Just like Jeb Bush, Sen. Rand Paul of Kentucky is a legacy candidate for president. He has hoped to hold the libertarian political base of his father, former Rep. Ron Paul of Texas, and expand its appeal within the Republican Party and with the broader electorate. In the wake of Mitt Romney's 2012 defeat, Paul initially garnered considerable attention in the Senate. In the name of privacy, he battled the Obama administration over national security surveillance practices. In the name of fairness, he reached out to African-Americans and criticized "big government" police practices in poor communities.

Yet Paul has struggled for traction on the 2016 campaign trail. He has drawn fire from some libertarians for seeming to grow more hawkish as the threat from the Islamic State group in the Middle East loomed larger. While he vows to shake up Washington and junk the IRS code in favor of a 14.5 percent flat tax, he has watched iconoclastic candidates Donald Trump and Ben Carson, neither of whom has held elective office, seize headlines and top positions in Republican polls.

Paul sat down to discuss the campaign with me at a Washington restaurant. What follows is a condensed, edited transcript of our conversation.

HARWOOD: I was talking to one of your colleagues, who said you've gotten yourself into a no-man's land between the libertarian movement and your party. The climate changed, and you got a little more hawkish, and so people thought you weren't following the nonintervention line. And unlike Ted Cruz, you're not willing to burn down the Capitol.

PAUL: I don't think that's actually true. I think if you look at my performance and strength in a general election, we're actually stronger than any other candidate, and stronger than we've ever been. You've got to get through a primary to get to a general election. But I think I attract people who are independent more so than any other candidate. In fact, when they polled me against Hillary Clinton in five battleground states won by President Obama, I'm actually able to beat her in all of these battleground states.

I don't think anyone questions that I'm the least likely of all the candidates to take us to war. I also have been the biggest critic of our foreign policy, in the sense that, both under President Obama and under the previous president, we've done things, interventions, that have led to untoward results. For example, why are we bombing anything in Afghanistan? What is the mission and why are we there? The right, the neo-cons, complain, "Well, President Obama's not doing enough." And my complaint is, "Why are we still there at all? Why are we involved with a war in Afghanistan when we've put more money into Afghanistan than the entire Marshall Plan?"

I think the difference between (Cruz) and I is not necessarily in resolve towards opposing either leadership or what goes on. Because I've opposed every spending bill. There is a difference, somewhat, in attitude and how I treat others. I don't think that it's appropriate to use the Senate floor to call someone a liar. And while I've had my disagreements, I try to keep it on a more gentlemanly exchange of ideas.

Right now, neither him or myself have been able to win victories. What we've been able to do is to try to point out, and I think the public is siding with those of us who want Congress to control the power of the purse — not to give up our power of the purse and just say, "Oh, well. We can't do anything."

Rand Paul speaks with CNBC's John Harwood. Qin Chen | CNBC

HARWOOD: What is the meaning, in your view, of the rise of Donald Trump this year? What does that tell us about the Republican Party? PAUL: I think it shows you that we do live in a celebrity culture. And when a celebrity decides to run for office, particularly, there's what I would call a self-reinforcing news cycle. Everywhere you look, all day long, he's on TV. And people can say, "Well, that's because he's popular and people watch him. So TV will put him on more." I don't think it necessarily is helpful to the country, because I don't think having a reality TV star probably is going to be best for the country.

I worry very much about someone who is so self-absorbed with their own importance and their own ability to figure out problems, that it's sort of like, "Give me power." You know, if you give me power, I am so smart and I am so rich that I will fix all of America's problems. Because we've had times in the past when people got too much power, that then the power's used in sort of — it's meant to be benevolent, but it turns out not to be so benevolent. that is the struggle of our country, and really, the struggle of nearly 1,000 years, beginning probably with the Magna Carta on, is the struggle to limit government. I don't think he's part of the movement to limit government. He's part of his own movement.

HARWOOD: I read the other day on the Fox website from someone sympathetic to your movement, Jerry Taylor from the Niskanen Center — the title of his piece was, "The Collapse of Rand Paul and the Libertarian Moment that Never Was." He said libertarians like himself need to face up to the fact that the movement has always been leavened with what he called a pony keg of crazy, and that Donald Trump offers more crazy than Rand Paul.

PAUL: I disagree with the title.

What I would say, probably, is, right now, his megaphone is bigger. So he's able to attract more people to a superficial aspect of his philosophy that might appear similar. But I don't think we end up being very similar. For example, he supported President Obama's stimulus package. I think it's a terrible idea. He supported the bailing out of the banks by the government. Terrible idea.

