SYNOPSIS: Krugman debunks the myth of Bush's honesty and moral superiority

HOPKINS: Thanks very much, Bill Schneider. My next guest has some big questions about President Bush's business dealings. He says that Mr. Bush has made a policy of using integrity as a selling point, but he says unanswered questions about Harken Energy and other issues suggests that the president is, quote, "not whom he presents himself to be," end quote. "New York Times" columnist and MONEYLINE contributor Paul Krugman joins us now. He's also an economist and sometimes resides at Princeton University. So, actually, Paul, I want to ask you first about Bill Schneider's question -- when does the stock market start affecting the economy?

PAUL KRUGMAN, NEW YORK TIMES COLUMNIST: The answer to that is God knows. I mean, it's a very complicated issue, and we really don't know. It's in some ways amazing that consumers have stuck it out up to this point. You have to think that the headlines, you know, that tomorrow morning a lot of consumers are going to sit down over their coffee and say, you know, shouldn't we be trimming back a little bit, but nobody knows that for sure.

HOPKINS: But a lot of people thought that was going to lead to a huge sell-off today. There was a sell-off, but it wasn't huge.

KRUGMAN: Well, by the end, it was pretty impressive. The basic answer is we really don't know. We are really in the realm of mass psychology here, and it's very difficult. Let me just point out that even before the sell-off in the markets, the economic prospects were looking not bad, but they weren't looking great. I mean, it was looking like a jobless recovery, not like a rip roaring boom.

HOPKINS: Let's go back to the things that you've been talking about, which is the president and Harken Energy. The president and the administration says this is old news, investigated by the SEC and we should move on. Why do you keep bringing it up?

KRUGMAN: Well, I mean, first of all, it's not as old as Whitewater was when it was such a subject for the Clintons. It also doesn't end with Harken. I mean, if you really ask me what I think is most questionable in President Bush's record, it's the things that he did once he was governor of Texas. It's the stuff that involves the Rangers, it's the stuff that involves very strangely good deals for some of his business associates from state agencies, and so on. There's a lot in there, well reported in the local Texas press, never reported in the national media. I think, you know, this is an administration that, to an extent, I think that's unprecedented, has used what you might called cult of personality as its answer to a lot of things. If you said, gee, those budget numbers don't add up, that Social Security plan doesn't make sense, the answer was always, but the public trusts the integrity, honor and integrity in the White House. If it turns out, as I think it's true, that, look, this is kind of a funny record. It's not clear there's anything illegal in there, but it definitely looks like, you know, what we call crony capitalism in other countries, I think that has some bearing. It certainly says that we are entitled to ask for more than simple assurances that Mr. Bush is a great guy and he'll take care of everything.

HOPKINS: What about Mr. Cheney, the vice president and Halliburton? The SEC is looking into this. It's not an official investigation yet, but do you think there's something there?

KRUGMAN: Well, there was -- there appears to have been a change in accounting that is, you know, part of this general picture. I think the most interesting thing about the Halliburton story is not so much whether illegality is found as that, you know, Dick Cheney was sold to us as this great manager, you know, the CEO who really knew how to run things, and what's now becoming clear, whatever the outcome of the SEC investigation, is that he did a pretty mediocre at best job at Halliburton.

HOPKINS: And maybe made a huge mistake in buying Dresser Industries, which now gives him a lot of asbestos liability.

KRUGMAN: Yes. I think, you know, the real revelation here, which should have been obvious, but somehow we weren't noticing, is that this is the CEO administration. This is the businessman. And aside from Paul O'Neill at Treasury, none of them is what I would call a real businessman. All of the high-level business people are really, again, crony capitalists.

HOPKINS: Paul Krugman, "New York Times" columnist, MONEYLINE contributor and professor at Princeton University, thanks for joining us.

KRUGMAN: Thank you.

HOPKINS: Coming up on MONEYLINE, President Bush today pushed his plans for a Department of Homeland Security, but many businesses are worried about the cost of the new security measures. We'll be joined by Philip Howard, author of "The Common Good."

Originally broadcast, 7.22.02