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ROBERTS: Brooke Anderson reporting for us this morning. Brooke, thanks so much. America, officially in a recession for a year now. Most Americans don't need to be told that. But what we do want to know is how much longer will it last and just how bad will things get? We're going to put that question to "New York Times" columnist and Nobel prize-winning economist Paul Krugman. A CNN exclusive, one-on-one with former President Bill Clinton, his first interview since his wife joined team Obama and the first time that he's talking about opening the books. 20 minutes after the hour.
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DAVID SEAMAN, PRO-OBAMA BLOGGER AND CNN IREPORTER: I think someone really has to step up to the plate and fix this. And not only that, I think people need to be held accountable. There are people who became extraordinarily rich off of the -- these mortgage scams, giving people mortgages when they knew they weren't going to be able to make the payments. And the same for a lot of these credit card companies. I think someone should be held accountable. And I think we as citizens deserve an answer.
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ROBERTS: Well, most Americans knew it already, but it took us a year to officially say that the country is in a recession. It's already longer than many recessions of the past have lasted, so how much longer is this one going to go on? Nobel prize-winning economist and "New York Times" columnist Paul Krugman has published an updated of his book "The Return of Depression Economics" and he joins us now. Good to see you. Congratulations again on the Nobel Prize. You should go to Oslo next week to receive it.
PAUL KRUGMAN, NOBEL PRIZE-WINNING ECONOMIST: Indeed. I better start thinking about my speech.
ROBERTS: I'm sure you got a lot of other things on your mind, though, such as, you know, how long is this recession going to last? Some noted economists like Nouriel Roubini think it will be 18 to 24 months, which would mean that we're either two-thirds or half the way through it already. Some people think it will be longer. What do you say?
KRUGMAN: Well, you know, I don't know when they'll call in the recession. But, you know, last time was only eight months officially, but the unemployment rate kept rising for 2-1/2 years, and this is a lot worse than that one. So I think we're going to be feeling this into 2010, probably into 2011.
ROBERTS: Now, again, we said the book is "The Return of Depression Economics and the Crisis of 2008." In the book, Paul, you say, quote, "Much of the world, very much including the United States is grappling with the financial and economic crisis that bears even more resemblance to the Great Depression than the Asian troubles of the 1990s," which is where the book starts. You say that you don't think we're going to go into a depression, but then you also add, well, I don't know that for sure.
KRUGMAN: Sure. I mean, if you asked me even three months ago what's the chance of double-digit unemployment, I would have said very, very small. Given the latest data, not so small. In fact, if we don't have a strong policy response, you look at some of the underlying stresses on the system, we would be headed for double-digit unemployment, maybe not 1930s level, but really, really bad. This is the scariest economic crisis I've ever seen in my lifetime.
ROBERTS: So how bad do you think it's going to get in terms of job loss reduction and wages, that sort of thing? And some people predicting maybe 8.5 percent, 9 percent unemployment.
KRUGMAN: You know, left to itself, I would say 11 percent unemployment. Now, the next president is going to come in with a stimulus plan and it's big enough that we can hold that down to maybe eight. But if this was really -- we could be looking at something really terrible. You know, we're losing jobs probably at the rate of 350,000 or 450,000 a month right now. And every month that goes by, it's getting a lot worse.
ROBERTS: Now, President Bush in an interview with ABC News the other day said, hey, don't blame us for all of this, because conditions were set long before we took office. Let's listen to a little bit of what he told Charlie Gibson.
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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: I mean, the president during this period of time, but I think when the history of this period is written, people will realize a lot of the decisions that were made on Wall Street took place over, you know, a decade or so, before I arrived as president, during I arrived as president.
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ROBERTS: You point out at the beginning of chapter 9 that in July of 2007, when the Dow hit 14,000, the Bush administration was quick to claim credit. So, what do you think when you see something like that?
KRUGMAN: I'm not a big fan of President Bush, as you may know. I think, you know, in some ways, this economy that we've got was a long time in building, but there were a lot of key mistakes made during the Bush administration. We just learned a couple of days ago that there were many warnings about the state of the financial system three years ago that came to the Bush administration and were rejected. They said, we don't want to hear about it. We don't believe it. We're not going to do anything to rein in these bad loans. So, you know, no one person is to blame for this, not even President Bush, but he certainly, you know, some share of the blame falls on him.
ROBERTS: Now in terms of what the administration is doing to respond to this, do you have full confidence in their plans? Some people say they don't have a plan.
KRUGMAN: You mean the current administration?
KRUGMAN: No, they've been -- they've been thrashing. They've done some things. It's better to rescue the banks than not, although the rescue has not been well handled. Better to, you know -- they're not doing -- they're not doing a full Herbert Hoover. They're not responding with the same kind of total misunderstanding and obliviousness that he had, but it has not been good. And they are standing in the way of anything to rescue Main Street. They've been doing a lot of stuff for Wall Street, but Main Street as of now, they're still saying, we don't think anything needs to happen and that's wrong.
ROBERTS: So if you were the president's chief economic adviser or the Treasury secretary or the head of the Fed or whatever, what would Paul Krugman be suggesting to be done to get us out of this mess?
KRUGMAN: First of all, big job creation. I mean, the private sector is pulling back. Financial system is a mess, consumer is trying to save again. You've got to fill that hole. Lots of public spending. We have a big backlog of roads that need repairing, bridges that need fixing, new things that need to be constructed that are ready to go, spend a lot on that. Aid to state and local governments because they're cutting back at exactly the worst moment, because their own budget crawled. Aid to the unemployed. All of that helps to keep the economy -- the real economy -- the economy of manufacturing production and jobs from going into a tailspin. And then on much bigger, better designed plan for the financial system, including, you know, if we're going to bail these banks out. We also have to have temporary public control. You can't just say here's the money. By the way, keep on doing business as usual. You have to do more of here.
ROBERTS: And if you were controlling the purse strings in Congress, would you give $34 billion to the auto industry?
KRUGMAN: You know, they're closer to a plan that can be accepted. You don't want the big three going under, at least not now. In the middle of this is a terrible thing, but you really have to -- I think it's going to have to be something that's a de facto to a bankruptcy, whether or not it's officially called one, because essentially you have to be taking these guys into receivership.
ROBERTS: So, you agree a little bit with Mitt Romney on that?
KRUGMAN: Yes, except that it needs much more government support than he's talking about. So, yes, we need to clean out current management but keep them in existence.
ROBERTS: Paul Krugman, it's great to see you. The book is called "The Return of Depression Economics and the Crisis of 2008." Look forward to seeing you in Oslo and hearing that speech.
KRUGMAN: Yet to be written. Yes, maybe I'll make it up on the flight.
ROBERTS: Paul, thanks so much.
KRUGMAN: Thanks so much.
CHETRY: All right. Well, it's just about half past the hour now. We have breaking news in the investigation into last week's Mumbai massacre. The police chief leading the investigation says that the Mumbai attacker spent the last three months in Pakistan training and planning the coordinated strike on India's financial capital.
Originally broadcast, 12.3.08