One of the most noxious things that he supports is that he supports using eminent domain to take private property from individuals and give it to big corporations like his. That is so antithetical to everything about the conservative movement. eventually, when that knowledge gets out that Donald Trump is a big lover of eminent domain, particularly when it enriches himself, and people would say, 'Well, you know, at first I liked the braggadocio. I liked all that. But you know what? Now that I found out that he's really a fake, or that he's not a real conservative, I'm going to rethink it.'

HARWOOD: Do you not think the libertarian movement needs to rethink the breadth of its appeal?

PAUL: No, not at all. I remember in the 1980s, you know, when my dad ran as the libertarian candidate, the word libertarian was scary to people. Now I think it's the opposite. I meet people all the time who are liberals, but they'll come up and say, "You know what, I'm a little libertarian on this issue and that issue." Or I meet conservatives who say, "You know, I'm a little libertarian."

And so it's actually, I think, it's seen as a badge of honor now, and actually, as a term that people don't want to run away from. I think it's a good thing, but as it became a good thing, it's a term now that a lot of people put their own feelings into what they think libertarian is. It's brought a lot of different people into the movement. But I don't think it's a bad thing. I think it's actually transforming towards a bigger movement, not a smaller movement.

For example, if you ask people under 40, "Did the government go too far in collecting our phone records," 83 percent say yes. I'm the candidate that's saying that. I'm the candidate defending the right to privacy. So I think what you're finding is, those people under 40 need a candidate.





Not every libertarian is the same. And in fact, I mean, if you look online, the libertarians squabble like no other group. And that's why one reason that inhibits their growth is there's so much squabbling. No one seems to be the perfect libertarian. I know that because I've been accused of not being the perfect libertarian. But I think when you look at libertarianism as a general philosophy, I think that people are actually in favor of it. Less war, more privacy, more 'Leave me alone.' Rand Paul

HARWOOD: The libertarian party platform, reaffirmed last year, calls for phasing out Social Security. I know you don't call for that. But if a movement is identified with that goal, that's on the wrong side of the public, isn't it?

PAUL: Not every libertarian is the same. And in fact, I mean, if you look online, the libertarians squabble like no other group. And that's why one reason that inhibits their growth is there's so much squabbling. No one seems to be the perfect libertarian. I know that because I've been accused of not being the perfect libertarian. But I think when you look at libertarianism as a general philosophy, I think that people are actually in favor of it. Less war, more privacy, more "Leave me alone."

On Social Security, ideally there would be a private system. But we now have a government system and have had it for 60 or 70 years. We should try to fix the program. And I think there are really ways of fixing the program. But what you'll find in Washington, Democrats are absolutely opposed to any fix. Most Republicans are afraid of the fix.

Everybody knows what the fix is. We're living longer. You've got to raise the age. I'm all for adding a private component to it. There's a great example: In Galveston, Texas, they opted out in 1983. They have made buckets of money. And if you compare a private pension in 1983, even with the ups and downs of the stock market, they've made, you know, great multiples of what Social Security has made.

The public is not ready to just wipe out Social Security. But I think the public would be ready to say, "Could we have an additional thing, a private account, where you could save some privately?" The other thought I've had is, instead of privatizing, what about individualizing? What if, you know, people are used to 401(k)s. You have your number and your account. You can sign on. And that's your money.

HARWOOD: Talk about tax policy for a second. You're for a flat tax. Critics say: 'regressive, would add to the deficit.' What have we seen in the last generation that makes us think a flat tax is achievable?

PAUL: I've done three five-year budgets that balance with significant tax cuts. So not only would I cut money that goes into government, and I've had critics on the conservative side say, "Well, government would be $3 trillion short." Well, let's cut government. I want a much smaller government. I want a federal government that does a lot less in Washington. And we send most of that power back to the states, into the private economy.

The majority of Republicans want revenue-neutral tax reform. And I tell people, "If that's what we're for, I'm going home." Because that means half the country will pay more, half the country will pay less. And the net effect is zero. They want to simplify taxes. But they don't actually want to lower the burden and make government smaller.

It won't happen with the same people. So what you have to have is a wave of new people. In 2010, there were, like, 80 some odd new congressmen. only if I were the nominee and win the presidency, only if someone who is dramatically willing to change government, to stand up to big government and actually change it, if that person were elected, that means that a majority of the public wants that.

HARWOOD: So you need Mitch McConnell, John Cornyn, John Boehner, Kevin McCarthy — you need those people out of there, and a whole new group?

PAUL: I think that turnover's a good idea. I've been in favor of term limits since I began. People get beaten down by the system. And the longer people are here, the less likely they will be involved in change. There's enormous amount of inertia.

