afghanistan this week, it is now increasingly clear that the united states is winding down its massive military commitments to the two wars of the last decade. we are out of iraq and we will soon largely be out of afghanistan. threats remain, but they are being handled using special forces and intelligence. finally, after a decade we seem to be right sizing the threat from terrorist groups. or are we? we leave the battlefields of the greater middle east, and we are firmly committed to the war on terror at home. what do i mean by that? well, look at the expansion of federal bureaucracies to tackle this war. since september 11th, 2001, the u.s. government has created or reconfigured at least 263 organizations to tackle some aspect of the war on terror. 33 new building complexes have been built for the intelligence bureaucracies alone, occupation 17 million square feet. the equivalent of 22 u.s. capitals or three pentagons. the largest bureaucracy after the pentagon and the department of veterans affairs is now the department of homeland security, which has a work force of 230,000 people. the rise of this national security state has entailed a vast expansion in the government's powers that now touch every aspect of american life, even when seemingly unrelated to terrorism. some 30,000 people, for example, are now employed exclusively to listen in on phone conversations and other communications within the united states. in the past the u.s. government has built up for war and assumed emergency authority, sometimes abused that power. yet, always demobilized after the war. this is, of course, a war without end. so we continue to stand in absurd airport lines, turn down the voo visa applications of hundreds of thousands of tourists, businessmen, artists, and performers who simply want to visit america and spend money here and become ambassadors of goodwill for this country. we continue to treat even those visitors who arrive with visas as hostile aliens, checking, searching, and deporting people from airports at will. we continue to place new procedures and rules to monitor everything that comes in and out of the country, making doing business in america less attractive and more burdensome than in most western capitals. we don't look like people who have won a war. we look like scared, fearful losers. let's get started. zi am now joined by martin wolf, and ron of time making sfwleen. rona, first the jobs numbers say every few months we go through reading these tea leaves. the numbers seem a little worse than people were expecting. unemployment, on the other hand, dropped, but that's because fewer people are looking for jobs. what do you make of it? >> i think this is continuing what we've seen in the last few months of this wimpy recovery. you know, we are in recovery. the unemployment figure is ticking down. we don't really feel like it. you know, income is still very flat. there's a lot of slack in the job market. i think what's interesting is where the numbers are weakest. we're seeing a lot of public job cuts still particularly at the local and federal level, and i think you may start to see some of the weakening of exports, particularly off the back of a slowdown in emerging markets. >> what do you think? >> i agree completely with that. basically i believe for years we were going to see a very weak recovery from a huge financial crisis when a large part of the world was in financial crisis. now the meerjing markets are slowing as well. it's almost inevitable that we're going to see a very disappointing recovery, very disappointing recovery in the jobs market without much stronger demand growth and there's nothing -- nothing there to generate that. >> martin, the thing that people worry about is europe now because it seemed as though europe had sort of temporarily solved this crisis or at least given itself breathing room. mario knew the head of the ecb came in, provided liquidity, provided cheap loans to banks, so there wasn't going to be a leman-like moment where there was going to be a run on the banks. s people breathe aid sigh of relief. all of a sudden people like you are worrying a lot again. why? >> i never believed the argument. essentially, he provided a lot of liquidity, and that prevented what was surely going to be an implosion of large parts of the euro zone banking system, and that stopped a disaster. that's a very good thing, but the underlying situation remains the same. we have governments with very serious debt problems and huge deficits they have to finance. or these huge roll-overly problems in the case of italy. who is going to finance them? basically their own banks. their banks are under enormous stress even now. they can't bias et cetera for that limit. we have very weak economies. we have rising unemployment. the spanish data horrendous. close to 50%, youth unemployment. that makes politics terrible everywhere. the politics gets into the markets. the debt market gets worse because people look at the political stress. this is going to go on for years. >> but is there a danger that there will be an implosion or an explosion? >> there is a danger. you can see it in which we can get recurrent crisises that will be political crisises. electrics of governments which a is a we don't want to do it. that will create a political crisis. that will get into the debt markets. there will be friction among countries. there will be endless summits, no doubt, and, of course, any load is possible that one of these will blow over, blow up. it will be become unmanageable, and people know that. the stresses will go on for years. when you are -- have a patient that's under tremendous stress for years, constant recurrent little attacks, one of them might be fatal. >> the new normal in europe is going to be this roller coaster of constantly feeling like you're on the edge of an economic feltdown. >> i think the mrixz of fragmentation are extreme. there were 8,000 police on staff in barcelona during the latest european central bank meeting. i mean, when there are as many police at a central bankers meeting