SYNOPSIS: In a second interview with Brian Williams (read the first one from 11.7.03 here), Krugman discusses whether the economy will finally recover, the Republican Medicare bill, and the new (far worse) tone in Washington. This appearance is part of Krugman's The Great Unraveling promotion tour

THOMPSON: Working to profit from the new signs of strength in the economy.

Anne Thompson, NBC News, New York.

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WILLIAMS: By dint of his national regular platform, Paul Krugman has become one of the most influential economists in the world these days. A professor at Princeton and an op-ed columnist at "The New York Times," he is also the author of the recently published book, "The Great Unraveling: Losing Our Way in the New Century." Paul Krugman has been kind enough to join us this night before Thanksgiving from Princeton, New Jersey. And Paul, I need not tell you, conservatives, a lot of fans of this administration, for whom your column has become the place they love to hate, are sitting around looking at the Beige Book and the new numbers out, saying, Well, what is Krugman going to say about this? What do you say about all the evidence?

PAUL KRUGMAN, "THE NEW YORK TIMES": It's definitely upturn. I mean, you can't, you know, what do you say? It looks good. It doesn't look great yet. (UNINTELLIGIBLE) we need a lot more before you're willing to say, Gee, it's really great stuff. But it's a lot better than I expected. I think it's better, really, than anyone expected. We still don't see employment gains that would really make a big dent in the unemployment rate, and, you know, we have a lot of lost ground to make up. But it's definitely an upturn. You know, what I would say, for -- as someone who criticizes, that look, this really wasn't about the short-term business cycle. It's the long-term budget deficit. Even if Bush gets an equivalent of Reagan's morning in America, which was six quarters of growth at about the rates that we had in the third quarter of this year, that wasn't good enough. It turned out that there was a lot of problems with buildup of debt. But look, it's better, and I've got relatives looking for jobs, and, you know, this is good, better, much better than what we feared might happen.

WILLIAMS: And about the pendulum theory of American politics, yes, big deficits were driven up, and then a president came along who matched the kind of -- the times and the economic thirst out there to fix it, and it got fixed, and we're entering now a more military cycle. Do you have faith in that, that there's a kind of a natural chain of events that will work its way out?

KRUGMAN: No, and I think nobody who is really working on this stuff seriously, who isn't basing it on payroll, thinks it's OK. This is very different. First, well, we got very lucky in the '90s. It wasn't just growth, and it wasn't just good policies, it was also a stock market bubble. We don't quite understand, actually, how we did so well. And the other thing is, we -- you know, Reagan ran up big deficits, Bush is running up big deficits. But the baby-boom generation is 20 years older now, which means that the big claims for Medicare and Social Security are just over the horizon now. They're going to start hitting in about seven years from here. And that means that we don't have the room for maneuver. So a lot of people, even people who are very optimistic about economic growth in the next year or so, think that we have a very, very serious fiscal reckoning coming in the not-too-distant future.

WILLIAMS: You can't talk about money, especially this week, without mentioning what happened on Medicare, especially in the Senate. And I think it's fair to say, without being partisan at all, that the tragedy of it was, no one left for home during the recess happy. There were no real fans of this bill. What, in your mind, is the best part of this first big fix for Medicare since it was invented in '65?

KRUGMAN: Oh, boy, I'm not sure there are any particularly good parts. It's -- it really, you know, if a camel is a horse designed by a committee, this Medicare bill is a Medicare bill designed by a committee whose members all hate each other. I mean, the weird thing about this bill is that nobody, nobody likes it at all, and not because it's got -- it's compromise, but because everybody designed it in the hope that they were going to pull something over on the other side. So conservatives are holding their nose because this is budget busting, this is a lot of government spending without, you know, where's the money going to come from? But because they believed that this might be the Trojan horse that lets them sneak inside and demolish a lot of Medicare, which they've never liked. Liberals hate it because they like more benefits, but the benefits aren't very good, and it actually is going to make a substantial number of older people worse off because of details in the bill. But they voted for it in the hope that maybe the Trojan horse elements can be -- you know, won't really happen, and this will be the camel's nose in the tent -- boy, my metaphors are going here -- that lets them, in fact, have a major expansion of the Medicare program. So everybody thinks they're pulling one over on the other side, and somebody is terribly wrong, and this is a heck of a way to run a country.

WILLIAMS: It's the most camel mentions, I will say, to date on this broadcast...

KRUGMAN: Yes, I have to say, I'm getting my humps here.

WILLIAMS: ... (UNINTELLIGIBLE) remember.

KRUGMAN: Sorry.

WILLIAMS: You wrote, in the spirit of all this this week, about the decline of political discourse, evident to anyone who is even a casual observer of things in Washington. Is it not possible any more for 100 senators to get together and say, We're going to shut the doors until we're done, and we're going to do the right thing, and we're going to hold our noses, some of us, and it's going to hurt those of us who are up from -- for reelection, but, boy, the country needs it, and this is going to be hard, and let's do it? Is that -- are those days gone with Jimmy Stewart movies?

KRUGMAN: Yes, I'm not sure they ever really happened. But, no, I mean, this -- the kind of relationship that Lyndon Johnson and Everett Dirksen had is really gone. I mean, you know, there's a story that hasn't been picked up much, which is, it turns out that someone working for Orrin Hatch and the Judiciary Committee was hacking into the Democrats' computers to extract confidential information. If you've got a situation in which senators are stealing each others' files, and you've got a, you know, this vote on Medicare in the House was the -- close to a riot, rather than normally the way the legislation should be passed, these are very bad times. This is a level of partisanship that we haven't seen before. And I -- and if you want to say, Well, you know, OK, be nice to each other, guys, the problem is that there are very, very deep differences. This is ideological divisions. I happen to think that one side is mostly right and the other side is mostly wrong. But the fact is, we don't have a lot of common ground anymore.

WILLIAMS: We've been identifying you while you've been talking as "The Great Unraveling" author, and the punctuation should have been author, comma, "The Great Unraveling." Either way, Paul Krugman, you're nice to join this night before Thanksgiving.

KRUGMAN: Well, thanks a lot.

WILLIAMS: Thank you very much for coming on, Paul Krugman, author, economist, and op-ed columnist. Not much reaction to today's news on Wall Street on this light trading day before Thanksgiving. The Dow was up by 15, closing at 9779. Nasdaq gained 10 points, finishing at 1953. When we come back after a break this Wednesday night, the great American getaway. Millions head home for the holiday. We'll talk with one security expert about potential dangers along the way. And the travel danger that has nothing at all to do with security. It's about a storm on the sun and what that could possibly mean for air passengers. And still ahead, preparations underway tonight for the mother of all Thanksgiving Day events. But how to keep everybody along the parade route safe? We'll be joined here tonight by the man responsible, New York City's police commissioner, when THE NEWS continues.

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Originally broadcast, 11.26.03