SYNOPSIS: An interview on Hannity and Colmes where Krugman discusses the Bushies and The Great Unraveling. As Al Franken might say, Mike Gallagher is the alpha male to Colmes' zeta male. . . . Well, not really -- actually Gallagher proves to be far more inept than Colmes in this one, especially when citing the very troubled Krugman-stalker, Donald "Hinckley" Luskin

COLMES: Coming up on HANNITY & COLMES, what did 18 years in Congress teach Dick Armey about life? Well, we'll hear some of Armey's axioms. But first, we are joined by the author of "The Great Unraveling: Losing Our Way in This Great Country." Paul Krugman writes for "The New York Times," teaches economics at Princeton. Thanks for being with us.

PAUL KRUGMAN, "THE GREAT UNRAVELLING": Glad to be on.

COLMES: Thank you for being here. What do you mean, the great unraveling? What does that refer to?

KRUGMAN: Look. In the end of 1990's, it seemed like we had our act together. We had a budget surplus. We had a successful economy. We had the lowest unemployment rate in 30 year. We seem to have gotten rid our problems and it since then, it seems like it's all come apart. We've got the biggest budget deficit in the history of the planet. We've had one month of job gains and everybody is shouting hooray.

COLMES: You've been very, very ardent in your prose about blaming the Bush administration. You've gone beyond that, though. Do you think they're beyond just wrong, but they're also corrupt?

KRUGMAN: They lie a lot. I mean, we can certainly say they lie a lot. Every part of their economic policy has been sold with falsehoods, with things that just aren't true.

COLMES: This drives conservatives crazy when you use the "L-word."

KRUGMAN: I know. But they used it so often. But I've got the goods, you know. I've got the facts.

COLMES: How can you prove a lie? Can prove that they lied?

KRUGMAN: Oh, sure. Look, when Bush in his State of Union said 92 million Americans will receive an average tax cut of $1,000, it turns out that half tax payers either received nothing or less than $100. There was a technical sense in which what he said was true but it was designed to mislead.

COLMES: A median tax cut, not an average tax cut.

KRUGMAN: That's right. When Bill Gates walks into a bar, the average net worth of the patrons rises by a few billion dollars, but that doesn't mean that the typical patron of the bar has got a billion dollars.

COLMES: You have said...

KRUGMAN: That's what he just did.

COLMES: Conservative coalitions in this country are destroying what FDR built.

KRUGMAN: That's right. After the Bush tax cuts, given the other burdens, we're just not taking in enough revenue to maintain Social Security and Medicare. It's just not enough. The U.S. government is taking in -- it's about 25 percent deficit of about 25 percent is spending. The voters in California went crazy over a deficit that was 10 percent to state spending. What Bush has done for the federal budget is 2 1/2 times worse than anything that Gray Davis did.

COLMES: We keep hearing the economy is turning around. We keep hearing that now the stock market has been going up. The job growth seems to start happening. Unemployment is getting better.

KRUGMAN: Yes, the stock market has predicted nine of the last five recoveries. Yes, we've had 50,000 jobs gained last month. That's not even enough to keep up with population growth.

COLMES: But the tide could be turning, correct?

KRUGMAN: It could be turning. It could not be turning. We had three tax cuts: 2001, 2002, 2003, lost hundreds of billions of dollars in lost revenue and we one month of good news and everybody says see, Bush's plan was right. Isn't that a little funny?

GALLAGHER: Mr. Krugman, the "Seattle Times" writes of you, to understand the adulation that liberals are heaping on you these days, picture William Shatner walking into a Star Trek convention. You clearly have been embraced by the left and the liberal ideology that a lot of us conservatives have a real hard time with. You've also said -- you talk about things that are truth. You call President Bush a recovering alcoholic who has fallen off the wagon. Of course, you...

KRUGMAN: I never said that. I don't know where you're getting that from. I never said that.

GALLAGHER: PoorandStupid.com. I mean, is that...

KRUGMAN: PoorandStupid.com. That's a stalker. That's a guy who actually stalks me on the Web and once stalked me personally.

GALLAGHER: No, it's an interview with you online. But I brought it up in terms of talking about. Well, let's talk about something else...

KRUGMAN: I never said that.

GALLAGHER: OK. Well, apologize if the website misattributed that. Let's can ask about the assertion at this PoorandStupid.com, which does track all the things you say and researches them and checks them.

KRUGMAN: And gets it wrong all the time. Is this the best you can do? Go after some crazy Internet person?

GALLAGHER: Let's ask you, though, about your record. How about your lecture at the University of California San Diego where you encourage your audience to vote for any of the Democratic candidates. Doesn't that...

KRUGMAN: No, I didn't say that. But it doesn't matter. In any case, the point is -- I'm not allowed. I mean, I couldn't have said that because I'm not allowed.

GALLAGHER: Right, but you're allowed to call the -- you just said here with Alan that the president is a liar. Are you allowed to do that? Does "The New York Times" permit you to call the commander in chief a liar?

KRUGMAN: Look, it permitted my colleague William Saffire to call Bill Clinton a liar many times during his presidency.

GALLAGHER: But you've evolved as an economist into this sort of activist for the left and Democratic ideology. And I wonder, doesn't that violate "The New York Times" own code of conduct? The newspaper's neutrality?

KRUGMAN: I'm an op-ed columnist, opinion, opinion, right? Bill Saffire -- Bill Saffire has -- If I were writing in the business section, economic news articles, then I'd have to do something totally different. You're trying to apply to me a standard you would never think of applying to Bill Saffire or to George will. Come on.

GALLAGHER: No, no, no. I think it's a fair statement.

KRUGMAN: You guys want to set the rules so that only your side is allowed to have strong opinions.

GALLAGHER: What would you recommend, then, as somebody who loves America, like I'm sure you do, and supports our country? What would you suggest President Bush do that he hasn't done in terms of this economic recovery? His poll numbers are going up. Most Americans appreciate the job the president is doing. What specifically would you do to advise him, as his economic advisor?

KRUGMAN: Aid to state and local governments. In recessions, you always provide aid to state and local governments. So you're not laying off schoolteachers, firemen and policemen. This president hasn't done that.

GALLAGHER: What do you like about what he's done? What do you like about what he's done?

KRUGMAN: I actually have had -- I thought taking Kabul, driving the Taliban out of Afghanistan, was a really good thing. I wish he had finished the job, instead of swinging off to do something else. That's about it. I'm sorry, but this has been the worst administration in 200 years, and a lot of moderate people, a lot of moderate economists, will agree with me on that.

GALLAGHER: It's fair to say, though, that you have married this idea of being an economist and a professor and this professorial approach you've taken into kind of a real strong ideological opposition to the president. Is it hard to mix those two worlds together, Professor?

KRUGMAN: No. I have opinions as a citizen, and when I write about economics I always make sure that the facts are right and the opinions are honest. And what more can you ask from me? You want me to be quiet when I see...

COLMES: We just found out it's OK for a general to say very controversial things. I think it's OK for you to do them. Thanks very much for being with us. See you on radio later tonight.

KRUGMAN: Thank you.

COLMES: Coming up next, Dick Armey spent years in Congress enraging Democrats with his confrontational statements. Will "Armey's Axioms" get this liberal fuming? And is President Bush a liar? Well, David Corn builds the case against the president in his new book. It's coming up on HANNITY & COLMES

Originally broadcast, 10.17.03