bowles. they did figure it out. the recommendations, however, were never implemented. can they be revived? later in the show, the presidential race. how much will same-sex marriage, private equity, and contraception have to do who is elected in november, or is it all about the economy? i've got a great panel. the "wall street journal's" peggy noonan, ross of the "new york times", and more. also, moving a capital to increase your political capital. should russia build a new kremlin 4,000 miles to the east? i'll explain. first, here's my take. there's much speculation these days about the power struggles in china in the wake of the ouster of the powerful party boss. china's political system will surely be tested, but in the short run, its leaders may have dodged a bullet. li was a charismatic leader who used populism, money, and power to build a political base. had he not been brought down by a series of mistakes, revelations and bad luck for him, he might well have altered the nature of the technocratic system that now runs china. in the short run, china might well survive its political crisis, but it faces a more immediate challenge, an economic crisis. i have been visiting china regularly for 20 years, and every year, i heard from experts that china's economy was set to crash, felled by huge imbalances and policy errors. people would point to nonperforming loans, bad banks, inefficient state-owned enterprises and real estate bubbles, but somehow, none of these problems proved enough to derail china's growth, which has been an astonishing 9.5% a year for the last three decades. but morgan stanley's emerging market fund says there's a different and more persuasive indication in his new book break-out nations. china is going to slow down not because of its failures, but because of its successes. china is on the verge of a natural slowdown that will change the global balance of power from finance to politics and take the wind out of many economies that are riding in its draft, he writes. china's growth looks remarkable, even unprecedented. it really isn't that unprecedented. japan, south korea, and taiwan all grew close to 9% a year for about two decades or more. and then, they started to slow down. as japan's economy crash and slowed, never to boom again, the more realistic scenario is japan in the 1970s when the original asian tiger slowed from about 9% growth to about 6% growth. korea and taiwan followed a similar pattern. what was the cause for these slowdowns? in a word, success. in all these cases, the economy had reached a middle income range and it becomes much more difficult to grow at a breakneck pace when you have a large economy and a middle class society. the surest path to sustained high growth has been to start very poor. once you reach middle income levels, even well-run economies with strong fundmentals slow down. the writer points out china slowing down should not have a huge internal economic effect, but he predicts much struggle for countries that have been buoyed up by a booming china. from brazil to australia, as chinese demand for raw materials drops. he even predicts a decline in oil prices, which coming on top of the shale boom, should worry oil-producing you states everywhere. as for china, he is right to say that 6% growth should not worry the chinese. these will be enviable rates for anyone else. china's regime legitimatizes itself almost solely by delivering high-octane growth. if that fades, china's economic problems might well translate into political ones. let's get started. the former republican senator, alan simpson, and the former clinton white house chief of staff, erskine bowles, may forever be remembered for their great idea that was never put into practice. in 2010, president obama challenged the bipartisan duo to chair a commission to develop policies to bring america back to fiscal sustainability. they did. nobody ever did anything about it. this week, the dangerous carping over the debt limit began anew. who better to talk about all this than alan simpson and erskine bowles. they are joining me from north carolina. thank you for joining us, folks. >> it's a pleasure. >> great to be here. >> senator simpson, you have seen what's been going on these last few months. the house actually voted on the simpson-bowles proposal and it went down decisively. and paul ryan, the leader of the house on fiscal issues, i suppose, said that simpson-bowles was the wrong way to go because there weren't enough spending cuts, and there were too many tax increases. what was your reaction? that's your party. >> well, i think my party and i have different views of a lot of things. i guess i'm known as a rino now, which means a republican in name only, because i guess of social views, perhaps, or commonsense would be another one, which seems to escape members of our party. abortion is a horrible thing, but for heaven sakes, it's deeply intimate and personal decision and men legislators shouldn't even try to vote on it. gay-lesbian issues. we're all human beings. we're all god's children. what is this? for heaven sakes, you have grover norquist wandering the earth in his white robes saying if you raise taxes one penny, he will defeat you. he can't murder you. he can't burn your house. the only thing he can do to you as an elected official is defeat you for re-election. and if that means more to you than your country when we need patriots to come out in a situation where you're in extremity, you shouldn't even be in congress. >> talk about ryan particularly because what i'm struck by is the simpson-bowles plan calls for an awful lot of spending cuts, and, yet, those weren't enough. >> erskine can tell you, you can't cut spending your way out of this hole. you can't grow your way out of this hole, and you can't tax your way out of this hole. this is madness. if you want to be a purist, go somewhere on a mountaintop and praise the east or something, but if you want to be in politics, you learn to compromise and you learn to compromise an issue without compromising yourself. show me a guy who won't compromise, and