SYNOPSIS: A discussion of the disastrous Bush economy and the 2004 Presidential Election

CAFFERTY: All right. We got a lot of politics as you might imagine going through the program today and tomorrow on the eve of the big election. You can judge both of these candidates on their promises, but there's only one way you can judge past performance in the White House and that is of course the performance of President Bush. He says his policies are working.

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GEORGE W. BUSH, PRESIDENT OF THE UNITED STATES: The homeownership rate in America is at an all-time high. More minorities own a home than ever before in our nation's history. The national unemployment rate is 5.4 percent. Let me put that in perspective for you. That is lower than the average rate of the 1970's and the 1980's and the 1990's.

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CAFFERTY: Now for another perspective on whether we're in fact better off now than we were 4 years ago, we're joined by Paul Krugman, who's an op/ed columnist for the "New York Times" and a pretty good one I might add and as well as a co-author of the book "Microeconomics". Mr. Krugman, welcome back to IN THE MONEY. Nice to have you with us.

PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST: Nice to be on.

CAFFERTY: So why so glum? The president points out record homeownership, low interest rates, the economy is growing again. We're producing jobs. The tax cuts put more money in peoples' pockets. What's the problem?

KRUGMAN: First, net loss of jobs, payroll jobs for any president since Herbert Hoover. Duration of unemployment is close. The time it takes on average for unemployed people to find a new job close to its highest level in 20 years. Jobs have been created over the past year but only just about fast enough to keep up with population growth. This is a situation in which a lot of people are hurting. This is a much worse labor market than we had when he came into office and people feel that. The only thing he can point to is the unemployment rate which while it is lower than the average of the '90's, the average of the '90s is kind of perked up by a couple of years under his father and is well below, is well above the unemployment rate when he came in. I think it is - in a way I think he's almost making a mistake by making it seem as if things are really great because people can tell it isn't.

ROMANS: Paul, the White House keeps saying is that he inherited this really unusual kind of merger of really terrible situations, the popping of the Internet bubble and then September 11, a global slowdown and that the White House says he actually managed through that very well.

KRUGMAN: You know, you can always find an excuse. The thing to say is that each year of his presidency, the Council of Economic Advisers come out with an economic report of the president which forecast great job growth starting right now. Those reports come out each February. Each year they forecast great job growth. It hasn't materialized and then they go back and say well, that's because of all these things, but those things didn't seem to affect their own forecast when they were making them. So we're about seven million jobs short of where the 2002 economic report of the president said we were going to be. We already knew about the Internet bubble. We already knew about 9/11 then. What has changed since then to explain why we're seven million jobs short?

SERWER: Paul, there are some other feathers in the president's hat though, including household income which is up and the other thing I want to point to is, isn't it really most important about where the economy is locally in states? For instance, in Florida the economy is actually not so bad. That could help the president. Isn't that the better way to look at it?

KRUGMAN: We can all try to figure out how the politics is going to play and the truth is we don't know anything. I think obviously Ohio is very bad for Bush because it has been hit worse than the average. What is -- the point is it is not a record to be proud of. It is a record you can spin. It's not so terrible that you can't go ahead and try and find some good numbers here and there, but overall let me just put it this way. If a Democrat had this record, oh boy, the Republican chorus about the incredibly terrible performance. It's not a happy record on the economy.

CAFFERTY: To what degree is it unrealistic to put the expectations from our economic welfare on the back of a single man whether it be President Bush or John Kerry or you or me or somebody else. This economy is a giant aircraft carrier that turns very slowly, mostly on the confluence of events that are strong enough to change the direction it is moving. One man can't do anything about this economy, can he?

KRUGMAN: He's had very radical changes in economic policies. And after all, he did say that these huge tax cuts which are the core of them were going to generate wonderful results. You can't push through tax cuts which are really responsible for about two thirds of the fiscal 2004 deficit, $270 billion plus. You can't push through tax cuts on that scale and sell them as these are going to create millions and millions of jobs and then when the jobs don't materialize say the president doesn't have that much control over the economy.

