(CNN) -- President Obama joined CNN's Anderson Cooper on Tuesday to discuss the withdrawal of Tom Daschle as health and human services secretary-designate and the state of the U.S. economy. Here is a transcript of the interview:

CNN's Anderson Cooper interviews President Obama at the White House on Tuesday.

Cooper: Thanks very much for sitting down with us today. Explain what happened today, Tom Daschle, you've let one of the most important domestic issues, which is health care, get caught up in what looks to many Americans like politics as usual.

Obama: Well, I think what happened was that Tom made an assessment that having made a mistake on his taxes that he took responsibility for, and indicated was a mistake, made the assessment that he was going to be too much of a distraction in trying to lead what is going to be a very heavy lift, trying to deliver health care.

And...

Cooper: Do you feel you messed up in letting it get this far? Watch the full interview »

Obama: Yes. I think I made a mistake. And I told Tom that. I take responsibility for the appointees and...

Cooper: What was your mistake, letting it get this far? You should have pulled it earlier?

Obama: Well, I think my mistake is not in selecting Tom originally, because I think nobody was better equipped to deal both with the substance and policy of health care. He understands it as well as anybody, but also the politics, which is going to be required to actually get it done.

But I think that, look, ultimately, I campaigned on changing Washington and bottom-up politics. And I don't want to send a message to the American people that there are two sets of standards, one for powerful people, and one for ordinary folks who are working every day and paying their taxes.

Cooper: Do you feel you've lost some of that moral high ground which you set for yourself on day one with the...

(CROSSTALK)

Obama: Well, you know, I think this was a mistake. I think I screwed up.

And, you know, I take responsibility for it and we're going to make sure we fix it so it doesn't happen again.

Cooper: Let's talk about the economy, the stimulus. Every day you get an economic briefing, along with an intelligence briefing. Which to you is more sobering? The economic news you get or the national intelligence?

Obama: Well, look, the national security briefing is always sobering because my most important job is obviously keeping the American people safe. And we have to remain vigilant; the threats are still out there.

But I will tell you in terms of what is alarming right now is how fast the economy has been deteriorating. I think even two or three months ago, most economists would not have predicted us being in as bad of a situation as we are in right now. And...

Cooper: It keeps a lot of Americans right now up at night, does it keep you up at night?

Obama: Absolutely. It keeps me up at night and it gets me up...

Cooper: Literally?

Obama: Literally, because we've got a range of different problems and there is no silver bullet. We're just going to have to work our way through the problem. So, No. 1, we've got to have a recovery package that puts people back to work and ensures that states that are dealing with rising unemployment can deal with unemployment insurance, can provide health care for people who have lost their jobs.

So that's one set of problems. Then you've got a banking system that has undergone close to a meltdown. And we've got to figure out how do we intelligently get credit flowing again so that small businesses and large businesses can hire people and keep their doors open and sell their products.

And you know, part of the problem, unfortunately, is that the first round of TARP, I think, drew a lot of scorn. You know, we learned -- you know, we've now learned that people are still getting huge bonuses despite the fact that they're getting taxpayer money, which I think infuriates the public.

So we also have to set in place some rules of the road. And tomorrow [Wednesday] I'm going to be talking about executive compensation and changes we're going to be making there.

Even after we get that done, we still have to get a financial regulatory system in place that assures this crisis never happens again. And we've got to do this in the context of a world economy that is declining, because in some ways the Europeans are actually doing at least as badly as we are.

You've even seen China, which has been growing in leaps and bounds over the last two decades, starting to decline. So trying to do all of those things on parallel tracks at a time when people are scared and legitimately so, I think is going to be a big challenge.

I think we're up to the challenge. But it's going to take some time and I think the American people recognize that.

Cooper: On executive compensation, Paul Krugman suggested in The [New York] Times on Sunday that your tough talk may be just for show. What can you really do?

Obama: Well, I think, you know, we'll talk about it tomorrow, but we're going to be laying down some very clear conditions in terms of where...

Cooper: Do you support [Missouri Democratic Sen.] Claire McCaskill's idea of capping...

Obama: Well, I -- again, I don't want to completely pre-empt my announcement tomorrow.

Cooper: You could here.

(LAUGHTER)

Obama: But I think there are ways -- there are mechanisms in place to make sure that institutions that are taking taxpayer money are not using that money for excessive executive compensation.

And I think that when you see the announcement that we make, people will say, this is a reasonable approach. It's not a government takeover.

Private enterprise will still be taking place. But people will be accountable and responsible. And that's what we have to restore in the financial system generally.

Cooper: On the stimulus plan for you, what is non-negotiable with Republicans?

Obama: The unemployment insurance, health care for people who have lost their jobs, you know, providing some relief to the states on those fronts, and providing families relief, that's very important.

Infrastructure investments that lay the groundwork for long-term economic growth, I think, is critical. You know, so, for example, when we say we're going to weatherize 2 million homes, that's not just make-work.

