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DOBBS: Steve, thank you very much. Steve Young. "New York Times" columnist and MONEYLINE regular contributor Paul Krugman has been on the offensive against the president and his past business dealings. Today, no exception. Paul Krugman joins us now. Paul, good to have you here.

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

DOBBS: I'm getting the sense, as I'm sure many of your readers are, that you really just don't like this man, President Bush.

KRUGMAN: Let me put it this way. There's a -- no administration I can remember has tried so hard to make the president's character a substitute for concrete action, that when I was -- when the corporate scandals began to erupt, I had a great concern, which I still have, that the administration was going to substitute histrionic outrage for real action, and then they were going to say, here is -- we have a man of character, trust him. The fact is he's got a murky business career. There's probably nothing illegal in there, but it's not the image that the administration wants you to believe in.

DOBBS: Well, how do you contrast that to, say, Bill Clinton, who had no business career?

KRUGMAN: Well, that's the point, right? We had a seven-year, $70 million investigation over a failed land deal for Clinton. Here, we have someone who got rich through -- look, when I -- back in January, I said, look, the administration's top officials including Mr. Bush are crony capitalists. People said, bah humbug. Now everybody says, oh, of course, but is there anything wrong with that. That's a big shift in perceptions. And why didn't we know this before?

DOBBS: Yes, why didn't we know it before. There's so much I suppose that we could know. But the fact is where do you see this president really falling short in terms of meaningful action on the economy, for example?

KRUGMAN: I mean, look, we have a very -- the economic policy we have such as it is, is to find new rationales for a tax program that was devised as a political device back in 1999 to ward off Steve Forbes. I mean, we don't have a lot of concrete economic policy here.

DOBBS: OK, but, Paul, certainly you would not be suggesting, as Bob Rubin did recently, that we would, in the face of recession, should be raising taxes.

KRUGMAN: Bob Rubin didn't suggest that either. He suggested canceling the tax cuts that are scheduled later in the decade, which I think is an excellent idea because those tax cuts later in the decade make no sense given what we now know about the budget picture.

DOBBS: The budget picture influenced not simply by tax cuts, but also by a war against terror, right?

KRUGMAN: Wait a second. If you have an emergency and you have an extra set of expenses that weren't part of your story, don't you think you need to change your plans a little bit?

DOBBS: You're asking me?

KRUGMAN: I think they do. The point is, this is all -- you know, we need to keep this guy a little bit under pressure.

DOBBS: Well, I must say that you would seem to be doing precisely that. And, Paul, we thank you for being here and, as always, keeping it interesting.

KRUGMAN: Thank you.

DOBBS: Paul Krugman. Coming up next, Cisco Systems CEO John Chambers will be talking about some results that he has to be very pleased with. Stay with us.

Originally broadcast, 8.6.02