to get together like that and i hope a constructive result comes about. >> what questions does the united states need to address and what questions do the chinese need to address. >> from our standpoint we need to get our house in order. we worry about the fact that the chinese own a huge amount of u.s. government's... >> rose: right. >> how did that happen? it happened because we for a number of years now have been spending more than we produce. can't keep doing that forever and we have to stop doing that. so i would say less complaining about china has always all this money and what are we going do with it? we ought to say to ourselves well, when we going to get our house in order? and of course when we do, when we have a balance in how much we spend and how much we produce then all of a sudden we're not borrowing from anybody, we're financing our own investment and the whole trade balance picture will even out, straighten out. >> rose: the united states has a lot of business people who are meeting here with the president, hu jintao, and making the case that there is an un... that there is not a level playing field. are they right in making that case? absolutely. i think they're right. there are all sorts of rules and behaviors on the part of the chinese that tend to skew the playing field and in particular we worry about intellectual property. >> right. >> in other words, you invent something, off patent so you're entitled to have exclusive use of that. and basically they... if you go over there they will in effect steal your patent. so people are reluctant. and they're going to pay a price for that. >> rose: but there's also a story that the chinese after the president of china leaves washington he goes to chicago and he wants to show off a place where there's a chinese investment in the united states that's creating jobs for america. >> well, that's good. fine. certainly there should be. >> rose: there is also, when you look at the future, a demographic... >> he should come to the bay area where... >> rose: they always do come to the bay area. >> where the new mayor of san francisco and the new mayor of oakland are both chinese americans. >> rose: well, i also make a point that most people now when they come to the united states, whether medvedev of hu jintao make a point of coming to the bay area because they want to go to silicon valley because they understand the relationship between economic growth and technology. >> well, mostly they want to come because charlotte might give them a party. >> rose: (laughs) >> we had a party for president medvedev. >> rose: yes. >> it was over the top. >> rose: by the way, charlotte is your wife. >> right. >> rose: and has sort of been the queen of san francisco for a long time. >> she is... >> rose: as protocol chief for san francisco and the state of california. >> absolutely remarkable. >> rose: and for giving your 90th birthday party as well as the party for the giants when they won the world series. >> yes, two million people came and there police incidents. >> rose: well, maybe we should find a job for charlotte in the federal government. maybe there's a place she can apply those talents. >> no way. she's not available. >> rose: (laughs) >> but she gave a party for hu jintao when he was known to be the next president but hadn't quite reached that point. he was in san francisco and there was a wonderful dinner given and she got chinese americans from the ballet and sifrp fli and a little school in san francisco to come and perform and so it was very charming evening, i'm sure he enjoyed it. >> rose: i'm going to come back to the chinese. clearly... i'm sure he was impressed with what happened and i know he has been back to the bay area. >> and people respond to courtesy and to a sign of respect. so i think it's important that we treat our chinese friends with courtesy, dignity and show them respect. they deserve respect. they have accomplished amazing things over the last 25 years or so. >> rose: what would you say tois policy if you were the secretary of state oar you were advising the president? >> i would say to them that they're heading for trouble and they should watch out in their own interests because they have a thriving open economy. what that means is people get around, they know what's going on and part of a thriving economy is competition and argument. and it tends to spill over. and if you on the other hand suppress open discussion in the political realm you're squeezing against each other and i think there will come a time when they'll have to be more openness in china and they pay a price when they have repressive practices. so i think we... >> rose: what price are they paying? >> they're paying a price that they're less open internally than they otherwise would be and they have to rely on things like protests. there are huge numbers of protests in china to let them know where the problems are, where the corruption is, where the environmental degradation is and so on. >> rose: do you believe that it's better to keep it less public and make your case in private because if you make it more public you're more likely to get resistance or do you believe it's very important to make a public case? >> i think you're going to be most effective if you work hard at it privately but don't step away from letting it be known publicly what you're doing. but you don't get anywhere, i don't think by intense pressure from the outside you get somewhere by saying to them you are paying a price yourself for what's happening. i remember saying to president gorbachev that i said we come together and we argue all the time about this, that, and the other thing. but there's something really big happening in the world that's going affect you and it's going to affect us and we never even talk about it. he says what's that? i said it's the information revolution. this isn't the mid-'80s. i said this is coming fast. it's going to have a dramatic impact and any country that keeps itself closed and compartmentmented is not going to thrive