Its even the people who want to fix it. (Government) is just so big. You push on it, and it pushes right back and nothing happens. I don't try to make it individualized. When I was running, people would always say, "Oh, what about Mitch McConnell?" My dad was here a long time, too. But I would include him in it, even though I think he was one of the best up here. It only works if it's everybody.





If you ask Ben Bernanke or any of the other so-called free-market economists whether or not they're for price controls of eggs or potatoes or bacon, they'll say, "Oh no, price controls cause a distortion. They lead to shortages or abundance or food rotting on the shelves." But then you ask them about money and they're like, 'Oh no, we should control the price of money.' It's a fallacy in their argument. If price controls are bad for the market, they're also bad for the money. Rand Paul

HARWOOD: Ben Bernanke, former Fed chair, came out with a book recently. He said he regrets, and thinks it was wrong, that nobody on Wall Street went to jail for what happened in the financial crisis. Do you agree with that? Another thing that Bernanke has said is that he was a Republican, appointed by George W. Bush, but he no longer is, because Republicans have given into know-nothingism. And he was talking about people who, like you, who want to audit the Fed.

PAUL: I think he should also admit that he was part of the problem and that his policies led to a great deal of this, too. Both he and Greenspan are part of the same philosophy, so I see them as the same person. As the economy grows and is growing faster and faster, there's more bidding for the money. The price of the money should rise, and it counterbalances. In medicine, we call this homeostasis. You eat a meal, your blood sugar goes up, insulin goes up. But if you take that feedback loop out, and you fix it below the market rate, what do you get? You get a boom. And that's what we got. This was not a fault or a defect in capitalism. It was the Federal Reserve controlling the price of money — that led to this boom. Nothing to do with greed. The one universal feature that was everywhere throughout the economy that was a distortion — it's interest rates.

People should be punished. And they should be punished in a variety of ways. The one way they should be punished is, when you make bad decisions, you should go bankrupt. So it's infuriating to me, people in the tea party movement, that people making $100 million a year didn't miss a beat. They drove their bank into bankruptcy, and then they came back the next day, and they're making $100 million the next year. The other thing that annoys us is this rotating door between Wall Street, the Treasury, and the Fed. It's the same people. They're all related to each other — they could be cousins for all I know. It's another reason why we should audit the Fed. Because if the Fed lets one bank fail and lets another one survive, did they know anybody on the board? Is someone's brother's wife on the board? If you ask Ben Bernanke or any of the other so-called free-market economists whether or not they're for price controls of eggs or potatoes or bacon, they'll say, "Oh no, price controls cause a distortion. They lead to shortages or abundance or food rotting on the shelves." But then you ask them about money and they're like, "Oh no, we should control the price of money." It's a fallacy in their argument. If price controls are bad for the market, they're also bad for the money.

Let's have a debate about what's best for the economy. He's going to have to defend the policy that led to the expansion of the-home building, and that led to a precipitous crash. They were wrong. They've been wrong about everything.

HARWOOD: I interviewed Marco Rubio the other day. He said that, on Syria, he supports a no-fly zone and was willing to use force against Russian airplanes, if necessary, to enforce that.

PAUL: Terrible idea. We are really lucky he was never president during the Cold War. Reagan avoided a Cold War by, one, not setting red lines like that, continuing to have open communication with the Russians, having a strong enough defense to repel attack and to worry the Russians. But we did not try to get involved with an altercation with them.

You know who invited them there? Syria's invited them there, and so has Iraq. This is where the Rubios and the McCains of this world need to re-examine history. When you look at what happened in Iraq, we spent a trillion dollars, we toppled Saddam Hussein. Who is their number one ally now? Iran. Who is Iran and Iraq allied with? Russia. Who gave Russia permission to fly over them to bring the equipment in? Iraq.

Just this week, Iraq has said that they welcome Russia there and they want Russia to be bombing targets in their country. And so what are we going to do? We're going to declare war against Russia and put them out? Setting up a no-fly zone is a recipe for disaster. It's a recipe for confrontation. And people will say, 'Well, we've got to choose sides.' Why? Assad's a bad person and so is ISIS, but we shouldn't be involved in the civil war over there.

I think it depends on what people want. If you want a glad-hander, and you want unctuousness and falseness, Bill Clinton's perfect for you. And so it's funny — people say, 'Bill Clinton was such a great communicator.' But the second I see him, I see falseness. He's the guy that can cry on cue, and stop it on cue. That, to me, is a real false nature. Rand Paul on whether his personality is a good fit for campaigning