SYNOPSIS: Krugman critiques backloaded "stimulus packages," Republican plans for unemployment benefits, and Enron

DOBBS: Congress struggling to come up with an economic stimulus package. There those who say this slowdown, this recession will only worsen if additional tax cuts are approved. And among those who say that is "New York Times" columnist, professor, economist, MONEYLINE contributor Paul Krugman, who joins us now. Good to have you here, Paul.

PAUL KRUGMAN, ECONOMIST: Good to be on.

DOBBS: We have a recession. We have a need for an economic stimulus package. What's the problem?

KRUGMAN: Right now there's just a huge philosophical gap, I guess, is the way to put it, between the Democrats and Republicans. The Democrats feel basically that they were snookered into a huge tax cut most of which comes, you know, late in the decade, leaves them without, you know, basically.

DOBBS: Well, my goodness, Paul. I mean, with the recession starting in March where would we be if they had not done so?

KRUGMAN: Well, the part that we've actually gotten, which is the $40 -- $40 billion in rebates, was -- that was part of everybody's plan. What they're worried about is the -- the big tax cuts in 2006 and later, which they think are holding up long-term interest rates.

DOBBS: Well, now. These are long view-minded Democrats, aren't they, in the Senate to be worrying about 2006? Don't we have something more urgent in the immediate to worry about here?

KRUGMAN: Yeah. Actually, it's not the Democrats who playing the long game here. It's the Republicans. Because they want -- they want to accelerate those future tax cuts to lock them in so that they can't be repealed later on. You know, this is...

DOBBS: You -- your surely are not a proponent of larger government and more spending.

KRUGMAN: Actually, in this case that's not really the point. I mean, they -- the real sticking points are over how much unemployment insurance, how many unemployment benefits...

DOBBS: Right.

KRUGMAN: ...are going to be in, which the Democrats want, and how many business tax cuts are going to be, with the Republican...

DOBBS: Well, House Ways and Means Committee Chairman Bill Thomas says he's perfectly willing to go with the 13-week extension. They're very concerned about those unemployment benefits. Prepared to provide that. Prepared to offer a 50 percent tax credit for health care benefits. Isn't that helpful?

KRUGMAN: Well, there are other funny little things about that proposal. For example, the tax credit is worth almost nothing to most unemployed workers because they're, you know, not in -- in a tax bracket worth. It's worth quite a lot if you're a well-off household and one of your members becomes unemployed temporarily. So you know, it's the kind of thing it's -- it's -- let's put it this way. Huge gap here. I think, you know, if I try to be bipartisan, I'd say both parties want to make sure that this package sets them up for something later on. But the Republicans I think are the really intransigent ones here.

DOBBS: I'm always suspicious with you when you start being bipartisan, Paul.

KRUGMAN: I know, I know.

DOBBS: Let's turn to Enron if we may.

KRUGMAN: Yes.

DOBBS: This is a -- a debacle of immense proportions. The largest bankruptcy in corporate history. Give us your take.

KRUGMAN: You know, the thing that it makes me think of is the Asian financial crisis. You know, what -- what did we say about what was wrong with Asian companies? We said, you know, they're too highly leveraged. Their accounting is not transparent.

DOBBS: No transparency.

KRUGMAN: They rely too much on their political connections. Gosh. You know, Daewoo had nothing on Enron.

DOBBS: Well, in this -- this particular mess seems to have a huge ripple effect. It -- it seems that now there's a class-action lawsuit against Dynegy, which went in trying to be the white knight here.

KRUGMAN: Enron is a tar baby. If you -- if you came anywhere close to it, you're stuck with it.

DOBBS: Don't -- is it your sense that this is a failure of the regulatory agencies? What?

KRUGMAN: Oh, I think -- yes. I mean, this is a failure of -- it's a failure of the SEC, it's a failure of the accounting firms, it's a failure of -- you know they -- Enron got custom-made legislation, which meant that it was a essentially a financial firm not subject of the regulations financial firms face. We are going to spend years picking over this one.

DOBBS: You're -- you're making an interesting point. Because its financial dealings, if you will, in creating assets that were financial structures rather than hard assets, which is of course the norm in the energy industry. Even for those firms trading is remarkable. It worked for a very long time. We also -- I think we should point out we have a very big business failure on our hands, first and foremost.

KRUGMAN: Yeah. I mean, this is -- you know, the worst thing I think you can say about Enron is it looks like a firm that was designed by a business guru. It had all of the slogans that were so popular -- or were so popular a month ago -- put into reality. And unfortunately it -- it busted pretty big.

DOBBS: Paul Krugman, always good to have you here.

KRUGMAN: Good to be here.

DOBBS: Thanks, Paul. Well, coming up next, U.S.troops after Osama Bin Laden. They are dropping bombs on Tora Bora, trying to drive him from hiding. We'll have the very latest for you on that.

Originally broadcast, 12.7.01