in this atmosphere. so it's in your sfwroes open up. i do remember one time i was there and we had a seder take place in the u.s. embassy and, of course, i went and it was a very moving event and you go to something like that and you think in part you're going to buck them about their being repressed and you're there and you realize it's all the other way around. they're so inspiring to see these human beings standing up to the great state and they believe what they believe and they don't change. it's a very inspiring thing. so the next day gorbachev says to me "i see you're meeting with all these lousy jews." >> rose: he said they? >> yeah. "why are you doing that all the time?" >> rose: i said, you don't like them? you think they're lousy jews? have i got a deal for you. i've got that big airplane out there and why don't you just load them on the airplane, we'll take them off your hands. we think they're pretty good." and so he changed the subject. he was good to work with because you could have a conversation with him and i found the chinese leaders when i was in office and dealing with them were that way, too. you could have a conversation with them. and i think... from what i can see trying to do this but the way we went about it was i said you put on the table anything you want to talk about. i'll put on the table anything i want to talk about then we'll organize that into an agenda and then we'll work that agenda constantly. we'll meet fairly frequently. our staff cans work on it. and we worked through opportunities, problems, and try to thrash them out. that's a process that works pretty well. >> rose: "ideas in action, george p. shultz." my question is, what is that in front of you? is this because of your... obviously you're a proud graduate of princeton or is it something else? >> i found myself in charge of a big company picnic at an animal world place and somebody said they'd liking to do a little publicity and "do you mind if i bring a tiger up to my office?" and i thought you're putting me on. so i said "of course, any time." so lo and behold here comes this tiger, real live tiger, put his paws on my desk and looked at me and laid down there in that picture. it was riveting. >> rose: when people think of you and tigers they think of something else, as you know, they think of an often-mentioned tattoo. >> i have a no confirm or deny policy. >> rose: (laughs) here are the commandments b. in control of your constituency. what do you mean by that? >> i mean if i'm going bargain with you, i'm going to have some back and forth i'm probably going to make concessions and you're going to make concessions. and i need to be in a position where i truly represent my constituency and when i make a deal, it's a deal. and you ought to know that. so if you're bargaining with somebody, you're not only looking at your constituency and be sure you have people behind you so your deal with stick, but you also want to be asking yourself does this other guy i'm looking at have his constituents under control? because if he doesn't there's not much point in my negotiating with him. >> rose: and part of that constituency is in congress, if you're the president of the united states. can you get it through congress? >> so if you're negotiating, as, for instance, in the 1980s we were negotiating with the soviet union about various nuclear arms things. we had a senate observer group and a house observer group that came to negotiations. they talked to people at first people were a little uneasy they might undercut our positions. that never happened. but they came to understand what we were doing. they saw the posture. they saw the in and out so they were very much a part of it and so when we got the deal done it was not a surprise to anybody and i think there's a saying that i always try to observe which is if you want me in on the landing, include me on the takeoff. so i think you've got to recognize that. it's up to the executive branch to negotiate but you better do in the a collaborative way with particularly the senate because they have to ratify. >> rose: secondly, understand the needs of the other side. >> you want to figure out what are their problems? what are their needs? >> rose: so apply that to the chinese of u.s. negotiations. what is it we need to know about china? >> they have big problems in their interior. they're very prosperous along the coast. they're worried, they're very conscious of it so we need to know that. we need to know something that doesn't get very much publicity and that is the implications of the demography of china. they have ahead of them the most dramatic changes in their age structure of any major country. and that's going to bring about huge changes that they're going to have to cope with. so we want to see that and to the extent that we can be helpful we want to be helpful. but it's a big deal. >> rose: the next thing is personal factors. you talk about your friendship with eduard shevardnadze who was foreign minister of the soviet union. >> we had a practice when we met having working groups on various topics, including regional issues, afghanistan being one. and we were about to have that group sit down and the arguments were clear and he asked to see me alone for a minute. so we came into my little back office at the state department and he said "we will have our argument out there but i want you to know that we have decided" past tense, have decided "to leave afghanistan. we're going to have to work out how to do it. and if we can do it with little bloodshed, that's an advantage." so i just want you to know that a decision has been made. and it was helpful. and i believed him. >> rose: so you came back and told president reagan. >> president reagan believed him but nobody else in our government did. >> rose: number five is underscoring the on going process. there may be more negotiations and you want to be sure the lessons people take away from the process are good ones. >> i think you want to establish the reputation of being a credible