First of all, you can employ people weatherizing those homes. We are also then saving families -- individual families on their energy bills, but the third thing is, it's making this country less dependent on foreign oil.

So the same is true for health IT, the same is true when it comes to education. We want to train thousands of teachers in math and science, and invest in science and technology research.

All of those things will make us more competitive over the long-term. What I do think is negotiable is some programs that I think are good, good policy, but may not really stimulate the economy right now.

Cooper: How did they even get into the bill in the first place? I mean, why did they get this far?

Obama: Well, I understood -- you know, there are 535 members of Congress who have their own opinions.

Cooper: Do you think some of the House Democrats went too far?

Obama: You know, I think that if you look at -- first of all, I think, in fairness to the House Democrats, and this hasn't been talked about enough, if you tally up all of the programs that have been criticized on "AC 360" or anywhere else, that amounts to less than 1 percent of the total package.

So they actually were remarkably disciplined considering the size of this package. We've -- they left out, at my request, all earmarks, so there aren't private pet projects. And by the way, many of the critics of the current package can't say that about any of the budgets they passed over the previous six or eight years.

Cooper: But this is what American people are hearing about, whether rightly or wrongly. And I mean, did the Republicans beat you on selling this? On selling the message? Did you lose the message?

Obama: Well, no, no. I don't think we've lost the message. That's why I'm here with you. Everybody is going to be watching me talk to you today. But I think that the American people understand something has to be done.

They want to make sure that we're serious about it, and that we're not using this to promote politics as usual. And that's what I'm insisting on. You asked earlier, do I lose sleep? Look, the only measure of my success as president when people look back five years from now or nine years from now is going to be, did I get this economy fixed?

I have no interest in promoting a package that doesn't work. Because I'm not going to be judged on whether or not I got a pet project here or there, I'm going to be judged on, have we pulled ourselves out of recession?

I think the members of Congress understand that as well. I don't question the sincerity of some Republican critics who may think that they can do better on this. And I'm happy to negotiate with them if they've got better ideas. I'm happy to do it.

What I won't do is in some cases, some of the criticism has suggested that the better approach would be to do exactly what we did over the last eight years that got us into this problem in the first place.

There is going to be some differences ideologically or in terms, you know, recipes for how to fix the economy. And, you know, those differences we can live with. But I think -- I still think we can arrive at a package that works for the American people.

Cooper: So, five years or nine years, which one are you hoping for right now?

(LAUGHTER)

Cooper: Based on what you've seen so far?

Obama: You know, listen, you want to be president when times are tough, because, you know, I didn't do all of this just to occupy this fancy office. I did -- I came here to change things.

Cooper: I've noticed you don't use the term "war on terror," I think I read an article that you've only used it once since the inauguration. Is that conscious? Is there something about that term you find objectionable or not useful?

Obama: Well, you know, I think it is very important for us to recognize that we have a battle or a war against some terrorist organizations. But that those organizations aren't representative of a broader Arab community, Muslim community.

I think we have to -- you know, words matter in this situation because one of the ways we're going to win this struggle is through the battle of hearts and minds.

Cooper: So that's not a term you're going to be using much in the future?

Obama: You know, what I want to do is make sure that I'm constantly talking about al Qaeda and other affiliated organizations because we, I believe, can win over moderate Muslims to recognize that that kind of destruction and nihilism ultimately leads to a dead end, and that we should be working together to make sure that everybody has got a better life.

Cooper: Final questions, just a quick lightning round, just a couple of fun questions. What's the latest on the dog search?

Obama: We are going to get it in the spring. I think the theory was that the girls might be less inclined to do the walking when it was cold outside.

Cooper: Portuguese water dog? You don't know yet?

Obama: You know, we're still experimenting.

Cooper: Coolest thing about your new car?

Obama: You know, I thought it was the phones until I realized that I didn't know which button to press. That was a little embarrassing.

Cooper: Have you had a cigarette since you've been to the White House?

Obama: No, I haven't had one on these grounds. And I -- you know, sometimes it's hard, but, you know, I'm sticking to it.

Cooper: You said, on these grounds, I'll let you pass on that. And final question, you've read a lot about Abraham Lincoln. What is the greatest thing that you've learned from your studies of Lincoln that you're bringing to the office right now?

Obama: You know, when I think about Abraham Lincoln, what I'm struck by is the fact that he constantly learned on the job. He got better. You know, he wasn't defensive. He wasn't arrogant about his tasks. He was very systematic in saying I'm going to master the job and I understand it's going to take some time.

But in his case, obviously, the Civil War was the central issue, and he spent a lot of time learning about military matters, even though that wasn't his area of experience.

Right now I'm learning an awful lot about the economy. I'm not a trained economist, but I'm spending a lot of time thinking about that so that I can make the very best decisions possible for the American people.

Cooper: Mr. President, thank you very much.

Obama: Thank you. Appreciate it.

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