as there are at a european football match, you know you have problems. >> you were always pessimistic about the british experiment with austerity. you argued that they were cutting too much, that they didn't need to, that they could borrow. now we have data that shows that britain is in a technical recession. first major economy to have a double dip recession in 40 years. does this mean this whole experiment with austerity in europe was a mistake? what could countries like greece and spain and portugal and ireland do who did have bond marks telling them you have to get your budget in order? >> i think it's crucial to differentiate countries that can borrow from countries that can't. in the case of the europeans, i think the odds are worse to have greater support from the center. you can impose so much austerity on these countries. >> which means you want germans -- >> you need some form of euro bond. basically you need common fiscal support in the monetary union. >> you need a federal system in a federal union, which is what they have. the problem is here we have states essentially. they're not really countries anymore, which can't borrow themselves. the interest rates are so high that it puts them into a crisis. doesn't give them the time for their economies to adjust, which takes years. you need some form of support, and the only way to do that is at the center. because that's not being provided, they had no alternative but to cut, and that makes the crisis actually worse. britain is a different situation. for us it was voluntary, and the result has been exactly what i had feared it would be. added to some really rather unfortunate shocks. i think the british government locked itself mistakenly into a five-year program, far too rigid. you need more flexibility sfwloosh basically what martin is saying is whatever the mechanics nichl that europe needed more stimulus and less budget cutting. is that fair to say? you are saying germany should have given the stimulus. >> they couldn't finance it. >> i completely agree with that, and i agree, again, that euro bonds were need and that more of the fiscal union was needed. the time for that was several years ago. the politics of this just get more and more difficult with every passing month. i completely agree that if you are going to be together in a union, it has to be a real union, an economic union, a political union, and europe is not there yet, and that's where we have this politics of fraying meantation. >> you wrote a color story about what you were going to see in europe was rising protests because of all knees budget cuts. >> you will be seeing increasing threats, not just in france but elsewhere. i think that the world is getting bumpier all the time. i'm particularly concerned about what happens in france and germany because if those countries go into recession, if their situation gets much worse, that's really what could potentially affect the u.s. >> germany, that's -- imf growth forecast says that even over the next five years, even germany's groelt is only going to be 40% of u.s. growth, and they don't predict very strong u.s. growth. the engine that was powering europe, is itself slowing down partly for demographic reasons. >> i think the main reason is it's not an engine. the problem is that germany is competitive, but the engine was always demand growth elsewhere because germany is so dependent on the growth of exports. >> germany is the china of -- >> germany has now insisted extraordinarily foolishly that everybody else in europe, and remember, the rest of europe is still far and away its biggest market. >> i think it's a foolish policy, and it's having exactly the consequences you would expect and the u.s. will, i think, without doubt unless they go crazy in the end of this year on these ludicrous fiscal cliff that the u.s. has planned for itself. unless something crazy happens, and i expect the u.s. to be the strongest large developed country over the next several years. >> martin wolf, rona, thank you very much. as always. when we come back, we have somebody who has written a book that defends the 1%. the case you haven't heard when we come back. 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"unintend the consequences" goes again the grain in arguing that the rise of the 1% is actually good for the 99%. the author says that contrary to what the occupy movement might say, inequality does have its benefits. ed connor is here to explain. he is a former managing director at bane capital. yes, he worked closely with mitt romney and is now one of his top doneors. he joins me now. so, ed, let's start by just -- explain to me why is the rise of the 1% good for the economy? >> sure. it's not really the central focus of the book. the book is about how to get the economy to groet faster. that growth in the long run is powered by innovation and risk taking and part of what the book argues is that the payoffs for risk taking are essential to getting more risk taking in this economy, and that that's good for the 34i8gdz class and the working poor. >> so you want -- you want people to invest, take risks with their capital so that you spur innovation? >> yes. although i think the economy has changed significantly from where it was in the 1950s when capital investment to build an automotive industry and a highway system were essential to growth to one today where 13 guys and a computer can create instogram, and it's powered more by risk taking than it is by the funding of investment. >> let me ask you about the kind of alternate view, let's say, that somebody like robert reich would present, which is the problem with our economy has become that because of this inequality, what you have is enormous gains going to the top 1%, and that they can't consume all that much. you can't at the end of the day you can't consume, you know, $5 million a year, $20 million a year that people are making, and that the result is that the economy lacks the kind of juice it would have if you had more middle class consumption than actually precisely what your law is