SYNOPSIS: An interview with Lou Dobbs where Krugman discusses the Bushies and The Great Unraveling

DOBBS: Coming up next here, "The Great Unraveling." "New York Times" columnist Paul Krugman takes aim at -- guess who? -- the Bush administration. He's never done that before. Paul says the right wing is a revolutionary power, and he joins us next. Please stay with us.

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DOBBS: Paul Krugman has a new book. He calls it "The Great Unraveling: Losing Our Way in the New Century." "New York Times" columnist Paul Krugman in that book assembles a collect of columns over the past three years. A central theme, the Bush administration and what Krugman characterizes as a radical political movement. Paul, radical?

PAUL KRUGMAN, AUTHOR: Radical. Look, these guys have led us into a deficit, which is about 25 percent of government spending. About a third of non Social Security budget deficit. There's no way that gap can be closed without massive cuts in social programs or large increases in taxes. And if you look at the people behind -- I don't know what Bush understands -- if look at the people behind they talk about wanting to roll back the great society, wanting to role back the new deal.

DOBBS: What part of the new deal has been rolled back?

KRUGMAN: Nothing has happened yet.

DOBBS: So, what would you have the government do? A war against terror, caring out operations in Iraq and Afghanistan with, whether you agree with them or not, the policy of the country, how is he going to pay for it?

KRUGMAN: Look, next year the tax cuts, the Bush tax cuts will subtract about $280 billion from government revenue. That dwarfs even the $87 billion that we were suddenly sprung on us for the Iraq war. So, the truth is, the budget crisis is much more the result of tax cuts than special demands is.

DOBBS: But, in that assumption, you as a Princeton economist extraordinaire, if I may say, know that that money will be in private hands and we could see with an uptick here more than that moving...

KRUGMAN: In fact...

DOBBS: I think that's wishful thinking.

KRUGMAN: That's enormously wishful thinking. The Congressional Budget Office has -- the White House's hand picked economist heading it and he doesn't think so. This is not -- this is wildly irresponsible policy unless the intent is to starve the government programs.

DOBBS; Starving government programs, this administration has expanded government farther than any administration.

KRUGMAN: Not really in new programs.

DOBBS: Budgets scale...

KRUGMAN: They're sloppy.

DOBBS: I've got to ask you this, because I am, as you know, a faithful reader of your column. Is there anything the administration's ever done that you like? Just one.

KRUGMAN: It's pretty rough. You know, my colleagues at Princeton said, say something nice about them. I said what. They said free trade. They're not free traders. I'm a better free trader than Bush is. Clinton was a better free trader than Bush is.

DOBBS; Well, we're trading away $503 billion in the last current account deficit. How free do you want this trade to get?

KRUGMAN: Oh, come on. The current account deficit is a reflection of budget deficit, of irresponsible policies at home.

DOBBS: The deficit at that point was only $200 billion. We're double that now. What's going to be next year?

KRUGMAN: Well, it's amazing. I wonder what if those numbers have been understated, too.

DOBBS: You and I both know the numbers are probably understated and totally -- I shouldn't say totally, but definitely not the absolute reading...

KRUGMAN: Well, a lot of what you why talking about outsourcing, I don't think that's showing in the commerce department numbers.

DOBBS: Not yet. In terms of the Bush administration's next step which is to move into solid recovery, job growth in 2004, preparing for a tremendous victory, is that the way you see it in 2004 presidential election?

KRUGMAN: You know, state of the economy right now technically, I would say it is weird. Different numbers pointing different directions, job numbers, output numbers, that's going to get reconciled. I don't know which direct.

DOBBS: Paul Krugman, thank you for joining with us. The book is "The Unraveling of America." I thought you'd find one nice thing to say about president George W. Bush.

KRUGMAN: I found it pretty hard.

DOBBS: Good to have you here with us, Paul.

KRUGMAN: Great.

DOBBS: A reminder to vote in our poll. The question, whom do you believe is most out of touch on the issue of Iraq, the media, U.S. consumers, Defense Secretary Donald Rumsfeld. Cast your vote at cnn.com/lou. We'll have the results coming up shortly. Coming up next, "Grange On Point" tonight, the unfair burden being carried by thousands of our reservists and members of the National Guard. General David Grange is next. Stay with us.

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Originally broadcast, 10.2.03