i'll show you a guy with rock for brains. >> erskine, you're hopeful. you think that some of these -- the idea is gaining traction and there's a kind of inevitability. if you are going to do this, there has to be some approach that's pretty close to what you're describing. >> fareed, i believe the markets will force us to. i have spent my life in the markets, as you know, and look at what's happening at the end of the year. we have about $7 trillion worth of economic events that are happening. we have expiration of the bush tax cuts. we have a patch that's been placed on the alternative minimum tax that will affect so many middle class taxpayers. we have a payroll tax deduction that's expiring. we have these senseless, mindless across-the-board cuts that come from the sequester that comes as a result of the failed super committee. you know, all of those are hitting at once, and the economic affect of those just next year are about 2% of gdp. if we have a negative affect of 2% of gdp, we'll be right back in recession. you better believe that the people of america will be calling on these members of congress to do something. we think something will happen in the lame-duck session. we believe it will probably be a two-step process where we are setting up a framework with a timeframe in order to get something done. >> boy. that's pretty optimistic. >> yeah. >> don't forget, it doesn't have to be exactly what the simpson-bowles plan has, but it's got to be a balanced plan. you've got to have some small amount of revenue that comes from reforming the tax code and there's broad agreement that the tax code needs to be reformed. i believe that you will find if, in fact, we can get the right kind of momentum going, i think you'll find strong support. we've been working with 47 members of the senate, an equal number of republicans and democrats, the same kind of group in the house of representatives, and i believe these -- this group will come together during the lame-duck to put forward a plan like this. now, i don't think the plan itself will be implemented during the lame-duck, but i think there will be an agreement that we have to do some kind of balanced plan. if we don't, then i think you will see the markets really take a really adverse look at the country. i think you'll see us lose another downgrade in our credit, and i think you'll see interest rates pop up, and before long, you'll see the availability of credit lessen. i think we could have a real problem if we don't do something and do something relatively quick. >> and you know who will get hurt the worst in that process when interest rates go up and inflation kicks in? the little guy. the one that everybody on their hind legs talks about. we're doing this for the little guy, the most vulnerable, the unfortunate. well, merry christmas. those guys are going to get eaten when interest rates go up and inflation kicks in. >> gentlemen, stay with us. when we come back, we're going to ask senator simpson and erskine bowles, what they think of president obama's leadership on this issue and what they think of mitt romney and maybe a few other things as well. 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[ major nutrition ] ensure. nutrition in charge! i tell mike what i can spend. i do my best to make that work. we're driving safely. and sue saved money on brakes. now that's personal pricing. and we are back with erskine bowles and alan simpson, the authors of the simpson-bowles plan. a rare opportunity to have a conversation. senator simpson, i want to ask both of you, but i want to ask you what you think of president obama's embrace of your plan, or lack thereof. and i'm going to start by asking you -- just bare with me, because i talked to him in january, mostly will foreign policy, but i did ask him about simpson-bowles, and he probably got -- this got him more agitated than at any point in our conversation. and this is what he said. he said, "i've got to tell you, most of the people who say if you ask them what's in simpson-bowles, they couldn't tell you. first of all, i did embrace simpson-bowles. i'm the one who created the commission. if i hadn't pushed it, it wouldn't have happened because the congressional sponsors, including a whole bunch of republicans, walked away. the basic premise of simpson-bowles was we have to take a balanced approach in which we have spending cuts and we have revenue increases. and although i did not agree with every particular thing that was in it, what i did do is take the framework and present a balanced plan of entitlement changes, discretionary cuts. when ready to make a deal, i presented this plan three times to congress. the core of simpson-bowles, the idea of a balanced deficit reduction plan, i have consistently argued for, presented to the american people, presented to congress." is that fair? >> well, he does get a little testy. you know, we all get a little testy. but the president -- i wouldn't have done this if i didn't regard him as our president. i accept that. he is my president too. and it's ugly stuff out there. there's a lot of hatred in the world. hatred towards politicians, hatred towards the president, hatred towards democrats, hatred towards republicans. i can tell you this, if he had embraced our plan, he would have been ripped shreds. erskine can tell you a little bit more. he visited with him personally alone for an hour and a half. he would have been ripped by the democrats, say, why you rotten -- you're digging into the precious, precious medicare. and the republicans would have rejected if he had embraced it, the republicans en masse in the house would have rejected it. either way he was going to get hammered, so he is playing the waiting game. >> erskine, a lot of economic experts say, look, the right solution for the united states right now is obvious, which is you need some stimulus now, particularly given the very low interest rates, the very high levels of unemployment in the construction sector, the government should spend some money repairing and rebuilding the infrastructure, but that