celebrating, which is that the rich have all this money to spare is the problem that you have a deficit of consumption, sure, because you don't have middle class incomes and the wage is rising, and these guys, can't power the economy, and they are the 99%. >> it's classic argument made by many people, to be sure. i believe that the current recession stems from a mistaken diagnosis of the financial crisis and that has led to a reduction in risk taking and consumer demand and that until we change that diagnosis and reorient the financial sector, we will have a slow recovery. >> leaving aside the economics, do you see how the politics of this tone of the book is going to rub people the wrong way, because it sounds like sometimes you are saying, look, just let the 1% get richer and richer. they are making investments that are good for everybody, and it's you middle class folk who are actually not pulling your weight in the economy. >> well, the tone of the "new york times" article is going to get everybody antagonized, which i suppose is great because it will sell more books. it hardly says that the middle class is not pulling their weight. if anything, it says that the most talented people are not pulling their weight because they need to take more risk and find more innovation to accelerate the growth in the economy. >> how do you do that? >> he think one of the things you do is you don't reduce the payoffs for risk taking. how do you get people to take the risk that 99% of the time what they're trying to do is get to get pruned away, and they'll be set back as a result, and that's what we want to happen in our economy because the opportunity for innovation has changed dramatically. we're not exploiting the value of capitalizing and the value of cars today. we are 13 guys and a computer can create enormous value, so when it comes to what happens to the distribution of income in the economy, we need a million steve jobs. you know, getting one more of them or two more of them or three more of them in the short run causes some income inequality before we get enough of them where it changes course and goes in the other direction. i would say what's the priority? getting the economy to grow faster? getting more innovation to pump up employment and wages, or dampening down income inequality? i take the first over the second. that would be my priority, and i think it's beneficial to the middle class and the working poor. >> you worked with mitt romney for years. do you think he agrees with what's in this book? >> i think at the highest level he agrees with the book. he certainly celebrates entrepreneurialism, risk taking to produce innovation. the book covers a lot of ground. there's lots of counter intuitive, even controversial things in the book. there's nobody who agrees with everything that's in the book except perhaps me. >> what do you think of mitt romney as an executive? >> i thought he was an outstanding executive. he is everything that you would expect him to be, and it's hard to watch the cartoon portraiting on the tv. he is brilliant wrash he has a deep understanding of how business works. he is great at consensus building. he is decisive when he needs to be decisive. he surrounded himself with the most capable people. he encouraged those people to challenge him and to challenge each other because there was enormous preparation when you went into the room to talk to him, and he had the highest level of integrity. he was only trying to do what was best in the long-term. >> but when you watch this guy on the campaign trail, particularly in the primaries, would they make you wince? >> i think he does a great job, but let's be clear. he didn't spend his life making political speeches to the people. he spent a lot of time around a table like this with five or ten decision makers trying to get to the truth of a matter and make a very complex and difficult decision. he is not as practiced in that area as he could be if he had been a politician his whole life. >> so if he is as brilliant and has so much integrity, explain to me how he could at that republican debate when told if you could close the deficit and you would get $10 of spending cuts for $1 of tax increases, would you take it? and he said no. i mean, you know the math. surely the mitt romney you are describing understands that you can't close this deficit without more revenues. >> i say two things. the first is i don't speak for mitt romney. i speak for myself. i put forward my argument. the person who has to answer that question is obviously mitt romney. >> are there tough trade-offs to be made? of course, there's tough trade-offs to be made. does he understand that? i'm sure he understands it. my view would be we would be lucky to get him to be making those tough tradeoffs because he would make them with more integrity and mosh drive for the truth than almost anybody i have ever worked with. >> pleasure to have you on. >> thank you. up next, what in the world? china scandals and how the past is changing the present in beijing. when we come back. tdd# 1-800-345-2550 let's talk about fees. tdd# 1-800-345-2550 there are atm fees. tdd# 1-800-345-2550 account service fees. tdd# 1-800-345-2550 and the most dreaded fees of all, hidden fees. tdd# 1-800-345-2550 at charles schwab, you won't pay fees on top of fees. tdd# 1-800-345-2550 no monthly account service fees. tdd# 1-800-345-2550 no hidden fees. tdd# 1-800-345-2550 and we rebate every atm fee. tdd# 1-800-345-2550 so talk to chuck tdd# 1-800-345-2550 because when it comes to talking, there is no fee. fight both fast with new tums freshers! concentrated relief that goes to work in seconds and freshens breath. new tums freshers. ♪ tum...tum...tum...tum... tums! ♪ [ male announcer ] fast relief, fresh breath, all in a pocket sized pack. at bank of america, we're lending and investing in communities across the country. from helping to revitalize a neighborhood in brooklyn... financing industries that are creating jobs in boston... providing funding for the expansion of a local business serving a diverse seattle