negotiationor because we're going to do this deal but we're going to be back next year doing some other deal. so you need to go away from the table knowing that i am good as my word. that i'm credible. this is one of the things that president reagan worked on very hard. i'll give you an example. by chance i came back from a trip to china that's gotten a lot of publicity because it was sort of a turnaround trip and it was snowing in washington. and it snowed friday and it snowed saturday. and the reagans couldn't get up to camp david, they were stuck in the white house for the weekend. so our phone rings and nancy says "how about you and your wife coming over and have supper with us." so over we go and the four of us had a nice supper sitting around and the president was asking me about the chinese leaders, what were they like. and he was always interested in what are people like. and what kind... do they have a sense of humor? what kind of a backbone and so on. and then he knew that when i was way back, when i was secretary of the treasury i dealt with the soviet union a lot, so then he started talking about what they are like. and it dawned on me, i said this man has never had a real conversation with a big-time communist leader and he's dying to have one. so i had gotten permission to have for weekly visits with an ambassador and we were just trying to get rid of things, it was no big deal. so i said to him mr. president, ambassador bryn is coming over for one of these visits next tuesday evening around 5:00. what if i bring him over here and you talk to him." so he said yeah. his staff tried to stop it. i said... he said it will only be a few minutes. i want to tell him this. and his new leader andropov had become the new leader. he was ready for a constructive destruction. he said it won't take me ten minutes. so we go over, unmarked car, nobody knew we were there and went on for about an hour and a half or so, we discussed everything and president reagan came down on the human rights subject a lot. he kept saying the things that needed to be done. he said "i just want these things to happen. you won't hear a word out of me if it happens." remember these pentecostals rushed our embassy during the carter administration, they were still there. and he'd return to them several times. they say it's like a big neon sign that says you don't treat your people well, you don't let them worship as they want, you won't let them immigrate. you ought to do something about it. and if you do, i won't say a word. i just want to have them get their way. so we had... so bryn and i are riding back and he said let's make this our special project. so we had some back and forth and finally we got a piece of paper that i took to the president and i said any lawyer will tell you they can drive a truck through this thing but i believe with all this background if we can get the pentecostals to leave the embassy they won't be killed and they will be allowed to emigrate. so we did. we took their lives in our hands but we were pretty confident. >> rose: reagan... >> and he kept saying "i won't say a word." so about two or three months later they were all out... they were all able to emigrate, including their families, about 60 people and i said to the president the deal we'll let them out if you don't crow. he never said a word, nothing. so if you're a soviet leader and you observe that and you know how tempting it is for an american president to say "look what i did". >> rose: right. >> and he doesn't. he keeps his word. you can deal with this guy. he keeps his word. >> rose: was he a good negotiator because he had that experience as a labor leader in hollywood? >> yeah, he was president of the screen actors guild and he... we had a deal where we had twice a week private meetings and he loved to talk about negotiations and i was a labor at one time. >> rose: right. >> so we swapped negotiating stories. and it helped me a lot because as people always said, what's your foreign policy and i always said i don't have one. the president has one and my job is to help him form it and carry it out. but in all those private discussions of negotiations and what's coming up and so on i got a feel for how he goes about things, how he thinks about it. so i felt as though i was in better and better position to... real validity negotiate on his behalf. >> rose: he had a strong belief in the idea of personal relationships. >> he did. >> rose: that he could somehow reason with people. >> well, when a new head of government would come in and he would be inundated with staff papers and things to ask and so on which he looked at, but you could see what he was trying to do was judge the person and tell him a story, see if he could laugh. see what kind of backbone was there. so he was always judging individual people and the first... he was so he was looking forward to the meeting with gorbachev. his first one was in geneva and the first thing that happened was he took gorbachev into a room, it was pre-arranged. and all of us there they sit by a fire, the interpreters are there, the note takers are there but just basically two guys. it was supposed to go for, i think, ten minutes. it went on for about three quarters of an hour and i know at one time always in every white house there's somebody whose job it is to go and stan in an obnoxious way to let everybody know your time is running out and he came and said "do you think i should go in there?" and i said "if you do that, you're out of your mind. the longer they stay, the better it is. they're feeling each other out, both of them." i had spent time with gorbachev before that, two or three meetings. so i had an idea of what kind of guy gorbachev was and i felt that somehow he and reagan, although very different kinds of personalities, would in the end sort of hit it off, which happened. >> rose: take me to reykjavik and what that says to the idea... what are the principles that come out of that? because here's a place in which the leader of the soviet union and