LOU DOBBS MONEYLINE, October 24, 2001: Interview with Paul Krugman

SYNOPSIS: A discussion of war bonds and other opportunistic legislation that takes advantage of the September 11th terrorist attacks

HOPKINS: Thanks. Tim O'Brien in Washington. It seems one of the best-intentioned of proposals may be to sell war bonds to help Americans fight the war against terrorism. After all, the government has used bonds to cover its costs since the Revolutionary War. But Princeton economist Paul Krugman is critical of the war-bond proposal passed in the House yesterday. Writing in today's "New York Times," he calls for a ban on the bonds. Paul Krugman joins us now. So what's the problem?

PAUL KRUGMAN, "NEW YORK TIMES" COLUMNIST: War bonds -- you know, the government is going to issue bonds. It does that all the time. War bonds are what you do when you want people to pitch in and make a common sacrifice, when the government is short of money. And as we just saw in that previous segment, at least the House of Representatives, which also passed a bond measure, thinks the government has plenty of money. Hey, you can hand out 25 billion with no strings attached to big corporations. So this -- this just feels bad. This is just going to feed cynicism if we start having war bonds at the same time that we're, you know, the government is not at all short of money.

HOPKINS: But presumably, the government is going to have to sell bonds in order to pay for the stimulus. Why wouldn't you call it war bonds?

KRUGMAN: Well, first of all, you can buy those bonds. Those bonds are fine. War bonds can be one of two things. They can either be ordinary bonds that just have a little logo on them that says "War Bonds," in which case it's just like that "United We Stand" postage stamp that we have now. You know, fine, but it doesn't make any difference. Or there are bonds that actually offer a lower rate of return, in which case you're saying that, you know, people who are foolish enough to buy these low-return bonds, which is going to be ordinary people and not big investors, are out there subsidizing -- well, what? They're not subsidizing the war effort. The federal government has plenty of money for that. They're subsidizing things like these big tax breaks for corporations. It's just not something you want to do. It's just -- it's a symbol that can so easily turn into a sick joke as you look at what's happened over the last, you know, a year from now. It's really just not something that we ought to do right now.

HOPKINS: You know, it's interesting, though: We have very different bills passed by the House and the Senate. So what's likely to really come out of this stimulus? All of the tax cuts or not very many of them or what?

KRUGMAN: Frankly, I just don't know. I mean, the House bill was so extreme. I mean, there's almost kind of admirable purity in it. You know, we've been saying for years why doesn't Congress just drop the pretense and just give, you know, large checks to the corporations with the best lobbyists. And that's what they just did. They -- you know, these are no strings attached. $1.4 billion to IBM with no requirement that they stop layoffs, no requirement that they invest. That is so different from what the Senate Democrats think a stimulus package ought to look like that I don't know how you reconcile this.

HOPKINS: But it may be you end up some place in the middle.

KRUGMAN: Well, you know, it's a long ways apart. You know, the -- as I understand the Senate Democratic proposal, has got about 33 billion in help for the unemployed in the form of unemployment benefits and health benefits. This House bill, if I understand correctly, has got about 3 billion. So, you know, we're talking about a ratio of 10 to 1 on that side. And of course, we have this enormous corporate tax -- corporate rebate really on the other side. That's not something you easily negotiate away. It's not something you say, well, let's split the difference. These are philosophically completely in different universes.

HOPKINS: Lots of argument ahead. Thanks. Paul Krugman of Princeton University. Coming up on MONEYLINE, the attacks against the United States left many families in need of financial aid. But some aren't getting it. We'll tell you where the money is going.

Originally broadcast, 10.24.01