SYNOPSIS: Krugman discusses with Brian Williams whether the economy will finally recover and jobs will be created. This appearance is part of Krugman's The Great Unraveling promotion tour

BRIAN WILLIAMS, anchor: So just what should we read in--in today's news? By day, Paul Krugman is a professor of economics and international fares at Princeton. But he is perhaps best known, these days, of course, for his biweekly Op-Ed columns in The New York Times. He's also the author most recently of the book "The Great Unraveling, Losing Our Way in the New Century." And he has been kind enough to join us from New York this evening. First off, are you impressed by the latest set of economic numbers? The administration is saying, 'We told you so. Here it comes.'

Mr. PAUL KRUGMAN (The New York Times Op-Ed Columnist): Impressed is not the word. Relieved, this is better than we expected. It's--you know, for the first time in a long time, the economy is creating almost enough jobs to keep up with the growth in--in the working-age population. So that's better than we've been seeing. But you have to remember, this is--you know, we're down about 2.3 million jobs since--since Bush took office. The--we need to gain about 150,000 jobs a month just to keep even with--with the fact that there are growing numbers of people looking for jobs. So this is stabilization. It isn't really a turnaround. It might be the start of something better; it might not. But it's--you know, it's--it's--it's better news than we expected, but not something to start celebrating about yet.

WILLIAMS: As I need not remind you, I guess. You are the anti-darling of the Bush White House crowd...

Mr. KRUGMAN: Yeah.

WILLIAMS: ...these days. Even if all the current economic numbers and indicators were good, your view of--of what you constantly talk about and that is the long-term damage that in your view this president has caused.

Mr. KRUGMAN: Well, sure. We have--look, let's--let's put in this perspective. During the Clinton administration, on an average month, the economy added 225,000 jobs. So we're not--we're not seeing stellar performance on that front. And, meanwhile, we are running up enormous deficits. I mean, everybody--just about everybody who is on the administration payroll is now terrified by the US budget deficit. Alan Greenspan has been suddenly starting to talk very alarmed. The London Economist, which endorsed Bush in the 2000 election is saying--now talking about the mess he will leave behind. So this is--we shouldn't let the few months of good numbers hide the fact that we are actually looking at a--a tide of red ink that is really very frightening.

WILLIAMS: And yet, Professor, to that argument, a lot of people come back with three answers, 9/11, 9/11 and 9/11 that stopped the nation's clock a lot like it stopped the clocks that were found in the wreckage. And it gave us day one of the new world. Are the deficits defensible in light of what happened to this nation?

Mr. KRUGMAN: Let's put it this way. This president did something that no American president has ever done which is to cut taxes in the face of a war. So if you ask, 'Well, don't wars always bring deficits?' The answer is yes, but you kind of expect some shared sacrifice and some attempt to pay for it. And if you do the numbers, it turns out that Homeland Security, everything you can put under that rubric is maybe 30 billion a year, that if you look at the Iraq war, what we know about that, and it's a lot of money. But the tax cuts, the Bush tax cuts will, according to Congressional Budget Office estimates, add $270 billion to this year's deficit. So if you ask where are the deficits coming from, the--the tax cuts top the list. And it's not about 9/11. And those tax cuts are permanent. That's a permanent loss of revenue.

WILLIAMS: And yet I'm guessing if the Bush folks were here, they would say, 'Well, two things. Number one, we ran on it. And number two, we think the American people are stuck under a withering system of taxes, and that has to be considered absent what has happened to our nation since.'

Mr. KRUGMAN: Well, they ran on the promise that they could cut taxes and at the same time safeguard Social Security and Medicare. And if you run the numbers now, and many people have done this, given the current level of revenue, they can't. That is, we're looking now at a level of revenue collection by the federal government, which is way short of what's needed to pay for Social Security and Medicare as the baby boomers start to hit retirement age. And if you say it's a withering level of taxes, well, you know, only about 20 percent of all of these tax cuts can be considered to do anything for the middle class. The great bulk of it is tax cuts for very high income people. And that's--you know, again, this is just not--what this is, it's a process of starving the government of revenue that it needs to pay for middle-class programs with the great bulk of the benefits going to people at the very top of income distribution.

WILLIAMS: Professor, regardless of ideology of your audience and those watching tonight and how they feel about you, it can be said with certainty you have blasted your way with--with great speed into fixture status on the New York times Op-Ed page. And good luck with the book. Thank you very much for joining us this evening.

Mr. KRUGMAN: Well, thank you very much for having me on.

WILLIAMS: Thanks, Professor. Up next, Rosie O'Donnell and the court fight, a fortune is at stake tonight. We'll tell you what happened today when she took the stand. Later, one of the nation's most influential television critics on what to watch during this critical ratings period. Stay with us.

Originally broadcast, 11.7.03