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KATE SNOW (ABC NEWS): And joining us now from Washington, as well, is Paul Krugman, 2008 winner of the Nobel - Nobel Prize in economics and author of the new book, 'The Return of Depression on Economics and the Crisis of 2008." Good morning to you.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Good morning.

GRAPHICS: SAVING THE ECONOMY

GRAPHICS: CAN OBAMA'S PLAN WORK?

KATE SNOW (ABC NEWS): So, is Obama, do you think, proposing a new New Deal here? And if so, will it work?

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Well, it, it is certainly along the lines. Now, it's a lot smaller. I mean, this is about half as many jobs as, as the Works Progress Administration during Roosevelt, and it's, and, you, you know, we got three times as many workers now, so it's not, it's not on the scale of what Roosevelt did. But it's in that direction. It will work. I'm actually worried it might not be big enough, but he's certainly moving in the right direction.

KATE SNOW (ABC NEWS): 2.5 million jobs by 2011. So what's the connection between creating jobs and fixing the mess on Wall Street? Is there one?

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Well, it, it's, it, we've got both a mess on Wall Street and a mess on Main Street, which are feeding on each other. We've got a collapsing banking system, which is pulling the economy down. The economy is going down, which is hurting the, the, hurting assets, leading to defaults, hurting the banking system. So you've got to work on both fronts. And this is only half of it. This is the Main Street side. But we haven't really done anything on Main Street.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): We've been doing, pumping money into the banking system. Now he's taking the other side. It's a very good sign. I mean, he is, he is saying, 'Okay, you know, we haven't seen anything like this since the 1930s, but now, we are seeing something like the 1930s and we need to do big stuff."

KATE SNOW (ABC NEWS): How much like the 1930s is it? I think that's the question sort of looming in a lot of people's minds.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Yeah.

KATE SNOW (ABC NEWS): Are we really in that kind of situation, a Great Depression?

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): No, it's not a - Great Depression, at least not yet, but it is depression economics, which is why the title of my book. The usual medicines that we take for a recession are not working. Normally, the Federal Reserve cuts interest rates. It's done that. It's cut interest rates almost to zero. That hasn't taken effect. We've got a collapsing banking system, as we did in the '30s. We've got, you know, we, we tried tax rebates. People didn't spend them because they're nervous. They, they hung on to them. So, we are in a situation where depression-type economics is prevailing, even though it's not a depression. And depression-type solutions, public works spending is the answer.

KATE SNOW (ABC NEWS): You've been talking a lot in your columns about a power vacuum in these last couple of months of the Bush administration. How concerned are you about that? Do you, do you think President-elect Obama should be doing something now, urgently, as far as forcing policy change?

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Well, this only, you know, as he says, and it's true. There's only one president at a time. We have this constitution, and he hasn't taken office. And also, Congress, the Congress is gonna be more pro-Obama, you know, in the next one, than the one, the lame duck Congress now. He's, he's certainly making statements that are going to, I think, I think this weekend's speech is probably good for confidence, but it's a worry. I mean, we could quite possibly have lost another 800,000 or even a million jobs by the time he takes office. So a lot is happening in this very short stretch of time.

KATE SNOW (ABC NEWS): And just one last - historical question. FDR got us out of the Great Depression, or was it World War II that really got us out of that situation?

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Yeah, FDR led a lot of economic recovery between 1933 and 1937. Then his advisers convinced him it was time to get orthodox again, and he cut back. He cut the WPA in half, and the economy slid again. So what actually brought us out of the Great Depression was a giant public works program known as World War II. So, FDR really was, hard to believe this, but he was too cautious, given the scale of the problems he faced.

KATE SNOW (ABC NEWS): So, that would be your lesson, I suppose, for, for President-elect Obama.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Go big.

KATE SNOW (ABC NEWS): Go big. Okay.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Go big, go wide, everything.

KATE SNOW (ABC NEWS): We'll leave it at that. Paul Krugman, thank you so much for your insights this morning.

PAUL KRUGMAN (2008 ECONOMICS NOBEL WINNER): Thank you.

Originally broadcast, 11.23.08