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SYNOPSIS:

DIONNE: Good to be with you.

OLBERMANN: As we mentioned, more than a third of the $787 billion stim comprised of tax cuts in various forms. Some $282 billion worth. In comparison, the bill devotes $100 billion to public works, $50 billion to transportation projects. So of the more detailed items in the stim, more than $87 billion to help states with their Medicaid costs, education and job training $69.2 billion, extending unemployment benefits, $35.8 billion, health coverage for the unemployed under COBRA, just over $25 billion, food assistance nearly $21 billion. Incentives to modernize health records, as President Obama has talked about in his speeches, $17.2 billion. Sill, many prominent economists worrying and warning that even a $787 billion stim might not prove large enough, not sweeping enough, to jump start the massive and stalled U.S. economy. One of those economists kind enough to join us now. Nobel Prize winning economist Paul Krugman of Princeton University and of course the "New York Times." Once again, Dr. Krugman, thanks for your time tonight.

PAUL KRUGMAN, PRINCETON UNIVERSITY ECONOMIST: Great to be on.

OLBERMANN: You warned last month when this was still about $800 billion it wasn`t enough. Now it is less. How not enough is it now?

KRUGMAN: Well, you know, there`s maybe $600 bill of real stimulus in this bill now. With all the stuff that was stuffed in, the stuff that was taken out. And the Congressional Budget Office says we are going to face a gap, a hole in the economy of $2.9 trillion over the next three years. You are basically trying to bridge a more than $2 trillion gap with $600 billion of real stimulus. It is, you know, it is a help but it`s not enough.

OLBERMANN: Before we look at what might be next or what we might look for in terms of success, what the milestones might be, the particulars of what is here now, what pleases you and what is part of the $200 billion that doesn`t seem to have stimulative effect in your opinion?

KRUGMAN: Just about all of the spending looks like good stimulus. You can argue whether your priorities would have been exactly the same. But the aid to state governments is really important. The infrastructure spending is really good. The aid to education, the aid to health care and unemployment benefits. Those things are all going to both mitigate the pain of this thing, they are going to help people who are in trouble and help institutions in trouble and they are also stuff that is going to be spent. So it is actually going to do a lot to help prop up the economy. The tax cuts range from eh to really terrible. Making work pay, the Obama tax cut is kind of eh. It is not a great policy, but, okay, it was a campaign promise. It will probably do something. The alternative minimum tax patch, that doesn`t belong in this bill. It`s not stimulus. Some of the other things. The home purchase tax cut. That`s not going to do stuff. Basically, the spending is all good. Half of the tax cuts are not good, but not terrible. The other half of the tax cuts nothing much at all. That is where we are. The sum of it all is it is not a very good -- actually, it is not a bad bill given sausage making and politics, it is not a bad bill at all. But the actual meat in the sausage is not enough to feed us in this famine.

OLBERMANN: So let me jump ahead to what would be next? Is there going have to be a second stimulus of larger focus? Are we learning from FDR in 1937, don`t take the foot off the gas?

KRUGMAN: Yeah. I`m almost sure that we`re going to have to come back for more. And the question is will those three Republican senators come to more. Is it possible, now it comes to parliamentary procedure to put something in an appropriations bill so it isn`t subject to the filibuster. But yeah, it is very likely there will be a stimulus 2.0 to deal with this.

OLBERMANN: What -- give me one understandable to the non-economist measure that will give us some hint that this is having a good, positive, more than doing nothing effect in the near future?

KRUGMAN: Oh, boy. You are chasing a moving target. The economy is heading down steeply. What this bill is going to do probably is make it head down not quite as steeply. It is not going to be a roaring recovery from this bill. It is not going be roaring recovery, probably anything we do. You are looking for seeing some of the infrastructure projects start. That will be good to see. You will be seeing states that have been warning of dire, dire budget cuts will relent on some of the things they were going to have to do otherwise. But it is not going to be morning in America any time in the next two years.

OLBERMANN: Last point, it is really almost not pertinent to the stimulus itself.

KRUGMAN: Right.

OLBERMANN: But has any of the criticism this thing hit surprised you more than the selling of the idea that FDR caused the Great Depression?

KRUGMAN: You know, that`s been out there. There is a little bit -- some of the guys on the right seemed to think FDR had a time machine and went back to 1929 and made it happen. I guess the expectations of FDR`s coming caused it. It is awesome. Well, you know, history is a battlefield.

OLBERMANN: Well, when Churchill caused Macbeth to abdicate.

KRUGMAN: Right.

OLBERMANN: The Nobel Prize winning economist Paul Krugman, it`s always a pleasure and an education at the same time. The stim saga dovetails tonight with three other tales of truth. We still have the two Republicans boasting of what they got in it though they denied input to it and they didn`t vote for it. Then there is Senator Burris and what he said about talking to the governor`s brother. Might not be perjury, but it is sure as heck is not the truth. Then there is Betsy McCaughey who brings us back to the stimulus and her efforts to set off Republican paranoia about its healthcare aspects and the claim that she is not a paid shill for the pharmaceutical and medical industries even though it turns out just days before she wrote an article smearing the stim she received more than $11,000 in stock options from a medical products company. Oops.

Originally broadcast, 2.16.09