the leader of the united states almost came to an agreement. >> gorbachev came there and he basically agreed to all the positions that we had been taking in our intermediate range nuclear forces talks, i.n.f. talks, which we advocated total elimination of them and our strategic arms talks, the longer range things in which we are... our view was that they should be cut in half to equal levels and that was a big huge step. we also got agreement in a working group for the first time in a formal way that human rights would be a recognized regular item on our agenda. we wouldn't be told it was none of our business. so there was a lot going. and then it went much further in agreeing that it would be desirable to get rid of nuclear weapons entirely. there's an interesting miss at an n.s.c. meeting in 1981, before i was in office, but apparently he asked the joint chiefs of staff what would be an in effect the united states of an all out attack by the soviet union, a nuclear attack. so what would be the result. so on this day the joint chiefs reported to him-- it's in the minutes-- that the initial casualties would be on the order of 150 million people. and there would be obviously continuing casualties as all medical facilities would have been wiped out and so on. in other words it would wipe us out. my colleague marty anderson later asked him would you retaliate? and he said of course i would retaliate. and they had to know that. but we would wipe them out. so how many times have you heard president reagan say what's so good about a peace based on the ability to wipe each other out? so that's how he got so strongly on to this notion that we'd all be better off if there were no nuclear weapons. >> rose: but when push... >> and then defend yourself, learn how to defend yourself against the ballistic missile which was a prime way of delivering them. >> rose: but when push came to shove at reykjavik he said no because of the strategic defense initiative, also called star wars. >> because the soviet proposal also included acceptance of, as they put it, confining research on strategic defense to the laboratory, which we interpreted as meaning to kill it. and president reagan would not give up on our ability to defend ourselves under any circumstances. now, if you take the recent debate about the start treaty, it's interesting sometimes, people wonder, well, what would president reagan have thought about it. and i think it's pretty clear and it is revolutionary. first of all, he would have been in favor of reducing the nuclear weapons. we're sure of that. second of all, he would want to assure himself that there was nothing that would compromise our ability to defend ourselves against ballistic missile. third of all, however, and this is what people don't understand and probably don't accept said you can't expect other countries to join us in getting rid of nuclear weapons unless everybody has an ability to defend themselves against them. there's always a chance that some rogue state comes along and you'll want to defend yourself and everybody needs to have that insurance. so we should be willing to share that technology. and that's what he told gorbachev at the end. >> rose: that he'd share the technology? >> he said... gorbachev said to him, mr. president, if we get rid of nuclear weapons and the ballistic missile, why do you need a defense against them and he said because people know how to make them and there will always be some rogue state around and then you and i will both be glad that we have a way of defending ourselves and we will share our technology. >> rose: so why didn't gorbachev buy that deal? >> he said mr. president, you won't even sell milk technology to us. >> rose: (laughs) he didn't believe him. >> he didn't believe him. and even today i think it would be a hard thing to push through. but nevertheless the depth of reagan's thinking on this subject is not recognized. he really thought it through very deeply. >> rose: you have always had this relationship between academia and government and business and you've always believed that government policy ought to begin with big ideas >> absolutely. if you don't have ideas you don't a compass. you're just steering by the wind. >> rose: and do you believe the obama administration has ideas? and do you support those ideas? >> in some places they do and some places it doesn't seem to me they. do. >> rose: okay. where is... what are those places? >> i think on the nuclear weapons subject they're right on the mark. the president has given good leadership. i'm very impressed. new hampshire is and resetting the relationship with russia? >> that's been going pretty well. >> rose: afghanistan you're not sure about. >> well, they inherited... afghanistan i'm not so sure about. i don't think you can be successful if you announce that i'm putting troops in and they're going to come home by a certain date. it doesn't work. >> rose: but they changed that. i mean, it's now 2014 not... >> yeah, but it's hard to get it out of your mind. my wife and i were looking at an old movie the other night. it was "george m. cohan" movie in world war i. you remember the song "over there, over there, the yanks are coming over there." s that popular song. and the last verse goes "and we won't be back till it's over over there." that's the attitude you're going to have to have if you're going to win. you don't say forever but you're going to win. but i think on the economic side we need a real total rearrange because as contrasted with the reagan period as you remember, we inherited inflation the double digits, the economy going nowhere, the soviet union running wild, jimmy carter declaring we were all in a state of malaise and we went in and had a strategy. we said we have to get rid of inflation so paul volcker got a green light for what he knew how to do and he did it. we knew we'd take a beating and we did. >> rose: take your medicine now because... >> take your medicine because you cannot have a healthy growth with inflation. so get rid of