would only be viable and particularly something the markets would celebrate, if it was tied to a long-term deficit reduction plan, like simpson-bowles. do you buy that basic idea that if your plan were adopted as a ten-year plan, it actually gives the u.s. government some leeway to make some necessary investments now. >> yes. i truly believe that the only thing standing between the u.s. and sustainable growth is having a sensible, responsible long-term fiscal plan. i believe if the world believed that we were going to put our fiscal house in order, that you would see substantial economic growth in the future. but, again, i go back to what's happening at the end of this year. we have $7 trillion worth of economic events that are going to hit the fan in december, and if we don't set up to them and if we don't stand up for them and we don't do the right thing, if congress doesn't act, it doesn't put this partisanship aside and make some compromise, then you'll have a negative impact on gdp next year of at least 2%. that doesn't make any sense. >> alan, what do you make of mitt romney? romney's first ads are out, and when he says on day one, what is he going to do, and he says he is going to approve the keystone pipeline. fine. then he says and then we're going to have tax cuts. this is, of course, the kind of republican strategy for a while. do you think, given what you're describing, i can't imagine you think day one what a republican president should do is propose tax cuts. >> well, i wouldn't have voted for them if i had been in congress. how could you vote for a tax cut when you were doing two wars on the cheap? you had two wars you were fighting. you had things that the government -- all the income from the government was only taking care of medicaid and social security. you do a tax cut. every time there was a surplus, and the last time was when this fine gentleman was doing it in 1996, you can't -- you can't get there. but you don't have to do a tax cut. get that out of your gourd. you go into the tax expenditures and you start knocking that stuff off. that's where you get your revenue. >> fareed, we have the most inefficient, ineffective globally anti-competitive tax code that man could dream up. and what we need to do is broaden the base, simplify the code, use -- you get rid of this spending in the tax code and use about 90% of the money to reduce income tax rates for everybody, and use about 10% of the money to reduce this deficit. you know, if you think about the debt today and the interest on the debt, it's kind of -- you know, put it in relationship to something else, we spend about $230 billion, $240 billion a year for interest on the date to date, even at these current low rates. fareed, that is more than we're spending today at the department of commerce, energy, education, homeland security, interior, justice, and state combined. and if we don't do anything, if we just, you know, put our heads in the sand and hope things will get better, we'll be spending over $1 trillion on interest by the year 2020. that's $1 trillion we can't spend in this country on education or infrastructure or high value-added research, and worst of all, it's $1 trillion we will be spending principally in asia to educate their kids and to build their infrastructure and to do high value added research over there so that the next new thing is created there and the jobs of the future are there, not here. that's crazy. >> all right. final question. erskine, there are rumors in washington that president obama has asked you whether you would be interested in being the secretary of treasury. do you have a comment? >> he hasn't asked me to be secretary of treasury, for sure. >> if he were to ask you, would you accept? >> no. i'm living in north carolina. that's where i want to live. i'm the happiest in my whole life, fareed. >> gentlemen, pleasure. >> i would just say we -- all we do, erskine and i, is math. we don't do power points or charts. we do math, but we don't do b.s. or mush, so join us. >> maybe what we should try and do is for the first time in the history of the republic, have co-secretaries of the treasury, one republican and one democrat. >> boy, if we could get our hands on that scratch. >> i don't want a job. thank you. >> thank you, gentlemen. >> thank you. >> pleasure. up next, what in the world? a bold proposal from russia. why president putin should move the capital city 4,000 miles east. when you have diabetes... your doctor will say get smart about your weight. i tried weight loss plans... but their shakes aren't always made for people with diabetes. that's why there's glucerna hunger smart shakes. they have carb steady, with carbs that digest slowly to help minimize blood sugar spikes. and they have six grams of sugars. with fifteen grams of protein to help manage hunger... look who's getting smart about her weight. [ male announcer ] glucerna hunger smart. a smart way to help manage hunger and diabetes. i think we should see other people. in fact, i'm already seeing your best friend, justin. ♪ i would've appreciated a proactive update on the status of our relationship. who do you think i am, tim? quicken loans? at quicken loans, we provide you with proactive updates on the status of your home loan. and our innovative online tools ensure that you're always in the loop. one more way quicken loans is engineered to amaze. now for our what in the world segment. a bold proposal caught my eye this week. one of moscow's top academics says russia should build a new capital city. this city would be far, far away from moscow. 4,000 miles to be exact. in vladivostok. why? the person who proposed the idea, of moscow's higher school of economics, wrote in a state-run newspaper that a capital in the far east would make russia part of what he calls the rising world, closer to dynamic asian economies and further away from an aging europe. the idea of moving capitals is not without precedent. british india moved its capital from the coastal city of calcutta to the more centrally located capital in delhi, and it created the city of ne