CAFFERTY: The economy is creating jobs now, albeit not at the rate as you suggested that anybody would like. But are you suggesting that tax cuts were not a factor in preventing this economy from slipping into a much worse recession that we might have gotten without that liquidity and the interest rate cuts of the Federal Reserve?

KRUGMAN: Wait, the interest rate cuts of the Federal Reserve, no one in his right mind would deny that that's a big thing, but that would have happened regardless of who was in the White House. The tax cuts, the comparison should -- if you ask would we be better off if nothing had happened, the answer is no. The tax cuts probably have a million more jobs than we would have if nothing had been done. We probably have a million or two million less jobs than if we had a sensible economic program, not one so dominated by supply side or whatever it is, right wing ideology.

ROMANS: I recently did a story talking to all kinds of different business owners and families around the country and basically found that you got to work a little harder to stay even. That's basically what the results of my reporting were. If that's true, if Americans aren't necessarily better off than they were four years ago, then why is John Kerry having such a hard time capitalizing it? Why is he basically deadlocked with the president?

KRUGMAN: Oh, I mean 9/11, 9/11, war. I mean - look, wartime - I wrote about this a few weeks ago. War time can cause people to rally around even the worst leader. The Falklands war caused Argentines to rally around the (INAUDIBLE) junta, which is about the worst government that's ever happened, so it's not a surprise.

SERWER: Paul, going forward and looking at what's going to happen after the election a little bit, with the country so deadlocked and with Congress probably going to be deadlocked and with some signs of the economy actually is not firing on all cylinders, I think you have to say that, even if John Kerry is elected, don't things look actually not so rosy going forward?

KRUGMAN: Oh, if it is Kerry, which I think it will be, but if it is Kerry, he's going to have a very difficult time because he's inheriting an economy that appears to be losing steam, that is still job growth in the last is short the population growth, so it's actually lagging on the thing that matters most. It'll be a big problem and it's going to be very difficult to pass any legislation.

CAFFERTY: If you were asked about creating more jobs in this economy, how would you go about doing it?

KRUGMAN: I think we need -- first of all we need some government spending. The most effective sure-fire way to put money into the economy is to actually spend it, not on wasteful stuff but we have things that we haven't done like protecting ports and chemical plants, homeland security stuff which would be good, killing two birds with one stone. The other thing is tax cuts that are directed towards people who are most likely to spend the money which means lower and middle income people. Tax cuts on dividend income. Tax cuts on capital gains, phasing out the estate tax, worsen the budget deficit without doing anything for the kind of economic problems we now have.

SERWER: Paul, with all the stuff you do, you still have some time to write a new economics college textbook. What's up with that? How do you do that?

KRUGMAN: With great difficulty. I don't have much of a life. My wife doesn't have much of a life either. It is a project launched long before all this stuff started and we're out. It is a great textbook.

CAFFERTY: If you do say so yourself.

KRUGMAN: If I do say so myself.

CAFFERTY: Look, in the interest of sucking up to you a little bit so we can get you back on IN THE MONEY, I also enjoy the pearls of wisdom you put in the op/ed pages of the "New York Times". You're one of the saner voices that I read on a regular basis. Thanks for being with us.

KRUGMAN: Well, thank you.

CAFFERTY: Paul Krugman, "Microeconomics" is the book, the "New York Times" is where he writes his think pieces. When we come back, you only get one shot in an election where even the machines are raising suspicions. See how to make your vote count. Also ahead, learning to love the pink slip. I'm not sure that's possible, but we got somebody who thinks it might be. Find out how some big names who got fired wound up appreciating it when they got a little farther down the road. Halloween haunted house with a point of view. Check out the popularity of the evangelical Christian hell house. Stick around.

Originally broadcast, 10.30.04