inflation at the same time cut taxes so you provide incentives in the economy and build up our strength vis-a-vis the soviet union. well we had put that into effect. we took a beating but then we came out of it very strongly and there was a strategy. we want to get from "a" to "b." we want to get to strong growth without inflation. >> rose: okay, but let's look at the... >> now, what's happened is we're sort of reeling around and throwing money all over the place and it really isn't getting us anywhere. we don't have a strategy and that's what we need. >> rose: do you believe this president is, in fact, getting his house in order? >> i hope so because we need presidential leadership. but i think what he has... people are saying he's got a hostile congress. i think he's lucky. he's got a congress that is determined to get us... get our house in order and get us on a decent track economically, which we haven't been on. so it's just... you never know how these things... it's just conceivable that with this congress and its determination and drive something good might come out of it. >> rose: do i hear you saying that your quarrels with the obama administration is more on the economic front than it is on the foreign policy front? you're giving him pretty good grades on foreign policy. you have no great qualms about his china policy, do you? >> no, and with russia okay. >> rose: russia okay. >> the middle east is in a mess, i think. >> rose: yeah. >> but anyway. i think in a way if you ask me what's our biggest foreign policy challenge... >> rose: i'm asking. >> it is number one get our house in order, stop spending more than we earn, so we start saving a little. number two do something about our energy picture because we are so vulnerable in our defense posture where we're so dependent on oil and we can do something about that but right now we're overly dependent on it. you don't like tax increases, i don't like tax increasess. well saudi arabia and company are in the process of opposing big tax increases on us in terms of the price of oil which is up above $19 a barrel now. it's a tax increase and our own government doesn't even get the revenue. >> rose: but does that mean an investment-- which is also spending money-- in alternative sources of energy? does that mean an investment in wind and solar? and bio? >> it means an investment in research and development and you want to see come out of the research and development alternatives that can stand on their own feet and be just vied economically. compete in the marketplace. >> rose: it sounds to me like george shultz is not objecting to spending, but where the money is spent. >> significant and sustained spending on r&d is not costly in terms of these budget numbers you're talking about but it has huge payoffs. >> rose: in fact, our whole post-world war ii history is dominated by r&d and our g.d.p. is made up today of things that weren't even there 40 or 50 years ago. as a matter of fact, we were talking about health a while ago. the real reason why we lived longer today and we're healthier today than we've ever been before is not so much the hospitals and doctors, with all due respect to them. >> rose: it is? >> it's the, are and, the that's been done on hue the human body works and the pharmaceuticals and procedures and so on that have dealt with it. we have the salk vaccine so we don't have polio around anymore and so on. they can examine your insides without cutting you open to do it it's... huge marvelous things have happened and will continue to happen. >> rose: but it costs money tow do that and that has to be a policy of investment for the future. >> absolutely. we have to invest in the future which means we have to get control and have enough savings to do it with. and it can be done. we've done hit in the past. there's no reason why we can't get back to it. we've just been on this extravagant spending. >> rose: the debate in the country today, what ought to be the conversation for the leadership, from academia, from the private sector, and from government? >> i think that there are these big influences that we have to pay attention to. number one, comparative demography. the changes taking place in the age structure of the different countries around the world are stunning. big time. going to make a huge difference, including in china which i mentioned earlier. the second thing we need to take account of is the ten tensy for the state system to erode. there's too many places in the world where there's not any genuine government process. and those can be places whe the third problem can come from, namely the arising of... driven by islamic extremeism, terrorism. and we have to grapple with that. then i think in many ways a profound impact comes from r&d. we have been a leading country in research and development in all sorts of ways throughout the post-world war ii period. and it has generated huge changes, positive changes in our standard of living, in our military capacity, in many, many ways. and i think this is something we need to put a lot of emphasis on. actually, it's a the amount of money you spend is small in relative to the mileage you get from. you get a lot of bang from the buck. >> rose: and implicit... >> but what's going on is other countries seeing that. the most rapidly rising rate of increase and spending going on in r&d in the world right now is china. they aret as high as we are but it's going up fast. interestingly, the country that spends the most per unit of g.d.p. on r&d is israel. and they have a kind of silicon valley going on and they have tack i don't know and wise man institute and it's just like stanford and silicon valley. in fact, there are a lot of links going on between the two. but i think the more we can engender these places of hot change, that's what we're going learn and a lot of the future's going to be there. >> rose: as always you're thinking about the future. it's a pleasure always to see you. >> thank you, charlie. >> rose: good to have you. >> always fun to talk to you.